GIK – gift-in-kind valuation

Charity restates GIK revenue in 2012. Increases valuation to AWP.

You read that correctly. Audited financials and 990 were restated for value of donated meds. Not a reduction from AWP, but an increase to AWP.

Cancer Fund of America has filed an amended 990 and audited financial statements with the New York regulators. The valuation of GIK medicines was increased to AWP.

I was clued in to the change by a comment from William Barrett, who writes at Forbes and New to Seattle. He has been covering the GIK valuation issues for a loooong time. I’ve mentioned his articles several times. In fact, it was his article at Forbes that first made me aware of the issues with mebendazole.

You can find the filings with the New York AG here.

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Jim Ulvog

Strong rebuttal to reporting by CIR and Tampa Bay Times

Charity Services International has posted a strong reply to the combined reporting by CNN, CIR and the Tampa Bay Times. I’ve mentioned their report here and here.

The CSI reply is A Breakdown of the Tampa Bay Times Story.

If you are interested in this issue, you really will want to read the full rebuttal.

It is broken down into four sections:

What the reporting got right. What CSI believes the reporting got wrong. Assertions that are questionable. Finally, non-essential elements of the story.

Please read the full article.

Three thoughts after reading the strongly worded rebuttal: (more…)

Jim Ulvog

Some thoughts for CPAs after reading the Tampa Bay Times, CIR, and CNN reporting on GIK shipments

The Tampa Bay Times has run the article they wrote with CNN and the Center for Investigative Research:  No accounting for $40 million in charity shipped overseas. It looks to be the same text as in the CIR report, which I mentioned here.

I have performed lots of audits over the years but don’t have any clients with the kind of GIK programs that have been in the news lately. That does two things. First, it frees me to pontificate and speculate because the independence rules don’t limit me in discussing an actual client situation.  Second, it gives me an auditor’s knowledge, experience, and intuition to apply to the news I read.

A few thoughts for CPAs after reading the article again…

Opinion shopping.

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Jim Ulvog

“No accounting for what charities ship overseas” – another major article on GIK, existence this time

The combined team of Center for Investigative Reporting, Tampa Bay Times, and CNN have another feature article on GIK, this time trying to substantiate shipments.

The article is No accounting for what charities ship overseas.

If you’ve been following the GIK issues, you’ll want to check out the article.

If you are a charity, might be worth figuring out how your organization and your GIK shipments would look if you received some really simple media inquiries, like ‘do your shipments really exist?’ or ‘what was in the container?’

If you are an auditor, you might want to read the article as an education about what might going on beyond the documents you vouched.

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Jim Ulvog

Something missing from the Journal of Accountancy article on GIK

William Barrett points out there was some missing disclosure in the JofA article on GIK in his post Seattle-area charity scores P.R. coup from lack of disclosure.

I discussed the JofA article here.

The missing information is that World Vision is one of the biggest players in the GIK valuation issue getting so much attention today.

The JofA article contains no mention that World Vision has been criticized heavily for their accounting of GIK.

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Jim Ulvog

The clock is running on cleaning up GIK

A few thoughts for meetings being held today….

The clock is ticking. Perhaps that’s a good analogy since football season is well underway.

Unlike football, we don’t know how much time is on the clock, but we do know time is running.

The nonprofit community still has time to clean up the GIK valuation issue since the clock hasn’t run out.

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Jim Ulvog

Major article in Journal of Accountancy explains framework for determining GIK valuation

A moment of background, which I know is the completely wrong way to start a blog post – The Journal of Accountancy is one of the major publications in the accounting world. It is the lead magazine of the American Institute of Certified Public Accountants, the largest trade association for CPAs. The AICPA also has significant self-regulatory authority for large parts of the CPA profession.

You might want to get a fresh cup of coffee – this will be a long post.

In its August 2013 edition, the JofA published a major article on valuing donated goods: Gifts-in-kind: What are they worth? How to avoid pitfalls of GIK valuation.  The article is by Jennifer Brenner,

…an associate director for financial accounting and operations for World Vision, a relief, development, and advocacy organization that works to fight poverty.

She blogs here. She is speaking on her own behalf, not as a representative of her employer.

General comments

I have two general comments before I get into discussing specific ideas mentioned in the article.

First, the article is superb. It provides a very good description of the accounting rules regarding GIK valuation.  It uses precise, technical wording while providing a great explanation. If you want to understand the rules for valuing GIK, please study the article.

Second, the article addresses most of the issues that are getting attention in the NPO community. If you want to learn the accounting words you can use to criticize the valuations currently in use, you would do well to study the article. The ironic thing is this article provides a superb path to frame up criticisms of the valuations used today and in the past.

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Jim Ulvog

Template for analyzing financial data of charities that are in the news

If you want to see an example of how to analyze the financial statements of a charity that has lots of GIK or lots of telemarketing costs or lots of publicity, check out Brian Mittendorf’s illustration at Counting on Charity: When Summary Accounting Metrics Fall Short:  The Case of Breast Cancer Charities of America.

In that post he analyzes the financial statements of that charity. Using that post as an example, here’s a few steps you can take:

Start with total revenue, total expenses, and total program costs.

Look at the GIK, especially if it is going places or has uses other than what otherwise would seem to be the core programs. Subtract that from revenue and expenses. That exact same amount also comes out of program costs.

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Jim Ulvog

Article on GIK valuation in Journal of Accountancy

“Gifts-in-kind: What are they worth? How to avoid pitfalls of GIK valuation” discusses the difficulties in valuing GIKs. The article is available online from the Journal of Accountancy.

The author is Jennifer Brenner, CPA, who is the associate director for financial accounting and operations for World Vision.

I heartily recommend the article to you.

I’ll wait a few days before posting my comments.

Jim Ulvog

GIKS – More difficult for Small NPOs – and why accurate valuations are so tough to come by!

Mr. Jeff Beaumont is a CPA working for a firm that focuses on serving the nonprofit community. His opinions are his own and do not reflect the opinions or positions of his firm in any way. Because he speaks for himself, I won’t identify him or his firm in any more detail. He doesn’t speak for me either.

He has about seven years experience as an auditor working on the issues discussed on this blog. Here is Jeff’s second guest post:

By Jeff Beaumont, CPA

Valuing gifts-in-kind is not an easy task. Nor is it quick.

There are not-for-profit organizations that appear to be aggressive with GIKs valuations – a quick internet search will reveal that truth. Not convinced? Ask the IRS for their opinion. Then there are others that take whatever value they can find because they lack the capability – they don’t have the know-how.

This post was written with smaller organizations in mind as they usually do not have the expertise, capacity, and staffing to the extent of their larger brethren.

To record GIKs, it seems there are three choices for management (and, by extension, the auditors) on reporting values: (more…)

Jim Ulvog

More good stuff on overhead ratios and “worst charities” – 6-29-13

An actual conversation is going about how to use overhead ratios and what outcome measures might look like. Lots of writers out on the ‘net are involved.

Writers are actually engaging ideas from other writers. All of us working in the NPO community need this conversation to develop ideas on how to move away from the misuse of overhead ratios that has been going on for decades.  I think this conversation is a good thing.

In addition, the feature articles by the Tampa Bay Times, Center for Investigative Reporting, and CNN on “America’s worst charities” is developing legs.

There are so many articles I’d like to discuss in my own post but time doesn’t allow doing so.

Soooo, I’ll start to aggregate a few of the more interesting articles.

My comments usually will be limited to one or three sentences.

Focus will be on two areas:

  • Overhead ratio discussion
  • Developments flowing from the “America’s Worst Charities” articles

Here’s my first list:

Overhead ratio

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Jim Ulvog

The “worst charities” discussion isn’t about overhead ratios

The ranking approach used by the Tampa Bay Times in their “America’s Worst Charities” articles is focusing on the high fees paid to telemarketers rather than just the overhead ratio. One of the threads of the online discussions is that their methodology is just focused on overhead ratios.

That is not the case. The overhead ratio conversation is a separate issue. The Tampa Bay Times approach focuses on the high cost of telemarketing as a fundraising technique and the issues related to that industry.

The reporters outlined their approach in a separate article here.

As I looked at bits and pieces of the data, I noticed several of the charities had respectable program ratios, so I decided to poke at the data.

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Jim Ulvog

About that Gardasil shipment and that wave to the CNN reporter

Robert Anglen has a report in the Arizona Republic on a Mesa charity tied to inquiry. He had an interview with the CEO of the Breast Cancer Society.

The CEO says that what appeared to be an effort to vote CNN the number 1 network was a failed attempt to wave goodbye to the reporters while simultaneously holding a cell phone.

Far more serious is the discussion of variance power.

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Jim Ulvog

Part 3 of “America’s Worst Charities” – family manages a family of charities and GIK issues – AGs involved

Big news:  The Attorneys General are taking depositions.

The third part of Tampa Bay Times series on “America’s Worst Charities” discusses a group of five NPOs that are run by family members. Four of them are reportedly formed by or facilitated by the founder of the oldest charity in the group.

A report aired last night on CNN’s AC:360.

AG involvement

Near the end of the Tampa Bay article is this comment: (more…)

Jim Ulvog

Guest post – Unintended consequence: the pressure for ‘good’ overhead ratios creates pressure to get GIK

The following guest post was submitted to me by a reader. As with other guest posts, this is his/her opinion and does not represent the opinion or experiences of his/her employer. It also does not represent my opinion.

I wrote the headline. I hope it captures the tone of the post.

For your consideration:

The more and more that I hear about the “controversy” over pharma values, the more and more it shows the completely unnecessary overreliance on overhead rates as a mean of valuing charities. Think about some of the issues that arise from the use of overhead rates:

  1. Charities feel pressure to increase revenue (Charity Navigator expects 10% a year growth in addition to low overhead and high net assets)
  2. Charities may get into a donation that can quickly boost revenue without adding fundraising cost (like GIK, or dewormers)
  3. Charities forgo donations when they no longer provide high enough revenue (charities now are using far less dewormers because they no longer have high revenue value)

What does this mean?

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Jim Ulvog