GIK valuation

Details on FTC enforcement action against four cancer charities – 1

The news coverage has died down about enforcement action taken against four charities by the FTC and every state attorney general. I’ve not seen anything that dives a deep into the accusations. This post is the start of a series of discussions on the case.

Why go into detail?

After having read through the accusation, it is obvious this case contains most of the problematic issues we have seen over the last few years in nonprofit accounting and fundraising. Off the top of my head, I don’t recall any issues under discussion in the charity world that are not present in this case. That makes this set of allegations a good case study.

The complaint can be found here. That is a public document. I claim journalist status, so will quote the document at length.

Here is the opening of the complaint, with a few comments added: (more…)

Jim Ulvog

More followup on FTC action against 4 cancer charities

There is a lot more to say on the FTC and all AGs going after four charities that were way out of line.

5/19 – William P. Barrett at Forbes – Cancer Charities Agree to Dissolve Amid Fraud Claims – Article summarizes the case by the FTC. Two of the four charities have agreed to close their doors. Three of the named individuals have agreed they will not have future involvement with charity management or even fundraising.

We did nothing wrong and we agree not to break the law again

Article points out the irony we seen these kinds of settlements. Even though the three individuals agreed to not be involved in the charity sector again during their lifetime and two of the charities agreed to be taken over by receivers and then liquidated, the charities and individuals involved denied doing anything wrong.

It is as if it’s a normal and everyday thing that individuals agree to be legally barred from involvement in their economic sector and charities agree to corporate suicide when they have done nothing wrong.

But that’s the legal dance that is necessary. Denying wrongdoing is necessary to prevent the consent degree from becoming proof to anyone who later tried to sue the charities or individuals.  Even though I understand the reason, it seems silly to those looking in from the outside.

Contested claims

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Jim Ulvog

First glance at court filings in the FTC enforcement case

One cool thing I have learned while blogging is that lots of records for federal court proceedings are available in the federal Public Access to Court Electronic Records (PACER) system. After following the case of Scott London for a while, I’ve learned my way around PACER.

I have taken a quick look at the documents available in PACER for the enforcement action by the FTC and all state AGs against four cancer charities.

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Jim Ulvog

Survey of first day reporting on major FTC enforcement action

Here is a collection of the articles I found the day the FTC and all state Attorneys General took enforcement action against a group of four charities:

Update: A quote in the Chronicle of Philanthropy article provides a massive warning to the nonprofit community:

Hugh Jones, a charity regulator in Hawaii, said to his knowledge “this is the first time state charity regulators have aggressively pursued the deceptive use of gifts in kind.”

While this case looks to be extraordinarily extreme, there are a variety of issues that the FTC and every AG has now declared to be the fraud category. Anyone who has been paying attention knows the issues under discussion are not limited to these four charities. 

It isn’t too late to clean up policies, valuations, and modify some past filings.

Let those with ears to hear, hear.

FTC litigation

FTC press release which lists the names of the charities and key executives: (more…)

Jim Ulvog

First hint about the FTC enforcement actions to be announced later today

Last evening Mr. William P. Barrett (@WilliamPBarrett) tweeted:

FTC fundraising fraud lawsuit filed in Arizona federal court against #CancerFundOfAmerica and Cancer Support Services, but no individuals

Tweet has no link to articles but does point to the discussion of Cancer Fund of America at the America’s Worst Charities website. They are #2 on the list. Cancer Support Services isn’t on that list. After a cursory search, I can’t find any other discussion of the FTC’s action.

If that is a correct description of the targets of the enforcement action, you can start your reading by following that link.

The FTC announcement of a press conference is here.

I will be in a continuing education class all day so will follow any news sporadically. Haven’t decided if I’m going to step out of the class so I can listen in to the press conference. (I claim to be part of the media for this issue!) The scheduled time is in the middle of one of the most important classes.

If you have been reading this blog, you may want to pay attention to the coverage that seems likely to develop today.

Jim Ulvog

Major announcement from Federal Trade Commission on Tuesday

On 5/19 the FTC and State Attorneys General to Announce Action on a Major Consumer Fraud Case

I think there will be some major news tomorrow. This may be related to the work various AGs have been doing on GIKs. If my guess is correct there will be plenty of coverage tomorrow.

link: https://www.ftc.gov/news-events/press-releases/2015/05/ftc-state-attorneys-general-announce-action-major-consumer-fraud

 

Jim Ulvog

Another explanation why meds cost so much; this ties into the GIK valuation issue

This post will be deep background on the GIK valuation issue. I won’t connect the dots to the international versus US pricing issue, just lay out a few pieces of the puzzle.

One of many fascinating things I’ve learned about pharmaceuticals while blogging about mebendazol and the related valuation issues is the dramatic disparity of the prices for meds in the US and overseas. There is also a huge gap between branded and generics.

I’ve looked for data on the difference in consumption of meds and costs paid here in the US versus the rest of the world. Can’t find what I’m looking for. Somewhere sometime I saw a comment that we in the US consume 10% of all prescription meds but pay 50% of the costs. Can’t support that with anything other than hazy memory. I am fairly comfortable that the disproportionate relationship exists, even if the numbers are off.

Why does that disparity exist? Is it, perhaps, a good thing?

The underlying economic model is US residents pay for all the astoundingly huge development costs of brand new wonder drugs and the rest of the world pays the incremental costs of making another pill.

What that model does is recover the billions of dollars needed to find a new drug and motivates big pharma to look for another blockbuster.

Megan McArdle explains the issue much more clearly in her article Would you Pay $84,000 for a New Liver?

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Jim Ulvog

Case study of legal and accounting costs during major IRS audit

Update 2/19, 6 p.m. – Earlier today I received a reply from Food for the Hungry sharing some background information with me.  They will look at this post in more detail and get back to me.  I will share with readers whatever additional information the organization wishes to share.

Update:  IRS audit has been resolved.

A charity going through a major dispute with the IRS has incurred a lot of costs dealing with an audit.

After seeing two sets of financial statements and 990s that were restated last fall (yes, yes, I’m a little slow on the uptake), I thought about checking to see if the Food for the Hungry financials have been restated. Checked the New York AG web site and didn’t see any revisions.

I would like to use the Food for the Hungry financial statements as a case study of the costs incurred from getting involved in a tax or legal dispute.

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Jim Ulvog

Part 2 of CNN report on trying to follow $40M of GIK

The second part of the Anderson Cooper 360 report on a number of shipments worth over $40M ran last night. Check out What happened to $40 million in charitable donations? – Four charities, one identical shipment. The segment is 7 minutes long.

My comment on part 1 is here.

The AC360 team tried to follow shipments on the ground in Guatemala to find either the charity that received them or the downstream charities that used the medicines. They did not have much success. Actually, no success.

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Jim Ulvog

CNN files their report on the $40M of shipments. My summary of visible comments on investigation(s).

CNN aired a report that is part of their combined reporting with the Tampa Bay Times and Center for Investigative Research. Previously mentioned the print reports here and here.

The video report, which runs just under 6 minutes in length, is from Anderson Cooper 360:  Where did $40 million in charity donations go?

CNN sent their team to Guatemala to track down the shipments. They tried to follow the shipments after the meds arrived in country.

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Jim Ulvog

More background on two charities that revised GIK from WAC up to AWP

Previously discussed here and here two charities that revised their 2012 financial statements by increasing their valuation on donated medicine from WAC to AWP.

I reached out to both organizations on Wednesday, February 5, for comment on this post. I have not heard back from either organization. If they provide any comment, I will update this discussion.

You might want to get a fresh cup of coffee. This will be a long post.

Why look at these restatements?

Two reasons.

First, it is counter to the trend we are seeing of organizations reducing the valuation of GIK.

Second, it provides a glimpse into the reasoning for using AWP. There is very little in the public realm (at least that I’m aware of) that explains why organizations are using AWP.

I’ve looked at more than a few financial statements in the last two years for organizations that have a large volume of GIK. I’ve even had a few posts on point. Usually a specific issue is not very visible in the financial statements. Occasionally, a set of financials will clearly illustrate some issue that is widely present in this sector.

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Jim Ulvog

Another charity restates 2012 GIK income upwards to AWP

When it rains, it pours.

That’s not just an advertising tag line from a salt seller. It’s also a saying in my family, meaning when a few things happen, there often is a string of things that follow.

That’s what it feels like in the GIK area now.  After months of not much happening, I’ve written five posts in two weeks on GIK issues.

Today’s news (at least it’s news to me) is another charity’s revision of the values used for GIK in 2012. It looks like the amounts are increased from wholesale acquisition cost to average wholesale price.

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Jim Ulvog

Charity restates GIK revenue in 2012. Increases valuation to AWP.

You read that correctly. Audited financials and 990 were restated for value of donated meds. Not a reduction from AWP, but an increase to AWP.

Cancer Fund of America has filed an amended 990 and audited financial statements with the New York regulators. The valuation of GIK medicines was increased to AWP.

I was clued in to the change by a comment from William Barrett, who writes at Forbes and New to Seattle. He has been covering the GIK valuation issues for a loooong time. I’ve mentioned his articles several times. In fact, it was his article at Forbes that first made me aware of the issues with mebendazole.

You can find the filings with the New York AG here.

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Jim Ulvog

Strong rebuttal to reporting by CIR and Tampa Bay Times

Charity Services International has posted a strong reply to the combined reporting by CNN, CIR and the Tampa Bay Times. I’ve mentioned their report here and here.

The CSI reply is A Breakdown of the Tampa Bay Times Story.

If you are interested in this issue, you really will want to read the full rebuttal.

It is broken down into four sections:

What the reporting got right. What CSI believes the reporting got wrong. Assertions that are questionable. Finally, non-essential elements of the story.

Please read the full article.

Three thoughts after reading the strongly worded rebuttal: (more…)

Jim Ulvog

Some thoughts for CPAs after reading the Tampa Bay Times, CIR, and CNN reporting on GIK shipments

The Tampa Bay Times has run the article they wrote with CNN and the Center for Investigative Research:  No accounting for $40 million in charity shipped overseas. It looks to be the same text as in the CIR report, which I mentioned here.

I have performed lots of audits over the years but don’t have any clients with the kind of GIK programs that have been in the news lately. That does two things. First, it frees me to pontificate and speculate because the independence rules don’t limit me in discussing an actual client situation.  Second, it gives me an auditor’s knowledge, experience, and intuition to apply to the news I read.

A few thoughts for CPAs after reading the article again…

Opinion shopping.

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Jim Ulvog