November 30, 2011; Source: Forbes | Forbes reported yesterday on its investigation into the practice of some charities to overvalue certain medications that they receive as in-kind donations and subsequently distribute them to third world countries. The results are balance sheets that make those organizations look very efficient (and thus attractive to donors) and a good deal larger than they really are. (We summarize below, but the full article is well worth the read.)

Specifically, deworming pills, which fight intestinal parasites, and which can be bought on world markets for 2 cents each, are being valued at as much as $16.25 per pill—a whopping 81,000 percent above market price. Forbes also reports that there is a whole network of “shadowy” brokers for the pills, who supply not only the pills but also “suitable for the auditor paperwork.”

Forbes could not find evidence that large deworming pill donors paid more than a few pennies per pill. Christopher Murray, a University of Washington health professor who also runs the Institute for Health Metrics & Evaluation, says that the reason why the charities value the pills at such a high rate is they want to attract cash donors with their financial efficiency. Here is an example from the article:

Consider Crista Ministries, on our list since 2005. Situated for 50 years on a leafy campus north of Seattle that once housed a tuberculosis sanatorium, Crista operates schools, ­retirement communities, radio stations and a foreign aid program. In its fiscal year ending this past June it reported a hefty $85 million in gifts received, the metric we use in determining if a charity will make our list. On its website Crista brags about high financial efficiency. But you won’t find Crista on this year’s roster. Reason: Some $63 million was from deworming pills donated to its World Concern ministry and valued as high as $10.64 a pill. If the pills are marked to their market value, Crista looks a lot less efficient and its donations received shrinks to just $23 million. Cutoff for our list: $46 million. Crista said it is reevaluating how it values GIK but defended its numbers. “We are using industry-accepted values,” a spokesman writes.

Lowering the valuation of the pills to somewhere near their real-world market value is a decision that would have many organizational implications. Recently, Feed the Children announced that its latest yearly GIK contributions dropped by $668 million when it lowered its deworming valuation from $9.07 to 35 cents—still 1,600 percent above the world market price. This, of course, changes the profile of the otherwise long-troubled organization significantly.

Some organizations have shown a lot more integrity. The United States Fund for Unicef values deworming meds at only 2.6 cents, and Direct Relief International of Santa Barbara, Calif. values them at 3.2 cents. Children International of Kansas City does not take the pills as donations, buying deworming meds for no more than 4 cents per pill, a practice they say is “More cost-effective and straightforward.”—Ruth McCambridge