After a break for the holidays, valuation of GIKs are back in the news.
William P. Barrett reports in Forbes that a Charity Eyes Quarter-Billion-Dollar Write-Down in Value Of Goods Handled.
He indicates the president of Operations Compassion has said they are reviewing their 990s for the last 4 years and expect to reduce the recorded amounts of GIKs.
The estimate of the write-down is between $200 million and $250 million.
World Help showed that 990s and audited financials can be revised quickly. We shall see how Operation Compassion does.
Update: See comments below.
GIK valued at 60% of retail
The eye-popping new development is the organization apparently takes the retail value of donated items and reduces that amount by 40%:
In a somewhat confusing explanation, Operation Compassion’s 990′s say its staffers “verify” the value provided by a donor, “research the product, find the retail value and deduct 40% for GIK value.”
I looked at Schedule M for the last few years and found these comments in column (d) for the method of determining value:
- 2011 – “60% of fair market value”
- 2010 – “60% of FMV”
- 2009 – “40% of retail value”
- 2008 – “40% of retail value”
Presumably the comments on Schedule M are incorrect. I am guessing, based on the article, that the ministry intended to say “60% of retail” in all four years.
In 2011, there are $40M of books, $24M of clothing, $6M of food, $10M of drugs, and $122M of home construction goods. I look forward to learning how Operation Compassion ascertained that 60% relationship between retail price and the exit price in the principal market.
Update: Schedule I, Part IV, found on page 35 of the 2011 return discloses the organization’s method for valuing GIK as follows:
Method of valuation of donated goods –
1 – The donor provides the value which we then verify
2 – We research the product, find the retail value and deduct 40% for GIK value. (This is the accepted practice sanctioned by AERDO.)
Revenue amounts for last 4 years
To put the possible quarter of a billion revision into perspective, here is the amount of GIK, all other revenue, and total revenue for the last 4 years with all amounts in millions:
Other new information is the appearance of possible ‘daisy chains’ in the GIK arena. Also, substantial differences between the value reported by Operations Compassion and the donors to them on the revenue side and their beneficiaries on the expense side.
Of particular interest is the expansion of the GIK story beyond pharmaceuticals – there are now issues beyond donated meds.
You can find the 2011 audited financial statements and 990 here.
You can find the 990s for 2006 through 2010 here.