GIK valuation

Valuation of deworming gets more complicated – the IRS gets involved

It’s not just two big-time reporters and this teeny-tiny blog looking at the mebendazole issue anymore. 

It is now obvious that the IRS has been paying attention for quite some time.  On Monday their involvement hit the papers.

Two articles appeared:

William P. Barrett, from Forbes magazine, posted  IRS Audit: Big Charity Filed Misleading Tax Return

Caroline Preston, of The Chronicle of Philanthropy posted IRS Levies Fine on Food for the Hungry Over Drug Valuations.

If you have any interest in the issue of valuing GIK meds, you will want to read both articles.

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Jim Ulvog

Graphic that shows the impact of change in GIK valuations

The Chronicle of Philanthropy has a superb graphic that shows the amount of donated mebendazole deworming medicine recorded as contributions in the financial statements of three NPOs before and after applying the change in valuation required by SFAS #157:

Graphic: How Three Nonprofits Value Medications

Jim Ulvog

Impact on GIK values form change in accounting rules – Part 4 – A few final observations

Previously I’ve discussed the impact of new accounting rules on valuing of deworming medicine.  Have been looking at Feed the Children financial statements to quantify the impact.

I am not picking on Feed the Children.

I’m using their 2010 financial statements because they have the best disclosures in their financial statements that I’ve seen for the impact, plus there is public information on what per-pill valuation amounts they have been using.  It is to their credit that they have this amount of background available in their financial statements.

It is my guess, just a guess, that the same underlying valuation issues and impact on supporting services ratio that I have described previously here and here, would also be present in the financial information for other organizations that have large volumes of deworming medicine.  If I can find good info, I’ll do some calculations on other sets of financials.

I have a few more observations and then one more set of calculations.

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Jim Ulvog

Impact on GIK values from change in accounting rules – part 3 – change in Feed the Children financials

Previous post quoted disclosures made by Feed the Children in their 2010 audited financial statements. Essence of that note is that deworming medicine valued in the 2009 financial statements at $544M would have been valued at $21M if the 2009 financial statements had used the pricing information that was in use for 2010.

This post will look at the 2008, 2009, and 2010 financial statements through the lens of the two different valuation rates.

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Jim Ulvog

Impact on GIK values from change in accounting rules – part 2

Previous post here discussed the impact of changes in valuation of GIK caused by new accounting.  I already discussed World Vision’s financials.  Next I will look at Feed the Children’s financials.

The beginning point of my discussion was a Forbes article, by William P. Barrett: Donated Pills Make Some Charities Look Too Good on Paper.  This series of posts started here.  I hope my observations from a CPA’s perspective will contribute to this growing discussion.

After looking at World Vision’s financials, I looked at the financial statements of several other NPOs trying to figure out the impact of FAS 157 and especially the change in valuation of deworming medicine.

Mr. Barrett has accumulated some good numbers.  I looked at publicly available audited financial statements and 990s available from GuideStar.  I could not get a clear understanding by combining information from his published report with public data to let me get a clear understanding.  Just not quite enough data there to work with.

Then I looked at the Feed the Children website. Kudos to them for making their 2010 financial statements available online, which you can find here.

Wow.  Found some superb information in the footnotes.  Check out this comment in note 2 on page 11, which I will quote at length:

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Jim Ulvog

Impact of changing rules for determining fair value (SFAS 157) on GIK of NPOs

Wow. When I started blogging about GIK valuations, I knew there was a major issue, but didn’t quite grasp how big it really is.

The beginning point of my discussion was a Forbes article, by William P. Barrett: Donated Pills Make Some Charities Look Too Good on Paper. In this post I will look at the impact of a change in accounting rules on the valuation of GIKs.

Additional background

Several articles by Caroline Preston in The Chronicle of Philanthropy outline the issues.  One deworming medicine, Mebendazole, seems to be the biggest issue. In her article Aid Charities’ Accounting Practices Draw Criticism, she quantifies the significance of that one med: (more…)

Jim Ulvog

What impact does a change in GIK valuation have on financial statements? (Part 4 of a series)

Before looking at some actual financial statements that have been affected by the changes in valuation of GIK, I thought it would help to look at a simple picture.

This is a continuing series of posts looking at deworming meds, especially Mebendazole, which started here.

A major component of this discussion is new accounting rules that change the definition of how to value GIKs. Those changes are discussed here.

I am quickly learning that this whole GIK valuation thing is a bigger issue than I realized and already has some interest.  I hope I will be able to contribute to the discussion from the accounting side.

To illustrate the change in valuation rules, I have made up two sample financial statements. The numbers are small and simple so we can see the overall picture.  I set the internal relationships so they are representative of an actual NPO.

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Jim Ulvog

Gamesmanship in GIK valuations? Part 3

Two previous posts discussed the issues raised by an article in Forbes about the valuation used by some nonprofits in their financial statements for recording donations of deworming medicine.

I’d planned to look at the impact on some specific financial statements next, but think it would be better to look at what the accounting rules have to say before doing some number crunching.  This will be a really long post, so please bear with me.

The Forbes article by William P. Barrett is Donated Pills Make Some Charities Look Too Good on Paper.

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Jim Ulvog

Gamesmanship in GIK valuations? Part 2

Previous post discussed an accounting issue raised by Forbes about valuing deworming medicine.  Forbes magazine thinks some nonprofits are using a valuation that is too high for recording donated meds in their financial statements.

The Forbes article, by William P. Barrett, is Donated Pills Make Some Charities Look Too Good on Paper.

My first post describes some of the valuations that are in use. 

This post discusses where the valuation amounts came from.  (more…)

Jim Ulvog

Gamesmanship in GIK valuations? Part 1

Forbes magazine dives into the nonprofit community’s GIK valuation issue in an article by William P. Barrett, Donated Pills Make Some Charities Look Too Good On Paper. (In print the article had a cooler title – Magic Pill, Magical Accounting)

GIK valuation is difficult and messy.  Before anyone gets mad at me for airing dirty laundry from the NPO community, keep in mind that Forbes has a circulation that is somewhere in the range of, say, one gazillion times larger than this little blog.  The article appears in Forbes magazine guys, and on their website.  Don’t get mad at me.

My point in writing these posts?  The issues we are struggling with in the religious NPO world are getting attention from secular media.  It would be wise for NPOs and auditors to deal with this on our own. Quickly.

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Jim Ulvog