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Old August 11th 03, 04:09 PM
Altes Wiesel
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Default Three People Who Knew More than Mike Nolan

Monday, June 02, 2003

Failure of the USCF Executive Board and Operations to address the
following significant problems, each of which has clear financial
importance, has caused us to resign from the FC. Leroy Dubeck, Jim
Pechac, Helen Warren.

1. The significant delay by USCF Operations in presentation and
release of final financial information for fiscal year end 2002,

.. lack of an appropriate formal audit exit meeting with the audit
.. lack of distribution of audited financial statement at the 2002
annual delegate meeting.
.. lack of distribution of the audit firm's "management letter"
containing the firm's evaluation of the system of internal accounting
control including control deficiencies and the recommended corrective
.. The inexplicable 8-month delay in finalization of the audit and
release of audited financial statements and the annual report.

2. The action by Operations and the Executive Board to modify
financial reporting policy for the LMA liability. Final financial
results included the computation of this liability using the "deferred
income" method. The more conservative and consistent "actuarial
liability" method was used by the Federation for financial reporting for
the past 10 years. The unapproved change by Operations and the board
resulted in about a $700,000 reduction in the amount due to life

Despite using the Deferred Revenue method to calculate the Life Member
liability as of June 30, 2002, the Revenue statement for 2001-02
incorrectly reported the higher amounts to be transferred from the LMA
that were calculated using the actuarial Liability calculation.
Similarly, Operations continued to use the actual liability calculation
to determine the transfer from the LMA for the next fiscal year 2002-03!
In addition, it is not clear whether the revenue from the LMA was
actually transferred to Operations since we lacked any report on LMA

.. The actuarial liability method had been initially employed for
the draft financial results for fiscal 2002 as presented at the annual
delegates meeting.
.. Subsequently, extensive deliberation was conducted by the
Finance committee over use of these two methods. This resulted in the
majority of the Finance committee members being in favor of using the
actuarial liability method for fiscal 2002. While due consideration was
given to revising the policy in future years, the committee placed
appropriate importance on this change requiring the necessary approval
by the delegates.
.. The lack of formal documentation by Operations in support of
this change in accounting policy. While Operations repeatedly indicated
that the "Deferred Revenue" calculation was based on a full, detailed
and thorough computation using historical membership revenue records, no
documentation was provided for review and comment.
.. The subsequent lack of action by Operations to satisfy repeated
requests by the LMAC Chair to develop and present a financial history
of deposits and withdrawals to the LMA Fund.

3. The lack of development of formal cash flow reporting. The
delegates were advised by the previous board that USCF's financial
position was at risk due to operating decisions that did not fully
consider cash flow impact, and that more formal reporting in this area
was critical to the development of effective fiscal controls. No cash
flow reports were provided to the FC for review, nor was formal cash
flow reporting appropriately developed and presented to support key
financial decisions.

4. The piecemeal reporting of monthly financial results. To date
for fiscal 2003 there has been no interim balance sheet nor performance
report issued on LMA assets and liabilities. Failure to properly
include LMA performance in the financial records has in the past
resulted in significant audit corrections. As an example, we note the
decision by Operations to discontinue financial system recognition of
the internal interest expense charge of nearly $60,000 annually for the
loan by LMA to Operations.

5. There has been a virtual lack of action by Operations to expand
and improve the monthly financial reporting package. Monthly financial
reports are presented in a dated, non-analytical format, and are
consistently issued in a form which requires interpretation and/or
modification by the reader.

6. The undocumented decision by Operations and the board to
discontinue the LMA Notes semi-annual newsletter. This publication,
introduced by the previous board, was strategic in establishing a
critical communication channel with the Life Membership. Not only was
this relationship intended to provide the USCF with a potential source
of significant contributions, but in addition the publication provided
USCF with the means to identify and correct the LMA liability records
for recently departed members.

7. The development and presentation of the fiscal 2004 budget with
no input or preview by the Finance committee or FC chair. While
Operations has the authority to develop and release budget information
using their own judgment, we noted several ambiguities in the 2004
budget that should have been raised and resolved as a part of FC review.
.. The $115,000 in life member income, and $63,300 in intercompany
rent are not true cash items. This reduces bottom line profits by
.. Plan for repayment of any and all loans (internal and external)
is unclear.
.. Payroll costs for fiscal 04 appear out of line with the an
expected scale back in personnel.
.. The cost and method of accounting for the USCF HQ relocation is
not clear.
.. The cost and method of accounting for upgrading the USCF's
operating systems and computer hardware infrastructure is not presented
or is unclear.
.. Traditionally USCF employed the period prior to the May board
meeting to review and resolve issues such as the above with the FC. For
the past two years the FC was excluded from this decision process.

8. The decision by Operations to retain in USCF controlled assets
the $130,000+ in liquid assets belonging to the Players Health &
Benefits Fund. This is in conflict with a clearly defined Delegates
resolution to segregate this fund from USCF assets and records by the
end of fiscal 2003. The Delegate mandate was enacted based on the
conservative premise that these assets should not be placed in a
position where the Fund would be at risk to satisfy USCF's obligations
to its creditors.

The April Operations report from the Executive Director included the
following statement:

We have initiated the process for establishment of a separate legal
trust in accordance with the Delegates' intent. Additionally, we are
actively exploring three options, which enable us to segregate those
a. Mortgage the existing building and pay down the line of credit;
b. Transfer $120,000 of operating cash to a segregated KeyBank
c. Pay down the Line of Credit to $180,000, which will eliminate
the compensating balance requirement.
Each option has a downside. In consultation with the Finance Committee
and Executive Board, management will choose the best option as soon as
practicable. Option a. will result in $10,000 of closing costs (1%
up-front 'points', plus legal fees). Option b. will drain vital
resources and may hamper our ability to function effectively during the
normally slow summer months. Option c. may be achievable in the short
run but could impede our flexibility to re-stock inventory in
anticipation of our holiday sales. In my opinion, there is no business
reason why the Professional Players Health & Benefits Fund needs to be
segregated presently. (End of ED's statement)

No action was taken to segregate the fund as specified in the Delegate
resolution, and it remains an asset of the Federation as of 5/31/03,
with the attendant risk.

9. The decision by Operations to further postpone payment to the
employee pension and profit sharing fund, even though it had been
determined that operations had an accrued obligation to the fund on its
records for over 18 months. As of April 2003 USCF records estimate a
liability approaching $100,000 is due to the fund, with approximately
$48,000 being due and payable to the fund by USCF at the present time.
The non-payment of this liability was reported by the auditor as a part
of the fiscal 2001 audit; and the unpaid status was formally
acknowledged by the previous CFO in his June, 2001 Monthly Financial

The following statement by the Executive Director was included in Operations
April Financial

We anticipate making the required contribution into the Pension & Profit
Sharing Plan during May and, if possible, reducing the Line of Credit by
the end of the fiscal year (May 31).

We understand that payment was not made.

10. Insufficient dialog by Operations and the board relative to the
financial aspects of the proposed sale of the USCF headquarters building
and the related relocation of the USCF HQ. At the 2002 Annual Delegates
meeting Operations and the Board were authorized by the delegates to
sell the present building in New Windsor, NY and use the proceeds to
relocate the USCF headquarters, with the Hall of Fame Museum in Miami
the favored location at the time.
.. Virtually no due diligence documentation was provided in advance
to the Finance committee in support of Operations and board decisions
related to the sale and relocation, as well as to plans to replace
USCF's operating systems and computer hardware infrastructure.
.. The Hall of Fame site was subsequently overridden in favor of a
purportedly more favorable financial deal with Palm Beach. The
evaluation process used to make this financial decision was apparently
based on flawed assumptions and appears to have been not given
appropriate due diligence.

11. The decision by Operations and the board to repay vendors and to
expand the B&E product line using LMA assets as the funding source.
Over one-half million dollars was transferred from the LMA to Operations
in support of this initiative.

12. While the following nonfinancial issues are of a sensitive or
political nature, we feel we have the responsibility to include them in
this presentation, as they have strong negative overtones and have thus
influenced our departure from the committee:
.. Exclusion of the USCF Computer Committee members from the
planning and decisions related to redevelopment of USCF's operating
systems and computer hardware infrastructure. We observed minimal
progress in this area in 2003.
.. It appeared to us that Operations and the board regularly
released financial and board-related information using favored
individuals or intermediaries, rather than using formal USCF public
relations channels such as the USCF BINFO system and/or the USCF
.. It appeared to us that over the past 2 years there was a
significant expansion of the relationship between USCF and House of
Staunton, a chess equipment wholesale house owned by the present Vice
President Finance. If true, this would appear to be a conflict of
interest and should be reviewed relative to the USCF Conflict of
Interest policy.

Leroy Dubeck
Jim Pechac
Helen Warren

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Old August 11th 03, 04:43 PM
Bruce Draney
Posts: n/a
Default Three People Who Knew More than Mike Nolan


I posted this letter with permission several months ago. At the time
the content of the letter was challenged by those in power. Nolan and
Booz were particularly critical of me posting the letter and Booz wanted
to know who had sent it to me.

The letter was widely circulated and Al Lawrence had already resigned
from the same committee. Almost everyone who could put two and two
together has known for the last six months that we were struggling to
barely survive and pay our bills. There were confirmed cases of vendors
being stiffed and of screwups with Chess Life publication, TLA's and
most of these problems were caused by an excessive degree of expending
and attending to the B&E business which Camaratta and McCrary believed
was our salvation, much like Redman believed that Games Parlor/US
ChessLive was our salvation.

Unfortunately, both groups of leaders since 1996 have placed their
salvation eggs in shakey baskets and both have ended up with broken eggs
and massive losses.

Time for USCF leadership to rethink and retool itself or end up where
it seems to be determined to head, which is the scrapheap of failed
businesses and ideas.

Best Regards,

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