Who might want to look more closely at the four paragraph summary of valuation issues in the FTC complaint against four charities? 13

August 12, 2015, 7:54 am
Federal Trade Commission Building in Washington, DC. - Picture courtesy of DollarPhotoClub.com

Federal Trade Commission Building in Washington, DC. – Picture courtesy of DollarPhotoClub.com

There are four paragraphs in the FTC complaint against four cancer charities that summarizes the issues raised by the FTC. These paragraphs cover the main issues about valuation of GIK that have been under discussion in the NPO world for several years now.

These issues do not just apply to the four named charities.

The issues are not limited to the secular cancer charities.

These issues actually apply to a large number of high visibility religious charities. The issues may have drop out of news coverage, but they have not gone away.  I hope those who have ears that are able to hear, will hear.

Who might want to take a second look at the FTC’s summary?

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Details on FTC enforcement action against four cancer charities – 12

August 10, 2015, 7:09 am
Federal Trade Commission Building in Washington, DC. - Picture courtesy of DollarPhotoClub.com

Federal Trade Commission Building in Washington, DC. – Picture courtesy of DollarPhotoClub.com

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

This is the fourth post on a series of paragraphs in the complaint addressing valuation of donated medicine.

The complaint can be found here. My posts in this series are visible using the FTC tag.

  1. By reporting these GIK transactions as contributed revenue and program expenses, at inflated values, Corporate Defendants represented themselves to be both larger and more efficient than they actually were. They obscured the high percentage of donated funds spent on, among other things, for-profit fundraisers, executive salaries, and employee perks, and concealed the very small amounts spent on the charitable purposes described to donors. As a result, the Forms 990 and other documents filed by Corporate Defendants with the IRS and state regulators, and made publicly available to consumers, were false and misleading.

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Details on FTC enforcement action against four cancer charities – 11

August 3, 2015, 7:05 am

 

Marble panel on FTC building in DC. Photo courtesy of DollarPhotoClub.com

Marble panel on FTC building in DC. Photo courtesy of DollarPhotoClub.com

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

This is the third post on comments in the complaint addressing valuation at an overall level.

The complaint can be found here. My posts in this series are visible using the FTC tag.

On the impact of the allegedly misstated information: Read the rest of this entry »


Details on FTC enforcement action against four cancer charities – 10

July 29, 2015, 9:09 am
Marble panel on FTC building in DC. Photo courtesy of DollarPhotoClub.com

Marble panel on FTC building in DC. Photo courtesy of DollarPhotoClub.com

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

The complaint can be found here. My posts in this series are visible using the FTC tag.

This is the second post discussing allegations in the complaint asserting that the financial statements of the charities were misstated. Four paragraphs summarize the problems the FTC has with the accounting for donated medicines.

  1. Corporate Defendants obtained the paperwork they used to claim these figures for just the cost of the payment to INTERMEDIATE (which included both INTERMEDIATE’s fees and shipping costs). For example, in connection with a 2011 shipment to Guatemala, CFA reported contributed revenue and corresponding program expense of over $8 million, but only paid INTERMEDIATE a fee of $50,550. For one 2010 shipment to Ghana for which CCFOA reported contributed revenue and program expense of over $3.8 million, CCFOA paid INTERMEDIATE just $39,960. In addition, for a 2011 shipment to Honduras for which BCS reported contributed revenue and program expense of at least $3.8 million, BCS paid INTERMEDIATE just $28,120. Although Corporate Defendants used such transactions to add hundreds of millions of dollars in program expenses to their financial reports, these “programs” existed entirely on paper. Corporate Defendants did not possess the goods and played no role in their overseas distribution. They hired no additional staff to manage these multimillion-dollar international GIK programs and in most instances spent virtually no staff time on them. In addition, the very high dollar values associated with these transactions largely resulted from overvalued pharmaceuticals.

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Details on FTC enforcement action against four cancer charities – 9

July 27, 2015, 9:13 am
Federal Trade Commission Building in Washington, DC. - Picture courtesy of DollarPhotoClub.com

Federal Trade Commission Building in Washington, DC. – Picture courtesy of DollarPhotoClub.com

This is the ninth 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.

The complaint can be found here. My posts in this series are visible using the FTC tag.

This is the first post in a series discussing allegations in the complaint asserting that the financial statements of the charities were misstated. Paragraphs 127 through 130 provide a condensed summary of the massive concerns the FTC has over the accounting for GIK shipments. There are severe accusations embedded in these four paragraphs.

To give you a hint where the FTC is going with this section, my paraphrase of the last sentence of paragraph 130 is the FTC alleges that the charities’ audited financial statements and 990s as provided to the IRS, state regulators, and the general public were “false and misleading.”

Deceptive Impact of Reporting GIK Transactions

  1. The increased contributed revenue and program spending Corporate Defendants reported – collectively over $223 million – had the effect of diminishing the reported percentage of revenue they spent on fundraising and administrative costs and increasing the proportion of reported expenses they spent on program services, making Corporate Defendants appear more efficient to donors than they actually were. Thus, the reported international GIK revenue for the five years from 2008 through 2012 resulted in CFA’s reported fundraising expenses being 25.4% of total contributions. In reality, 67.4% of consumers’ donations (including revenue from CSS), or 82.9% without counting CSS’s “contributions” to CFA, were spent on fundraising. For the same period, CCFOA used its international GIK revenue to report fundraising expenses of 47% of total contributions. In reality, 81.5% of consumers’ donations were spent on fundraising. Similarly, BCS reported fundraising expenses of 29% of total contributions, while in reality 84.6% of consumers’ donations were spent on fundraising. Corporate Defendants also used the inflated contributed revenue amounts when choosing purported “comparable organizations” for setting their executives’ pay, thus improperly increasing the Individual Defendants’ salaries.

You might wonder what’s the big deal if a charity records a GIK shipment when it should not, as alleged by the complaint. Revenue is increased by the valuation of the shipment and expenses are increased by the same amount. Impact on the bottom line, or change in net assets, is zero.

Why does it matter?

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Details on FTC enforcement action against four cancer charities – 8

July 23, 2015, 9:00 am
Federal Trade Commission Building in Washington, DC. - Picture courtesy of DollarPhotoClub.com

Federal Trade Commission Building in Washington, DC. – Picture courtesy of DollarPhotoClub.com

This is the eighth in a series of posts diving into the detail mentioned in the complaint by FTC and all Attorneys General against four named cancer charities. The complaint can be found here. My posts in this series are visible using the FTC tag.

This is the second of two posts on comments in the complaint addressing valuation at an overall level. Next discussions will go into detail of valuation issues by charity.

Read the rest of this entry »


Details on FTC enforcement action against four cancer charities – 7

July 20, 2015, 7:20 am

This is the seventh in a series of posts diving into the detail mentioned in the complaint by FTC and all Attorneys General against four named cancer charities. The complaint can be found here. My posts in this series are visible using the FTC tag.

This is the first of two posts on comments in the complaint addressing valuation at an overall level. Following paragraphs in the complaint go into detail by charity.

This will be a long post. Not sure how to conveniently break it into two or three separate discussions.

Corporate Defendants Improperly Reported the Value of GIK

  1. Even assuming, arguendo, that in some instances Corporate Defendants could have properly claimed the GIK goods’ value as contributed revenue or reported it as program expense, in numerous instances, Corporate Defendants used improper valuation methods to inflate the reported values of donated goods. Corporate Defendants also failed to retain appropriate documentation of those valuations.

This is not going well. I think that paragraph asserts that none of the GIK shipments should have been included in revenue.

Furthermore, assuming shipments actually had variance authority there are two additional problems according to the complaint. First, goods were overvalued. Second, documentation is not retained to support the recorded valuation. Read the rest of this entry »