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BP Business Economic Loss Claim Appeal 2016-2370: Donation to Non-Profit to Pay Off Loan Not Required to be Allocated Over Life of Loan

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The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms


This is a BP appeal of a Business Economic Loss award to a non-profit entity which provides counseling, education, recreation and support services for long-term seriously ill children and is based in Alexander City, Alabama (Zone D).
Following review of its financial data pursuant to CAO Policy 495 and utilization of the Annual Variable Margin Methodology to correct certain matching issues, the Claims Administrator issued an Eligibility Notice containing a pre-Risk Transfer Premium compensation amount of $767,210.95.
BP contends the Claims Administrator erred in the treatment of a series of loans and a subsequent cash donation made by one of the Claimant’s founders in 2007. The record reflects that the founder made a series of loans for the purpose of financing certain construction projects undertaken by the Claimant during February through November of that year. The loans totaled $2,750,000. Each loan was contemporaneously recorded as a loan in the Claimant’s General Ledger and its financial statements reflected a liability for the cumulative total as they accrued during the year. In December of 2007, Claimant’s founder decided to make a contribution to enable Claimant to retire the indebtedness. A check drawn payable to the Claimant in the amount of $2,750,000 was issued by the founder and deposited into the
Claimant’s bank account. Claimant’s December, 2007 bank statement identified that deposit. The Claimant then used those funds to repay the loan.
According to BP, because Claimant received the loans in February through November, the December donation made to pay off those loans is properly attributed to those
prior months. Because the founder paid off loans he himself had made to Claimant, Claimant’s receipts of those loans were in reality donations received throughout February-November. But the Settlement Program failed to properly account for that reality, concluding summarily that “the cash contribution is properly accounted for as a donation in December 2007 and no adjustment to the financial statements is necessary.”
Respectfully, that conclusion does not reflect the reality that Claimant received the benefit of the $2.75 million donation in February through November. BP’s Initial Proposal Memorandum. According to BP, properly attributing the donation reduces Claimant’s award by $329,886 pre-RTP and it submits a Final Proposal compensation amount of $437,325.
Claimant, in reply, cites its detailed accounting for the loans and subsequent repayment and argues that the Claims Administrator committed no error in its treatment of the donor’s contribution. The record further reflects the Claims Administrator’s investigation and subsequent resolution of this issue: The income line item Founders and Related is used by the Claimant to account for contributions from a co-founder of the organization. There are no restrictions on the contributions made by the co-founder. The significant increase in this income in December 2007 was attributable to a cash contribution made by the co-founder of the organization made multiple loans to the organization throughout 2007 and the cash contribution in December 2007 was used to pay off those loans. The Claimant provided the GL detail for February 2007, April 2007, May 2007, July 2007, August 2007, and November 2007 showing the recording of a liability for various loans made by the co-founder to the organization.  The Claimant has also provided the November 2007 balance sheet which shows a balance of $2,750,000 due to the co-founder, the December 2007 bank statement showing the cash donation receipt and subsequent re-payment of the $2,750,000 in loans, and the December 2007 balance sheet showing a zero
balance in the Due to account.  Accounting Review notes that the cash contribution is properly accounted for as a donation in December 2007 and no adjustment to the financial statements is necessary.

 

De novo review of the relevant Claimant financial records, in addition to the entire record, persuades this panelist that the Claims Administrator committed no error in analyzing these transactions. For the foregoing reasons, this BP appeal must be denied. The decision of the Claims Administrator is affirmed and Claimant ’s Final Proposal is therefore selected.

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