Understanding and Determining a Value for Gifts-in-Kind Donations

Gifts-in-Kind-DonationsGifts-in-kind (also referred to as in-kind donations) are a hot topic in the nonprofit world. While the most common nonprofit donations are still monetary in nature, many organizations are seeing an increase in gifts-in-kind donations. Rather than give money to support the organization’s mission and to buy the necessary good and services, many donors are now simply giving the needed goods and services themselves. These “gifts” are valuable to the organization in many ways. When used properly, gifts-in-kind can enhance the organization’s mission with much needed goods. However, as nonprofit regulations continue to increase, nonprofits are running into many roadblocks where gifts-in-kind are concerned.

Since the introduction of FASB Statement No. 157, Fair Value Measurements, in 2006 (now named FASB ASC Topic 820, Fair Value Measurement), nonprofit organizations have been challenged with the standards in regard to determining a value for gifts-in-kind donations. Nonprofits need to be aware of the responsibility placed on accepting gifts-in-kind donations, including the programming and accounting practices that need to be followed as a result of accepting these kinds of gifts. The improper valuation of these donations can lead to reporting errors that show an inflated efficiency in the use of donated funds, particularly in comparison to organizations that only accept cash donations. This error can cause the organization’s financial statement to show unrealistic numbers and be a disservice to donors who want to see how their donations are directly contributing to the organization’s mission.

The acceptance of gifts-in-kind donations requires a clear understanding of accounting requirements and a careful consideration of the alignment with the nonprofit’s mission and strategies to achieve its mission. While each circumstance is different, nonprofit organizations need to have a basic understanding of gifts-in-kind donations and how to account for them. Consider the following best practices concerning gifts-in-kind donations:

  • Review your gifts-in-kind practices, policies and procedures.
    Do you have any policies or procedures in place for the valuation of gifts-in-kind donations? How does your organization account for these donations? Review your current practices and make sure that you are handling these donations properly.
  • Consider whether or not your organization should accept gifts-in-kind donations.
    You should put a lot of thought into accepting a gift-in-kind donation. Before you accept such a donation, you need to make sure that it aligns with your mission and that you have policies in place to assess the gift-in-kind donation. You also need to ensure that your staff members are properly equipped for the task of assigning a value to the gift-in-kind donation.
  • Find reliable sources of information and pricing inputs.
    This is an important practice and every nonprofit should reference reliable sources when they start accepting gifts-in-kind donations. Look for resources in your community – peers, publications, auditors, and valuation experts. Research industry standards and join industry groups that make these standards available to the public. The more information you have regarding gifts-in-kind donations, the better your chances are for success.
  • Measure gifts-in-kind donations at fair value.
    First and foremost, you need to identify the principal exit market. Keep in mind that all legal restrictions and regulations need to be considered. Remember that the donor markets may not be the same as the exit markets, so any donor-provided values may be irrelevant.

Nonprofits are responsible for the information contained in their financial statements. While the valuation and contribution considerations regarding gifts-in-kind donations are complex, nonprofits can benefit greatly from these types of gifts – as long as they are handled correctly. It’s important for management to develop a consistent, reasonable process to assess and record the value of gifts-in-kind donations according to industry standards, as well as to equip and train staff in the proper ways to handle the accounting of these gifts.

If you have any questions regarding gifts-in-kind donations or would like us to walk you through the best practices for accepting these gifts, give us a call today. We are more than just a nonprofit software solution provider – we are here to help you excel in all areas of your organization so you can meet and maintain all nonprofit standards and regulations.