Where Does $100 to the Catholic Medical Mission Board Go?

The Catholic Medical Mission Board (CMMB) is a New York-based 501 (c) (3) engaged in distributing drugs and medical supplies primarily in Central America and the Caribbean. In May, 2018, the State of California (actually the Attorney General on behalf of the State of California) filed a Cease and Desist Order against CMMB because of the way the non-profit is recording the value of pharmaceuticals.

Specifically, CMMB is recording the value of pharmaceuticals at full market value even though the distribution of the medication is restricted to overseas distribution and use because of the expiration date (close to or past). These pharmaceuticals cannot be distributed and used by patients in the USA so the drug companies donate the pharmaceuticals and get the full write-off while CMMB records the full market value even though these medications cannot be sold or given away in the US.

It’s been a win-win situation for the pharmaceutical companies and CMMB because the company gets the full write-off (thus lowering their tax burden) while CMMB is able to “overstate” their revenue making their financials look better than what they would be if the “real” value of the pharmaceuticals was used.

CMMB obviously disagrees with the State of California (good luck on that one) and the dispute is still ongoing.

The most recent financial information available is for 2017 (just a few months before the Attorney General issued the Cease and Desist Order). The IRS Form 990 shows the organization reported $599 million in revenue in 2017, of which $569 million were non-cash donations (drugs and medical supplies), $20 million from contributions, gifts, and grants from the public, and $10 million in grants from the government.

CMMB awarded $556 million in non-cash grants primarily to recipients in Central America and the Caribbean. The difference between the amount of non-cash donations received ($569 million) and the amount of non-cash donations awarded ($556 million) is $13 million, which ended up increasing the value of inventory at year-end.

In essence, CMMB is a $30 million dollar non-profit in that $30 million is the amount of cash revenue raised in 2017 which was used to support and pay for the costs of management, fundraising, and distributing the pharmaceuticals overseas. For that reason and because of the dispute with the State of California over how revenue is recognized, the analysis below will only consider the cash revenue received and the expenses (excluding grants) in 2017. They basically offset each other ($569 in non-cash donations received and $556 million in non-cash donations awarded).

There are two ways to look at expenses:  by broad general category (program, management, and fundraising) or by specific line item category. Both approaches provide valuable information with the latter giving the reader more detail of the expenses.

Expenses by Broad General Category

$16 million (53% of cash revenue):  Program Service Expenses

$ 5 million (17% of cash revenue):  Management Expenses

$ 5 million (17% of cash revenue):  Fundraising Expenses

$26 million (87% of cash revenue):  Total Program, Management, and Fundraising Expenses

The unspent revenue – $4 million  (13% of revenue) was retained by the organization and added to the fund balance (think savings account) which increased from $88 million in the beginning of the year to $107 million at year-end. The increase was due to the $4 million in unspent cash revenue, $13 million in non-cash revenue, and $2 million in net unrealizable gains on investments.

It is important to point out CMMB spent $5 million on fundraising.

Using the above information, $100 in cash revenue was spent as follows:

$100:  Revenue

-$ 53:  Program Service Expenses

-$ 17:  Management Expenses

-$ 17:  Fundraising Expenses

-$ 87:  Total Program, Management, and Fundraising Expenses

$ 13:  Revenue Unspent:  To Fund Balance

As illustrated above, $87 out of every $100 in cash revenue was spent on Program, Management, and Fundraising expenses. $13 out of every $100 in cash revenue was added to the fund balance.

Expenses by Specific Line Item Category

$11.6 million (38% of cash revenue):  Compensation-related Expenses

$ 6.2 million (20% of cash revenue):  Office-related Expenses

$ 2.7 million (11% of cash revenue):  Other Fees for Services (no detail provided)

$ 2.5 million (8% of cash revenue):  Travel and Conferences

$ 2.0 million (7% of cash revenue):  Other Expenses (no detail provided)

$  .7 million (2% of cash revenue):  Professional Fundraising and Investment Management Fees

$  .3 million (1% of cash revenue):  Advertising

$26 million (87% of cash revenue):  Total Expenses

As illustrated above, compensation-related expenses totaled $11.6 million for the 488 employees which equates to an average compensation of $24,000.  12 individuals received more than $100,000 in total compensation with the 7 most highly compensated staff listed as follows:

• $471,056:  Bruce Wilkinson, President and CEO
• $361,813:  Adrian Kerrigan, SVP Partnerships and Major
• $275,237:  Lara Villar, SVP Strategy
• $269,789:  Michael O’Hara, CFO and Assistant Treasurer
• $244,531:  Gail Cohen, SVP, Human Resources
• $206,495:  Paul Mikov, Institutional Partnership
• $169,481:  Alicia Defrietas, Director, Finance and Accounting

Of the 7 most highly compensated individuals, 4 are female and 3 are male.

Also, noteworthy:

CMMB spent $2.7 million on other fees for services with no detail provided.

CMMB spent $2.5 million on traveling and conferences in 2017.

CMMB spent $2 million on other expenses with no detail provided.

Using the above information, $100 in cash revenue was spent as follows:

$100:  Cash Revenue

-$ 38:  Compensation-related Expenses

-$ 20:  Office-related Expenses

-$ 11:  Other Fees for Services

-$  8:  Travel and Conferences

-$  7:  Other Expenses

-$  2:  Professional Fundraising and Investment Fees

-$  1:  Advertising and Promotion

-$ 87: Total Expenses

$ 13:  Cash Remaining:  To Fund Balance

The bottom line is that cash revenue is being used to support the organization’s staff, office, fees, travel and conferences, and other expenses.

To review the IRS Form 990 (2017), click here.