Mr. Jeff Beaumont is a CPA working for a firm that focuses on serving the nonprofit community. His opinions are his own and do not reflect the opinions or positions of his firm in any way. Because he speaks for himself, I won’t identify him or his firm in any more detail. He doesn’t speak for me either.
He has experience as an auditor working on the issues discussed on this blog. He took me up on my invitation for guest posts, so here is Jeff:
by Jeff Beaumont, CPA
There has been quite an amount of discussion, articles, and consideration given to recording gifts in kind.
However, I would like to ask nearly the opposite question: what about organizations that don’t record gifts in kind?
My background is that I am a CPA and have been working in the not-for-profit auditing world for seven years. I have noticed that there seems to be as many ways to interpret and record gifts in kind as there are kinds of GIKs.
One main thing I have seen is that there is a common GIK theme for many not-for-profits: they do not record them.
Or if they do record them, they only record a portion (anywhere from 5% to 80%, which is quite a range!) of the GIKs.
From my perspective, the NPOs that neglect in recording GIKs is correlated to the size of the organization. Thus, the smaller the organization, the less likely they will record the items.
Why?
- time-consuming
- difficulty in obtaining proper evidence or value of items
- infrequency of receiving GIKs
- a lack of procedures or policies
- lack of knowledgeable staff who know how to take care of those items
However, for the medium to large entities (I will refrain from speaking about the very large, multi-national, billion dollar ones), I have noticed that, at times, they will record many items, but because some of the donated items are seemingly ridiculously valued by the donor, or because a timely valuation is difficult to obtain, or it was donated at the end of the year and they lacked the time to research the value, or there isn’t time to obtain information from the donor, these items were not valued.
So then, does that mean that because they are underreporting their GIKs that they should be investigated by the IRS? By watchdog groups? By the public?
How would anyone know that an organization is underreporting their GIKs? After all, how do you find something that is missing and you didn’t know existed?
Can we simply chalk all this up to accountants and their affinity for being conservative with numbers?
I think there are at least two main objectives for smaller not-for-profits regarding GIKs.
One, providing a reasonable financial representation so the readers can receive some sort of snapshot of the organization’s health and activities, keeping in mind financial statements are a limited view of the organization.
Two, providing comparability with other not-for-profits by using various metrics such as financial trends and ratios.
Thus, excluding GIKs on the first objective, albeit skewing the financial statements, still grants the reader a basic understanding.
However, for the second objective, excluding GIKs can cause repercussions and, dare I say, unintended consequences?
A variety of metrics are used by groups such as charitynavigator.org. Certain metrics also must be met for an organization to continue soliciting funds in particular U.S. states. By including or excluding significant GIKs, these ratios could move an organization between a “fair” or “excellent” rating. If substantial, omitted GIK could be the difference between continued or barred fundraising efforts in states.
So with all that said, is there an issue with some organizations not recording GIKs? Does it matter as long as they can continue operating and receive funding?
If we should care so much about over reporting donations, should we care, even slightly, about under reporting these gifts as well?
Thanks to Mr. Beaumont’s for his first guest post. Your thoughts?