QUARTERLY MANAGEMENT REPORT, UPDATED
On February 8, we posted a Quarterly Management Report prepared by Frank Niro, USCF Interim Executive Director. Niro has since added several more pages to his report, and has made some minor wording changes in the portion we previously posted. Following is an updated and corrected version of his report. The report is not presently available on disk or in a standard text form, so we had to retype it. The report also includes a graph of back orders and five membership total graphs, which we have not attempted to produce.
In about six weeks as Interim ED, Niro seems to have accomplished quite a bit, including getting the federation caught up on its financial reporting and drastically reducing the number of backorders.
Note that the "$14,000 profit" for fiscal 2000-01, reported by the auditor based on erroneous information supplied under the Redman Board, ED De Feis and CFO Loomis, appears to have been incorrect, and was actually a loss of about $92,000. This erroneous claim of a "profit" was widely circulated during the Executive Board election, but did not succeed in electing the incumbent VP of Finance or any of the candidates supported by the 4-3 majority alliance of that Board.
United States Chess
Quarterly Management Report
February 9, 2002
Due to the departure of the Chief Financial Officer in late October, the USCF Financial Statements for October, November and December 2001 were not prepared on a timely basis. The accounting records were, however, maintained on a current basis by Linda Legenos and her accounting staff with assistance from the accounting firm of Nugent and Haeussler. In particular, the Cash Receipts, Cash Disbursements and Payroll records have been kept accurately and up-to-date. The appropriate general journal entries and general ledger postings were made in November. This enabled the November financial statements to be prepared retroactively without adjustment to any of the general ledger accounts. In order to facilitate comparability of the monthly reports, some reclassification of expenses between the months of October and November were necessary. These reclassifications did not affect the reported operating performance on a year-to-date basis through November 30, 2001.
In order to finalize the December financial statements, a closing adjustment to Cost of Sales was proposed using a formula which approximated the one utilized by the former CFO in preparation of previous monthly financial statements. While I have problems with his methodology, I wanted to present the current financial statements on a consistent basis. No other adjustments were made to the existing accounting records pertaining to the seven months ended December 31, 2001.
Following is a summary of the operating results reflected in the USCF financial statements through 12/31/01:
Monthly Gain (Loss) Year-to-date Gain (Loss)
Four months ended September 30, 2001:
(as previously reported) ($10,937) ($161,856)
(unexplained difference) ($2,270) ($2,270)
(as represented in the General Ledger) ($13,207) ($164,126)
Five months ended October 30,
Six months ended November 30, 2001 ($43,789) ($235,745)
Seven months ended December 31, 2001 $47,001 ($188,744)
Problems & Concerns
There are a number of problems that have been identified regarding the numbers reported during the first seven months of the fiscal year. Additionally, there are a few concerns going forward that should be brought to the attention of the users of these financial statements.
The problems referred to above can be classified into four categories: a) unrecorded liabilities; b) accounts receivable, c) pension and d) inventory accounting.
a) Unrecorded liabilities - Based on a review of invoices processed subsequent to May 31, 2001, it appears that there were a substantial amount of unentered accounts payable at May 31, 2001. In addition, the accounts payable subsidiary ledger was not reconciled to the general ledger at the end of the fiscal year and remained out of balance until November 30, 2001. Finally, there were items in the general ledger on May 31, 2001 that were not included in the subsidiary ledger balance (thus increasing the discrepancy and further understating the year end accounts payable balance reported in the audited financial statements). Given the timing of the auditors' field work, which was completed July 12, 2001, coupled with the condition of the workpapers presented to them by management, it is understandable how valid liabilities could have been overlooked. While I can't comment further on the reasons or the motives, I am confident that we now have a handle on the magnitude of the problem. The amount of invoices relating to the prior year is $61,620. Another $17,632 of questionable invoices and adjustments to accounts payable in fiscal 2002 have been identified, bringing the total in this category to $79,252. In other words, this is the impact of expenses related to fiscal 2001 that have been recorded in the current year.
b) Accounts Receivable - There was a difference in the total of Accounts Receivable listed in the subsidiary ledger when compared to the general ledger balance reported as of May 31, 2001. The impact was to overstate expenses in fiscal 2002 and understate expenses in 2001 by this amount. As a result, a write down of Accounts receivable totaling $27,525 was recorded in November, 2001.
c) Pension - There are weaknesses in the procedures for processing pension payments for prior employees. The result has been long delays and some minor errors in withholdings and payment amounts. While the amounts are not material, the procedures need to be streamlined. As a consequence, I have asked our auditors to perform an ERISA compliance audit of our Pension, Profit Sharing & 401K Plans, and to make specific recommendations for improvement. Such audits are not required for organizations with less than 100 participants in the retirement plans. Nevertheless, I feel that it is prudent to periodically perform a compliance audit in order to show due diligence in case any questions ever arise with the IRS or an aggrieved employee. The cost of the audit will be less than $5,000 and is scheduled to take place in March.
d) Inventory - The methodology used by prior management for calculating Cost of Sales on an interim basis seems incomplete. It is important to note that the annual computation reflected in the audited financial statements appears reasonable. Nevertheless, the monthly reports may be distorted. The reason for the distortion is related to changes in inventory levels on a monthly basis. For example, the net inventory balance reflected in the September 30, 2001 internal financial statements prepared by management is almost identical to the amount at May 31, 2001. This seems unlikely given the reduction in books & equipment activity between May and September. Monthly calculations of Cost of Sales apparently do not reflect the changes in inventory levels. The methodology was not changed in preparing the October, November and December financial statements. However, a complete physical inventory was taken at January 31, 2002 to validate the existing perpetual inventory system and to provide a basis for monthly inventory adjustments in the future. Based on a quick review of the gross margin data presented below, I anticipate that the impact of reflecting inventory changes on a year-to-date basis will be between $40,000 and $100,000 (increase in Cost of Sales) through January. The preliminary count of the January 31, 2002 inventory shows a reduction of approximately $74,000 since May 31, 2001. The final impact will not be known until the January financial statements are fully prepared.
GROSS MARGIN ANALYSIS
COST OF SALES GROSS MARGIN GROSS MARGIN %
Jun-99 247,242 157,359 89,883 36.35%
Jul-99 211,411 121,101 90,311 42.72%
Aug-99 228,869 149,202 79,667 34.81%
Sep-99 208,888 118,301 90,588 43.37%
Oct-99 265,582 162,753 102,828 38.72%
Nov-99 370,100 206,489 163,611 44.21%
Dec-99 323,491 244.385 79,106 24.45%
Jan-00 182,359 21,015 161,344 88.48%
Feb-00 290,961 177,683 113,279 38.93%
Mar-00 282,641 197,597 85,043 30.09%
Apr-00 177,769 123,355 54,414 30.61%
May-00 211,484 171,193 40,291 19.05%
Jun-00 171,753 104,354 67,399 39.24%
Jul-00 144,598 90,170 54,428 37.64%
Aug-00 200,567 71,449 129,118 64.38%
Sep-00 161,853 79,330 82,523 50.99%
Oct-00 226,471 118,938 107,533 47.48%
Nov-00 264,651 138,125 126,526 47.81%
Dec-00 337,441 173,427 164,014 48.61%
Jan-01 179,638 111,484 68,155 37.94%
Feb-01 175,940 110,088 65,851 37.43%
Mar-01 252,202 171,521 80,682 31.99%
Apr-01 269,281 163,963 105,318 39.11%
May-01 149,939 118,361 31,578 21.06%
Jun-01 155,799 69,640 86,159 55.30%
Jul-01 124,560 59,789 64,771 52.00%
Aug-01 160,226 78,371 81,854 51.09%
Sep-01 106,349 43,267 63,081 59.32%
Oct-01 136,261 58,160 78,101 57.32%
Nov-01 134,102 57,133 76,969 57.40%
Dec-01 150,409 66,133 84,276 56.03%
YTD This Yr. 968,780 433,244 535,536 55.27%
% Change <35.7%> <44.2%> <26.8%>
YTD Last Yr. 1,507,334 775,793 731,541 48.53%
YTD Prior Yr. 1,855,583 1,159,590 695,993 37.51%
Among the financial statement concerns going forward are a) Transactions in the Due to/from LMA & Chess Trust accounts, b) Building Repairs, and c) Budget Information.
a) Due to/from LMA (Life Member Assets) & Chess Trust - These accounts have not been routinely reconciled, nor have the amounts for rent, recognition of life member revenue, chess trust administrative fees, or the schoolmates subsidy been transferred on a regular basis. As a consequence, there may be adjustments to these accounts required during the balance of the fiscal year which will affect the results of operations. Furthermore, I believe the internal reporting, particularly related to LMA assets, should be consistent with the presentation in the annual audited financial statements.
b) Building repairs - There is work needed to be done on the building (ceiling tiles, painting, carpeting, internal moves, etc.) that has been deferred due to cash flow problems. It is my understanding that LMA assets should be utilized for this purpose since the LMA fund (committee) is technically the "landlord".
c) Budget Information - There is no FY 2002 budget information in the Peachtree Accounting System. USCF staff members are apparently not aware of their current operating budgets. This needs to be addressed from both a managerial and financial reporting point of view.
Line of Credit & Accounts Payable
A credit facility which provides for a revolving $300,000 Line of Credit was executed at the end of December. Due to the annual requirement to maintain a zero balance for 30 days in each calendar year, management decided (in consultation with Frank Camaratta, Treasurer) not to utilize the Line of Credit until January 31, 2002. As a result, total pay down of the loan for 30 days will not be required until December, 2003.
The first $150,000 of the Line of Credit was drawn down on January 31, 2002. This amount was used to pay vendors who were holding shipment of items needed to fill back orders. An additional $20,000 was taken on February 7, 2002. The remainder of the Line of Credit will be used as needed to eliminate Accounts Payable balances over 90 days old, pay customer refunds, and to provide funding for an increase in books & equipment available for resale.
Backorders as of February 8, 2002 are $86,457. This amount has been reduced significantly since December 21, 2001 when the total back orders exceeded $149,000. More than $100,000 of the outstanding orders as of that date have subsequently been shipped. As of February 8, 2002, $16,899 of backorders are over 90 days.
The present distribution of backorders by category of sale are as follows:
CATEGORY QTY AMOUNT %
Sets & Boards 1,121 15,005 17.4
Bags 1,276 11,192 12.9
Chessmaster software 178 8,366 9.7
Books 415 6,862 7.9
Computers 78 4,897 5.7
Other Clocks 59 4,646 5.4
All Other Items 182 3,153 3.6
TOTAL 3,997 $86,457 100.0%
Chess Trust Donations
The response to the December 2000 mailing was approximately $11,000. The response to the November 2001 mailing is approximately $10,000 to date. Donations on behalf of the Hall of Fame & Museum are $32,714. LM Spring notes yielded $8,037 to the Patron Program. LM Fall notes resulted in $8,776. No Patron Program mailing was done in 2000.
Total paid memberships at December 31, 2001 are 90,005 consisting of:
Life 10,567 10,525 + 42
Regular Adult 25,852 27,007 -1,155
Senior 3,282 3,281 + 1
Sustaining 469 557 - 88
Youth 12,317 12,289 + 28
Internet 232 4 + 228
Scholastic 36,605 33,814 + 2,791
Family 586 957 - 371
Blind 39 33 + 6
Trial 56 102 - 46
TOTAL 90,005 88,569 +1,436
Total paid memberships since last year have increased by 1.6%. Regular Adult memberships have decreased by 4.3%. Scholastic memberships increased by 8.3%.
USCF Ratings are now up-to-date. We have added an area on our website that people can use to determine when a rating report was received at the USCF office and when the tournament was rated.
FIDE rating reports remain backlogged to October. We have hired temporary help to decrease the backlog and expect to be caught up in early March.
There are two unrelated Quick Chess rating issues that have come up in recent weeks. The first relates to Quick Rated tournaments on US ChessLive. I will be meeting with Joel Berez from Games Parlor on February 12. We have tentatively agreed to reinstate Quick Rated online tournaments with certain conditions pertaining to the surveillance of computer cheating.
The second issue has arisen since the recent implementation of
DM 00-17/ADM 00-46 (Ratings Committee) adopted in St. Paul in August
"The Ratings Committee recommends that the scope of the quick rating system be extended to include rating events that have time controls between G/10 and G/60. This would allow for greater use of the quick chess rating system, and would thereby help produce more meaningful quick chess ratings. Specifically, we recommend the following:
1. The Quick Chess rating System would apply to G/10 through G/60 events.
2. The regular system would apply to G/30 and slower events.
3. In events with mixed time controls, either a) the slowest time control is used to classify the event for rating type, or b) a separate rating report would be submitted for games with time controls greater than G/60.
4. Online play would only be rated under the Quick chess system assuming a time control of G/60 or faster, unless a tournament director was present for all games."
PASSED AS AMENDED.
This motion has subsequently been interpreted by the USCF Ratings department as requiring the dual rating of a significant amount of events under both systems. In addition to generating much debate on the Internet news groups, the USCF office has been literally bombarded each day with calls from members and affiliates who don't understand why their Quick ratings are changing on the USCF website updates, when they say they have not played in any "Quick" tournaments. They are understandably concerned that some of their tournaments have been mis-rated under the Quick Rating System instead of the Regular Rating System. After we confirm that the tournaments they believe were incorrectly rated were actually tournaments with G/30 to G/60 time controls, we explain that these time controls are rated under both systems.
The players are invariably surprised at this change, and many are also annoyed that this has been happening without any advance notice to them. The volume of calls is interfering with workload completion at this point. There is also duplicate work involved in processing the ratings, especially when the reports are filed on paper.
Chess Life has been expanded back to 68 pages effective with the March 2002 issue. The April issue will include the yearbook and the correspondence rating list. The next Books & Equipment catalog will be inserted into the June issue of Chess Life which will be mailed in late April.
The Spring 2002 Issue of Schoolmates will be distributed in early March. A copy of the proposed cover is included in the EB packages.
The first phase of the Jim Mitch project has been completed. The second phase is in the draft phase. Related materials have been distributed to each Executive Board member. We anticipate working with Peter Kurzdorfer, IM Danny Kopec and possible one or two other authors on their upcoming books.
The latest issue of EB Notes was distributed in January. Plans are being developed to relocate the publications staff into the 3054 building before the end of May.
Marketing & TLAs
TLA's are not recovering as might have been expected. For
example, TLA's published in the March issue of Chess Life during the past four
years were as follows:
March 1999 -- 379
March 2000 -- 316
March 2001 -- 161
March 2002 -- 197
It has been suggested that many organizers may not yet realize that the TLA fees have been rolled back. Perhaps some special publicity would be worthwhile at this time.
Management Information Systems
I have reviewed prior reports by George John, Susan Strahan and others, and have met several times with Laura Martz to gain a better understanding of our current systems. I anticipate that I will have a number of recommendations regarding computer hardware and software and our website design at the May meeting.
The Club/Affiliates section of our website has been enhanced significantly.
Senior Staff Reports
Detailed reports from each of the USCF Senior Staff members are
attached to this report.
I apologize for not getting these materials distributed in advance of the meeting.
Frank A. Niro
The remainder of this post is identical to our post of February 8.
Along with this Quarterly Management Report are unaudited financial statements prepared by Linda Legenos and Frank Niro for the months ending Oct 31, Nov 30, and Dec 31 of 2001. The monthly statements show a loss of $27,829.78 for October, a loss of $43,788.58 for November and a gain of $47,000.75 for December.
Also following are an updated Income Statement and Balance Sheet.
Income Statement for the
Seven Months ending December 31, 2001
Figures for fiscal year to date
TOTAL REVENUE-MEMBERSHIPS $1,081,414.83
NET SALES REVENUE 968,780.12
TOTAL WEB SERVICE REVENUE 0.00
TOTAL MAGAZINE REVENUE 166,489.43
TOTAL OTHER SERVICES REVENUE 60,479.55
TOTAL TOURNAMENT REVENUE 2,218.69
TOTAL OTHER REVENUE 25,907.84
TOTAL REVENUE 2,305,356.90
COST OF SALES
INDIRECT SALES OTHER 12,439.22
TOTAL COST OF SALES 433,243.93
GROSS PROFIT 1,872,112.97
TOTAL MAGAZINE EXPENSES 399,031.16
TOTAL BOOKS AND EQUIPMENT EXPENSES 140,254.53
TOTAL WEB SERVICE EXPENSES 59,629.22
TOTAL PROMOTIONS EXPENSES 59,038.19
TOTAL TOURNAMENT EXPENSES 33,763.05
TOTAL PERSONNEL EXPENSES 805,143.11
TOTAL GENERAL AND ADMIN. EXPENSES 245,605.83
TOTAL OVERHEAD EXPENSES 296,923.87
TOTAL GOVERNANCE EXPENSES 21,468.09
TOTAL EXPENSES 2,060,857.05
NET INCOME -188,744.08
Intermediate Balance Sheet for Operations as of December 31, 2001:
DUE FROM LMA 101,537.18
DUE FROM CHESS TRUST 23,007.58
EXCHANGE ACCOUNTS 2,577.02
OTHER ASSETS 10,191.64
DEFERRED ASSETS <1,650.00>
OTHER FUNDS 132,993.88
MISCELLANEOUS ASSETS 17,216.29
Total Current Assets 1,148,319.50
Property and Equipment
FIXED ASSETS: TELEPHONE 62,566.65
FIXED ASSETS: COMPUTER 419,238.18
FIXED ASSETS: EDITORIAL 5,895.00
FIXED ASSETS: FURN & EQUIP 119,049.25
FIXED ASSETS: AUTO 15,680.00
ACCUMULATED DEPRECIATION <490,566.32>
Total Property and Equipment 131,862.76
TOTAL ASSETS 1,280,182.26
LIABILITIES AND CAPITAL
ACCOUNTS PAYABLE 507,050.66
DUE TO CHESS TRUST 3,865.00
DUE TO LMA 112,701.32
ACCRUED EXPENSES PAYABLE 134,385.47
TAXES PAYABLE 769.31
CRENSHAW ENDOWMENT FUND 10,544.17
CHESS INFORMANT ACCOUNT 10.00
DEFERRED REVENUES 295,157.68
Total Current Liabilities 1,189.343.09
DUE TO LMA-LOAN 737,869.74
NOTES PAYABLE 131.75
Total Long-Term Liabilities 738,001.49
FUND BALANCE <458,418.24>
Net Income <188,744.08>
Total Capital <647,162.32>
Total Liabilities & Capital $1,280,182.26