Adopting a Gift & Grant Acceptance Policy: A Guide for Nonprofit Organizations

Nonprofit organizations play a vital role in addressing societal needs and advancing community goals. Gifts and Grants—whether monetary or noncash—are the lifeblood of these organizations. However, without a clear Gift and Grant acceptance policy, nonprofits risk jeopardizing their mission, reputation, and operational effectiveness. This article explores the key considerations and challenges involved in adopting a comprehensive Gift and Grant acceptance policy.

Determining Which Gift & Grant to Accept

The first step in creating a Gift and Grant acceptance policy is defining the types of gifts and grants the organization is willing to accept. These may include:

1. Monetary Donations: Cash donations, grants, and pledges are the most straightforward contributions, typically used to support operational or programmatic needs.
2. Government Grants: These grants often come with specific requirements, such as detailed reporting, programmatic oversight, and compliance with federal, state, or local regulations. While government grants can provide significant funding, nonprofits must ensure they have the capacity to meet these obligations.
3. Noncash Contributions: Noncash contributions can include real estate, securities, vehicles, art, equipment, intellectual property, and in-kind services.
4. Restricted Contributions: Donations tied to specific purposes or programs. While these contributions can be highly beneficial, they come with compliance obligations.

Organizations must assess whether each type of contribution aligns with their mission, operational capacity, and strategic goals.

Risks of Accepting Certain Contributions

Accepting contributions without thorough vetting can lead to significant risks, including:

1. Mission Misalignment: Contributions that do not align with the nonprofit’s mission can divert resources and dilute the organization’s focus.
2. Reputational Damage: Donations from controversial or unethical sources can harm the organization’s credibility. For example, accepting funds from entities involved in industries that conflict with the nonprofit’s values (e.g., tobacco companies for a health-focused nonprofit) can alienate stakeholders.
3. Compliance Burdens: Contributions with restrictive terms may require substantial resources to comply with the donor’s conditions. If these terms outweigh the potential benefits, they may strain the organization’s operations.
4. Government Grant Complexities: Government grants often require extensive record-keeping, audits, and adherence to specific guidelines. Noncompliance with these requirements could lead to penalties, loss of funding, or reputational damage and possibly other legal liabilities.

Compliance and Restricted Contributions

Nonprofits must carefully evaluate whether they can meet the terms of restricted contributions. For example:

1. If a grant requires detailed reporting, specialized programming, or matching funds, the administrative burden could offset its financial benefits.
2. Failing to comply with donor restrictions may result in legal liabilities and reputational harm.

Valuation and Management of Noncash Contributions

Noncash contributions present unique challenges in terms of valuation, management, and use. Accurate valuation is critical for financial reporting and compliance with tax regulations. The fair market value is typically used, but some items—such as rare art or unique intellectual property—may require professional appraisals.

Organizations should decide whether noncash contributions will be:

1. Held: Items such as equipment, furniture, or vehicles may be retained if they serve the organization’s mission or operations.
2. Sold: Items that do not have immediate use but possess monetary value can be sold to generate unrestricted funds.

Risks of Accepting Noncash Contributions

Noncash contributions carry inherent risks that must be evaluated before acceptance:

1. Lack of Utility: Items that are not directly beneficial to the organization may require storage, maintenance, or disposal, incurring additional costs.
2. Difficulty in Sale: Some noncash items may have limited marketability or require significant effort to sell. For example, a piece of specialized equipment or artwork might have a niche market, delaying the conversion of the asset into funds.
3. Hidden Liabilities: Real estate donations, for instance, may come with environmental liabilities, zoning restrictions, or maintenance obligations.

Crafting a Comprehensive Contributions Acceptance Policy

To mitigate these risks and ensure alignment with organizational goals, a contributions acceptance policy should:

1. Define Acceptable Contributions: Clearly outline the types of contributions the organization will accept, considering mission alignment, utility, and resource requirements.
2. Establish a Vetting Process: Implement procedures for evaluating contributions, including due diligence on donors and assessment of noncash items.
3. Set Restrictions on Noncash Contributions: Specify whether certain types of noncash donations will be held, sold, or declined outright.
4. Ensure Transparency and Accountability: Maintain clear documentation of contribution terms, valuation methods, and usage.
5. Involve Legal and Financial Advisors: Seek expert advice on complex contributions to avoid unintended liabilities or compliance issues.
6. Address Government Grants: Develop processes to ensure compliance with government grant requirements, including staff training, financial tracking, and regular audits.

Looking Ahead

Adopting a robust gift and grants acceptance policy is essential for nonprofit organizations to maximize the impact of donations while safeguarding their mission and reputation. Nonprofits can and do benefit from all sorts of gifts and grants and they are often vital in allowing organizations fulfil their mission.  Adopting meaningful and comprehensive policies will allow organizations to do so most effectively and mitigate or at least minimize risk. By proactively addressing the challenges associated with various types of contributions, nonprofits can ensure sustainable growth and maintain trust with their stakeholders.

If you have any questions or need further guidance in drafting and tailoring appropriate policies for your organization, we are here to help. Please do not hesitate to reach out to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.