New reporting requirements for in-kind donations: Are you ready?
Jurgita Kalina, CPA
Does your organization accept donations of nonfinancial assets, such as vehicles, food, clothing, supplies, equipment or services? If so, be sure you are familiar with the new accounting rules that enhance the reporting requirements for contributed nonfinancial assets, commonly known as in-kind donations or gifts-in-kind. The new rules — issued in 2020 by the Financial Accounting Standards Board (FASB) — are found in Accounting Standards Update (ASU) 2020-07.
Related Read: FASB Issues New Rules for Reporting Gifts-In-Kind
Who is affected?
The new rules apply to not-for-profit entities that receive contributed nonfinancial assets and prepare their financial statements in accordance with generally accepted accounting principles (GAAP). Nonfinancial assets may include:
- Fixed assets, such as land, buildings and equipment;
- Use of fixed assets or utilities;
- Used clothing and household items;
- Materials and supplies;
- Intangible assets; and/or
What has changed?
ASU 2020-07 does not change existing requirements for recognizing and valuing in-kind donations. Rather, it imposes new presentation and disclosure requirements designed to improve transparency about how these donations are valued and used. Prior to the ASU, there were no specific requirements for reporting in-kind donations, except for revenue recognition rules for certain contributed services.
What is required?
Under the new rules, not-for-profits must:
- Present contributed nonfinancial assets as a separate line item in the statement of activities, distinct from contributions of financial assets, such as cash and securities;
- Disclose the amount of contributed nonfinancial assets by category (e.g., food, vehicles, equipment, pharmaceuticals, legal services); and
- For each category of contributed nonfinancial assets, disclose:
- Information about whether donations were monetized (e.g., by selling them) or used and, if used, a description of the programs or other activities for which they were used;
- The organization’s policy (if any) for monetizing rather than using in-kind donations;
- Any donor-imposed restrictions associated with the donations; and
- The valuation techniques and inputs (data) used to determine the fair value of the donations. This includes an asset’s principal or most advantageous market, if donor-imposed restrictions prohibit the organization from selling or using the assets in that market.
When are the new rules effective?
ASU 2020-07 is effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. In other words, for calendar-year organizations, they apply starting with 2022 year-end financial statements and first-quarter 2023 interim financial statements.
How should you prepare?
If your organization will be affected by the new rules, you should have policies, procedures and controls in place for tracking and categorizing in-kind donations and recording any donor-imposed restrictions on those donations.
You should also revisit the techniques you use to value in-kind donations. One reason FASB changed the rules was to address concerns on the part of donors and other stakeholders that not-for-profit organizations were inflating their fair value measurements of these donations. Generally, fair value is “the price that would be received to sell an asset . . . in an orderly transaction between market participants at the measurement date.” Enhanced financial statement disclosures about the valuation techniques and pricing data you use to arrive at fair value will likely lead to greater scrutiny of your calculations, so it is critical to ensure that your valuation policies and procedures are sound.
How Not-For-Profit Organizations Can Tackle Shortages in Staffing
With the economy near full employment, both for-profit and not-for-profit employers are struggling to fill empty positions. Not-for-profits, which frequently offer lower salaries than for-profit companies, are at a disadvantage. And, if you have long relied on the appeal of purpose-driven work, you are now having to compete with so-called social innovators that seek both societal good and profits who are offering similar opportunities at a higher pay scale. The bottom line: It is time to take a more formal and proactive stance when it comes to attracting, recruiting and retaining qualified staff.
Employers have traditionally looked to job applicants to sell themselves, but the roles have flipped. In a flush economy, applicants often have multiple offers to choose from, so not-for-profit organizations must learn to market themselves to potential hires.
It is up to you to help candidates understand your organization’s mission and culture, as well as how exceptional your team’s work is and how important the position for which you are recruiting is in the scheme of things. Fill them in on the first projects they will encounter so that they can envision themselves on the job. Regardless of your mission — somber as it may be — remember that excitement sells.
At the same time, you still need to find good applicant matches for your organization. One of the best indicators is a candidate’s passion and motivation. Search for applicants who are passionate and motivated by your mission, not just not-for-profit work in general.
When screening and interviewing, look for evidence of that passion, such as previous volunteer work in that area, as well as the motivation to make a difference. Ask where else candidates are interviewing, or at least the types of organizations they are approaching. Also, pay close attention to their level of engagement: How quickly do they respond to your emails, calls or messages? Have they done their homework on your mission and programs? Do they have questions for you? In general, you are better off finding a committed cultural match and cultivating the necessary skills than vice versa.
Finally, you may need to expand your usual search channels. It is not enough to post on industry job boards. Leverage social media and employee referrals. Consider veterans, individuals with disabilities and former convicts trying to rebuild their lives (some of these may earn your organization tax credits). Also, look within your organization for employees that are ready for promotion or that have high potential.
Of course, hiring is only part of the battle — you also want to keep great staff onboard. One of the primary reasons today’s employees move on, especially Millennials, is the lack of growth opportunities available to them in their current organization. Your not-for-profit, therefore, should offer staffers ways to enhance their personal and professional development.
Mentoring is one solution. Whether through a formal mentorship program or informal relationships with more experienced colleagues, mentoring is consistently considered a valued employer attribute that many candidates are looking to find. New employees like having a champion to turn to, and these relationships help build loyalty, too.
Your organization also can implement “stretch assignments.” These are projects or roles beyond an employee’s current skills or expertise. They could include:
- Ongoing projects, where employees can assume greater responsibilities; or
- One-offs, such as opportunities to represent your organization at a meeting or speak at a conference.
Stretch assignments can benefit both staffers and your not-for-profit. Employees gain knowledge, experience and exposure to new areas, and organizations cultivate employees with the critical skills needed to take on other jobs and leadership positions down the road.
There is no doubt that staffing poses a more daunting challenge for many not-for-profits than it has in the past. However, you can continue to recruit and retain top-notch staff by adjusting your strategies.
Related Read: Navigating an Understaffed Workforce