This weekend, Governor Newsom voted on the side of charities by declining to sign California Bill AB 1181.
Proposed by California lawmakers earlier this year in an effort to stop deceptive solicitation tactics by non-profits, California AB 1181 sought to further define fair value for Gifts-in-Kind (GIK) donations and propose arbitrary and unique accounting principles out of alignment with the United States Generally Accepted Accounting Principles (GAAP). GAAP, recognized as the authoritative standard and uniformly applied across the United States, ensures transparent and consistent financial information for investors, donors, and other users.
If enacted, this bill would have required charitable organizations to adjust the fair value of GIK contributions to the end recipient’s market rather than the “principal market” as defined by GAAP and would create separate and unique “California standard” for nonprofits who seek charitable contributions in the state. This would have required Non-Governmental Organizations (NGOs) to maintain two sets of financial records, one to comply with GAAP and the other to comply with California. This would not only increase non-programmatic costs to NGOs and donors, it would also undermine financial standards which are intended to foster transparency, comparability, and common understanding of charities’ financial results, thereby creating confusion, inconsistencies, and misunderstanding for the public.
NGOs that could not satisfy the dual expectations to value commodities to comply with the conflicting GAAP and California guidance for any reason (i.e. size, resources, etc.) may have needed to close programs or reduce services. In those instances, communities in need may suffer greatly with potentially subpar commodities entering the market, or no commodities or assistance arriving at all. The costs and administrative burden for smaller organizations have significant weight in decision making. The expense and time it would take to value in-kind donations as specified by A.B. 1181 would exclude some NGOs from certain areas of international work or the way in which they respond. Smaller NGOs often have access to more niche projects with greater flexibility than a large organization and can venture into remote villages in disasters to establish medical aid. This bill limits smaller NGOs’ options in responding if they cannot support the valuation of much-needed items being given in these contexts, thereby limiting or precluding the provision of lifesaving aid during times of crisis.
Alongside accounting and auditing governing bodies, InterAction and more than 40 Members and partners, including Accord Network, showed Governor Newsom that charities would face burdensome implementation challenges.
We as a sector have made great strides in organizational accountability and transparency and will continue to work with the Financial Standards Accounting Board and other agencies to ensure that we improve gifts in kind valuation. In 2018, InterAction Members adopted new outcomes measurement standards and a pharmaceutical gift in kind valuation methodology intended to help organizations determine whether a product can be considered a donation and the products’ domestic or international value. In 2018, the Partnership for Quality Medical Donation’s board and membership adopted the methodology and in 2019 Accord’s members have also come on board. In addition, we have been working with the Financial Accounting Standards Board (FASB) by sharing our methodology and participating in their Gifts-In-Kind Working Group to address the important and complex fair value questions raised by the Attorney General’s office in California. We support the work that they are doing to research these issues and maintain the high-quality, independent standard-setting, and would like to further collaborate with them going forward.
InterAction recognizes that there is much work to be done going forward and looks forward to working with its partners in achieving a better solution.
Read our official statement HERE.