GIK – gift-in-kind valuation

Check out this set of financial statements to see a live example of the pharmaceutical GIK issues – part 2

This series of posts looks at the issues surrounding valuation of GIK medication in the nonprofit community that have been getting attention lately.  The 2011 financial statements for Blessings International illustrate these issues.  This series show how those issues appear in one set of financial statements. 

See the first post in this series for suggestions on how to download a copy of the full 990 and audited financial statements.

Statement of activity

The statement of activity is presented on the “pancake” method, which means that all of the unrestricted activity is listed first followed by the temporarily restricted items. To find out the amount of total revenue requires doing some math. Total revenue for 2011 is $61.25M (calculated as $3.36 plus $57.82 plus $0.07). Total revenue for 2010 is $39.0.

Donated meds are $57.8 in 2011, which is 94.4% of total revenue.

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Jim Ulvog

Check out this set of financial statements to see a live example of the pharmaceutical GIK issues – part 1

If you want to see an illustration of the issues surrounding valuation of GIK meds, check out the 2011 financial statements for Blessings International.  Many of the issues in discussion around the NPO community are visible in these financials.

This series of posts will be in 6 parts which will be posted over the next two weeks or so.

Their website went down a few weeks ago, so you can’t get the 990 or financial statements from their site. It is in operation again but only with a few pages working. You can find their website here.

You can find their 990 and audited financial statement for 2011 at the North Carolina Secretary of State’s web site. The specific page is here.

In case that link doesn’t work, you can go to the NC Secretary’s web site and use their search page, which is here.

Cover letter

Some time ago when the Blessings International website was up, I read a cover letter from the NPO’s president which was attached to the audited financial statements.  The report at the NC SoS site does not have that cover letter.  I will quote from the copy of the report I downloaded at the time. 

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Jim Ulvog

How to find financial reports for nonprofit organizations

Here are a few ideas in case you would like to find some financial info on a charity.

For donors, it is easy to find financial reports for charities you would like to support. For ministries, please understand how incredibly easy it is for your donors to find your financial data. 

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Jim Ulvog

Food for the Hungry adjusts 990 amounts for valuation of GIK

Food for the Hungry has prepared pro forma revisions to its 990s for 2007, 2008, and 2009. They are following the suggestion of Charity Navigators to revise the 990 amounts to reflect what would have been reported if the valuations used in 2010 had been applied in prior years. Previous post discussed that briefly.

You can find the revised amounts at their website by clicking the “about us” tab and then clicking the “Finances” tab.

At the bottom of the page you can find the downloadable audit reports and 990s for the last three years. Under the “Charity navigator exhibits” heading you can find an attestation letter from the audit committee here and the restated pro forma amounts for 2005 through 2009 here.  The letter is in PDF format while the pro forma amounts are in an Excel spreadsheet.

I have not had time to analyze the numbers, let alone ponder the implications. Just wanted to get this information out, since it is very fresh. The letter from the audit committee chair is dated August 22.

Here is the total revenue amount, as reported on the 990 and as recalculated on a pro forma basis. The ’07, ’08, and ’09 amounts are from the template. I pulled the ’10 amounts from the tax return. The amount of revision is calculated along with the changed amount as a percentage of reported revenue. (more…)

Jim Ulvog

CPA withholds clean opinion from NPO that values GIK meds at AWP

Hood Sutton Robinson & Freeman CPAs, P.C. are the auditors for Blessings International. The firm issued a qualified opinion on the NPO’s financial statements for the years ended August 31, 2011 and 2010.

The reason for the qualified opinion is that purchased medicines are valued at Average Wholesale Price instead of the wholesale exit price in the principal market. The specific paragraph in the audit report reads: (more…)

Jim Ulvog

CNN is looking at GIK valuation issues

The investigative team for AC360 at CNN is working on a series of reports discussing charities.  The series appears to have been focusing on some unpleasant things going on in the world of fundraisers.

Last week Anderson Cooper’s team started looking at the valuation issue of GIKs. Their report can be found here:  Charities accused of overvaluing donations.

Check out the report if you are interested in GIK valuation issues.

They have invoices used by SPCA International for a large volume of medicines that were sent to an animal welfare organization in Nepal. They also have the invoice used for customs clearance. The income recognized on the books is $816,324 and the customs value is $2,500.

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Jim Ulvog

Publicly available price list that validates prices listed in International Drug Price Indicator Guide

This post will have some inside-baseball info for those who are following the issue of how to value donated medicines that has been underway in the NPO and audit communities.

I came across a publicly available price list from a vendor, action medeor, that provides prices for a large range of medicines.

Since there is a behind-the-scenes debate whether the International Drug Price Indicator Guide (IDPIG) has any valid or relevant data in it, I decided to compare the public price list to the amounts listed in the IDPIG.

What did I find?

Prices in the IDPIG are very close to the price list.

I looked at four medicines: 200 mg albendazole and 100 mg mebendazole along with 250 mg and 500 mg ciprofloxacin. These are meds visible in the current conversations on valuing donated medicine.

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Jim Ulvog

Comments on GIK valuation from AICPA conference. Also, what is the core issue on valuing mebendazole?

Caroline Preston has some discussion from the AICPA’s NPO conference in DC last month in her article Charities Continue Debate on How to Value Deworming Drugs. (The article is behind a paywall.)

Her article has a summary of the comments by AmeriCares’ Senior VP of Finance and World Vision’s CFO.

If you are following the deworming issue in the NPO community, you may want to read the full article.

The core issue

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Jim Ulvog

Operation Blessing excludes value of deworming medicine from its 2011 tax return

The Form 990 from Operation Blessing International for their year ending March 31, 2011 does not include any value for $113,043,709 of deworming medicine that was included on their audited financial statements for that year.

Between the date the audited financial statements were released and when the 990 was filed about seven months later, the ministry decided to remove the amount of contributions for deworming medicine and remove expenses of the same amount.

Operation Blessing has made it really easy to read their audited financial statements and tax return for 2011. You can get either of them with one click at the bottom of this page of their website.  Hats off to them for putting both reports in an easy to find place.

Here is the timing:

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Jim Ulvog

Guidance on valuing medical GIKs in the 2011 NPO Audit Risk Alert

The issue of determining fair value of donated pharmaceuticals has been quiet for a little while. I’ve not seen much discussion of mebendazole on the ‘net lately.  Perhaps it is safe to venture back into the waters.

I’d like to mention some of the accounting guidance that is around and provide a few comments.

The AICPA’s 2011 Not-for-Profit Entities Industry Developments Audit Risk Alert contains a two-page discussion of valuing gifts-in-kind (GIK).  SOme key paragraphs are quoted below along with my comments.

This is not an exhaustive discussion of the issue and is not a position paper.

This is intended to further the conversation on valuing GIKs, especially for people who don’t keep copies of the audit risk alerts on their nightstand for leisure reading. (You may now roll your eyes in pity for those of us who enjoy reading such things.)

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Jim Ulvog

Another article on donated meds and overhead ratios – the impact of substitution on our thinking process

An Op-Ed in the Los Angles Times by Jack Shakely, president emeritus of the California Community Foundation, discusses the impact of donated medicines on the functional allocation:  The worst way to judge a charity.

A friend of his was grouching about another NPO buying meds for $0.10 a pill and booking them as GIK revenue at $7.00.  Mr. Shakely looked at the organization’s web site and found they claim 90% of the contributions go to program, with 5% to G&A. That leaves 5% for fundraising.

He then wonders why we are putting so much emphasis on the functional allocation as the main measure of an NPO.

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Jim Ulvog

There is more to the IRS audit report on Food for the Hungry than is yet visible

CharityWatch has an article discussing the IRS audit report on Food for the Hungry – – View Through the Looking Glass.

One sentence background – the IRS claims that Food for the Hungry substantially overstated the valuation of donated medicine in their 2008 tax return.

I’ve mentioned the report here and here.  I’ve been talking about the valuation of deworming meds, especially mebendazole, for several months.

The CharityWatch discussion provides a bit more information from the report that has been discussed publicly. It looks to me like there is more to be revealed.

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Jim Ulvog

Cost of conducting deworming programs – fair value of deworming meds, part 3

I have found a few sources that suggest the cost to conduct a large-scale deworming program is in the range of pennies per child.  If I’m reading these articles correctly, the amounts include the cost to buy the medicine.

A meta-study from the World Health Organization: Estimation of the cost of large-scale school deworming programmes with benzimidazoles.

The abstract says:

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Jim Ulvog

So what is the fair value of deworming medicine? Part 2

Let’s look at one indicator of fair value of deworming meds on the international market – list prices and actual transactions.

Why?  As I understand, the biggest med in financial statements of U.S. relief and development NPOs is mebendazole. The usual dosage is 500 mg. I also understand that particular dosage is not approved for distribution in the United States.  Since you can’t use or distribute that dosage of that medicine in the U.S., seems like we should look at international pricing instead.  In addition, after FAS 157 went into effect, the principal market should be considered.

One source for international pricing is the International Drug Price Indicator Guide.

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Jim Ulvog