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Wednesday, December 7, 2016

Best Practices in Gift Acceptance: Not All Gifts Are Good Gifts


Even well-intentioned gifts can come back to bite an unwary nonprofit.

Consider what would happen if a long-time donor pledges a collection of heirloom jewelry to fund a named room in your new building. Although the jewels are valued at a hefty $60,000, you receive only a fraction of that after the out-of-pocket costs to appraise, insure, transport and market them. Now your board wrestles with the delicate question of naming the room for the donor or asking him to contribute the balance needed to complete it.

Likewise, gifts of real estate are among the most risky a charity can accept. It is also a likely gift, as real estate is one of the most commonly owned assets.

Know When to “Just Say No”
To protect your organization, employees and board, you’ll need a well-thought-out gift acceptance policy that encourages gifts that are consistent with your nonprofit’s values and objectives. You’ll then need to back that up with practical procedures for properly accepting, acknowledging and accounting the gifts that are received.

At its most basic, a gift acceptance policy reminds you when to just say “no.” It describes the types of gifts your nonprofit will accept, and prevents taking gifts that will cost your organization time and money and, possibly, its reputation.

Follow Best Practices
The best gift acceptance policies are broad and brief. They provide a high level statement by the board of the official policy of your organization. They don’t focus on operational details. Rather, they delegate duties to appropriate staff, such as your development director and advancement folks. Likewise, it names the individuals responsible for gift acknowledgement and sets a standard for the time in which acknowledgement is to be completed.

Because the goal is to get the broadest perspective and guidance, developing a gift acceptance policy should be a collaborative process involving executive leadership, planned giving staff, the board committee responsible for oversight, and any professional advisory committee or advisor.

Once developed, gift acceptance policies should be approved and adopted by the board. After adoption, they should be treated as living documents. That means regular review—particularly in advance of a capital campaign or other major initiative.

Finally, provide for a way to make exceptions to the rules, but make clear that such exceptions should be rare. Design a review process for deviation that requires the approval of the planned giving director, the executive committee and the executive director.

Put the Right Processes in Place
Different from board-level policies, operational procedures outline the steps to be followed, the rules to be observed and the approvals required to effectively implement the policies. Standardized procedures outline how you will deal with routine issues such as these:

  • Handling donor-imposed restrictions
  • Valuing of non-cash gifts
  • Involving counsel in review of documents
  • Establishing standards for different gift vehicles (e.g., Charitable Remainder Trusts, gifted annuities)
  • Setting standards for various asset types (e.g., real estate, closely-held stock)
  • Note that policies and procedures should include the involvement of the finance department to ensure that all pledges are recorded in accordance with generally accepted accounting principles.

In particular, a new accounting standard (ASU 2016-14) changes the rules for reporting gifts. Effective for periods beginning after December 15, 2018, organizations will no longer be required to separately report on temporarily and permanently restricted revenues and net assets. They can be combined into one category—gifts with donor-imposed restrictions. These donor-established restrictions include:

  • Perpetually restricted
  • Purpose restricted
  • Time restricted

To better reflect funds currently available, organizations may choose to display subcategories of net assets. Further detail must be included in the footnotes.

Getting Started
The good news is that you don’t have to develop policies and procedures in a vacuum. Start by looking at your own files, records, memos, correspondence and documents related to gift acceptance. When considered together, do they essentially create ad hoc policies? If so, make sure any new policies and procedures you develop explicitly supersede them.

You can also take a look at statements of policy from other organizations and the procedures they use for specific assets and gift situations. Just remember to use these materials as a guide or checklist—not as a first draft.

The bottom line is that you don’t have to accept every gift that is offered. In fact, a clearly written gift acceptance policy can provide a graceful way of saying no to a donor whose gift may require deviation from your organization’s core values and objectives.

Contact your local nonprofit expert for guidance on drafting and implementing effective gift-acceptance policies and procedures.

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