Editorial: Exposing the GIA Juggernaut

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Editorial: Exposing the GIA Juggernaut

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This is a very revealing follow-up article to the one I posted on July 4th viewtopic.php?f=37&t=3351 that questioned GIA's tax-exempt status as a 501C-3 non-profit organization. This one is the icing on the cake. :?

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a 501(c)3 Non-Profit Education Organization 2 August 2019

Editorial: Exposing the GIA Juggernaut

How the non-profit status is being misused to dominate the gem lab market

After my editorial of July 3 that asked the question: Should the GIA Gem Lab Enjoy Non-Profit Status, I continued my research into the financial status of the Gemological Institute of America. I also looked at the 14 largest or most prominent other non-profits in the industry to see just how the GIA stacks up overall. The findings were both astounding and very, very disturbing.

Before I make any further comment, I want to share with you, based on the official IRS documents, just how big the GIA is financially, where that money comes from, and more importantly where it goes. I will start with a simple overview of the GIA’s non-profit status.

As I covered in the last edition, organizations are granted non-profit status based on their service to the public as determined by the US Internal Revenue Service. The GIA is a 501(c)3 Non-Profit organization (as is the IIJA) and this status carries a fiduciary duty to serve the public.

According to CharityNavigator.org, the GIA activities are listed as:

(30) School, college, trade school, etc.

(199) Other scientific research activities

(149) Other instruction and training


According to the CharityNavigator site, the definition of the “NTEE Codes and Classifications is listed as:

NTEE Codes and Classifications (Nonprofit Types):

The National Taxonomy of Exempt Entities (NTEE) is a system developed by the National Center for Charitable Statistics (NCCS) and the Internal Revenue Service (IRS) to classify nonprofit organizations.


The GIA NTEE Codes are listed below:

Name in IRS Master File GEMOLOGICAL INSTITUTE OF AMERICA INC
Street Address 5345 ARMADA DR
City, State, Zip CARLSBAD, CA 92008-4602

NTEE Code B60

NTEE Classification Adult, Continuing Education

NTEE Type Educational Institutions and Related Activities

Classification Charitable Organization

The above establishes the fact that the Gemological Institute of America is classified as an adult, continuing education organization.

Here is the problem: In 2017, the most recent year available for IRS Form 990 review (that all non-profit corporations are required to file and are public), the GIA reported a gross income from the tuition of $15,879,280.00 but paid their employees over $123,820,908.00 in salaries and benefits. The question must be raised: How is that possible? How can the GIA pay employee salaries and benefits of almost 8 times the revenues generated by their program tuition?

Donations were the first thought. The GIA might be taking in donations to make up for the $107,941,628.00 shortfall in revenue. However, the same 990 filing lists only $606,362.00 in donations. So we are still $197,335,266 in the hole just for covering employee salaries and benefits, not counting the cost of operations, etc.…

These numbers caused me to review all IRS Form 990 from the GIA from 2014 – to the current IRS revenue and asset listing for the GIA. The numbers are staggering. To understand just how big of a financial juggernaut the GIA has become, I compared their numbers to the other top 14 non-profits in the jewelry industry. Here is a couple of charts to demonstrate the situation.

Below is a comparison chart of revenue and asset of the GIA and the other non-profit organizations. As you can see the other non-profits barely even show up on the graph when we insert the GIA revenue and assets. But let’s take this one step further below.

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Below I have totaled all revenue and assets from the other 14 non-profits, and compared that total to the single GIA numbers:

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The GIA made almost 60% more in income than all of the other non-profits combined. The GIA assets are almost 85% more than all of the other non-profits combined!

Obviously, the GIA is doing far more profitable activities than their stated purpose of “adult continuing education”.

In 2017, GIA President/CEO Susan Jacques was paid $700,363.00. Executive Vice President Tom Moses had a compensation package of $942,129.00. In fact, looking at the list of salaried Directors of the GIA, the average salary is in the range of $305,000.00 per year. How can a non-profit education organization bringing in just over $15 million a year in tuition and $600 thousand a year in donations pay out over $83 million in salaries, and maintain revenues and assets that dwarf even a total listing of all other industry non-profits combined?

The answer: GIA Diamond Grading Reports and their lab services.

The latest IRS numbers posted for the GIA show an annual income of $317,476,873.00. That is for one year. Looking over the records of the past 4 years, the GIA education income has averaged 12% of their total revenue. If we apply that average to that of the $317 million in annual revenue reported to the IRS, the GIA generated approximately $38 million in tuition revenue and a whopping $279,379,648.00 in revenues from their lab services.

The question now becomes: Can the GIA lab services properly be considered as part of their non-profit classification? This is where the thing starts to fall apart based on GIA’s own words.

The GIA Conundrum

I want you to read carefully this statement from Schedule O of the GIA Form 990 filing. Read this carefully please:

Form 990, Part III, Line 1. Organization Mission Statement

“The institute’s mission and most significant activities are (A) operating a school providing education and granting diplomas in gemology and related areas (B) protecting the public from misrepresentation pertaining to gems…”

Form 990. Part III Line 4A

“The mission of the institute’s laboratory is to protect the public from misrepresentation pertaining to gems (whether innocent, negligent or intentional)

The GIA’s own revenue numbers prove that their mission statement is reversed in order of importance. Adult continuing education is only about 12% of their activity, and their lab services are approximately 88%, year over year for the past several years. But what about that mission statement regarding “protecting the public from misrepresentation pertaining to gems”?

Here is where GIA’s claims fall apart. The GIA mission statement claims that its lab reports protect the public, while the small print on their lab reports specifically precludes the GIA from the responsibility of protecting the public:

GIA Mission Statement on IRS Form 990

“The mission of the institute’s laboratory is to protect the public from misrepresentation pertaining to gems (whether innocent, negligent or intentional)…The laboratory fulfills its mission by examining and classifying individual gem materials submitted to the GIA Laboratory…are identified and graded with reports issued on their precise identifying features with quality assessments…”

GIA Disclaimer on their lab reports

“GIA and its employees and agents shall not be liable for any loss, damage or expense resulting from any error in or omission from this report or from the issuance of or use of this report or any inscription, even if the loss, damage or expense was caused by or resulted from the negligence or other fault of GIA or any of its employees”

Based on the above, the GIA states to the IRS that they protect the public from misrepresentation "whether innocent, negligent or intentional' through their gem lab reports. However, the GIA tells the public they are not responsible for any errors in their reports even if it "resulted from the negligence or other fault of GIA or any of its employees." So where, exactly, is the guarantee of public protection? How can the GIA declare protection to the public, when their own statements preclude their own errors from public protection?

Based on the above, GIA Mission Statement (B) is rendered moot as a result of their own disclaimer, and only 12% of a $317+ million dollar annual revenue is related to Mission Statement (A). Clearly, the GIA is failing in its mission statements and purposes represented to the IRS.

Based on the latest IRS published figures and the historical percentage ratio of education to lab services leaves approximately $278 million in revenue that the GIA is generating outside the formal mission statement of their status as a 501(c)3 Non-Profit organization.

Conclusion

Based on the above research from the IRS database and filings, there is little question that the GIA is utilizing their status as a 501(c)3 non-profit to generate huge laboratory services revenues under the guise of an educational organization. The biggest problem with this situation is that it gives the GIA an unfair market advantage over other laboratories who offer the same services as the GIA. By avoiding income tax on their $317 million revenue, the GIA is able to overwhelm its competitors in the market. A comparison of the GIA revenues to other industry non-profits is clear evidence of the imbalance that exists due to this situation. The imbalance is not due to donations or public financial support. The imbalance is due to massive revenues being generated by the GIA.

Nothing establishes this issue more than the inconsistency of the GIA mission statement -v- their services disclaimer regarding their lab responsibility to the public. A clear contradiction that negates the GIA’s lab services deserving of non-profit status by any measurable consideration.

It is unconscionable that any non-profit organization should abuse that status for the purpose of generating massive profits under the guise of a non-profit. Based on the numbers alone, this is exactly what the GIA is doing, in my opinion.

They claim to be protecting the public interest and specifically exclude that protection in the small print of the very reports that are represented to the IRS as providing that protection.

It is my final opinion that the GIA has become a financial juggernaut that overwhelms any competitor in the gem lab services industry based on an unfair advantage that should be reviewed by the IRS. The GIA education division should be separate from the lab services division. The lab services division should be forced to operate as the for-profit entity that it is, and on an even playing field with other labs in the industry.

I welcome your comments, suggestions or constructive critique.

Robert James FGA, GG
President, Insurance Institute of Jewelry Appraisal Inc.
Property and Casualty Adjuster, Texas Department of Insurance #1300433
Member: National Association of Independent Insurance Adjusters

You can download a PDF copy of this editorial at the following link:
https://instituteofappraisal.com/Exposi ... ernaut.pdf

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The IIJA is a 501(c)3 Non-Profit, Tax-Exempt Education Organization. Click the link below to visit the website and learn more about the industry's finest, yet most affordable, education in gemology and jewelry appraisal.
https://instituteofappraisal.com

©2019 International School of Gemology Inc. ALL RIGHTS RESERVED. We encourage sharing and caring throughout the industry as long as all copyrights are left intact.

IIJA
Insurance Institute of Jewelry Appraisal Inc.
PO Box 1727
Helotes, TX 78023
PinkDiamond
ISG Registered Gemologist


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Re: Editorial: Exposing the GIA Juggernaut

Post by SwordfishMining »

Good Luck Robert. It is definitely an abuse of accounting and semantics.
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