What is the proper valuation of a pallet of medicine purchased on the international market? Image of pharmaceutical warehouse courtesy of Adobe Stock.
Back on January 29, 2019, the California Attorney General announced a settlement with a charity for financial reporting which was misleading because of the valuation of donated pharmaceuticals.
Although the settlement is four months old and thus counts as ‘old news’, it is worth discussing as an indication of the level of concern the AG has for valuing GIK.
The AG’s press release: Attorney General Becerra Announces $410,000 Settlement with Giving Children Hope, After the Charity Engaged in a Misleading Reporting Scheme.
The settlement consists of $400,000 from the charity and $10,000 from four named individuals.
A page on the charity’s website comments on the settlement: Giving Children Hope’s Settlement Resolution.
The charity says its insurance company agreed to pay the $400,000. The charity asserts the penalty was “not paid from donated dollars of program funds.” That would be a technically true statement because the insurance company would have cut the check and not the charity.
The charity also said there were “no fines or penalties levied against” the charity. On one hand I suppose that is correct because an agreement to pay four hundred thousand dollars is not the same as a fine or penalty. I don’t think that’s quite correct for two reasons. First, the AG doesn’t collect voluntary contributions; the payment was made as settlement of civil charges. Second, insurance companies don’t write checks out of the generosity of their heart; they settle the liability of their insureds.
I think most people looking at the situation would agree the charity was hit with a $400,000 penalty.
The press release says four individuals will also pay $10,000 in total. It is not clear from the press release whether this is a joint and several liability or each person will be billed individually for $2,500.
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