Case study of legal and accounting costs during major IRS audit

February 19, 2014, 9:36 am

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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Mebendazole: red herring or presenting problem?

June 3, 2013, 7:51 am

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.


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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Guest post – GIK Valuation: The issues not being discussed

May 31, 2013, 6:54 am

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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Other disclosure issues for GIK medicine

May 20, 2013, 7:03 am

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 revenueRead the rest of this entry »

Accounting ideas in World Help’s revised financial statements

May 8, 2013, 11:18 am

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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An open letter to the CPAs who audit R&D charities receiving GIK meds

November 14, 2012, 8:09 am

Dear colleagues:

If you would like some background on the GIK issues, please read my open letter to your clients.

The accounting is problematic for donated pharmaceuticals that you have been auditing for the last few years. 

If you have a budget of 100 or 300 hours, it might be wise to allocate a few hours to read beyond AICPA risk alerts and Accord position papers. You can browse my blog for  discussions, which contain links to other resources that also discuss the accounting and valuation issues.

It is my considered opinion that many of the valuations are not supportable under GAAP.  The timing of SFAS 157 isn’t the issue. 

The amount of scrutiny on your client’s valuation methodologies is high and increasing.

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An open letter to the evangelical nonprofit community receiving GIK meds

November 13, 2012, 8:04 am

Dear brothers and sisters in Christ:

The accounting for donated pharmaceuticals has been poor for a number of years. 

The valuations are not supportable by accounting rules either before or after SFAS 157 went into effect. 

Paying a handling fee roughly comparable to available open market price lists sure makes the donations look like purchases.  Fair value does not involve using a valuation in the U.S. for meds that can’t be legally sold here.  A reference book that is known to not reflect actual market prices is not a reasonable basis for determining fair value.  

People outside the evangelical NPO community are starting to notice.

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