A gift acceptance policy is a necessary component of internal control for any organization operating within a philanthropic environment. Having such a policy in place enables an organization to provide clear direction to donors about how they can best help advance the cause of the organization, while also providing the staff with the direction necessary to avoid the administrative black holes that can accompany some donations.
Key components of the gift acceptance policy
A gift acceptance policy should address the following:
- what types of gifts will be accepted;
- how to effectively communicate the gift acceptance policy to prospective donors;
- specify how such gifts will be accounted for and how the organization will handle any administrative requirements; and
- provide direction on the management of endowments.
Acceptable donations: The gift acceptance policy should be as explicit as possible in regards to the types of gifts that will be accepted. Beyond donations of cash and investments, organizations can receive donations of real estate, conservation easements, estates, charitable trusts, and endowments, just to name a few.
Donor communication: A gift acceptance policy is not intended to deter donations; rather, it is intended to help ensure harmony between a donor and a donee. For that reason, it is important that the organization take the time to educate the staff on how to converse with prospective donors on the types of acceptable donations and how the donor and donee can best work together.
Donation management: The types of gifts that an organization accepts should be driven by the capacity it has to manage those gifts. For example, there are little to no administrative costs associated with donations of publicly traded securities. Unless expressly noted by the donor, gifts of publicly traded securities are often immediately liquidated to avoid any market volatility. Conversely, the donation of real estate could result in significant legal and administrative costs related to property management and general upkeep that could outweigh the value of the donation. While the donor’s intent may have been to help the organization, the additional administrative time and effort associated with a donation could stretch an organization thin if it lacks the staffing capacity.
Additionally, certain types of donations have specific accounting requirements under generally accepted accounting principles (GAAP); therefore, it is important that an open line of communication exists between the program and accounting departments to ensure that the gift acceptance policy addresses the GAAP requirements for all acceptable gifts.
Endowments: Endowment donations are the most restrictive donations that an organization receives. In addition to restricting the use of donated funds, the terms of an endowment agreement limit the funds available for use to the investment income earned on the donated amount rather than the donated amount itself.
Furthermore, there are GAAP requirements and legal requirements under the Uniform Prudent Management of Institutional Funds Act (UPMIFA) that an organization is required to know, understand, and apply in its management of the endowments funds. A gift acceptance policy should address these accounting and legal requirements. As well, an organization should consider including language in the policy that would allow for an alternative use of the funds, within the spirit of the donor’s original intent, if changes occur within the organization or the community it serves that result in the original purpose of the donation no longer aligning with the needs of the organization.
As an aside, if your organization has restricted endowment funds which have been difficult to release due to organizational or program changes, UPMIFA allows for modifications to the restrictions and even the release of restricted funds under certain conditions. It is paramount that the donor agree to any releases or modifications, so you most contact the donor to discuss how their funds can best be used. If you are unable to reach the donor, contract your state attorney general. Information on this process for those in District of Columbia, Maryland, and Virginia can be found below:
In conclusion, if your organization does not currently have a gift acceptance policy in place, consider adding one. Doing so, could improve your organization’s internal control environment. As well, Schedule M of the IRS Form 990 asks whether a nonprofit has a gift acceptance policy implicitly suggesting there is an organizational need for one. All that being said, it is important to keep in mind that the true value of having a gift acceptance policy is gained in the application of the policy rather than in the creation of one.
Reggie Brewington, CPA is a manager in the Firm’s Audit and Assurance Services department and can be reached at rbrewington@tatetryon.com.
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