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 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?
Jim,
You wrote:
“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?”
If there was ever any doubt, I do have the information that makes it evident that CNN, Anderson Cooper, Drew Griffin, and their producer, David Fitzpatrick, are being disingenuous in the extreme.
There are two values listed that have nothing whatsoever to do with each other.
Fair market value (FMV) = the value at the time and place of donation. The IDPIG does not qualify on either point, so I wish people would stop bringing that up.
Customs value (CV) = what an asset could be sold for in the market into which it is being imported. The medications listed above are charitable GIK and cannot be bartered, sold, or traded. So the value of the meds for customs purposes is $0. You cannot import something of $0 value.
Charities almost always put $2,500 as the value. That is roughly the cost of the container. Please note that neither of these documents are invoices. There was an inventory (FMV) and a bill of lading (CV).
Of course they do not match.
I’ve seen the behind-the-scenes video, made by the person being interviewed, when CNN turned off their cameras and the above was explained to them in detail. CNN chose to go for the ratings instead of the truth.
CNN’s “Charity Cheats” would not live up to its name if they had told the truth. How can they claim to be “KEEPING THEM HONEST” unless their subjects are dishonest? If someone is not dishonest they are happy to make something up to make them look like they are crooks. Please Jim do not believe anything you see on CNN. Truth is of no value to them. Wana talk about “football pants”?
That’s how it looks to me.
Dr. Right On
Hey Jim,
I am curious as to why you feel that IDPIG is a reasonable indicator.
GAAP states the following 2 requirements for establishing FMV:
1) Time of transaction
2) Place of transaction
The IDPIG does cannot provide information at the time of transaction due to it’s 2 year lag in information.
For US market medicines the IDPIG does not provide data according to the item’s primary market.
Additionally, I have seen medicine prices spike and dip dramatically in a one to two year period.
Given these points, how is the IDPIG reasonable?
Thanks for always being so reasonable and professional. I truly appreciate your blog.
DJ:
Thanks for your comment.
I’ve not spent a great deal of time studing the data, but what I have noticed is reasonably consistent prices over years. As an overall impression there seems to be more variation between vendors than between years.
As to the short term fluctuations, let’s just assume for this paragraph that IDPIG, or some other source, is a useful indicator of prices. If there were to be short term fluctuations in the price of one med or a family of meds that departed from the indicator, then an organization should be able to document the fluctuation exists and then could use the temporary blip of prices to record meds. The organization’s auditors could look at the support for the anomaly in prices and easily conclude the pricing is reasonable.
Regardless of other comments here on the blog, 500 mg mebendazole is a key issue. It’s possible that is just the starting point for issues, but it is a big deal. A vastly disproportionate amount of revenue has been generated from that one med. For that med, it is my opinion the IDGIP is far more appropriate indicator of value that anything that is focused on U.S. prices.
Also, if the self-reported prices are reflective of vendors’ actually sales prices, that is an extremely good indicator of what meds go for on the international market.
What do you think would be a better indicator of prices for mebendazole in particular and other meds in general?
Jim
Dr. Right On:
I agree that the amount on the customs statement is usually irrelevant. For the few times I’ve seen shipping documents for international shipments, I’ve noticed a declared value of zero.
However, for 3 of the meds, I could roughly correspond the amounts on the customs statement with the IDPIG. As mentioned above, the albendazole is about half of the median, ampicillin is less than one-tenth of the median, and cipro is at the median. If we extended out the IDPIG prices to the quantities listed, the amount would be slightly more than the customs declaration.
So it seems to me what would be found in the IDPIG corresponds more closely with the 2,500 on the customs doc than the fair value recorded.
As to the rest of your comments, you have moved this discussion from ad hominem to substance. As you have seen a tape, I will defer to you for what happened during the interview.
Thanks for sharing your observations.
Jim
Jim,
Thanks for your open minded evenhanded treatment of this subject and the people involved in this discussion.
You wrote:
Regardless of other comments here on the blog, 500 mg mebendazole is a key issue.
Unfortunately this is an issue of the past.
A vast majority of the charity’s, even the ones that were booking no value or the IDPIG value have stopped distributing them for fear of being associated with a media scandal.
The suffering is appalling. I hear stories every week from bewildered africans who can not understand why these medications have stopped being available. The unintended consequences are devastating. Millions of poor Africans just had their food supply reduced by 20% because of our inability to have an accepted standard for the valuation of pharmaceuticals.
You wrote:
So it seems to me what would be found in the IDPIG corresponds more closely with the 2,500 on the customs doc than the fair value recorded.
This is a coincidence.
Thanks Jim.
Dr. Right-On,
Thanks for taking the time to comment.
Can you share the dynamics about why donors are shying away from giving shipments? The controversy is not over the meds or getting them into the mouths of people who need them. Booking them at $0.05 or $0.50 isn’t creating controversy. It is booking mebendazole at $2.00 or $10.64, or $16.25 that is getting attention. Oh, and daisy chains are getting heat as well.
Also, how does a reduction in the volume of meds reduce the volume of food in a region?
Thanks again for sharing your observations.
Jim