Nonprofit finance, accounting, and tax news. Other tidbits of interest to the charity community.
Previous post discussed how we are seeing the front-page-of-the-newspaper test for decision-making play out in the deworming med issue.
Reputational risk
I perceive there is a danger of damaging the reputations of many organizations from the way donated meds are valued.
“How will this look on the front page of the newspaper?”
That is a helpful way to evaluate decisions.
When you are trying to figure out what’s the right thing to do, ponder for a moment how your decision will look if you read about it on the front page of your local newspaper.
If you are going to look really bad, then maybe, just maybe, you might be making a bad decision. I mentioned this in a post some time ago.
We are seeing this illustrated live with the issue of valuing deworming medicines. Mebendazole is in the news!
Newspaper test in action
Bill Zlatos, from the Pittsburgh Tribune-Review has a superb article out: Charities’ methods of valuing donations called into question.
If you are following this issue, you should go read the article.
Mr. Zlatos has been talking to a lot of people and has a lot of great comments. Here are some of the best news-making quotes. I’ll have more to say on these ideas over the next few days.
Reputational risk
Previous post described how the accounting literature defines a bargain purchase.
This post will give an example.
Let’s say a friend of your organization is a real estate investor who has a small building available and would like to provide it to the organization. The building is not in the nice, high-rent downtown area but is still in a very average area of one of the outlying suburbs. The benefactor can’t afford to make this space available for free, because there are property taxes and other costs involved. So the benefactor offers the space to the organization at a price of $10,000 per year.
The property would nicely meet the needs of the organization, so you snap up the offer and move in. What are the accounting entries?
I think it’s about time to talk about bargain purchases and review what the accounting literature has to say.
“That’ll be exciting,” I hear you say.
I know, I know. This is cool stuff.
Bottom line
The core issue is fair value: what is the fair value of the goods or services received? The second point is the contribution component is the difference between fair value and the amount paid for the goods or services.
An article in Forbes by William Barrett reports that Islamic Relief USA Says Drug Donations Fell 91%.
Since I’m an accountant, I’ll comment on a couple of the things I observed in the financial statements. If you are interested in this issue, you really should check out the full article.
This is the final post in a series that has looked at the 2011 financial statements for Blessings International as an opportunity to see where the donated GIK issues show up in an R&D NPO’s financials.
Again, the goal is not to focus attention on this particular organization, but to look at the impact of donated GIK on the financial statements.
You can download a copy of the full 990 and audited financial statements for the last 3 years from the organizations website, located here. Give them credit for making three years of reports easily available. Most NPOs only put 1 year on their website.
What would the financials look like without the GIK?
Let’s do some number crunching.
In a cover letter to the financial statements on the organization’s website, the president says:
This series of posts looks at the issues surrounding valuation of GIK medication in the nonprofit community that have been getting attention lately by seeing how those issues present themselves in one set of financial statements.
See the first post in this series for tips on downloading a copy of the full 990 and audited financial statements.
I just checked their website today and found it is up and operating. You can find their last 3 audited financial statements here and the last three 990s here.
The 2011 financial statements have the cover letter from Dr. Harder indicating the ministry will use cost for 2012.
Kudos to the organization for making the reports for the last three years easily available on their website.
As I’ve mentioned before, the goal is to see a live set of financials that lets us see the issues, not to pick on any particular NPO.
Supplemental schedule
This series of posts looks at the issues surrounding valuation of GIK medication in the nonprofit community that have been getting attention lately. We are looking at how those issues can be seen in one specific set of financial statements.
See the first post in this series for ideas on downloading a copy of the full 990 and audited financial statements.
This post continues a discussion of note 3 regarding valuation of purchased meds. See previous post for text of the note.
Note 3 – continued discussion
As mentioned earlier, Note 1 says the “bulk” of medicines were purchased from two overseas suppliers.
Note 3 indicates the
..majority of the value of the Ministry’s pharmaceutical products are not legally permissible to be sold in the United States..
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 of posts show how those issues appear in one set of financial statements.
See the first post in this series for ideas how to download a copy of the full 990 and audited financial statements.
Notes to the financial statements – continued observations
The final item I will quote at length is note 3, which describes the valuation of donated meds.
Kudos again to Blessings International for spelling this out clearly. My guess is that we would see similar issues, explanations, and general relationships in many other financial statements if all organizations were as clear as Blessings International.
By the way, this is a great description of current valuation methodologies in use today. Considering the topic, it is also reasonably concise. (more…)
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.
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.
The Arizona Republic published three articles Sunday examining valuation issues for pharmaceutical GIKs at Food for the Hungry and Breast Cancer Society. They have joined the growing list of media outlets that have noticed issues in donated meds.
The articles, all by Robert Anglen, are: (more…)
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…)
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…)