Went browsing around the web last night and found the settlement agreement for the AG’s case against the Giving Children Hope charity. Yesterday’s post discussed that case at length.
The National Association of State Charity Officials has a reprint of the California AG’s press release.
Included in the article is a link to the signed Assurance of Voluntary Compliance., which was approved by a judge on January 22, 2019.
Following are a few of the highlights from the signed agreement. In particular, the agreement fills in some of the details I was wondering about.
Remember my previous comment that I could see no reason one particular board member was included in the case? He was chair of the board from 2014 through 2016, according to paragraph 2. On the settlement agreement, he signed as chairman on behalf of the charity which agreed to dissolve itself.
The CPA cited in the case provided accounting services to GCH from January 2014 through June 2017 (para 2).
In paragraph 10a the AG asserts GCH had at least 25 transactions in which it had one of two controlled subsidiaries purchase medicine from a named wholesaler in the Netherlands for a “very minimal price” and then had the controlled charities donate the meds back to GCH.
For those transactions, the AG asserts GCH did not have documented variance powers (para 10b).
For medical GIKs not purchased through that wholesaler, paragraph 10c asserts the medicines were restricted for distribution outside the US. The settlement then cites the same argument as raised in the Cease and Desist orders for those transactions having inappropriate accounting treatment.
For some of the other meds not purchased from the wholesaler, the AG asserts the charity does not have any documentation where the meds were delivered or their expiration date (para 10d).
In paragraph 14, the respondents and the charity’s insurance company do not admit any violation of the law.
The way these things always work is that after denying any wrongdoing, the people involved agree they will take the following steps…
The charity’s insurance company agreed to pay $400,000 within 30 days (para 15).
Remember I wondered how the $10,000 penalty would be split up between the four named individuals? Paragraph 16 spells out the payment from each of them. One will pay $1,000 and the other three, including the CPA, will pay $3,000.
Paragraph 17 states the charity terminated its pharmaceutical GIK program in June 2017. The charity agrees it will not restart that program.
In paragraph 18, the charity agrees it will restate its 990s for the 2012 through 2016 fiscal years. The phrasing looks like the charity will exclude essentially all of the medical GIK from the restated 990s.
The agreement is silent regarding whether the audited financial statements need to be restated. Off the top of my head, I think a state sanction and signed agreement to restate 990s with revised accounting would probably (absolutely?) trigger the need for a CPA to assess subsequently discovered information after the financial statements were issued, which would possibly (probably?) call for a restatement. (Hint: check out AU-C 560.) On the other hand, the CPA was terminated by the client, which releases the accountant from that obligation.
In paragraph 24 the CPA agrees she will not provide accounting services to any charities doing business in California for a term of five years. Before providing any such services again, she agrees she will receive continuing professional education in auditing charities, 990 preparation, and accounting for GIK.
Paragraph 25 indicates one of the controlled charities agrees it will dissolve itself within 30 days,
A conformed copy of the final, court-approved agreement will be provided to all the parties at addresses listed in paragraph 29. A copy will also be provided to each party’s attorney. Of note is the same attorney represents two board members and GCH. A different attorney represents the insurance company, the CPA, the controlled subsidiary which will dissolve, and the president of that charity (who is also the founding CEO of GCH). I do not understand the legal strategy that has each of those groups have different attorneys. Since the CPA has the same attorney as the insurance company, my guess is costs of the CPA’s legal representation were paid by the insurer.
The charity, its insurance company, the controlled charity that will dissolve itself, and the four named individuals all signed the agreement on various days in December 2018.