The Best Way to Account for Non-Monetary Donations (e.g., Volunteer Hours, Goods)

 Non-monetary donations, including volunteer hours, goods, or services, can play a crucial role in supporting a church's mission. Whether it’s individuals donating their time or organizations providing goods such as food, clothing, or equipment, these contributions are vital to a church’s success. However, accounting for these types of donations can be complex, especially since they don't involve cash or direct financial exchanges.

In this blog, we’ll explore the best practices for accounting for non-monetary donations to ensure transparency, proper record-keeping, and compliance with legal and tax requirements. We’ll cover how to track volunteer hours, in-kind donations, and how to report these contributions in your church's financial records.

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1. Accounting for Volunteer Hours

A. Understanding the Value of Volunteer Hours

Volunteering is a form of donation that many churches rely on, as volunteers dedicate their time and talents to further the church’s mission. While you cannot directly "pay" for volunteer time, it’s important to acknowledge and track it for internal purposes, as well as for reporting to donors or tax authorities.

Why track volunteer hours?

• For grant applications or funding opportunities, certain organizations may require an estimate of the value of volunteer time.

• For tax reporting: In some cases, churches can use volunteer hours to demonstrate the church's reach and its impact on the community.

B. Determining the Value of Volunteer Hours

Although volunteer hours aren't directly translated into money, churches can assign a value to the time volunteered, based on the national volunteer rate or a standard hourly rate for similar tasks. For example, the Independent Sector, a U.S.-based organization, annually publishes an estimated volunteer hour value which can serve as a benchmark.

• Example: If the national average value of a volunteer hour is $25 (depending on your country), and a volunteer works for 10 hours in a given month, you would record a donated value of $250 (10 hours x $25/hour).

C. Recording Volunteer Hours

To account for volunteer hours, churches can use simple systems like spreadsheets or more advanced church management software (CMS) to record:

• Name of volunteer

• Date of service

• Hours worked

• Estimated value of service

This data should be compiled regularly, ensuring that all volunteer hours are documented accurately. It’s also important to note the type of work done, whether it’s administrative work, event planning, or community outreach, as this may impact the value or category of the contribution.

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2. Accounting for Goods and In-Kind Donations

A. What Are In-Kind Donations?

In-kind donations are non-cash contributions, such as goods or services, rather than money. These could include:

• Clothing, food, and household items for outreach programs or food pantries

• Furniture, equipment, or supplies for church events or office needs

• Services like free legal advice, design work, or accounting services

These donations are just as important as monetary gifts because they provide essential resources to help the church achieve its mission without incurring the costs of purchasing the items or services.

B. Valuing In-Kind Donations

When accepting in-kind donations, churches need to determine the fair market value (FMV) of the goods or services being donated. The FMV is the price at which the goods or services would sell in an open market.

• For Goods: Churches can use online marketplaces, catalogs, or industry-standard prices to estimate the FMV of items such as food, clothing, or equipment.

  Example: If a local grocery store donates 100 cans of food, and each can has an FMV of $2, the total in-kind donation would be $200 (100 cans x $2 each).

• For Services: If a professional provides a service such as legal counsel or plumbing work, churches should assign a value based on the market rate for that service. For example, if a lawyer donates 5 hours of work and the average hourly rate for legal services is $150, the FMV of the service would be $750.

C. Recording In-Kind Donations

Churches should create a process for documenting in-kind donations, including:

1. Description of the donation: Clearly document what was donated (e.g., 100 cans of food, 10 hours of plumbing work, etc.).

2. Value of the donation: Assign the FMV of the donation (based on your research or standard industry rates).

3. Donor information: Record who made the donation and the date it was received.

4. Purpose: If applicable, note whether the donation was intended for a specific program or ministry (e.g., outreach program, food pantry, church event).

It’s important to track in-kind donations separately from monetary donations so that they can be properly accounted for in the church’s financial records.

D. Reporting In-Kind Donations

In-kind donations should be included in the church's financial statements, even though they are not actual cash flows. When reporting in-kind contributions:

• List the total value of in-kind donations under a separate line item from cash donations.

• In your statement of activities (or income and expenses statement), include a section for non-cash contributions. This ensures transparency about the value of goods and services donated.

If your church is required to file an annual tax return (such as a Form 990 in the U.S.), it may need to report both the value of in-kind donations and the number of hours volunteered.

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3. Best Practices for Accounting Non-Monetary Donations

A. Establish Clear Policies

It’s essential for churches to have clear policies in place for accepting and recording non-monetary donations. This should cover:

• What types of goods or services will be accepted

• The process for assigning and verifying the value of in-kind donations

• How volunteer hours will be tracked and reported

These policies will help ensure consistency and transparency in how non-monetary contributions are handled.

B. Use Church Management Software

Using a church management system (CMS) can streamline the tracking and accounting of non-monetary donations. Many church management software platforms allow for easy input of in-kind donations, volunteer hours, and even the tracking of goods donated. This can save time and reduce errors in documentation.

C. Regularly Communicate with Donors

Churches should keep donors informed about how their non-monetary donations are being used. Regular thank-you letters or receipts, which acknowledge both the value and impact of the donation, can help donors feel appreciated and encourage continued support. If volunteers or donors have made significant contributions, consider publicly recognizing their generosity (with their permission) during services or through church bulletins.

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4. Conclusion

Properly accounting for non-monetary donations such as volunteer hours and in-kind gifts is crucial for maintaining financial integrity, ensuring transparency, and demonstrating the true value of the church's resources. These contributions may not show up as cash in the church’s bank account, but they are vital to the operations and mission of the church.

By adopting clear policies, using software to track donations, and valuing volunteer work and in-kind gifts accurately, churches can make the most of these generous contributions. Additionally, it is essential to communicate with donors about the impact of their donations, ensuring they understand how their gifts are being used to further the church’s mission.

By following these best practices, churches can successfully manage non-monetary donations, promoting a culture of generosity while maintaining transparency and accountability.