Financial Strategy: Why Do They Require People to Buy the Mark VIII E-Meter for Cash?

Summary: The recent revelation that you have to buy your new Mark VIII e-meter for cash instead of using money deposited with the cult on account has led some to speculate that the cult’s finances are in precarious shape.  Though that is certainly possible, I think it’s impossible to tell from this one data point alone. However, this development suggests that Miscavige is managing the business of Scientology to achieve only one goal, a financial metric that is utterly useless in the real world, but one that allows him to feel like less of a failure when he looks at the numbers than other numbers in the cult.

We also look at what moves Miscavige might make next to continue to grow the business using his management criteria.

The Detail That Sparked the Question

Over at WhyWeProtest, a new thread wonders whether the cult finances are struggling in light of the new requirement that people buy the new Mark VIII e-meter with new cash, rather than using money “on account” that they have paid in advance for courses not yet taken.  Recall that Mike Rinder’s blog yesterday featured a detailed post about how the cult has made this change in the rules.  In some cases, people have put significant amounts of money on deposit; one now ex-Scientologist highlighted in a Tampa Bay Times article had over $350,000 on account at one point.

Forbidding people from using their deposit money to buy e-meters certainly sounds like it could indicate that the cult is running out of cash.  That is indeed possible, but there are other explanations that could also account for this decision.  My inclination is to believe that they’re not in danger of running out of cash. It’s merely bad management.

What Real Executives Manage

There are dozens, if not hundreds of financial numbers that senior executives pay attention to when running a company, to help them keep tabs on how well their business is doing.  But it turns out that only a relatively small handful of these numbers are the key indicators that will move the stock price up or down significantly.   That’s true of the largest, most complicated companies in the world, like Exxon or General Electric.  Every industry is different.  Software companies focus on growth in sales as well as “operating margin” (defined below) while the oil industry could care less about sales figures, since sales includes the cost they pay for the oil they refine, and that fluctuates based on global economics.  If you ask the CEO of Exxon what his sales were, he will give you a blank look; I’ve actually seen it happen when a rookie asked him that when he came to Global Capitalism HQ to review the business a few years back.

But one thing is common to all executives in a real business: the numbers they manage the business to deliver are ones that genuinely reflect how well the business is doing, and that give the earliest possible warning for how the business might be faltering.  They don’t ignore the hundreds of other numbers, but they only lose sleep over a handful of numbers.

Basics of Financial Management

Here are some of the key numbers that appear on financial statements in most businesses.  We’ll refer to most of these in the discussion of Miscavige’s management mind at work.

Sales Sales (a.k.a. revenue) is the money you take in from the product or service you offer. In the case of Scientology, this includes sales of courses, books, auditing services, cruises on the Freewinds, etc.  We also classify donations such as IAS and Ideal Orgs as “sales,” even though real accountants would describe them slightly differently.
Operating Expenses Operating expenses are those expenses you pay in the normal course of business to generate sales.  They would include rent on buildings, utilities, raw material costs, labor, advertising, paper clips, costs of the private jets for the executive team, costs of your IT operation, etc.
Operating Income Operating income is the money left over when you subtract out operating expenses from sales.
Operating Margin Operating margin is the percentage of sales represented by operating income.  Most manufacturing and service companies manage to sales growth plus keeping this number at or above the level that it was at in the same period last year.  It’s all about how efficient you are.
Extraordinary Items Extraordinary items include lawsuit settlements, gains or losses on selling off a division of the company, charges for failed products, etc.
Net Income Net income is what’s left of your operating income after extraordinary items and after taxes (though the cult doesn’t pay any taxes in the US).  At the end of the year, your cash goes up by approximately this amount.
Gross Cash There are two kinds of cash balances that a company holds.  Gross cash is simply the total amounts held in the various bank accounts of the corporation.
Net Cash Net cash is a subset of gross cash. It is what you can actually use to invest in growing the business.  To get from gross cash to net cash, you have to subtract out debt that you owe to the bank or to bondholders, since you’ll have to pay that off.  Importantly in the cult’s case, net cash also subtracts out the amount of money that customers have put on deposit in advance of using services for you.  In the case of Scientology, we believe this number is a significant portion of the reserves.  You can’t count this as net cash because customers could, in an ethically run business, show up and demand that money back, and it is particularly bad form to be unable to refund them on demand.

For a little clarity, here’s an example of how this might work in Scientology.

Let’s say that the cult begins the year with $1.000 billion in reserves.  Over the course of the year, sales from all operations are $200 million. and operating expenses are $140 million.  That means operating income is $60 million, and that means that the operating margin percentage is 30%.  That’s a pretty healthy number relative to a lot of industries, by the way.  The grocery business would kill to get 5% operating margins; 1% to 2% is more normal.

If the cult paid out $30 million in legal settlements that year, they’d have net income of $30 million, and at the end of the year, gross cash would go up by about $30 million, to $1.030 billion. Net cash would go up by the same amount, since the $30 million in profits is not encumbered by a need to be able to pay it back.

If, in the same year that net income contributed $30 million to gross cash, the cult also regged people to put $50 million on deposit for courses in advance of taking them, then gross cash would go up by $30 million + $50 million, to $1.080 billion.  But net cash wouldn’t go up at all because you have to be ready to pay your customers back if they change their mind and want their deposits back.

The One Number I Think David Miscavige Manages

I think David Miscavige manages exactly one number as he reviews the cult’s finances:  gross cash.

I think he does this for two emotional reasons:

  • Mainly, I think he does this because he desperately wants to be able to overlook the negative indicators he’s seeing, such as declining revenue and increased amounts of money paid in legal settlements.  Declining sales over multiple years is a disaster in almost any company, and increasing extraordinary expenses are also problematic because they cost you profits but don’t help you make more money later.  So I think he focuses on the one number that’s least likely to deteriorate, no matter how bad the rest of the numbers in the company might be.
  • I also think that gross cash makes most intuitive sense to a very unsophisticated manager.  When you ask a kid how much money is in his piggy bank, he’ll almost invariably give the gross cash figure, and he’ll forget about the money he owes people because feels better to have as much cash as possible.

I have had the feeling for a few months that this is the number that Miscavige cares most about. This scenario, focusing only on gross cash, explains why he seems to be so un-troubled by the lack of “fresh meat” walking in the door, which would contribute some revenue today, but lots more revenue over time as the cult empties the finances of each new member on the Bridge to Total Bankruptcy.

It’s uniquely tough for the cult to cut operating expenses and boost operating margin, since they have little control over costs like utilities and telephone.  It’s uniquely hard for them to increase profits (and thence cash) by cutting costs since their labor costs are already extremely low, due to the Sea Org slave labor wages.  Most service companies spend from 30% to 50% of sales on salaries, which makes that a juicy target for cost-cutting measures.  But since the $50 per week Sea Org earn in a good week is about 1/10 of the salary of a minimum wage worker in other businesses, the cult won’t be able to manage labor costs to preserve operating margin.

And especially these days, managing to net income is difficult.  Net income is hurt by slowing sales, growing expenses and by extraordinary items.  Those three variables can be very tough to control, especially when the cult seems to be paying out far more in legal settlements the last couple years than in the past.  Operating income is easier to manage than net income, since it doesn’t include extraordinary items, but both of these numbers are hard to manage in the best of time in the most straightforward of companies.

Here’s the magic trick: if you can take in deposits then gross cash can go up even if net income is negative. For example, if the cult does $200 million in sales, $30 million in operating profit, and pays out $30 million in legal settlements, then net income was $0. But if you also add in $40 million in deposits greater than revenue, gross cash goes up by $40 million which looks pretty good. You could almost feel like you were doing something right. The only problem is that while deposits make gross cash go up, net cash would go up by $0, which doesn’t look good.

So now you can see why gross cash is a much more likely number for Miscavige to manage.  By extracting deposits from your customer base, you can make gross cash look good even if the rest of the business is turning to shit.

That, in turn, explains why he fights so viciously to not only avoid giving refunds, but to avoid giving back money on deposit. If he were managing revenue, he’d hate to give refunds because that takes revenue down. But if he’s managing gross cash, that is why he fights so viciously about money on deposit.

What Might They Do Next to Protect Gross Cash?

One commenter suggested that the cult might arbitrarily convert deposits to IAS donations.  I’m not sure that’s too likely.  Here are the scenarios I come up with:

  • First, I think that the lawyers will smell blood in the water if the Garcia’s are successful in getting the cult-specified arbitration system (which apparently has never actually existed) to be tossed out of court.  I strongly suspect that Ted Babbitt is using the Garcias as an initial case before filing tons of suits on fraud related to Super Power.  But I also suspect he and several others are waiting to file a mammoth class action suit to get refund of money on deposit, particularly for ex cult members.  I have talked to a couple of ex’s who would not sue individually but who would happily join a class action suit to recover money.  And due to the precise nature of the documentation, I think recovery for the ex’s would be fairly high, a lot higher than the pennies on the dollar typical of traditional class action suits. Look for the cult to continue to fight the Garcia case tooth and nail.
  • Second, I doubt that they will convert deposits to IAS donations without something that looks like permission from the deposit holders.  The word “conversion” in accounting circles is somewhat dirty — it basically means that you took something and pretended it belonged to you in the first place.  I think the cult’s primary mechanism to hang on to deposits is just to make the refund process as difficult as possible.  I think a suit over conversion, even if there were terms permitting it in the deposit agreement, would easily win.
  • Third, I think they’ll continue to focus over time on IAS donations, rather than taking deposits.  This is a trend already well under way, as evidenced by all those flyers that invite you to donate and move up a status level, but I think it will likely accelerate, even if they can’t really convert deposits directly to donations.  They may try to put status levels “on sale,” promising you 150% credit towards your next Patronius Gluteus Maximus trophy for every dollar you convert from deposits to IAS donations, but I suspect people will blow if they are being regged at par (i.e., one for one exchange of deposit dollars for IAS donation dollars).
  • Sarah James

    Does Miscavige have monies socked away in the Cayman Islands? The US rules have changed concerning off shore accounts?

    • John P.

      I am sure that almost all of the reserves are held overseas. Whether they’re specifically in the Caymans is open to question but it’s not all that important — most offshore banking countries have relatively similar laws.

      In the wake of the 9/11 attacks, the PATRIOT act toughened up bank secrecy. With the PATRIOT act in the US and with a lot of quiet arm-twisting behind the scenes in the background, it’s now very difficult to open a bank account anywhere in the world where the identity of the owner is completely secret.

      The major goal of the PATRIOT act was to make it difficult for terrorists to launder money by moving it through banks around the world. The US has substantial influence, if not outright control, over SWIFT, the global network for wire transfers. If you are a bank and you lose your connection to SWIFT, you’re out of business — SWIFT cut Iranian banks off of the network as part of the most recent round of sanctions a couple years ago, and this was particularly destructive to their economy since commercial banks couldn’t receive money from foreign customers, pay foreign suppliers, or move money paid for Iranian oil back in.

      The secondary goal of PATRIOT Act secrecy changes was to enable regulators to identify US taxpayers holding undeclared foreign bank accounts where they would be presumably hiding cash to avoid taxation on repatriation of profits, etc.

      The net result is that offshore banks are most useful for keeping cash safe from civil suit judgments. The long arm of the law in the US means that most countries save renegades like Iran, Cuba or North Korea, will happily surrender bank accounts where the US government proves the account was used to hold the proceeds of criminal activity (i.e., funding terrorism, running drugs, etc.). But most offshore havens won’t open the bank vaults for a civil suit. So if Miscavige has the “money on deposit” held offshore, recovery will be harder than if the money were held domestically (though it might still be possible to recover it in some circumstances).

      My suspicion is that the offshore accounts are set up to allow DM to move money between destinations very quickly. It’s hard to seize money that’s moving rapidly all around the world, especially when it moves to accounts that the cult doesn’t currently use for transfers.

      • J. Swift

        If you are a bank and you lose your connection to SWIFT, you’re out of business — SWIFT cut Iranian banks off of the network as part of the most recent round of sanctions…

        Yes and that is why entire nations strive to remain on my good side.

        *****

        Back to the topic at hand: The IAS and the Super Power Project powered up in a big way in the early 00’s. To JP’s point, the Cult wanted to bring in as much cash as possible while offering nothing in return except Statuses and futuristic promises that could be deferred indefinitely or until the Cult was sued — as has happened in the Garcia case.

        Gross cash is the way an unsophisticated manager manages. A former Church exec told me that Miscavige wanted to amass one billion dollars in cash following the Cult’s successful battle with the IRS.

        As one billion dollars was reached, Miscavige wanted it to be two billion and so on.

        IMO, cash management is not important to Miscavige.

        IMO, we should take Miscavige and the IAS at their word: IAS monies are, and have always been, viewed as a War Chest.

        The IAS War Chest is intended to fund OSA Legal and Intelligence operations and to fight legal battles brought by outsiders. Secondary to this purpose is the purchase of Ideal Orgs. According to a 2010 article in the New York Times, the Church has spent five hundred million dollars on real estate in the last decade: http://www.nytimes.com/2010/11/10/business/10scientology.html?_r=2&ref=business&

        The Church has also spent several hundred million on the the CST Archival Project, the goal of which is to build a series of nuclear proof underground vaults wherein the Tech may be stored against a nuclear cataclysm or a natural disaster that devastates the planet. The CST Project is still ongoing. Unknown is how many vaults are called for. The final number may be dictated solely by the fact that LRH bequeathed a great deal of money to CST and it must be spent.

        ******

        David Miscavige does not spend like a businessman; he rather spends exactly like the Cult Leader he is. Miscavige’s spending is primarily dictated by four factors:

        1. LRH’s Last Will and Testament

        2. The need to conduct expensive Intelligence operations; to defend lawsuits; and to quietly pay settlements.

        3. The need to purchase real estate to satisfy 501c3 requirements and to show the membership expansion

        4. The LRH requirement to disseminate the Tech. Even if this is not done well, it is still done.

        5, The need to finance David Miscavige’s opulent lifestyle

        ******
        Inherent in the DNA of Scientology is the need and obligation to wage perpetual psychological warfare and legal battles against the Church’s real and perceived enemies.

        Implicit in the Cult is this Magical Thinking about Money: If you need more money you just produce more money.

        Just go create some more money.

        Therefore, Scientology parishioners will have to make it go right by making more money to fund the IAS and other Church operations.

        This is all driven by LRH’s view of the matter:

        “MAKE MONEY. MAKE MORE MONEY. MAKE OTHER PEOPLE PRODUCE SO AS TO MAKE MORE MONEY.”
        – L. Ron Hubbard, Hubbard Communications Office Policy Letter, 9 March 1972, MS OEC 384

  • mirele

    I wonder if this reality also reflects the GATII push. It’s my understanding that people will have a lot of “redos,” and those are the type of thing which don’t (generally) require auditing hours. That’s where the cult’s over a barrel; it’s my understanding that if everyone who had money on account suddenly wanted to take the next step up their bridge, there aren’t enough auditors to handle them.

    • John P.

      Your comment sparked a thought: it is possible that Miscavige has let the number of auditors decline intentionally to keep the gross cash number up, even though when you burn gross cash via delivering services, you turn that cash into revenue, which the cult sorely needs in order to remain viable. I am increasingly starting to wonder whether creating bottlenecks in delivering services is a way to get people to stay focused on merely donating to the IAS… though the IAS and the event business could be plummeting from all the cancelled major events this year and the crappy job he did on the Super Power opening followed in too-quick succession by the IAS…

      • mirele

        Well, you read my mind–that’s pretty much where I was going. I’d be curious to find out what someone like Mike Rinder thinks.

      • aurora50

        Are you saying that part of His gamble is to keep the ‘enturbalance’ going, thereby prolonging the ‘attacks on the Cherch’ and thereby requiring an ever-growing need for IAS donations to grow the War Chest?

        …cunning.

        • John P.

          Not sure it’s “cunning,” just an attempt to cover up one inept management decision with another.

          DM has in the past made great promises about the number of auditors that are coming but which never seem to arrive. In late 2011 or early 2012, the cult said it was recruiting and training an amazing number of auditors to deliver Super Power — IIRC, that number was something like 600 or 800 new auditors to handle the expected crush of business. Later, again IIRC, the number was much more modest — something like 150 auditors were being trained. And by “trained,” I strongly suspect “being transferred from other orgs” was the more accurate term.

          So I just think that DM realized he can keep people doing “L’s” and other stuff while the bottleneck in auditors “due to immense demands for auditing in other orgs, who are booming unlike your crappy failing org, which is the only failing one in the cult” keeps people from burning off serious amounts of their deposits.

          It’s still insane, because a healthy business focuses on delivering value to its customers, which would mean turning as much of that reserve cash into revenue as possible and making customers eager to come back for more, instead of gritting their teeth every time the phone rings.

          • pluvo

            I think it is not only about the money, it is also about power. To be in power means also for him to hold the auditors in check and to get rid of the ones who protest even the slightest (he started this during the “Mission Holders Massacre” in 1982, when he started to get power-hungry, I believe). Every time he “improves the tech” he can also execute his control further on this line and achieve that his authority is not questioned inside the cult – that besides making more money.

            “Delivering value to the customers” is getting compensated with pressure and threats internally to get the staff to get money, stopping at nothing. “The number of auditors coming” is a scam which is seen in the tendency that they are forced to “retrain” again and again or they lose their certificates (which is counterproductive regarding “clearing the planet”). But at one point this will not work anymore and collapse, the failing “Ideal Orgs” show this. This could also be a reason why he gathers all the resources at Flag and puts the focus there, to cover up his failings. He cannot afford to be seen as not “up-stat”. If you are “down-stat” inside the cult, you are treated like dirt. One reason he is so untouchable inside, is because he keeps up the pretense that he is incredibly “up-stat”.

          • 448Beacon

            The problem with the sane strategy is that Scientology can’t deliver value to their customers. I think the underlying reason for the shift to off-Bridge services is a basic problem with the Bridge model: once you’re done with OTVIII, or even close to it, there’s nothing more to sell and people start looking around and wondering why they don’t have superpowers or, for that matter, a credit score.
            By stalling people on the Bridge, Miscavige can sell smaller services and all his relaunches and still preserve the Bridge as something to keep customers interested and focused on staying in good standing. It reduces dissonance, too, because the next level is always the one to handle your problems or your lack of “wins” from the previous level.
            DM apparently doesn’t have the talent or base Hubbard material to create new OT levels, which would alleviate this problem, so he’s trying to make the best out of what he has.

  • MaxSpaceman

    The other piece of the pie that needs to be accounted for is just what The Cult’s Landlord Office owns. *All* Idol Morgue properties were bought with member monies and are owned outright by The Cult. All the real estate The Cult of $cientology owns globally surely is valued at $200 million.

    And, since it cost $cientology nothing, when it’s time to sell any of the failing Idol Morgues – no matter how much of a loss from the purcharse price – it will all be pure gross profit into the coffers of the Cult.

    • Lurkness

      As to Dwarfenfuehrer’s motivations, these Idle Morgues are his other measure of success. Or at least how many square feet he has acquired. From DM’s official bio on the CoS webpage:

      “Mr. Miscavige is the driving force of a movement now spanning the globe with Ideal Churches of Scientology. He set the direction for the acquisition, design and planning of new Churches and in consequence, the horizons of Scientology are filled with scores of new Churches in the making for the second decade of the century.

      Church premises increased from 5.6 million square feet in 2004 to over 11.5 million by the beginning of the new decade, with a million and a half square feet of renovations completed in the last two years and over a quarter of a million square feet now under construction.”

  • Exterrier

    Scientology does not have hymns or holidays, but I discovered that they do have Nursery Rhymes, for big and little thetans alike.

    Here is a recent one:

    Peter Peter, Pumpkin eater,
    Had a wife but couldn’t feed her
    Cause the evil Peerless Leader
    Made him buy a phony meter.

  • Valerie Ross

    I’m not coming at this from a money standpoint but rather a legal standpoint. I may be wrong in my analysis of this, but this is how I see trust law based on the people I currently know who are imprisoned due to theft of trust funds.

    Funds on account, those held specifically for a person, from my understanding of the paperwork the person prepaying for services signs, would be earmarked for services or products delivered to that person only.

    Therefore, it would seem like SCN is exercising, even for them, extreme arrogance arrogance by flouting the trust account laws because are so sure no parishioner is willing to “risk their eternity” by challenging the fact that the money held in trust for them is legally their money to spend on whatever they want within the Church.

    These funds paid to Scientology, *until specifically allocated and used for a service or product*, are still in Trust and therefore until the person has every right to designate any service or product for which they can be used. At best, if a person with funds on account is not allowed to purchase meters with those funds, it would raise a question as to whether the funds had already been siphoned from the account rather than been held in account.

    A prepaid account, including something as benign as a security deposit on an apartment is NOT money owned by the person holding the money but rather the owner is the person who paid the money.

    Am I wrong here?

    • tetloj

      I work in the public sector and know there are very strict rules about the treatment of money taken in advance. If they are appropriating these funds it would appear to me to be fraudulent. Once again, Capt Dave is placing a lot of reliance on public not making a fuss about this.

  • chukicita

    Mark Plummer worked in Scientology’s Finance division for some years. Here’s a link to a repost of a post I remember him making on a.r.s. that explains Scientology’s view of finances. As with much else of Scientology, it doesn’t exactly align with wog thinking:

    http://www.forum.exscn.net/showthread.php?16015-Scientology-Financial-Codes-from-Warrior-ARS

    • MaxSpaceman

      That is excellent. It sets a foundation of money management from 1972. And that’s 40 years ago.
      There’s a lot of Cult money all over the freakin’ planet.!!

      • chukicita

        Mark, posting as “Warrior,” took great care in explaining how Scientology’s internal finance structure worked in a series of posts on a.r.s. Here is one that might shed some light on priorities:

        “Having worked in $cientology orgs for many years I can say that
        more emphasis is put on money than any other matter.

        Just look at all the money-related stats that are reported “uplines”
        (to management) every week:

        1. C/Bs – cash on hand versus bills owing

        2. GI – gross income

        3. Special Income – is transferred to the Finance Office #3 Account per
        HCO PL 28 Sept 79R Issue XII

        4. CSRT payments – sent “uplines” to church of $cientology Religious [sic] trust

        5. Continental or area support – support of the continental unit (e.g., FOLO
        WUS)
        per Finance Series 11R is a maximum of 10% of the CGI

        6. local org reserve setaside – transferred to org’s reserve account(s)

        7. contributions/donations – per HCO PL 2 Dec 58, OEC Vol 6. p. 357

        8. Film lease payment – 8% of total money paid for training is sent to
        the US Films Trust per film leasing contract (mandatory payment)

        9. General Liability Fund transfer – mandatory payment per HCO PL 3 May 66
        “Reserve Fund”

        10. CGI – corrected gross income

        11. GBS – gross book sales (sub-stats include E-Meters, course packs,
        insignias, tapes

        12. B CKS – bounced ckecks received

        13. B CKS COLL – bounced checks collected

        14. LOTS – letters of transfer

        15. MEMB – IAS memberships

        16. PD STARTS – paid starts

        17. PAID COMPS – paid completions

        18. CRED COLL – amount of credit collected

        19. APR – advance payments received

        20. PPU – prepayments used

        21. INCS – income notes collections summary

        22. F/L COLL – freeloader debt collections

        23. VIS – value of inventoried stock (org fixed assets)

        24. VSD – dollar value of services delivered

        25. MPT – money paid for training (as opposed to auditing)

        26. SCA – service completion awards (rebates) paid

        27. FSMC PD – field staff member commissions paid

        28. TOURS COMM – commissions paid to Tours Org (e.g., FOLO WUS)

        29. REF/RAPS – requests for refunds and return of unused advance payments

        30. Salary Sum (aka crew welfare in SO orgs) – per LRH ED 254 INT
        “Staff Pay”

        31. ALLO/PROD RATIO – allocation/production ratio (per Int Fin Ed 78A)

        32. GI/STAFF – gross income divided by the number of staff members

        33. PAY/STAFF – payroll amount divided by the number of staff members

        34. NOT INCOME AMOUNTS – (e.g., phone calls, rents, vending machine
        receipts, etc.)

        35. OTHER INCOME – held in FBO Account (e.g., “suspense” income)

        36. CSI MGMT PYMTS – payments to Church of Scientology International
        (can you say “OSA”?)”

  • DodoTheLaser

    Comic relief (turn the sound down and click around):
    http://www.epsilonprogram.com/

    This is from The Grand Theft Auto game universe.

    • mirele

      And the button in the side bar. KIFFLOM!

  • Lurkness

    “But I also suspect he and several others are waiting to file a mammoth class action suit to get refund of money on deposit, particularly for ex cult members.” I know you are using common parlance, but return of advance payments would be “repayments,” not refunds. It is important because by their own policies (not that they follow them) as there is no time limit for seeking repayments. “Refunds,” by their policies, must be requested within 90 days of the services (i.e., not happy with a course/auditing) or “donation” (e.g. IAS contributions).

    They spelled this out in their agreement with the IRS (where CoS had extorted tax-exempt status):

    “It has been a long-standing policy of the Church that if someone is dissatisfied with their Scientology services and asks to have their contributions returned within a three month period, these amounts will be returned. Likewise, if the person asks for return of contributions for which no services were received (i.e. an advance payment), there is no three month limitation period. Anyone newly enrolling in services at a Church of Scientology is informed of the policies and signs an agreement to abide by them. As a further condition of receiving a refund or repayment, the person understands that they may not again receive services from the Church.

    Within the Church, there are two separate terms: A “refund” refers to a return of contributions to a parishioner within 90 days of participating in religious services while a “repayment” refers to a return of a parishioner’s advance payment before he or she has participated in religious services. For simplicity, the following discussion will use the term “refund” to describe both types of transactions, because both involve a return of parishioner contributions.

    The Church’s refund policy is exceedingly fair. If someone isn’t happy with Scientology — which is a very small minority of people — he simply has to make
    a proper request for his donations back, agree to forego further services and his donations will be returned. For the Church, in addition to the fact that
    this policy aligns with Scientology principles of exchange, it also serves the purpose of allowing our churches and the parishioners who are very happy with
    Scientology, to carry on without the unhappy few in their midst. ”

  • J. Swift

    The IAS and the Super Power Project powered up in a big way in the early 00’s. To JP’s point, the Cult wanted to bring in as much cash as possible while offering nothing in return except Statuses and futuristic promises that could be deferred indefinitely or until the Cult was sued — as has happened in the Garcia case.

    Gross cash is, of course, the way an unsophisticated manager manages money. A former Church exec told me that Miscavige wanted to amass one billion dollars in cash following the Cult’s successful battle with the IRS.

    As one billion dollars was reached, Miscavige wanted it to be two billion and so on.

    IMO, cash management is not important to Miscavige.

    IMO, we should take Miscavige and the IAS at their word: IAS monies are, and have always been, viewed as a War Chest.

    Money is a buffer against the Church of Scientology being destroyed. Conversely, money is the ability to attack and wage war while at the same time purchasing real estate. It is a wasteful “guns and butter” approach so to speak.

    The IAS War Chest is intended to fund OSA Legal and Intelligence operations and to fight legal battles brought by outsiders. Secondary to this purpose is the purchase of Ideal Orgs. According to a 2010 article in the New York Times, the Church has spent five hundred million dollars on real estate in the last decade: http://www.nytimes.com/2010/11/10/business/10scientology.html?_r=2&ref=business&

    The Church has also spent several hundred million on the the CST Archival Project, the goal of which is to build a series of nuclear proof underground vaults wherein the Tech may be stored against a nuclear cataclysm or a natural disaster that devastates the planet. The CST Project is still ongoing. it is unknown how many vaults are called for. The final number may be dictated solely by the fact that LRH bequeathed a great deal of money to CST and it may only be spent for archival purposes.

    ******
    David Miscavige does not spend like a businessman; he rather spends exactly like the Cult Leader he is. Miscavige’s spending is primarily dictated by four factors:

    1. LRH’s Last Will and Testament

    2. The need to conduct expensive Intelligence operations; to defend lawsuits; and to quietly pay settlements.

    3. The need to purchase real estate to satisfy 501c3 requirements and to show the membership expansion

    4. The LRH requirement to disseminate the Tech. Even if this is not done well, it is still done.

    5, The need to finance David Miscavige’s opulent lifestyle

    ******
    Inherent in the DNA of Scientology is the need and obligation to wage perpetual psychological warfare and legal battles against the Church’s real and perceived enemies.

    Implicit in the Cult is this Magical Thinking about Money: If you need more money you just produce more money.

    Just go create some more money.

    Therefore, Scientology parishioners will have to make it go right by making more money to fund the IAS and other Church operations.

    This is all driven by LRH’s view of the matter:

    “MAKE MONEY. MAKE MORE MONEY. MAKE OTHER PEOPLE PRODUCE SO AS TO MAKE MORE MONEY.”
    – L. Ron Hubbard, Hubbard Communications Office Policy Letter, 9 March 1972, MS OEC 384

    • aurora50

      This posting at The Bunker today from Michael Leonard Tilse gives such a poignant viewpoint of the Real Cost of that strategy:

      “Great job Jefferson and Tony!
      I agree that the SP/PTS materials are major components that keep scientologists from absorbing outside information.

      The “Crimestop” though-stopping action of actively preventing oneself from even seeing anything that might be scientology-negative is what I called ‘self-censorship’.

      I was talking to Kitz the other day about all the forces that go into
      this thought-stopping. And why I as a scientologist wouldn’t examine
      anything negative, even though I was asking questions about the
      circumstances of hubbard’s death.

      One, I would probably go PTS by reading it because it might have been
      written by SPs or it would cause me to question scientology. Being
      doubtful about scientology is a lower ethics condition and requires a
      lot of effort to get out of and waste time I could have spent getting
      ‘up’ the ‘bridge’

      Two, I might get sick because of the PTS condition, and have to get auditing to fix that, which would cost me time and money.

      Three, if it contained any upper level information, it could make me
      sick, or ‘screw up my case’, (cause me harm in my mental equilibrium),
      both of which might need to be addressed by more costly auditing,
      re-doing ethics conditions, re-doing training and possibly being barred
      from the OT levels. Or having difficulty doing the OT levels because of
      the ‘squirrel’ data I had been exposed to.

      Four, even if it didn’t make me PTS or cause me other harm, “I” would
      know I did it, and feel shame and regret. I would know I had committed
      an overt against myself and against the church which was sure to come
      out in session someday.

      Five, I could find out something that was negative about the church
      or hubbard or something and not knowing it was false, think it was true
      and leave scientology and thus “Lose my eternity”. All that sunk cost of
      time and money and dedication gone for nothing.

      Six, I could find out something that was negative about the church or
      hubbard that was TRUE and answered my questions and I consider leaving
      scientology. So then I have this problem of 27 years and over $200,000
      invested and what kind of idiot must I have been? And I lose my friends.
      And maybe I lose my job. Without knowing for certain beforehand, that
      is too much to face.

      Seven, I have participated in harassment of outspoken critics and
      ex-scientologists. I went with Jim Jackson and the earlier version of
      ‘squirrel busters’ to a meeting of David Mayo and his group at a
      restaurant in LA’s chinatown in about 1986 or ’87. I KNOW that I would
      likely be subject to similar treatment.

      These interlocking forces kept me from looking outside scientology for a long time, even though I had severe upsets.

      In fact, it was not until I really thought I was dying, that I had no
      money reserves, that I knew I would never make it ‘up the bridge’ this
      lifetime and I actually felt I had NOTHING LEFT TO LOSE, that I overcame
      my thought-stopping self-censorship and began to use the internet to
      find out the answers to the questions scientology refused to answer.

      I don’t know if you are going to cover the remaining types of PTS,
      types A, B, C, D, E, F, G, H, I and J as you continue through the ethics
      book. But these go into detail about many other ways one can be seen as
      a Potential Trouble Source and either made to reform or get booted out
      of scientology. I always loved the way having an “open mind” was
      redefined as a form of PTS.

      Anyway, thanks again Jefferson.”

    • John P.

      Is the cult specifically a 501(c)3? I thought it was a religious tax exemption which I thought falls under other sections of the tax code. The rule that requires organizations to spend a certain percentage of assets every year applies to some charitable organizations (I think it applies to charitable foundations like Ford Foundation, Packard Foundation, Gates Foundation) but I’m not sure that it applies to the cult.

      I would like to see if there has been a clear demonstration that the charitable foundation rules apply to Scientology, or if it is just presumed. Do you know how certain it is that the cult must spend some percentage of assets every year? Might this be one of those things that “everybody knows” and takes on faith but which might be inaccurate? I don’t have a clear sense of whether they do have to spend a certain percentage of assets or not, but I think it is worth having a definitive opinion by an attorney who has reviewed the IRS dox that have been posted to the Net.

      The comment about magical thinking regarding money is very illuminating, and it’s very much in line with Hubbard’s underlying assumption about demand for Scientology — time after time in “management tech” (the “green volumes”), Hubbard says that orgs magically boom when people stop doing dumb stuff. If there’s unlimited demand for Scientology, which they all seem to take on faith, then there certainly ought to be unlimited money available for the asking. And of course, with magical thinking, every time a “reg” rings the register, it proves this, even if the macro statistics like revenue and profit keep going down.

  • aurora50

    Thanks for this article! it begins to answer many questions, but I have a few more:

    How do most long-term Scis, whales if you will, make their moola?

    If I read you correctly, their means of extracting wealth from the global economy, converting it to cash, and placing it on ‘deposit’ with Capt Davie for Super Powers to Come is what is ‘floating his boat’. What to they do all day?

    are they just living the ‘idle lives of the helpless wealthy’ and watching the interest and dividends pile up…or do they ‘work’?

    how much do WISE corps contribute to the total boodle?

    • This article from the Tampa Bay Times about donations to the Super Powerz Building has a list of some of the top donors. Some of the other “whales” not mentioned in that story include Earthlink founder Sky Dayton and our old pal Nancy Cartwright, who coughed up $10 million a few years ago to become a “Patron Laureate.”

      • Cece

        OMG!!! form the linked article:They also had inside information, according to a former fundraiser. Cindy Bernot Plahuta, a Super Power fundraiser from 2002 to 2004, said the team got sensitive personal information about parishioners from church ministers and used it as leverage to get donations.

  • DesignSnob

    I’d be curious to hear you stance on DP ( delivered profit) in this picture!

    • splog

      DP???!!!!

      hahahahaha, that’s a joke. DM has no such thing. He should have one though (actually two)

      VSD – gross divisional stat of div 4, it means Value of Services Delivered. Take every service completed in that week and add up the invoice value for that service.
      PDC – Paid Completions, the ED’s stat and the stat of the whole org. It works on a points formula: 20 for a major service completed, 2 for a minor service complete. Double points if the person completing sings up for and starts on any other service in the same week. There’s penalty points as well, there are certain measurables that gauge the amount of poor service and delivery errors, the points value of these count minus.

      That’s how it is supposed to work per policy. DM pays no attention to this though, he never advertises these stats at events

  • aurora50

    ps You mentioned you had options for changing the formatting…this one is kind of hard on the eyes…the ‘meat of the nut’ is in such crowded, teeny-tiny print.

    • aurora50

      pps are you going to put up a donation button?

      we, I think I can say ‘we’, are all sure grateful and frankly amazed at what you are contributing to The Cause…
      and would be willing to contribute to you, or some other entity of your choice, as we are able.

    • John P.

      I just figured out how to change the font size for body text. Hope this is an improvement; let me know if there are side effects from it…

  • piper

    Cash is non-refundable. Period. Checks and credit card charges for a bad product can be reversed.
    With the weird battery stuff coming up he probably has done this as a handle to prevent credit card reversal of charges.

  • Truthiwant

    When I was ‘in’, I tried to do a weekly statistic for my job. I only did one statistic and it was gross income. It didn’t matter whether I sold one item or ten items, the statistic was gross income and I assigned myself a condition based on this.
    It’s laughable, I know. To be honest I didn’t do the statistic too often because in my job, the weekly income is not a defining matter and is not important to my overall earnings, but in a rather infantile sort of way, it was fun to see the gross earnings go up when I sold items. Of course when you begin to put gross income against costs and expenses, the whole graph changes!
    I think you are right. Miscavige only wants to see the gross amont of money taken in on a weekly basis.

  • Scooter

    I said (somewhere) recently that, if you could find out what stats Davey Boyo “operates” off, you could probably predict His next moves.
    I agree with John P on the “GI” (Gross Income for the non-sciloons) or Gross Cash as John more accurately describes it.
    Max Spaceman nails it as well with the “Cont Landlord” stat of Square Paces (of real estate) as something else Slappy “works on” to prove to Hisself that He is Upstat yet again.
    Here in Oz He’s outlaying $3.8 mill for a NarCONon near me and another $1.2 for one in Victoria, both purchased through ABLE Int.
    That neither will be approved for the usage seems irrelevant – the submissions to approve a zoning change for both properties were very embarrassing even for me to read, they were that stupid. But I’m sure they went on McSavage’s “stats” for that week (or whatever time period He’s assigned Hisself for His stats.)
    He’s probably also got some sort of “Tech” stat figured out for Hisself and RTC as well, which involves “exported Tech” or some such imaginary “product.”
    I’m sure He actually believes that if He’s upstat, He’ll have “ethics protection” in the “wog world.” Don’t forget, we’re are talking about someone who dropped out of High School to join the SO and who can’t actually read without HUGE difficulty. So as long as He can find an “upstat” that He caused, He believes He can hold off the world.
    Common sense doesn’t intrude into the “universe” of any SO member trying to “get a stat up.”

  • As we have seen in France, if a victim of the hard sell (and general mind-fuck) perpetrated by the criminal organisation known as the “church” of $cientology actually stands up in court, the Co$ loses. The individual victims are (quite rightly) concerned about the subtle differences between money on account and donations, but a court would simply look at the methods deployed and find the Co$ guilty. Simple as that.

    This requires either multiple, convincing, victims. Or – I think – something simpler: the internal guidelines for how to secure sales. Such as the following (from the “ethics” folder of Alain Stoffen) : “Take care to sit near the door in case he wants to leave. This will enable you to stop him and handle his disagreements.” (from https://groups.google.com/forum/?fromgroups=#!topic/alt.religion.scientology/Wu_n39TnQqU )

  • Graham

    What I’m getting from your analysis John is that, as the saying goes, “Turn-over is vanity, profit is sanity”. It doesn’t take a genius nor a trained accountant to work that one out. You just need half a brain and an instinct for survival. Ironic considering that “survival” is what it’s all about according to Elwrong Flubtard’s teachings.

  • Rachel Heidi

    John, thank you for analyses like this!

  • splog

    John,

    This ties in nicely with Hubbard’s policy on what the key stats for an org are.

    Each of the 7 divisions have Gross Divisional Statistics (GDS) and division 2 has two: Gross Income and Gross BookSales. The first (GI) is simply the total amount of money that went into the org’s main bank account with an invoice to back it up. IAS donations have always been separate from this and until I left were forbidden to go into the org account for any reason.

    So GI is the main stat of div 2 and historically has always been the one that gets the most attention from org execs. EDs manage by GI (and they Hubbard backing it up for this) so it’s not surprising Miscavige does the same.

    As you well know, org management is seen as ultra-simplistic where real-world complexities are believed to be irrelevant against the juggernaut onslaught of The Tech. Todays’ post is a very good example of how an org exec’s mind works.

  • Michael Leonard Tilse

    One way leaving scientologists used to be able to get some of their money “out” was to purchase lots of bookstore items off their pre-paid account balances and then sell those on ebay or privately.

    It was harder to get the org to spend “auditing package” money for books. They always resisted that, even in my day. But it could be done, especially if you were going to be a “course start” statistic.

    • Cece

      I remember a time AOLA bookstore officer was given lists of potential refundees (declared or left the church) and he was to sell books to a mission who then paid the refundee. He had a very complex cross indexed set of cards to keep track of it all – many missions and many refundees.
      He had written approval from the then CO Pubs – Eddy Lundeen. Well ED INT came in one day with some other big shots and sent me to the RPF (I was the Dissem Sec – the guys senior and so new on post I hadn’t a clue what the heck he was doing and I have to admit I could have cared less about ‘money’ – it was just upstat or down stat and the guy was very upstat.) Well Eric Reinerson was then & there declared leaving a lovely wife and daughter behind. I believe she was smart enough to leave shortly thereafter.

    • Anonymous

      While this was true some time ago, there is such an unbelievable oversupply of unwanted Scientology books, tapes, etc. on eBay today, that one would be lucky to get 5 pennies on the dollar, even for brand new, still shrink-wrapped Hubbard drivel.

  • Michael Leonard Tilse

    John, i’m sure it must have been mentioned, but I’ll give my stab at it:

    The operating policy of any church organization, (class V, AO, SH, etc) was always that their basic pay and operating expenses came out of THAT org’s G.I. The ‘mother church’ never sent money down hill. Except maybe in the case of celebrity center, to keep the whales and public figures pampered.

    And that basic pay and operating expenses was usually only 20% to 40% of the GI figure. All the rest went UP hill to the mother church. The operating expenses of the management orgs that didn’t have a public product to sell come out of what was sent uplines.

    The IAS money was ‘supposed’ to go into a global ‘war chest’ slush fund to ensure the survival of scientology. Yet, everytime there is a crisis, the members are viciously regged for more money to ‘handle the attack’. Very little money has ever flowed OUT of the IAS fund. And I don’t know who has authority to spend it, unless it is miscavige alone. IAS funds were never to operate orgs, unless “scientology was seized’ in a country and a new network had to be set up. The IAS feels no obligation to refund any money, for any reason.

    The ‘advance payments’ were never kept for potential refunds. There was supposed to be, IIRC, some small reserve to take care of some refunds, in the old days. But the vast majority went uplines never to be seen again.

    The {church} does not, at all, hold any funds in expectation of refunds, today. It is all gone.

    That leaves flag, in particular, having probably several hundred millions of dollars, maybe even approaching a billion dollars, sitting in ‘advance payments’ ‘on account’ that are only numbers. There is no money being held against those numbers. The only way these numbers can be used is by the member starting on auditing or taking a course. There is no money to give back.

    One possible scenario is that DM expects everything to be taken away. That all CSI will succumb to either lawsuits or to the government. So he is executing the old CSofC tactic of moving all assets out of any accounts, so that only dregs are left to be seized. And the property is owned by another entity entirely.

    So everyone and everything is operating only on what they can reg NOW.

    And either an exit strategy or CST coming in and turning the Ideal Morgues into CST orgs is the forseen end game.

    If you were to discover net cash for CSI that accounted for all the advance payments, unused, of all the members, it might be a negative number in the hundreds of millions.