Three questions for valuing donated medicine plus a bonus question

There is a big issue in the NPO community now about how to value donated pharmaceuticals. To help the discussion along, I have three questions to help charities and their auditors process through what is the appropriate methodology.

I will pose three questions and ponder them for a moment. Each of the questions is really worth a long, extended conversation.

Should the medicine be valued at what was paid in the course of acquiring it or is there a bargain purchase?


Valuation of deworming meds illustrates the front-page-of-the-newspaper test – part 2

Previous post discussed how we are seeing the front-page-of-the-newspaper test for decision-making play out in the deworming med issue.

Reputational risk

I perceive there is a danger of damaging the reputations of many organizations from the way donated meds are valued. 


Valuation of deworming meds illustrates the front-page-of-the-newspaper test – part 1

“How will this look on the front page of the newspaper?”

That is a helpful way to evaluate decisions.

When you are trying to figure out what’s the right thing to do, ponder for a moment how your decision will look if you read about it on the front page of your local newspaper.

If you are going to look really bad, then maybe, just maybe, you might be making a bad decision.  I mentioned this in a post some time ago.

We are seeing this illustrated live with the issue of valuing deworming medicines. Mebendazole is in the news!

Newspaper test in action


Another newspaper focuses on valuation of deworming medicine – provides some great quotes

Bill Zlatos, from the Pittsburgh Tribune-Review has a superb article out:  Charities’ methods of valuing donations called into question.

If you are following this issue, you should go read the article.

Mr. Zlatos has been talking to a lot of people and has a lot of great comments. Here are some of the best news-making quotes. I’ll have more to say on these ideas over the next few days.

Reputational risk


Food for the Hungry adjusts 990 amounts for valuation of GIK

Food for the Hungry has prepared pro forma revisions to its 990s for 2007, 2008, and 2009. They are following the suggestion of Charity Navigators to revise the 990 amounts to reflect what would have been reported if the valuations used in 2010 had been applied in prior years. Previous post discussed that briefly.

You can find the revised amounts at their website by clicking the “about us” tab and then clicking the “Finances” tab.

At the bottom of the page you can find the downloadable audit reports and 990s for the last three years. Under the “Charity navigator exhibits” heading you can find an attestation letter from the audit committee here and the restated pro forma amounts for 2005 through 2009 here.  The letter is in PDF format while the pro forma amounts are in an Excel spreadsheet.

I have not had time to analyze the numbers, let alone ponder the implications. Just wanted to get this information out, since it is very fresh. The letter from the audit committee chair is dated August 22.

Here is the total revenue amount, as reported on the 990 and as recalculated on a pro forma basis. The ’07, ’08, and ’09 amounts are from the template. I pulled the ’10 amounts from the tax return. The amount of revision is calculated along with the changed amount as a percentage of reported revenue. (more…)

Publicly available price list that validates prices listed in International Drug Price Indicator Guide

This post will have some inside-baseball info for those who are following the issue of how to value donated medicines that has been underway in the NPO and audit communities.

I came across a publicly available price list from a vendor, action medeor, that provides prices for a large range of medicines.

Since there is a behind-the-scenes debate whether the International Drug Price Indicator Guide (IDPIG) has any valid or relevant data in it, I decided to compare the public price list to the amounts listed in the IDPIG.

What did I find?

Prices in the IDPIG are very close to the price list.

I looked at four medicines: 200 mg albendazole and 100 mg mebendazole along with 250 mg and 500 mg ciprofloxacin. These are meds visible in the current conversations on valuing donated medicine.


Comments on GIK valuation from AICPA conference. Also, what is the core issue on valuing mebendazole?

Caroline Preston has some discussion from the AICPA’s NPO conference in DC last month in her article Charities Continue Debate on How to Value Deworming Drugs. (The article is behind a paywall.)

Her article has a summary of the comments by AmeriCares’ Senior VP of Finance and World Vision’s CFO.

If you are following the deworming issue in the NPO community, you may want to read the full article.

The core issue


Operation Blessing excludes value of deworming medicine from its 2011 tax return

The Form 990 from Operation Blessing International for their year ending March 31, 2011 does not include any value for $113,043,709 of deworming medicine that was included on their audited financial statements for that year.

Between the date the audited financial statements were released and when the 990 was filed about seven months later, the ministry decided to remove the amount of contributions for deworming medicine and remove expenses of the same amount.

Operation Blessing has made it really easy to read their audited financial statements and tax return for 2011. You can get either of them with one click at the bottom of this page of their website.  Hats off to them for putting both reports in an easy to find place.

Here is the timing:


Guidance on valuing medical GIKs in the 2011 NPO Audit Risk Alert

The issue of determining fair value of donated pharmaceuticals has been quiet for a little while. I’ve not seen much discussion of mebendazole on the ‘net lately.  Perhaps it is safe to venture back into the waters.

I’d like to mention some of the accounting guidance that is around and provide a few comments.

The AICPA’s 2011 Not-for-Profit Entities Industry Developments Audit Risk Alert contains a two-page discussion of valuing gifts-in-kind (GIK).  SOme key paragraphs are quoted below along with my comments.

This is not an exhaustive discussion of the issue and is not a position paper.

This is intended to further the conversation on valuing GIKs, especially for people who don’t keep copies of the audit risk alerts on their nightstand for leisure reading. (You may now roll your eyes in pity for those of us who enjoy reading such things.)


There is more to the IRS audit report on Food for the Hungry than is yet visible

CharityWatch has an article discussing the IRS audit report on Food for the Hungry – – View Through the Looking Glass.

One sentence background – the IRS claims that Food for the Hungry substantially overstated the valuation of donated medicine in their 2008 tax return.

I’ve mentioned the report here and here.  I’ve been talking about the valuation of deworming meds, especially mebendazole, for several months.

The CharityWatch discussion provides a bit more information from the report that has been discussed publicly. It looks to me like there is more to be revealed.


Cost of conducting deworming programs – fair value of deworming meds, part 3

I have found a few sources that suggest the cost to conduct a large-scale deworming program is in the range of pennies per child.  If I’m reading these articles correctly, the amounts include the cost to buy the medicine.

A meta-study from the World Health Organization: Estimation of the cost of large-scale school deworming programmes with benzimidazoles.

The abstract says:


So what is the fair value of deworming medicine? Part 2

Let’s look at one indicator of fair value of deworming meds on the international market – list prices and actual transactions.

Why?  As I understand, the biggest med in financial statements of U.S. relief and development NPOs is mebendazole. The usual dosage is 500 mg. I also understand that particular dosage is not approved for distribution in the United States.  Since you can’t use or distribute that dosage of that medicine in the U.S., seems like we should look at international pricing instead.  In addition, after FAS 157 went into effect, the principal market should be considered.

One source for international pricing is the International Drug Price Indicator Guide.


Not-for-profit Advisory Committee discusses valuation of GIK meds

This morning I listened to a webcast of the Not-for-profit Advisory Committee (NAC) as they discussed the issue of valuation of donated pharmaceuticals.  The NAC provides feedback to FASB about issues affecting the NPO community.

You can find an outline of the agenda, which includes an attachment for issues regarding donated meds here.  Attached to the agenda are several articles from William Bennett Barrett and Caroline Preston. (Oops! Sorry Mr. Barrett.)

You can find an on-line archived recording of the meeting here.  It is the March 1, 2012 meeting that started at 10 AM.

I have just a few thoughts after having listened to the meeting.


Charity Navigator’s raises idea to revise prior year reports for changes in GIK valuation – A brief discussion of the rules for restating financial statements

Caroline Preston, from The Chronicle of Philanthropy, reports in Watchdogs Zero In on Charity Drug Valuations, that Charity Navigator is floating the idea of asking some charities to restate the last four years of financial statements.

Many NPOs that applied SFAS #157 saw their revenue drop dramatically because of using lower valuation for medicine, especially deworming meds, most specifically mebendazole. (I know, I know, it’s actually ASC 820-10, but my brain still thinks in terms of SFAS numbers when it comes to pre-ASC rules.)

The rating methodology used by Charity Navigator, according to Ms. Preston’s article, penalizes NPOs whose income drops. That means a lot of relief & development NPOs will take a big hit on their ratings.

I don’t have any information beyond the article, so I don’t know what reaction they are getting.

It’s just my guess, but I think they will not get a very good response to their idea.  I don’t think NPOs will be at all amused to take this approach.