Headache #10 - Tracking Volunteer Time

By Dennis Walsh CPA

Can you imagine our nonprofit sector without its millions of volunteers contributing their
time and talent? Without philanthropic minded people offering more than financial
support, much of our sector would simply collapse in a vacuum of human capital. It is a
simple truth that much of this volunteer effort escapes measurement or goes unnoticed
altogether. The board member who regularly goes out of her way to make personal
appeals to prospective donors or the couple helping in response to an impromptu call for
extra help cleaning up after the annual banquet are two common examples of this silent
army in action.

From the bottom of the organization to the top and across all program and management
activities, the effect of volunteer service is integral to the ongoing performance of most
nonprofit missions. While it is not reasonable to expect that an organization can capture
and measure the full impact of volunteer effort, the purpose of this article is to introduce
some issues to help guide you in deciding under what circumstances it is desirable or
necessary to track and report the service of your volunteers. Armed with this knowledge,
the headache of tracking volunteer time can quickly turn to the pleasant realization of an
opportunity to recognize and build on your vital volunteer resources.

Why track volunteer time?

People volunteer for various reasons, but whatever their motivation, most share a need
for appreciation. Volunteers are people and people need their strokes. Volunteers need
to be recognized at program events, in your newsletter and annual report, on your
website, and at organizational gatherings. The return to the organization for the minimal
resources needed to express gratitude is huge, while the failure to recognize volunteer
service can be demoralizing, result in increased volunteer attrition, and hurt mission
effectiveness.

One of the best ways to ensure that volunteers don’t go unrecognized is to implement a
system to record donated service at the time received. This will provide a means to
capture volunteer effort for the important management purposes set forth below, lessen
the likelihood that volunteer effort falls through the cracks unnoticed, and provide a
means to help identify and objectively rank volunteer service deserving of special
recognition.

In addition, funders and other stakeholders need to know who’s with the program.
Prospective grantors and other donors need a complete representation of resources
available to your nonprofit, particularly for organizations that depend more heavily on
volunteers. As you compete with other worthy missions for financial resources, it’s up to
you to show that you’re adequately staffed to get the job done. Unless volunteer data is
included with fundraising proposals, financial statements, and other documents
describing your organization and activities, donors and other stakeholders will have an
incomplete picture of your available resources and how you will be able to accomplish
your mission.

Also, certain grants may stipulate that the nonprofit must match a percentage of grant
funds, and that the value of volunteer time may qualify toward satisfaction of the match
requirement. In this case you’ll need sufficient documentation of qualifying volunteer
time that is appropriately valued. The North Carolina Office of State Auditor has
developed a sample volunteer time sheet that meets the state documentation requirements
for applicable government grants. This worksheet should also be suitable for
substantiating volunteer service for the various purposes addressed in this article.
However, you should seek the help of appropriate advisors in determining any additional
data you may need to accumulate specific to your organization.

Your accounting software should include features that enable you to easily input data
from volunteer time sheets and generate reports useful for the management of volunteer
resources. Using relatively low cost accounting software such as QuickBooks Premier,
Microsoft Office Accounting, or Microsoft Excel, you can create reports to measure,
manage, and recognize volunteer service. You can filter data by criteria such as date
range, activity, volunteer class, individual, time contributed, or combinations of such
criteria.

In addition to summarizing volunteer input for organizational reports and financial

statement preparation, you will have the information needed to more efficiently allocate
limited human resources, volunteer and paid staff alike, in planning for upcoming
programs and special events. This will also be of aid in preparing the annual financial
budget. You’ll be in a better position to forecast paid staff needs by more accurately
predicting complementing volunteer resources, based on your documented experience.

Documenting volunteer activity may be important from a legal standpoint as well. North
Carolina law provides immunity for nonprofits and volunteers in cases of nonvehicular
civil liability when the volunteer acted reasonably and in good faith under the
circumstances, except to the extent liability insurance covers volunteer negligence. In
spite of this general rule of immunity, volunteers may be considered agents of the
nonprofit and their negligence can bind the organization in certain situations. Requiring
the contemporaneous completion of volunteer time sheets has the added advantage of
creating a basic record of activity that may become important evidence in defending an
action for alleged volunteer misconduct.

When is volunteer service recognized in the financial statements?

Generally accepted accounting principles (GAAP), which must be followed by your CPA
in the compilation, review, or audit of financial statements available to outsiders,
provides specific guidance on the measurement and reporting of volunteer service.
Statement of Financial Accounting Standards (SFAS) No. 116, Accounting for
Contributions Received and Contributions Made, states in relevant part: “Contributions
of services are recognized only if the services received (a) create or enhance non-
financial assets or (b) require specialized skills, are provided by individuals possessing
those skills, and would typically need to be purchased if not provided by donation.”

The first part of this requirement, to create or enhance non-financial assets, speaks to
situations where an asset, that is, property owned by your nonprofit, is created or
improved in whole or in part through volunteer effort. A common example would be the
construction of a facility with a volunteer workforce, regardless of whether skilled or
unskilled labor is involved. Although you may wish to track volunteer input for other
reasons discussed herein, the accounting rules provide a simpler optional alternative to
tracking and valuing such donated service to be included as part of the cost of the
finished asset.

Specifically, SFAS 116 provides that such services may be measured by referring to
either the fair value of the services received or the fair value of the asset or of the asset
enhancement resulting from the services. In other words, you may value and report the
contributed service as the difference between the fair value (e.g. appraised market value)
of the finished asset and the out of pocket costs incurred in its creation. You would
record the asset at fair value on your books and recognize this difference, representing the
imputed value of the volunteer effort, as revenue from donated services.

The second criterion for recognizing donated services in the financial statements requires
a decision as to whether the services are of a specialized nature and of a type that would
have been typically purchased were it not for the donation. SFAS 116 provides that
“Services requiring specialized skills are provided by accountants, architects, carpenters,
doctors, electricians, lawyers, nurses, plumbers, teachers, and other professionals and
craftsmen.”

Donated services that meet this requirement are reported on your statement of activities
as a component of revenue, and as a separate expense. The theory is that the organization
received both a contribution and incurred an expense in the nature of the service
provided. Without this treatment, both the revenue and expense of the nonprofit would
be understated.

To illustrate, audit services contributed by a CPA clearly meet the specialized

requirement and would be recognized as donated revenue with an accompanying expense
for accounting fees, assuming the organization would have otherwise contracted for an
audit. In essence, the accounting rules treat this event no differently than had the CPA
made a cash donation in the amount of the audit fee and the nonprofit later remitted the
same amount to the accountant in payment for the audit service. By contrast, the
donation of cleaning services would not meet the specialized service criteria even if such
services would have been purchased were it not for the donation. Each contribution must
be evaluated based on the facts of the situation.

SFAS 116 also encourages organizations to disclose the fair value of contributed services
received but not recognized as revenues if practical. This provides an opportunity to
recognize the contributed cleaning services not qualifying for reporting as revenue in the
prior example. This would typically be accomplished through descriptions of services
contributed by program, management, or fundraising activity, number of volunteers,
hours contributed, and estimated value, all collectively summarized in the footnotes to the
financial statements.

Unlike volunteer service that meets the GAAP criteria for inclusion in your financial
statements, contributed services are not to be included with other revenue and support in
Part I of the IRS Form 990. This is one difference between financial accounting and IRS
reporting for nonprofits. You have the option, however, to include the estimated value of
donated services along with a description of the role and input of volunteers in Part III in
the narrative description of program services.

Since Form 990 is available for public inspection, it is in your best interest to describe
volunteer input and report the estimated value of donated services in Part III so that
stakeholders and other interested parties will have a more complete picture of your
activities. With free online services such as GuideStar.org, your Form 990 is only a few
mouse clicks away from the rest of the world. If you are not required to file a 990, you
should be sure to include volunteer data in a periodically updated report of activities to
GuideStar.

How is volunteer time valued?

For volunteer service involving specialized skills, it is appropriate to value such service at
the vendor’s customary charge. Stated differently, this is the price you would expect to
pay an unrelated person in the open market absent any donative element. In some
situations you will be able to obtain this information from the volunteer vendor or one of
its competitors. In other instances you may find it necessary to make a reasonable
estimate based on your record of time and the average hourly value for similar services,
using the specialized occupational rates provided by the Bureau of Labor Statistics or
other objective sources.

In the case of non-specialized services, including much of the volunteer help many
nonprofits receive with program administration or at special events, it is acceptable for
most purposes to use one of the composite annual rates discussed below. Bear in mind
that there will always be an element of judgment in valuing the services of volunteers.

The estimated national dollar value of volunteer time for 2006 is $18.77 per hour. The
North Carolina estimate for 2005 is $15.93. These values are based on the average
hourly earnings of all production and non-supervisory workers on private non-farm
payrolls (as determined by the U.S. Bureau of Labor Statistics. These statistics are
published by geographic area and occupation as well.

Copyright © 2007 The Deborah and Dennis Walsh Foundation