Why Record Volunteer Services?
Often we find nonprofits do not record the value of volunteer services. After all, volunteer services, also referred to as in-kind services, don’t have a direct impact on cash. And there is so much other work to do; it seems like a waste of time.
Why would you want to record volunteer services anyway?
1. Volunteer services may be just as important as paid services.
ITNOrlando provides transportation services for seniors. Presently 100% of their drivers are volunteers. They plan to augment their volunteers with paid drivers in the near future, though they still plan to keep the ratio of volunteer to paid drivers at 80%. Without their volunteer drivers, ITNOrlando would not be able to offer their core program service! Because the service provided by volunteer drivers is valuable, ITNOrlando records it as income and expense for management information purposes, even though it is not reportable for audit or 990 purposes.
2. If you need to hire someone to replace a key volunteer, it’s good to know how much that might cost.
Do you have a key position filled with a volunteer? What if that person left? Would you be able to find another volunteer? Or is it more likely you’d have to hire someone because you can’t let that position go vacant?
One organization has a very talented volunteer executive director. This volunteer director performs all the normal functions of a paid executive director such as hiring staff, overseeing programs and fund development. If she left her position, the organization would be hard pressed to find a free replacement. For audit purposes, her in-kind services were valued at $100,000 per year.
3. Recording certain volunteer services is required by accounting standards.
According to GAAP volunteer services are recorded if
- They create or enhance nonfinancial assets.
- They require specialized skills, are provided by the individual possessing those skills, and would typically need to be purchased if not provided by donation.
GAAP standards go on to state:
“Services requiring specialized skills are provided by accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, teachers and other professionals and craftsmen.”
As an example of volunteer services that “create or enhance nonfinancial assets,” consider the value of donated labor to construct a new building.
If you want to present audited financial statements in accordance with Generally Accepted Accounting Principles (GAAP), the value of volunteer services which meet GAAP criteria must be included.
4. Not recording volunteers may understate program expenses.
If you do not record the value of volunteer services, the financial impact of your organization’s programs may be understated. Nonprofits are scrutinized for the amount they spend on programs vs. support services (management & general and fundraising.) If you are not capturing and presenting all of your program expenses, you are shortchanging your organization.
5. Information on volunteer services helps with grants.
Grant funders want to know about the level of volunteer engagement at your organization. Volunteers can amplify the impact of their investment. Grantors may be interested in knowing about your use of both GAAP and non-GAAP volunteers. You may be able to use volunteer services to provide grant match, if required.
6. You can put your best foot forward on Form 990.
While the value of volunteer services meeting GAAP criteria is required to be included in audited financial statements, you may be surprised to know that volunteer services are NOT includable on Form 990. Therefore, the percentage of expenses for programs on Form 990 may be different than the audited statement of functional expenses. If the removal of volunteer services adversely affects program expense, you can still disclose the value of volunteer services in the description of program service accomplishments or as additional information in Schedule O.
Volunteers play important roles in the success of many nonprofit organizations. Now that you know why you would want to record volunteer services, in the next post we’ll talk more about how to do that.
How do volunteers help your organization? Leave a comment and let us know!