GIK valuation

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

Not-for-profit Advisory Committee discusses valuation of GIK meds

This morning I listened to a webcast of the Not-for-profit Advisory Committee (NAC) as they discussed the issue of valuation of donated pharmaceuticals.  The NAC provides feedback to FASB about issues affecting the NPO community.

You can find an outline of the agenda, which includes an attachment for issues regarding donated meds here.  Attached to the agenda are several articles from William Bennett Barrett and Caroline Preston. (Oops! Sorry Mr. Barrett.)

You can find an on-line archived recording of the meeting here.  It is the March 1, 2012 meeting that started at 10 AM.

I have just a few thoughts after having listened to the meeting.

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Jim Ulvog

So what is the fair value of deworming medicine? Part 1

What’s the fair value?  That is the central question behind the whole issue of booking albendazole and mebendazole as GIK contribution revenue.

I will have several posts on this issue, including one or two on the accounting rules.  I’ll start with a very casual discussion, work towards more objective and verifiable valuation, and then discuss the accounting.

In recent weeks I’ve read two particular articles on health issues that describe the cost of a deworming regimen as an aside.   I doubt either of the authors or their editors knew how intense the valuation issue has become in the last 60 days.

So, let’s give the magazines and authors some slack.  Don’t pick on them too hard.  At the same time, their comments provide some background.

Here’s two weak data points for the cost of deworming meds:

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Jim Ulvog

Time to talk about GIK issues again

In the midst of a discussion of GIK valuation issues in December and January that I thought was taking place within the nonprofit community, news surfaced that the IRS had finished an audit which identified major concerns about the same issue.  I discussed that here and here.

I’ve held off on more discussion to see how many more shoes were going to drop.  Haven’t been too many – the Better Business Bureau and Charity Navigator are paying attention.

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Jim Ulvog

Charity Navigator’s raises idea to revise prior year reports for changes in GIK valuation – A brief discussion of the rules for restating financial statements

Caroline Preston, from The Chronicle of Philanthropy, reports in Watchdogs Zero In on Charity Drug Valuations, that Charity Navigator is floating the idea of asking some charities to restate the last four years of financial statements.

Many NPOs that applied SFAS #157 saw their revenue drop dramatically because of using lower valuation for medicine, especially deworming meds, most specifically mebendazole. (I know, I know, it’s actually ASC 820-10, but my brain still thinks in terms of SFAS numbers when it comes to pre-ASC rules.)

The rating methodology used by Charity Navigator, according to Ms. Preston’s article, penalizes NPOs whose income drops. That means a lot of relief & development NPOs will take a big hit on their ratings.

I don’t have any information beyond the article, so I don’t know what reaction they are getting.

It’s just my guess, but I think they will not get a very good response to their idea.  I don’t think NPOs will be at all amused to take this approach.

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Jim Ulvog

Better Business Bureau is looking at how charities value deworming meds

William P. Barrett just reported that the Better Business Bureau Wise Giving Alliance has asked several dozen large charities how they value deworming meds.

In his article, BBB Asks Charities To Explain Deworming Med Valuations, he says the BBB sent a letter in early January asking for a variety of information, including dollar volume of the meds distributed, number of pills, and the accounting rationale for the valuation that was used.

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Jim Ulvog