Vol. IV, No. 4 • July - August 1996 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. As the above flowchart shows, 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.