Let’s Set Standards on Valuing Gifts

By David W. Brown

For boards and CEO’s, understanding fund-raising results used to be simple. The charity’s development officers would present a tally of gifts and pledges, and the numbers were understandable. Comparisons could be easily made with peer institutions.

That was when fund raising almost exclusively emphasized outright gifts. Today, most nonprofit groups are seeking both outright gifts and planned gifts, such as bequests, charitable trusts, and annuities. Unfortunately, however, no single national standard exists to determine how to report or value planned gifts, which are often received decades after they were first pledged. In fact, boards and CEO’s may see the same gifts counted two ways, often depending on whether the values are being reported internally to planners and budget officers at a nonprofit group or externally to donors and other members of the public.

Not only is that confusing for an organization’s trustees and chief executive, but if such discrepancies became more visible, the public is likely to become distrustful. Many people think charities routinely practice deception, and lawmakers and regulators are so worried that many are considering new restrictions on nonprofit groups. As charities become more and more aggressive in seeking planned gifts, they need to couple that with an equally vigorous effort to make sure that donors and others can trust the figures that organizations release every year.

At least things are better now than in 1989 when Rita Bornstein, now president of Rollins College, surveyed 29 universities on how they determined how much they had collected in their capital campaigns, and found they used four different approaches to coming up with their numbers. In the past two years, standards have been issued by the Council for Advancement and Support of Education, which represents fund raisers at colleges and private schools, and by the National Committee on Planned Giving, which represents development officers who specialize in planned giving. The education group’s standards will probably lead to a revision of the standards endorsed by the Association of Fundraising Professionals on valuing gifts.

The transition from a time when charities had no standards to a time when they can follow standards set by three respected organizations still leaves the nonprofit world wandering through the Land of Oz on the issue of how to fairly value planned gifts. To paraphrase the Scarecrow’s advice to Dorothy: “Some people go this way, some go that way, and some go both ways.”

In fact, just using one set of standards can cause that kind of confusion. The standards issued by the National Committee on Planned Giving allow organizations to choose differing appreciation and deflation rates, so boards and chief executives might see one gift assigned a value in reports to the public, and another in internal reports.

It’s time for charities to insist on one set of standards that everyone can follow. Other professions — accounting is a prime example — have dealt with conflicting approaches by creating boards to set standards, such as the Financial Accounting Standards Board. The boards are structured for independence. They are also set up to give a voice to people affected by their decision making and to be financed by the organizations that will use the standards.

The creation of a board to determine how planned gifts should be valued and reported should be the work of several organizations. Groups that represent financial executives of nonprofit groups and those that represent fund raisers should be invited to support the board and subscribe to its standards.

Such a board should reach out to similar boards in related professions, particularly finance, accounting, and actuarial science for advice about how to proceed.

The risks of inaction cannot be overestimated. Without a single set of standards, boards and CEO’s are in an awkward position. They can be accused of “fuzzy math” and “creative accounting” — charges that will undermine confidence in the reporting of fund-raising results. With esteem for the nonprofit world seemingly at ebb tide, now is hardly the time for charitable organizations to lay themselves open to another challenge to the public trust.

David W. Brown is director of planned giving at Georgia State University and immediate past president of the Georgia Planned Giving Council.