Some additional news reports on the California AG’s enforcement actions

May 14, 2018, 5:00 am

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There are a few recent articles discussing enforcement action by the California Attorney General regarding the accounting for donated medicine used by three national charities. Looks like the issue is beginning to get a bit wider attention than this teeny tiny little ol’ blog.

Inflated Expectations / What’s going on with foreign affairs nonprofit Food for the Poor? from Slate on May 10, 2018, provides a non-technical description of the issues raised by the California AG.

Good explanation of medicine valuation, near-term expiry, joint cost allocation, principal market, access, and materiality issues without ever using those words. Even hints at daisy chain and SFAS 136 agency transactions.

Let me suggest a couple of exercises for accountants in the audience.

First, read through the article another time identifying all the accounting issues touched upon. Think about that as an illustration of how to describe technical accounting issues without being technical. (Yeah, I know, what a crazy idea – explaining stuff so people will understand.)

Second exercise is to read through the article thinking about how non-accountants would respond to each of those ideas if it was the first time they had heard about it.

How many of those GAAP accounting treatments would actually make sense?

How many would seem flat-out silly to people who haven’t spent years working with accounting rules?

Description of one shipment

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Posted by Jim Ulvog

Once again: The time left to clean up the valuation of GIK meds is running out.

May 10, 2018, 7:51 am

 

See that fire siren at the top of the city’s fire hall?

The whistle is so loud my ears hurt.

The fire is valuation of donated medicine.

The town is the non-profit community.

 

It is time to rerun my fire alarm commentary.

My previous post provided a technical description of regulators’ concerns over accounting for donated medicine in the not-for-profit world. This post provides a word picture of the current situation.

Originally posted way back on November 9, 2012, here is my six-year-old discussion with some minor changes:

 

 

There is a fire burning in the nonprofit community. The fire is the issue of valuing donated pharmaceuticals. Primarily issue is about mebendazole.  Albendazole and antibiotics are involved, but to a lesser degree. There are many alarm bells ringing. 

The loudest fire alarm went off yesterday.

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Posted by Jim Ulvog

Regulators have serious problems with how the nonprofit community is accounting for donated medicine.

May 8, 2018, 1:25 pm

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There is a serious problem in the nonprofit community in terms of accounting for donated medicine. Three major enforcement actions by various regulators tell us that the regulators have serious reservations about how charities are dealing with gifts-in-kind.

Those of us working in the charity world need to ponder what could be making so many regulators so concerned.

50 Attorneys General

The rumors in the wind mentioned in my next post were discussed in 2012.  That turned into a major enforcement action by the Federal Trade Commission and all 50 state Attorneys General against 4 cancer charities. (See my posts under the tag FTC.) That was in 2015.

I’m not aware of any followup by that group and I’ll guess the reason is the complexity of coordinating a 50+ member committee.

For the FTC and all 50 Attorneys General to all be on the same page on an issue should serve as a warning they believe there is a serious problem.

IRS

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Posted by Jim Ulvog

Some details in the appeals filed by 3 charities

April 30, 2018, 12:44 pm

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As mentioned previously, appeals have been filed by the three charities receiving cease & desist orders from the California A.G.

This discussion will highlight some comments in the appeals. Will have a few observation from an auditor perspective along the way. Might want to get a fresh cup of coffee before you dig in. This will be a long post.

Previous posts:

 

Catholic Medical Mission Board appeal

At seven pages, this appeal is a bit shorter than the others. The page count includes the proof of service and a cover sheet which is the page the AG provided to request an appeal.

In the appeal, CMMB denies all the factual allegations and conclusions of law (para 4). Specific assertions are listed for emphasis:

  • The AG is not properly interpreting GAAP.
  • Geographic restrictions on medicine do not make the US a prohibited market for valuation purposes.
  • Representations to California citizens are neither unfair nor deceptive.

In the appeal, CMMB requests:

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Posted by Jim Ulvog

Three charities file appeal of California AG Cease and Desist order

April 13, 2018, 4:07 pm

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With a deadline of April 11 to appeal cease and desist orders from the California Attorney General, MAP International, Food for the Poor, and Catholic Medical Mission Board each filed their appeal on the 10th or 11th.

You may find a PDF copy of the appeals and cease and desist orders at the AG’s website.

The individual appeals may be found at:

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Posted by Jim Ulvog

California A.G. files cease & desist order against 3 large charities alleging donated medicine was overvalued

March 20, 2018, 5:00 am

As mentioned previously, the conflict over donated pharmaceuticals has heated up again. It seemed to have faded away over the last couple of years but has now gained renewed visibility.

The California Attorney General has filed cease and desist orders against three large, high-profile charities who received between 70% and 98% of their revenue from medical GIK.

A complaint was filed against another charity for overvaluation of GIK. That charity essentially conceded the accusations in a stipulated settlement, agreeing to terminate the charity’s existence. That action is discussed here.

The three large charities are Food for the Poor, Inc., MAP International, and Catholic Medical Mission Board, Inc.

The cease and desist orders can be found at the AG’s web site:

This is a long post, approaching 2,200 words. Might be worthwhile to get a fresh cup of coffee before diving in.

 

Background

This post will walk through a number of key comments in the cease and desist orders, which I’ll referred to as C&DO. Because the C&DO are roughly parallel to each other, I’ll walk through the MAP order and add comments on the CMMB and FftP order where it is helpful. The CMMB C&DO does not have the comments regarding state charitable filing requirements.

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Posted by Jim Ulvog

Financial info for the 4 charities the California AG accuses of overvaluing donated medicine

March 14, 2018, 11:00 am

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For future reference, here is some select financial information on the charities that have been accused of overvaluing donated medicine.

In March 2018, the Attorney General of California filed cease and desist orders against three charities and a complaint against one.

The complaint was resolved with a stipulated judgment the same day the complaint was filed. Resolution? The National Cancer Coalition agreed to dissolve.

Listed in this post is some data from the most recent set of financial statements available at the charities’ web sites along with the 2015 info, which is the latest year cited in the cease-and-desist orders.

Since the cease-and-desist orders allege material misrepresentation in the audited financial statements, the auditor is also listed. Therefore this is an audit issue as well as an accounting issue.

I will make an educated guess that the 2017 financial statements for MAP and FffP will not be available until after the impact of the AG’s cease and desist action is assessed. Looking in from the outside, it seems to me like this issue would constitute a material subsequent event.

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Posted by Jim Ulvog

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