Valuing non-cash donations
The contribution of non-cash items – products and services as well as volunteer time – for social development purposes is a growing practice in South Africa and globally. It is a practice well-aligned to business and makes strategic sense. Almost a third of South African companies reported non-cash giving in 2021, and it comprised 13% of total social investment. In the US, non-cash giving constituted 22% of total giving in 2020, driven by product donations from the healthcare industry in response to Covid-19.
For many companies, non-cash contributions are a significant component of their social investment strategies. Non-cash support is a legitimate and quantifiable input to total social investment, with the BBBEE Codes allowing it to be included in socioeconomic development (SED) spend. However, not all companies are quantifying the value of these donations, particularly when it comes to volunteering time (only four companies disclosed a rand value of volunteering in Trialogue’s 2021 research). This is a missed opportunity. Further, in many cases the methodologies used to quantify non- cash donations vary across companies, making comparisons difficult. And the BBBEE Codes only require that non-cash contributions be valued at a “verifiable cost”, with little information on how this should be computed.
Trialogue recommends that companies quantify and include the value of non-cash contributions in their total social investment figures. The basis used to quantify such contributions should be transparent and communicated to enable comparability and avoid excessive claims of expenditure. Total social investment should also clearly delineate company contributions from consumer contributions through the likes of loyalty and cause-related marketing programmes – with only the company contribution counting towards total social investment.
Employee volunteer time
For volunteering time, companies should only include volunteering done by permanent staff within work hours. Volunteering on the weekend or outside of work hours should be excluded, even if organised by the company. Where pro bono professional services are provided, they should be valued at commercial hourly rates. The value of all other volunteer hours should be calculated as a direct cost to company based on individual earnings only (i.e. excluding benefits and performance bonuses). The BBBEE Codes recommend monthly salary divided by 160 for an hourly rate. Companies can use an average hourly cost-to-company rate per band/level of employee for ease of administration.
Donation of goods and services
Companies should value the donation of products or services at the fair market value of the items donated. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” or “the price at which the property or items would change hands between a willing buyer and seller while considering the current state of the product”.
Generally Accepted Accounting Principles (GAAP) require NPOs to disclose in-kind contributions with the purpose of providing a true reflection of the organisation’s revenues and expenses. This approach allows for a comparison across similar organisations. Companies can draw from these accounting standards when quantifying their non-cash contributions.
Determining a fair market value is not straightforward and can be based on several factors, including cost and selling price, sales of comparable items, replacement cost and expert opinions. The table below shows some of the best-practice approaches in determining fair prices for non-cash contributions.
|Donated auction items||At fair value on the date on which the contribution is made.|
|Public Service Announcement (PSA)||
Fair value should be estimated on the price per minute, based on the detailed listing of the PSA as stated by the provider – and not the economic benefits to be realised.
|Free usage of space||
Either at fair rent, or the difference between fair rent and the below-market rent if the NPO is paying for the office space.
|Donated professional services (i.e. skills-based volunteering)||
Use of average hourly rates for services:
|Contribution of land and buildings or other fixed assets||Transfers of land and other fixed assets should be recorded at fair market value where the fair market value is determined by an appraisal of the asset.|
|Donated stock||Recorded as a contribution on the date which the donation is made at its fair value on that date.|
|Guarantees||Recognised as an intangible contribution, which is the difference between stated interest on the loan agreement and the market interest rate that the NPO would have paid for entering a loan agreement without a guarantee.|
|Below-market interest loans||
Computed as the difference between stated interest rate in the loan agreement and the prevailing market interest rates.
Given the various methods available to determine fair market value, what is important is that companies and NPOs disclose the methodology used together with the value of the contributions.
This article was originally published in the Trialogue Business in Society Handbook