Is 500mg mebendazole a red herring or a way to focus discussion on many issues surrounding GIK valuation?
GIK Valuation: The issues not being discussed is a guest post on this blog. The author starts his/her post by saying the discussion of 500 mg mebendazole is distracting us from the real issues, which are much more serious.
Red Herring: something intended to divert attention from the real problem or matter at hand; a misleading clue.
The author and I disagree on the role of 500mb mebendazole.
I think the author’s point is that focusing on mebendazole distracts us from other issues.
I believe it is this specific med that is generating a disproportionate amount of GIK revenue. I perceive a very material portion of GIK revenue in the sector went away when this one med was revalued at the time SFAS 157 went into effect. My guess is that a material portion of the remaining GIK revenue in the sector would go away if that one med were valued at something similar to the price on the international market.
I also think that talking about just one medicine allows us to see a host of other issues. If the NPO community can resolve the issue arising from a discussion of mebendazole, I think that most of the other issues regarding GIK valuation would fall into place.
Once we get beyond whether mebendazole is a red herring or a presenting problem, the author and I are in agreement on quite a few issues.
Issues for discussion
Let’s look at some issues the author mentioned in the guest post that should be addressed beyond mebendazole. I will rephrase them as a question. Included in the questions are hints where I think the discussion could or should go.
- Is there a significant valuation issue for other deworming meds, specifically albendazole?
- Is there a significant valuation issue for other classes of meds, specifically antibiotics?
- Are there other families of meds we should be looking at for possible large amounts of overvaluation?
- Are there overvaluation issues in clothing, shoes, medical equipment, and books?
- Is there a pattern of overvaluation in medicines that are approved for use in the U.S. but an inappropriate pricing indicator is used? (AWP is generally discredited, WAC at 20% of AWP is only slightly better). The author is suggesting actual wholesale prices in the U.S. are something in the range of 20% to 50% of AWP. This is characterized as hiding behind FDA approval in the guest post.
- Is there an issue with the existence assertion if ‘daisy chains’ used?
- Is there an issue with the existence assertion if GIK shipments being recorded as contributions when the organization’s only involvement was paying the freight?
- Is variance power being misused to record revenue which should not be recorded?
- Should some measure other than the functional allocation of expenses be used to assess organizations?
- How do we develop useful outcome measures?
- The author dropped the accounting f-bomb. Don’t get upset, the word he/she used was “fraud”, but using that word about someone’s financial statements is dropping the f-bomb in the audit world. Please remember it is the author, not me, that is raising this question: Is bad intent present in some of these transactions? The New Mexico assistant AG has also dropped the f-bomb. The report that is in wide circulation from one revenue agent uses a very genteel and polite phrasing of the same question.
Other questions that flow from the discussion:
- Are there some categories of GIK, such as shoes and clothes, that actually cause harm when distributed overseas?
- If an organization pays an acquisition or handling fee as a part of the transaction and those fees have a rough correlation to the prices on the international market, is the transaction a purchase instead of a donation? Phrased differently, in that combination of circumstances, is there any contribution?
- If the acquisition fee for a shipment is based on the count of specific meds in the shipment and the fee for each med has a stronger correlation to the value of the med rather than the volume or weight or size or difficulty of packing/shipping, is the acquisition fee actually a purchase price instead of a donation?
- If an acquisition or handling fee was paid as part of the transaction, shouldn’t that fee be part of the inventory valuation of the medicine, which would reduce the amount of GIK revenue?
Here is the bonus question:
- Do the above questions apply both before and after SFAS 157 went into effect?
Significance of these questions
If the answer to any of these questions is affirmative, I believe there is a systemic issue for overvaluation of GIK revenue in the NPO sector.
These are not new questions
The author of the post and I are not the only people thinking these thoughts.
Some of these questions are being pondered by the state Attorneys General.
Several of these issues are addressed in the IRS report on their audit of an Arizona charity.
There is a large and constantly growing number of reporters who are looking at a lot of those questions. They are not limiting their research to mebendazole. They are looking at more issues that I mentioned above. It looks to me like a really high proportion of the reporters actually understand the accounting theories involved.
It is only my gut feel, but it is my gut feel that none of those three groups have lost their interest in the overall issue of valuing GIK.
My concern about attention from reporters, in addition to them understanding what they write about, is there may be more that are gaining interest.
Doesn’t matter how we characterize this one med
Whether we categorize mebendazole as a red herring or a means to address most of the above questions, there is a long list of serious issues in play.
There have been multiple quarter billion dollar restatements of financial statements for a variety of reasons, not just this one med.
Do you realize the severity of what I said in that one sentence? Multiple organizations have restatements or revisions. It is only a mild exaggeration to say the typical amount is a quarter of a billion dollars.
There are very serious issues in play. I am increasingly concerned the time is running out for the NPO community to clean things up before others clean things up for us.
The author of the guest post and I agree: this isn’t just about mebendazole.