California cites charity over gifts‐in‐kind valuations, financial reporting

• Date: 01 May 2018
• Published date: 01 May 2018
• DOI: http://doi.org/10.1002/nba.30446

MAY 2018 NONPROFIT BUSINESS ADVISOR

3

© 2018 Wiley Periodicals, Inc., A Wiley Company • All rights reserved

DOI: 10.1002/nba

if it’s around the “acceptable” range of around 20

percent as noted in the survey—then increasing that

a reasonable amount to make necessary investments

shouldn’t be a cause for concern�

“If you believe the typical charity spends 28 per-

cent on overhead,” the report states, “ratios as high

as the low-to-mid 20s would seem lower than average,

even if they’re a tick above what you consider to be

reasonable spending�”

For more information

Ron Sellers is president of Grey Matter Research, a mar-

keting research and consumer insights company located

in Phoenix. Grey Matter works directly with donor-support-

ed organizations and in partnership with the fundraising,

branding and marketing services agencies that support

them. For more information, Sellers can be reached at

(480) 245-6483, or visit www.greymatterresearch.com. ■

the kind of change they want to see, with one-

third believing they could make a big impact and

another one-third a moderate one� As a result,

they are signing petitions, volunteering for causes,

connecting on social media platforms and acting

within their own circles as ways to incite change,

the report said�

To read the report in full, visit http://www�

themillennialimpact�com� ■

California cites charity over gifts-in-kind valuations, nancial reporting

In a case that highlights the grey area of valuing

in-kind donations to charity, the California Attor-

ney General’s Ofce has issued a cease-and-desist

notice to the New York–based Catholic Medical

Mission Board that would stop the organization

from fundraising in California� At issue, the state

said, are misrepresented revenue gures and spend-

ing totals that give the illusion that the CMMB had

a lower overhead expense ratio than it did—mainly

because of how it valued in-kind donations it re-

ceived from pharmaceutical companies�

The CMMB order is one of three recently issued

by the state, and is illustrative of the way the state is

interpreting its laws covering gifts-in-kind reporting�

As part of its mission and programming, the CMMB

accepts donated pharmaceuticals and works with

third parties, such as Food for the Poor, to distribute

the drugs to beneciaries overseas� However, because

the drugs were usually close to expiration, and thus

could not be sold in the United States, their actual

value on the international market was far lower than

what was reported by the CMMB, which used the

U�S� market rate, the AG alleged� To illustrate the

point, the state used the following examples:

•  In a 2012 CMMB shipment to Nicaragua,

the CMMB valued the pharmaceutical Simvastatin

at $924,671 using U�S� prices; using appropriate inter-

national prices, the total value was less than $5,000�

• For a 2015 CMMB shipment to Haiti, the

CMMB valued the pharmaceuticals Enalapril and

Didanosine at $206,660 total, using U�S� prices; us-

ing appropriate international prices, the total value

was less than $75,000, the AG said�

The use of inated U�S� market rates to value the

contributions and expenditures had a significant

impact on the organization’s overhead ratio, the AG

alleged� Per the cease-and-desist order, for scal years

2012 through 2015, the CMMB reported annual

revenue of between $270 million and $527 million�

Pharmaceuticals and medical supplies comprised

84 percent to 94 percent of revenue� For those same

years, the CMMB reported annual program expense

of $251 million to $471 million, of which 87 percent to

94 percent was pharmaceuticals distributed overseas�

According to the AG order, those gures were

used to calculate an expense ratio—inclusive of

administration and fundraising—of 97 percent,

which was used in direct mail solicitations in FY

2013 (98 percent was used for FY 2014�)

However, this was misleading because the 97 per-

cent included both cash and noncash donations—

mostly overvalued pharmaceuticals, the AG said�

But noncash donations, including the overvalued

pharmaceuticals, did not pay for any overhead or

fundraising; only the cash donations did� So, while

the 97 percent statement implies that 97 percent of

cash and noncash donations will be used for pro-

grams and only 3 percent of donations will be used

for administration and fundraising, some 32 percent

of cash donations went to overhead and only 68

percent of cash donations went to programming

during FY 2013, the AG said�

For its part, the CMMB has issued a statement

declaring its innocence and stating it has followed

Generally Accepted Accounting Principles� The

organization said it planned to appeal� ■

MILLENNIALS (continued from page 1)