Discussion Corner: Accounting Rules for Silent Auctions from Donated Articles?
Blue Avocado explores procedures concerning who is permitted to catalog and inventory donated items received by a nonprofit.
Article Highlights:
What to do when inventorying donations costs more than the items are worth?
Dear Blue Avocado,
I have organized silent auctions for a nonprofit senior center for years.
Donors used to drop off an item and receive a receipt from the center. The donor listed the donation and the value on this receipt, which they used for their tax purposes. But the center stopped this policy. We now have a room full of donated items, with the center saying I cannot hold an auction until all of them have been inventoried, as they are now center assets, and the items can only be inventoried by the CFO.
We would pay the CFO more to inventory the items than the items are worth, so the senior center wants to do away with all donations and donate items on hand to another nonprofit (like a Salvation Army). I don’t think it’s proper to get rid of items that people purposely donated to the senior center and give them to another nonprofit just to get rid of them!
Any thoughts?
Thanks,
Anonymous
Dear Blue Avocado reader,
I know how challenging running silent auctions for fundraising can be, especially when dealing with donated items that were not successfully auctioned off!
The short answer is yes, the room full of donated items should be accounted for as inventory if held from one fiscal year to the next. One suggestion to avoid the time/cost of the CFO doing inventory is for you and the CFO to set up a procedure that would allow you or someone else to perform this task.
I recommend creating a schedule of each item and its estimated market value (a quick internet search or reasonable estimate can work, as the amounts are not material from an accounting standpoint).
Once done, the CFO would review, sign off, and have the summary transaction entered as inventory to the books with your documentation as backup. Then have your final auction! Finally, follow up with your CFO to clear the inventory off the balance sheet.
Best of luck! Other Blue Avocado readers—do you have any thoughts to add? Leave them in the comments!
In case you missed it…
You might also like:
- Treasurers of All-Volunteer Organizations: Eight Key Responsibilities
- An Easy-to-Use Accounting Procedures Manual Template
- A Guide for Private Foundations: Tax Exemption and 990-PF Filing Requirements
- Why is it Hard to Give My Money Away? A Donor’s Perspective
- Nonprofit Grant Proposal Budget Calculations: A Road Map
You made it to the end! Please share this article!
Let’s help other nonprofit leaders succeed! Consider sharing this article with your friends and colleagues via email or social media.
About the Author
Monte S. Meyers, MBA, founded Shining Star Consulting, LLC in 2006. His firm has helped many dozens of nonprofit organizations improve their financial systems and processes, pass audits, create effective budgets, develop clear policies and procedures, create useful financial reports, and develop insightful financial analysis. He has over 25 years of experience working with nonprofits in the fields of accounting, budgets, financial systems and processes, and financial reporting. He serves on the board of directors for two nonprofit organizations. For fun, he loves backpacking in Yosemite and singing the tenor part in the UC Alumni Chorus.
Articles on Blue Avocado do not provide legal representation or legal advice and should not be used as a substitute for advice or legal counsel. Blue Avocado provides space for the nonprofit sector to express new ideas. The opinions and views expressed in this article are solely those of the authors. They do not purport to reflect or imply the opinions or views of Blue Avocado, its publisher, or affiliated organizations. Blue Avocado, its publisher, and affiliated organizations are not liable for website visitors’ use of the content on Blue Avocado nor for visitors’ decisions about using the Blue Avocado website.
In addition, I’ve let donors know (via a statement at the bottom of a donation receipt, and/or the donation page on the organization’s website) that if someone chooses to donate an item, they also agree that the organization will choose how/when to use the item (which for some items include taking it to the thrift store).
I see some problems with this situation.
1. Why do they have to pay the CFO? Is the CFO not already being paid to do the job?
2. If the center claims these donated items as theirs, then they can certainly donate them to another non-profit to clear the space they are stored in.
3. The donors have already received their donation slips and once given, are no longer associated with the donated item, as it is not a restricted donation, is it? If it is restricted, i.e. it was solicited exclusively for the senior center to auction them off to raise money for the center, then the senior center is bound by that and has to auction off the items.
My first reaction is that the CFO should be fired. Charging you to “inventory” the donated items? Seriously? There’s gratitude.
And to add to the insult, I’d bet you organized the past auctions as a volunteer.
The items became inventory at the point of donation and should have been valued and booked as inventory at such time. The receipt of donated goods and a subsequent sale at auction are entirely separate transactions for federal reporting purposes, even though there may not be a significant amount of time between the donation and the sale. See the related discussion in the IRS Form 990 instructions for how to handle auction donations.
Separately, there is the issue of implied donor restriction on the use of the gifted auction items. The donors intended that the items be liquidated to help support the nonprofit, not that they be re-gifted to a different organization because it is not convenient to account for them. This idea may make things easier for the CFO, but is poor stewardship at best.
Ask the CFO to do his/her job or take the issue to the board.
The receipt given to donors for donated items should not list the value of the donation, only a description of the donated items. It is up to the donor to assign a value to it for their own tax purposes.
I agree with what Susan Davis said. In addition, the items can just be listed as they come in. If they are not entered into an accession data base, the organization can dispose of them however it wishes.
David
If you are planning an auction wouldn’t you already be inventory the items? I would not book individual items in the GL that are going to be auctioned in the very near term. If the auction is not in the very near term why are you collecting items. I have on serval occasions passed along donated items to another nonprofit. Often items are more suited and can better be put to use in the community by other nonprofits. Also I have seen donated items that can not be used (example used car seats) that should have never been excepted. I have also received items from other nonprofits so goodwill comeback around.
Why make the process so complicated by receipting items. The end value of the item is what the final bid is. We roster the items received and do not consider as part of our inventory but part of the Event’s supplies donated. Items are collected within a month of the Event. We separate funds from Silent Auction and Event price and over pays (donations) for accounting purposes.
Accounting issues aside, it looks like an underlying issue might be that the senior center doesn’t want to be responsible for storing the accumulated auction items. It could even be an indirect attempt to halt the silent auctions entirely. It seems wise to explicitly ask that question (“Does the senior center still want the silent auction program?”) to see whether other objections surface.
Sometimes you have to stop doing certain things in order to do a better job serving your clients.
First, I would want to know why the center decided not to accept donated items or give tax receipts to donors any more. Perhaps the items being donated are not as valuable to the center as the donors believe them to be. Perhaps the center doesn’t have the people power to handle the item drop offs, and it was causing discord among overworked employees. Perhaps they could use the space in other more mission driven ways. Perhaps the silent auction doesn’t earn enough to cover the expenses. Any one of these things would be a good reason to stop accepting donated items.
To get out from this past practice, the CFO should commission an inventory, and then take action to either put the items to use, or dispose of them. The CFO doesn’t have to personally do the inventory, they can supervise a volunteer or employee. The inventory would be a list in Excel, look up the values on the internet, add up the total value, then make a decision to either dispose, donate, sell, or auction depending on what action will gain the most for the center financially and in peace of mind. if there are some really amazing items in that room, like jewelry, antiques or works of art, proceed with caution: gather the donor representations, and check with a tax advisor to avoid a costly mis-step in how those items are handled. Best of luck!
For our silent auction we solicited donations, however, our policy stated no clothing accepted. Rather than appearing ungrateful to donors for their time and effort gathering their donations up and dropping them off to us, we simply separated out all clothing and donated it to another 501c3. We did not inventory prior to donating.