News and analysis
June 28, 2012

Charities Continue Debate on How to Value Deworming Drugs

Tiny deworming pills are causing big headaches for international-aid nonprofits, as the charities continue to grapple with criticism that they wildly exaggerate the value of the medicines used to treat the poor, in order to appear more financially successful.

In a significant move, Operation Blessing International, the relief group founded by the televangelist Pat Robertson, has decided to stop recording the value of deworming tablets in the total of its donations. The pills, which the group says it valued at an average of $6.85 per pill over the last seven years, have accounted for more than $300-million of its revenue during that period.

“Until industry standards for the recognition and valuation of these medications become clearer, OBI has decided to discontinue recognition of any value of such donations for financial reporting purposes,” the nonprofit said in its most recent Form 990, the informational tax return charities file with the Internal Revenue Service.

Because of that decision, the group’s stated revenue fell in 2011 by nearly 30 percent, or $113-million, from the total it previously claimed in its audited financial statements for that year. Operation Blessing’s auditor, KPMG, approved the audited documents in July 2011, but the charity’s informational tax return wasn’t filed until February 2012.

In that seven-month period, the anti-parasite drugs were the subject of several news investigations and increased scrutiny by the Internal Revenue Service. In February, the IRS accused another aid group, Food for the Hungry, of using deworming pills and other goods to inflate its 2008 revenue by $75-million. Food for the Hungry is contesting the IRS’s claims.

Bad Press

Nonprofits typically purchase the anti-worm pills for a few cents apiece from vendors in Europe or manufacturers in Asia. The IRS said that Food for the Hungry was wrong to consider the pills donations and to mark up their value to thousands of times their purchase price.

Food for the Hungry and other aid groups say the actual value of the drugs is much higher than what they pay, because the suppliers have “donative intent.”

Anti-worm drugs were also a hot topic at last week’s American Institute of CPAs meeting, where chief financial officers of World Vision and AmeriCares spoke at a session on valuing goods and products.

Katherine A. Sears, senior vice president of finance and technology at AmeriCares, said her charity doesn’t buy medicines and count them as donations, which she said has been the focus of much of the news-media scrutiny of product donations. She lamented that journalistic attention has “cast aspersions” on the value of all products charities receive as donations.

Larry Probus, World Vision’s chief financial officer, explained why his group and others believe charities can count the deworming pills as donations.

Amid criticism of that practice and sharp disagreement over accounting rules, his charity did consider valuing the pills at zero, he said. But World Vision decided that it didn’t make sense to stop valuing the pills simply to avoid negative attention. Instead, the charity paid about $10,000 for market data to learn the sales prices of pills in different countries.“We could afford to do it, we thought it was the right thing to do,” he said.

Send an e-mail to Caroline Preston.