California Bill Could Affect Nonprofits Across the Country That Donate Medicines

By:
Chris Gaetano
Published Date:
Oct 8, 2019
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A bill in California aimed at preventing charities from inflating their balance sheets through medicine donations could potentially have a national-scale impact, as it applies to any nonprofit that solicits donors in that state, according to Bloomberg

The bill, which needs only to be signed into law by Gov. Gavin Newsom, requires any charity that raises money in California to calculate the value of drugs that it sends to overseas aid actions using the fair market value of where they're used, as opposed to what they'd cost in the United States. So, for instance, insulin is much less expensive in other countries than it is here; if a charity were to donate insulin to a humanitarian relief effort in, say, Haiti, then it would be required to record the value of that insulin in terms of what it would cost in Haiti, not the United States.

Bloomberg said the bill was developed in response to a longstanding critique that charities would value donated drugs higher in order to make expenses seem less intimidating, or to mask outright fraud. However, this treatment differs from the rules promulgated by the Financial Accounting Standards Board (FASB), which does not take geographic price differences into account in these situations. Should the bill be signed into law, entities would need to mark the difference as a note in their Form 990 or financial statement, or to potentially issue an "except for" in their financial statements to note that they're using the California rule for the fair value of donated pharmaceuticals. 

 

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