Friday, October 08, 2004
TRAVEL WORLD: GONE BUT NOT FORGOTTEN
In the last couple of years, several shady real estate deals have taken place in Portsmouth, such as the sale of the Marting’s building to the city and the sale of Kenrick’s store to Portmouth Murals, Inc. Elsewhere, when a business fails it goes out of business: in Portsmouth, when a business fails it unloads its liabilities and otherwise depreciated assets off on the public in the guise of philanthropy and foundations while getting tax breaks in the process. The Marting’s and Kenrick’s deals were too big to escape public notice, but how many smaller shady deals are hardly noticed? What follows is the history of one of these failed but not completely forgotten smaller businesses, Travel World.
In 1993, Frank Waller, of Waller Bros. Stone Co., and Michael Warsaw, of Lewis Furniture, joined with dentist Gregory Gillen to establish Travel World. Starting a business in the chronically depressed economy of Portsmouth in any year takes nerve; starting a travel agency in Portsmouth in 1993 took more than nerve, because Portsmouth already had a major travel agency, Triple AAA, which had been serving the community for seventy years, and several smaller travel agencies as well. The Travel World partners apparently had no previous experience in the travel business. Waller’s business was rocks, Warsaw’s furniture, and Gillen’s teeth. But they had something more valuable than experience, namely connections. The most important of these was Waller’s connection to Shawnee State University, where he was a member of the Board of Trustees, which he also chaired. It did not hurt Travel World’s prospects that Warsaw was the husband of SSU Director of Development Susan Warsaw, because among the potential customers Travel World aimed at were state-funded travelers at SSU, including the Board of Trustees themselves. While Waller was sitting on the SSU Board of Trustees, Travel World became the preferred travel agency for the university. A former Travel World employee told me Waller was sometimes kidded about his apparent conflict of interest, but he could shrug it off, as Clayton Johnson was able to shrug off his apparent conflict of interest in the Marting’s deal. In the country club atmosphere that prevails among the small circle of Portsmouth elite, what may appear to be conflicts of interest to outsiders is to them just Chamber of Commerce camaraderie. By 1996, Travel World’s net total sales had reached $853,083. By December 31, 2000, net total sales had increased to $1,052,582.
But 2001 turned out to be a disastrous year for Travel World. For one thing, on-line internet travel sites began cutting deeply into its business. In fiscal year 2000-2001, according to university financial records, SSU was directly billed for only about $15,000 by Travel World for official travel, but that was a third more business with SSU than Triple AAA did. But the fatal blow to Travel World came on 9/11/ 01 when the travel industry nationally was paralyzed following the attack on the twin towers. After 9/11, Travel World was close to being grounded permanently. Its assets were negligible. It did not even own the land and building in which it was doing business; that building was rented, and has since been razed. But help was on the way. Travel World retained attorney Clayton Johnson and hired Portsmouth CPA Michael L. Gampp, whose business connection at the time was with Reynolds & Co., a CPA firm that had been founded by the late Thomas B. Reynolds. Mr. Reynolds was a member of the SSU Board of Trustees and his widow Kay Reynolds continues with Reynolds & Co. She also served on the Board of Trustees.
Travel World supplied accountant Gampp with unaudited figures on which to make an estimate of what Travel World was worth, which he calculated to be $100,942. That may not sound like much for a company that had been doing an annual million dollar business a few years earlier, but it was more than the business would be worth in bankruptcy. Perhaps with the fate of auditors such as Arthur Andersen in mind, Gampp disclaimed any responsibility for the unaudited figures he used to make his estimate. He stated twice in official documents, “I take no responsibility for the underlying data presented in this report.” Gampp also denied his fee was influenced by the figure he came up with in his valuation.
In estimating what Travel World was worth, Gampp took as his base period the five-years from January 1, 1996, to December 31, 2000, which was the most prosperous period of Travel World’s history. He excluded the catastrophic year, 2001, in his calculations. To use an analogy, imagine a doctor evaluating the health of a patient for a life insurance policy. The doctor reviews the patient’s health beginning six years earlier but excludes in his evaluation the most recent year, when the patient suffered a stroke that left him paralyzed . I know nothing to suggest Mr. Gampp is an ethically challenged CPA. But it is curious that his valuation included the following stipulation: “This report is not to be copied or made available to any persons without the express written consent of Michael L. Gampp, CPA.” Perhaps that is a boilerplate CPA stipulation, but it certainly sounds suspicious in light of the accounting scandals of a few years past. In any case, I obtained his valuation from Ohio University, Ironton, under Ohio’s open public records law, which overrides his preference for secrecy.
Waller and his partners donated the sinking travel agency and its assets, such as they were, to Ohio University, Ironton, to be used for instructional purposes in its travel program. That move may have been philanthropic or it may have been a way to get Ohio taxpayers to defray their losses, for the donation had tax advantages: Waller and his partners, based on Gampp’s valuation, became eligible for a $100,942 tax credit. I do not claim to know whether legal boundaries were crossed in Travel World’s relationship with SSU, but those boundaries were obviously blurred by possible conflicts-of-interest. Not all the people who serve on boards of trustees and boards of directors do so for altruistic reasons. The country club corruption of our river city makes it possible for people with connections to unload their white elephant houses, failed businesses, and empty department stores off on the public, all in the name of philanthropy and public service.
Posted by Robert Forrey at 2:29 PM