Non-profit accounting

Details on FTC enforcement action against four cancer charities – 4

This is the fourth 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.

I will quote and comment upon the complaint, which can be found here.

My posts in this series are visible using the FTC tag.

Continuing with the complaint…. As you see the references to INTERMEDIATE, remember that is a named for-profit entity that found and placed shipments of GIK. I choose not to mention their name since they have not been charged in any action. (more…)

Jim Ulvog

Details on FTC enforcement action against four cancer charities – 3

This is the third in a long series of posts diving deep into the detail mentioned in the complaint by FTC and all Attorneys General against four named cancer charities. My posts are visible using the FTC tag.

My goal is to highlight some of the information that I think is of particular interest to the wider nonprofit community. This complaint is the most detailed information available in the public realm about the range of issues that have been visible in the charity world over the last few years. Keep in mind that unlike the long series of news coverage on the issue this information is from regulators who have subpoena authority.

The complaint is visible here. I will quote it and add my comments.

Continuing with the complaint:

Misrepresentations about Charitable Efficiency: Improperly Reported GIK Used to Disguise Low Charitable Program Expenditures and Minimize High Administrative and Fundraising Costs

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Jim Ulvog

What it costs to deal with a major IRS audit. Case study from Food for the Hungry.

The IRS took serious exception to the methodology used by Food for the Hungry in preparing its tax return for the fiscal year ending September 30, 2008. The IRS audit of that 990 ran for years.

On March 24, 2014, the ministry announced the IRS closed their audit. The ministry says it did not have to file an amended return but did agree to change the way that it was accounting for gifts in kind.

A summary of the issues as I described them on 6/3/14:

  • In one sentence (as I understand the picture), the primary issue under audit was whether it was appropriate to value 500 mg mebendazole (which cannot legally be sold in the U.S.) at over $10 per pill when it can be purchased on the international market for one or two cents per pill. Two related issues were variance power and whether amounts paid in relation to a shipment of meds were a handling fee or a purchase price.

Now that tax returns are available through the 2014 fiscal year, we can see enough 990s to develop a case study about how much it costs to respond to a major challenge from the IRS.

Why the big deal?

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Jim Ulvog

Disclosure of years open to tax audit is now only required for nonpublic entity that has material unrecognized tax benefits

I have a long post at my other blog, Attestation Update, talking about the previous requirement for financial statements to disclose the years that are open to audit by tax authorities.

This disclosure applies to charities as well as private businesses.

That disclosure is no longer required unless certain conditions exist. For practically all charities, the requirement has gone away.

If you are involved in financial statement preparation, feel free to check out the discussion.

Jim Ulvog

Details on FTC enforcement action against four cancer charities – 1

The news coverage has died down about enforcement action taken against four charities by the FTC and every state attorney general. I’ve not seen anything that dives a deep into the accusations. This post is the start of a series of discussions on the case.

Why go into detail?

After having read through the accusation, it is obvious this case contains most of the problematic issues we have seen over the last few years in nonprofit accounting and fundraising. Off the top of my head, I don’t recall any issues under discussion in the charity world that are not present in this case. That makes this set of allegations a good case study.

The complaint can be found here. That is a public document. I claim journalist status, so will quote the document at length.

Here is the opening of the complaint, with a few comments added: (more…)

Jim Ulvog

More followup on FTC action against 4 cancer charities

There is a lot more to say on the FTC and all AGs going after four charities that were way out of line.

5/19 – William P. Barrett at Forbes – Cancer Charities Agree to Dissolve Amid Fraud Claims – Article summarizes the case by the FTC. Two of the four charities have agreed to close their doors. Three of the named individuals have agreed they will not have future involvement with charity management or even fundraising.

We did nothing wrong and we agree not to break the law again

Article points out the irony we seen these kinds of settlements. Even though the three individuals agreed to not be involved in the charity sector again during their lifetime and two of the charities agreed to be taken over by receivers and then liquidated, the charities and individuals involved denied doing anything wrong.

It is as if it’s a normal and everyday thing that individuals agree to be legally barred from involvement in their economic sector and charities agree to corporate suicide when they have done nothing wrong.

But that’s the legal dance that is necessary. Denying wrongdoing is necessary to prevent the consent degree from becoming proof to anyone who later tried to sue the charities or individuals.  Even though I understand the reason, it seems silly to those looking in from the outside.

Contested claims

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Jim Ulvog

First glance at court filings in the FTC enforcement case

One cool thing I have learned while blogging is that lots of records for federal court proceedings are available in the federal Public Access to Court Electronic Records (PACER) system. After following the case of Scott London for a while, I’ve learned my way around PACER.

I have taken a quick look at the documents available in PACER for the enforcement action by the FTC and all state AGs against four cancer charities.

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Jim Ulvog

Survey of first day reporting on major FTC enforcement action

Here is a collection of the articles I found the day the FTC and all state Attorneys General took enforcement action against a group of four charities:

Update: A quote in the Chronicle of Philanthropy article provides a massive warning to the nonprofit community:

Hugh Jones, a charity regulator in Hawaii, said to his knowledge “this is the first time state charity regulators have aggressively pursued the deceptive use of gifts in kind.”

While this case looks to be extraordinarily extreme, there are a variety of issues that the FTC and every AG has now declared to be the fraud category. Anyone who has been paying attention knows the issues under discussion are not limited to these four charities. 

It isn’t too late to clean up policies, valuations, and modify some past filings.

Let those with ears to hear, hear.

FTC litigation

FTC press release which lists the names of the charities and key executives: (more…)

Jim Ulvog

First hint about the FTC enforcement actions to be announced later today

Last evening Mr. William P. Barrett (@WilliamPBarrett) tweeted:

FTC fundraising fraud lawsuit filed in Arizona federal court against #CancerFundOfAmerica and Cancer Support Services, but no individuals

Tweet has no link to articles but does point to the discussion of Cancer Fund of America at the America’s Worst Charities website. They are #2 on the list. Cancer Support Services isn’t on that list. After a cursory search, I can’t find any other discussion of the FTC’s action.

If that is a correct description of the targets of the enforcement action, you can start your reading by following that link.

The FTC announcement of a press conference is here.

I will be in a continuing education class all day so will follow any news sporadically. Haven’t decided if I’m going to step out of the class so I can listen in to the press conference. (I claim to be part of the media for this issue!) The scheduled time is in the middle of one of the most important classes.

If you have been reading this blog, you may want to pay attention to the coverage that seems likely to develop today.

Jim Ulvog

Major announcement from Federal Trade Commission on Tuesday

On 5/19 the FTC and State Attorneys General to Announce Action on a Major Consumer Fraud Case

I think there will be some major news tomorrow. This may be related to the work various AGs have been doing on GIKs. If my guess is correct there will be plenty of coverage tomorrow.

link: https://www.ftc.gov/news-events/press-releases/2015/05/ftc-state-attorneys-general-announce-action-major-consumer-fraud

 

Jim Ulvog

Two free webinars on proposed overhaul of NPO accounting

Here are two opportunities to get an introduction to the massive rewrite of financial reporting rules for NPOs. No travel. No cost beyond your time.

CliftonLarsonAllen is offering a free one-hour webinar about the exposure draft on Thursday, May 21 at 2:00 p.m. Central Time.

You can register for the CLA webinar here.

As I mentioned earlier, FASB is offering a free webinar on May 12 at 1:30 p.m. Eastern Daylight Time. Their session will run for two hours and is good for two hours of CPE.

You can register for the FASB webinar here.

Both free. FASB session offers 2 hours CPE.

Jim Ulvog

Background articles on overhaul of nonprofit accounting – #1

I’ll start listing the helpful articles providing background on the major changes to financial reporting of charities. Here’s the first articles I have seen:

Mentioned this previously:

Jim Ulvog

FASB releases exposure draft on overhaul of NPO financial reporting

FASB has released the long-awaited revision to reporting by nonprofit organizations.

The FASB’s press release can be found here.

The document along with a link is: Proposed Accounting Standards Update- Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954) – Presentation of Financial Statements of Not-for-Profit Entities.

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Jim Ulvog