Uncovering The Mystery of Donated Gift Cards

     Recently, I got a call from a nonprofit that I work with. They’d had a year-end giving campaign in which they had invited their community of supporters to donate gift cards and they were completely overwhelmed by the response. These gift cards were meant to be  a resource to help provide gifts or incentive  opportunities to the population that they served. Well, they received more donated gift cards than they could have ever imagined, which was a pleasant surprise. But they received an additional surprise from their auditor, who informed them that these gift cards needed to be inventoried, counted, and recorded on their balance sheet, due to the monetary value involved.

     So today, I thought I would share that story with you for context, since what I'm about to provide is good guidance for all of us, no matter the quantity or value of of gift cards you receive. Whenever these amounts become material, or large, (a number that will vary from one organization to the next) your auditor will have similar requirements. Whether you receive an audit or not, here’s my recommendation for a simple procedure for tracking donated gift cards. 

Checklist for Donated Gift Cards

1.  Secure all gift cards. Since they spend like cash, you need to secure them like cash. Lock them up and implement dual controls so two people are required to physically access them. 
2.  Record gift cards in your donation software. This step may vary slightly depending on the tools you use, but the end result should reflect a debit to your gift card inventory on your balance sheet and a credit to your donation income on your income statement. 
3.  Create a tracking system for gift cards. This should include the value of the card, the date received, the store or restaurant the gift card is from, and any terms that impact usage or value like expiration dates, inactivity fees, monthly maintenance fees, etc. These terms vary greatly from merchant to merchant so be sure to read the fine print and indicate anything noteworthy when you put each card into your inventory. 
4.  Create a dual verification process for using or distributing gift cards. How will gift cards be signed out of the secure location? I’d recommend a dual control in which, ideally, both the person giving and receiving the gift card sign off to record the transfer. Alternatively, this could involve a staff member and a volunteer, or two staff members. Obviously, the latter doesn’t protect against collusion, but I find that if you inspect what you expect, there is less opportunity for this to occur. 
5.  Record each card’s use as a financial transaction. This time, the recording will reflect a  debit to the expense account and a credit to the gift card inventory account. Why should we classify donated gift cards as expenses? Well, they are functioning as a program cost and being recorded as income when they’re received. This is an important distinction because you may not always receive gift cards in the future. If a program distributes gift cards but you aren’t receiving enough, then the cost of gift cards is something that needs to be captured and considered in order to determine if it should be maintained through your regular budget planning process, regardless of how this cost is funded. 
6.  Reconcile gift card records monthly. Compare the ending balance of your gift card tracking sheet to the ending balance of your gift card inventory on your balance sheet to ensure you’ve tracked everything. In addition, I’d recommend that you take a physical count of the actual cards that you’ve kept secure, on a monthly or quarterly basis, to make sure they match the numbers on these records. This is one more step toward good accountability and ensures that gift cards haven’t walked off. 

     If this article has been helpful to you, you can check out my entire blog library here for more nonprofit finance tips. I'm passionate about simplifying the mysteries of money matters for nonprofits. Check out my free Checklist of Key Financial Tasks to help you simplify your financial to-do list!