December 16, 2001

 

Dear President McCrary,

 

Please accept this letter as notice of my resignation from the USCF Executive Board effective January 1, 2002.  Personal health considerations and non-personal issues render my decision prudent and timely.

 

The Board majority's reluctance to formulate, articulate, and implement a viable business plan in its four months in office, in the face of a mounting financial crisis, has contributed to my decision.

 

I am grateful for the opportunity to have served our game for over four decades in many and varied capacities.  My love for chess, my continuing work in its behalf, and my deep concern for the very existence of the federation remain undiminished.

 

Sincerely,

 

Helen Warren

 

******

 

December 24, 2001

 

Fellow Board Members,

 

This is notification of my resignation from the Executive Board effective January 1, 2002.

 

I have decided to resign at this particular time for the following reasons, which include violations of the Bylaws and Ethical Standards of Conduct.

 

  • The president has unilaterally eliminated the preparation of minutes and transcripts of conference calls (four have been held to date).

 

  • The elected secretary has failed to fulfill the responsibilities of his office. 

 

  • The transcript of the August 13th and 14th Board meeting was withheld from the Board as well as the tapes of three of the conference calls.  

 

  • The minutes published in the EBN for August 13 & 14th were not approved by the Board.   

 

  • The Board majority is unable to address and has not recognized its responsibility to formulate a business plan to address expeditiously the critical financial problems that jeopardize the very existence of the USCF.

 

  • The president has demonstrated a lack of action and resolve in negotiating an agreement to outsource the B&E business. Special interest groups influence him; they advocate allocating scarce funds to the failing B&E business without consideration of an accounts payable in excess of $600,000 and the complete erosion of the USCF's credit standing.

 

  • The Board majority fails to recognize the immediate urgency to upgrade the computer system and has formulated no plan to implement the recommendations of the Internet Committee.

 

  • The president conducts Board business by caucus with the majority of five Board members.

 

My continued presence on this Board would add credibility to these actions or lack of actions.  It is impossible to continue in the present environment when special interest groups place their agenda and their political affiliations/financial interests above the best interests of the USCF.  Two individuals, officers on a prior Board, who were responsible for incurring the major portion of the current debt and the failure to upgrade the office computer system, now influence the decisions and policies of this Board.

 

Doris Barry

 

******

 

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, including:

 

.    lack of an appropriate formal audit exit meeting with the audit firm.

.    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 action.

.    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 membership.

 

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 activity.

 

.    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 $51,700.

.    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 funds.

a.    Mortgage the existing building and pay down the line of credit;

b.    Transfer $120,000 of operating cash to a segregated KeyBank account;

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 Report.

 

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

 

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 website.

.    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

 

******

 

From: Frank Camaratta

To: Beatchess@aol.com

Sent: Monday, December 08, 2003 10:21 PM

Subject: Confidential

 

 

Beatriz:

 

[CONFIDENTIAL]

 

The pressures of my business, my family and the USCF are starting to take their toll. My Mom's condition is getting worse by the day and the attendant financial burdens are staggering.  If the USCF valued my input, I would continue to contribute. Unfortunately, they do not want to hear what I have to say, don't ask for my input and my personal integrity is constantly attacked. So, why not put my energies where they are needed and appreciated - with my home and family. As a result, I will probably be resigning my position on the EB shortly. I will give notice to the enire EB when it is official.

 

I wish the best for you in your personal ordeal ahead, you have Gwen and my prayers.

 

All the best,

 

Frank A. Camaratta, Jr.

U.S. Chess Federation

Executive Board Member