Skimming- The Likelihood of Massive USCF Fraud

Most of you should have noticed by now that I posted an internal USCF document
regarding the USCF catalogue's remainder sales. To my knowledge, this is the
first time in USCF's history that we had any documentation on their actual cost
of goods on a per item basis.

I published this document because it begins to answer questions which have
plagued our organization for years.
Why couldn't USCF make a profit on Books and Equipment?
It didn't make sense.
I have far less purchasing power than the USCF, yet I could buy books and
equipment for a far greater margin than the gross profit margin that I was told
USCF was getting.

We were told at delegate's meetings that gross profit margins were in the range
of 30%, when I knew that they should have been in the range of 60% or higher
based on the tremendous purchasing power of the federation.
For instance, USCF was selling club specials with a board for $17 and the cost
was well under $5.
If it was really 30% gross margin, then how would we explain the margins I knew
were available on sets where the margin was more like 80% or books where I knew
the margin had to be at least 60% or clothing where I knew their margins had to
be at least 75% at a minimum.

If you average those three (80%, 60%, and 75%), you don't get 30%.
Even without the benefit of volume and bulk purchase discounts, I could not get
below a 50% average.
When you are talking about 3 million dollars in sales per year, we are talking
about losing track of a great deal of potential profit.
Is there any possibility that we just didn't ask for the maximum discounts?

May I speculate?
Could it be that someone or some group of someones (let's call them USCF
insiders) has been skimming the profits that should have gone to USCF for many
years?

What is the evidence?
Well, let's go to the list.
In my experience, an embroidered polo shirt sells for about $5 or $6 bucks
tops.
USCF's own document shows that they paid $10.80 for their old for USCF logo
polo shirts and from $12.86 to $14.28 for the reorder. This would apply to
sizes up to but not including XXL. USCF offered these USCF logo polo shirts to
the membership for $27.00 and then later $30.
However, USCF also "wholesales" embroidered polo shirts from the Chess Hall of
Fame.
Again, we know these shirts cost $5 or $6 bucks tops to produce.
Multiply this lost $7 by 1000 shirts and soon you are talking real money.

What did USCF pay for the Hall of Fame polo shirts?
$24.98!
Further, the Hall of Fame polo shirts were offered to the membership for $39.
What to do to guess how successful these sales were?
But in purchasing the Hall of Fame polo shirts, a large amount of USCF money
made its way from the USCF account to the Chess Hall of Fame and USCF was stuck
with shirts where they could not possibly recoup their outlay.
I wonder how many $24.98 wholesale Hall of Fame polo shirts the Chess Café is
going to buy?

The subject of the Women's Calendars came up previously and we were told that
these 1000+ calendars were on consignment.
That is not what USCF's own document shows. It shows we paid $6 each and we
still have over 1000 of them. It is pretty easy to see that USCF potentially
made some USCF insider a quick $6000 while sticking USCF inventory with 1000
women's chess calendars of uncertain future.
The calendar's which can easily be compared to the 2004 Chess Café Calendar
which USCF bought at $.21 a piece.
Twenty one cents vs six dollars?
Someone likely made a profit without a calendar ever being sold. USCF paid for
the calendars. That they are on consignment is only in someone's dreams. Do
you pay in advance on consignments? Could they be trying to mislead us?

I could provide you with many, many examples from the list of inventory
purchases where there either was a huge potential for a skim (like the purchase
of 5000 each of Mythology Chess Cards Set 1 and Set 2 which we still own) or
like the sales from Drueke where the costs were in the normal range.

The Skim

When the Mafia ran Las Vegas, they would handle the skim by sending clean
dressed young men to the casino counting rooms and filling suitcases with cash.

Nobody saw nuttin.
We could easily have the same situation here.
Nobody saw nuttin.

Take our first example- the USCF polo shirts.
Why would we pay $10.80 on the first purchase and then OK $12.86 to $14.28 on
the next for the same shirts?
Wouldn't this cause a reasonable person to question whether we should continue
to deal with this supplier? Or if we switched, why did we abandon the first
supplier? Wasn't he cheaper?
I know I would be looking for a new supplier if I was handed this increase
unless there was another reason to keep using this same person. What might
that reason be?
Remember, I can order these same shirts for about $5 or $6.

Please save the "quality" argument. Remember, I am in the trade and most of
the labels have been produced out of exactly the same factories at one time or
another. A 5.7 ounce polo shirt is pretty much the same from company to
company. In fact, it may be identical except for the label

In the case of the Hall of Fame polos, it looks like an off the books
contribution was made to the Hall of Fame.
What other explanation is there?
But why was USCF, a company losing its shirt of more than half a decade, making
a contribution to the Hall of Fame?
No reasonable company buyer would purchase embroidered polo shirts for $25 each
wholesale.
It's just plain nuts.
There had to be another reason.

And we have reached the crux.
Off the balance sheet, off the income statement transfers of income which would
have come to the federation but could be feathering the nests of USCF insiders.
Instead of the extra $6 or $7 profit from the sale of a polo shirt going to the
USCF, it went somewhere else. OR we could just be really, really generous with
our suppliers. You decide.

Multiply this by thousands of purchases per year and the numbers become
staggering. Potential gross margin losses look like they could have been in
the area of $1,000,000 a year. As the LMA was drained to pay for the month
maintenance of the USCF sales organization, the real beneficiaries of our
$3,000,000 in sales might be "off the books".
Haven't we witnessed this exact circumstance with a certain supplier of chess
sets from India?
How would that sucking sound appear on an income statement?
It would not make an appearance at all.
It is the tree that fell in the forest with no one around and the sound of one
hand clapping.
It would have happened off the books and thus while our gross profit margin
falls from roughly 65% to 30%, USCF loses hundreds of thousands of dollars per
year and everybody blames the lack of automation in the office when the real
cause may be been much closer to a who's who of the USCF insiders.
That is the natty thing about any potential "kickbacks" or "commissions" or
"profit participations". The only real evidence we have of the potential skims
existence on USCF's own books is when USCF has grossly over paid for an item.
The potential skims stick out like sore thumbs and they are all over USCF's
document.
A thirty five percent skim of $3,000,000 in sales is $1,050,000 in lost revenue
annually.
In other words, while we were losing an average of $350K per year, we might
actually have been making $600K a year from income that never quite made it to
our office in New Windsor.

Harry Sabine was the person who presented the board with details of the first
USCF Supernationals bid from a Knoxville group which did not send its own
representative.
At that event, USCF was to receive $25,000 OR a certain percentage of the
profits from all sources (25% if I recall correctly) if higher.
We were told by the Knoxville organizers at the event that their actual cost
for commemorative T-Shirts was $12 per shirt (TWELVE DOLLARS) and they had sold
3000 of them for $18 each.
Great, you say.
I pointed out the printed t-shirts only cost $2 each, printing included. But
the Knoxville organizer told us that "things cost more here in the South".
Bunk.
$10 X 3000, unreported and Gone with the Wind.
The Knoxville organizers also got an estimated $100,000 in hotel room rebates
and another $100,000 in entry fees, none of which came USCF's way despite our
contract.

USCF got its low guarantee and nothing more.
Harry Sabine told us not to expect any further accounting from the Knoxville
group.
The head of the Knoxville organizing group was later indicted and convicted in
a similar matter regarding the Atlanta Olympics.

So how did this transaction appear on the USCF income statement?
$25,000 with no hint of the extra tens of thousands which were owed, but never
collected.
Does anyone think this is the only time this has happened?

USCF Drained- The Possibility of Hiding the Crime

Reasonable analysis of the USCF books shows that B + E was losing money hand
over first. It is only reasonable to eliminate his "liability" from the USCF
books.

The assets which were supposed to provide security for the life members have
been drained while it appears the $1,000,000 of annual profits which would have
come to USCF have gone elsewhere.
Our new VP of Finance came to exactly the same conclusion I would have reached
prior to the revelation provided by this internal USCF document.

According to our audited books over several years, there was no reason to go on
in this business. It just didn't make sense. We had emptied nearly two
million from the LMA and we were down to our last asset. Our gross margins
just didn't cover our B + E costs and right we were to close shop and give it
to someone who could make a profit.

And potentially, that is exactly what the USCF insiders wanted us to think.

So USCF puts the B + E business out to bid because it doesn't make any money.
Certainly, it doesn't make USCF any money.

But how would some potential skimmer keep it all quiet!
How could it be kept from anyone's prying eyes forever and a day.

What a strange bidding process.
Hardly like bidding at all.
The contract is offered to a certain firm, eliminating all others who had
previously bid in a timely fashion, and a board member leaves the board as a
part of the package or was that just a coincidence.
Does that board member own any part of the selected firm?
What does it matter?
It is only the final resting place of the cash that settles things.
If a selected firm will sell his/her products and the insider collects the
cash, who would care who owns the company. It could all be handled by written
contract OR it could just be a nod and a wink.
How the cash could be moved from one entity to the beneficiary USCF insider(s)
certainly will not appear on USCF's books.
IF, X has a product that usually brings $10, but company Y is willing to pay
him $20 in perpetuity for his help in landing the contract, what is that extra
$10 called? Partnership?

At least one of the firms certainly felt confident in "guaranteeing" at least
$350,000 to the USCF.
Perhaps some of those firms knew something the USCF rank and file membership
did not.
Anyone would have to be a fool to take over a failing business like ours
without a sound knowledge of all the factors.
Taking a potential 30-35% gross skim into account, paying the USCF half of that
number and keeping every dollar of formerly USCF income could be the best
little deal since the Louisiana purchase or Teapot Dome.

Feel had?

Oh, there are reasons everything is done the way it has been and all of them
come with dollar signs.
The sun is coming up.
A light is shining in our dark corner.
What was hidden shall now be revealed.
The muddy waters are clearing.
Our fog is lifting.
The chickens are coming home to roost.
The ducks are lining up in a row.
The "I"s are dotted and the "T"s are crossed.
Nothing is left and the company cupboard is bare.
So why are the insiders throwing a party.
We have a strange group at this dance.
Most of them potentially signed on their dance cards much earlier when they
attempted to copyright the time controls of their new digital clock.

Just connect the potential dots:

Richard Peterson

On 15 May 2004 16:06:30 GMT, (ASCACHESS) wrote:


We were told by the Knoxville organizers at the event that their actual cost
for commemorative T-Shirts was $12 per shirt (TWELVE DOLLARS) and they had sold
3000 of them for $18 each.
Great, you say.
I pointed out the printed t-shirts only cost $2 each, printing included. But
the Knoxville organizer told us that "things cost more here in the South".
Bunk.

About eight years ago, I was able to buy t-shirts, very low volume
(100 as I remember), with custom graphics on the front and a text logo
on the back, for a band I was in, at about $3.25 each.

Way back when we were debating the sense of outsourcing B&E, I wrote several
times that there's no way a retail business with 95,000 near-captive
customers should lose money. A number of you flamed me with the usual
excuses: It's not as easy as it looks, overhead, B&E has to pay for other
operations, blah blah blah. My response then is the same as now: BULL****.
There are plenty of retailers making money online and through mail order,
and they have nowhere near the pull of a large organization like USCF.
Certainly none of these e-tailers or catalogers have a magazine in which
they can advertise -- for the cost of paper, print, bind, and postage, i.e.
next to nothing.

I can't agree with Peterson that this implies, much less means, that someone
was stealing. However, his arguments get more persuasive every time I read
them. At the very least someone made some incomprehensively bad "wholesale"
purchasing decisions.

One way or another we're talking about millions of dollars lost.

This matter is of utmost importance and must be investigated immediately.

Angelo


"ASCACHESS" wrote in message
...
Skimming- The Likelihood of Massive USCF Fraud

Most of you should have noticed by now that I posted an internal USCF
document
regarding the USCF catalogue's remainder sales. To my knowledge, this is
the
first time in USCF's history that we had any documentation on their actual
cost
of goods on a per item basis.

I published this document because it begins to answer questions which have
plagued our organization for years.
Why couldn't USCF make a profit on Books and Equipment?
It didn't make sense.
I have far less purchasing power than the USCF, yet I could buy books and
equipment for a far greater margin than the gross profit margin that I was
told
USCF was getting.

We were told at delegate's meetings that gross profit margins were in the
range
of 30%, when I knew that they should have been in the range of 60% or
higher
based on the tremendous purchasing power of the federation.
For instance, USCF was selling club specials with a board for $17 and the
cost
was well under $5.
If it was really 30% gross margin, then how would we explain the margins I
knew
were available on sets where the margin was more like 80% or books where I
knew
the margin had to be at least 60% or clothing where I knew their margins
had to
be at least 75% at a minimum.

If you average those three (80%, 60%, and 75%), you don't get 30%.
Even without the benefit of volume and bulk purchase discounts, I could
not get
below a 50% average.
When you are talking about 3 million dollars in sales per year, we are
talking
about losing track of a great deal of potential profit.
Is there any possibility that we just didn't ask for the maximum
discounts?

May I speculate?
Could it be that someone or some group of someones (let's call them USCF
insiders) has been skimming the profits that should have gone to USCF for
many
years?

What is the evidence?
Well, let's go to the list.
In my experience, an embroidered polo shirt sells for about $5 or $6 bucks
tops.
USCF's own document shows that they paid $10.80 for their old for USCF
logo
polo shirts and from $12.86 to $14.28 for the reorder. This would apply
to
sizes up to but not including XXL. USCF offered these USCF logo polo
shirts to
the membership for $27.00 and then later $30.
However, USCF also "wholesales" embroidered polo shirts from the Chess
Hall of
Fame.
Again, we know these shirts cost $5 or $6 bucks tops to produce.
Multiply this lost $7 by 1000 shirts and soon you are talking real money.

What did USCF pay for the Hall of Fame polo shirts?
$24.98!
Further, the Hall of Fame polo shirts were offered to the membership for
$39.
What to do to guess how successful these sales were?
But in purchasing the Hall of Fame polo shirts, a large amount of USCF
money
made its way from the USCF account to the Chess Hall of Fame and USCF was
stuck
with shirts where they could not possibly recoup their outlay.
I wonder how many $24.98 wholesale Hall of Fame polo shirts the Chess Café
is
going to buy?

The subject of the Women's Calendars came up previously and we were told
that
these 1000+ calendars were on consignment.
That is not what USCF's own document shows. It shows we paid $6 each and
we
still have over 1000 of them. It is pretty easy to see that USCF
potentially
made some USCF insider a quick $6000 while sticking USCF inventory with
1000
women's chess calendars of uncertain future.
The calendar's which can easily be compared to the 2004 Chess Café
Calendar
which USCF bought at $.21 a piece.
Twenty one cents vs six dollars?
Someone likely made a profit without a calendar ever being sold. USCF
paid for
the calendars. That they are on consignment is only in someone's dreams.
Do
you pay in advance on consignments? Could they be trying to mislead us?

I could provide you with many, many examples from the list of inventory
purchases where there either was a huge potential for a skim (like the
purchase
of 5000 each of Mythology Chess Cards Set 1 and Set 2 which we still own)
or
like the sales from Drueke where the costs were in the normal range.

"Angelo DePalma" wrote in message ...
Way back when we were debating the sense of outsourcing B&E, I wrote several
times that there's no way a retail business with 95,000 near-captive
customers should lose money. A number of you flamed me with the usual
excuses: It's not as easy as it looks, overhead, B&E has to pay for other
operations, blah blah blah. My response then is the same as now: BULL****.
There are plenty of retailers making money online and through mail order,
and they have nowhere near the pull of a large organization like USCF.
Certainly none of these e-tailers or catalogers have a magazine in which
they can advertise -- for the cost of paper, print, bind, and postage, i.e.
next to nothing.

I can't agree with Peterson that this implies, much less means, that someone
was stealing. However, his arguments get more persuasive every time I read
them. At the very least someone made some incomprehensively bad "wholesale"
purchasing decisions.

One way or another we're talking about millions of dollars lost.

This matter is of utmost importance and must be investigated immediately.

Angelo

I believe one of our former Board members made quite a bit of money
from his business relationship with USCF, and continues to do so.

However, Beatriz and I observed gross managerial incompetence in New
Windsor. I think that was the main problem, not dishonesty.

We thought it was a good idea to outsource the business that was
killing us, because we couldn't be sure things would get any better
and we were up against the wall financially. So we got rid of a major
problem, which was quickly bankrupting us, in exchange for a
"guaranteed" income from our outsourcing partner. (Time will tell how
"guaranteed" this income is.)

I think we made a good practical decision and I don't think we had any
reasonable alternative.

Two other good results of outsourcing books & equipment are that we
were able to downsize staff dramatically; and we avoided large
automation costs that would have been required if we had not
outsourced.

Our cost-cutting steps have allowed us to reduce accounts payable from
about half a million dollars last fall to about zero right now.

Because we did not have to keep reinvesting our cash in new inventory,
we were able to pay off the large Key Bank loan that was supposed to
be paid a year ago.

We are now selling our building, which has terrible parking and is too
large for our downsized operation. This will leave us with no
significant debts, half a million dollars in the bank, and an
operation that looks profitable on paper.

Bill Goichberg has been telling the Executive Board we may even end up
in the black this year (our fiscal year ends May 31). This would be a
miracle considering the current Board took office last August with
USCF already $300,000 in the hole.

I don't know yet what this year's bottom line will be, but I believe
we are past the worst and should be in the black during the coming
fiscal year. That's a projection, not a promise. It's worth adding, I
am only one member of this Board and can't control anything on my own.

Tim Hanke
USCF Vice President of Finance

Wow!! Sounds like the USCF may eventually be in a position to finance a full
scale network of Metro Districts, something that would enhance and enrich our
chess experience. The Tampa Bay area sure could make good use of a funded
Metro District... given that Tampa Bay is one of the most chess dead large
metros in the county and always has been.

Haas

Subject: Skimming- The Likelihood of Massive USCF Fraud
From: (ASCACHESS)
Date: 5/15/2004 12:03 PM Eastern Standard Time
Message-id:

Skimming- The Likelihood of Massive USCF Fraud

Most of you should have noticed by now that I posted an internal USCF
document
regarding the USCF catalogue's remainder sales. To my knowledge, this is the
first time in USCF's history that we had any documentation on their actual
cost
of goods on a per item basis.


The "cost" column is not the actual cost in all cases, but rather a wholesale
price. If USCF was the publisher, the real cost was below wholesale and is not
shown. Also, for some items (such as 10-year old Informants), the cost was
much higher than listed; the price was lowered to below cost to try to move the
obsolete merchandise.


I published this document because it begins to answer questions which have
plagued our organization for years.
Why couldn't USCF make a profit on Books and Equipment?
It didn't make sense.
I have far less purchasing power than the USCF, yet I could buy books and
equipment for a far greater margin than the gross profit margin that I was
told
USCF was getting.

We were told at delegate's meetings that gross profit margins were in the
range
of 30%, when I knew that they should have been in the range of 60% or higher
based on the tremendous purchasing power of the federation.

"Tremendous purchasing power" not backed up by adequate cash is not that
potent. For the past few years, USCF sold many items through special drop ship
arrangements, because it lacked the cash to stock this merchandise. The net
profit on the drop ship items was well under 30%, sometimes about only 10%.
These transactions brought down the average margin.

For instance, USCF was selling club specials with a board for $17 and the
cost
was well under $5.
If it was really 30% gross margin, then how would we explain the margins I
knew
were available on sets where the margin was more like 80% or books where I
knew
the margin had to be at least 60% or clothing where I knew their margins had
to
be at least 75% at a minimum.

If you average those three (80%, 60%, and 75%), you don't get 30%.

Many sets and boards do have margins in the 60-80% area, but USCF drop shipped
some for much lower margins. On books the margin was usually just 50%, and a
lot of USCF books were drop shipped at 20% or less.

Even without the benefit of volume and bulk purchase discounts, I could not
get
below a 50% average.
When you are talking about 3 million dollars in sales per year, we are
talking
about losing track of a great deal of potential profit.
Is there any possibility that we just didn't ask for the maximum discounts?


The maximum discounts may require large purchases. Often USCF didn't have the
cash for any purchases and had to drop ship.

May I speculate?
Could it be that someone or some group of someones (let's call them USCF
insiders) has been skimming the profits that should have gone to USCF for
many
years?

What is the evidence?
Well, let's go to the list.
In my experience, an embroidered polo shirt sells for about $5 or $6 bucks
tops.
USCF's own document shows that they paid $10.80 for their old for USCF logo
polo shirts and from $12.86 to $14.28 for the reorder. This would apply to
sizes up to but not including XXL. USCF offered these USCF logo polo shirts
to
the membership for $27.00 and then later $30.
However, USCF also "wholesales" embroidered polo shirts from the Chess Hall
of
Fame.
Again, we know these shirts cost $5 or $6 bucks tops to produce.
Multiply this lost $7 by 1000 shirts and soon you are talking real money.

What did USCF pay for the Hall of Fame polo shirts?
$24.98!
Further, the Hall of Fame polo shirts were offered to the membership for $39.
What to do to guess how successful these sales were?
But in purchasing the Hall of Fame polo shirts, a large amount of USCF money
made its way from the USCF account to the Chess Hall of Fame and USCF was
stuck
with shirts where they could not possibly recoup their outlay.
I wonder how many $24.98 wholesale Hall of Fame polo shirts the Chess Café is
going to buy?


The Hall of Fame merchandise was not ordered from the Hall of Fame, but rather
from the same vendor that supplies the Hall of Fame, and for the same prices.
The order was requested by the ED and questioned by employees who thought the
merchandise would not sell well. The employees were right.

The subject of the Women's Calendars came up previously and we were told that
these 1000+ calendars were on consignment.
That is not what USCF's own document shows. It shows we paid $6 each and we
still have over 1000 of them. It is pretty easy to see that USCF potentially
made some USCF insider a quick $6000 while sticking USCF inventory with 1000
women's chess calendars of uncertain future.

It's not easy to see any such thing, as the calendars were not purchased and
were on consignment. You are taking the "cost" column from an internal document
literally, but as I have explained, that column shows the wholesale list price,
which is not always the same as the cost. $6 shows in the "cost" column
because that is what USCF had to pay for any calendars it sold, however, the
calendars were on consignment. There was no $6000 purchase.

The calendar's which can easily be compared to the 2004 Chess Café Calendar
which USCF bought at $.21 a piece.
Twenty one cents vs six dollars?
Someone likely made a profit without a calendar ever being sold. USCF paid
for
the calendars. That they are on consignment is only in someone's dreams. Do
you pay in advance on consignments? Could they be trying to mislead us?


USCF did NOT pay for the calendars in advance, or in any other way. They were
on consignment and have not been paid for. The reason for the high list price
was that sale of the calendars was to benefit the US Women's Olympic Training
Squad.

Bill Goichberg

I could provide you with many, many examples from the list of inventory
purchases where there either was a huge potential for a skim (like the
purchase
of 5000 each of Mythology Chess Cards Set 1 and Set 2 which we still own) or
like the sales from Drueke where the costs were in the normal range.

In article ,
(HAASpittle) wrote:

Wow!! Sounds like the USCF may eventually be in a position to finance a full
scale network of Metro Districts, something that would enhance and enrich our
chess experience.

Don't you worry about becoming a parody of yourself, after which any real
value the Metro District idea has will be lost?

The Skim

When the Mafia ran Las Vegas, they would handle the skim by sending clean
dressed young men to the casino counting rooms and filling suitcases with
cash.

Thank you Ace Rothstein.