Vol. V, No. 4
July - August 1997
AICPA New Accounting Standards Could Make Direct
Mailers Look Bad
Bad ideas never die, they are just
repackaged.
The American Institute of Certified
Public Accountants (AICPA) and the Financial Accounting
Standards Board (FASB) are moving forward with a plan to
change the accounting procedures and rewrite the rules by
which nonprofits are audited to make groups which use direct
mail look bad. Instead of classifying the educational
portion of a multi-purpose mailing as educational (or
program), and the fund-raising portion as fund-raising, the
new rules would require that most mailings that contain a
request for funds be classified entirely as a fund-raising
expenditure.
As we predicted in October 1995, the
AICPA ignored the overwhelming number of objections and
adopted the Exposure Draft, which was cleared by FASB. This
proposal would modify the existing rules (Statement Of
Position 87-2) governing the allocation of joint costs by
nonprofit organizations where fund-raising is part of the
expenditure. Of the 300+ written responses that AICPA
received by early 1994, reportedly 90 percent (and 98
percent of the nonprofit organizations, including FSC and
many of its members) opposed the proposal.
It now appears that the AICPA will ignore
the nearly universal opposition to its new accounting
standard &emdash; and the public will NOT be permitted to
see or comment further on the draft document, even though
its impact on nonprofits will be significant. Joel Tanenbaum
of the AICPA advised that only a limited number of AICPA
members are being permitted to review the document. Based on
latest information, the final form of the new procedures
(SOP 87-2) will be issued in November 1997, and become
effective for fiscal years that begin after June 15,
1998.
The proposed changes indicate at least
four ways (see draft flowchart on page 2) in which all costs
are attributed to fund raising and none to educational
activity, even if some or all of the contents of the letter
are educational in nature. That doesn't sound like "joint
cost allocation." As FSC said when the first draft was
issued in 1993, "by proposing to virtually abandon
allocation of joint costs where fund- raising is one of the
functions, [it] abandons precedent and common
sense."
What do the new standards mean for
nonprofits? FSC obtained a flowchart analysis of the
proposal. Under new draft criteria, "[if] a majority
of compensation or fees of any party performing a component
of the discrete joint activity vary based on contributions
raised for that discrete joint activity," then the entire
cost of the activity [mailing] should be charged to
fund-raising. In other words, if a nonprofit uses
professional fund-raisers who are compensated based on the
performance of the nonprofits' solicitation, the entire
cost, regardless of how much of the mailing is educational,
would be attributed to fund-raising.
The standards, while promulgated by a
nongovernmental entity and not subject to public disclosure
and review, are tantamount to government regulations.
Some nonprofits are evaluating a legal
challenge to any such new accounting standard, although it
is not clear at this time how much support is available for
such a lawsuit. FSC will continue to keep members posted on
developments.
Under the new AICPA proposed "joint
allocation" formulas, nonprofits' who use direct mail to
garner support, may find themselves having to attribute 100
percent of their costs to fund-raising.
Senate Expands List of Targeted Nonprofits
The U.S. Senate's Special Investigation
into illegal and improper activities by nonprofits during
the 1996 Federal elections has expanded. A number of
nonprofit issue advocacy organizations were issued subpoenas
on July 30, 1997. Those requested by the Democratic senators
include,
American Defense Institute
American Defense Foundation
National Right to Life Committee
Citizens for a Sound Economy
Christian Coalition
Better America Foundation
The American Cause
The Coalition: Americans Working
Women for Tax Reform; for a Real Change
The Heritage Foundation
Citizens Against Government Waste
Those subpoenas requested by the Republican senators
include,
National Education Association
Teamsters
National Council of Senior Citizens
Citizen Action
Sierra Club
Democratic Leadership Council
Emily's List
Association of Trial Lawyers of America
National Committee for an Effective Congress
Americans United for Separation of Church and
State
Dragging nonprofit issue advocacy organizations before a
Senate panel can serve to stifle the freedom of Americans'
to exercise their First Amendment rights.
As nonprofit groups are hauled before the
Senate Committee, it is important to remember that there
will be attempts by both political parties to exploit the
fact that organizations have political ideas that may not be
in the mainstream, and to use this as an excuse to
clamp-down on all nonprofit advocacy groups. We encourage
Free Speech supporters to support all political speech.
Remember, the free speech you save may be your own!
Legal Analysis in Opposition to Senate Subpoenas
Released
As part of FSC's ongoing aid to
nonprofits who are targets of the U.S. Senate's Special
Investigation related to campaign finance reform, FSC legal
co-counsel, Mark Weinberg, Esquire, has released his
comprehensive analysis of the Constitutional issues raised
by the precedent-setting subpoenas. Michael Boos, Legal
Director of the National Citizens Legal Network, prepared an
analysis which complements that prepared by Mark Weinberg
and reviews court decisions regarding earlier Congressional
subpoenas.
Weinberg and Boos give practical advice
to targeted nonprofits. The Weinberg article is available on
the Internet at: http://wjlaw.com/senatesubpoenas.html. To
obtain a copy of the Boos memo, call the National Citizens
Legal Network (703-352-4788) or the Free Speech Coalition
(703-356-6912).
The Free Speech Coalition was one of the
first advocacy organizations to alert nonprofits about the
chilling effects the Senate's special investigation would
have on freedom of speech, assembly, association, and to
petition the government for a redress of grievances. FSC's
last two newsletters have dealt extensively with recent
federal government attempts to limit or restrict American's
advocacy rights.
Additionally, two FSC members, Doug
Johnson and Mike Beard, recently collaborated in writing a
white paper about election law reform and issue advocacy,
titled, "Campaign Reform: Let's Not Give Politicians the
Power to Decide What We Can Say about Them." For a copy of
this report, please contact FSC.
Court Strikes Down L.A. Law Limiting Solicitation to
Registered Nonprofits
A Los Angeles ordinance limiting
solicitation for donations to registered non-profit
organizations was found to be unconstitutional. The 9th U.S.
Circuit Court of Appeals ruled on August 25, 1997 that a Los
Angeles Municipal Code section cannot be used to ban
unlicenced nonprofits' free speech. In Perry v. Los Angeles
Police Department, Judge Cynthia Holcomb Hall wrote that two
plaintiffs, one an incorporated nonprofit and one an
unincorporated group were both participating in protected
First Amendment expressive activities when they were charged
under the ordinance. Judge Hall wrote:
There is no evidence that those without
nonprofit status are any more cumbersome upon fair
competition or free traffic flow than those with nonprofit
status. There is no justification for allowing those with
membership in a nonprofit organization to sell items and
solicit donations, while disallowing those with no nonprofit
membership from the same activities. Perry v. Los Angeles
Policy Department, 96-55545, 9th U.S. Circuit Court of
Appeals (emphasis added).
REMINDER:
If you have not yet responded to Edythe Ledbetter's
letter (regarding the lawsuit seeking to have the Utah
Charitable Solicitations Act declared unconstitutional),
please send your contribution. We must file the amicus brief
by October 25. This federal court decision will affect us
all.
Politicians' Reason for Limiting the First Amendment,
Part 1
I think informing the public is
perfectly legitimate. But to launch an [issue based]
attack on me or, in this case, Senator Feingold, in my view,
is their participation in a political campaign, and
therefore, they might be subject to some kinds of
limitations.
U.S. Senator John McCain (R-AZ)
Meet the Press, February 20, 1997
The Free Speech Coalition, Inc. is a nonpartisan, nonprofit
501(c)(4) organization which educates, lobbies, and
litigates to defend the rights of advocacy organizations and
their members. FSC needs your support to continue its fight
to protect the rights of citizens to associate together and
exercise their First Amendment right to petition their
government for redress of their grievances. Contributions to
the Free Speech Coalition, Inc. are not tax-deductible.
However, contributions to the Free Speech Defense &
Education Fund, Inc., a 501(c)(3) public charity, are
tax-deductible.
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