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UNITED STATES OF AMERICA FINANCIAL STATEMENTS
UNITED STATES OF AMERICA CHESS FEDERATION TABLE OF CONTENTS
FINANCIAL STATEMENTS Statements of Financial Position SUPPLEMENTARY STATEMENT Schedule of Unrestricted Expenses
INDEPENDENT AUDITOR'S REPORT To the Policy Board We have audited the accompanying statements of financial position of the United States of America Chess Federation (a nonprofit organization) as of May 31, 2004 and 2003, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Federation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the United States of America Chess Federation as of May 31, 2004 and 2003 and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedules of Unrestricted Expenses on pages 13-15 are presented for the purpose of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.
NUGENT & HAEUSSLER, P.C. July 6, 2004
UNITED STATES OF AMERICA CHESS FEDERATION
ASSETS
See notes to financial statements
LIABILITIES AND NET ASSETS
UNITED STATES OF AMERICA CHESS FEDERATION
See notes to financial statements
UNITED STATES OF AMERICA CHESS FEDERATION
See notes to financial statements
UNITED STATES OF AMERICA CHESS FEDERATION
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Organization and General Business Description Basis of Accounting Estimates Cash and Cash Equivalents Provision for Doubtful Accounts Inventory Life Membership Assets (LMA) Investments
Land, Buildings, Furniture, and Equipment Depreciation Advertising Deferred Multi-Year Memberships and Deferred Sales and Tournament Income Concentration of Credit Risk Compensated Absences Financial Instruments Tax Exempt Status
NOTE 2. PREPAID EXPENSES. Prepaid expenses consist of the following:
NOTE 3. LIFE MEMBERSHIP ASSETS.
NOTE 4. FURNITURE AND EQUIPMENT. Furniture and equipment is summarized as follows:
NOTE 5. LINE OF CREDIT. The Federation had a line of credit with KeyBank in the amount of $300,000. The line of credit was paid off during the fiscal year ended May 31, 2004. The outstanding principal balance was $0 and $300,000 at May 31, 2004, and 2003, respectively. The Federation had pledged as collateral a $300,000 security interest in an investment account at Oberweis Securities, Inc. and a $120,000 security interest in a money market account at KeyBank.
NOTE 6. ACCRUED EXPENSES AND OTHER LIABILITIES. Accrued expenses and other liabilities consist of the following:
NOTE 7. DEFERRED REVENUE-LIFE AND SUSTAINING MEMBERSHIPS. The Federation's policy is to defer dues that it receives from life and sustaining members over 20 years from the time they become life members. The following is a summary of deferred life and sustaining membership income activity for the years ended May 31, 2004 and 2003:
NOTE 8. LEASES. Operating Lease Commitments
NOTE 9. PENSION PLAN. Effective January 1, 2002, the Federation is no longer required to make an annual contribution to the organization's retirement plan. Employer contributions are discretionary. Management has elected to not make a contribution for the years ended December 31, 2003 and 2002.
NOTE 10. RESTRICTIONS ON NET ASSETS. Temporarily restricted net assets are comprised of contributions received to fund prizes awarded for the U.S. Chess Championship and to provide certain medical and pension benefits to America's top chess players. Temporarily restricted net assets as of May 31, 2004 and 2003, are summarized as follows:
NOTE 11. RELATED PARTY. The Federation provides services to assist in the operation of the United States Chess Trust ("Trust"), a related party. The Federation charged the Trust administrative fees of $2,000 and $35,000, for the years ended May 31, 2004 and 2003, respectively.
NOTE 12. PRIOR PERIOD ADJUSTMENTS. Certain discrepancies, resulting in the overstatement of the reported net loss in the Federation's previously issued financial statements, have been corrected during the year ended May 31, 2004. This resulted in the following changes to net assets as of June 1, 2003:
NOTE 13. SURRENDER OF REAL PROPERTY. On July 15, 2003, the Federation received three acres of land located in Crossville, Tennessee. The City of Crossville gave the land to the Federation as an incentive for them to move their operations to Tennessee. The land had been appraised for $264,000. Management decided not to relocate to Tennessee and the Federation elected to stay in New Windsor, New York. The deed to the land has been returned to the previous owners, subsequent to May 31, 2004.
NOTE 14. SUBSEQUENT EVENT. The Federation has entered into a contract to sell its premises located at 3054 U.S. Route 9W, New Windsor, New York, where its administrative offices are housed for $550,000. The administrative offices will sublet office space where the Chess Life Department currently operates. The Federation will lease the downstairs level of its current building for storage, through May 31, 2005, with the option of early termination.
NOTE 15. OUTSOURCING OF BOOK AND EQUIPMENT BUSINESS. During the year ended May 31, 2004, management of the Federation decided to no longer continue retail sales from inventory maintained by the Federation. The Federation now has an agreement with Chess Café, an unrelated entity, to process all retail sales. The Federation will receive a yearly commission of 13.5% on sales up to $2,000,000 and 15% on sales in excess of $2,000,000. The Federation has been guaranteed a minimum of $350,000 each year.
NOTE 16. CONTINGENT LIABILITIES. At any given time, the Organization is involved in various legal actions and claims arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their outcome will not have a significant effect on the Organization's financial statements.
UNITED STATES OF AMERICA CHESS FEDERATION
July 6, 2004
Board of Directors We have audited the financial statements of the United States of America Chess Federation for the year ended May 31, 2004, and have issued our report thereon dated July 6, 2004. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under Generally Accepted Auditing Standards As stated in our engagement letter dated April 28, 2004, our responsibility, as described by professional standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement and are fairly presented in accordance with U.S. generally accepted accounting principles. Because an audit is designed to provide reasonable, but not absolute, assurance and because we did not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us. As part of our audit, we considered the internal control of the United States of America Chess Foundation. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. Significant Accounting Policies Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the United States of America Chess Federation are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended May 31, 2004. We noted no transactions entered into by the Organization during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions for which there is a lack of authoritative guidance or consensus. Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. Audit Adjustments For purposes of this letter, professional standards define an audit adjustment as a proposed correction of the financial statements that, in our judgment, may not have been detected except through our auditing procedures. An audit adjustment may or may not indicate matters that could have a significant effect on the Organization's financial reporting process (that is, cause future financial statements to be materially misstated). In our judgment, none of the adjustments we proposed, whether recorded or unrecorded by the Organization, either individually or in the aggregate, indicate matters that could have a significant effect on the Organization's financial reporting process. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Organization's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Issues Discussed Prior to Retention of Independent Auditors We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management prior to retention as the Organization's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Difficulties Encountered in Performing Independent Auditors We encountered no significant difficulties in dealing with management in performing and completing our audit. Other Matters Controls Over Tournament Receipts and Expenditures During our audit, we found that controls related to tournament sales and expenditures could be improved. Prenumbered sale invoice forms should be used. Their numerical sequence should be accounted for, and voided invoices should be retained. Also, cash register reconciliation tapes should be reviewed and maintained to reduce the possibility of misappropriation of cash, and ensure that sales are accurately recorded. We also found an instance where the Organization purchased some computers for tournament purposes, however, an invoice for the computers could not be located, nor were the actual computers available for inspection. We recommend that invoices be retained for all expenditures. General Condition of Books and Records During our audit, we recommended numerous adjusting journal entries, which management was responsible for reviewing, understanding, and posting. We assisted the Organization in the preparation of bank reconciliations. Both of the above-mentioned items were the result of a change in the Organization's Chief Financial officer (CFO) near the commencement of our audit. We expect that next year's audit will require less adjusting journal entries, as the new CFO will have had a full year at this position. This information is intended solely for the use of the Board of Directors, and management of the United States of America Chess Federation and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours,
NUGENT & HAEUSSLER, P.C.
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