Governor vetoes AB 1181. More details and background on override.

October 13, 2019, 2:58 pm

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On Saturday October 12, 2019, Governor Newsom vetoed California AB 1181. The bill would require charities filing financial statements with the state Registry of Charitable Trusts to value donated medicine at the fair value in the market the medicine would be distributed.

Essentially this would have required charities to use values in the international market instead of the U.S. market.

The governor announce a list of bills he signed and vetoed. You can find the list here. By my count he signed 69 and vetoed 58 on Saturday.

Veto message

The governor’s veto message can be read here. In it he said:

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California Assembly concurs with changes to AB 1181 by California Senate.

September 12, 2019, 3:35 pm

California state capitol building. Image courtesy of Adobe Stock.

AB 1181 was approved by California Assembly on a 56 to 0 vote.  Their vote concurs with changes by the Senate yesterday, which means the bill has been passed by the legislature.

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No GAAP violation but charitable solicitations are misleading – – Preliminary Decision issued for appeal of California AG’s Cease & Desist Order against MAP International, Food for the Poor, and Catholic Medical Mission Board.

August 30, 2019, 8:13 am

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A Preliminary Decision has been written by the administrative law judge (ALJ) hearing the appeal over the California Attorney General’s cease and desist order (C&DO) against MAP International (MAP), Food for the Poor (FFP), and Catholic Medical Mission Board (CMMB).

I have obtained and read a copy of the Preliminary Decision for each of the charities.

 

Top line summary:  The ALJ concluded the charities did not violate GAAP in their accounting but did find their charitable solicitations were misleading and deceptive.

This will be a long read at over 3,400 words so you might want to get a fresh cup of coffee.

Two other notes. References to “Complainant” mean the California Attorney General.  This post will focus on the content of the decisions with lots of quotations and minimal interpretation. Several longer posts are needed to interpret, explain, and describe the implication of this case. I may add more discussion later. As I see others discuss this case, I’ll try to link to those discussions.

After describing the decisions, responses from each charity are listed.

Next steps?

I’m a bit fuzzy on the where this goes from here. It is seems obvious to me that the ruling is not yet effective.  I will string together a bunch of guesses on the next steps. Anyone bold enough to correct my wildly aimed guesses is welcome to do so.

So here go my guesses – – I think the decision will not go into effect until it is accepted or modified by the Attorney General.  So my guess is the AG will issue a letter declaring the Preliminary Decision in effect or reissue a modified C&DO or take some other specified action to make the decision effective. I’ll guess some sort of additional communication is also necessary to address a variety of technical issues not covered in the decision, such as address to send the check, contact point for future communications, consequences of violating the C&DO, and notice of appeal options.

The Preliminary Decisions say the charities must pay the penalty 30 days after the effective date. There is a separate requirement to provide a copy of the decision to all officers, directors, and employees within 15 days of the effective date.

Since one charity (MAP) indicates in their response to me that they will appeal, I’ll guess their appeal will be filed soon after the effective date, well before that 15 day time frame expires. I’ll also make an even bigger guess that given the strength of the proposed sanction on how to refer to program ratios, the other charities will also file an appeal.

 

Background on timing

In December 2018, the ALJ gave verbal explanation that he would rule in favor of the charities on the issue of whether the their financial statements complied with GAAP.

In January and February 2019 additional written briefs were submitted by the Attorney General (AG) and charities on whether the written appeals sent to citizens of the state were accurate or misleading.

On April 24, 2019 additional oral arguments were heard.

Then on May 24, 2019 the administrative law judge (ALJ) issued his preliminary ruling for each of the cease and desist orders.

 

Food for the Poor

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Minor revisions to California AB 1181, with bill re-referred to Senate Judiciary Committee.

July 3, 2019, 9:17 am

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On June 28, 2019, the Senate Judiciary Committee made some minor changes to AB 1181. In one sentence, the bill under consideration would require charities to recognize gifts in kind at the fair value in the location where the items will likely be distributed if the items have a geographic restriction.

Comment at the legislature’s website says:

From committee chair, with author’s amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on JUD.

I am not quite sure how to read that, but think it means the author made some changes, probably at the suggestion of the committee chair, the bill was technically put back to the committee after that change, the committee made additional changes and the bill was technically put back to the committee again.

All that to say there were minor changes to the proposed bill.

Based on the “compare versions” tab at the website, changes made at this point include:

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What is the specific, focused target of California AB 1181?

June 13, 2019, 5:00 am

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Update – Mark Hrywna (@mhrywna) tweeted on 6/17/19 the Senate Judiciary committee has scheduled a hearing on AB 1181 on 7/9/19.

After attending CalCPA’s Not-for-Profit Organization conference last week and talking to a small group of my CPA colleagues, I have two thoughts on regulatory attention currently focused on the valuation of donated medicine.  Let me provided two questions which will focus my comments:

  • What is the primary concern of the regulators?
  • What is the specific, focused target of California AB 1181?

Previous post discussed the first question.

As I mentioned in that post, I have long wanted to develop an extensive discussion on the main accounting issues found in the California AG’s three cease and desist orders along with several accounting issues raised in their January 2019 settlement and May 2019 litigation.

That full discussion would have ended up somewhere around 3 or 5 times longer than these two posts. I won’t have time in the foreseeable future to write such an extended discussion. This pair of posts, at over 2,600 words, will have to do.

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What is the primary, core concern of the AG community over charity financial statements?

June 10, 2019, 11:14 am

What, oh what could be the core issue for charity regulators in their recent enforcement efforts? Image courtesy of Adobe Stock.

After attending CalCPA’s Not-for-Profit Organization conference last week and talking to a number of my CPA colleagues, I have two thoughts. (Yeah, yeah, I obviously don’t think much if I only have two thoughts after a full day of great presentations.)

Let me offer two questions which provide a way to focus my thoughts:

  • What is the primary concern of the regulators?
  • What is the specific, focused target of California AB 1181?

I have long wanted to develop an extensive discussion on multiple accounting issues found in the California AG’s three cease and desist orders. I would also like to discuss the host of accounting and auditing issues that are explicit or implied in the January 2019 settlement and the May 2019 litigation. It would be fun for me and informative for readers of this blog to dive deep into the wide range of issues raised by the AG.

That discussion would have probably run something in the range of 6,000 or 10,000 words, or perhaps longer.

I have not had the time to go into that extensive detail and don’t anticipate having that much spare time in the near future.

Instead, I will describe in the next post what I perceive is the very precise, very specific target of AB 1181 from the California Assembly and in this post will describe my perception of the key concern for the regulators.

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Update on the charity that settled in January 2019 with the California Attorney General

June 4, 2019, 5:00 am

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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.

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