Gym Federation Under Review by U.S. Justice Dept. Officials

Allegations of illegal and unethical financial transactions by the United States Gymnastics Federation and Mike Jacki, its executive director, are under review by the U.S. Justice Department in Washington.

The allegations, made by members of the gymnastics community who have been collecting documents the last three years, include failure to report USGF revenue to the Internal Revenue Service, failure to report compensation of $600 or more to non-salaried employees, transactions by Jacki with former business associates that give the appearance of conflict of interest and possible violation of antitrust laws. The USGF is a nonprofit organization.

Albert Murray Jr., senior litigation counsel for the U.S. Attorney’s office in Pennsylvania, confirmed Tuesday that the documents are under review in Washington.

Jacki said that he was not aware of a U.S. Justice Department review.

Documents obtained by The Times point to several possible violations or conflicts of interest. They are:

--Failure by the USGF to report to the IRS nearly $1.7 million of income received over the last two years, which was funneled through its regional and state districts. Jacki admits this charge is true.

--Failure by the USGF to issue IRS 1099 statements--a form similar to a W-2, issued to non-salaried employees--to individuals who earn $600 or more. John Hewett, USGF controller, admits this charge is true.

--Failure by the USGF to open bidding in 1985 among companies that supply gymnastics equipment. Jacki denies this charge.

--Jacki, while divesting himself of interest in a company he owned with longtime business partner Gerald Fontana, continued to allow the USGF to do business with another company Fontana owned. Jacki neither confirms nor denies this charge.

Not all of the possible violations fall under the jurisdiction of the Justice Department. If warranted, some could be turned over to the IRS.

The non-reporting of more than $1.7 million in revenue, is in direct conflict with Section 6033 of the IRS code. That section states that tax-exempt organizations must file a tax return reporting all revenue.

An IRS agent, who asked not to be identified, said that non-compliance with this code is a clear violation of IRS regulations. However, neither this violation nor the non-issuance of 1099 statements will cause the USGF to lose its tax-exempt status, which is the major fear of a nonprofit organization. The USGF could, however, face a possible fine of undetermined amount.

The IRS would not speculate on what, if any, penalties the USGF may face.

The USGF financial statement lists revenue of $6.9 million in 1987 and $5.87 million in 1986. Jacki said that the total revenue unreported to the IRS was nearly $1 million in 1987 and $754,486 in 1986.

Jacki said he became aware of the unreported income a couple of years after he started working for the USGF in 1983, and brought the issue before the USGF board of directors.

In question is the revenue raised by the USGF regional and state districts through clinics, meets and other money raisers. This money is kept at the district level, reported to the USGF office, but was not reported to the IRS. The state offices and regional districts operate under the guidelines and tax-exempt status of the USGF. They are not separate organizations.

“All of those accounts, we are party to,” Jacki said. “In other words, we know exactly what is going through the banks. But no (it’s not reported anywhere).”

The unreported money is that earned strictly at the local and district levels. The membership fees, which were listed in 1987 as $3.4 million, are reported to the IRS.

The membership fees are collected by the USGF in Indianapolis and then a portion of that money is returned to the local and district levels, where the money is used as an operating base.

The majority of the unreported revenue is from the women’s gymnastics division, which has a membership of about 138,000. The men’s is about 22,000.

Laurel Tindall of Seattle, the USGF women’s Region II coordinator since 1983, said the USGF’s quarterly financial report format requires her to list separately the money raised at the district level from that received from the national office.

Tindall also said that she has never filed a USGF tax return with the IRS. “We do all our reporting to the USGF office,” she said.

Jacki said he became aware of the large amount of revenue raised by the districts by evaluating these reports, which are ultimately received by Hewett, the controller. Hewett, however, said that the manual system of reporting is inefficient and that he is working on implementing a centralized computer system that would allow him to control the expenditures.

USGF President Mike Donahue agrees that Hewett could not complete IRS returns using information from the quarterly reports.

“None of these (district coordinators) are CPAs,” Donahue said. “Most of them are housewives.

“We did not shrug this under a rug. We bought a few (personal computers) and put them in a couple regional offices to implement the system. We started with a couple of regions so they can say, ‘Hey, this works.’ ”

Jacki said the problem is being addressed, but he blames the slow response on the politics of USGF committees.

Jacki also said that he is concerned about the unreported income and possible 1099 violations and that he raises the issue at every USGF board meeting. He said he even asked another board member, Jim Howard, the assistant gymnastics coach at the University of Nebraska and vice president for men on the USGF executive committee, to address the problem for him.

Howard said that Jacki had asked him to speak on the issue because of possible animosity toward Jacki by women’s program committee members, who may have thought USGF headquarters was trying to take away their funds.

“I think they are getting tired of me addressing it, because when I address it, it looks like I am meddling into (the women’s) program,” Jacki said.

Howard said that the board responded to his presentation by commissioning a pilot study to review the issue. Howard also sent a report, dated July 14, 1987, to the men’s elite coaches’ committee, listing pertinent issues discussed at a USGF board meeting held July 11-12, 1987, in Indianapolis.

In that report, Howard said that the unreported income, “could pose a serious IRS problem in the future.”

Hewett said that because the USGF is not required to pay taxes, he is more concerned with the failure to issue 1099 statements.

Hewett explained that when payments are made to individuals at the district level, 1099 statements are not issued by district coordinators or by the USGF office. Hewett, who ultimately receives the quarterly reports from the districts, said he does not monitor the reports to determine if a 1099 statement should be issued.

Hewett said that the situation will be corrected when the system is computerized.

Some of the remaining allegations against Jacki and the USGF are seemingly more a question of ethics than legality. The Justice Department may take action if it finds that USGF funds have been misappropriated or that members have been defrauded. If trade has been restricted, the USGF could be in violation of antitrust laws.

Jacki came under scrutiny when he signed a three-year contract with his former company, AMF American, Inc., the gymnastics equipment division of AMF Inc. The contract, signed by Jacki and his former boss, Larry Fie, granted AMF exclusive rights to supply equipment to all major USGF meets, and the first right of refusal on all other major events sanctioned by the USGF.

In addition, Fie is the husband of Jackie Fie, a longtime USGF employee who is said to be influential in USGF matters. AMF sold its gymnastics division to Larry Fie and five other partners in 1986 and the company is now called American Athletic, Inc. Jackie Fie is now listed as an independent contractor of the USGF.

Jacki strongly denies that he granted his former company, AMF, a preferred position over other gymnastics’ equipment suppliers. He also denies that Jackie Fie had any influence in the awarding of the contract.

Representatives of two rival companies, neither of whom would speak on the record because the contract with the USGF is coming up for bid, said that Jacki showed favoritism and purposely excluded them from doing business with the USGF.

Jacki, however, said that AMF was the only company capable of and willing to provide equipment on the scale the USGF required, and that AMF would not have signed the contract had Jacki insisted on dividing the major gymnastics meets among AMF and other equipment companies.

“I always thought there was a conflict of interest there, but I am only one person,” said Les Sasvary, who was on the USGF board for two terms as a representative of the National Gymnastics Judging Assn. and as vice president of the men’s program committee.

“The lady (Jackie Fie) is married to the man (Larry Fie) running the company (AAI); and she controls the women’s side of the USGF, and the USGF only does business with her husband. It’s hard for the mind to understand.”

Charles Klinge, vice president of Nissen Gymnastics Equipment, considered the grandfather of gymnastics equipment suppliers, defended Jacki.

“We could supply (the USGF equipment) if we wanted to,” Klinge said. “But there are not enough sales resulting from supplying to justify the cost of being there. . . . If nobody else would do it, we will, just for the good of the sport.”

The other possible conflict of interest being examined by the Justice Department involves a gymnastics-related company Jacki was co-owner of before becoming executive director of the USGF in 1983.

Jacki and Gerald Fontana, of Glenview, Ill., owned a multipurpose resort camp that Jacki voluntarily put up for sale when he took the USGF position. Before the camp was sold three years later, Jacki allegedly bought merchandise items for the USGF from another company owned by Fontana.

“We may have bought from him when we first started merchandising, but I don’t think we do now,” Jacki said. “We don’t deal with agents unless they have a lower bid.”

Jacki said that since the camp was sold in 1986, he has divested himself of his interest in G.M.F. Corp., the company that owned the camp, and that he has had no further personal business dealings with Fontana.