“We just had a last minute event cancellation,” the caterer explains. “We have a dinner meal prepped for 75 people, but it won’t keep for our next event. Would you be able to use this?”
This type of call offering unplanned gifts-in-kind (GIK) to a rescue mission often meets a pressing need with a timing that can only be divine. Though coming with unexpected timing, a rescue mission can cultivate such gifts, whether food, clothing, office furniture, or even donated professional services, by preparing in advance to properly steward these gifts. A donor who goes out of their way to bring such items is not likely to do so again if they find out the gift was wasted or thrown out after the charity took possession of the gift-in-kind.
Some preparation is practical – keeping extra fridge and freezer space for food donations, or having a laundry area and clothes rack to process clothing donations. But other preparation involves having the proper policies and procedures in place to decide which gifts to accept, and once accepted, how to report their value and use.
For example, a local organization was once featured on national television, which prompted a wild outpouring of various gifts, including multiple brand new refrigerators. These may have been expensive refrigerators, but they were bulky and difficult to store, and unneeded by the organization. The organization had to either get into refrigerator sales, pay to store them until they were needed, or just dispose of them. What was a well-intended gift may have taken organization time or donor dollars away from their programs because they didn’t have a sufficient donation acceptance policy which would have enabled them to politely refuse the unhelpful gift.
Then, once a GIK is received, how does the organization properly record and report on the gift? While non-profit organizations provide the donor a receipt without a donation value, according to IRS rules, there is still an internal valuation of the item needed. The amount the donor chooses as a donation value on their tax return is between them and God (and the IRS), but not connected to the value the organization places on the item internally.
The Generally Accepted Accounting Principles (GAAP) has guidance for such matters, requiring you to recognize the fair market value of the contributed nonfinancial assets (as they call GIK), as revenue to your organization, and expense when they are used (or sold) by your organization. Fair market value may be based upon the retail or wholesale value of the item, but there are significant estimates involved, as the item may be used and in better or worse condition than otherwise similar items for sale. Additionally, if the estimates change by employee, or by year, your financial statements will be skewed higher or lower depending on which way the estimates leaned.
Thus, a consistent valuation policy needs to be applied, or the financial reports will be unreliable and incomparable between years. A “good” year with a lot of donations may have just been when optimistic employee was in charge of receiving non-cash donations, and like an over-enthusiastic The Price Is Right participant, assigning widely high numbers to each GIK item received.
The ACCORD Network has an excellent resource on best practices on handling GIK donations, available here. These standards have been referenced by InterAction, USAID and the IRS. These standards can be used to develop your own policy, and applied consistently, can prove invaluable to presenting accurate financial statements to donors and others.
Because of the significant estimates involved, and the potential lack of consistency between organizations particularly, there was an accounting standards update, FASB ASU No. 2020-07, that increases the details needed for GIK donations included in the financial statements. Now the “Contributed Nonfinancial Assets” as ASU 2020-07 refers to them, will be a separate revenue line on the statement of activities, and clarification of the estimates made will be added to the footnotes. This should allow for better comparison between organizations, and will be interesting going forward to see if the additional disclosure of estimates brings greater standardization of valuing such non-cash donations.
If you would like to discuss your policy on GIK in more specifics, please reach out and contact us. We would be happy to have a conversation as this is a topic with more complexity than meets the eye. Then when you get the next call from the caterer, you can be confident in answering, “Yes! We would love to make great use of the dinner you prepared!”