Q&A #26 – Should a nonprofit keep track of donated services?
Question: My nonprofit has had an influx of donated services lately, as people try to help us survive the current pandemic crisis. We have never kept good track of donated services because we understand this is not reported on the Form 990. Should we be keeping track of donated services?
Answer: The answer is always yes, keeping track of donated services is very important. You are correct that the Form 990 does not allow inclusion of in-kind gifts of services (only in-kind gifts of goods). Nonetheless, tracking and recording in-kind gifts of services will have significant benefits for your organization.
Donated services and other in-kind gifts are some the hardest resources to track, manage and plan for (along with non-cash gifts in general). Because of this challenge, many nonprofits tend to ignore these very valuable resources. Investing time here will pay big dividends in the future.
How you track donated services and record and use this information depends on the following key systemic and management considerations: (1) volunteer and donor management; (2) generally accepted accounting principles (GAAP); and (3) budgeting and resource management.
Volunteer and Donor Management
Honoring and managing donated services should be a high priority, along with all types of in-kind and other non-cash gifts. Successful nonprofits treat in-kind contributions with the same distinction and respect as cash contributions, grants, and other types of non-cash gifts such as gifts of stocks, land and other appreciated assets. Actively tracking donated services allows you to thank donors, manage these valuable volunteer hours in a manner that puts them to best use, and accurately record them in your donor management system and accounting system.
GAAP
GAAP allows you to record in-kind contributions (including goods and services), but the documentation must substantiate the receipt of the in-kind gift, fair market value, and the date it was received. Properly documenting donated services requires that you contemporaneously keep a tally of volunteer hours and assign the appropriate fair market value to their time. Methods used could include having sign-in sheets for volunteers at events, maintaining volunteer assignment schedules on-line and having a volunteer coordinator staff position or committee to manage, coordinate and oversight volunteer efforts. Also, document work effort that volunteers perform and how you assigned a fair market value rate for the work effort performed. Consider establishing standard work effort rates for repetitive volunteer efforts. Tracking this information and obtaining the proper documentation to meet compliance and satisfy auditor inspection is time consuming and extensive. If this information is not obtained contemporaneously, it can be at best hard to get or worse not be available if you wait too long.
Budget and Resource Management
In-kind gifts are defined as non-cash gifts that are directly used in furtherance of your mission and operations. If fully tracked and recorded, this valuable resource should be included in your annual budgeting process. The larger and more comprehensive your budget, the better you will look to your supporters and the general public. A budget that includes in-kind gifts shows a true picture of the total scope of your organization’s efforts. Planning around donated services and other in-kind gifts should be in alignment with the organization’s strategic plans and mission. There should be a point of emphasis to acquire donated services and other in-kind gifts in a manner that will best help the organization to deliver on mission and service to constituents in the future.
Planning Tip – Establish a system for tracking in-kind gifts. Make it a point of emphasis with staff. Provide staff training on how to seek out in-kind gifts, explain how they can benefit your organization, document how to include in the annual budget planning and compilation process, discuss how to obtain proper documentation for recording and tracking, finally include procedures for thanking donors and celebrating gifts of in-kind goods and services.
All avenues leading to resources, support and funding must always be optimized. Donated services and other in-kind contributions need to be given the same priority as traditional funding, so no resources are left on the table.
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