March 2001

REPORT
of the
NSS SECRETARY/TREASURER

- Attachment E -

OVERVIEW

Since the November 00 Board of Governors meeting we’ve:

Worked with the EC to develop the FY 01/02 budget and to submit it for Board approval.

Published an update to the FY00/01 budget that incorporates the changes approved by the Board since November 1, 2000.

Published the May – December 2000 Statement of FY00/01 Revenue and Expenses.

Published the NSS Balance Sheet as of December 31, 2000.

Published a report of the calendar year 2000 Society travel expenses.

Filed our FY99/00 federal tax return.

Distributed the report of the first independent professional audit of NSS accounting records (FY99/00).

Worked with the AVP and NSS 2001 Convention committee to develop an acceptable convention budget.

ENCLOSURES (separately provided)

E-1: NSS FY01/02 Budget

E-2: Updated NSS FY00/01 Budget

E-3: FY01/02 Executive Budget Summary

E-4: May – December 2000 Statement of FY00/01 Revenue and Expenses

E-5: NSS Balance Sheet as of December 31, 2000

E-6: NSF’s December 29, 2000 Financial Statement for NSS Trust Funds

E-7: 2000 Travel Report

E-8: 2000 NSS Convention Final Fiscal Report

DETAILS

FY01/02 Budget

Enclosure E-1 provides the FY01/02 NSS annual Operating and Capital budgets recommended by the Executive Committee for Board of Governors’ approval. Ted Kayes led the budget process and entered data into the spreadsheets. Dave Irving and Stephanie Cothron provided historical cost data. Dave Irving provided Cost of Goods Sold (COGS) data and reviewed the final spreadsheets. The budget values were developed by the NSS officers based upon committee cost estimates and the proposed program represents the priority of the NSS officers. The historical financial data used to project revenue will be posted on the NSS Fiscal Information web page after the NSS web page has been moved to the new server.

I will distribute an Executive Summary of the proposed budget (Enclosure E-3) before the April Board meeting which describes it by department and also by various functional viewpoints that cross department boundaries.

The budgets for NSS conventions, Fine Art Salon, internal NCRC operations, the Caves and Karst Education Program, and the Mammoth Cave Restoration Project continue to be addressed outside of the normal NSS operating budget and are managed by the Administrative Vice President. The current version of these budgets will be posted on the NSS Fiscal Information web page after the NSS web page has been moved to the new server.

FY00/01 Budget

Enclosure E-2 provides the FY00/01 NSS budget updated to reflect:

A. Budget changes approved by the Board at our November ‘00 meeting. (Highlighted in green)
B. Corrected formula in OVP Office Expense (and higher level totals) that had left off $4500 in new capital spending approved by the Board at our November ‘00 meeting.
C. Budget changes approved by the Board by E mail since our November ‘00 meeting. (Highlighted in orange)
D. Budget changes to reflect grants received since our November ‘00 meeting that were designated to be in support of the Washington, D.C. premier of the IMAX film "Amazing Caves" at the Smithsonian Institution. (Highlighted in orange)
E.  Corrected an error in the COGS for the Speleo Digest and Speleogenesis.

COGS for Speleo Digest increased from $10,200 to $16,700 based upon $20,000 of projected Revenue.

COGS for Speleogenesis increased from $7,000 to $19,725 based upon $28,000 of projected Revenue.

Note that the budget shows a $9.3K deficit at the end of FY00/01.

Cash Flow Analysis

Dave Irving will update the last sheet in the FY01/02 budget (Enclosure E-1) to provide a Cash Flow Analysis which will project NSS cash flow through our working capital, NSS Restricted & NSF Trust Funds with significant expenses projected in FY01/02. We expect the analysis will indicate we will have an adequate balance in each of these funds at the end of FY01/02 to meet future needs.

Report of 2000 NSS Travel Expenses

The Board has requested an annual report (ACT 16-635) showing the amounts, source, and general purpose of funds spent for NSS travel expenses. Enclosure E-7 includes all "travel-related" expenses reimbursed by the NSS including costs associated with air fare, car rental, mileage reimbursement for those using their personal car, food, lodging, office employee per diem, and NSS convention registration fees.

FY00/01 Fiscal Report

Dave Irving developed Enclosure E-4 which provides FY00/01 revenues and expenses for the period May - December 2000.  In addition this incorporates all the Journal bills paid in January and February 2001 except $4,682.33 which is the cost allocated to cover the copies of the special Guadalupe Mountain issue of the Journal printed for consignment sale by the Carlsbad Cavern Guadalupe Mountains Association (CCGMA). 

In accordance with Act 16-040, Journal expenses have been paid which are more than $10K over the FY00/01 budget since refusal to pay the invoices from outside suppliers would have negatively impacted the NSS Inc's credit rating. The Journal editors have yet to make Journal purchases using NSS Purchase Orders even though it has been NSS policy for NSS publication editors to use purchase orders when ordering products or services from a vendor since September 1999. Some of the excess Journal expenses will be recovered through CCGMA consignment sales over the next several years.

The summary for the May - December 2000 financial report shows our bottom line $10.3K ahead of a FY00/01 budget that is $9.3K in the hole.  If that holds true we would have a paper-thin surplus of $1K at the end of the fiscal year. As the uncertainties are $10-20K at this point, it could obviously go either way as to whether we end up with a surplus or a deficit this year.

Financial Statement for NSS Trust Funds

Enclosure E-6 provides the National Speleological Foundation’s report on the status of NSS Trust Funds as of December 31, 2000. The following summary describes past NSF reports:

The balance in each fund is expected to be adequate to meet the purpose for which each fund was established.

National Cave Rescue Commission Finances

The NCRC regions have been sending fiscal reports to the NCRC Financial Officer (Kathy Welling) and forwarding funds to the NSS office to cover the costs associated with providing liability insurance, certificates and training material for regional training courses. Kathy is currently working on a report of the NCRC fiscal activity during the first three quarters of FY00/01. It will include all NCRC Regional bank accounts.

The NSS NCRC Eastern Region treasurer (John Appleby) failed to provide an accounting of the 2000 NCRC National Cave Rescue Seminar and Kathy is finding it difficult to reconstruct what happened because Appleby co-mingled Eastern Region Funds with 2000 National Seminar funds.

Kathy and Anmar Mirza have almost completed the budget for 2001 NCRC National Cave Rescue Seminar. The budget will be posted on the NSS Fiscal Information web page after the NSS web page has been moved to the new server.

Accounting Operations at the NSS Office

Stephanie Cothron has the NSS accounting finished through November 2000 and is now working with Dave Irving tying up loose ends with the accounting for December 2000.

Dave Irving visited the NSS Office on January 10 – 12 and worked with Stephanie to develop IRS Form 1099s for those to whom the NSS paid royalties or more than $600 in calendar year 2000 for their services. We are not required to provide IRS Form 1099 for the reimbursement of expenses incurred on behalf of the Society.

Form 1099’s were sent to:
David McClurg
Tim Francis Lawn Maintenance
Noel Tallon
J Allen Bell
Edgar Allen Padgett
David Bunnell
James (Jim) Hall
Gail McCoy
Terry Raines
Carol Hill
Louise Hose
Jim Pisarowicz
Bruce Smith
Carl Dworkin

Independent Audits

In May 2000 we hired Noel Tallon, a professional Huntsville CPA, to perform the first independent review of our NSS accounting records and process and to advise us of changes we should make to bring them into compliance with Generally Accepted Accounting Practices (GAAP).  This was done in accordance with Board Act 15-510.

The final report from Noel Tallon was provided to the NSS Board of Governors on November 17, 2000. In his report Noel expressed his opinion that the FY99/00 NSS financial records we provided him "present fairly, in all material respects, the financial position of National Speleological Society, Inc., as of April 30, 2000, and the changes in its net assets and its cash flows for the year then ended <<are>> in conformity with generally accepted accounting principles." However, in conducting his audit he noted:

"certain matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of internal control that, in our judgment, could adversely affect NSS’s ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements."

In his report to the Board Noel states the general ledger of NSS and our traditional fiscal reports are in the old "fund" format and do not comply with reporting required by generally accepted accounting principles. This issue can best be illustrated by comparing the format of the NSS FY00/01 fiscal report provided in the audit report to the format of the fiscal reports traditionally provided to the Board.

The following describes the deficiencies noted by Noel in his report and provides Dave Irving’s and my plan for addressing them.

1. Depreciation

Audit Finding:

NSS should record depreciation on property and equipment with the exception of land.

Response Strategy:

We will record depreciation as recommended by the auditor, however we must first consider whether this should be done as a transaction under the general Operating Fund or a restricted fund. At issue is how to segregate the resulting cash so that it will be available when needed to replace the property/equipment.

 

2. Reconsider and Document Restrictions

Audit Finding:

Consideration should be made of the intention for restrictions on net assets. There seems to be some confusion as to the intention of restriction on certain net assets. The Board should review the requirements contained in FASB 116 regarding the classification of net assets.

If restrictions on certain donations or related earnings is intended to be restricted, that fact should be clearly conveyed to the donor and the National Speleological Foundation (NSF), when it is holding the funds.

Current agreements with NSF should be reviewed to see if they comply with the intention of the Board and NSS.

It should be specifically noted that paragraph 14 of FASB 116 indicates that restrictions on net assets are "donor-imposed". This would stipulate that there should be a clear understanding by the donor that a donation is to be restricted in its use.

FASB 116 states in paragraph 22 that "A conditional promise to give is considered unconditional if the possibility that the condition will not be met is remote." Therefore, donations intended for activities that are normally carried on by NSS would necessarily be classified as unrestricted. A Board may designate the intended use of certain funds but cannot restrict them.

Response Strategy:

The list of funds considered "designated" in the Audit Report was developed by the auditor based on his perception of how we were managing them as compared with how we should be managing them if performing our accounting under Generally Accepted Accounting Practices. It is likely that we have a broad consensus that some of the funds the auditor considers "designated" we truly wish to be considered as "restricted" funds. I will lead a Board discussion to develop this consensus and prepare the necessary motions.

To comply with GAAP the auditor is telling us that we must separately track interests, dividends, realized capital gains, unrealized capital gains, transfers into, transfers from, and donations for each restricted fund. We must change some of our Trust Fund agreements to limit payments to the NSS to "income" and eliminate provisions which allow the NSS to receive 5.5 percent of the fund value (that is to receive capital gains or a portion of the principal). I have asked the NSF if they see a problem doing this from the NSF perspective. This would also require new NSS COA items be added for each restricted fund (regardless of whether held by NSF).

We will not be able to close the NSS accounting books at the end of our May-April fiscal year until we receive this level of detail from the NSF for the funds we consider "restricted" (which may include portions of the Holding Fund). I have asked NSF when they think they can provide such detail. Dave Irving will consult with Phil Winkler and Les to see if we can close the "02" (NSF and NSS funds) division in LedgerMaster separate from the other divisions (for example Operating Fund) at the end of each fiscal year.

Another recommendation of the audit was to ask the NSF to have their accounting reviewed by an independent auditor. Perhaps we can do that as part of any annual NSS independent audit we pursue as we did this summer.

 

3. General Ledger Structure

Audit Finding:

The general ledger of NSS as it is currently structured is in the old "fund" format and does not comply with nor assist with reporting as is required by generally accepted accounting principles as stipulated by FASB 116 and 117.

This also apparently presents a problem in preparation of financial reports compiled for presentation on the web page.

The general ledger should be restructured to the Net Asset and Restricted/Unrestricted format as required by GAAP and as indicated in FASB 116 and 117.

Response Strategy:

We will update the NSS COA to support providing reports in the form included in the auditor's report.

 

4. Reporting on the Internet

Audit Finding:

The reports posted on the Internet by NSS are categorized in the old "fund" format. Since these reports are for the general public knowledge and access is not restricted in any way, they should be restructured to conform with GAAP or clearly identified as being prepared using another comprehensive basis of accounting.

Response Strategy:

We will identify how reports are prepared.

 

5. Require the National Speleological Foundation Reporting

Audit Finding:

The current reporting provided by NSF to NSS is not conducive to GAAP reporting by NSS. NSF should be requested to change its reporting to assist NSS in complying with GAAP.

Response Strategy:

See #2 above.

 

6. Audit of NSF

Audit Finding:

Since NSF primarily handles funds for NSS, it would be advantageous and supportive to the NSS efforts to request that NSF have its financial statements audited.

Response Strategy:

See #2 above.

 

When we originally budgeted to hire a professional Certified Public Accountant to audit our FY 99/00 fiscal report we budgeted $4,000 to perform the audit. In November 2000 the Board increased the budget to $6,000 based on September correspondence with the auditor that he was spending more time than planned to analyze fiscal data associated with our restricted funds and to respond to questions on how we should perform accounting in the future. Upon receipt of the September notice that cost would be higher than the auditor's original $4,900 quote we stopped asking accounting questions and asked the auditor to provide his report based on his efforts to that date. In December Noel requested a total payment of $8,400. After informing the Board that the cost of the audit exceeded budget several Directors suggested I attempt to get Noel to accept $6,000 as his total payment. Noel was unwilling to do so stating he had incurred a total of $12,859 in time charges and he was already absorbing $4,459 himself.

Dave Irving and I have since reviewed the availability of auditors in Huntsville who are qualified to audit tax exempt organizations with Kevin Smith. As a result, Dave Irving and I plan to ask Noel to audit our FY 00/01 end-of-year fiscal report. However we plan to improve our NSS fiscal report and the audit-tasking letter. We plan to closely monitor monthly expenditures. We also plan to delay the audit so that all fiscal data is available before the start of the audit.

2000 Convention

Nick Schear closed the 2000 convention bank account and provided his final fiscal report (Enclosure E-8). The final surplus for the West Virginia convention was $32,537. This includes a credit from the NSS Operating Fund account for $1,655 to cover the coupons collected from new NSS members that entitled them to 30 percent off their registration fee for their first NSS convention. Nick provided a 2000 Convention check for $34,037.43 (includes reimbursement of $1,500 for NSS insurance coverage) to the NSS Office for deposit.

2001 Convention

The EC approved the 2001 NSS convention budget. It is provided as part of the AVP report.

Caves and Karst Education Program

Peggy Kesner (Treasurer of the NSS/NPS Caves and Karst Education Program) reports we’ve received a total of $8,610 in grants from the National Park Service and have spent $3,329 pursuing our contract requirements.

Combined Federal Campaign

Ted Kayes reported our application to participate in the next Combined Federal Campaign was rejected because the total Revenue we reported on our FY 99/00 IRS Form 990 tax return ($788,468) differed from that reported in Noel Tallon’s FY 99/00 NSS Audit report ($518,235). The Audit included only the NSS Convention surplus ($27,510) and did not reflect the actual NSS Convention income ($127,884) or expense. The Audit also did not include any regional NCRC or National Cave Rescue Seminar data which wasn't in our NSS Office LedgerMaster accounting last year. Given Noel's narrow time window for the audit, the fact that we didn't have the Convention or NCRC data readily available, and were only trying to get an auditor's comments on the automated part of our finances, we simply never told Noel about the parts of the finances that were not on our automated books yet. Mr. Bell (the CPA who prepares the NSS tax return), on the other hand, has always included Convention and NCRC finances in our Form 990. He handles Convention financial data in a manner that is consistent with accrual accounting standards.  For the out-year (future) Conventions, all income and expense is listed as "pre-paid income" and "pre-paid" expense.  For the Convention held in the fiscal year reported on the Form 990 the income/expense from the current FY plus the prior accumulated pre-paid income/expense for that Convention are included. Thus the Form 990 for a given FY includes the total income/outgo for the Operating Fund, the restricted funds, and the total income/expense (summed over the previous 3 years) for the Convention held that year. The income/expense for which the auditor has given us a GAAP certification is not our real total income/expense for last FY. We will not be able to participate in CFC until we include the Convention in LedgerMaster accounting maintained by the NSS Office so we can get a GAAP certification for it. We must provide the same data to the auditor as we provide to our federal tax return preparer. We hope to do that this year.

Current S/T Department Members and Agents of the Treasurer

Stephanie Cothron has been working almost full time performing NSS accounting and fiscal functions. Dave Irving helps Stephanie reconcile LedgerMaster accounting at the end of each month, develops fiscal reports, works with our CPA to submit our federal tax return, and is now preparing for another independent audit. Ted Kayes worked on the FY01/02 NSS budget. I work on NSS finances and participate in all of the above activities and more.

Secretary-Treasurer - Paul Stevens
Chief Accounting Officer - David Irving (Finance Committee)
NSS Budget - Ted Kayes (Finance Committee)
NSS Business Support – Kevin Smith
NSS Operations Manger – Stephanie Cothron
Insurance Committee - Ted Kayes (Chairman)
Personal Property Committee - Mike Gunderloy (Chairman)
2000 NSS Convention Treasurer - Nick Schaer
2001 NSS Convention Treasurer - Werner Jud
2002 NSS Convention Treasurer - Joe Levinson
2003 NSS Convention Treasurer - Michele Richardson
NSS Convention Bank Account Reconciler - Scott Fee
MCNP Cooperative Agreement Treasurer - Karen Dennis
MCNP Cooperative Agreement Bank Account Reconciler - Marilyn Walker
Caves & Karst Education Program Treasurer – Peggy Kesner
Caves & Karst Education Program Bank Account Reconciler – Cheryl Jones
NCRC Financial Officer – Kathy Welling
NCRC Northeast Region Financial Officer – John Evans
NCRC Eastern Region Financial Officer – John Appleby
NCRC Central Region Financial Officer – Anmar Mirza
NCRC Pacific Northwest Region Financial Officer – John W. Punches
NCRC Western Region Financial Officer – Peri Frantz
NCRC 2001 Seminar – Anmar Mirza
NSS News Ad Accounting - Bert Ashbrook

FUTURE ACTIVITIES

Our priority between now and the July 2001 Board meeting will be to continue to process our financial transactions in a timely manner and provide timely reports. Other tasks include:

Work with Stephanie Cothron to accomplish her accounting responsibilities.

Implement the independent auditor's advice on what we must do to have a professional audit firm certify our accounting records conform to Generally Accepted Accounting Practices and properly state our finances.

Provide a cash-flow statement on a regular basis that depicts the expenses we incur for NSS publications in preparation, advances to conventions and other fiscal activity not attributable to our traditional NSS Operating Fund revenue/expense report.

Record NSS convention and NCRC income and expense summary information in LedgerMaster to fully integrate them into our NSS accounting system.

Assure future independent NSS Audit reports and NSS federal tax returns reflect the same data.

Continue to codify our business and financial policies and procedures. Seek to make it easier for the Board to transition our knowledge and responsibilities to our successors. One of the first things we seek to do is to annotate the NSS Chart of Accounts to describe the purpose for some of the non-obvious COA lines.

 

Paul Stevens
NSS Secretary/Treasurer