What Nonprofit Leaders Need to Know Before Accepting Non-Cash Contributions

When people think about charitable contributions, they usually think about cash, checks, credit cards, maybe even stocks.

But in reality, nonprofits receive all kind of non-cash contributions: volunteer services, donated property, vehicles, art, supplies, and even digital assets like cryptocurrency.

Some of these gifts are incredibly valuable.

Others come with legal, financial, and administrative risks that boards and managements don't always anticipate.

Today, I want to look at non-cash contributions through three lenses: accounting and GAAP requirements, governance and risk management, and IRS compliance and reporting.

Whether you're a board member, an executive director, or someone in the finance office, this is one of those areas where getting it wrong can create problems years down the road.

Let's start with the most common and most misunderstood type of non-cash contributions, volunteer services.

Well-run nonprofit organizations rely heavily on volunteers to reduce the cost of labor.

For most organizations, labor is the single largest expense on the income statement.

That includes salaries, benefits, contracted labor, and professional fees.

Volunteer service comes in many forms.

Think about volunteer firefighters and ambulance drivers.

Think about organizations like Habitat for Humanities, Doctors Without Borders, the Girl Scouts, parents associations at your local schools, and many others.

In some nonprofits, volunteers may represent twenty percent or more of the workforce.

From an accounting standpoint, though, there's a key question: Which volunteer services get recognized in the financial statements? Under generally accepted accounting principles or GAAP, volunteer services can only be recognized if they meet the following criteria.

First, the services must be performed by somebody possessing specialized skills.

For example, an attorney, an accountant, a doctor, or an electrician.

The services must be provided by individuals who actually have those skills, and they must be services the organization would normally have to purchase if they weren't donated.

Secondly, the services can be recognized if they create or enhance a non-financial asset.

Common example is construction labor.

If volunteers help build a house, the value of those services become part of the cost of that house.

If either of these conditions are met, the organization should be recognizing both contribution income as well as contribution expenses for these services.

This is an area that's easy to miss.

No cash changes hand, so it doesn't automatically hit the books.

Auditors don't always ask about it.