Presentation at CalCPA Accounting and Auditing conference: “California GAAP” – A case study in valuation of donated medicine

October 16, 2019, 11:20 am

Image courtesy of CalCPA.

On October 24 at 3:55 I will be speaking at the California Society of CPAs Accounting and Auditing Conference where industry speakers and experts will provide comprehensive updates on current issues and emerging trends. The conference runs the 24th and 25th.

My topic is valuation of donated medicine in the not-for-profit community. I have the privilege of working with a 75 minute block of time.

If you are able to attend the session you will gain an understanding of the long-term enforcement effort at the federal and state level regarding valuation of donated meds. My concern is that the governor’s veto of AB 1181 is not the end of the enforcement actions considering what has happened over the last 9 years.

Title of the session is “California GAAP” – A case study in valuation of donated medicine.

Overview of the session from the conference schedule:

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Repost: 2018 nonprofit risk alert is available. New edition adds discussion on valuation of GIK as rebuttal to California AG.

March 29, 2019, 8:15 am

Image courtesy of Adobe Stock.

Update:  This is a repost of an article on June 11, 2018. As I mentioned last summer, some newly added comments in this risk alert entered heavily into the decision by an Administrative Law Judge finding the charities complied with GAAP.

Some particular items of note for those who enjoy deep inside-baseball tidbits from the accounting world: 

  • discussion of GIK, especially paragraph .53 was added this year,
  • discussion in paragraphs .53 and .176 are directly responsive to the AG’s argument,
  • there is an overlap of ARL staffing with the R&D sector & auditors of that sector, and
  • the hard-fought, everybody-does-it-so-that-makes-it-right, spend-$475K-to-fight-the-IRS position on mebendazole has changed from the previously no-good, can’t-rely-on-it, non-representational pricing guide from five years ago now being the AICPA recommended standard for pricing.

So, here are some on-point comments from last summer with a few minor updates:

 

The AICPA has released the 2018 edition of Not-for-Profit Entities Industry Developments.

If you are a CPA serving the not-for-profit community, you need to read this document each year. It provides a survey of the accounting and auditing issues affecting the nonprofit world.

If you are an auditor, there are several other risk alerts you ought to be reading every year.

If you are working for a nonprofit, these alerts would give you a good survey of accounting issues in general and the audit issues your CPA will be dealing with this year.

Valuation of Gifts in Kind

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Recap of known state and federal interest in medical GIK

December 7, 2018, 9:29 am

Superior court facade in downtown Los Angeles, California. Image courtesy of Adobe Stock.

There are a number of state and federal actions visible for financial reporting by charities. Focus of the efforts currently is valuation of GIK and the impact of those valuations on fund raising appeals. Perhaps a recap of those efforts will provide some helpful context to the charity community.

Update: End of this post describes the change in accounting over the last seven years in terms of how to value meds that legally may not be distributed in the U.S.  Hint: a 180 degree change.

Today is the 9th day of out of 15 days scheduled for hearings on the California AG’s cease and desist order (C&DO) for MAP International (MAP), Food for the Poor (FftP), and Catholic Medical Mission Board (CMMB).

Here is the list of publicly visible Attorneys General who are focusing on financial statements of the large medical GIK charities:

California:

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What it costs to deal with a major IRS audit. Case study from Food for the Hungry.

July 2, 2015, 8:35 am

The IRS took serious exception to the methodology used by Food for the Hungry in preparing its tax return for the fiscal year ending September 30, 2008. The IRS audit of that 990 ran for years.

On March 24, 2014, the ministry announced the IRS closed their audit. The ministry says it did not have to file an amended return but did agree to change the way that it was accounting for gifts in kind.

A summary of the issues as I described them on 6/3/14:

  • In one sentence (as I understand the picture), the primary issue under audit was whether it was appropriate to value 500 mg mebendazole (which cannot legally be sold in the U.S.) at over $10 per pill when it can be purchased on the international market for one or two cents per pill. Two related issues were variance power and whether amounts paid in relation to a shipment of meds were a handling fee or a purchase price.

Now that tax returns are available through the 2014 fiscal year, we can see enough 990s to develop a case study about how much it costs to respond to a major challenge from the IRS.

Why the big deal?

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Details on FTC enforcement action against four cancer charities – 1

June 12, 2015, 9:53 am

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: Read the rest of this entry »


More followup on FTC action against 4 cancer charities

May 26, 2015, 9:02 am

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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IRS closes audit of Food for the Hungry’s 2008 tax return

June 3, 2014, 6:52 pm

On March 24, 2014, Food for the Hungry issued this press release:

Food for the Hungry’s 2007 Tax Return Audit ResolvedIRS acknowledges that FH followed all laws and accounting standards

In the press release the CFO, Barry Gardner, provided the following comment:

“After an exhaustive review lasting 1,030 days, the IRS allowed the 2007 return to stand as originally filed,” said FH Chief Financial Officer Barry Gardner. “Contrary to erroneous press reports in 2012, no fine was ever levied or paid. While FH and the IRS have minor disagreements concerning certain transactions from that period, those transactions were deemed not to require revision of FH’s tax return.”

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