Saturday, July 12, 2008

USCF Officials Respond to My Accounting Statements

Veteran users of this forum will remember the lengthy discussions in the spring of last year about the profitability of the USCF for FY 2007. We will remember the assertions of Sloan, Donna and others that the projected loss for the year would be $300,000 and the assertions by Bill G, Joel, Nolan, Grant P, and others that it would be somewhat less. What everyone agreed on was that the current amounts were unknowable until the auditors made the year-end adjustment for accrued membership revenues. This adjustment would be made well after the year ended. The consensus of all was that the margin of error in their estimates ran from $300,000 to zero. Donna and Sloan claimed a much higher margin but that was what Bill G, Nolan, and their crowd admitted to. In fact, the auditors reported out a small net profit for the year.

A lot of us outside observers thought that this was a very large margin of error. More significant, was the inability of the USCF to track profitability on an interim basis. (The issue of public reporting and transparency was a side issue to many of us.) What was important was management’s claim that not even they knew the true situation of the USCF’s profitability during the course of the year.

Management responded to concerns by saying that (a) the business was seasonal in nature and (b) membership accounting was too hard and costly. They also said that they were working on improvements. This was difficult for me to swallow whole because (a) the USCF is hardly the only business in the world that is seasonal in nature and (b) the USCF is hardly the only membership organization in the world, either. We wonder how come other organizations can keep track of their finances but the USCF can’t. 10% of a $3 million business is a pretty large margin of unknowability.

I gather from the statements made by Grant and Nolan in this thread that a custom routine is being written for their stand-alone membership DB that will generate a summary journal entry that can then be entered into the General Ledger Peachtree program by hand. This entire approach seems strange to me.

Let’s say I want to buy a car. Now I am sure that if Mike Nolan were to contract with me to build me a car, I am sure he would provide (after some time to be sure) a very nice custom built car that would exactly fit me and my needs. He would design it; he would clear out space in his garage to build it; and then it would be great. Heck, he would even drive it from Nebraska to Atlanta to deliver it to me. Or, I could just go down the street and buy a car off the dealer’s lot. I wonder what Nolan would charge me for his car?

What’s more expensive: buying specially designed stuff or store-bought stuff?

Grant Perks, chair of the Audit Committee responded to my questions yesterday on the USCF Forum. Thank you, Grant! He said, “Based on my previous discussions with Mike Nolan, he was writing a script that will generate a report of the deferred balance at the end of a period. From this report the journal entry can be calculated and booked to Peachtree. This method might lead to additional cost at year end since in addition to auditing the general ledger the auditors will likely have to audit the membership database.”

I responded with these points:

(a) Mike Nolan is doing all of this work for free?
(b) How can auditing the numbers possibly be more expensive than the auditors developing them and then auditing them?
(c) Are you saying that the numbers from previous years do not come from actual DB’s of actual members paying actual money in actual transactions?
(d) If reported membership accruals in the past have not been coming from the above, then where have they been coming from?
(e) Assuming that the auditors calculated the year-end accrual from some schedule, they would audit that schedule, right? To avoid garbage in, garbage out. That schedule would be based upon something else, right? As the auditors drill down through the paperwork, they would eventually reach an actual DB representing actual members with actual transactions, right? Are you saying that they don’t – that the examination of the membership DB or some equivalent would be new?
Grant is supporting an accounting change. I don’t understand why the delegates have to be involved in such a technical issue. We’re talking about simply conforming to generally accepted accounting principles here.

Mike Nolan also came on and said that Peachtree “CAN DO THE JOB” but conceded that the USCF still needs automation of revenue posting.

I asked:

What does “CAN DO THE JOB” mean? If it can do the job (I presume you capitalized the letters in order to emphasize this point), then why write script for a separate DB? Why even have a separate DB at all? Why did Grant make a point about the 5,000 entries per month? Do you mean by “CAN DO THE JOB” that it does great jobs other than accruing revenues?

This kind of reminds me of a car that is a great car to drive. It CAN DO THE JOB, by golly! Just don’t drive it at night as it has no headlights. But so long as you will drive it only in daylight, it is a great car.

Forget what the members want. Why doesn’t management want to know how the USCF is doing? How do other organizations tackle this problem? Paying accountants tons of money to calculate this stuff, instead of investing in software that can “tack on the new membership to the remaining portion of the existing membership”?

I note that this is not just a personal concern. Here’s what our current VP-Finance said last year before the election:

As with many organizations, the USCF uses a variety of “shadow systems” (such as Excel spreadsheets) for accounting and reporting purposes. While functional, they do not integrate data; as we build new systems and integrate processes, we need to ensure that we can do our routine financial reporting and queries within our actual financial systems, such as our Peachtree accounting system. Only by getting these systems integrated and functional for reporting purposes will we be able to ensure the accuracy of the data.
Source of quote


Anonymous said...

riddle me this batman...

apparently a multi-user license of peachtree accounting costs less than $700. how much does a SINGLE HOUR of an auditor's time cost???!? why is this so difficult for anyone to understand? if the office can't pay for it, why can't we get 1 person to donate the money for the software and another person (hm, maybe a software-savvy accountant?) set up the system for the office? just a thought.