The investigative team for AC360 at CNN is working on a series of reports discussing charities. The series appears to have been focusing on some unpleasant things going on in the world of fundraisers.
Last week Anderson Cooper’s team started looking at the valuation issue of GIKs. Their report can be found here: Charities accused of overvaluing donations.
Check out the report if you are interested in GIK valuation issues.
They have invoices used by SPCA International for a large volume of medicines that were sent to an animal welfare organization in Nepal. They also have the invoice used for customs clearance. The income recognized on the books is $816,324 and the customs value is $2,500.
Since I have minimal actual transaction data, I was interested because they showed the invoices on the screen. I paused the video and jotted down what I could read.
Here’s what I could read at the 5:25 mark:
| dose | tabs | unit | per unit | total | |
| Albendazole | 200 mg | 1,000 | 50 | 1,580.00 | 79,000 |
| Ampecillin | 200 mg | 1,000 | 100 | 208.74 | 20,874 |
| I???? | 3mg | 2 | 1,000 | 10.44 | 28,450 |
| ciprofloxacin | 250 mg | 1,000 | 150 | 4,580.00 | 688,000 |
| —- | |||||
| 816,324 |
I plugged the total value for the third item, which doesn’t mess up the rest of my analysis since I couldn’t read the name of the med anyway. The Cipro dose looks like 200mg, but since that isn’t listed in the IDPIG, I’m guessing the actual dose is 250mg.
Most of the value is in the Cipro.
Here is what I could read at the 5:43 mark for the customs info:
| dose | tabs | unit | total | |
| albendazole | 200 mg | 1,000 | 50 | 410 |
| ampicillin | 200 mg | 1,000 | 100 | 100 |
| I???? | 3mg | 2 | 1,000 | 105 |
| ciprofloxacin | 250 mg | 1,000 | 150 | 1,800 |
| —- | ||||
| my calculated amount | 2,415 | |||
| actual invoice | 2,500 | |||
I misread something since I came up with a total of 2,415, but the numbers are close.
Then I looked up the values in the IDPIG to see how the above data compares. Also calculated the per pill amounts.
Here is what I found:
|
GIK |
customs |
IDGIP |
|
| Albendazole | 1.58 | 0.0082 | median 0.0166 for 7 vendors |
| ampicillin | 0.21 | 0.0010 | median 0.0174 for 4 vendors |
| ciprofloxacin | 4.58 | 0.0120 | median 0.0166 for 7 vendors |
Values used on the customs invoice are very close to what multiple vendors offer. The amounts used to record GIK income are large multiples of the IDPIG amount.
Three significant items to me from the CNN report:
- I have an actual transaction to analyze.
- The South Carolina Secretary of State wants to see a list of Charity Services International’s clients. That obviously means the Secretary is interested.
- I previously thought mebendazole was the main issue in GIK valuation. It looks like Cipro and Ampecillin are an issue as well.
One final observation. The text accompanying the CNN report discussed Operation Blessing International. I’ll comment on their audited financial statements soon. My point is that the CNN team is now looking at organizations in the faith-based community. It looks to me like they’ve focused on the secular community up ’till now.
[...] A growing number of media sources are paying attention. [...]
A few things wrong with your analysis.
1. As a CPA I would hope that you are familiar with the GAAP guideline that states goods should be valued at the time of donation. The IDPIG lags at least 2 years behind. The most current data on IDPIG is for 2011.
2. I would also hope that you are aware of the fact that donated items should be valued according to their primary market. Medicines manufactured by US companies who’s primary market is the US should be valued according to US market data points. See the Time Magazine article from March 4th titled “Bitter Pill: How outrageous pricing and egregious profits are destroying our health care.” This publication shows that finding a consistent cost of medicines in the US is near impossible. As such the nonprofit industry’s use of the Pharmaceutical Red Book makes more sense.
3. As a hopefully rational human being you should know better than to base anything on Anderson Cooper’s agenda driven reporting. His job is not to be fair and open minded, his job is to create controversy to sell stories.
Thanks for taking the time to comment.
1. I am quite familiar with the GAAP requirements. Please browse my blog. Unless you think inflation has driven the cost of mebendazole from a few pennies to $10.54 and albendazole from $0.017 to $1.58 within two years, I think the IDPIG is a reasonable indicator. A glance at the IDPIG for the prior 3 or 4 years will show minimal inflation.
2. Mebendazole in 500 mg doses is the primary med in discussion on the GIK issue. It is my impression that is the primary med typically behind the large valuations in the NPO community. That one med typically is extremely material to the financials. It is not legal to distribute 500 mg mebendazole in the U.S. That makes all U.S. valuations irrelevant for that drug. For meds legally salable in the U.S. the Red Book is still not relevant since it doesn’t have much correlation to actual prices.
3. The job of every news anchor, network reporter, TV news host, radio talk show host, newspaper editor, and newspaper reporter on the planet is to drive traffic. That’s also the goal of most bloggers. So I concede your point AC360 is trying to drive traffic. How is that relevant? Your ad hominem attack on Anderson Cooper does not address the accuracy of his report. Do you have some information that calls into question the accuracy or reliability of documents he aired?
Thanks again for your comment.
Would you like to write a guest post expanding your ideas on valuing GIK?