Volunteer Time Financial Statement Illustrations

Nonprofit Finance & Strategy • By Dennis Walsh, CPA • March 13, 2009 • forward article

These financial statement excerpts illustrate the article, "Tracking Volunteer Time to Improve Your Bottom Line: A Complete Accounting Guide," by Dennis Walsh, CPA. See the full article here.

By reporting donated nursing and medical social worker services of $120,000, total public support (before earned revenue) increases from $250,000 to $370,000, or 48%. We also see that inclusion of these services in program expense increases the spending efficiency ratio from 80% to 83%.

Hometown Hospice Care explains the nature of recognized services, as required by GAAP, in the following footnote to its financial statements:

Note 2: The organization recognizes contribution revenue for certain services received at the fair value of such services. Recognized services were provided by 5 medical social workers and 4 registered nurses as follows:
By adding this supplemental data, we see that Hometown Hospice Care has far greater volunteer support than indicated by the minimum GAAP disclosures alone. The user of the financial statements takes away a better sense of the amount of public support for programs as well as the diverse range of volunteer supported activities.

See the full article here.

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Comments

Gary Pigg

March 15th, 2009

A very important article that all NFP need to hear. Volunteers are also covered under the organizations' general liability or Workman's comp. policies. Properly documenting their time is necessary.
Gary Pigg, MBA
garypigg@vbct.com

Anonymous

April 14th, 2009

I enjoyed your article and have a question for you. The majority of our volunteers are vision screeners. The volunteer position does require screeners to be trained and certified and if we did not have the volunteers, we would have to hire screeners. My question is, does the fact that the screeners must be trained and certified satisfy the SFAS 116 requirement of “requiring special skills” or must their “special skills” be their principal occupation?

Dennis Walsh

April 14th, 2009

In answer to your question, the fact that a volunteer does not work in a particular qualifying occupation does not preclude such services from recognition under SFAS 116. The requirement is that the services are performed by a person possessing such skills.

The potential issue I see here is whether the specialized skills requirement itself is satisfied. While it is true that the training your vision screeners receive represents knowledge that is developed into skill not possessed by the general public, I think it could be reasonably questioned whether this rises to the level of profession or trade within the meaning of SFAS 116.

It is my understanding that your vision screening volunteers go through a half day of training and are expected to read and understand a manual. As I am sure you are aware, many volunteer supported organizations require comparable volunteer training and orientation to participate in specific programs, but it is questionable whether this degree of specialized training fits with the intent of the accounting standard.

This by no means diminishes the important training that such volunteers receive. By implementing the “specialized skills” standard, the Financial Accountings Standards Board essentially made a practical compromise in this evolving area of accounting practice.

In theory, all volunteer services would be valued and recognized in the statement of activities as revenue and reported within the appropriate functional expense area. In practice, however, the vast majority of grassroots organizations lack the resources to account for and value a variety of services in a way that will ensure meaningful and comparable data within and among organizations. So the FASB drew the cutoff with the services of professionals and tradespersons. Hence, in many instances, volunteer services integral to mission performance are not reported in the financial statements under the current standard.

Fortunately, as pointed out in my article, the organization may summarize and value such vital volunteer services as supplemental information in the footnotes to the financial statements. In fact, SFAS 116 encourages this where practical. And of course, contributions from all types of volunteers should be included in newsletters, annual reports, websites, and fundraising appeals in order to show the full scope of community support and services provided to constituents.

This reply is, of course, my opinion only and I encourage you to seek views from other qualified advisors as you feel led.

Charlotte Fox

April 14th, 2009

I enjoyed your article and I'd like your opinion about volunteer orchestras and/or community theater groups.

While it’s obvious that the organization wouldn’t accomplish its mission without the volunteers, is it right to use that time as a donation to the organization, and on the organization’s books? For some all volunteer arts organizations, that’s more than their annual budget.

Also, what about those artists – for instance, in a community choral group – who actually pay to perform? Should the organization be able to include their time as inkind donation?

Dennis Walsh

April 14th, 2009

The accounting standard for recognizing contributed services (SFAS No. 116) was implemented fairly recently, at least as accounting standards go (mid 1990’s). The standard went a long way toward providing practical guidance in establishing criteria for the recognition of contributed services. The cornerstone challenge, both then and now, is to balance the need for fuller disclosure to stakeholders of resources received and applied with the need for consistent and reliable measurement among reporting nonprofit organizations.

However, the standard left unanswered some issues regarding the rationale for recognizing services on the books versus reported as supplemental information. And you can be sure there will be more guidance in this area in years to come as theory and practice issues continue to evolve.

For now, however, to be included in the financial statements, services of the nature you describe need to meet each of the following 3 tests:

*They must require a specialized skill (e.g. profession or trade requiring skills not possessed by the general public)

*The services are performed by such person, and

*They would normally need to be purchased

Clearly, non-amateur services of the types you describe meet the first two tests, but in deciding whether the third test is met you would have to make a case by case decision as to whether you would have purchased the service in the absence of the volunteer. It might seem unfair or illogical to exclude any bona fide contributed services from the financial statements, but I believe this is where the accounting standard setters had to draw the line, at least for now, between the need for fuller disclosure with the onerous tracking and valuation related issues that would be imposed on the more than one million 501(c)(3) public charities, the vast majority of which are very small entities lacking the resources for proper compliance with the standard.

All this said, it does not mean there is no opportunity to recognize nonqualifying program related services particularly those that go to the heart of an organization’s charitable purposes. Such services can be reported as supplemental information in the footnotes to the financial statements (as illustrated in the article). Equally important, this is vital information, as I am sure you would agree, to be included in annual reports, newsletters, and fundraising proposals.

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