The In-Kind Reporting Paradox

Somewhere there is a warehouse full of snowsuits. They are very good snowsuits. Warm, well-made, the kind of thing that gets a kid through a prairie winter without complaint. They are also two years out of fashion. The company that made them will try a few things first. Employee sales. Sales through relationships. Whatever clears inventory that has stopped clearing itself. Then whatever is left over becomes waste. A highly functional, genuinely valuable piece of winter clothing, potentially headed for landfill. 

That is usually when someone in Community Investment gets a phone call. Find an organization that could put every one of those suits on a child who needs one!   Linking product to need can be fairly easy.  Distributing product to meet the need can offer many logistical challenges.   It’s done.  It has impact. Now, how to report this investment so its value is appreciated internally and reported credibly?  

Three routes to value in-kind 

In-kind giving is one of four ways a company contributes to the community. The first three are cash, volunteer time, and program management costs.  The fourth is in-kind: products, goods, and services given instead of money. 

In-kind gifts differ in how they originate. Some companies actively plan to produce for in-kind giving.   But typically, in-kind donations result from either products that don’t sell or equipment that is still useful, but a company has decided to replace.   In the old days, unsold goods and outdated equipment went to landfill. Thankfully, initiatives now get food that is still safe to eat to people who need it, and products are more frequently distributed to where they can be used. These are a far better outcome than waste. 

It is important to notice, though, that many (if not most) in-kind gifts begin their life as surplus. That matters enormously if you want to include the value of in-kind giving in a published statement of the value of corporate giving. 

By the time you give it away, your accountant has written it off

Your accounting system has already decided the value of those snowsuits long before your community investment team hears about them. Their value has been reduced to $0 on the corporate balance sheet. That is what happens to inventory that isn't going to sell. 

Computers work the same way. You buy a computer, and it immediately enters a depreciation cycle. It doesn't matter how well the machine still runs four years later. According to Revenue Canada, that equipment's value has dropped by 93.39%. So when the company gives that surplus away, the cost (to the giving company) is close to $0. In many cases, it is exactly $0 because accountants have determined the asset has no remaining value. 

Key point - this is not a reflection of value to the recipient. Not at all. This does not reflect on whether the gift was worth making. It does say something about one specific number: what it cost the company to give. 

The value of receiving is completely different 

The same snowsuit is worth a great deal to the person who ends up wearing it. Someone who would otherwise have to buy winter gear of that same quality would value the gift highly.  The organization receiving those donated computers would otherwise have had to buy computers. Sometimes the equipment goes to a partner who refurbishes it and passes it on, and the value multiplies again from there. Value to the recipient will be far greater than the cost to the giver. Both are true at the same time. They are simply not the same number. 

Companies give real estate. They give art. They give vehicles, equipment, food, clothing, technology. In every one of those categories, the gap between what it cost the company to make the gift and what it was worth to the recipient can be very wide. The gap itself is fine. It is an interesting and compelling story!  The trouble in corporate reporting comes from collapsing the two numbers into one. Some companies make the mistake of reporting their in-kind gifts at market value. I understand the appeal. It produces the biggest possible number, and under a self-reported standard with no third-party audit behind it, nobody is going to ask. The impact this has on others in the field is harder to see from the outside. 

I once watched a Community Investment team at a national food company spend most of a year answering the same question. Why is the grocer down the road giving sixteen million dollars when we are giving eight? The two numbers reported were never referring to the same thing. 

The grocer's sixteen million was referring to surplus food, valued at what it might have sold for if it had been purchased. But it wasn’t purchased; it was excess inventory, some of which may well have been close to the expiry date. While the food met an important need, it had no value to the giving company.  Otherwise, it would have gone to landfill. On the other hand, the food producer's eight million reflected what its Community Investment cost the business. Budget dollars somebody had to approve. In-kind valued at the costs incurred to give product away as part of a clear giving strategy to impact the community in a meaningful and deliberate way. 

Once you report at market value, that number becomes the expectation you get measured against 

The second problem is inside your own company. Say your team reports ten million dollars, because ten million is what your in-kind giving is worth at market value. The budget you were working with was actually one million. Your executives read the ten. That is the figure that goes into the sustainability report, into the board deck, and into the expectations that come back to you. The following year, you are asked what a ten-million-dollar community investment program achieved. What is the ROI. You are compared to companies that decide to invest $10 million. Nobody in that conversation remembers that they should expect results equal to the approved budget of one million. They expect ROI on the $10 million.  

You can report both numbers, as long as you keep them separate 

None of this means the community should go without reporting the value. It should. It is one of the most interesting things a company has to say. It just needs its own line. The value of your deliberate contribution sits at the centre of the story: what the company gave in cash, in kind, in time, and in program management costs. Those are the tangible costs, the ones that appear in your accounting system with a budget line attached. Around that sits external resources leveraged. That is everything you mobilized but did not pay for. Employee dollars you invited and received. Supplier contributions. Customer contributions. Match funding from another funder or a government department. And around that again is the value experienced in the community because all that activity happened. 

So the sentence you want has two numbers in it. Our company contributed a million dollars. We enabled five million dollars of value in the community. Both are true. Both are worth saying. Neither one needs the other's number to sound impressive. That is a considerably better story than a single inflated figure. It is also one you can defend in any room you have to walk into. 

Getting clear on the cost of the gift is what makes the value of the gift believable 

A large part of what we do with the companies in LBG Canada is work out exactly this. What can be claimed, and at what value, and under which heading. It gets specific quickly. One manufacturer loans a vehicle for a year or two, then takes it back for resale. That vehicle returns to the balance sheet as an asset the company still owns, so we worked out a formula to claim a reasonable gift value. Clothing, technology, food, and equipment each raise the same question, just in a different way. None of it is glamorous work. It is closer to an accounting framework than to advocacy.  But it is the thing that makes everything downstream believable. 

When you are clear on what your gift cost you, you can be generous about what it was worth to somebody else without anybody wondering whether you are inflating its value. You get to tell both stories. You get to defend your budget with a number your CFO will understand and sign off on. 

Today, it is more about the credibility of the reported information than the value of the gift. If you are not reporting the value of in-kind giving because you're not sure what value to report, or you are curious whether your numbers are correct, that is worth a conversation.