Tuesday, October 23, 2012

Ideally, I should learn a new acronym every day (BCS and GIK)

I'm plugging along on the first draft of my book, and I just wrote a passage in which the dangers of acronyms are well illustrated. Acronyms can mean many different things to many different people. When someone uses an acronym to mean one thing, someone else may think it means a totally different thing, and therefore misinterprets what the first person is saying. As for the specific example...you'll have to wait for the book.

Unfortunately for me, the Breast Cancer Society of Mesa, Arizona does not appear to use the term BCS. But the Arizona charity does share one thing in common with the Bowl Championship Series - it's controversial.

Jim Ulvog has been writing a series of posts about gift-in-kind valuations and how they affect nonprofits. As for why gift-in-kind valuations are important, read this post for an example. The post describes how, because of an accounting standards change, donated medicine (in pill form) that was valued for accounting purposes at $9.07 per pill in one year was re-valued at $0.35 per pill in the following year.

Ulvog has written a number of posts about gift-in-kind valuations, and presumably his fingers get tired at times. For this reason, and because his posts are usually written for people with a background in non-profit accounting issues (needless to say, I'm an exception to this), Ulvog often uses the acronym "GIK" to refer to gift-in-kind valuations.

OK, maybe you have to be an accounting geek to understand GIK. But every line of business has its own acronyms, and yours is probably no exception.

What does this have to do with the Breast Cancer Society? Plenty, as Ulvog points out in another post. Ulvog summarizes the contents of a report that discusses the BCS (sorry, couldn't resist) and other charities, and notes the following:

Key data points for further analysis:

o 38M GIK revenue
o 14M raised by fundraising vendors

o 33M GIK expenses
o 12M fundraising costs

So for this particular charity, gifts in kind have a much higher value than fundraising activities. But that's because of the way that said gifts were valued. If the GIK were grossly overvalued, then the revenue raised by fundraising vendors, and the costs from fundraising expenses, would be much more significant.

Which brings us to this article (which, as you'll see, DOES use the acronym "BCS" to refer to the Breast Cancer Society). Here's an excerpt:

Borochoff says non-cash items like the ones BCS claimed in their tax returns are hard to track.

In the case of BCS, they are medicines and other items donated to the charity, and then sent to help people out of the country. The charity puts a value on them for tax purposes.

But Borochoff says they can be valued much higher than they are actually worth, making the charity appear to be more charitable than it really is.

“It's very convenient for the charities because they can hide not only what the goods are but who specifically receives them,” Borochoff said.

And BCS is not the only charity claiming millions in non-cash donations. The Internal Revenue Service recently fined a different charity for claiming it had given away $75 million in non-cash contributions that the IRS said were actually worth just $93,000.

Now the IRS, to my knowledge, has not fined BCS. But even a layperson such as myself can understand how questions about GIK valuations can have large ramifications.

From my layperson's perspective, it seems to be a very murky area. I performed a Google search for the words "gift in kind valuation," and in addition to a link to Ulvog's blog, I ran across a number of different pages, from a number of different non-profit organizations (such as universities), detailing each organization's procedures for valuing gifts in kind. I also found a page that mentioned a major issue - one that I have personally encountered when donating clothes, books, and other items to charities:

By law, non-profit organizations cannot provide a donor with the dollar value of an In-kind gift. Such valuations when applicable, relative to "fair market value" of In-Kind gifts, need to be professionally assessed and certified elsewhere—if they can be—and that is the responsibility of the donor. This certification subsequently needs to be resolved with the professionals and others who prepare the donor's tax forms—whose work in turn will need to be reconciled with IRS regulations.

Because my in-kind donations are not of the same order of magnitude as those from someone like Bill Gates, my personal solution for valuation of my in-kind gifts is fairly simple. First, I decide if the item in question is in excellent condition, good condition, fair condition, or poor condition. Second, I use the donations add-on that came with my tax software package to choose the value for the item.

When you're as big as the BMGF (Bill & Melinda Gates Foundation) or the BCS (Breast Cancer Society), things can get a little more complex.

And if an organization such as the one that the IRS fined is doing bad stuff, it's yet another example of the difference between the idealistic goals of an organization and the fallible human beings who actually run the organization.
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