Below is the year-end report I have submitted for the Delegates Call, to be
printed and mailed to USCF Delegates before the 2004 Annual Meeting in
August at the U.S. Open in Florida.

Tim Hanke
USCF Vice President of Finance

* * *

Report of the USCF Vice President of Finance



Executive summary



After several years of six-figure financial losses totaling about $2
million, USCF apparently turned a profit in the 2004 fiscal year ending May
31, 2004. I say "apparently" because we will not have audited numbers till
late July, after this report goes to press.



Regardless of the exact year-end figures, it seems clear that things are
looking up. Our accounts payable have been reduced from crushing levels (in
the $400,000 range) in fall 2003 to bearable levels (in the $100,000 range)
in spring 2004. Cash flow appears to be good. Payroll has been reduced
drastically. Our major debts have been paid off. Future improvements in
automation hold out the promise of reduced operating costs.



Last but not least, we have outsourced our book & equipment business. This
frees up large amounts of cash previously needed to purchase inventory,
print and mail catalogs, and pay staff in sales and shipping. Not only have
we rid ourselves of these substantial expenses, on the plus side we have
signed a contract with our outsourcing partner, Chess Cafe, for a
"guaranteed" annual payment to USCF of $350,000 (more if sales exceed a
certain level).



A brief review of the past year



After a $360,000 loss in the 2003 fiscal year, USCF was close to bankruptcy
in summer 2003. When the current Executive Board took office in August 2003,
USCF did not have enough cash to pay the prizes for the 2003 U.S. Open.
There was not enough cash to meet the office payroll. Book & equipment sales
were down, in part because our basement was full of wooden pallets holding
boxes of tens of thousands of beautiful full-color catalogs that we could
not afford to mail.



USCF had spun out of control, and perhaps the best symbol of the situation
was that our Executive Director failed to show up at the 2003 annual meeting
in Los Angeles and did not respond to phone calls or email. I feel obliged
to mention, we later discovered that this same Executive Director had signed
several contracts without Executive Board knowledge or approval, and had
made a number of oral agreements we felt obliged to honor. These contracts
and oral agreements proved to be expensive and burdensome to USCF. To
prevent future problems of this sort, rules should be established governing
the Executive Director's ability to make contracts and other financial
commitments.



In this crisis, the Executive Board President and Vice President of Finance
visited the office in late August 2003 and were forced to make sharp staff
cuts, with the support of an Executive Board majority. Since that time, the
Executive Board has continued to monitor payroll and other expenses closely.



To be honest, during the dark days of late summer and fall 2003, it was not
clear whether USCF could avoid bankruptcy. In addition to reducing payroll
and other expenses, a number of positive steps were taken immediately and
over the next several months.



We talked to our major creditors, some of whom were irate and had received
no communication from USCF for months, and worked out payment plans. Our
creditors were understanding once we began talking to them.



During these difficult times, when the Executive Board was literally
monitoring the office cash flow week to week and sometimes even day to day,
we were grateful to receive crucial help from several faithful friends. The
New Jersey State Chess Federation generously prepaid sums that were not due
till several months later. The U.S. Chess Trust, within the limits of its
charter, promptly reimbursed USCF for requested sums that were due. The
Continental Chess Association prepaid large sums for future advertising.



USCF also received important help in other ways, from our own membership.
Mike Nolan of Nebraska briefly served as Chief Operating Officer when we had
no Executive Director. After Mike returned home, Grant Perks of Ohio, a CPA,
served as Office Manager and helped to organize USCF finances and restore
stability to our operations. When Grant returned home, Bill Goichberg
stepped in as volunteer unpaid Executive Director, a key role in which he
still serves.



After a prolonged bidding process and much Executive Board debate, USCF
outsourced its book & equipment business to Chess Cafe. In doing this, we
rid ourselves of a business that we had not operated well for years, and
"guaranteed" USCF a minimum income of $350,000 from book & equipment sales.
Executive Director Bill Goichberg took the lead in negotiating this deal.



In early 2004, we liquidated the balance of about $260,000 in the Life
Members Account, to help pay off our $300,000 line of credit to Key Bank, a
debt that was about nine months overdue.



In spring 2004, we negotiated the sale of our building in New Windsor, N.Y.,
which was now too big for our downsized operations. This building does not
have sufficient parking for its size, so it is a good idea to sell it in any
case. The building sale is scheduled to close at the end of July, after
which time USCF will rent back part of the space from the buyer.



The bad news



The bad news is that during the spending spree of the last several years, we
have wiped out the $2 million of liquid assets in the Life Members Account
(LMA), which we treated as an emergency cash reserve. (The LMA still owns
our building.) We went to the well so often, it is now dry. Another bad year
could wipe us out.



Conclusion and recommendations



Extreme fiscal prudence is in order.



With the LMA cash and equities now gone, the cash from our upcoming building
sale will be our last financial reserve. It is true that we are "guaranteed"
at least $350,000 a year from our book & equipment outsourcing partner, but
this business arrangement is brand-new and has not been tested. It may not
work as well as advertised; a prudent attitude would be to wait and see.



My major piece of advice (other than counseling extreme fiscal prudence for
the foreseeable future) is that USCF should rent rather than buy a new
building, till USCF finances have stabilized and we have a better idea of
our long-term financial position. I know the Executive Director is eager to
buy a new building as soon as possible. A majority of the Executive Board
also seems to favor buying a building soon. All I can say is, fools rush in
where angels fear to tread. There is no shame in renting: many nonprofit
organizations rent space rather than buy. In our current situation, with our
margin of safety rather thin, I strongly discourage putting most or all of
our liquid financial reserves into a building.



On the other hand, I don't know which to fear most: that USCF will buy a
building and then run out of operating cash; or that USCF will not buy a
building and will use its cash reserve in foolish, wasteful ways. Our recent
history, which is marked by out-of-control Executive Directors and
out-of-touch Executive Boards, suggests that either course is more than
possible.



--Tim Hanke, USCF Vice President of Finance

In article 3h3Cc.96814$0y.87270@attbi_s03, Tim Hanke says...
SNIP

USCF had spun out of control, and perhaps the best symbol of the situation
was that our Executive Director failed to show up at the 2003 annual meeting
in Los Angeles and did not respond to phone calls or email. I feel obliged
to mention, we later discovered that this same Executive Director had signed
several contracts without Executive Board knowledge or approval, and had
made a number of oral agreements we felt obliged to honor. These contracts
and oral agreements proved to be expensive and burdensome to USCF. To
prevent future problems of this sort, rules should be established governing
the Executive Director's ability to make contracts and other financial
commitments.

Based on this comment, and on earlier comments regarding what we are willing to
pay the ED, it sounds to me that we should quit calling this position ED, and
should call it Office Manager, or perhaps Business Manager. A "real" ED or CEO
would never accept not being able to make business arrangements, and the
Executive Board would typically be involved in strategic goal setting and
setting high level policy and not executing contractual arrangements.

If we really can't afford an ED, or don't want an ED, then we shouldn't label it
as such.

Kevin L. Bachler

Thanks Tim!

Why is the word "guaranteed" in scare-quotes?

--
Kenneth Sloan
Computer and Information Sciences (205) 934-2213
University of Alabama at Birmingham FAX (205) 934-5473
Birmingham, AL 35294-1170 http://www.cis.uab.edu/sloan/

For goodness sakes, it as obvious as the nose on your face.

Joan DuBois, if qualifed and willing, should become the office manager and
interim Executive Director.

I have seen her in operation personally (impressive leadership skills,
IMHO), watched her succeed in producing a very fine email Newsletter, which
by any standards, serves several key purposes in the business.

Tom Klem


"Kevin L. Bachler" wrote in message
...
In article 3h3Cc.96814$0y.87270@attbi_s03, Tim Hanke says...
SNIP

USCF had spun out of control, and perhaps the best symbol of the
situation
was that our Executive Director failed to show up at the 2003 annual
meeting
in Los Angeles and did not respond to phone calls or email. I feel
obliged
to mention, we later discovered that this same Executive Director had
signed
several contracts without Executive Board knowledge or approval, and had
made a number of oral agreements we felt obliged to honor. These
contracts
and oral agreements proved to be expensive and burdensome to USCF. To
prevent future problems of this sort, rules should be established
governing
the Executive Director's ability to make contracts and other financial
commitments.

Based on this comment, and on earlier comments regarding what we are
willing to
pay the ED, it sounds to me that we should quit calling this position ED,
and
should call it Office Manager, or perhaps Business Manager. A "real" ED
or CEO
would never accept not being able to make business arrangements, and the
Executive Board would typically be involved in strategic goal setting and
setting high level policy and not executing contractual arrangements.

If we really can't afford an ED, or don't want an ED, then we shouldn't
label it
as such.

Kevin L. Bachler

"Kenneth Sloan" wrote in message ...

Why is the word "guaranteed" in scare-quotes?

--
Kenneth Sloan
Computer and Information Sciences (205) 934-2213
University of Alabama at Birmingham FAX (205) 934-5473
Birmingham, AL 35294-1170 http://www.cis.uab.edu/sloan/

Why is such an obviously educated man presuming the role of an ignorant? Even I can figure that out.

TBF

"If we really can't afford an ED, or don't want an ED, then we shouldn't label
it
as such. (Kevin L. Bachler)
============
Good point, Kevin.

Haas