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A law firm that donates 40 hours of pro bono legal work, a landlord who waives a month’s rent, or a local business that donates laptops for a computer lab are all in-kind donations. Even though no cash changes hands, GAAP requires recording the fair market value of the donated goods or services as both revenue and a matching expense (or asset) — so the organization’s financial statements reflect the true value of resources it received and used.

FASB’s ASU 2020-07 tightened disclosure requirements specifically for gifts-in-kind, requiring nonprofits to report them separately from cash contributions on the statement of activities and disclose how fair value was determined.

Donated professional services are trickier: they only qualify for recognition if they either create or enhance a nonfinancial asset, or require specialized skills the org would otherwise have had to purchase (like the pro bono legal work above) — a volunteer stuffing envelopes doesn’t count, however valuable the help.

Running a job-training program takes more than program staff salaries — it also takes a finance team to pay them, an HR department to hire them, and an office to house them. Those shared costs are real, but they’re hard to trace to any single grant, which is exactly what an indirect cost rate is designed to cover.

Organizations that receive federal funding can negotiate a Federal Negotiated Indirect Cost Rate Agreement (NICRA) with their cognizant agency, or elect the de minimis rate (currently 15% of modified total direct costs) without negotiation, under Uniform Guidance. Private foundations set their own indirect cost policies, which historically lagged behind — a 2020 push across the sector aimed to normalize covering at least 15–20%.

An organization that consistently underclaims indirect costs isn’t being frugal — it’s quietly subsidizing every grant-funded program out of its own unrestricted reserves, which is one of the more common, slow-moving causes of nonprofit financial strain.