GIK – gift-in-kind valuation

World Help reduces 2011 revenue by 92.8%

World Help has released their 2012 audited financial statements which you can find on their website at this link.

The total revenue initially reported in the audited financial statements for the 2011 fiscal year was $239.3M (audit opinion dated 3/12/12). In the most recent financial statements, the total revenue for 2011 is $17.3M (audit opinion dated 4/10/13).

That is a reduction of $222.0M, or 92.8% of the amount initially reported.

Contributions of GIK were initially reported at $223.66M for 2011 (3/12/12) and currently reported at $1.62M (audit report date 4/10/13). That is a decline of $222.04M, or 99.3% of the initial amount.

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Jim Ulvog

Accounting issues illustrated in 990 of a cancer charity – 1

“Little Money of Children’s Cancer Charity Goes to Main Programs” is a major article in Chronicle of Philanthropy by Caroline Preston discussing the accounting at Children’s Cancer Recovery Foundation.

Overview

I mentioned this article here. There is much in the article that can be discussed from an accounting perspective. I will touch on some of the ideas.

The Chronicle article is behind a paywall, so you need to use your online subscription to read it or grab the February 28, 2013 print edition.

This series of posts is going to be an inside-baseball discussion. More technical than usual with lots of accounting shorthand. Probably won’t be much fun unless you are already familiar with issues in the NPO world. Likely to be wordier than usual (as if I wasn’t wordy enough already!)

You can find the organization’s 990 for 2011 on their website here.

Why this discussion and why this organization?

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Jim Ulvog

Discussion of joint cost allocation, variance power, GIK valuation, and portion of funds spent for outside fundraisers, all for one charity

Yes, that is a lot of ground to cover.

Long article out today in the on-line edition of Chronicle of Philanthropy by Caroline Preston covers all those issues in just one NPO – Little Money of Children’s Cancer Charity Goes to Main Programs.

The article is only available on-line and in the print edition soon to arrive in your mailbox.

When the article is out on-line I’ll have more to say.

In the meantime, just know the article discusses one cancer charity at length. Also includes the names of other NPOs that have been in the news lately.

If you have access to either the on-line or paper edition, the article starts on page 7. It runs for one full page and two half-pages.

Jim Ulvog

World Vision posts pro forma adjustment which drops combined total revenue for 2008 and 2009 by 11.5% and cuts combined GIK revenue by 34.6%

World Vision has posted their 2012 financial information. You can find the information on this page. The audited financial statements are here.

Included on that page is another document, Charity Navigator Disclosures. This contains their pro forma disclosure of what changes World Vision believes would have been made to the 2008 and 2009 financial statements if the requirements for SFAS 157 had been applied for those years.

We will leave aside for the moment the opinion of some, including me, that implementing SFAS 157 should have had no impact on the valuation of 500 mg mebendazole, since it is illegal to distribute that medicine in the United States both before and after SFAS 157 went into effect.

The pro forma calculation reduces GIK revenue by $143M in 2008 and $126M in 2009. World vision disclosed in their 2010 CFO’s letter that the 2010 revenue would have been $140M higher using the valuation amounts in place earlier. That amount for 2010 is repeated in the disclosure memo.

The pro forma calculation reduces GIK revenue by 30.5% in 2009 and 39.1% in 2008. Total contributions drop by 10.3% in 2009 and 12.9% in 2008.

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Jim Ulvog

Charity plans to revise GIK revenue in 990s by about $200M

After a break for the holidays, valuation of GIKs are back in the news.

William P. Barrett reports in Forbes that a Charity Eyes Quarter-Billion-Dollar Write-Down in Value Of Goods Handled.

He indicates the president of Operations Compassion has said they are reviewing their 990s for the last 4 years and expect to reduce the recorded amounts of GIKs.

The estimate of the write-down is between $200 million and $250 million.

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Jim Ulvog

For a deeper education, try sketching out the relationships mentioned in the article about World Help’s GIK

One technique used by auditors when trying to understand a complex situation is to get a piece of paper and draw all the components, cash flows, and relationships. Sometimes there is just too much going on to understand the words and you need a picture.

Try doing that with the Chronicle of Philanthropy’s article, A Consultant’s Revenue-Generating Tactics Draw Scrutiny.  I think you’ll get a superb education on the GIK issues in the NPO community.

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Jim Ulvog

Revised 2009 revenue for World Help and graph of revenue for last 4 years

Shortly after World Help posted revised financial statements for 2011 and 2010, it posted revised revenue numbers for 2009. After going over the revised numbers, I’ll show a graph tracing their total revenue over the last four years.

The revised 2009 information is visible in the audited financial statements for 2010/2009. You can find the page with World Help’s financial reports here. You can click directly to the 2010/2009 audited financial statements here.

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Jim Ulvog

Major article on World Help and their GIK fundraiser

I just saw the article.

If you’ve been following the challenges World Help has been going through regarding their GIK revenue, you will definitively want to check out a major article from The Chronicle of Philanthropy:  A Consultant’s Revenue-Generating Tactics Draw Scrutiny.

You might want to get a fresh cup of coffee before you start.  Don’t know the word count, but on my computer the article is 13 screens long.

I’ll need to read this a few more times to absorb the details. In the meantime, a few initial observations:

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Jim Ulvog

Restated financial statements available on World Help website

As was promised, this morning World Help released restated financial statements for their 2011 and 2010 fiscal years.  A clean audit opinion is attached.

You can see it available on this page of their website. You can click directly to the report here.

The financial statements contain an emphasis of matter paragraph in the opinion, revised income and expense amounts on the statement of activity, and a new note 11 describing the revision to the financial statements.

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Jim Ulvog

Amended 990 is available on World Help web site

As was promised to several reporters this week, World Help has made their amended 990 available on their website this evening. You can see the link on the website here and click directly to the 990 here.

As they have said publicly, the revised revenue for 2011 is $104M.  The 2010 revenue has been restated downward from $125.1M to $64.1M.

Here is a summary of the changes.

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Jim Ulvog

Two donors to World Help say they didn’t give, in addition to World Help saying it overstated revenue

That’s the very short version of the report from Doug Donovan and Caroline Preston at The Chronicle of Philanthropy:  Charity Lowers Revenue Figure by $135-Million.

World Help will reduce 2011 revenue from $239.3M to $104.1M, a drop of $135.2M.  They will also be revising their 2010 and 2009 tax filings according to the article.

Most of that drop is due to one transaction, a donation from Direct Relief International.  It looks to me like revenue from that contribution will drop from $100.1M to $3.3M, a decline of $96.8M.

Two donors say they didn’t donate

More big news in the article is that two donors say they didn’t send large volumes of GIK to World Help.  From the article: (more…)

Jim Ulvog

World Help says they overstated revenue by half of the audited amount

That is according to an article by William Barrett in Forbes – Big Charity Admits Wildly Overstating Donated Goods

World Help disclosed to Mr. Barrett that revenue for 2011 was overstated by about $135M of the reported $239M.

The core issue is that for one transaction, a donation of medical goods from a California-based NPO, World Help alleges that the amounts on the paperwork were altered when provided to World Help. Check out the full article for more details.

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Jim Ulvog

An open letter to the CPAs who audit R&D charities receiving GIK meds

Dear colleagues:

If you would like some background on the GIK issues, please read my open letter to your clients.

The accounting is problematic for donated pharmaceuticals that you have been auditing for the last few years. 

If you have a budget of 100 or 300 hours, it might be wise to allocate a few hours to read beyond AICPA risk alerts and Accord position papers. You can browse my blog for  discussions, which contain links to other resources that also discuss the accounting and valuation issues.

It is my considered opinion that many of the valuations are not supportable under GAAP.  The timing of SFAS 157 isn’t the issue. 

The amount of scrutiny on your client’s valuation methodologies is high and increasing.

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Jim Ulvog