July 18, 2001

The CPA firm, Waugh and Associates, P.C., audited the Association’s financial records and prepared the IRS tax return, Form 990 (click here to see the forms). USATT submitted the 990 to the IRS in mid May 2001.

In 2000, the Association generated revenues of $1,107,000 and incurred expenses of $1,283,00. Expenses exceeded revenues and this resulted in a loss of $176,000. The loss is the result of a shortfall of $41,000 in expected revenues and an overspending of $135,000.

When the former ED and I discussed the budget prior to the November 1999 meeting, I asked him twice about the amount of centralized funding of $250,000 that he had put in the budget. The amount for the previous 3 years was $200,000. On both occasions, he said that $250,000 was the correct amount, and on the second occasion, he said that USOC had confirmed the $250,000 figure. The Board approved the 2000 budget at the November 1999 Board meeting based on $250,000 of centralized funding. A few months later, the ED told me that USOC subsequently had confirmed that centralized funding was $200,000. The Board thought it had passed a balanced budget, but, in fact, it had unintentionally passed a budget with a deficit of $50,000, as USOC revenue would be $50,000 less than expected at the time of the budget meeting. In other words, we had to generate an additional $50,000 in non-USOC revenue to offset the unexpected decrease in USOC revenue. Although FY2000 revenue set a record at $1,107,000 and non-USOC revenue had a positive variance of $9,000, this was insufficient to offset the unexpected decreased revenue from USOC after the Board approved the budget. As a result, the FY2000 revenue shortfall was $41,000.

Despite the record budget allocation, we still overspent by $135,000. The table below shows the expense accounts and where and by how much over-the-budget spending occurred:

With the departure of our in-house bookkeeper in July 1999, we have been through three part-time bookkeepers who worked for one or more NGBs. After we hired the former ED, in an effort to reduce overhead, he decided to outsource the bookkeeping function to an outside company that assigned us a part-time bookkeeper. This company also experienced turnovers and we went through another two part-timers. The string of part-time bookkeepers resulted in delays in recording transactions that in turn resulted in missed or untimely financial reports. Without accurate, timely and regular reports, it is difficult for any treasurer to exercise Board oversight over the financial affairs of the Association. In addition, committee chairs were not advised on a timely basis of the balance of their budgets. For example, Barney Reed, former Chair of the Youth Committee repeatedly asked the ED for a report of his Committee’s expenses, but he did not get it. Mr. Reed said that he would not have sent juniors to Taiwan for a tournament had he known that he would exceed his committee’s budget. The National Team Committee was similarly not advised.

Additional unbudgeted expenses for supporting the Chicago Ping Pong Festival helped promote the sport to thousands of people at the grassroots level over several weeks. The Festival included exhibitions organized by USATT and various visits to Chicago by the ED and volunteers to work with the Festival organizers, and culminated in two one-hour telecasts of the Pro Tour on local cable Fox Sport Network Chicago-one at prime time (7:30 PM CST)-in the Chicago Metropolitan area with an audience of 1.5 million. It is generally regarded as a good program, but it also accounted for overspending, and a large variance in marketing as USATT had not been contacted to help in the promotion of the Chicago Ping Pong Festival at the time the Board approved the budget.

One of the functions and responsibilities of the ED is to implement and execute the budget as approved by the Board. One of the functions and responsibilities of the Treasurer is to provide oversight to ensure that the Board’s wishes as expressed in the budget allocations are followed. The ED works at HQ with the financial manager/bookkeeper who reports to him and to the Treasurer. The Treasurer works with both of these staff members from a remote location that may be hundreds or thousands of miles away. He must rely on timely financial reports. His effectiveness depends on the extent to which the ED consults with him or obtains authorization from him for expenses not budgeted, or for spending beyond budgeted amounts. That financial reports were not timely and not provided for certain months, and that the ED who had served as Treasurer for six years, in some instances acted without consultation with the Treasurer in many instances in the spending of certain funds, albeit for legitimate purposes, resulted in the overspending. Nevertheless, the ultimate responsibility for monitoring the budget expenses and ensuring that the budget is implemented according to the wishes of the Board does rest with the Treasurer.

The auditor did not find any evidence of misappropriation of funds by any staff member, management or member of the Board. The net income loss in Form 990 resulted from expenses for legitimate purposes in carrying out the mission of the Association in the promotion and growth of the sport, and for developing elite athletes.

• Despite the FY2000 loss of $176,000, the Association generated record revenues of $1,107,000. This amount exceeded FY1999 revenues of $934,000 by $173,000 and FY1998 revenues of $970,000 by $137,000.

• The combined Youth and National Team Committee’s expenses totaled $205,000. This amount exceeded the 1999 expenses by over $60,000 and accounted for $33,000 or nearly 25% of the total overspending. Coaching expenses for elite athletes exceeded $100,000. Certainly, based on these figures, the Association provided the most support ever to the 2000 Olympic Team, North American World Cup representatives, Khoa Nguyen and Gao Jun, as well as other developing athletes.

• Sponsorship money from equipment contracts and other sponsors exceeded $70,000 in cash, including $50,000 from Enron. This may very well be a record, exceeding the years when Brother International was the major corporate sponsor for $50,000 a year.

• Magazine advertising revenue for FY2000 reached a record level, despite the increasing number of complimentary ads given to fulfill contractual obligations that were not recognized as magazine advertising revenue. The magazine advertising revenue for FY2001 is expected to exceed $60,000, which will be about double the revenue ($30,000) generated in 1996.

The Board and I have taken several steps to ensure that such excesses in overspending shall not be repeated in the future:

• This year, the Board approved a surplus budget of $57,000 compared to a deficit budget of $50,000 for last year. The new ED, Director of Operations and I watch expenses very carefully, and there is every reason that the variances in each expense account will be minimal, if negative.

• The 2001 budget is conservative on the revenue side. There are many potential sources of revenue that are not reflected in the 2001 budget. One of them is the Internet Collaborative from which we will receive over $124,000 and other financial benefits for rights to USATT website content. We now have an ED who is working on fundraising and sponsorships. If two or three of these materialize, and the probability of these is high, there is an excellent chance that in 2001, we will be able to recover all the "losses" incurred last year.

• We have instituted tighter financial controls in several areas: 1) Collection of entry fees for the Pro Tour event - the new policy does not allow Pro Tour players to participate until they have paid their entry fees. Last year, absent this policy, once the tournament was over, it was impossible to collect from the players thereafter. Preliminary figures for the 2001 US Open/Pro Tour show that we collected over $20,000 more in entry fees than in 2000. 2) Prepayment for campaign ads — in several past elections, some candidates never paid for their campaign ads. 3) Generation of aging invoice reports to better monitor delinquent accounts, reduce accounts receivables, and minimize bad debts. 4) Recognizing travel expenses when HQ staff book tickets for athlete travel, instead of waiting up to two months for United Airlines to invoice us, has enabled HQ staff to promptly and regularly provide an update to the chair of Elite Athlete & Athlete Development Committee on the account balance in his budget. This will minimize the potential for overspending by this committee.

• We have hired a full-time bookkeeper as experience has shown that a part-time one that transitions between two or three jobs during the week does not meet our bookkeeping needs.

• The Audit Committee and I are working to amend and update the Financial Policies and Procedures Manual to enable the Treasurer to better perform his oversight responsibility. The ED also will be subject to a higher degree of accountability to the Board through the Treasurer. The auditor has suggested, for example, that strict adherence to financial policies and procedures should be part of the annual evaluation of the ED by the Treasurer. These measures will minimize the potential for overspending by the ED without consultation with the Treasurer.

Tong Lee
Treasurer

2000 Tax Return-Form 990

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