This file is designed to be loaded and printed in ASCHII text (11 PT) using WORDPAD. An index of report contents is provided on page 2.
This file contains an extract of text from selected USCF Finance Committee reports. It is intended to provide you with sense of the items convered and conclusions drawn. NOTE: this information is a SUMMARY OF ONLY THE TEXT PORTION OF THE REPORTS, and does not represent the full report issued by Finance, which may also have contained tables, charts, spreadsheet summaries and other graphics that are not easily reproducable in ASCHII format. A Zipped version and Self-extracting zipped version are available for download. These are in Word 7 format after unzipping.
James F. Pechac
USCF Finance Chair
JFP/
USCF FINANCE COMMITTEE 1996-97 PROJECTS Project Close X 1997 Finance Committee Report 06/08/97 X USCF Financial Crisis 11/01/96 XC Field Visit to USCF Office 11/19/96 XS FC Review of USCF Financials 02/18/97 - FC Projections (L. Dubeck) 04/XX/97 X Cost Savings & Rev. Enhancements 01/11/97 - Tournament Financial Reporting 02/18/97 X Convert Pension Plan to 401K 11/23/96 X Gift Annuity Program 04/24/97 X Blue Ribbon Panel 04/30/97 X USCF Financial Overview 05/03/97 - O/S Auditor Selection 05/06/97 - Analysis of Realized Gain / Loss 05/23/97 XC Fixed Assets 04/06/97 - FC Budget Methodology 05/27/97 X LMA Accounting 1997-98 05/19/97 X EXTRACT OF REPORT INCLUDED IN THIS MAILING C COVER LETTER ONLY S EXECUTIVE SUMMARY REPORT ONLY - EXCLUDED FILE EXTRACT7.TXT JFP/ 1997 FINANCE COMMITTEE REPORT submitted by James F. Pechac, Chair June 8, 1997
COMMITTEE MEMBERSHIP
Earlier this year Steve Doyle announced that he was stepping down from several USCF Committees, including Finance, due to time constraints. I would like to formally thank Steve for his many hours of time and effort spent in direct contribution to the USCF Finance Committee. His leadership role will be sorely missed; and the space he took up will be hard to fill :-)
For 1998 there are available positions on the Committee which I would like to offer to competent individuals from the financial community. If you are a professional in auditing, accounting, or finance and would like to assist the USCF in an advisory capacity please send your background and qualifications to [email protected].
BUDGET DEFICIT
Much has been said about the budget problems that USCF had to address this year. Excessively optimistic revenue projections for Memberships, Books & Equipment, and the Website, combined with unplanned expenses related to settlements with two top managers were partially offset by spirited recovery efforts initiated by new management in the latter part of the fiscal year. Costs and expenses also increased by about $50 thousand due to recommendations made by the committee in conjunction with the review of accounting records. Future Board's must closely monitor written status reports on the implementation and progress of all new sales programs, and meet and decide on appropriate action should actual results fall short of projections. The Board should not delegate this overview responsibility to the Treasurer or Executive Director.
REVIEW OF RECORDS
This was the main project undertaken by the Committee this year. In November, 1996 the Treasurer, concerned with a decline in sales and an unforseen deficit, engaged the Committee to: 1) review the financial records, 2) develop a projection of the loss for the year, and 3) make a determination as to whether a more comprehensive audit by an outside firm was warranted.
The Treasurer was provided an interim report covering analysis of selected transactions and activities documented as a part of our November visit to New Windsor, timed with the Policy Board meeting. This was followed by the primary phase of the project, consisting of a four-day visit to New Windsor in January, 1997 during which we performed interviews of accounting and operating personnel, reviewed account reconciliations, and developed analysis of the USCF financial results for the first six months of the fiscal year. All employees at the USCF Headquarters were open and cooperative in assisting us on this assignment. A report on the results of the review was provided to the Treasurer in February, 1997, both in a detailed and Executive Summary format. The following conclusions were noted in the report: Informant Account: Our analysis of the transactions in this account disclosed no questionable payments to vendors or employees. However, we questioned the decision by Operations in late July, 1996 to use Informant funds rather than submit a request to the Policy Board for a bank loan. We understand that use of these funds provided the means to avoid interest payments on the loan, however, by using Informant funds to pay payrolls and other creditors Operations had effectively borrowed and spent over $200 thousand in excess of available cash. Had the Informant money not been available Operations would have had to request Policy Board approval for a loan from the bank, and the Board would have had a much earlier understanding of the depth of the emerging financial crisis. We are of the opinion that the use of Informant funds was a defacto loan, and the Policy Board should have been consulted for their approval. We recommend that policy be established that Operations is not authorized to borrow funds or use collateralized deposits in any manner without Policy Board review and approval. Substantive Adjustments: approximately $160 thousand in increased expenses were documented in the report, consisting of items such as increased provisions for bad debts, a write down of deferred costs, recognition of vacation pay liabilities, and provision for retroactive payroll increases. Maintenance of USCF Headquarters Building: We noted that the building's roof is still leaking. While building repairs and maintenance have been discussed at several Policy Board meetings, no action has been taken to address this matter. We strongly recommend that Operations advise LMA management in writing as to the present status of building repairs suggested in the past two years. LMA management should address these items to ensure financial viability of the building investment. Overall Conclusion: This review was not a financial audit. Fieldwork and subsequent follow-up was not conducted at an investigatory level. Nevertheless, we noted no instances of gross negligence, nor do we feel there is adequate reason to suspect improper conduct. As such, we feel that a comprehensive audit by an outside firm is not warranted.
The report and all supporting workpapers were provided to the Outside Public Accountant for their information and reference in conjunction with the year-end audit. Using his background and familiarity with USCF's financial activities, Leroy Dubeck provided the Policy Board with a Financial Projection which estimated the potential loss for a full year. The model projection was then updated monthly. While Leroy's estimates were conservative, the reports provided management with an estimate of the magnitude of the potential loss, as well as a benchmark as to whether financial conditions were improving or declining. In addition to the three primary objectives of this project, the committee also released to the Policy Board a List of Revenue Enhancements and Cost Savings Opportunities as a means of both improving Operations and combating the deficit. A substantial number of ideas were provided by Steve Doyle and Tony Cottell. We also developed a detailed analysis of the methods currently used to Account for Tournament Income and Expense, and provided a list of recommended improvements.
FINANCIAL POLICY
Two detail-level policy memos were prepared: a report in November, 1996 providing guidance to Operations concerning a proposed Conversion of the Pension Plan to a 401K Plan; and a report in April, 1997 covering Bill Moushey's 1996 DM on Gift Annuity Programs. On a broader policy level, two separate documents were presented. In April, 1997 the Committee Chair issued a comment letter on the financial control issues related to the Blue Ribbon Panel proposal. This letter was subsequently forwarded to the Secretary for more general distribution. In May the Chair released a USCF Financial Overview Document describing the current financial control process from a conceptual level. The report included comments on structural changes proposed for the LMA Management Committee.
YEAR-END AUDIT
The Committee Chair participated in the selection process for the Outside Auditor, and prepared an analysis and adjustment of the Realized Gain/Loss account. The Committee provided Operations with a Computer Schedule of Fixed Assets by reference to work papers provided by Ernst & Young in their audit last year. This computer record, and the list of fiscal 1997 purchases, will be compared to items in the departments and the revised list used as the basis for capitalized assets in June, 1997.
1998 BUDGET
A Revised Budget Methodology was developed which provided for separate recognition of LMA and Operations financial performance. We also introduced an accounting procedure for LMA Accounting Changes effective 6/1/97.
OPEN PROJECTS
Three projects are pending. Proposed changes to the Monthly Data Report, and the implementation of Cost Center Reporting are both subject to installation of new financial software. A draft is also pending concerning proposed changes to the USCF Expense Report Form.
LMA
In December, 1996 the AVR Group initiated action to revalue the LMA Actuarial Liability for the upcoming fiscal year using current financial data and Life and Sustaining member data provided by Operations. The intent was to develop an annual routine which would not require services of consultants and actuaries. Due to the financial crisis the LMA Management Committee Chair canceled the project. For the upcoming year, the Group intends to readdress the above matter, as well as follow through on the USCF requirement to obtain an appraisal of the USCF Office Building for LMA valuation purposes.
FINANCE WORKSHOP
Historically, the U.S. Open Finance Workshop includes a discussion of the USCF budget. The purpose is to present during the delegate meeting the workshop's evaluation of the budget by reference to poling and straw votes. For the last several years budget review has taken up a large portion of the workshop's 2-hour time slot. While the budget will again be discussed during the workshop in Orlando, we will make every effort to provide time to answer any questions you may have on this report or other financial items. Unfortunately, I am not equipped to provide copies of these reports on request. Hopefully, some of these reports will be included in the delegate handout packet. If would like an abstract summary of selected reports via E-mail please send your request to [email protected].
Jim Pechac
Finance Committee Chair
To: USCF President Donald Schultz, Treasurer Tom Dorsch and Finance Committee Chair Jim Pechac
From Leroy W. Dubeck and E. Steven Doyle
Date: October 31, 1996
Re: USCF Financial Crisis
We are responding to the e-mail request of Jim Pechac for comments on the USCF's first quarter financial report.
The September 30 MDR indicated a $227,510 loss over the first 3 months of the 1996-97 fiscal year. For the comparable period in 1995-96 the loss was $81,656. This means that the USCF's finances are worst (sic) than the prior budget year by $227,510 - $81,656 = $145,854 or a deficit of $48,618 per month. We should note that the three month loss did not include the costs of the US Championship, the US Women's Championship, and the Olympiad. One of us (Doyle) estimates that the net costs for these will total about $120,000.
We do not have the information needed to make an accurate estimate of what the 1996-97 deficit might be. There are a number of factors to consider. Last year we had essentially a break-even budget. However, the revenues for the last year included a transfer of $102,004 from the Life Member Assets fund to operations. In addition, realized gains on LMA investments were $54,446 last year but will be -0- this year due to structural changes in the manner of LMA investment, as noted by Mr. Filipone in his covering letter to the September MDR. In addition, membership is down, (Filipone stated $56,000 below projections for the year), Adding these together , and including book and equipment sales at the current 5% rather than the projected 7% which would decrease net revenues below budgeted by about $30,000, would total $230,000. But the book and equipment sales for the all important second quarter could be lower. What if the they are flat in comparison with last year? This would lead to a $100,000+ net additional shortfall in revenues for 1996-97. Finally, there is the cost of the severance package for Al Lawrence that is being expensed this year.
These and other factors have led us to estimate somewhat different deficits. Mr. Doyle projects about $275,000 while Dr. Dubeck projects $400,000 - $500,000. The variance in these projections is not surprising because we do not have the kind of data about first quarter disbursements as suggested in Jim Pechac's memo (attached), as well as the uncertainty in projecting book and equipment sales.
We have several suggestions:
1. Any deficit in the range $275,000 - $500,000 is unacceptable. It would represent the largest single year deficit in the history of USCF.
2. The Policy Board and office staff must address this growing fiscal crisis immediately. A plan to deal with it must be adopted by the Policy Board at its November meeting.
3. We endorse some of the suggestions of Jim Pechac for dealing with the crisis and include a copy of his e-mail memo discussion the fiscal situation.
4. A series of expense cuts needs to be made. (Mr. Doyle has posted a number of suggestions on the Internet at rec.games.chess.politics) and a number of revenue enhancements should be considered.
Finally, we are sending this memo by fax to each of you because we feel that it is urgent to address this issue immediately. Please feel free to share it with Policy Board Members, Finance Committee members, or anyone else that you feel should see this memo. We are both available to assist you in any way we can to solve this problem.
Subj: USCF First Quarter Financial Report
Date: 10/29/96
To: [email protected] (Frank Camaratta), [email protected] (Tony Cottell), [email protected] (Steve Doyle), [email protected] (LWDubeck), [email protected] (Myron Lieberman), [email protected] (Norm Peacor), [email protected] (Paul D. Shannon)
CC: [email protected] (TOMDORSCH)
To: USCF Finance Committee Members:
As you are all on line I am sure that you are all aware of the recent flareup related to the release of the USCF's first quarter financial report. While I am not fully aware of the details, I believe that USCF has a serious enough financial situation to require our active guidance.
Enclosed below is a series of Web letters should you have missed this material.
I have discussed the situation in depth with Leroy Dubeck. Our concern is that the $230 first quarter loss (well above the $81k loss at 9/30/95) may be due to more than lavish parties and other one time financial hits. While it may be obvious, it would seem that we should as a committee provide the board with our recommendations.
Also, while the financial situation itself is indeed perilous, my own specific concerns go beyond financial activities. I am not convinced that the computer and communications committee members were actively involved in decisions relating to the USCF Web presence and the new financial and operating systems that are under review. Communication with this committee on matters of this importance is critical to the effective and timely completion of strategic systems development. I understand from Leroy that Operations has decided to terminate Garry Prince's contract and go with Interplay for a website. Reliance on a commercial firm for web presence seems to be financial risk. For example, as Leroy pointed out, we may not be able to tie in with IBM or other firms if we are on the web site of one of their competitor's. (could you see that written up in the journal!?)
I have my own series of recommendations. Your comments and/or changes are welcome. Please respond asap. Please call or email 10/30 or 10/31.
Note that I have only written to Finance committee members on the web. Excluded is Todd Barre as I do not know his Email. Also excluded, understandably, is Al Lawrence, (listed as a committee member by Barbara Demaro.) Please write to me for a list of phone numbers for the committee.
Tom Dorsch
PO Box 3294
Hayward CA 94540
RE: 11/16/97 FIELD VISIT TO USCF OFFICES
Dear Tom:
Enclosed is a more formal report on the work I completed at the USCF Office in New Windsor on Saturday, November 16. I was accompanied by Sonya Lynch, Accountant, arriving at about 2:00 PM. The primary purpose for the visit was to review bank statements and reconciliations, and to review accounts payable documents related to the disbursement items recently questioned by you and described in my November 2, 1996 letter to Al Lawrence (responded to by Al on November 11, 1996).
A summary of the audit areas covered in this report:
Cash Availability Analysis Reconciliation of LMA G/L Accounts to Statements on File Review of Check Registers July - August, 1996 Review of Bonus Payments made in July, 1996 Summary of Accounting for Al Lawrence Severance pay Review of Ernst & Young Account Review of Cost associated with Employee Year-end party Rigden Study / Vanguard Open Finance Committee Items Other matters
Questionable issues and/or issues requiring follow -up or resolution are indicted in bold type.
Sonya was very competent in extracting and supporting accounts payable records and other reconciliations and financial reports for my review. She was able to answer the majority of my questions related to the items investigated in this report. Files and reports appeared to arranged and in reasonable order. I did not get the impression that any of the files or reports had been revised or rerun.
We left the office about 6:30.
Jim Pechac
USCF Finance Committee
E-mail
<< Subj: Re: 11/96 PB meeting topics
Date: 96-11-23 23:43:15 EST
From: TOMDORSCH
To: JPechac, [email protected], User544001, JimEade
Jim-
I think there are some concerns that require the involvement of your committee.
First and foremost, you received a copy of GF's plan for managing the federation for the rest of the fiscal year. That plan projects a deficit of $400K.
A loss of that magnitude is unacceptable, and *planning* for a loss of that size is out of the question.
It is necessary that the Finance Committee examine the budget on an urgent basis, verify the accuracy of the projected budget deficit, and make recommendations about where we have to squeeze, pinch, or cut to eliminate the losses.
The 11-month fiscal year is half over, which increases the difficulty of our task. But we absolutely cannot come into the delegates meeting in Orlando blithely proclaiming by far the largest loss in the history of the federation.
There is also the question of how we could have come down so far so fast. I would like the Finance Committee to express its view of how this predicament developed, examine the causes, and, where necessary, fix blame.
Included in this assessment, I would like a recommendation pro and con on whether a special audit, estimated cost $25K, is justified in light of our precarious financial condition. Such an expenditure would only be justified if we really could not account by other means for the sudden decline in our finances.
Jim, thanks a million for your input. I'm afraid that our current financial posture makes you input even more invaluable than it has been in previous years. I'll try to call you tomorrow.
Regards, Tom >>
February 18, 1997
To: Tom Dorsch
USCF Treasurer
From: Jim Pechac
Finance Committee Chair
Subject: REVIEW OF USCF FINANCIAL AND OPERATING RECORDS - FEBRUARY, 1997
Enclosed is the Finance Committee's report on its review of financial records as requested by the attached letter. A copy of the Executive Summary and a Summary of Substantive Issues raised in this report is attached to this letter for your information.
In January Dr. Leroy Dubeck released a projection of USCF financial results for the balance of the fiscal year. He also provided a narrative and analysis concerning theories as to the reasons for the significant loss in the first two quarters. These reports were released by Leroy over his own signature to USCF management. The Finance Committee also released in January a list of potential revenue enhancements and cost savings actions to USCF management to review, consider, and implement as a means of addressing the current financial / budget challenge.
This review was not a financial audit. Fieldwork and subsequent follow-up was not conducted at an investigatory level. Nevertheless, we noted no instances of gross negligence, nor do we feel there is adequate reason to suspect improper conduct. As such, we are of the opinion that a special audit of the type suggested in your letter would not be appropriate.
jfp/
Distribution:
POLICY BOARD: FINANCE COMMITTEE:
Fanueil Adams Anthony Cottell
Michael Cavallo E. Steven Doyle
James Eade Dr. Leroy Dubeck
Robert Ferguson Myron Lieberman
William Goichburg Norman Peacor
Rachal Lieberman Paul Shannon
Donald Schultz c: George Filippone
UNITED STATES CHESS FEDERATION
FINANCE COMMITTEE
REVIEW OF FINANCIAL AND OPERATING RECORDS
FEBRUARY, 1997
EXECUTIVE SUMMARY
ORGANIZATION: The Organization chart should be simplified, and a CFO/controller post should be provided for. Alternative financial controls should be introduced should the Controller/CFO post remain unfilled due to financial conditions.
POLICY: Develop financial reporting systems to forecast cash flow. Explain variances from monthly budgets, rather than the current practice, which reports on year-to-date results. Develop a financial report on cost savings and operating efficiencies.
CASH: USCF has a $500,000 loan with Key Bank, however, this loan is normally used only to finance the cash flow effect of tournament financing and holiday inventory investment. Since future cash requirements will be clearly in addition to such stated reasons we recommend that Operations take formal action to document a request to the USCF for financing from the LMA. The $233 thousand due to Informant should be reclassified from equity to a liability account.
INFORMANT ACCOUNT: Our analysis of the transactions in this account disclosed no questionable payments to vendors or employees. However, we do question the decision by Operations in Late July to use these funds rather than submit a request to the Policy Board for a bank loan. We understand that use of these funds provided the means to avoid interest payments on the loan, however, by using these funds to pay payrolls and other creditors Operations had effectively borrowed and spent over $200,000 in excess of available cash. Had the Informant money not been available Operations would have had to request Policy Board approval for a loan from the bank, and the Board would have had a much earlier understanding of the depth of the emerging financial crisis. We are of the opinion that the use of the Informant money to fund Operations was a defacto loan, and the Policy Board should have been consulted for their approval. We recommend that policy be established that Operations is not authorized to borrow funds or use collateralized deposits in any manner with out Policy board review and approval.
Executive Summary - Continued
Page 2
LMA ASSETS: Reconciliation was performed between the LMA asset accounts and the LMA deferred liability accounts. No unusual adjustments were noted to account balances for the current fiscal year. Operations owes the LMA a total of $29 thousand for cash receipts received in fiscal 1997. Analysis of LMA performance identified substandard returns in selected LMA assets; consideration should be given to reclassifying these funds. Review of LMA transfers from Life membership sales identified a $4 thousand overstatement of life member sales in the second quarter of fiscal 1997 requiring an adjustment by Operations.
ACCOUNTS RECEIVABLE: Aged receivables (in excess of 120 days) totaled $44 thousand. This includes Informant receivables of $17 thousand and $10 thousand due from Interplay for Royalties. The bad debt reserve stands at $23 thousand, offset by returned checks and credit card charge-backs in excess of $17 thousand. Control procedures over bounced check and credit card charges are in need of improvement. The process used to administer returned check charges should be monitored closely by management until the balance in the account is brought down to a more reasonable balance; (say $3,500). Due to the uncertain nature of the receivables, including an "over 120 days" aged listing in excess of $43 thousand and the bad check file, we recommend that the reserve be increased by $25 thousand.
INVENTORY: Inventory levels have fallen 9% in six months, a significant change. A gross to net margin analysis disclosed no abnormal margin patterns. Detailed review of inventory by class is being conducted by Finance Committee staff and will be reported under separate cover. With the recent change in top management it may be appropriate to have Operations prepare a written policy statement on inventory, including description of policy covering inventory composition, valuation, reserves, and verification. Questions may also be raised as to whether the USCF should continue to invest in inventory that is by contract required to be purchased in quantities exceeding 3 months on hand. Operations may also want to take a fresh look at the practice of storing all inventory adjacent to the Administrative headquarters.
PREPAIDS AND ADVANCES: Review of the balance sheet disclosed several cost items that are being written off over the balance of the fiscal year. This includes the former Executive Director's severance and vacation, which is being written off over 10 months. We recommend that all prepaid accounts that represent deferred expense be written off as of the date of the review. This would constitute an adjustment of approximately $80 thousand.
Executive Summary - Continued
Page 3
TOURNAMENT INCOME AND EXPENSE: No substantive issues were noted in this section. Refer to the detailed report for several structural, procedural, cost savings, and financial reporting recommendations.
FIXED ASSETS: This asset group will be reclassified to the balance sheet effective 5/31/97. Consideration should be given to taking an inventory of both on-site fixed asset items and fixed asset items, such as fax machines, that were purchased and provided to both current and past Policy Board members.
DEFERRED MEMBERSHIP INCOME: No substantive issues were noted in this section.
ACCOUNTS PAYABLE AND ACCRUALS:
Professional Tax and Audit Services: A total of $39,000 in payments was charged to fiscal 1997 expense. The professional fee accrued liability account carried a balance of $49,608 over year-end 1996. We expect that the accrual account balance represented at least a portion of this work. The decision process used to engage the audit firm in expensive tax services is well docuemnted and understood. There was no formal agreement with the firm for the contracted tax work. Our requirement for formal contracts covering items of this nature is addressed earlier in the report. Also, while it appears that this professional service was performed after fiscal year-end, and is thus properly charged to fiscal 1997, we question the rationale of the decision to spend $25 thousand of a total professional fee budget of $55,000 on this service.
Several other items of concern were noted:
The monthly accrual for professional fees should be increased to $7,500 a month. This adjustment has already been provided for in Dr. Leroy Dubeck's Financial Projection.
The liability due to employees for vacation pay is not accrued. We recommend an accrual of $25,000. This should subsequently be revised based on a comprehensive calculation.
Full year expense for overtime and temporary employees appear to approximate the cost of two FTE's. This cost should be investigated.
The policy on overtime pay should be reviewed for compliance with state and federal law.
Executive Summary - Continued
Page 4
MEMBERSHIP INCOME: USCF's membership system does not provide management with sufficient information to control the business and must be replaced as a matter of priority. The database provides no information or statistics on transaction processing. Formal policy must be developed clarifying membership expiration. The present informal system could result in as much as an 8% error in membership renewals. Members can also receive more than 12 publications of Chess Life. The system, written in COBOL, will be unable to properly account for memberships set to expire beyond 12/31/1999. The Office is already having the problem of how to account for three-year memberships sold in January, 1997.
WEB SERVICES: No exceptions were noted in review of this area.
CHESS LIFE INCOME: No exceptions were noted in this area.
OTHER INCOME: No exceptions were noted in review of this area. Royalty accrual entries from Interplay, due in mid-1996, are still open and unpaid.
CHESS LIFE PRINTING AND DISTRIBUTION: The review disclosed no accounting errors in this area. Operationally, however, it may be prudent to study the time line of delivery of the Catalog to print vendors in order to avoid excess charges and ensure efficient utilization of their services. It was also pointed out that the purchase of a color printer for approximately $3,500 would save the Federation several thousand dollars a year in charges from print vendors.
PAYROLL AND BENEFITS: A full accounting of year-to-date payroll costs revealed no significant errors in this area. The USCF continues to operate using an outdated, relatively informal HR policy manual. The revised policy manual should be completed and released prior to the August annual meeting.
EXECUTIVE INCENTIVE AGREEMENT: While it is generally agreed that this agreement was authorized, we understand that this was done in a closed session of the Policy Board and that there is no formal record of approval. Apparently, past practice has always been to take no notes at such closed meetings. We recommend that the Policy Board take action to correct this deficiency.
OVERHEAD EXPENSES: No exceptions were noted in review of this area.
Executive Summary - Continued
Page 5
POLICY BOARD: The board is 37% over budget for transportation, Hotel, Per Diem and Misc. This is unacceptable given our present financial situation and should be addressed.
MAINTENANCE OF USCF HEADQUARTERS BUILDING: While visiting the New Windsor Headquarters in January, 1997 we noted that the building's roof was leaking. While building repairs and maintenance have been discussed at several Policy Board meetings, we do not recall recent action being taken to address these matters. We strongly recommend that Operations advise LMA management in writing as to the present status of building repairs and maintenance suggested in the past two years. LMA management should address these items to ensure financial viability of the building investment.
USCF Finance Committee-
Audit Subcommittee:
Anthony Cottell
E. Steven Doyle
Dr. Leroy Dubeck
James F. Pechac - Chair
February 17, 1997
TO: Don Schultz
Fan Adams-fax
Tom Dorsch
Jim Eade
Robert Ferguson
Bill Goichburg
Racheal Lieberman
Please Binfo
SUBJECT: ACTION ITEMS RECOMMENDED BY USCF FINANCE COMMITTEE
Note: the first three recommendations were provided by the Committee on October 29, 1996; Many of the Steve Doyle items were posted to r.g.c.p. in late October, 1996. The list is in no way intended to be comprehensive. It's primary purpose is to initiate a thought process within the group that will result in action to make the USCF alert to potential revenue areas and more cost conscious.
The Committee encourages USCF management to review, consider, and implement these suggestions as a means to address the current financial / budget challenge. We suggest that USCF Operations form a separate cost savings committee, made up of key managers and employees, and that they meet on a scheduled basis to develop and implement these and other recommendations.
A written record should be made of all cost savings conclusions and actions reported through these meetings, and the meeting minutes directed to Binfo for information purposes.
USCF Finance Committee
January 11, 1997
c: George Filippone [email protected]
ACTION ITEMS RECOMMENDED
BY USCF FINANCE COMMITTEE
1/11/97
STRATEGIC ISSUES
Advise Policy board of seriousness of financial and systems situations. Establish a written action plan for resolution of the USCF Financial situation. (Pechac)
Full audit of first quarter disbursements, including review of bank statements and reconciliations. (Pechac)
Until otherwise noted, the Treasurer, or his designee, should be required to approve all authorizations for expenditure (commitments) over a specific amount as established by the Board. (Pechac)
Operations to prepare a detailed cash budget on a three month rolling basis. Deviations should be explained. (Pechac)
Promote the Postal chess area BIG or sell it (Doyle)
Set up a fee for service with the Trust--no more keeping weekly time sheets...(Doyle)
Re-engineer Work Flows at the office--the outputs are old--I got three letters asking me to submit $4.00 for a guy that played in NJ Open that was not a member...inside of each one was three pieces of paper and hand written notes. Come on....(Doyle)
The systems are terrible...we need to buy but can't just yet...lets decide what we need and work towards it (Doyle)
"Peachtree" Accounting system. Should we convert to Quicken For Business? (Doyle)
Propose future USCF revenue and expenditures on a monthly basis. Require specific action to monthly budget variances by the office. (Pechac)
Put any ideas to sell the building on hold--we have other problems now. Sign a lease with LMA the landlord---I promise to be fair (Doyle)
FINANCIAL ISSUES
Develop a forecast of major balance sheet categories; establish programs to reduce investment in idle assets and extend liabilities where permissible. (Cottell)
Review status of Open Accounts Receivable and actively go after accounts and charge interest on over 30 days. Go back and collect old A/R by referring to collection agency- (Doyle)
Analyze inventory on hand by type and value and reduce inventory on hand. Consider return of unneeded inventory for credit or in partial payment of current account. Dramatic reduction in inventory overstocked in several large categories--this raises cash but hurts income stmt (Doyle)
Identify miscellaneous balance sheet categories and adjust. Discontinue practice of deferring expenses to subsequent periods. (Pechac)
Prepare list of unpaid invoices and determine the liability for Informants. Establish funding procedure for resolution of $231,000 liability that will protect USCF account with vendor. (Pechac)
Review bank loan covenant. Develop and propose revised funding procedure with bank. (Pechac)
REVENUE ENHANCEMENTS
The linking of the USCF website to the IBM website during the May, 1997 Deep Blue - Kasparov match could produce Major revenue increases in both the membership and books and equipment categories. This possible revenue-enhancing opportunity is consistent with the USCF's strategic need to expand into the Internet in order to reverse the present long-term decrease in regular members. USCF should vigorously pursue
needed upgrades in its website in order to capitalize on this event. (Dubeck)
Consider membership program in conjunction with 25th anniversary of Bobby Fischer's World Championship match win vs. Spassky in Reykjavik, Iceland. (Pechac)
Review Chess Life archive for souvenir issues and other historical chess items to give to members as an incentive to rejoin. Consider Fischer memorabilia. (Pechac)
Any FIDE events held in US this year --organizers will be billed for rating fees --any titles at FM level--member will be billed (Doyle)
Seek another outlet for sales in West (Doyle)
Buy Airline mileage as a premium for computer sales/high end chess sets (Doyle)
Get time on Home Shopping network--Xmas and Fathers Day (Doyle)
Get ads for School Mates--potential at $10,000 (Doyle)
Push Renewal membership 500 miles for renewing! (Doyle)
Push Scholastic Chess like crazy--hire full time go getter (Doyle)
Hire fund raiser on commission only (Doyle)
Examine Lease vs. Buy options ASAP (Doyle)
COST SAVINGS
Cut any remaining Master Chess activity for this fiscal year by 30% (Doyle).
Reduce funding for the 1997 U.S. Championship and other tournament events. Develop a program to ration tournament income for other major tournaments in 1997-98 as appropriate. (Cottell).
Require all Open National events to be on a pure P/L--no fee with organizer getting a large cut--(Doyle)
National event rebates: historically these rebates went to USCF. In recent years the organizer has taken over airfare, hotel & Car rental rebates --- in the form of comp tickets - and USCF pays full travel for staff at these events. (Doyle)
Cut Salaries/Staff by 10% (Doyle)
Programmer - convert to outside service (Doyle)
Employees need a 401K to save for retirement. Start that and eliminate current plan I started in 1986. Give a 3% match to non executive staff and a 1% match up to $1000 to Executive staff. (Currently they get same deal as hourly...) (Doyle)
Cut Forms and Supplies by $35,000--cap at $45,000; cut office supplies by $10,000 (Doyle)
Eliminate any additional FIDE reimbursement--I'll donate to USCF (Doyle)
No fixed asset acquisitions effective immediately-- (Doyle)
Purchase of Fax machines - physical inventory of purchases in last 4 yrs Older units now in the hands of Barry, et al. Recall and reassign to new PB so that they do not have to buy new be reimbursed by USCF. (Doyle)
Secretary minutes - printing cost. Consider cost savings in this area. Maybe even elimination of minutes. (Doyle)
Telephone--switch carriers--install network top save dollars (Doyle)
Institute management control over collect calls and credit card calls. (Doyle)
Post PB newsletter on Internet only till end of year; post press releases on Internet only Cut postage costs by use of E-mail by $20,000(Doyle)
Eliminate sending PB packs priority mail (Doyle)
No reimbursements to PB visits at national events; No staff visits to national events-only National Scholastic Cap PB reimbursement at $3000 per PB member (Doyle)
Frequent flyer awards should accrue to USCF. PB members should be required to turn over all mileage to USCF for any trips taken at USCF expense. This should yield 3-4 tickets per year (Doyle)
Require rebates on Air from all National events including National Open (Doyle)
Negotiate National Travel Agency, Car and Air rebate program (Doyle)
Promote Visa card again (Doyle)
Cut Professional fees--contact Gary Sperling and beg him to take back the job (Doyle)
Discontinue subscriptions to publications cut budget for books and periodicals (Doyle)
Discontinue donations, chamber dues, etc. (Doyle)
Defer all SASP payments until January 1997. (Doyle)
Justify use of off-site storage space rental (Doyle)
Justify USCF Company car - insurance, repairs, gas. Is a log maintained? (Doyle)
Review contracts for Cleaning services, etc. and determine if cost effective. (Doyle)
Outside lighting - convert to sodium lighting - much cheaper (Doyle)
I left CL and School mates alone---but I have some ideas--starting with the waste in postage in CL....come on Glenn...watch the nickels and dimes the dollars watch themselves (Doyle)
* * * * *
E-mail
TO: USCF FINANCE COMMITTEE
FROM: JIM PECHAC
DATE: 11/5/96
RE: USCF PROFIT SHARING PLAN AND TRUST - 401K
In October Operations released a Binfo concerning proposed changes to the USCF Profit Sharing and Trust Plan (for employees). At the bottom of this document are George Filippone's Binfo 96-588 to the Board, with attached letter and plan summary written by Craig Simon, an attorney engaged to draft a new 401K plan for employees.
The Board will be reviewing and approving action on this plan at the November meeting, with the plan to take effect 1/1/97.
An example of some relevant points that I think should be made on this matter: What is the bottom line cost of this plan revision? Is the cost in the 1997 budget? Does USCF donate 2% of total salaries to the 401K? Or 2% of salaries of employees that are contributing? How do contributing employees receive funds in their account? Who will do the administration, accounting, and investing? What is the cost of the administration, accounting, and investment? Will this be paid by the fund or USCF? (Etc, etc)
I have copied below the first paragraph from out 1996 Annual Report, which describes the current "Pension Plan". It is not clear (to me) whether USCF will be paying 2% toward the employee portion of the 401K in addition to the 2% toward the pension.
I am sure that the majority, if not all of these questions have been worked out. I will copy George to ensure that he is aware of our interest and can provide details. Perhaps you each can look over this plan document and comment as appropriate.
Your input on the vesting portion of this plan would be useful.
Jim Pechac
E-mail
TO: USCF FINANCE COMMITTEE
FROM: JIM PECHAC
DATE: 11/20/96
RE: USCF PROFIT SHARING PLAN AND TRUST - 401K
On November 5, 1996 I sent a letter to committee members requesting your comments on the plan by USCF Operations to convert the pension plan to a 401k plan. If you want a second copy please write to me and ask. I also asked George Filippone to respond to certain questions on the planned change - which he did. George's response is below.
At the recent PB meeting the board asked Tom to assign the Finance Committee to review and comment on the 401K conversion plan. As a result I am again asking for committee input. While this action is in no way finalized it may be important to develop the 401k plan now due to the fact that it could be an economic incentive for new top operating management.
As of January 1, 1997 not-for-profits will be permitted to operate 401K's. USCF is considering converting the current pension plan to a 401k, and to fund the plan from the company side with a minimum of 2% of applicable payrolls. Company contributions over 2% will be based on overall company performance and employee status - executive level versus all other. My understanding is that the funds in the present plan will be rolled from the present investment vehicles to a firm such as Merrill Lynch or Charles Schwab. The specific means to accomplish the conversion was not provided to me and is at this time still unclear.
In my mind the following appears to be an acceptable change by USCF:
1. Convert the present pension plan to a 401K. . Company matching portion will be a minimum of 2% based on vesting. Amounts over 2% by USCF to be determined by PB based on result of financials.
2. Establish vesting for the plan using an employee is applicable for contributions after 1 yr of employment, and will be vested in company portion over a 4 year period at 30-50-80-100% increments.
What is unclear to me is how the old plan will be rolled in. The old plan has been in effect since 1991. Employees are presently vested in the old plan. How do we:
Roll all vested employees to the new 401K?
Pay off all former employees vested in the old plan?
Do with plan investments that remain?
Any suggestions or background on this item will be useful. Please send your comments on the 401K proposal in to me ASAP. Appreciate the help.
Jim Pechac
Subj: Re: Profit Sharing Plan and Trust - 1997
Date: 96-11-21 14:46:21 EST
From: [email protected]
To: [email protected], [email protected] (toddbarre), [email protected], [email protected] (tonycottell), [email protected], [email protected] (lwdubeck), [email protected] (myronlieberman), [email protected], [email protected] (pauld.shannon)
CC: [email protected] (tomdorsch), [email protected] (georgefilippone)
An employee pension plan was initiated by the Doyle Board in the mid 80's. I don't know where 1991 came from. Why is the office spending so much time and money converting an already good and acceptable pension plan. I really don't see any measurable benefits. Tony
Subj: Re: Profit Sharing Plan and Trust - 1997
Date: 96-11-21 02:45:54 EST
From: [email protected] (Myron Lieberman)
To: [email protected]
CC: [email protected], [email protected] (Lieberman, Rachel)
RE: USCF PROFIT SHARING PLAN AND TRUST - 401K
Jim, This vesting plan seems reasonable, but some thought needs to be given to relinquishments.
The portion of the fund given up by employees who are not fully vested needs to be apportioned among the remaining employees and added to their accounts. The account review statements for the Motorola Profit Sharing fund, for example, spelled out for each employee the portion of their account value that was due to their contribution, dividends/interest on their contribution, the company contribution, dividends/interest on the company contribution, market variation (on company contribution only), and relinquishments.
I was a member of Motorola's Profit Sharing Council for 3 years (and a member of the board of the Motorola Employee's Credit Union West for 9 years) and have seen firsthand that the employees were happy with this structure and so was the company. While it is true that the relinquishments would have been higher than USCF's are likely to be due to a vesting schedule that went from 50% after 1 year in 5% increments until full vesting after 10 years (10% on the last increment), relinquishments will still be significant enough to include on the statements.
What is the current vesting schedule on the old plan? My first impression is that it would make sense to roll active employees to the new plan, taking with them both the dollars in their accounts and their seniority (not necessarily the same as their vesting unless the schedules of the old plan and the proposed 401K are identical). In other words an employee on the old plan who has been with USCF for 9 months reaches 30% vesting in 3 additional months while an employee who has been with USCF for 2 years already and has participated in the old plan will be vested at 50% regardless of their previous vesting.
Also to be considered is how the 401K structure will affect any employee who currently is eligible for a tax deferred IRA (if any are). Regards,
Myron Lieberman
E-mail Response from George Filippone:
What is the bottom line cost of this plan revision?
Approximately $2000.00
Is the cost in the 1997 budget? Does USCF donate 2% of total salaries to the 401K? Or 2% of salaries of employees that are contributing?
It was originally, but the professional services line --- i.e. legal, accountant fees for review of USCF tax status -- have made its original inclusion problematic.
How do contributing employees receive funds in their account?
A contribution is made annually under the current plan and would continue under the proposed plan.
Who will do the administration, accounting, and investing? What is the cost of the administration, accounting, and investment? Will this be paid by the fund or USCF?
The administration and accounting has always been contracted out to a professional service Recommended by our past auditors. Spectrum charges approximately $900 per year for record maintainance and report filing.
Investment has previously been done by the whole Board with the Treasurer as their designee. The last Board passed a motion making the Trustees the Treasurer, the Exceutive Director, and Director of Operations the Trustees. This Board appointed both Tom Dorsch and myself as trustees at the last PB meeting.
The fund will be paid by USCF. The plan is to change the current plan and make a similar contribution to a self-directed 401K at a brokerage such as Charles Schwab or Merrill Lynch that have many varied investment opportunities for the employees. The plan moneys are currently invested in Vanguard Asset Allocation Fund.
E-mail Response from George Filippone:
I have copied below the first paragraph from out 1996 Annual Report, which describes the current "Pension Plan". It is not clear (to me) whether USCF will be paying 2% toward the employee portion of the 401K in addition to the 2% toward the pension.
There is a plan contribution method in place since Gary Sperling's stint as Treasurer that mandates a minimum contribution of 2% to a maximum 4% depending on the bottom line.A 401K cannot manadate a contribution in th plan document itself. The Board can and should continue to mandate a contribution schedule outside the plan document.
The proposed change is not meant to be in addition to the current plan but to change the nature of the plan to allow for self-direction and individual contribution. No additional moneys are required other than the cost of re-writing the current plan to conform with the 401K provisions.
I hope these answers help your understanding of the proposed changes. Please contact me if you need more information.
Vesting is always an important factor in any plan. I prefer, as noted in my binfo, a quicker vesting procedure. Please note in the Annual the longevity of staff. So many of our people have already vested that a question of added expense is moot.
I simply want to allow individual contribution by our employees and offer a decent mechanism for them to save for eventual retirement. Self-direction allows the young to be more agressive in their investing if they desire, an indivdual to buy and trade stocks. and all employees to put more than USCF's contribtution in their account and maximize their tax advantage.
Regards,
George Filippone
FINAL REPORT
November 23, 1996
TO: Tom Dorsch - Treasurer
George Filippone - Acting Executive Director - Please BINFO
RE: CONVERSION OF PENSION PLAN TO 401K
Dear Tom & George:
The Finance Committee was requested to review and comment on Operation's proposal to convert the USCF pension plan to a 401K. Enclosed for your information are photocopies of selected responses I received on this subject.
In summary, conversion to a 401K is considered to be in the employees' interest and is expected to result in a nominal cost to USCF. We would normally recommend that such a change be structured and enacted as soon as practicable. However, given our present financial situation, it may be more appropriate to enact the change subsequent to actions related to the 1996-97 Budget Review.
Specific comments related to financial and management issues:
COST ESTIMATE: Operation's has indicted that the cost for this change is nominal. However, we suggest that an estimate of overall cost of the conversion (legal fees, etc) be developed for Board information. Please copy the Finance Committee on this.
CONVERSION POLICY: The policy to introduce the new plan should specify that employees will receive at least equality in converting their ownership in the old plan to the company portion of the new one. No participant should be converted to a less favorable financial position. In addition, the conversion method should be simple enough mathematically for an employee to follow with no unnecessary complications.
COMPANY MATCHING: In a regular pension plan each participant is vested in a like manner based on hired dates, vesting dates, and salary. In a 401K it is not infrequent for the company portion to enure only to employees that participate by investing their own funds (with the company putting up a "matching" portion). Employees that do not participate normally do not receive the company matching portion. It is not clear from the proposal how the proposed USCF plan will be designed. Based on the discussion provided so far, it is assumed that each employee will receive a company portion irrespective of whether or not they contribute personal funds. While this is consistent with plan conversion, it may be prudent to consider conversion to a plan that encourages employee investment by adoption of a matching program for all (or part) of the company contribution.
ACCOUNTING FOR RELINQUISHMENTS: Myron's comments on "relinquishments" (the portion of company contributions given up by employees who leave before they are fully vested) are important. The plan benefit statement should delineate account value by source (employee basic, employee additional, dividends/interest on employee portion, etc.
VESTING: The design of the vesting is a more subjective issue and has already been discussed by George Filippone.
PROPOSED CONVERSION TABLE: The former plan should be reviewed and a summary prepared of each participant's hire date, vesting rate, and current account value. To this information should be added their vesting in the 401K and the value of the company portion of the proposed 401K. The list should present intended resolution of any former employees that are currently vested in the former plan, and the intended method of resolving their accounts.
ADMINISTRATIVE COSTS: The plan should specify who will address the costs of administration, such as the cost of purchasing shares, or other ancillary expenses. Note that in the current pension plan shares are purchased one annually. In the new one share purchases will occur on a monthly basis for each participant.
INVESTMENT VEHICLES: Employees should be provided a reasonable range of investment vehicles. Please advise the committee on the plans in this area.
FUND PERFORMANCE: The plan should specify that all employees will receive regular statements on equity and investment performance.
CONVERSION REPORTING: The cost of the conversion should be captured in expense records, and a summary prepared for the Delegates at the annual meeting.
Should you have any questions on this report feel free to contact me via the above address. Sincerely;
James Pechac; Chair
USCF Finance Committee
C: USCF FINANCE COMMITTEE:
Todd Barre
Tony Cottell
Frank Camaratta
Steven Doyle
Leroy Dubeck
Myron Liebermann
Wayne Praeder
Norman Peacor
Paul Shannon
cf: Binfo #96-588
REPORT TO COMMITTEE
April 24, 1997
TO: FINANCE COMMITTEE:
Frank Camaratta
Tony Cottell
Steve Doyle
Leroy Dubeck
Myron Liebermann
Norman Peacor
Paul Shannon
CHARITABLE TRUST:
Arnold S. Denker
Harold Dondis
M. Lee Hyder
COPY:
Mike Cavallo
Tom Dorsch
RE: GIFT ANNUITY PROPOSAL BY BILL MOUSHEY OF MISSOURI DM96-90
Dear Committee Members:
As you may recall, at the annual meeting Bill Moushey of Missouri recommended that USCF establish a gift annuity program to raise money. The following motion was presented to the delegates:
DM 96-91/NDM 96-90 (Bill Moushey, MO): The Board of Delegates directs the Finance Committee to study the feasibility of a USCF Gift Annuity Program and report back to the USCF Policy Board by the next Policy board meeting in November, 1996. (Referred to The Finance Committee.)
Bill provided me with a copy of some financial information that he obtained from the St. Louis Symphony Gift Annuity Program, which is enclosed for your review. I have also enclosed for your background some of the material from the Institutional Advancement Dept. of The Cleveland Clinic Foundation.
I conferred with George Filippone on this topic late last year, requesting him to search USCF files and check with office personnel to determine whether USCF had ever attempted this type of AMarketing" program before. George was unable to locate any file reference material related to a program of this type. If anyone is aware of USCF's previous use of charitable giving literature please contact me.
Other than the material that is printed periodically in CL, I am not familiar with the charitable program literature provided by the USCF Charitable Trust. For the present time, I propose that we address the topic of charitable donations generically, and avoid differentiating whether such programs should be run directly by USCF or through the Trust. I have included several CT directors in this mailing so that they are aware of this discussion. I encourage the Trust to provide information to the Finance Committee members in order that we all better learn from this discussion.
As you can see from the enclosed CCF literature, there are a number of different planned giving formats that can be offered to prospective donors. In addition to outright donations, including those related to estate planning, there exists a rich array of tax sensitive financial vehicles. The Clinic approached this complex selection process by printing a series of individual brochures for the various financial concepts, and displays these brochures at its institution. The Institutional Advancement Department also provides this material selectively to prospective donors based on request and/or interview. This is done to simplify the process, and to keep the prospective donor more concentrated on the commitment to the institution rather than befuddled by a dazzling choice of options.
Relating to Bill Moushey's specific inquiry concerning gift annuities; this program encourages donors to contribute assets, such as cash, securities, or other property, to a charitable institution. In return the charitable institution provides financial return to the donor, usually for life. The donors also are provided certain one-time tax benefits, computed based on the fair market value of the donation.
Donations in the form of gift annuities are normally irrevocable. Payments are made regularly by the charitable institution to either the donor or, under certain circumstances, specified beneficiaries. The charitable institution receives all earnings over and above the amount due to the donor (or beneficiary.) During the time that the donor (or beneficiary) is still living the donation is placed in a restricted status, and may not legally be accessed by the charitable institution. This is normally provided for by placing the donated item with a third-party trustee. A limited time frame, such as 20 years, may be assigned to the trust. When the trust terminates the donated assets pass to the charitable institution.
Depending on the financial situation of the donor, donations in the form of gift annuities to charitable institutions can be quite beneficial for all concerned. One of the most frequent examples is the donation of common stock, purchased by an individual in his/her earning years some time ago, that is currently not paying a reasonable dividend. Should the individual sell the stock a significant tax bite would ensue. By donating the stock to the trust the stock's market value" would immediately convert to an (agreed upon) investment earnings rate, and at the same time provide a similar tax write off. The trust would provide payments to the donor for life, at which time the shares would convert to unencumbered ownership by the charitable institution. A beneficiary may also be involved as mentioned earlier.
There are many other formats and examples, some which include more complex considerations such as insurance coverage and estate tax avoidance. But in any case a high degree of reliance is placed on the ability of the financial arm of the charitable organization to manage their financial affairs in a manner so that the encumbered principle is prudently invested to provide each donor with the predicated income stream. Preferably, the charitable institution should amass the financial savvy to easily outrun the minimum return, thus providing period income which it may either reinvest or use for a charitable cause.
Following are the various methods of receiving donations ranked in terms of financial complexity: (this breakout is mine - and is subject to discussion and change:
Category I
Unencumbered Cash Gifts
Category II
Gifts of Stock or Other Property
Charitable Bequests
Category III
Life Income Gifts
Charitable Remainder Trust
Charitable Gift Annuity
Pooled Income Fund
For any of the Category III donations, consideration must be given to the fact that the USCF does not have a full time financial professional to manage such a program and the related investments. Based on familiarization with programs at my institution, any formal planned giving program requires a significant financial and personnel resource commitment. A complex program such as CCF's requires use of financial software so as to simplify the fund development process and market the program to prospective donors. Similarly, a back-room software product is necessary to properly apportion earnings from financial instruments to the various "funds" on a timely and accurate basis. Both systems require personnel skilled in financial planning and analysis. This is necessary not only to market the program and account for the products, but also to summarize and present the program to membership, the delegates, and the Policy Board.
An important concept of planned giving is the necessity to provide the donor with an "accounting" of his/her donation. This can be done using various funds earmarked for specific investments, such as "Building Program", "Chess Life", "Scholastics", or just simply "General Fund." My understanding is that for the past several years USCF Operating Management allocated all gifts or bequests directly to Operating Income, and spent the money in the current budget year. Based on the learning curve that the Federation has gone through over the past eight months I think we all see how important it is to provide for financial downturns by creating a savings and investment plan.
My preference, based on this incomplete background, is to develop a planned giving program with particular emphasis on Category II (primarily Charitable Bequests). USCF should also establish a formal savings plan as a part of this program. While I respect Bill Moushey's motion, I do not believe that the USCF should introduce Category III products until we hire and fully indoctrinate a full time financial professional.
Of course, the timing of this strategic program is highly dependent on our current financial situation. It was not inappropriate, for example, for Mike Cavallo to address the deficit by introducing a Category I campaign. We should work to develop this product and learn from it.
This letter hopefully will establish a communication line and bring all USCF financial professionals up to date on the status of this topic. I would like feedback from the group so that we can discuss which direction USCF should proceed. Please let me know what you think of Bill's motion, so that we can develop a response to the Delegates in that regard. Your thoughts on structure and responsibility are also encouraged. Please Email your comments to the group.
JFP/
Finance Chair
April 30, 1997
TO: FINANCE COMMITTEE:
Frank Camaratta
Tony Cottell
Leroy Dubeck
Myron Lieberman
Norman Peacor
Paul Shannon
COPIES:
Mike Cavallo
Tom Dorsch
Steve Doyle
M. Lee Hyder
BLUE RIBBON PANEL
Woody Harris
Warren Pinches
Helen Warren
Dear Committee Members:
I am sure that you all have by now received a copy (enclosed) of the proposed Bylaws Revision, drafted by the Blue Ribbon Panel, a Delegate committee comprised of Woody Harris, VA, Chair; Frank Camaratta, AL; Tom Dorsch, CA/N; Steve Doyle, NJ; Warren Pinches, MA; and Helen Warren, IL. The Panel's primary role is to propose a reorganization of the USCF governance structure. The panel was created by Delegate motion in 1995 and is due to present it's proposal at this year's annual meeting. This letter presents my thoughts on the proposal as it impacts the area of finance.
We should first recognize that the BRP proposal was not developed specifically to address only the USCF finance function. Instead, it is an attempt to provide structural change to the USCF management process. Also, BRP committee members presented their proposed changes to the Delegates at Alexandria, and encouraged them to review, discuss and comment on the proposal over the coming year. I have waited until now to raise these issues, mainly to see if others may do so earlier and if so what the effect would be. Since there has been little discussion on this aspect of the proposal I prepared this letter.
THE VICE-PRESIDENT OF FINANCE WILL BE ELECTED BY THE POLICY BOARD RATHER THAN BY THE DELEGATES
Under present policy the Treasurer is elected by the Delegates. While any delegate can run for Treasurer, campaign statements, background, and qualifications will ensure that the post is won by an individual with the necessary skills. Also, financial candidates must take a stand on financial issues prior to the election.
Under Blue Ribbon Panel, the Policy Board shall consist of six members of the Board of Delegates elected for staggered terms of four years by the Board of Delegates at the annual meeting. Elections are held every even-numbered year, with three Policy Board posts filled as a result of each election. Once elected the six Policy Board members use an internal election process to establish four officers: President, Vice-president, Vice-president of Finance, and Secretary. The term of each office is two years.
The election of Vice-president of Finance (formerly Treasurer) will now be determined by the Policy Board, not the Delegates, and will change every two, rather than every four years. It is possible that of the six elected Policy Board members, none will be equipped with the background or familiarity necessary to properly address the financial issues in the USCF. Should only one individual with the requisite background be on the Policy Board, board political structure could result in that individual not being "elected" to the Vice-president of Finance position. It is also possible that two or more qualified financial individuals will run for the Policy Board and both be elected, with the result that the "loser" of the Board election choosing to then resign rather than act in a nonfinancial capacity. Political reality may result in a reduction in the number of financial individuals interested in Treasurer.
My purpose for raising this issue is more to get other points of view on this specific issue that to attack the overall proposal. It is logical to enhance board comradely, and improve morale, by changing the process so that the Board elects its own internal "leader" as President. Similar logic supports the method for Vice-president and Secretary. Must we use the same rationale for determining the financial gatekeeper?
NEW CHIEF FINANCIAL OFFICER POSITION IS A POSITIVE STEP
The Chief Financial Officer will be appointed by the Policy Board and supervised by the Executive Director. The Executive Director and the Chief Financial Officer serve as ex-officio members of the Policy Board, with the right to debate and make motions, but without the right to vote. From a financial perspective, this newly created post is the most significant proposed improvement. The new post may more than compensate for a Vice-president of Finance with less than appropriate technical skills. Also, as this post is appointed (hired) by the Board, there is more chance of filling it with a qualified individual. The Blue Ribbon Panel proposal brings about the long sought after "second accounting professional", and provides the New Windsor Office with full time financial expertise.
On the downside, qualified financial candidates make balk at taking on a position that has little internal advancement opportunity. Also, it may not be possible to fill this post without giving up the open Director of Operations post, as that position may be more important to the Executive Director.
The title "Chief Financial Officer" is, in technical audit and accounting literature, normally used to refer to the most senior-level financial officer of an organization. I suggest that the Chief Financial Officer title in the Blue Ribbon Panel Proposal be replaced with Director of Accounting.
PERFORMANCE EVALUATION
The Chief Financial Officer position is "appointed" by the Policy Board, but supervised by the Executive Director. Supervision implies that the Executive Director will evaluate the Chief Financial Officer's performance. However, it seems incorrect to permit the Executive Director to fire but not hire. On the other hand, the Policy Board will be turning so frequently that giving them responsibility for performance evaluation of the Chief Financial Officer would seem inconsistent. Perhaps this issue was already addressed by the Blue Ribbon Panel. If so I would be interested in their logic.
RESPONSIBILITIES OF THE VICE-PRESIDENT OF FINANCE
The Vice-president of Finance shall obtain records of the financial affairs of the federation, report to the Board of Delegates, and counsel and assist the Policy Board on financial affairs. As an added duty, I suggest that the Vice-president of Finance ensure that the management and accounting control systems are operating as intended. The Vice-president of Finance should also assist the Chief Financial Officer in running the financial affairs of the federation.
RESPONSIBILITIES OF CHIEF FINANCIAL OFFICER
The duties of Officers appointed by the Policy Board ... shall be set forth in written memoranda by the Policy Board. Copies of said memoranda shall be added to the minutes for dissemination to the Delegates. This delegation is proper for general management positions who relate their responsibilities to plans established for the current period, on which performance incentives can be based. However, in this instance my preference is to list duties by reference to this individual's job description.
I encourage additional comments by the Finance committee on these and other financial implications of the BRP proposal.
JFP/
Final Report To Committee
May 3, 1997
TO: FINANCE COMMITTEE
Frank Camaratta
Tony Cottell
Leroy Dubeck
Myron Lieberman
Norman Peacor
Paul Shannon
COPIES:
Mike Cavallo
Tom Dorsch
Steve Doyle
M. Lee Hyder
RE: USCF FINANCIAL OVERVIEW
Dear Committee Members:
The firestorm ignited in USCF by the financial deficit has burned for over five months, resulting in a flurry of reform proposals and organizational redesigns. A similar, if not more intense blaze was ignited last year concerning the LMA, and the year before the topic was "the Internal Control Reports." The discussion and debate that accompanied each of these topics was favorable; among other things, it improved our perception of USCF reality. But there is more to be done.
The USCF management core operating process is graphically depicted on Exhibit 1. To this representation, the Delegates have introduced three separate and independent management controls; the Treasurer, the LMA, and the Finance committee (refer to Exhibit 2.) These control points are similar to the Controller, the Treasurer, and audit committee existing in for-profit entities. It is of interest to note that the "hot" issues of the last three years each impact a separate control point on this chart.
PROPOSED CHANGES TO THE LMA MANAGEMENT COMMITTEE
Enclosed is a draft copy of Leroy Dubeck's proposal to change the structure and responsibilities of the LMA Management committee. This draft is still in the process of finalization, and may be a bit different than the final one Leroy submitted. I have taken the liberty to relate Leroy's proposal to the Exhibit to show how this and other proposals can be developed to address the following management concerns:
1) IMPROVE CONTROL OVER OUR LOAN COVENANT: The Board of Delegates formed the LMA Management Committee for the purpose of overseeing the investment of LMA assets. The committee is also responsible for related accounting issues such as determination of the liability due to life and sustaining members. Operations cannot access LMA assets without following a specified approval process.
A known loophole in our policy is the ability of Operations to obtain a bank loan and commit USCF to a debt which may only be repaid out of LMA funds. While a review process for bank loans does exist, the borrowing of funds by Operations to finance seasonal inventory buildup has made such approvals relatively routine. In addition, last year Operations arranged extended credit terms with Informant, resulting in a defacto loan. The lack of a monitoring process on loans delayed development of a plan to address the recent deficit. Leroy's proposal brings the loan approval process under review by LMA.
2) CLARIFY OVERLAPPING RESPONSIBILITIES: The Delegates approved a rewording of Article 10 two years ago in California that established the Accounting, Valuation and Reporting (AVR) Group, the Liquid Asset Group, and the Fixed Asset Group. These advisory groups had as their primary responsibility to provide technical advice to the LMA management Committee, each in their own specific area of competence.
This technical overview process does not appear to be working as intended. AVR performed fieldwork in fiscal 1996 resulting in several reports and proposals that were widely disseminated. However, since that time the group has been relatively inactive. To the best of my knowledge the Fixed and the Liquid Groups have not been active for some time.
The advisory group structure also unnecessarily complicates the reporting process to the delegates. Preferably, all group reporting should be required to channel to the Delegates through the LMA Management Committee. However, this does not appear workable, due mainly to the lack of direction assigned to the advisory groups by LMA. (Perhaps a Management Committee member should have been assigned to work directly with each group on their technical agenda.)
Leroy Dubeck's modification of Article 10 removes the three advisory groups from the formal structure. This does not mean that these control concepts disappear, they are still the responsibility of the management committee. Under the revised format the management committee will be required to formally meet and place assignments with technical project groups made up of selected USCF financial representatives. The work will be directly monitored by LMA, and they will be accountable for the final report to the Delegates.
3) BROADEN THE LMA PERSPECTIVE: The present committee configuration is staffed by three financial personnel. While this is not improper, the fact that these individuals have similar professional backgrounds may narrow the group's thought process, and could be a reason why the committee has failed to interrelate and discuss issues. Leroy's proposal is intended to achieve three objectives:
a)Expand the committee from its present three to five, thus providing for quorum meetings. With the present structure if one individual is not available a meeting cannot be held. The decoupling of the advisory group structure and the establishment of LMA Management Committee representation on technical project groups assigned is consistent with this expansion;
b)Enhance committee background by adding general management personnel, and including a financial representative from the CT. The general management representation will be useful in addressing loan financing.
c)Include the Executive Director. This is a prudent measure intended to improve communications with Operations. It may be debatable as to whether this post is voting or non-voting. My preference is the latter.
The change in the committee's composition is by far the most significant, politically and will be subject to much discussion and debate. While this motion may indeed pass, I predict that it will be revised so that the former Treasurer keeps a seat.
IMPROVED ACCOUNTING CONTROL OF U.S. CHARITABLE TRUST
A second change on Exhibit 3 concerns extension of the Finance and LMA Advisory Committees to the loans, investments, and financial reporting policies and related control procedures of the U.S. Charitable Trust. The Trust, while under the responsibility of a separate board, and maintained using an independent accounting and financial system, has to this point not been covered by USCF committees. There are a number of prudent business reasons why this should be considered.
The continued reappraisal of USCF has identified objectives that are more similar than different from those of the Trust. CT is provided a number of administrative services directly by USCF, and both would benefit by common accounting, charitable giving, and investment systems. I do not expect the CT financial or loan covenant issues to be significant. However, the expansion of LMA's role into CT investments will provide the means for USCF and CT to employ similar investment strategies and reduce cost by consolidation of portfolios. This would of course be conducted only to the extent that it is legally permitted.
I expect that Leroy's proposal will require time to consider and evaluate. Due to the learning process that the committee should go through concerning the Chess Trust I recommend that we exclude the CT proposal from formal consideration until the 1998 meeting. As always, your comments on the topics discussed in this letter, and the accompanying exhibits, are welcome. Thanks for your contribution to U.S. Chess.
JFP/
ps: I drafted the exhibits intending to present them at Orlando to the Delegates. A chart can assist in explaining relatively complex relationships all at once without having to "bore the reader." If you have some thoughts or ideas on changes to these charts or development of additional ones please let me know. Thanks.
April 6, 1997
TO: USCF FINANCE COMMITTEE:
Norman Peacor
Tony Cottell
Paul Shannon
Leroy Dubeck
Frank Camaratta
Myron Liebermann
Dear Committee Members:
Enclosed are Fixed Asset reports developed from year end work papers provided to USCF by Ernst & Young. I have taken the liberty to load them into a spreadsheet in order to provide us with a decision tool for the upcoming conversion to Fixed Asset accounting. The three detail reports list assets by serial tag number, by year of acquisition, and by asset type (further sorted by year of acquisition).
Gross Accum Net Life
Land & Building $382,723 $183,532 $199,191 30
Building Improvements 91,724 40,602 51,122 31.5
Computer Eqpt 295,934 203,974 91,960 5
Editorial Equipment 72,012 67,239 4,773 7
Furniture & Office Eqpt. 200,855 177,171 23,684 7
Automotive Eqpt. 15,680 15,419 261 5
Total $1,058,928 $687,936 $370,992
Please review the enclosed material and E-mail your comments (to the committee) on how USCF should address this policy change. I would also appreciate any information you can provide related to the accuracy of the descriptions and classification of items appearing in the accompanying reports.
Note that while I was able to reconcile the above totals to the EY financials, and made every effort to revalidate dates, spelling and punctuation, there still may be inaccuracies in the description section of this report. Any corrections you note will be gladly appreciated.
JFP/
c: Steve Doyle
Mike Cavallo
Sonya Lynch
E-mail
Subj: LMA Accounting Policy - Accounting changes
Date: 05/18/97
To: [email protected] (Mike Cavallo)
CC: [email protected] (TOMDORSCH)
Mike - not to catch you off guard - but the LMA accounting changes that I propose will impact certain budget lines. as examples:
Depreciation will be recorded - for both the building and for other fixed assets. The building depreciation will be LMA's. The rest goes to Operations.
(Internal) Rent expense will be booked for Operations. LMA will have a rental income account.
Interest, dividend and investment gain / loss will be recorded on the LMA side only.
Opertations will have a new account to record the $140K annual write down of the LMA reserve account.
I am proposing intercompany payables and receivable accounts to record transaction monthly. The intercompany account balances will be cleared via check payment from LMA to Operations.
I have included the above in my budget analysis. The amounts are not significant - but it will be important to put the LMA issue behind us at the Delegates meeting.
I have not worked out the implications of the above on the monthly reporting - other than to say that if we continue to use the present software then I will sit down with Sonya and revise the Quattro Pro templates.
thanks for your patience!
your comments are welcome
Jim Pechac
Subj: 1998 LMA Accounting Change - for comment
Date: 05/18/97
To: [email protected], [email protected] (Tony Cottell), [email protected], [email protected] (LWDubeck), [email protected] (Myron Lieberman), [email protected], [email protected] (Paul D. Shannon)
CC: [email protected] (Mike Cavallo), [email protected] (Don Schultz), [email protected] (Denis Barry), [email protected] (TOMDORSCH)
PROPOSED ACCOUNTING CHANGES:
The 1998 Budget will include the following accounting changes approved by the Delegates at the 1996 Annual Meeting:
1. The USCF Profit and Loss Reporting will be broken down into two sections, Operations and LMA.
2. LMA will bill Operations monthly for Internal Rent. A separate income line will be reported for LMA rental income , with a corresponding expense line for Operation rental expense - USCF Facilities.
3. Depreciation will be recorded on assets using the current book value and remaining lives of capitalized assets plus estimated depreciation for assets planned to be acquired in the upcoming fiscal year. A separate depreciation expense account will be reported for USCF building depreciation. which will be recorded to the LMA account.
4. Dividend interest income, and recognized gain/loss from investments, will be recorded to the LMA Account.
5. Operations will record an Intercompany receivable, and LMA an Intercompany payable, for the write-down of the LMA reserve account. Operations will offset this entry to a new income account entitled Life and Sustaining Income. LMA will offset this entry to a contra account in the LMA Liability section of the Balance Sheet.
6. Each month Operations will record an Intercompany payable, and LMA an Intercompany receivable, for the LMA portion of respective Life and Sustaining Sales, each of which LMA is due to receive 95% and 50%, respectively. Operations will offset the related income accounts when making this entry; and LMA will offset a current year account in the LMA Liability section of the Balance Sheet
7. The Intercompany accounts will be cleared by payment on a quarterly basis.
JFP/
Subj: Re: 1998 LMA Accounting Change - for comment
Date: 97-05-19 18:45:40 EDT
From: [email protected] (APC)
To: [email protected]
CC: [email protected], [email protected], [email protected] (lwdubeck), [email protected] (myronlieberman), [email protected], [email protected] (pauld.shannon), [email protected] (mikecavallo), [email protected] (donschultz), [email protected] (denisbarry), [email protected] (tomdorsch)
Strange, during my six years as Treasurer the USCF had none of this "funny" bookkeeping. I find it somewhat sad that many good people consent to this "raid" of the LMA. I repeat, during my years as Treasurer "operations" just budgeted for repairs and maintenance, with full agreement from the Chair of the Finance Committee, and the full finance committee. I have no problem being a voice in the wilderness. It's just that long-time friends are being hoodwinked. As a CPA I believe I know a bit about accounting. What is being done is not GAAP, nor kosher, BUT politically correct!!! Just my 2 cents. Regards to friends and adversaries. Tony
Subj: Re: 1998 LMA Accounting Change - for comment
Date: 97-05-19 07:19:17 EDT
From: ESDOYLE
To: JPechac
The MGMT committee can approve this--it does not need to go to the delegates. I vote yes