Repeal of “Parking Lot Tax” may be imminent.

December 17, 2019, 9:16 pm

Image courtesy of Adobe Stock.

Breaking news today suggests the so-called parking lot tax, which creates a tax liability for charities in certain circumstances for the cost of parking provided to employees, might be repealed shortly.

Read the rest of this entry »


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:

Read the rest of this entry »


How big is the world of donated medicine?

September 25, 2019, 7:09 am

Pharmaceutical products and medicine on shelves. Image courtesy of Adobe Stock.

All this attention on donated medicine got me wondering just how big the sector is.

There is a small number of charities receiving big volumes of medicine donated by the pharmaceutical companies. Those charities then get all those meds distributed to charity clinics and hospitals around the world. That is incredible work which is improving the lives of millions upon millions of poor people around the world.

So, how large is that sector?  Here is a bit of research.

For the charities I’m aware of, plus those that have been in the news over the last eight years or so, plus those on the record as being opposed to AB 1181, I looked up their most recent 990 on their website. For a few of the charities there wasn’t a 990 visible (or at least I couldn’t find it) so I pulled the most recent 990 from the California Registry of Charitable Trusts.

Data tabulated below is:

  • total revenue from 990 Part I line 12,
  • non-cash donations from 990 Part VIII line 1g (referred to as gifts-in-kind or GIK), and
  • disclosed amount of drugs and medical supplies on Schedule M line 20.

Amounts are converted to millions, then rounded.

Last column in the table is the dollar amount of drugs & medical supplies divided by total revenue. A higher percentage shows larger portion of income from donated meds, and thus a higher likelihood AB 1181 will have a bigger impact on the financials.

Only charities with over $20 million of donated meds and supplies are listed; charities below that level are excluded.

Summary of results

Table below includes 17 charities. Another 17 whose volume of donated meds is below $20M each are not listed.

I think there may be another dozen charities with donated meds in this sector. As I come across additional names and look up their 990s, this table will be updated.

For the not-for-profit organizations (NFP) listed, total revenue is about $8.9 billion, total donated items are about $8.1 billion, and donated drugs and supplies are about $7.5 billion.

Read the rest of this entry »


No GAAP violation but charitable solicitations are misleading – – Preliminary Decision issued for appeal of California AG’s Cease & Desist Order against MAP International, Food for the Poor, and Catholic Medical Mission Board.

August 30, 2019, 8:13 am

Image courtesy of Adobe Stock.

A Preliminary Decision has been written by the administrative law judge (ALJ) hearing the appeal over the California Attorney General’s cease and desist order (C&DO) against MAP International (MAP), Food for the Poor (FFP), and Catholic Medical Mission Board (CMMB).

I have obtained and read a copy of the Preliminary Decision for each of the charities.

 

Top line summary:  The ALJ concluded the charities did not violate GAAP in their accounting but did find their charitable solicitations were misleading and deceptive.

This will be a long read at over 3,400 words so you might want to get a fresh cup of coffee.

Two other notes. References to “Complainant” mean the California Attorney General.  This post will focus on the content of the decisions with lots of quotations and minimal interpretation. Several longer posts are needed to interpret, explain, and describe the implication of this case. I may add more discussion later. As I see others discuss this case, I’ll try to link to those discussions.

After describing the decisions, responses from each charity are listed.

Next steps?

I’m a bit fuzzy on the where this goes from here. It is seems obvious to me that the ruling is not yet effective.  I will string together a bunch of guesses on the next steps. Anyone bold enough to correct my wildly aimed guesses is welcome to do so.

So here go my guesses – – I think the decision will not go into effect until it is accepted or modified by the Attorney General.  So my guess is the AG will issue a letter declaring the Preliminary Decision in effect or reissue a modified C&DO or take some other specified action to make the decision effective. I’ll guess some sort of additional communication is also necessary to address a variety of technical issues not covered in the decision, such as address to send the check, contact point for future communications, consequences of violating the C&DO, and notice of appeal options.

The Preliminary Decisions say the charities must pay the penalty 30 days after the effective date. There is a separate requirement to provide a copy of the decision to all officers, directors, and employees within 15 days of the effective date.

Since one charity (MAP) indicates in their response to me that they will appeal, I’ll guess their appeal will be filed soon after the effective date, well before that 15 day time frame expires. I’ll also make an even bigger guess that given the strength of the proposed sanction on how to refer to program ratios, the other charities will also file an appeal.

 

Background on timing

In December 2018, the ALJ gave verbal explanation that he would rule in favor of the charities on the issue of whether the their financial statements complied with GAAP.

In January and February 2019 additional written briefs were submitted by the Attorney General (AG) and charities on whether the written appeals sent to citizens of the state were accurate or misleading.

On April 24, 2019 additional oral arguments were heard.

Then on May 24, 2019 the administrative law judge (ALJ) issued his preliminary ruling for each of the cease and desist orders.

 

Food for the Poor

Read the rest of this entry »


Proposed delay in effective date for two accounting changes affecting charities.

August 17, 2019, 9:29 am

Image courtesy of Adobe Stock.

FASB officially issued an exposure draft on August 15, 2019 which proposes a one year delay for implementing three new accounting standards. Two of these proposed delays will affect many charities.

Effective date for SEC filers would not be changed.

I won’t discuss any changes for public business entities (PBE). Readers of my blog who fall into that category would be non-profits that are considered to be conduit bond obligors and EBPs that file their financials with the SEC.

You can find the exposure draft here.

The proposed delays for not-for-profit entities and private companies:

Leases

Read the rest of this entry »


Senate Appropriations committee to hold hearing on AB 1181 on August 19.

August 9, 2019, 5:00 am

Sacramento Capitol Building in California. Image courtesy of Adobe Stock.

Information posted yesterday on the California Legislature’s web site shows the Appropriations Committee will hold hearings on AB 1181 next month, on August 19, 2019.

Read the rest of this entry »


FASB working group looking at GIK valuation issue

June 18, 2019, 10:26 am

Committee meeting. Image courtesy of Adobe Stock.

Yesterday I watched a webcast from FASB providing an update on Private Company Council and Not-for-Profit organization accounting issues  By the way, there are a couple of nice accounting options in the PCC world that have been extended to the NFP world. (Yeah, yeah, pray for me since I sort of enjoy those kinds of discussions.)

One of the speakers mentioned FASB has formed a working group to look at the issue of valuation of GIK, especially donated pharmaceuticals.

Read the rest of this entry »


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:

Read the rest of this entry »


Filings to seek depositions in the California AG’s cease and desist orders regarding three charities

December 4, 2018, 9:15 am

Image courtesy of Adobe Stock.

The battle over the AG’s cease and desist order is in the appeal stage. Hearings are in day 6 out of 15 scheduled days.

The appeal is taking place in the state Office of Administrative Hearings (OAH). An Administrative Law Judge (ALJ) is overseeing the appeal.

This is the second in a series of posts describing some of the filings in the public record regarding the enforcement action and the appeals by the charities.

I have one stray follow-up comment to my previous post and then will dive into the filings about obtaining depositions from people living outside the state. Those individuals are not subject to an order to appear in person before the OAH.

Might want to get a fresh cup of coffee. This will be a long read. If you are at all interested in this case, you will find lots of interesting background info here.

Oh, everything I mention here is based on public documents available from the OAH.

Follow-up on Pro Hac Vice – FftP filed with OAH to get one of their attorneys granted Pro Hac Vice permission to practice in the state. This attorney is the lead litigator for the law firm on non-profit issues. Of note is the motion says it is unopposed by the AG. The OAH ruled they do not have authority to grant Pro Hac Vice. I don’t fully understand the reasoning, but I think it is essentially that the state bar or a court grants such status and the OAH is neither the state bar nor a trial court that can grant the permission. So, another motion, running 60 pages in length, was filed with the Superior Court of the county of Los Angeles. That court agreed it had authority and granted the attorney Pro Hac Vice status.

The docket shows a notice filed by MAP regarding Pro Hac Vice. I didn’t read it and assume it was announcing the same results for their counsel. I didn’t see anything on the docket from CMMB.

Protocol for naming individuals mentioned in filings

As I started this series of posts, I pondered how to name the individuals that are mentioned.

Full name? Initials? First name and initial of last name? No name?

Here is my conclusion:

For only the expert witnesses, my posts will list the person’s full name. Those individuals want to be in the public eye and want to be known as an expert. It looks like they usually speak in public on a regular basis. Thus I am comfortable listing their full name.

For everyone else in the case, such as management and staff of the charities along with partners and staff of CPA firms, it is different. They did not sign up to be in the public spotlight, so I’ll skip their last names. My posts will list their first name and first initial of the last name. I’ll also list job title or job description along with their employer when pertinent. Those in the know already know who has been dragged into the case.

Obtaining permission to obtain depositions

The AG wanted to depose a number of people who reside outside California but cannot be compelled to attend a hearing by the OAH. Thus the process the AG had to follow is request the ALJ to approve taking depositions.  The charities can file objections, which they did. (Charities unsuccessfully claimed these constitute discovery, which is not allowed under OAH regulations.). After addressing objections, the ALJ then issues orders allowing certain people to be deposed. The AG then goes to the Superior Court to request an enforceable order for those individuals to be deposed.

Read the rest of this entry »


Court filings in California AG’s cease and desist order against three charities

November 30, 2018, 3:03 pm

Image courtesy of Adobe Stock.

I’m reading through the filings for the AG’s cease and desist order against MAP International, Catholic Medical Mission Board, and Food for the Poor. The hearing on the order is underway this week. It will continue for the next two weeks, according to the schedule.

Although the filings are public information, they are not available on the Internet. Instead, they must be obtained directly from the state. It took several phone calls, and getting forwarded to another office, but I did reach the person responsible for responding to media requests. When I finally reached the right person, she was extremely helpful and very prompt.

So, I now have a huge amount of reading to do.

As time is available over the next few days and weeks I will comment on different things visible in the filings.

 

A few preliminary thoughts.

This is a major battle. The charities are responding accordingly.

Read the rest of this entry »


Hearings start tomorrow on California AG’s Cease and Desist Orders against three charities

November 26, 2018, 7:55 am

Image courtesy of Adobe Stock.

Calendar at the Office of Administrative Hearing’s website still shows the appeal hearings on the AG’s Cease and Desist Order start tomorrow, November 27, at 10 a.m. in downtown Los Angeles. Hearings continue the next 14 days at 9 a.m.

Read the rest of this entry »


Comments in financial statements of three charities appealing California AG’s Cease and Desist Order. Part 3 of 3.

November 20, 2018, 7:05 am

Appeals of the AG’s C&D Order will be heard by an administrative law judge. Image courtesy of Adobe Stock.

There are a number of pieces of information of public interest in the most recent financial statements for the three charities who received cease and desist orders from the California Attorney General. The appeal hearings start in a week, on November 27, 2018.

Part 1 of this series provided background, an executive summary, and a short discussion of Catholic Medical Mission Board’s disclosed accounting policy. Part 2 discussed the Food for the Poor financials.

This post will discuss the MAP International financials. Might want to get a fresh cup of coffee since this is a long read because it quotes the accounting policy in 2017 and 2016 along with a transition comment from the 2014 financials.

Previous post discussed the 12/31/16 financials for FftP, 9/30/17 financials for CMMB, and 9/30/16 financials for MAP.  FftP and MAP have since issued their next year’s report; CMMB has not.

MAP International

The 9/30/16 financials were available for issue on February 2, 2017, about 4 months after year-end.

The audited financials for the year ending September 30, 2017 have a date on the audit report of September 27, 2018. That means the 9/30/17 financials were released, or available for issue, on 9/27/18, about twelve months after the fiscal year-end. Audit report is from the Lawrenceville, Georgia office of Capin Crouse.

This means the 2017 financials were prepared with knowledge of the AG’s allegations and known status of the case as of September 2018.

Read the rest of this entry »


Comments in financial statements of three charities appealing California AG’s Cease and Desist Order. Part 2.

November 19, 2018, 8:24 am

At issue in the AG’s claim: how should pallets of donated meds be valued if restricted by donor for distribution overseas? Image courtesy of Adobe Stock.

There are a number of pieces of information of public interest in the most recent financial statements for the three charities who received cease and desist orders from the California Attorney General. The appeal hearings start in about a week, on November 27, 2018.

Part 1 of this series provided background, an executive summary, and a short discussion of CMMB’s financials. This post discusses the Food for the Poor (FftP) financials. Part 3 will discuss the MAP financials.

Previous post discussed the 12/31/16 financials for FftP, 9/30/17 financials for CMMB, and 9/30/16 financials for MAP.  FftP and MAP have since issued their next year’s report; CMMB has not.

Food for the Poor

Read the rest of this entry »


Comments in financial statements of three charities appealing California AG’s Cease and Desist Order. Part 1 of 3.

November 17, 2018, 10:03 am

Image courtesy of Adobe Stock.

Just checked on the most recent financial statements for the three charities who received cease and desist orders from the California Attorney General. The appeal hearings start in a week, on November 27, 2018.

Found a number of pieces of information in the financials that are of public interest to this developing story. Will point out some of the information now. Later on, as time allows, I’ll provide some commentary on the disclosures.

Previous post discussed the 12/31/16 financials for FftP, 9/30/17 financials for CMMB, and 9/30/16 financials for MAP.  FftP and MAP have since issued their next year’s report; CMMB has not.

This discussion will be in three parts.

Executive Summary

All three charities disclose they use wholesale acquisition cost (WAC) to value donated medicine.

Read the rest of this entry »


Appeal of three Cease and Desist Orders from California AG set for hearing before an administrative law judge.

October 29, 2018, 9:59 am

Image courtesy of Adobe Stock.

Here are the hearing dates for the three charities accused by the California AG of overstating revenue and program expenses.

As you recall, the AG filed cease and desist orders against three charities. The charities have all appealed the order.

The calendar for the appeals can be tracked at the Office of Administrative Hearings website.  On the right side of the page, third option from the top, is Calendar – General Jurisdiction.

Scheduling info is:

Read the rest of this entry »