FIDE Verification Commission Report - Draft

13th of May, 2000

Verification Commission Report

The Verification Commission met in Lausanne on Saturday, April 29. Chairman Nicola Palladino (Italy), and members Israel Gelfer (Israel) and Don Schultz (USA) were in attendance. Also present were FIDE Executive Director Emmanuel Omuku and Treasurer David Jarrett. FIDE's operations for the year ending December 31, 1999 were reviewed.

Unfortunately, the state of FIDE's affairs have deteriorated during the last year. Lawsuits by former World Champions Anatoly Karpov and Susan Polgar, increasing debt, member dissatisfaction with event management and a decline in the quality, timeliness and extent of FIDE services is alarming. On the plus side FIDE staff remains dedicated and willing to make sacrifices during difficult times. Individual volunteers continue to lend both financial and technical support. A new venture FIDE Commerce is potentially lucrative and far reaching. Following the Verification Commission meeting, Mr. Berek Balgabaev has reported to me that President Ilyumzhinov has transferred SF400,000 into the FIDE account thus reducing the money, shown below as owed to FIDE, by that amount.

Here are our specific observations and recommendations:

1) Last year, there was a large overdue loan from FIDE to the World Chess Foundation for SF402,372. This loan ballooned to SF1,365,659 by year end 1999. During the first months of 2000, $130,000 was paid back to FIDE. At a 1.6 to 1 SF to US$ exchange rate, the outstanding balance would be SF1,157,659. FIDE has now become completely dependent upon the financial support of President Ilyumzhinov. If for any reason that support ends without payment of the outstanding loans, FIDE will be destroyed. We recommend that FIDE insist upon immediate payment.

2) We take note that there does not seem to be any signed contract between FIDE and the World Chess Foundation. We recommend that this be quickly clarified.

3) We also take note that because of the bad checks to World Championship prize winners, FIDE directly paid several of the players the amount owed to them. Furthermore, it has not been confirmed that all the 1999 World Championship participants have been paid their prizes and that all bad World Chess Foundation checks have been returned or otherwise accounted for. We recommend that FIDE obtain documented confirmation regarding confirmation of all 1999 World Championship payments to the players.

4) The Anatoly Karpov and Susan Polgar lawsuits are in arbitration. The Executive Director is confident of a favorable outcome in both lawsuits. However, even if it is favorable, FIDE's legal costs will likely exceed the SF5,000 that was budgeted for 2000; the 1999 legal costs were SF45,757. The potential negative impact for FIDE of unfavorable arbitration threatens FIDE's very existence. We recommend that the PB re-evaluate the 2000 budget.

5) Regarding FIDE staff in Elista and Lausanne: While the names of nine Elista staff members have been made known to the Treasurer and have been documented, the associated job descriptions have not. Furthermore, the role of Mr. B. Balgabev at the FIDE office is unclear. He was placed there by President Ilyumzhinov. It is costing FIDE a significant amount of money to keep him there: salary - SF60,000, accommodations - SF20,430, travel - SF9,052, allocations familiales - SF6,898 and taxes - SF10,404. In addition, there is an impact upon staff insurance and the building up of a reserve for ex-gratia payments. We recommend that, barring evidence to the contrary, support of this position be canceled.

6) The Treasurer reported that the use of cash and credit cards for payments is too high. We concur and recommend that the Executive Director bring these expenses more in line with general invoicing and payment.

7) Last year, the Verification Commission recommended the establishment of a three year working reserve fund of SF2,000,000. This has not yet been done. We recommend it be done this year with a fixed amount included in the budget for 2001.

8) We take note that no deposit or bank guarantee for the 2000 World Championship has been received. We recommend that the World Championship not be held unless a deposit is made in a timely manner well in advance of the championship. In future years, FIDE must insist on financial protection in accordance with guidelines.

9) The Treasurer has reported that FIDE's cash flow is precarious and worsening. In light of this, we recommend that cuts to the 2000 budget be made immediately. Suggested areas of reduction are limiting FIDE forums to four instead of six per year, staff reductions, limitations on travel, limitations on administrative costs, cessation of CACDEC initiatives and curbs on board expenses. Long range consideration should be given to moving the FIDE headquarters from a high cost location such as Lausanne.

10) We take note with dismay that for purposes of paying the World Championship Prize Fund, a Wells Fargo Bank Account in the name of several individuals was set-up. This is poor business practice and in contradiction with a prior General Assembly directive. We recommend that FIDE enforce its policy of having money never routed or maintained in bank accounts of individual(s).

11) We take note that the FIDE Handbook and Directory have not been updated. We recommend that this be done as soon as possible, not only because of their value, but because income from sales will likely exceed costs.

12) We have not specifically commented on details of the FIDE Commerce Proposal. There have been substantial input from countries and interested parties. There is a need for FIDE to take initiatives such as this. However, great care must be exercised to avoid pitfalls and obtain widespread support.

We complement Treasurer Jarrett for presenting FIDE's financial state in a clear concise manner. We thank Executive Director Omuku for his help and cooperation.

Respectively submitted,

Nicola Palladino, Israel Gelfer, Don Schultz
Chairman Member Member


NOTE: The above is a draft. It has not been signed and apparently never will be. I received a copy in May and was asked to keep it confidential. Several developments have since taken place which change the situation and make it unlikely that this will ever be signed. Therefore, I have decided to release it now.

Sam Sloan

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