Question: I was wondering if charter schools are allowed to give their teachers gift cards for excellent student test scores as a reward for outstanding teacher performance. If so, are there any limitations on the amounts the gift cards have to be under?

Response:  Questions often arise about the giving of gifts, which has a personal as opposed to public character. Contrary to what often occurs in the field, gifts are not allowable, even if the amount is small. Gift certificates are ordinarily characterized as gifts of public funds even when purchased for an event with a public purpose, because they confer a tangible private benefit on an individual. To avoid making a gift of public funds with gift certificates, ask merchants or individuals to donate gift certificates. While some school administrators may feel that the school site or district benefits from positive relationships established by sending gifts to students, parents, board members or others, the real public relations value is of primary benefit to the respective individual leaders involved, not to the school entity itself as an institution. If students want to give gifts, use private funds, not public funds.

Discussions regarding gifts often conclude that trivial or insignificant gifts are acceptable. However, given modern governmental accounting practices and regulations, conflict of interest law and criminal law, FCMAT’s recommendation is that expenditure of public funds or use of public funds in any amount can never be considered trivial or insignificant. The law clearly regards the misappropriation of public funds as a criminal act, with no minimum monetary limit specified, so it is best to avoid gifts of any amount.

There is an exception, though.  Education Code section 44015 authorizes awards to employees for exceptional contributions and to students for excellence. If items are intended as some form of employee or student award, it also requires the governing board to adopt rules and regulations concerning such awards. Such awards shall not exceed $200 unless a larger award is expressly approved by the governing board. Awards to community members are not considered authorized.

The governing board of a school district may make awards to employees who do any of the following:

Thus, if a governing board adopts rules and regulations prior to any awards being made, a school agency can recognize superior accomplishments of any employee or student within the guidelines and provisions contained in the applicable board policies, rules and/or regulations. In the absence of applicable policies, rules and/or regulations, no district official can make the award and no one can legitimately purchase the award.

Awards are often signified by letters of commendation, board resolutions, trophies, certificates, plaques, medals, badges, pins and the like, but may also be in the form of a gift certificate or a scholarship, within the statutory monetary limits and subject to IRS reporting requirements. The board may also approve an expenditure for flowers or candy as part of an award, which is appropriate only if the school district’s board policy on awards complies with the education code and IRS regulations.

Mugs, cards and similar items given to promote good will or positive relations between the district and its employees or between staff and students, are not considered awards. The expenditure of public funds to promote positive employer-employee and/or staff-student relations does not serve a direct and/or substantial public purpose, so would likely violate the gift of public funds provisions contained in the California Constitution.

IRS Publication 15b provides guidance to employers regarding how to report awards paid to employees for outstanding work or safety achievement. IRS Publication 525 provides guidance to employees regarding how to report awards received.

Generally, cash or cash equivalent awards to employees must be reported as taxable income. If the award is provided in the form of goods or services, the fair market value of the award is reportable. Tangible personal property awards (other than cash, gift certificates, other cash equivalents or certain intangible property) for certain service or safety achievements are excludable up to certain amounts. Length of service and safety achievements are specific categories of awards that are not applicable to ASB situations and are further defined within IRS Publication 15b. Refer to the IRS publications for more information on the topic of employee awards and reporting of the awards for tax purposes.

9/4/09