Timing of Revenue Recognition & Expenses

When taking an annual snapshot at the end of a fiscal year, several factors can distort a realistic picture of Direct Relief’s (or any nonprofit organization) financial health and activities. One is the timing of donations being received and the expenditure of those donations, whether in the form of cash or in-kind medical products.

Donations—including those received to conduct specific activities—are recorded as revenue when they are received or promised, even if the activities are to be conducted in a future year. The in-kind product donations are also recorded in inventory upon receipt. Direct Relief’s policy is to distribute products at the earliest practicable date, consistent with sound programmatic principles. While the distribution often occurs in the same fiscal year of receipt, it may occur in the following fiscal year. An expense is recorded and inventory is reduced when the products are shipped out to partners.

In Fiscal Year 2017, Direct Relief received more value in product donations than was shipped out to its partner network. When the fiscal year ended, the product inventories that had not been “spent” were reported as an increase in net assets or a net operating “surplus.” The opposite was true in Fiscal Year 2016, when the value of product donations was less than the humanitarian aid distributed during the year. This resulted in decrease in net assets (or net operating “deficit”) for that year.

For FY 2017, the organization reported a change in net assets of $101.2 million. As described above, this was driven by a higher value of donated product received, $1.1 billion, than the value of product distributed, $921.4 million (and disposals of expired products valued at $62.1 million). This is purely a function of the timing difference of the receipts from donor companies versus the shipments sent out to healthcare partners.