Yichusdik
“A few responses, as this is part of what I do for a living. DOn’t know if it is the same elsewhere, but where I live, our CRA (Like your IRS) determines an acceptable proportion of expenses to be spent on administration. It has an acceptable level, a “flagged” level, and an unacceptable level. I imagine the IRS is the same.”
The IRS has not written what is in fact an appropriate level of Program expenses vs. administration and fundraising. And the truth is, it varies tremendously by the type of organization and legitimately so.
Some of the rating agencies have established percentages, but that may be arbitrary anyway. They do not seem to account for the differing type of charitable organization. (According to accounting rules, the costs of leveraging volunteers and in-kind gifts is a fundraising cost.[ FASB ASC 958-720-45-9&10 and TIS Section 6140.11] Accordingly, an organization that utilizes a lot of volunteer time and uses a significant amount of their paid resources to get the volunteers involved, would have a very high fundraising percentage if they report correctly. Think a Big Brother type of organization. Alternatively a free loan organization could have very high administration costs because the loans are not an expense and typically revolve) And there is tremendous inconsistency in how that percentage is determined or calculated. In NYS, EO 38 attempts to define a percentage but that is up for interpretation would only apply to those receiving funding from specific state agencies.
However, what is clear is that that the cost of fundraising events is excluded from these calculations and that the revenues from fundraising events is reported net of expenses on the 990. In fact, the contribution portion of special events (amounts above the benefit received by the participant)is not included in the fundraising event income and therefore often the event(s) will report a net loss (on part VII of the 990 and on schedule G, though you can reconcile the amounts).
Either way, the costs of the events are not included in the calculation fundraising percentage of the organization by any of the rating agencies.