July 3, 2001

REPORT
of the
NSS SECRETARY/TREASURER

- Attachment E -

OVERVIEW

Since the April 01 Board of Governors meeting we’ve:

ENCLOSURES (separately provided)

E-1: Updated NSS FY01/02 Budget
E-2: Updated FY01/02 Executive Budget Summary
E-3: Draft FY00/01 fiscal report

DETAILS

FY01/02 Budget

Enclosure E-1 provides the updated FY01/02 NSS annual Operating and Capital budgets as approved by the Board. An updated Executive Summary of the budget is provided as Enclosure E-2. 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.

FY00/01 Fiscal Report

Dave Irving and I developed Enclosure E-3 which provides the FY00/01 fiscal report for the period May 2000 to April 2001. Note the initial sheets provide a template for fiscal information in the form of what was recommended by Noel Tallon, our auditor last year, to comply with Generally Accepted Accounting Practices. Also note the sheets prepared by Dave Irving which provide the final report on NSS Normal Operations (the Operating Fund) including each department’s expenses.

Accounting Operations at the NSS Office

Dave Irving and Stephanie Cothron worked hard on closing the Fiscal Year 00/01 accounting records. Dave was in Huntsville 5/14 – 5/23 and they even worked on Saturday and Sunday. They were able to close the accounts associated with Normal Operations (the various department revenues and expenses), but still need to close the accounts associated with the restricted funds. Camille Mueller assisted them for a couple of days and helped with LedgerMaster questions and quirks.

Stephanie and Dave closed the May ‘01 accounting and Stephanie has generated a trial balance for June ‘01.

Independent Audits

The following describes the deficiencies noted by our FY99/00 auditor Noel Tallon 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 are 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.

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. Dave and I provided our understanding to the Board last summer of each fund’s FASB 116 category {Permanently restricted, Temporarily restricted, Unrestricted}. Hearing no objections we codified it in the BOG Manual under Appendix 9, Section 19 (http://caves.org/nss-business/bog/part-95.html). Subject to further review we will present this information in our FY00/01 fiscal report so our new auditor can provide his views.

To comply with GAAP the auditor told us that we must separately track interests, dividends, realized capital gains, unrealized capital gains, transfers into, transfers from, and donations for each restricted fund. The NSF indicates they think they can provide such detail. This may require new NSS COA items be added for each restricted fund (regardless of whether held by NSF).

The auditor told us 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. However, Kevin Smith (a CPA who audits non-profit organizations) has written a paper providing a basis for continuing our current practice, which we will do until our new FY00/01 auditor provides his view.

The auditor told us we must change our Fund agreements with the NSF to eliminate provisions that direct funds available for our use (e.g. Cave Preserve Fund earnings) not used for their intended purpose within a specified period of time be reinvested in the principal of the fund. The auditor believes once funds become "unrestricted" they cannot become "restricted" again. Kevin Smith disagrees with this advice and therefore we will seek another opinion from the new auditor.

Another recommendation of the audit was to ask the NSF to have their accounting reviewed by an independent auditor. The NSF is checking into this.

Each year we will not be able to close the NSS accounting books at the end of our May-April fiscal year until we receive a fiscal report from the NSF for the funds we consider "restricted" (which may include portions of the Holding Fund). Dave Irving is working with Camille Mueller and Les to see if we can close the "02" (NSF and NSS restricted funds) division in LedgerMaster separately from the other divisions (for example Operating Fund) at the end of each fiscal year.

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 a Change in NSF Reports
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.

 

National Speleological Foundation Trust Funds

The NSF accepted the Fund for Litigation to Protect Caves and agreed to change the name of the Photo Endowment Fund to “Endowment Fund for Special Features in NSS Periodicals.”

 

Incorporation of NSS in the District of Columbia

Dave Irving obtained a copy of the 1998 Non-Profit Corporation Act of the District of Columbia. Since that is where the Society is incorporated, its laws govern our corporation. The 1998 law allows those organizations incorporated before 1998 (the NSS was incorporated in January, 1941) to remain under the old law. The 1998 law requires that we have a registered agent and a registered office in the District (note that the suburbs don't count, the address has to actually be inside the District). Apparently the law was changed in 1998 so that we had to file a report by 15 Jan 1998, and every two years thereafter, or we would lose our incorporation status. We do not think a 2-year report was filed in a timely fashion in 1998 and 2000. We have yet to obtain a copy of the old law. Lee Stevens will contact the District of Columbia government before convention and request a “Certificate of Good Standing” which we need to obtain tax exempt status in Maine for the 2002 NSS Convention. We will decide future actions based on their response. Joel Stevenson has been involved in our discussion of this issue.

 

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. Kevin Smith researched audit issues. 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 Support - Ted Kayes (Finance Committee)
NSS Audit Support – Kevin Smith
NSS Restricted Funds Accounting – Nancie Carrigan
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 October 2001 Board meeting will be to continue to process our financial transactions in a timely manner and provide timely reports. Other tasks include:

Paul Stevens
NSS Secretary/Treasurer