Bill Zlatos, from the Pittsburgh Tribune-Review has a superb article out: Charities’ methods of valuing donations called into question.
If you are following this issue, you should go read the article.
Mr. Zlatos has been talking to a lot of people and has a lot of great comments. Here are some of the best news-making quotes. I’ll have more to say on these ideas over the next few days.
Two comments highlight the serious reputational risk facing some ministries specifically, all R&D NPOs generally, and the entire charitable sector indirectly.
Of the high values, Mr. Luke Hingson, of Brother’s Brother Foundation, says:
The integrity of international charities is weakened by this.
Another similar comment from Mr. Michael Hanlon, Institute for Health Metrics and Evaluation at the University of Washington:
For the long-term health of the philanthropic sector, it is crucial to root out and eliminate this practice.
There is serious danger here for the entire R&D sector. I’d like to write a couple of posts on that issue.
How much did the accounting rules actually change?
Mr. Zlatos condenses the core of the accounting issues into just a few paragraphs. He starts by quoting Mr. Barry Gardner, CFO at Food for the Hungry, who says of the tax return being challenged by the IRS:
“We had followed what was then the prevailing accounting guidance,”
I’m sensing that seems to be the general position of the charities who have received criticism.
Mr. Zlatos describes the impact of SFAS #157 as:
Then the board changed the standard to how much goods cost where they are distributed.
That’s a decent paraphrase of the requirement to use exit price in the principal market. All us CPAs would have a more complex definition with fancy words and subordinate clauses, but that sentence does a good job hitting the main issues.
I see two things in that sentence. First, what would it cost to acquire the meds. Second, look at the pricing in the area where they are actually used.
Let’s see… Exit price. Check. Principal market. Check.
Say, that’s a really good summary. I’ll have more to say later.
Check out this money quote from a representative from the FAF, which is the parent organization of the FASB:
“The standard did not fundamentally change how nonprofits are required to value pharmaceuticals. It simply refocused attention on what pharmaceuticals are worth in the current market, which can vary widely” from the book values, said Christine L. Klimek, a spokeswoman for the Financial Accounting Foundation.
It will take more explaining, but I think Ms. Klimek’s comment is a fairly good summary of the transition from “fair value” to “exit price in the principal market”, especially as applied to 500 mg mebendazole.
Check out the article for the first estimate I’ve seen of how many dollars are involved. Hint: a lot.
Also, an estimate of how many organizations may file proforma valuation numbers with Charity Navigators. Hint: not a lot.
Note the volumes and valuations of mebendazole at Feed the Children, as provided by Mr. Tony Sellars, spokesman for the ministry: In 2009, 60M pills at $9.07. In 2010, 30M pills at $0.35. I’ve written several posts on the financials from those years and maybe I’ve forgotten, but don’t recall seeing the quantity and per-pill valuation of mebendazole.
All of the above direct quotes from the article come with this attachment:
Read more: http://triblive.com/news/allegheny/2632116-74/charity-charities-navigator-financial-health-million-value-cash-gifts-hungry#ixzz28jVPtzND
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Check out the full article. It is very good.