Accounting for donated medicine drawing regulatory attention: California A.G. files 3 cease and desist orders.

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The California Attorney General has taken exception to the valuation of donated medicine by three large charities.

In March 2018 MAP International, Food for the Poor, and Catholic Medical Mission Board were served with cease and desist orders insisting the charities cease using their claims of extremely high program service percentages. The AG also seeks to revoke charitable registration status in the state for MAP and FftP. The cease and desist orders seek to impose substantial fines on the charities.

The AG also claims that FftP incorrectly applied joint cost allocation.

The filed actions alleged that financial reporting for the years 2012 through 2015 is incorrect. This would include the audited financial statements, 990s, and RRF-1s (for MAP and FftP).

In addition, the AG filed a complaint against a fourth charity and filed a stipulated settlement on the same day. National Cancer Coalition agreed to dissolve itself within 180 days.

I will attempt to summarize the state’s position in one sentence:  For donated medicine which has an explicit prohibition from the donor that the medicine may not be distributed or used in the U.S. the AG believes that GAAP requires valuation of the medicine at price indicators from outside the U.S. instead of prices inside the U.S. This position is based on citations to GAAP.

If the state’s allegations are sustained, seems to me their position would apply to subsequent year reporting by these three charities. Also seem to me that by extension this issue would need to be considered by all charities with any material amount of donated medicine that is distributed overseas.

If you audit charities with substantial amounts of medical GIK, you might want to tune into the issue. You might also want to revisit your workpaper documentation and your risk assessments.

If you audit any charities, you might want to watch how closely one state A.G. can read those reports you prepare. Pay attention to the ability of a A.G.’s office to analyze GAAP.

For more details, check out these articles at my other blog, Nonprofit Update:

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