J E F F R E Y   C Y R
CERTIFIED PUBLIC ACCOUNTANT
Worcester, Massachusetts

To the Recipients of the Accompanying Statements:

I have audited the accompanying statements, consisting of four classes of chain letters, advertisements and electronic forwards (Schedules A-1 through A-4), as received at my office, at my home and at the home of my mother-in-law during the twenty months ended August 31, 1999. These statements are the responsibility of their authors, none of whom signed them with a name that could be confirmed. My responsibility is to express an opinion on these statements based on my audit.

I conducted my audit in accordance with the standards I have applied for twenty-four years to the books of hardware stores, dentists, a bowling alley and one funeral home. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts in the statements, assessing the principles used, and doing the arithmetic, which the authors did not. I believe that my audit provides a reasonable basis for my opinion.

As discussed in Notes 2 and 3, each statement presents its promised receipts on the assumption that new participants will join without limit and on schedule. They will not. The population of the United States is about 270 million and the population of the world is nearly six billion, and the statements require more people than either, generally within ten levels. As discussed in Note 4, the statements that ask for money through the mail describe an activity the United States Postal Inspection Service considers illegal. The authors declined to provide a representation letter (Note 6).

In my opinion, because of the effects of the matters discussed in the preceding paragraph, the accompanying statements do not present fairly, in any material respect, the amounts any recipient may expect to receive, and they should not be relied upon for any purpose.

Jeffrey Cyr
Jeffrey Cyr, CPA
Worcester, Massachusetts
September 7, 1999

A note for readers on the four opinions. An auditor may give one of four opinions on a set of statements. An unqualified opinion means the statements are fair. A qualified opinion means they are fair except for a particular matter, which the auditor names. A disclaimer means the auditor could not get enough evidence to say one way or the other. An adverse opinion means the statements are wrong in a way that matters. In twenty-four years of practice I have issued two adverse opinions on clients' books, and both clients are still speaking to me. I have issued considerably more on this page.

Description. This statement arrives by ordinary mail, usually photocopied so many times that the type has gone soft at the edges. It contains a list of five names and addresses. The recipient is instructed to mail one dollar to each of the five, cross the name at the top off the list, add his own name at the bottom, and mail copies of the revised letter to a large number of new people. When his name has worked its way up to the top, the letter says, the dollars will arrive by the sackful. Most copies include a paragraph of testimony from a satisfied participant, whose name I was unable to find in any telephone directory available to me, and a sentence assuring the reader that the whole thing is perfectly legal (see Note 4).

Exhibit A-1(a). Participant's Cash Outlay

Postage at the first-class rate of 33 cents, in effect since January 10, 1999. Participants who joined before that date paid 32 cents and should adjust accordingly.

Exhibit A-1(b). Receipts Promised to One Participant

The letter assumes, without saying so, that every participant will bring in a steady number of new participants who follow the instructions. I have assumed ten. This assumption is generous (see Note 2).

Exhibit A-1(c). Receipts Actually Recorded

¹ Three dollar bills and one Canadian dime, which I have not converted.

Exhibit A-1(d). People Required to Pay Every Participant in Full

A participant is paid in full only when five more levels have joined beneath him. The table counts the new participants each level requires, and the running total since the letter began.

² Exceeds the population of the United States, approximately 270,000,000. See Note 3.
³ Exceeds the population of the world, approximately 6,000,000,000, including infants and persons without stamps. See Note 3.

Auditor's comment. A participant who joins at Level 4 needs Levels 5 through 9 beneath him to collect his $111,110, and Level 9 calls for more people than live in this country. A participant at Level 5 needs Level 10, which calls for more people than live on the earth. So if every man, woman and child in the United States took part, mailing on time and never once losing the list, the 1,110 people in Levels 1 through 3 could be paid in full. Of the roughly 270 million participants, about 259 million, those who joined in the last two levels, would get back less than their $15.90, most of them nothing at all. That is better than 95 participants in every 100. If the entire world joined, the number paid in full would rise to 11,110.

In practice the letter runs out of willing people long before it runs out of people. That is not a flaw in the design. It is the design.

Description. This statement is a small classified advertisement of the kind that runs in the back pages of magazines and on the bulletin board at the laundromat. It offers a generous sum for every envelope stuffed at home in spare time, and asks the reader to send a registration fee for a starter kit. I have examined three kits, provided by clients. Each consisted of a sheet of instructions explaining how to place the same advertisement in other publications and collect registration fees from the people who answer it. The only envelopes a participant stuffs are his replies to them.

Exhibit A-2. Statement of Operations, One Participant, First Quarter

⁴ The participant, a client of long standing, read her kit, understood what she had bought, and mailed every one of the thirteen fees back with a note of apology. She is the kind of person who returns a borrowed pen by mail. I have recorded the refunds at cost and her character at a value I am not permitted to put on a balance sheet.

Auditor's comment. No employer appears anywhere in the statement. The business consists entirely of selling the business. The Federal Trade Commission has published warnings to consumers about work-at-home offers of this kind, and I recommend them to anyone with spare time and a registration fee.

Description. This statement usually comes from a church acquaintance or a pen pal and contains a short list of names. The recipient mails a picture postcard to the name at the top, removes it, adds his own name at the bottom, and sends the letter on to several friends. It promises that he will soon receive thousands of postcards from all over the country. No money changes hands except the Postal Service's, and I have no quarrel with the Postal Service.

Exhibit A-3. Postcards Promised and Received
Participant: Mrs. Gertrude Anderson, my mother-in-law, age 80. Joined March 1998.

⁵ The letter said "thousands." Six friends each, with four names on the list, comes to 6 x 6 x 6 x 6, or 1,296, and I have used that. Her letters went out before the January rate change.

Auditor's comment. Of the two postcards received, one came from Mrs. Anderson's sister in Fall River, who had heard about the letter and felt sorry for her. The other came from a widow in Ohio who had the name at the top of a different list. The two of them have written to each other every week since, which is an asset I am unable to value and which the letter did not disclose. The postcard chain is financially immaterial and harmless, and I would not have audited it at all except that my mother-in-law has asked me twice a week since March of 1998 whether any more postcards came. It runs on the same arithmetic as Schedule A-1, and the names at the bottom of the list get nothing. I have recorded the shortfall under Disappointments, Minor.

Description. This is the newest class of statement and the fastest growing. It arrives by electronic mail and promises that a large company will pay the recipient, in cash, merchandise or a vacation, for forwarding the message to his friends, on the strength of a tracking program that is said to count the forwards. The best known of these is credited to Bill Gates. The Museum of Forwarded Fortunes, kept by a network administrator in San Jose, holds 62 copies of that one in its Permanent Bill Gates Collection, with the curator's notes, and I refer readers there rather than duplicate his work.

Exhibit A-4. Statement of Receipts from Corporations for Forwarding Electronic Mail

⁶ Mrs. Anderson bought a computer in November 1998 so that she could receive pictures of her great-grandchildren. She has since been spoken to.

Auditor's comment. A company cannot pay for what it cannot count, and an e-mail message does not report back to anybody about where it has been forwarded. I have this on the authority of the curator of the museum mentioned above, who runs a mail server, and of my nephew, who is fifteen. No receivable has been recorded.

Note 1. Summary of Significant Accounting Policies. Revenue is recognized when cash is received and not when it is promised. This is the policy of every business I have ever examined, and it is the reason none of them has ever carried a receivable from a chain letter.

Note 2. Going Concern. Each statement depends for its continued operation on bringing in new participants at an ever-increasing rate. These conditions raise substantial doubt about the ability of any chain letter to continue as a going concern. In practice they stop long before the population is used up, because most people who receive one throw it away, and the people who joined last, who are always the majority, absorb the loss. The statements include no adjustment for this. Neither do the people who forward them.

Note 3. Population. Figures used in Exhibit A-1(d): the United States, about 270 million, from the Census Bureau's estimates; the world, nearly six billion. The figures change daily, but not by enough to matter, and not in the right direction for the letters.

Note 4. Legal Matters. Chain letters that ask you to send money or other items of value through the mail, with the promise of a large return, are illegal. The United States Postal Inspection Service says so plainly and treats them as an illegal lottery under federal law. Many letters announce that they are perfectly legal, and some add that a lawyer has approved them or that the participant is really buying a "report." I am not a lawyer, and I would not rely on one who signs chain letters. If you receive a letter of this kind, the Postal Inspection Service would like you to give it to your postmaster, and so would I.

Note 5. Related Parties. In every letter examined, the name at the top of the list could not be shown to be unrelated to the author of the letter. Auditors call this a related-party transaction. Laymen call it the point.

Note 6. Management Representations. Auditing standards call for a letter from management confirming that the statements are complete and accurate. I wrote to the return addresses on six letters requesting one. Four came back undeliverable. One went to a post office box that had been closed. The sixth produced a reply inviting me to join.

Note 7. Contingencies. Several statements disclose that recipients who break the chain will suffer misfortune. No such losses were observed during the audit period. I have broken every chain I have received since 1971, and my principal misfortune in that time has been the Tax Reform Act of 1986. No provision has been recorded.

Note 8. Subsequent Events. Since the completion of fieldwork on September 7, three more letters have arrived, all of classes already examined. They do not change my opinion. Letters sent in by readers are audited separately, on Schedule B.

I have been a certified public accountant since 1975 and have kept a small practice in Worcester since 1983: individual and small-business returns, bookkeeping for people who would rather not, and reviews and audits for a few local nonprofits. I built this page in the quiet weeks after the April 15 deadline, using a book from the library and an evening a week, and I have been adding to it since. My wife, Jessie, says it is the first thing I have written in twenty-four years that has no tax consequences. Her mother is the source of Schedule A-3 and most of Schedule A-4.

Readers are invited to submit chain letters, offers and forwards for audit. I will examine them on Schedule B at no charge, which is less than the letters will cost you. Please describe or retype them. Do not mail me the dollar.

Nothing on this page is tax advice. For tax advice, make an appointment like everybody else.

Statements examined by visitors to this report:

since the first draft of this report went up in June 1999.

Submissions for Schedule B and correspondence to the auditor:
[email protected]

Last updated Monday, September 20, 1999