Impact on downstream charities from World Help revising their financials

As discussed in an earlier post, World Help has revised the amount of 2011 gift-in-kind contribution from $223.7M to $1.6M. That is a 99.3% reduction.

What is the impact on charities who received GIK from World Help? This question is touched on by Aronson Nonprofit Report blog in their post I discussed here. That issue was discussed at more detail in a long article at Chronicle of Philanthropy: Charity’s Exaggerated Revenue Could Affect Other Groups.

The Chronicle article identifies two specific charities which received donations from World Help:

Breast Cancer Society, in Mesa, Ariz., recorded $22.8-million in donated medicines from World Help in 2011. Children’s Cancer Recovery Foundation, in Harrisburg, Pa., says it received $4.1-million in drugs from World Help that year.

Schedule F, part II of World Help’s 990 from 2011 discloses gifts of medication to other organizations outside the US totalled $226.6M. The $26.9M to the two charities mentioned in the Chronicle article would be included in that amount.  There may be other downstream charities with reporting responsibilities in the U.S. who either used the GIK in their overseas operations or donated it to another overseas charity.

The question is whether charities receiving GIK from World Help need to revise their revenue amounts.

If the charities used their own sources of med values and determined the valuation on their own, then it seems to me it would not be necessary for them to revisit the revenue amounts.

That is, by the way, the method charities ought to use in valuing their GIK contributions – – NPOs should make their own determination of value.

On the other hand, to the extent the downstream charities relied upon the valuations or paperwork from World Help, it sure seems to me they ought to be reviewing the valuations they used. There may or may not be revisions, depending on the circumstances.  If there are material changes, it seems to me the charities would need to revise their audited financial statements and 990s to reflect the changes.

This would be done with what accountants refer to as a ‘prior period adjustment.’ The more precise term would be a correction of an error as discussed in ASC section 250-10-50-7 to -10, Correction of an Error in Previously Issued Financial Statements.

If various published reports are correct and if I connect the dots from those reports correctly, it seems there might be some charities who would fall into the latter category and may need to revise their financial statements.

Just to lay down a marker for future conversation, it sure seems to me that a quarter of a billion dollars of possible adjustments spread around amongst a number of NPOs is likely to be material to reasonably foreseeable users of the financial statements.

One Response to Impact on downstream charities from World Help revising their financials

  1. […] posts have discussed an article at Chronicle of Philanthropy: Charity’s Exaggerated Revenue Could Affect Other […]

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