Governor vetoes AB 1181

October 13, 2019, 6:19 am

Image courtesy of Adobe Stock.

On Saturday October 12, 2019, Governor Newsom vetoed California Assembly Bill 1181, which would have required charities filing financial statements with the state Registry of Charitable Trusts to value donated medicine at the fair value in the end recipient market. Essentially this would have required charities filing in the state to use values in the international market instead of the U.S. market.

More discussion will follow later today.

Update: more details in followup post.


More details on Food for the Poor’s settlement with Michigan Attorney General

October 11, 2019, 9:01 am

Image courtesy of Adobe Stock.

Previous discussion on 10/4/18 provided details on a settlement between Food for the Poor and the Michigan Attorney General.

Prior post provided explanation of the FFP appeal claiming 95% efficiency, the cost of 6 cents to provide a meal, and joint cost allocation of speakers who go out to raise funds.

I have obtained and read a copy of the settlement agreement with the AG.  There are a few more details that are worth describing.

Penalties

The settlement agreement was effective 9/27/18. It was announced the next day.

FFP denies their appeals were misleading and denies any violation of state law. They also deny doing anything wrong.  The charity does recognize

“…that modifying its solicitations would better emphasize its impact, as well as achieve greater transparency. Food For The Poor worked with the Department to modify its solicitation materials and resolve the Department’s concerns.”

FFP agreed to pay $250,000 to two charities in Michigan which feed poor people. The charity also agreed to pay the AG $50,000 as reimbursement for their litigation costs.

Issues and resolutions

Efficiency claims 

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Accessible copies of Final Cease and Desist Orders from California AG

October 7, 2019, 5:51 pm

The order may be final but case is not finished. Image courtesy of Adobe Stock.

If you are so interested, you can read for yourself the final cease and desist orders from the California AG against MAP International, Catholic Medical Mission Board, and Food for the Poor. They may be found at:

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Recent articles and comments on GIK valuation

October 2, 2019, 9:22 am

Image courtesy of Adobe Stock.

There has been little discussion of the GIK valuation issue, especially regarding AB 1181, that I have noticed over recent weeks. Here are all the public comments I have seen. Let me know anything I missed.

Before getting to five articles, a quick minor comment on AB 1181.  It was officially enrolled on 9/18/19. As of this morning (10/2/19) the exact status of the bill is that on 9/25/19 it was “Enrolled and presented to the Governor at 3:30 p.m.” according to the bill’s history.

I’m still playing catch-up on understanding the legislative process here in California. I now know that a bill must go through ‘engrossing and enrolling’ before going to the Governor for his consideration. Based on looking at some other bills, the next step after presentation to Governor is for him to sign. Then the bill is ‘chaptered’, or given an official location in the state statutes.

All that detail means the bill could not have been signed by the Governor before 9/25/19.

According to the Assembly’s legislative calendar, the governor has through 10/13/19 to either sign or veto bills.

Articles

Bloomberg Tax – 8/21/19 – Crackdown May Stop Charities From Inflating Cost of Donations

Article provides good background on the medical GIK issue. Gives good, brief background on the FTC case against four charities in 2015. Also summarizes the new FASB project.

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Not-for-Profit Advisory Committee agrees with FASB there is no need to change how donated medicine is valued.

September 30, 2019, 9:32 am

Image courtesy of Adobe Stock.

On 9/27/19 FASB sent out a FASB Action Alert. These are sent to people who sign up for various newsletters from FASB. This one is titled Not-for-Profit Advisory Committee Meeting Recap and summarizes their meeting on September 16 & 17, 2019.

This committee is referred to as NAC. They meet twice a year.

Main topic of discussion, based on the notes, was the FASB’s project on Not-for-Profit Reporting of Gifts-in-Kind.  You can keep track of the project by checking that web page.

I will quote several of the key comments in the email and summarize other comments:

NAC generally agreed that additional disclosure might be helpful to readers of financial statements.

Meaning of the following paragraph is that NAC concurs with FASB’s scope decision for this project to address presentation and disclosure and exclude any consideration of valuation:

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What are the legal costs to fight a major cease and desist order from the California Attorney General?

September 27, 2019, 8:51 am

Attorneys talking to judge. Image courtesy of Adobe Stock.

It took a major amount of effort to oppose the cease and desist orders issued by the California Attorney General against three charities.

Various filings in the case and the one day of transcripts I’ve read indicate that each of the charities had a couple of highly experienced trial attorneys representing them.

Have you ever wondered what the tab runs for a major enforcement action? I do. When reading of massive cases against big banks I’ve been curious what the legal costs run.

Normally that information is invisible. Appropriately, there is no way to look inside private companies, massively huge public companies, and checkbooks of individual to see their legal bills.

With not-for-profit organizations, the situation is different. Charities are required to file a 990 with the IRS and send a copy to many state regulators. The majority of charities post the last several years of 990s on their website.

Part IX on page 10 of the 990 shows the detail of expenses. Line 11b discloses legal fees, line 11c shows accounting fees, and line 11g shows other professional fees not listed on one of the previous lines. Pull the 990s and you can see the disclosed information.

 

So, let’s take a look at the 990s for MAP International, Food for the Poor, and Catholic Medical Mission Board to see what their legal fees have been running.

For each of the charities, the legal fees for the last five years are pulled from the 990 and listed. You can visually see where the costs increased.  I will assume the large increases are related to the actions of the AGs from California and other states, with the California effort being the overwhelming majority of the costs.

An average of the earliest 3 years is calculated to provide a baseline, then compared to the legal costs for 2017 and 2018.  The increase over baseline is assumed to be an approximation for the costs to address the CD&O.

I have listed my calculations so you may check them. You may revise any assumptions or amounts as you wish.

 

MAP International

Here is the calculation of increased legal costs for MAP:

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How big is the world of donated medicine?

September 25, 2019, 7:09 am

Pharmaceutical products and medicine on shelves. Image courtesy of Adobe Stock.

All this attention on donated medicine got me wondering just how big the sector is.

There is a small number of charities receiving big volumes of medicine donated by the pharmaceutical companies. Those charities then get all those meds distributed to charity clinics and hospitals around the world. That is incredible work which is improving the lives of millions upon millions of poor people around the world.

So, how large is that sector?  Here is a bit of research.

For the charities I’m aware of, plus those that have been in the news over the last eight years or so, plus those on the record as being opposed to AB 1181, I looked up their most recent 990 on their website. For a few of the charities there wasn’t a 990 visible (or at least I couldn’t find it) so I pulled the most recent 990 from the California Registry of Charitable Trusts.

Data tabulated below is:

  • total revenue from 990 Part I line 12,
  • non-cash donations from 990 Part VIII line 1g (referred to as gifts-in-kind or GIK), and
  • disclosed amount of drugs and medical supplies on Schedule M line 20.

Amounts are converted to millions, then rounded.

Last column in the table is the dollar amount of drugs & medical supplies divided by total revenue. A higher percentage shows larger portion of income from donated meds, and thus a higher likelihood AB 1181 will have a bigger impact on the financials.

Only charities with over $20 million of donated meds and supplies are listed; charities below that level are excluded.

Summary of results

Table below includes 17 charities. Another 17 whose volume of donated meds is below $20M each are not listed.

I think there may be another dozen charities with donated meds in this sector. As I come across additional names and look up their 990s, this table will be updated.

For the not-for-profit organizations (NFP) listed, total revenue is about $8.9 billion, total donated items are about $8.1 billion, and donated drugs and supplies are about $7.5 billion.

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