Guide to Car Donations for Charities
Thinking about donating your car? Our Guide to Car Donations covers six key things to know, FAQs, and a list of BBB Accredited Charities that accept vehicle donations.
Wise Giving Wednesday: Joint Cost Allocation
Joint cost allocation may be a technical accounting concept, but it has real implications for how charities report expenses, demonstrate accountability, and build donor trust.
What Is Joint Cost Allocation?
Sometimes charities communicate with the public in ways that inform and inspire action while also asking for support. But when a single communication serves multiple purposes, how should those costs be reported?
Joint cost allocation is an accounting method that may be used by charities to allocate the costs of activities that combine programmatic or educational content with fundraising.
The original guidance was issued by the American Institute of Certified Public Accountants in Statement of Position 98-2 and is now codified in the Financial Accounting Standards Board Accounting Standards Codification (ASC) 958-720.
When Can Charities Use Joint Cost Allocation?
This accounting method is intended to allow organizations that genuinely conduct programmatic activities through combined communications (such as direct mail) to more accurately report their functional expenses.
For example, an educational newsletter that includes a solicitation for donations and a qualifying call to action may qualify for joint cost allocation, provided the activity meets specific criteria related to purpose, audience, and content.
- Purpose: The material must have a genuine programmatic or educational purpose in addition to fundraising.
- Audience: The audience should not be selected primarily based on their likelihood to donate, but should include individuals who have a reasonable interest in the programmatic content.
- Content: The materials must include a clear “call to action” that encourages the recipient to take a specific action furthering the organization’s mission, other than making a donation. Examples may include contacting an elected official, supporting a public policy initiative, or seeking assistance from a medical or social service provider.
It is important that organizations apply joint cost allocation appropriately and only when the materials meet the criteria established by Generally Accepted Accounting Principles (GAAP), rather than using it to misclassify or overstate program expenses.
How BBB Standard 13 Applies to Joint Cost Allocation
BBB WGA Standard 13 calls for charities to accurately report their expenses and specifically addresses joint cost allocation. See all 20 BBB Charity Standards
When organizations report joint cost materials (such as mailed solicitations or telemarketing scripts) with more than 50% allocated to program expenses, this prompts additional review. As part of our evaluation process, organizations may be asked to provide copies of joint cost materials annotated to identify calls to action and to show how costs have been allocated among program, fundraising, and administrative functions.
Issues that may result in a charity not meeting Standard 13 include the absence of a qualifying call to action, failure to meet the purpose or audience criteria, or over-allocation of costs to program activities.
For more information, we encourage you to review our expanded guidance on joint cost allocation.
Accurate Expense Reporting Matters
Joint cost allocation may be technical, but its proper implementation matters: it helps ensure financial reporting reflects reality and builds donor trust.
Recent Reports
We are always working with charities to publish or update reports for donors. Visit Give.org to check out any charity before giving. Our recently evaluated charities include:
Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.
