Just checked on the most recent financial statements for the three charities who received cease and desist orders from the California Attorney General. The appeal hearings start in a week, on November 27, 2018.
Found a number of pieces of information in the financials that are of public interest to this developing story. Will point out some of the information now. Later on, as time allows, I’ll provide some commentary on the disclosures.
Previous post discussed the 12/31/16 financials for FftP, 9/30/17 financials for CMMB, and 9/30/16 financials for MAP. FftP and MAP have since issued their next year’s report; CMMB has not.
This discussion will be in three parts.
All three charities disclose they use wholesale acquisition cost (WAC) to value donated medicine.
MAP’s 9/30/17 financials disclose existence of California AG’s enforcement action, identifying it as an “administrative action.” MAP asserts the liability, if any, is unknown but will not be material. Note 2 provides a detailed description of their policy for valuing donated medicine.
FftP’s 12/31/17 financials disclose existence of enforcement actions by California and Michigan AGs. California AG is seeking reimbursement of $775K of costs. Financials were available to be issued on 4/16/18, which is somewhere around five months before their $300K settlement with the Michigan AG.
FftP discloses the Minnesota AG and South Carolina AG have opened investigations. Neither of those agencies had taken enforcement action as of the date the financials were available for issue.
The California AG started asking for documents in April 2016.
“Available for issue”
Some inside baseball info for the non-accountants reading this discussion: A key date for audited financial statements is the date the financials are “available for issue.”
This is the cutoff for management to assess whether there are any additional subsequent events to be disclosed or additional information has been learned about contingencies which should be mentioned in the notes.
This is also the date of the auditor’s report. Essentially, this is the cutoff for any known material information to be rolled into the financial statements.
Typically financial statements would be released a few days after the available for issue date.
Remainder of this discussion will make references to the available to issue date, since that is the cutoff for disclosing status of the various investigations, management’s assessment of the outcome of enforcement actions, and the auditor’s evaluation of management’s assessment.
Catholic Medical Mission Board
Most recent financials are September 30, 2017, which were available for issue on December 20, 2107. Audit report is from the New York office of Marks Paneth, LLP. Based on that timing, the 9/30/18 financials will not be released for another month or two. I would expect the 2018 financials to be held until the administrative law judge issues a ruling.
CMMB uses WAC as found in the Red Book for valuing donated medicines. The pertinent section of Note 2 C is quoted because of public interest and an indication of their likely position in the appeal hearings:
… The Organization’s management estimates the fair value of donated pharmaceuticals on the basis of the wholesale acquisition costs listed in professional reference materials primarily, Thomson Reuters “Red Book” which is an industry recognized drug and pricing reference guide for the pharmaceutical industry in the United States. The wholesale acquisition cost is the approximate selling value of the pharmaceuticals in their principal exit market considering the condition and utility for use at the time the pharmaceuticals are donated. …
A quick browse of the notes and word search for key terms does not show any discussion of the AG’s case.
Other posts in this series: