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Key misunderstandings about non-cash gifts

by The NonProfit Times - July 15, 2014

Just as the need for funding can lead to bad decisions about accepting monetary gifts, the benefits of gifts in kind (GIK) can blind an organization to the problems that might occur from accepting anything that can fit through the door.

During the American Institute of CPAs (AICPA) Not-for-Profit Industry Conference, Jennifer Brenner and Gregg Capin outlined misunderstandings nonprofit leaders make about accepting GIK. Misunderstandings about GIK fall under clear categories:

  • Procurement. Misunderstanding Number 1 is that GIK is driven by product availability. In fact, the most effective GIK impact is demand driven, not dictated by what donors give. Misunderstanding Number 2 is that all GIK offered should be accepted. Any products should be accepted only as they contribute to the organization’s objectives, outcomes and strategies.
  • Handling. The misunderstanding here is that any GIK is an unintegrated, random handout. When done well, GIK is integrated into a program, and beneficiaries cannot distinguish between a GIK and an item purchased by the organization.
  • Valuation. Fair value is not the most appropriate measure. What is appropriate is the most conservative or highest value. In fact, nonprofits are required to use the Financial Accounting Standards Board’s Topic 820 definition of fair value for GIK. Misunderstanding number two is that because valuation is difficult and can include professional judgment, and GIK can affect an organization’s efficiency ratings, GIK should be recorded at the most conservative or no value. In fact, GIK has a base utility or use, and that use is marketable to a willing buyer.

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