Secretary-Treasurer's Report

E-4 New NSS Fiscal Policies to be Recorded in Section 9 of Board of Governors Manual

While the content and style of the NSS fiscal reports we have been using for years may have been adequate for the Board to manage the Society they may not be sufficient to be in compliance with generally accepted accounting practice. Compliance will allow us to obtain an unqualified opinion from an independent auditor that our books accurately reflect our fiscal condition. Such an opinion has been a Board goal for years and may be required to receive grants from outside organizations.

The on going independent review our NSS accounting records and process by a professional audit firm will advise us of changes we should make to bring our fiscal processes and reports into compliance with Generally Accepted Accounting Practices.

Another of our significant shortfalls is automating the output from our accounting system into the fiscal reports we provide the Board. We have three challenges to overcome:

1) We are still evolving the NSS fiscal report content and format and we will make changes as a result of the current audit.

2) We have yet to codify a map of the Chart of Accounts (COA) output into our fiscal reports. Currently Dave Irving manually manipulates COA data to produce the fiscal report spreadsheets distributed to the Board. We seek to greatly reduce the need to manipulate COA data and to codify the remaining manual process.

3) Another shortfall may be that we have yet to document the NSS business rules which are programmed into our LedgerMaster accounting software so that people not currently involved with LedgerMaster can transition to new accounting software sometime in the future.

Dave Irving developed the May-August revenue and expenses statement of FY99/00 NSS financial activity (Enclosure E-2). The bottom line is that the Operating Fund surplus is currently over $41,000. However, the "Budget Year to Date" Variance is only $21,393.98. The budget year-to-date figures were adjusted manually by Dave to reflect our actual status (such as 5 News issues and 1 Journal issue published, or 100% of Life Members income already received). This gives as true a picture as possible of how we are actually doing to date. The major items that have put us ahead so far this year are Net Bookstore Sales, which are up by $9,700, the NSS News which is spending at a rate $7000 under their budget, and the Journal which is spending at a rate $3000 under their budget

Starting with this Board meeting we plan to 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.

Enclosure 1 is a proposed update to the FY00/01NSS annual Operating and Capital budget to reflect changes recommended by the NSS officers. A summary of the update follows. After all of the following budget changes our FY00/01 revenue will exceed expenses and additional working capital will be accumulated.

Based upon what we have observed in the May through August figures, Dave Irving proposes to change our FY 00/01 revenue budget for Speleo Digest from $11,000 to $20,000 and our revenue budget for SpeleoGenesis from $5000 to $28,000. The Cost of Goods Sold budget increases accordingly.

We also propose to use money in our designated and restricted funds for which we have more than an adequate balance for new expenses in accordance with the purpose of these funds. For example, our approved FY 00/01 budget for cave acquisitions was $5,000, which we spent on Billy Clay Pit. The grant for Pautler Cave was approved last year but not requested, and by Board Act, operating budget allocations don't carry over from year to year. Unfortunately we did not budget again to accommodate the grant in FY 00/01. However, the intent of the Board was clear so we paid the Pautler Cave grant in September.

Pay the actual cost of printing the 2000 NSS Members Manual rather than reduce other OVP department budget lines to accommodate it. The membership listing is 40 pages larger than last year; due in a large part to the inclusion of e-mail addresses.

The following budget items will be funded by NSS designated and restricted funds which were created for these purposes (and cannot be used for other purposes). These funds have more than an adequate balance.

Pay the actual cost of the independent professional audit services, much of which has already been incurred, to audit our accounting records rather than reduce other Secretary-Treasurer department budget lines to accommodate it.

The following provides the balance in each of our NSS Trust Funds managed by the National Speleological Foundation as of the end of August 2000. In summary:

The balance in each fund remains adequate to meet the purpose for which each fund was established.

Dave Irving and I agreed to specific "sell point" recommendations from Larry Southam (NSF treasurer) under which the NSF will sell securities previously donated to the Society. These are orders to sell if a stock declines beyond a set price. The sell price will be reviewed periodically and raised if the price zig zags higher. Our goal is to capture further appreciation, without risk of major decline.

In the summer of 1999 we decided to ask the NSS NEWS Photographic Endowment Fund donors if they would object to our changing the purpose of the fund to support special features in any NSS periodical rather than limiting its used to only publishing color photographs in the NSS News. Only the most significant donor responded to a NSS News solicitation and he was in favor of the change. Since the NSS Board has yet to approve a motion that requests the NSF to accept a contract change that would implement the concept a motion is on this BOG meeting agenda to do so.

The next NSF Trustee's meeting is on October 21, 2000 at Jeanne Gurnee's home in Tennessee.

While NSS bills continued to be paid on time, accounting operations at the NSS office fell behind schedule beginning in June as the result of the retirement of Camille Mueller as NSS Operations Manager. Her replacement, Bill Davis, was not able to perform these functions during his tenure. Camille Mueller continued to pay NSS bills and perform the accounting for transactions through the end of August on a part-time basis. Stephanie Cothron assumed responsibility beginning Monday, August 28th. Camille then trained Stephanie on the NSS LedgerMaster accounting system and reviewed how to close end-of-month accounting periods. In September Dave Irving worked with Stephanie to help her assign transactions to the chart of accounts. Since Stephanie took over our accounting process has been going extremely well which reflects her extensive prior accounting experience. Our books are closed through July and we are in the final stages of closing August with September close behind that.

In early September Stephanie and Camille worked with our NSS Huntsville banks to remove Camille's signature and replaced it with hers, and change the statement mailing address for those accounts to an independent person (Scott Fee ) who will distribute them to Stephanie and an independent account reconciler. Stephanie sent the new signature cards to the EC meeting for signature and I subsequently sent them to Mike Hood in Saudi Arabia. They are now in the mail back to Huntsville.

I have asked Stephanie to consult with Dave Irving or me before signing a NSS check to pay for expenses other than those associated with routine expenses such as office utilities, office supplies, office lawn maintenance, postage, NSS periodical publication cost, etc. In particular either Dave Irving or I will approve NSS committee requests for reimbursements and other unusual expenses in consultation with the other officers to the extent they wish to participate. I expect to use this process just long enough for Stephanie and the EC to become comfortable.

In May we hired Noel Tallon, a professional Huntsville CPA, to perform the first independent review our NSS accounting records and process and advise of us changes we should make to bring them into compliance with Generally Accepted Accounting Practices. His estimate to perform the service was $4900, $500 over budget. He accepted the job based on being able to complete it during May-June, a slack period in his already contracted work, with the understanding that we did not consider it urgent. The audit started May 15th. Dave Irving and Camille answered questions, explained procedures, and provided supporting documentation. They were able to quickly provide everything the auditors requested with a few exceptions such as a copy of the NSS property insurance policy, one of the bills from publishing Cave Minerals, and a deed to Warren Cave, all of which were provided later. As of early June the auditors were waiting for letters from the NSF and our banks verifying our assets and a letter from our Legal Committee saying there were no major lawsuits against the Society. During July-August we exchanged email on a variety of questions from the auditors on our restricted funds, however our communication rate was slow due to NSS personnel vacations and the firm's other work commitments.

The auditor is almost done, but is having trouble clearing up a few points about our restricted funds along lines which were never important to us before, such as "temporarily restricted" versus "permanently restricted" funds and reporting investment gains separated into dividends, realized capital gains, and unrealized capital gains. In part the problem is that he is thinking dividends and interest should go into temporarily restricted funds available for expenses while capital gains are added to the permanently restricted funds that can't be touched. Several years ago we shifted to a paradigm based on the total real return of our NSF investments, in which 5.5% of the total value of a permanently restricted fund becomes temporarily available for expenses each year. We have yet to reach an understanding on how this should be accomodated in our accounting. But then this is why we did the audit, to determine the differences between our accounting system and GAAP accounting, and to get advice on how to fix it.

The auditors indicate they have already spent approximately double the amount of time in analyzing our restricted accounts and trying to comply them with the required GAAP reporting than they had anticipated, and feel it will still require more of their time to finish up. They indicate that although our accounting records have provided us with the information that we wanted, they are significantly different than what is required for GAAP and what they expected when they began their analysis. As a result the audit will cost more than originally anticipated.

As soon as we receive a report from the auditor we will provide it quickly to the Board. After many communications with the auditor, we know some of the results of the audit and are already implementing changes in how we designate our individual funds and are planning changes in how we will present future fiscal reports.

Ted Kayes purchased a rider on our insurance policy to provide liability insurance for members of the NSS Board of Governors and NSS committee chairmen with a coverage of $l million for the aggregate of incidents during a one year term. The coverage was effective August 1, 2000.

Ted also purchased a rider on our insurance policy to provide liability insurance coverage for the National Park Service as required by our contracts with Mammoth Cave National Park for the NSS Mammoth Cave Restoration Project and NPS Cave Resources Education Initiative.

We now reflect all NCRC financial transactions in our NSS fiscal reports regardless of whether the source of funds was the AVP NCRC budget line or funds obtained from NCRC sponsored courses. Kathy Welling will report to the NSS Operations Manager on a quarterly basis each NCRC region's total revenue and total expense since the last report. This information will be entered by the NSS Operations Manager in to the NSS LedgerMaster accounting system. At the end of each NSS fiscal year the NSS LedgerMaster accounting system will show the closing balance for each NCRC region's bank account and their total revenue and total expense during the fiscal year. The money budgeted and reported for NCRC in the past was based on the perception that the AVP NCRC budget line was the only money spent by the Society for NCRC activities. In the past the NSS balance sheet did not include NCRC region or national bank accounts. Future NSS fiscal reports will recognize that all of what NCRC spends is NSS money.

I have not received a financial report on the annual NCRC National Cave Rescue Seminar held in June 2000.

Reporting one year's convention surplus should be done in the fiscal year the convention occurred. That's consistent with Generally Accepted Accounting Practices and is what we tell the IRS in our Form 990 tax return. If we want to carry excess convention surplus over as income for the following fiscal year (BOG Act 16-620) we should create a restricted fund into which the current fiscal year surplus is deposited and then transfer those funds out the next fiscal year.

That's the accounting side of the problem, now for the budgeting side. Convention surpluses are highly variable. They vary randomly from year to year, going from small losses to excesses in the $20,000-30,000 range. If we balance one year's NSS operating budget with a large surplus and then find the next convention had only a small surplus we may have to cut a significant amount from the next fiscal year's budget. Rather than using a particular year's convention surplus in the budget, we'd be better off using the average surplus over a period of years.

How can we accomplish this? Expand the role of the existing Convention Surplus restricted fund. Transfer the full convention surplus for each year into the NSS Convention Surplus Fund. At the start of each new fiscal year, transfer one-fifth of the Convention Surplus Fund into the NSS operating budget as income as long as we maintain a minimum balance of $15K in the NSS Convention Surplus fund in accordance with BOG ACT 18-598. Why "one-fifth"? To give us five-year averaging of surpluses. Each year we would be withdrawing the average surplus for the past five years. The average surplus for the last 8 years has been about $12,000 but if you go back a lot more than 8 years the average surplus has been about $6,000/year. We adopted the above strategy in the approved FY00/01 budget and included $6,500 of convention surplus as revenue. There is a motion on the Board meeting agenda to codify this policy.

Nick Schaer provided what he considers a near final report of NSS 2000 convention income and expenses which indicates a surplus of about $27,000. He continues to pursue a few bad checks and credit card charges. The surplus will be deposited directly into the Convention Surplus Fund. The addition of $25K to the Convention Surplus Fund will raise its total to over $50,000. That means we will be able to budget for a $10,000 transfer from the Convention Surplus Fund for next year's operating budget if we continue our past practice. His latest report it is posted on http://www.caves.org/nss-business/fiscal-information/default.htm.

I provided a spreadsheet listing the revenue/expense for each 1998-2000 NSS convention's chart of account item to the chairmen and treasurer of the 2001 and 2002 NSS conventions and worked with the AVP to derive convention budgets for approval. This report is posted on http://www.caves.org/nss-business/fiscal-information/default.htm.

There is a motion on the Board meeting agenda to establish a NSS Operating Surplus Fund to smooth the normal variation in annual fiscal year NSS Operating Fund surpluses and deficits and allow the net surplus to be used in subsequent fiscal year operating budgets. Currently any surplus is allocated to NSS working capital. The initial seed proposed for this fund is about $25,000 based upon the FY 98/99 and FY 99/00 NSS Operating Fund surplus. Twenty percent of this initial seed would be considered revenue in the FY 01/02 operating budget should the motion pass. I expect the fund will grow as it accumulates five full year's of operating surpluses. If we adopt this model of operation we must consciously budget as part of our normal budget process to accumulate working capital to meet our publication and cash flow needs. This is currently addressed under “Fund Transfers and Miscellaneous.”

The table below provides Karen Dennis 's summary of the first two years of field camps. There were 259 participants during the two years, who worked a total of 4,112 hours and received $39,857.32 in reimbursements. That averages to 15.88 work hours per person per camp and $153.89 reimbursement. The number of miles traveled by the participants was 96,593, or an average of 372 miles for each person (the actual total miles traveled is much higher, since we counted only up to the maximum of 750 miles). $1,354.54 was spent on tools and equipment and $2,292.00 went to the Department of Interior to pay for the use of Maple Springs field house. Total disbursements for the two year was $43,508.86. Slightly more than half of the $80,000.00 has been distributed in the first two years.

Field camps	# of people	Total miles traveled	Hours worked	Nights at Maple Springs	Paid for Maple Springs	Paid for tools & equipmt.	Paid as reimburse- ments	Total outgo for camp
Aug. 98	28	12,114	1,024	115	460.00	325.00	5,717.34	6,502.34
Oct. 98	24	7,527	216	26	104.00	0	3,053.06	3,157.06
Jan. 99	43	13,692	464	72	288.00	504.84	5,812.52	6,605.36
Apr. 99	29	10,736	292	20	80.00	0	4,472.16	4,552.16
1st year	123	45,069	1,996	233	932.00	829.84	19,055.08	20,816.92
Aug. 99	31	16,650	1,168	178	712.00	0	7,236.50	7,938.50
Oct. 99	41	14,706	444	58	232.00	529.00	6,089.36	6,851.06
Jan. 00	36	10,766	288	72	288.00	0	4,161.46	4,449.46
Apr. 00	28	9,402	216	32	128.00	0	3,324.92	3,452.92
2nd year	136	51,524	2,116	340	1,360.00	529.70	20,802.24	22,691.94
Totals	259	96,593	4,112	573	2,292.00	1,359.54	39,857.32	43,508.86

The following table shows a comparison of the budgeted versus actual, by field camp, of grant money disbursements and volunteer hours worked. Budgeted dollars and hours are based on estimates from the proposal for the Cooperative Agreement. The budgeted dollars, divided by the budgeted hours, averages, over the year, slightly over $12.00 per man-hour of volunteer labor. The actual amount reimbursed averages about $10.58 per man-hour of volunteer labor. The burn-rate per hour has been lower than estimated, but the attendance at camps, and the hours worked, has exceeded estimates. So the funds are being disbursed at a faster rate than projected. Overall, the dollars were 134% of budget – meaning that the money is projected to be used up in about three and a half years instead of five. However, the labor hours were 150% of budget, so the work, if estimated correctly, should be done in less than 3 ½ years.

The following table shows a summary of actual income and outgo, by quarter. The NSS has received $80,663.90 in grant money plus interest and has paid out $43,803.24 in bank fees, expenses, and reimbursements, leaving a total of $36,860.66 on the books at the end of June 2000.

Quarter	Income			Total Income	Outgo		Total Outgo	Balance
Jul-Sep 98	FY 98 Grant				Aug 98 Camp
	12,500.00			12,500.00	6,502.34		6,502.34
Oct-Dec 98	FY 98 Grant		Interest		Oct 98 Camp	bank fee
	12,500.00		14.23	12,514.23	3,157.06	19.50	3,176.56
Jan-Mar 99	FY 98 Grant		Interest		Jan 99 Camp	bank fee
	12,500.00		68.49	12,568.49	6,605.36	39.42	6,644.78
Apr-Jun 99	FY 98 Grant	FY 99 Grant	Interest		Apr 99 Camp	bank fee
	12,500.00	7,500.00	100.42	20,100.42	4,552.16	36.36	4,588.52

1st Year Total	50,000.00	7,500.00	183.14	57,683.14	20,816.92	95.28	20,912.20	36,770.94
Jul-Sep 99		FY 99 Grant	Interest		Aug 99 Camp	bank fee
		7,500.00	126.88	7,626.88	7,938.50	39.00	7,977.50
Oct-Dec 99		FY 99 Grant	Interest		Oct 99 Camp	bank fee
		7,500.00	113.28	7,613.28	6,851.06	47.70	6,898.76
Jan-Mar 00		FY 99 Grant	Interest		Jan 00 Camp	bank fee
		7,500.00	118.64	7,618.64	4,449.46	45.90	4,495.36
Apr-Jun 00			Interest		Apr 00 Camp	bank fee
			121.96	121.96	3,452.92	66.50	3,519.42
2nd Year Total		22,500.00	480.76	22,980.76	22,691.94	199.10	22,891.04	89.72
Totals	50,000.00	30,000.00	663.90	80,663.90	43,508.86	294.38	43,803.24	36,860.66

In our continuing effort to codify our fiscal procedures attached as Enclosure E-5 is Karen's description of the procedures she uses to administer the Mammoth Cave Restoration grant money.

We opened a separate bank account to manage the finances associated with our National Park Service Cave Resources Education Initiative contract with Mammoth Cave National Park. Under the terms of the cooperative agreement between the participating organizations, the NSS, Project Underground, and American Cave Conservation Association will provide $83.5K in volunteer value, and the NPS will contribute up to $51.5K for travel reimbursement and learning kit development. (The travel reimbursement situation is the same type of arrangement NPS provides for the Mammoth Cave Restoration Camp project).

SpeleoArt was an independent organization until it joined the NSS Inc. in October 99 bringing its $1200 bank account into NSS assets. However this summer its members decided to split the organization into a NSS component called "Fine Arts Salon" involved with NSS activities and an independent component called "SpeleoArt" sponsoring international activities. I spent the past three months working with them to sort out the fiscal issues associated with this evolving relationship. The statement of NSS Fine Arts Salon financial activity associated with the 2000 NSS convention is posted on http://www.caves.org/nss-business/fiscal-information/default.htm.

The new independent SpeleoArt organization donated $500 to the NSS Fine Arts Salon Fund to promote cave art. This donation was from prior year SpeleoArt revenue (when it was an independent organization) part of which was the $500 grant from the NSS.

We opened a separate bank account to manage the finances associated with the NSS Fine Arts Salon. We will segragrate their financial transactions since a major component of their activity involves selling cave art for a commission in addition to conducting a juried competition as done by the other NSS salons.

We provided all of the relevant FY99/00 fiscal information to our tax accountant so he could prepare our federal tax return, but some of that only recently. The latest piece to arrive was the list of grants and awards from the NSS Office and he only recently received the NSF annual report. As a result he filed on our behalf with the IRS for an extension until December 15th to submit our federal tax return.

Each NSS department is now in the process of updating the database of NSS personal property.

At its June meeting the Board decided to grant $6,500 to the American Geological Institute to support a national karst environmental awareness publication in exchange for 2,500 copies of the publication for distribution or sale as it chooses. The Board asked the Executive Committee to determine the source of funds for this grant and report to the Board at the fall meeting. The EC decided to allocate 750 copies for distribution by the AVP as a cave and karst conservation educational tool and decided to sell the remaining 1750 copies through the NSS bookstore. Cheryl Jones requested a grant from the NSF to cover the cost of these copies. Should the grant requests not be approved the EC decided to allocate $2550 (750/2500) of the $6500 grant to the Save the Caves Fund (current balance is about $17,000). The remainder of the $6500 grant will be allocated to the normal NSS Operating Fund (the working capital we use to purchase non-NSS items for sale by the bookstore). As required by the Board we will provide the first $2000 we receive from NSS bookstore sales of this publication to the NSS Geology & Geography Section so they can repay the $2000 NSF loan they obtained to pay a share of the total cost of the AGI publication. The next $3950 earned from NSS bookstore sales will be used to write off the cost of the bookstore inventory. The next $2550 in additional sales income will be attributed to the Save-the-Caves Fund. Any remaining sales income will be credited to the NSS bookstore profit.

Enclosure E-4 includes several new fiscal policies, processes and job descriptions.

The list of NSS restricted funds was updated based upon the recommendation of the independent auditor to substitute the fund "type" category "designated" for "unrestricted". These categories indicate whether each fund was a permanently restricted fund (principal not touched, only income is available), temporarily restricted fund (both principal and income can be spent), or a designated fund (unrestricted, but designated by Board for specific purposes).

I plan to post these policies in Section 9 of the Board Manual unless a Board member moves to amend.

The EC will use the process described in Enclosure E-5 to develop the FY01/02 NSS budget. This report is posted on http://www.caves.org/nss-business/fiscal-information/default.htm.

Both Dave Irving and I wish to remain NSS Chief Accountant and NSS Secretary-Treasurer for years to come. However we recognize our health may not allow this so we advertised in NSS News for volunteers with an accounting or business background who would like to work with us to ensure a smooth transition to potential successors over an indefinite near-term time period. Ted Kayes, D. Shaffner, and Kevin Smith responded indicating an interest in serving as NSS Secretary-Treasurer.

Secretary-Treasurer - Paul Stevens
Chief Accounting Officer - David Irving (Finance Committee)
Special Issues - Ted Kayes (Finance Committee)
NSS Operations Manager - 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

NPS Cave Resources Education Initiative Treasurer - To Be Determined
NPS Cave Resources Education Initiative Bank Account Reconciler - Cheryl Jones

NCRC Financial Officer – Kathy Welling
NCRC Northeast Region Financial Officer – John Evans
NCRC Eastern Region Financial Officer - To Be Determined
NCRC Central Region Financial Officer – Anmar Mirza
NCRC Pacific Northwest Region Financial Officer – John W. Punches
NCRC 2000 Seminar – John Appleby

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

NSS Trust Fund	Balance (9/30/98)	Balance (8/31/99)	Balance (8/31/00)
Life Membership	$901,461	$980,516	$1,040,836
Stone Research	$110,831	$126,372	$119,817
Awards	$7,286	$7,453	$7, 831
NSS Headquarters	$111,775	$120,640	$132,972
NSS Library/Museum	$0	$0	$0
Cave Preserve	$46,384	$50,719	$53,481
Vandalism Deterrence	$9,242	$9,651	$11,204
International Support	$42,019	$47,052	$50,379
NSS News Photo	$35,685	$37,971	$42,780
Stephenson	$10,503	$11,540	$11,366
Sara Corrie	$33,993	$37,937	$43,479
NSS Holding	$72,340	$87,565	$116,263
Endowment	$19,853	$49,487	$63,106
Publications	$99,089	$105,459	$106, 963
TOTAL:	$1,500,461	$1,672,362	$1,822,335

	$	$	$	$	Hours	Hours	Hours	Hours
Camp	Budgeted	Actual	over budget	% of budget	Budgeted	Actual	over budget	% of budget
Aug. 1998	4,902.00	6,502.34	1,600.34	133%	720	1024	304	142%
Oct. 1998	3,844.00	3,157.06	-686.94	82%	216	216	0	100%
Jan. 1999	3,844.00	6,605.36	2,761.36	172%	216	464	248	215%
Apr. 1999	3,844.00	4,552.16	708.16	118%	216	296	80	137%
Aug. 1999	4,362.00	7,938.50	3,576.50	182%	720	1168	448	162%
Oct. 1999	3,844.00	6,851.06	3,007.06	178%	216	444	228	206%
Jan. 2000	3,844.00	4,449.46	605.46	116%	216	288	72	133%
Apr. 2000	3,844.00	3,452.92	-391.08	90%	216	216	0	100%
Totals	32,328.00	43,182.36	10,854.36	134%	2736	4116	1380	150%

October 2000

REPORT

of the

NSS SECRETARY/TREASURER

OVERVIEW