X-Message-Number: 1318
From:
Subject: CRYONICS Endowment Fund Audit
Date: Mon, 19 Oct 92 20:37:03 PDT
September 26, 1992
To: Alcor Membership / Cryonics
From: Michael Riskin
Re: Endowment Fund
Background
During the 9/13/92 Alcor Board of Directors meeting, the Endowment
Fund Advisory Committee report included allegations of improprieties in
the management of the fund assets. The report stated, "We must emphasize
that our investigation of Alcor's finances showed more irregularities than
the false claim of a trust and the gutting of the endowment fund. With
the limited information at our disposal, we could easily miss tens of
thousands of dollars being misspent or embezzled." In addition, the
report used the following phrases: "Draining the life blood of alcor,"
"Cover up," and "Hemorrhaging money rapidly causing Alcor's finances to be
destroyed."
The Endowment Fund Advisory Committee consisting of Eric Klien, Bob
Krueger, and Courtney Smith resigned. The Alcor Board of Directors
maintained that the fund has been properly administered.
After discussions initiated by Ralph Merkle which later included
Carlos Mondragon, I was asked, and I agreed to, conduct an independent
review of the endowment fund.
My qualifications, in brief:
Graduate school through Ph.D. -- Business and Psychology.
Certified Public Accountant and Licensed Psychotherapist.
Broad experience in management, financial, and personnel
consulting; both non-profit and profit organizations from
leisure/entertainment to high technology R&D startups.
Psychotherapist specializing in self esteem and personal potential.
Ten year Alcor suspension member.
Alcor ombudsman.
The Procedure
I examined the books and records related to the Endowment Fund from
its financial inception 7/29/91 to 8/31/92. This included the ledgers,
postings, transaction journals, Witter/Hancock/Benham statements, deposit
records, canceled checks, and the 1990 resolution concerning the
establishment of the fund. I received all the documents and records I
requested.
Financial Results: (rounded to the nearest thousand dollars)
Starting Fund Balance 7/29/92: 400,000
Additions:
- dividends and interest income 28,000
- repayments from Alcor operating fund (note 1) 36,000
- One Million A.D. (Jones estate) (note 2) 86,000
Total Additions: 550,000
Withdrawals and Reductions: (note 3) -154,000
Net Cash and Securities: 396,000
Receivables:
- Interest Bearing Loan from Alcor 3,000
- Untransferred donations (note 4) 1,000
Fund Balance as of 8/13/92: 400,000
The above summary and accompanying notes were independently prepared
by me--not submitted by Alcor management.
Note 1: Repayments:
- Refund of Worker' Comp. Deposit 26,000
- Repayments of the Mike Perry Advance 10,000
Total Repayments: 36,000
Note 2: Per Carlos Mondragon, half of the remaining Jones Estate, One
Million A.D., held at Bank of America and due Alcor.
Note 3: Withdrawals and Reductions:
- Alcor Workers' Comp. Deposit 30,000
- Rescue Mike Perry from Mexico Advance 10,000
- Attorney Fees 49,000
- Suspension Expenses 20,000
- Suspension Equipment 6,000
- Computer and Oxygenators Purchase 5,000
- Transfers to Alcor General Operating Fund 33,000
- Decline in Book Value and Broker Fees 1,000
Total Withdrawals and Reductions 154,000
Note 4: Donations to the Endowment Fund are not immediately deposited to
the fund.
Factual Conclusion
All monies deposited and withdrawn to/from the endowment fund are
accounted for. There is no evidence whatsoever of a "cover up, financial
destruction of Alcor, or embezzlement."
Opinions and Recommendations
The Endowment Fund advisory Committee in its 9/13/92 Money Update
Report was irresponsible and reckless in its very serious and emotionally
charged accusations. They did **not** conduct an "investigation."
**Investigation** was their word. The committee merely looked at some
broker month end statements. Such allegations, without examining the
underlying records, can itself cause Alcor sever political and financial
damage. This "investigation" and report was apparently conducted and
written by Mr. Klien. However, Mr. Krueger and Mr. Smith are equally
responsible for its contents and possible harm to Alcor. The implied but
not specified reasons for resignation are also of concern. Why did the
advisory committee not also report the $36,000 put back into the fund
which was also on the same statements that they investigated in reporting
the withdrawals? The committee emphasized that they were not legally
responsible for the investment or expenses or administration of the
endowment fund whatsoever, but, they are however responsible for their own
statements. I recommend that the ex-advisory committee retract their
unfounded accusations and instead issue a statement expressing legitimate
questions and concern.
My review was limited to the Endowment Fund. I strongly recommend
retaining independent certified auditors to examine the entire financial
structure. This will be a prudent and very important procedure to
accommodate internal and external reporting requirements.
Alcor management also needs to address the policy of using the
Endowment Fund as a source of financing Alcor general operating expenses.
Should such procedures for emergency or other reasons become
necessary in the future, I recommend immediate disclosure.
There was one check written for $1700, made out to "cash" and cashed
by Hugh Hixon. The explanation was that it was necessary for a "good
deal" on critical equipment. There is no back up documentation for this
transaction. This is an unacceptable accounting procedure. It makes one
wonder about the underlying nature of the transaction itself and whether
or not it's something that Alcor wishes to engage in.
There are two major unresolved issues:
1. Should the $86,000 One Million A.D. money be considered Alcor
operating fund monies and therefore spendable, or additional contributions
to fund capital and untouchable. The 1990 Board Resolution directed that
all Jones proceeds shall go to Endowment Fund Capital. Mr. Mondragon
verbally informed be that subsequent board actions altered that to the
first $400,000, any additional monies allocatable at board discretion.
Mr. Mondragon needs to produce evidence of a written or
witnessed form to substantiate that statement.
2. Are the officers of Alcor using sound managerial judgment in
their methods of financing Alcor's operating expenses.
Note: The initial $400,000 deposited to set up the Jones Endowment
Fund was only part of the net proceeds from the sale of the Jones house.
The excess money went into the Patient Care Trust Fund.
Summary
There is no evidence of financial destruction or fraudulent behavior.
A retraction from the ex-Endowment Fund Advisory Committee is recommended.
There are four issues/questions concerning policy and procedures for
the administration to answer:
1. The official status of the Jones estate proceeds.
2. The handling and recording of fund donations.
3. Why is a check made out to cash for an undocumented equipment
purchase?
4. The borrowing from, and repayment to, the Endowment Fund, to
finance general operations.
From a technical point of view, if the endowment fund accounting is
representative of Alcor accounting in general, the books and records are
maintained in a workmanlike, professional manner, and easily auditable.
Respectfully submitted,
Michael Riskin, Ph.D., C.P.A.
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