The interpretation of state laws regarding gifts-in-kind reporting has come into question following a cease-and-desist notice regarding the inclusion of certain language in fundraising appeals to three nonprofits by California Attorney General Xavier Becerra. The state has taken issue with what it calls misrepresented revenue figures that distort the organizations’ overhead expense ratios.
The figures in question involve the valuation of donated pharmaceuticals which the organizations use in providing medical services to those in need. In response, all three organizations issued statements communicating their commitment to transparency and accountability, and that their financial statements, audited annually by independent accounting firms, are in full accordance with Generally Accepted Accounting Principles (GAAP).
It is unusual to see state regulators take an aggressive stance on these types of gifts-in-kind, particularly when the valuations are subject to interpretation. How donors perceive overhead ratios is also open for debate, as evidenced by a recent study indicating that donors aren’t as concerned about the particulars of overhead spending as much as has been widely believed.
ECFA will continue to monitor this situation as it develops.