Details on FTC enforcement action against four cancer charities – 4

This is the fourth in a series of posts diving deep into the detail mentioned in the complaint by FTC and all Attorneys General against four named cancer charities.

I will quote and comment upon the complaint, which can be found here.

My posts in this series are visible using the FTC tag.

Continuing with the complaint…. As you see the references to INTERMEDIATE, remember that is a named for-profit entity that found and placed shipments of GIK. I choose not to mention their name since they have not been charged in any action.

  1. INTERMEDIATE provided Corporate Defendants with information about “available” shipments that upstream donors wanted to ship to pre-selected foreign recipients. The information INTERMEDIATE provided included shipping costs, the fees charged by INTERMEDIATE, the estimated value of the shipment, the goods in the shipment, and the destination and recipient of the shipment. If a Corporate Defendant agreed to accept the so-called “donation opportunity,” INTERMEDIATE would arrange to ship the goods and provide the Corporate Defendant with paperwork supposedly documenting Defendant’s receipt of the donated GIK goods from the upstream donor, the value of the donated goods, and Defendant’s distribution of the goods to the downstream foreign recipient. INTERMEDIATE created most of these documents, which in numerous instances were virtually identical form letters, and were often backdated. They included documents purporting to transfer title to the donated goods from the upstream donor to Corporate Defendants, documents purporting to provide values for the goods, documents purporting to verify receipt of the goods by downstream recipients, and documents discussing the downstream recipient’s purported further distribution of the goods.

Pre-selected recipients is not a disqualifier, but is pointing in wrong direction.

While keeping in mind this is a summary of general patterns, there are comments here that seem a bit problematic.

Seems to me there are a variety of documents that in general should be generated by someone other than Intermediate.

  • The upstream donor should be generating the variance letter.
  • The named charities should be generating documentation of who was selected.
  • The named charities are responsible for determining valuation.
  • The downstream recipient should be generating the acknowledgment of receiving the goods.
  • The downstream recipient should be documenting subsequent distribution.

If any factor mentioned in this paragraph of the complaint is correct for a particular shipment, that would be problematic for recognizing that shipment as revenue and expense.

Also troublesome is the comment “… often backdated.”

Troublesome dimension to all of that is how much of the items described in this paragraph of the complaint would be visible to an auditor. Likely not very much.

Also worrisome to me as an auditor is whether these documents which I’m guessing were asserted by the charities to have been generated by the upstream donor, downstream recipient, or the name charity were actually generated by Intermediate.

I would be very nervous if a third-party vendor was signing documents on behalf of sundry upstream donors and a variety of downstream recipients.

On the other hand, I don’t know how an auditor would tumble to that.

Knowing that such issues really exist should create no little nervousness for all auditors of charities with large GIK revenue.

Next: part 5 on variance authority.

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