Saturday, April 21, 2007

Audits and the USCF

Today I put the following up onto the USCF Forum.

(Note: This thread splits off from a previous thread entitled, “Pension/Profit Sharing Plan Review Update”.)

I believe that the USCF needs to be much more aggressive in the management of its audits. The Administration disagrees. This is a philosophical disagreement on this issue. This should not be construed as an attack on any individual or anybody. Honest people can have honest disagreements. This is the case here. The purpose of this thread is for me to state the case for more aggressive management of audits and for those who wish, to present the case against it.

In the above thread, I stated:

5) I’ll repeat what I’ve said before. The USCF needs to manage the audit function more aggressively than it has done in the past. The Executive Board needs to meet with the auditors during one of its meetings in Crossville. Better audit management = less controversy on this forum and elsewhere. Less heartburn all around.

To which the following replies:

Mike Nolan wrote:

I've been at a meeting between the Board and the auditors, I doubt most of the current members of the Board (and most of the 10 candidates) would know what questions to ask in an audit exit interview, why should the USCF spend the money to send the full Board to Tennessee only about two weeks before they're going to be spending the money to send them somewhere else (wherever the US Open is?)

I've been on other boards where the auditors met with the board to discuss the audit, I have yet to hear ONE worthwhile question or gain one significant piece of information at such a meeting.

We've had the audit partner at the US Open at least once (Cherry Hill 2002 being the most recent), the questions were not very insightful, and I'm sure we got billed for the day.

Bill Goichberg wrote:

I agree with Mike Nolan that this would be a waste of time and money.

The case for more aggressive audit management rests in the endgame. We’re chessplayers. We know the significance of steering events towards a winning or a drawing endgame. Right now we are in a drawn position. Two sides on finances – one side says there’s a mess, there’s dirt, there’s this wrong, there’s that wrong; the other side says everything is fine and what’s not fine is being fixed. I want to see the USCF Management in a winning position, (think the Lucena Position, if that helps). One where most questions/criticisms but the most extreme can be answered quickly, decisively, and authoritatively.

Like chess, winning positions might be wished for but they MUST be worked for. I want management to know what financial areas have been looked at and how. There might be areas of concern that the auditors might not ordinarily consider. The Board can decide what areas are of special interest and what areas are not.

The Board can also be much more aggressive in managing audit costs. Just because some small minority is blowing gas on something does not mean the USCF needs to run up a large audit bill over it. When the Board deliberates and decides what areas are worthy of bringing to the attention of the auditors and what are not, then the Board is managing events instead of just reacting to them.

The Board can limit the scope of an audit. For example, a question was asked on a previous thread if any member can contact the auditors. I answered that there is no audit rule that prohibits the auditor from talking from anybody he wants. Trouble is that this can amount to a blank check for any malcontent to run up a bill on the USCF tab. The Board can set policies and limits on this kind of thing. Again, this comes under aggressive audit management.

To do all of this, the Board needs to meet with the auditors. If the Board comes to such meetings as unprepared and as ill equipped to pose the questions (as Nolan and apparently Goichberg, too, claim), then we need to get ourselves a new Board. There’s been audit related questions that have dominated these forums these past months. (Remember all the flap over whether or not the auditors examined the deed to the Crossville land?) I just don’t believe that Board meetings will be that unproductive. I think better of these people.

Let’s talk some more about audit costs. The USCF spends a huge chunk of change on audit costs. This is supposed to buy the USCF something: peace of mind about finances. This has clearly not happened. Management and leaders have had to spend huge amounts of time and heartburn (and money) over suspicions about finances. Clearly, the USCF has not got value for money paid. If an audit is going to have such little value to our deliberations than one must wonder why should we have an audit at all?

Summary: USCF leaders need to change their attitude towards the audit function. They ought to “buy-in” and “take ownership” of the issue. (Management buzzwords, I know, but they describe what needs to be done.) Then they will be equipped to meet future attacks quickly, decisively, and authoritatively.