Hood Sutton Robinson & Freeman CPAs, P.C. are the auditors for Blessings International. The firm issued a qualified opinion on the NPO’s financial statements for the years ended August 31, 2011 and 2010.
The reason for the qualified opinion is that purchased medicines are valued at Average Wholesale Price instead of the wholesale exit price in the principal market. The specific paragraph in the audit report reads:
As explained in Note 3 to the financial statements, the receipt of all pharmaceutical products acquired by bargain purchases are recorded at estimated average wholesale value by a method that provides a value which approximates wholesale prices in the United States. In our opinion, because of a recent change in industry standards, accounting principles generally accepted in the United States and industry standards now require that the majority of such purchased pharmaceuticals be valued based on wholesale market price data in countries representing the principal exit markets of the pharmaceuticals. It was not practicable to determine the effects of this departure on the financial statements.
That means the meds were valued at wholesale prices in the US instead of where the meds will actually be used. The ‘not practicable’ comment means the CPA firm could not calculate the correct price with any reasonable amount of effort.
The meaning of the opinion paragraph is that the financial statements are materially correct except for any adjustment that would be needed to adjust from AWP to exit pricing.
The opinion is dated November 30, 2011. That is very shortly after the articles on valuing GIK started to appear.
What is the potential impact?
The audited financial statements show revenue of $57,828,484 in 2011 from purchased pharmaceuticals (the statement of activity says ‘donated or purchased’ while the notes say that all meds in 2010 and 2011 were purchased). Page 10 of the 990 has a line that says “Pharmaceutical purchases” with an amount of $1,854,765.
If I’m reading that correctly, that means the meds were purchased for $1.8M with revenue recorded of $57.8M. The meds would then have had an AWP of $59.6M. That is an average multiplier of 33.1x (59.6 / 1.8).
To put this in perspective, let’s look at total revenue. It requires some math to find total revenue because the financials use the ‘pancake’ presentation. Total revenue is $61,263,118 (calculated as $3,361,952 unrestricted revenue plus $57,828,484 GIK and $72,682 of temporarily restricted). That means GIKs are about 94% of total revenue.
A cover letter from the president in front of the audited financial statements says the NPO will value GIK meds at purchase price in 2012.
It is quite helpful to read the Blessings International financial statements because most of the issues related to donated meds are visible. More on that in a later post.
Update – the above links are broken. The organizatiion’s website went down a few weeks ago, so you can’t get the 990 or financial statements from their site. The site is up, but only with a few pages working.
If you are interested, you can find their 990 and audited financial statement for 2011 at the North Carolina Secretary of State’s web site. The specific page is here.
In case that link doesn’t work, you can go to the NC Secretary’s web site and use their search page, which is here.