Q&A #47 – Is my nonprofit permitted to record volunteer services as in-kind contributions?
Question: I run a nonprofit organization that has infrequently used volunteers in the past. However, we are ramping up for a new research activity that will use volunteers to do specialized research in the field collecting samples and making and recording observations. Are we permitted to record these volunteer services as in-kind contributions in our financial statements under GAAP?
Answer: While the Form 990 does not allow inclusion of in-kind gifts of services as revenue, whether volunteer services can be recorded as in-kind contributions under generally accepted accounting principles (GAAP) is a separate issue that is governed by the Financial Accounting Standards Board (FASB), specifically, FASB’s Accounting Standards Codification found at ASC 958-605-25-16, discussed further below. However, regardless of whether these volunteer services can be recorded in the financial statements, tracking and documenting in-kind contributions of goods and services is always important and beneficial to a nonprofit organization.
FASB’s guidance states that to meet generally accepted accounting principles (GAAP), the services contributed must either create or enhance a nonfinancial asset (such as property or equipment) or meet all of the following three criteria:
The service requires specialized skills. Services requiring specialized skills include those provided by accountants, lawyers, architects, doctors, nurses, teachers, carpenters, electricians, plumbers, or other professionals and craftsmen.
The service is provided by individuals who possess those skills.
The service would typically need to be purchased if not contributed. An organization should only consider whether it would otherwise need to purchase the service, not whether it could afford to purchase the service.
Without knowing more about the specifics of this project and what these volunteers will be doing, I cannot say whether these particular services will meet FASB’s guidelines. You will need to discuss this matter with your CPA, but the key issue will likely be whether these volunteer services require a level of expertise that meets the “specialized skills” requirement. If the volunteer services do not require specialized skills, a contribution cannot be recognized and thus cannot be recorded in your GAAP financial statements.
It is important to emphasize that your organization should be tracking and documenting all volunteer services whether or not they can be recorded under GAAP. In-kind contribution of volunteer services often plays a vital role in helping nonprofits to fulfill their mission, provide assistance services, and generally help to complete projects that would otherwise fall by the wayside. These resources potentially could be mismanaged, underutilized, or forgotten if not fully tracked and documented. However, even with complete and proper documentation, not all the volunteer services received are allowed to be recorded in GAAP financial statements.
Just imagine a homeless shelter, food bank or disaster relief effort having to tell all their volunteers that provide countless hours of basic (unspecialized) services that because we cannot record efforts in our GAAP financial statements, we are terminating programs and activities. Of course, this does not happen.
Documentation is the key. This information is vital to the management and operations of the organization and with complete documentation more of the volunteer service efforts will be eligible for recordation in the financial statements. Without complete documentation, it will be very difficult to record even eligible volunteer services that will meet scrutiny of your independent auditors.
Planning Tip – Provide training to staff on how to document and track in-kind volunteer services. For efforts that require specialized skills, show them how to document the services provided and that the volunteer possesses those required skills. They will also need to know how to document the fair market value of those specialized services.
Finally, managing in-kind volunteer services will be enhanced if supported by front-end planning which includes detailed job descriptions, necessary skill requirements and fulfillment timelines, just like you would for professional services or paid staff positions.
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Q&A #26 – Should a nonprofit keep track of donated services?
