GIK valuation

“No accounting for what charities ship overseas” – another major article on GIK, existence this time

The combined team of Center for Investigative Reporting, Tampa Bay Times, and CNN have another feature article on GIK, this time trying to substantiate shipments.

The article is No accounting for what charities ship overseas.

If you’ve been following the GIK issues, you’ll want to check out the article.

If you are a charity, might be worth figuring out how your organization and your GIK shipments would look if you received some really simple media inquiries, like ‘do your shipments really exist?’ or ‘what was in the container?’

If you are an auditor, you might want to read the article as an education about what might going on beyond the documents you vouched.

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Jim Ulvog

Something missing from the Journal of Accountancy article on GIK

William Barrett points out there was some missing disclosure in the JofA article on GIK in his post Seattle-area charity scores P.R. coup from lack of disclosure.

I discussed the JofA article here.

The missing information is that World Vision is one of the biggest players in the GIK valuation issue getting so much attention today.

The JofA article contains no mention that World Vision has been criticized heavily for their accounting of GIK.

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Jim Ulvog

The clock is running on cleaning up GIK

A few thoughts for meetings being held today….

The clock is ticking. Perhaps that’s a good analogy since football season is well underway.

Unlike football, we don’t know how much time is on the clock, but we do know time is running.

The nonprofit community still has time to clean up the GIK valuation issue since the clock hasn’t run out.

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Jim Ulvog

Template for analyzing financial data of charities that are in the news

If you want to see an example of how to analyze the financial statements of a charity that has lots of GIK or lots of telemarketing costs or lots of publicity, check out Brian Mittendorf’s illustration at Counting on Charity: When Summary Accounting Metrics Fall Short:  The Case of Breast Cancer Charities of America.

In that post he analyzes the financial statements of that charity. Using that post as an example, here’s a few steps you can take:

Start with total revenue, total expenses, and total program costs.

Look at the GIK, especially if it is going places or has uses other than what otherwise would seem to be the core programs. Subtract that from revenue and expenses. That exact same amount also comes out of program costs.

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Jim Ulvog

Article on GIK valuation in Journal of Accountancy

“Gifts-in-kind: What are they worth? How to avoid pitfalls of GIK valuation” discusses the difficulties in valuing GIKs. The article is available online from the Journal of Accountancy.

The author is Jennifer Brenner, CPA, who is the associate director for financial accounting and operations for World Vision.

I heartily recommend the article to you.

I’ll wait a few days before posting my comments.

Jim Ulvog

GIKS – More difficult for Small NPOs – and why accurate valuations are so tough to come by!

Mr. Jeff Beaumont is a CPA working for a firm that focuses on serving the nonprofit community. His opinions are his own and do not reflect the opinions or positions of his firm in any way. Because he speaks for himself, I won’t identify him or his firm in any more detail. He doesn’t speak for me either.

He has about seven years experience as an auditor working on the issues discussed on this blog. Here is Jeff’s second guest post:

By Jeff Beaumont, CPA

Valuing gifts-in-kind is not an easy task. Nor is it quick.

There are not-for-profit organizations that appear to be aggressive with GIKs valuations – a quick internet search will reveal that truth. Not convinced? Ask the IRS for their opinion. Then there are others that take whatever value they can find because they lack the capability – they don’t have the know-how.

This post was written with smaller organizations in mind as they usually do not have the expertise, capacity, and staffing to the extent of their larger brethren.

To record GIKs, it seems there are three choices for management (and, by extension, the auditors) on reporting values: (more…)

Jim Ulvog

Here is an outcome measure you would love to have. Would this be better than a low overhead ratio?

How would you like to share this with potential donors instead of describing your low overhead ratio?

Let’s say you are a child sponsorship organization.

Here’s your message:

Children sponsored in our program are

27 to 40 percent more likely to complete secondary school, and 50 to 80 percent more likely to complete a university education

than children in their village who were not in the sponsorship program.

Furthermore, when children sponsored in our program grow up, they are (more…)

Jim Ulvog

Guest post – Unintended consequence: the pressure for ‘good’ overhead ratios creates pressure to get GIK

The following guest post was submitted to me by a reader. As with other guest posts, this is his/her opinion and does not represent the opinion or experiences of his/her employer. It also does not represent my opinion.

I wrote the headline. I hope it captures the tone of the post.

For your consideration:

The more and more that I hear about the “controversy” over pharma values, the more and more it shows the completely unnecessary overreliance on overhead rates as a mean of valuing charities. Think about some of the issues that arise from the use of overhead rates:

  1. Charities feel pressure to increase revenue (Charity Navigator expects 10% a year growth in addition to low overhead and high net assets)
  2. Charities may get into a donation that can quickly boost revenue without adding fundraising cost (like GIK, or dewormers)
  3. Charities forgo donations when they no longer provide high enough revenue (charities now are using far less dewormers because they no longer have high revenue value)

What does this mean?

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Jim Ulvog

Mebendazole: red herring or presenting problem?

Is 500mg mebendazole a red herring or a way to focus discussion on many issues surrounding GIK valuation?

GIK Valuation: The issues not being discussed is a guest post on this blog. The author starts his/her post by saying the discussion of 500 mg mebendazole is distracting us from the real issues, which are much more serious.

From Dictionary.com

Red Herring: something intended to divert attention from the real problem or matter at hand; a misleading clue.

The author and I disagree on the role of 500mb mebendazole.

I think the author’s point is that focusing on mebendazole distracts us from other issues.

I believe it is this specific med that is generating a disproportionate amount of GIK revenue. I perceive a very material portion of GIK revenue in the sector went away when this one med was revalued at the time SFAS 157 went into effect.  My guess is that a material portion of the remaining GIK revenue in the sector would go away if that one med were valued at something similar to the price on the international market.

I also think that talking about just one medicine allows us to see a host of other issues. If the NPO community can resolve the issue arising from a discussion of mebendazole, I think that most of the other issues regarding GIK valuation would fall into place.

Once we get beyond whether mebendazole is a red herring or a presenting problem, the author and I are in agreement on quite a few issues.

Issues for discussion

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Jim Ulvog

Guest post – GIK Valuation: The issues not being discussed

The following is a guest post submitted to me from a reader. As I read the article, it became obvious that the author is familiar with the issues of the relief and development organizations.  Whether the author is an outside auditor, accountant inside an NPO, or even a medical vendor does not matter. Obviously the comments reflect the author’s opinion and not those of his/her employer.  This also does not reflect my opinion.

Agree or disagree as you wish, here are ideas deserving your careful consideration:

GIK Valuation:  The issues not being discussed

While there are many, if not dozens, of misconceptions and false information floating around pharmaceutical values, GIK values, and NPOs supposed conspiracy to inflate revenues to improve their Charity Navigator rating, I thought I would point out a few things to try to bring the conversation around to the big picture rather than focusing on the quite narrow discussion around non-FDA approved, 500mg mebendazole.

500mg mebendazole is a red herring

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Jim Ulvog

Guest post – Determining FMV is difficult. Let’s keep in mind the good that is accomplished by donated meds.

The following is a guest post submitted anonymously. The writer raises some good points and good questions. I’ll post it verbatim except for breaking two large paragraphs into smaller ones for easier reading. I hope the title of the post, written by me, fairly summarizes the ideas. 

One of the cool things about blogging is the ability to provide links to cited sources – if the author would like to forward links for the two quoted sources, I will add them.

Thanks to the author for taking the time to write. Here are his or her thoughts:

(Update 5-31: In case it wasn’t obvious, this post reflects the author’s opinion and not that of his/her employer. It does not reflect my opinion.)

Thank you for providing a space for this conversation. I have studied this specific aspect of researching fair market value (FMV) of donated items in depth. As with any discussion we must ensure that we start with the same definition of fair market value.

Accounting guidelines state that FMV is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To bring it into simpler terms, if I am selling apples and you are looking to buy apples, what price can we agree upon?

There are three points that I would make to start the conversation on the valuation of donated goods.

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Jim Ulvog

Guest post – What about underreporting GIK?

Mr. Jeff Beaumont is a CPA working for a firm that focuses on serving the nonprofit community. His opinions are his own and do not reflect the opinions or positions of his firm in any way. Because he speaks for himself, I won’t identify him or his firm in any more detail. He doesn’t speak for me either.

He has experience as an auditor working on the issues discussed on this blog.  He took me up on my invitation for guest posts, so here is Jeff:

 

by Jeff Beaumont, CPA

There has been quite an amount of discussion, articles, and consideration given to recording gifts in kind.

However, I would like to ask nearly the opposite question: what about organizations that don’t record gifts in kind?

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Jim Ulvog

Other disclosure issues for GIK medicine

Since starting to write about GIK valuation issues, I’ve noticed there are a few disclosure items that don’t seem to be visible in the financial statements of NPOs who receive large volumes of donated medicines. As I have time, I’ll start accumulating examples.

Concentrations – In general, if a line item of a financial statement contains a concentration, that concentration should be disclosed. The concept is one donor or lender or customer or vendor could go away. If loss of one counter-party would adversely impact an organization, the concentration should be visible. For example, if a huge portion of cash contributions come from just a couple of donors, that probably should be disclosed.

Concentration of revenue – (more…)

Jim Ulvog

Accounting ideas in World Help’s revised financial statements

There are some accounting concepts in the most recent financial statements released by World Help that warrant discussion. This post will walk through those items I noticed.

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

Efforts to reach out to World Help

I have been asking World Help for their comment for a week and a half. The only reply I have received was when the president’s assistant gave me the e-mail contact for the organization’s outside media consultant. I have sent e-mails to the president’s assistant and the contract media consultant several times and received no replies.

Proper accounting is a broader issue in the R&D community than has been discussed

The focus of conversation on accounting in the relief & development community has been variance power and the valuation of medicine, particularly 500 mg mebendazole.

I perceive there are issues involved in disclosures that haven’t yet been discussed.

In accounting shorthand, the matters I see that have not yet been addressed are disclosures of concentration of contributions, concentration of donors, and estimates with a reasonable possibility of change in the near-term.

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Jim Ulvog

GIK valuation – Things going on behind the scene

Previous posts have discussed an article at Chronicle of Philanthropy: Charity’s Exaggerated Revenue Could Affect Other Groups.

I saw two interesting background comments in the Chronicle’s article that tell me there is more going on than is visible.

The AG task force

The first is a quote from the office of the New Mexico Attorney General: (more…)

Jim Ulvog