Special Events and Silent Auctions

Each month, Nonprofits Assistance Fund hosts the Financial Management Network.  These free, informal gatherings are opportunities for members of the nonprofit community to get together to discuss different financial topics and network with peers. Key takeaways from these discussions will be posted and form an archive to help promote healthy financial practices.

Notes from sPecial Events and Silent Auctions (5/26/09)

Charity benefit auctions and other special event fundraisers are popular across the nonprofit sector. These special events have their own financial recordkeeping challenges.

Nonprofit staff report that events often require more work to organize and manage than they expect. It often takes a few years to establish an annual event, and it is important to balance fun with fundraising. Special events are always PR events to some degree, and can provide a good opportunity to connect with supporters and possibly partner with other organizations.

Goals

  • Special events can meet multiple organizational goals. When planning an event, clearly identify the primary goal or goals
    • A fundraiser - to raise money
    • A PR event - to raise awareness about the good work your organization is doing
    • Other goals
      • Cultivate potential donors for future support
      • Build your mailing list
      • Involve the organization's board members
      • Celebrate the organization's successes

Special Event Accounting

  • Treat the event like a program in your accounting system
    • Track all event income and expenses
    • Allocate staff costs, so you know what it really costs to hold the event
  • Review the new IRS form 990 before the event, so you know exactly what to track
  • Consider putting prepayments into deferred revenue, because you will owe the money back if the event is cancelled for any reason

Ticket Sales

  • Be clear about how much of the ticket price is a donation to the organization
  • Example: $150 tickets
    • Price break down
      • $100 is cost of dinner
      • $50 is a tax-deductible donation
    • Even if the ticket buyer does not show up for the event, only $50 is a donation
    • However, if a supporter "buys" a ticket and gives it back to the organization, it's a $150 donation

In-Kind Donations

  • At many special events, donated items are given to guests or sold in silent or live auctions. In-kind donations require specific recordkeeping procedures.
  • Ask donors to fill out a form, to ensure that you have contact information for each donation
    • When you receive a donated item, send a letter to the donor with the name of your organization, but not the value of the item
  • Recording donations on your books is not required by the IRS, however it is a good practice and shows support given to your organization
  • Donation Transactions from Not-For Profit Accounting

Fair Market Value

  • Valuing donations can be tricky.
  • The organization is responsible for determining the Fair Market Value of the donation, based on the current value of the item
    • Ask the donor to tell you what they consider the item's value
    • You should also should do your own research, to make sure the donor doesn't overvalue the item
  • For art, you generally record the cost of the art materials, unless the artist carries a certain name-value
  • Large donations
    • Tax forms are required for donations over the $500 threshold
    • Donations over $5,000 need to be appraised

Silent Auctions

  • For silent auctions, the Fair Market Value should be displayed with the item
  • If someone buys the item for more than the Fair Market Value:
    • The difference between the price paid and the Fair Market Value is a donation to the organization
    • You should send them a receipt
      • If someone pays more than $250 over the Fair Market Value, you are obligated to give them a receipt

Auctions

  • Silent auctions - Make sure items are appropriate and priced appropriately for attendees
  • For live auctions, the auctioneer must promote the cause and talk about the organization's work, not just make deals. Some organizations hire a professional auctioneer.
  • Be organized when the auction closes, with all documentation in order, so the payment line moves quickly
    • Credit cards make the payment process easy
  • Online auctions are becoming more popular
    • However they can be expensive because services charge fees, often around $1,000
  • Auctions are very popular fundraising events.  However, according to some reports, they are becoming less successful because of the economy and their frequency. 

Asks for Contributions

  • Many organizations find creative, festive ways to ask for donations, without an exchange of goods or services
  • Directed giving: break down the costs of a project and go table by table asking for contributions

Sponsorships

  • Example: A corporation buys $15,000 of food for an event
  • Pay unrelated business income tax (UBIT) if business activities are not related to your mission, because you are getting value back.

Raffles

  • Raffles are considered gambling and are regulated by the state
    • Compliance requires more paperwork and takes more time than many expect
    • Regulations cover things like pricing of tickets and ticket colors
    • Must pay licensing fee
    • If the raffled items are worth less than $1,500 in value, you do not need a permit
    • No receipt needed for $74 tickets, but receipt needed for tickets above $75 threshold
    • If the winner gets more than $600, must submit W9 and W2-G at the end of year
    • If the winner gets more than $5,000, must withhold money for taxes
    • No reporting needed for door prizes less than $91 or less than 2% of entry ticket fee

Special Event Policy

Create a special event policy to help you evaluate special event proposals and maintain control over event activities
  • Set a goal - Is the event primarily a fundraiser or a PR event?
  • Limit relationships - Who can have a table?
  • Beverages - Will alcohol be served?
  • What does the board do? - Do board members have to contribute or sell a certain amount?
  • Outside events - If an event is organized by an outside group, who has control of activities and money?
  • How to handle cash?
    • Are there two people at the table collecting money?
    • Who handles deposits?
  • Sending acknowledgements after the event - Who does this?

Internal Controls

  • Do not have volunteers handle all of the finances - ensure internal controls
  • Any appearance of, or potential for, fraud reflects badly on an organization

Interested in Learning More?

View our Resource Collection or check out the Discussion Archive for notes from other Financial Management Networks.

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