Wikimedia Endowment reports/Financial/Audits/2023-2024 - frequently asked questions
Executive Summary
[edit]The Wikimedia Endowment (the Endowment) began operations as a standalone tax-exempt 501(c)(3) organization on September 30, 2023, with the mission to act as a permanent fund that can support in perpetuity the operations and activities of current and future Wikimedia projects. Prior to September 2023, the Endowment was housed at the Tides Foundation and was included in Tides’ audit reports.
The Wikimedia Endowment has published audited financial statements (“audit report”) covering the nine month time period from 30 September 2023 - 30 June 2024, from the time that the Endowment began operations as a standalone 501(c)(3) organization on 30 September 2023 through the end of the fiscal year on 30 June 30 2024. The audit report represents details on the financial statements and the financial activities of the Endowment. The audit report is completed by an external auditor (KPMG) to independently validate that the Endowment’s financial statements are presented fairly. This work is overseen by the Wikimedia Endowment’s Audit Committee, which includes the Chair of the Wikimedia Endowment, Wikimedia Endowment donors, and a member of the Wikimedia volunteer community.
The Wikimedia Foundation is the nonprofit organization that operates Wikipedia and other Wikimedia projects. The Endowment and the Wikimedia Foundation are considered “related parties” under the accounting rules, which is an accounting term that describes transactions between two parties that have a preexisting business relationship or common interest. Therefore, the audit reports for both reference one another.
The Endowment’s audit report is made up of 1) the independent auditor’s report, 2) financial statements, and 3) notes to the financial statements, as described below.
Independent Auditor’s Report
[edit]This is a report from our external auditors, KPMG, issuing their opinion that the Endowment's financial statements for the nine months from 30 Sep 2023 - 30 June 2024 are presented fairly, and in accordance with U.S. generally accepted accounting principles (U.S. GAAP).
Financial Statements
[edit]The financial statements provide an overview of basic information about an organization's financial position and its overall financial health. They are made up of the three below statements.
- Statement of Financial Position: provides an overview of assets, liabilities, and net assets as a snapshot in time - in this case, as of June 30, 2024. As of June 30, 2024, the Endowment’s net assets were $144.3 million, made up primarily of cash of $20.1M and investments of $123.4M.
- Statement of Activities: provides a summary of revenues (primarily donations) and expenses during fiscal year (FY) 2023-2024, the nine months from 30 Sep 2023 - 30 June 2024. The Endowment’s total revenue was $132.0M for FY 2023-2024. However, the vast majority of this revenue came from the transfer of $116.2M of the Endowment fund from the Tides Foundation, which housed the Endowment from 2016 to 2023. This was a one-time transfer to establish the Endowment as its own standalone 501(c)(3) organization. The Endowment received $13.4M in donations during FY 2023-2024 and had $2.4M in investment income. Our expenses totaled $5.0 million, made up of $2.9M in awards and $2.1M in other costs - primarily paid to the Wikimedia Foundation for fundraising and general and administrative support services provided to the Endowment through a cost-sharing agreement.
- Cash Flow Statement: provides details on changes in the Endowment’s cash flows during FY 2023-2024. These cash flows are divided into cash flows from operating activities and investing activities.
Notes to the Financial Statements
[edit]These notes include a summary of significant accounting policies as well as additional details on specific accounts, as required by U.S. GAAP.
Audit Report Overview
[edit]What is an audit report and why does it matter for an organization?
[edit]An audit report is a collection of an organization’s audited financial statements. It gives an overview of an organization’s financial position and overall financial health. An organization’s audit report is typically shared with board members, donors, and other important stakeholders. The information from the audit report is then used in the financial piece of the organization’s Form 990—a form required by the US Internal Revenue Service in order for a nonprofit organization to maintain its 501(c)(3) status.
As part of the audit report, an external auditor (in the Endowment’s case, KPMG) expresses an opinion on whether the organization is presenting its finances accurately and in accordance with U.S. GAAP. In this audit report, KPMG issued their opinion that the Endowment’s financial statements for FY 2023-2024 are presented accurately. It affirms that the Endowment’s existing processes are designed with appropriate control activities to initiate, authorize, record, process, and report financial data reliably, and designates the Endowment as a responsible steward of donor funds. Receiving clean audits year over year is critical to establishing credibility and reliability in the nonprofit space.
What timeframe does the audit report represent?
[edit]The audit report covers the most recently completed fiscal year, which for the Endowment was the nine month time period from 30 September 2023 - 30 June 2024, from the time that the Endowment began operations as a standalone 501(c)(3) organization on 30 September 2023 through the end of the fiscal year on 30 June 30 2024. It was prepared by the accounting staff of the Endowment, and our audit firm, KPMG, certified that it was presented in accordance with U.S. GAAP. The audit report was presented to the Endowment Audit Committee of the Endowment Board of Trustees, which has approved it and shared it with the full Endowment Board of Trustees.
When will the audit report for the current fiscal year (July 2024 - June 2025) be published?
[edit]Audit reports are published in the months after the fiscal year ends, meaning that they are a retrospective look back at the previous fiscal year. The audit report for the current fiscal year (July 2024-June 2025), is targeted to be released around October / November 2025.
How does the Endowment’s audit report relate to the Wikimedia Foundation’s audit report?
[edit]The Wikimedia Foundation (the “Foundation”) audit report represents the financials of both the Foundation non-profit and Wikimedia Enterprise, a limited liability company that is a subsidiary of the Foundation and not a separate 501(c)(3).
As of September 2023, the Endowment began operations as a standalone tax-exempt 501(c)(3) organization that is legally separate and independent from the Foundation, and as such, the Endowment’s audit report represents the financials of the Endowment.
The Endowment and the Foundation are considered “related parties” under the accounting rules, which is an accounting term that describes transactions between two parties that have a preexisting business relationship or common interest. Thus, both the Endowment and the Foundation’s audit reports have additional disclosures in the notes to the financial statements that disclose the nature of transactions between the Endowment and the Foundation. See below for more information on transactions between the Endowment and the Foundation.
When will the 2023-2024 Form 990 be published?
[edit]The Form 990 is a United States IRS form, “Return of Organization Exempt From Income Tax". While both the Form 990 and the audit report provide financial information about the Endowment, the two documents have different financial reporting requirements as stipulated by the IRS. We will soon begin working on the Form 990 for 2023-2024 with the support and guidance from KPMG. This will be the first Form 990 for the Endowment, for its first year of operations (FY 2023-2024). It is our target and intention that the Form 990 will be completed, approved by the Audit Committee, submitted to the IRS, and published around May 2025, barring unforeseen circumstances.
What are the differences in the financial statements within the audit report versus the Form 990?
[edit]The financial information found in the audit report is used to build an organization’s Form 990; however, there are some differences in the financial statements and their presentation and a few differences in recognition in both reports.
In terms of the overall statements, instead of the Statement of Activities reported in the audit report, the Form 990 presents the Statement of Revenue (Part VIII) and the Statement of Functional Expenses (Part IX). Both the audit report and the Form 990 have a balance sheet (called the Statement of Financial Position for the audit report and called Part X - Balance Sheet for Form 990). The audit report also includes a Statement of Cash Flows that is not required for the Form 990.
In terms of presentation, the requirements in the above statements are sometimes different - typically, the Form 990 requires more granular reporting.
In terms of recognition, certain revenue and expenses are recognized in the audit report but not recognized in the Form 990. The Form 990 includes a reconciliation from the audit report to Form 990 within Schedule D - Part XI - Reconciliation of Revenue per Audited Financial Statements With Revenue per Return. For the Endowment, unrealized gains and losses on investments are recognized in the audit report but not recognized in the Form 990.
Where else can I find information about the Endowment’s finances?
[edit]The audit report is one of several financial documents that will provide information on the Endowment’s financials and organizational policies as a standalone organization. Each year, we also publish an annual report about the Wikimedia Endowment, that summarizes the activities of the Endowment, its impact and its financials. You can read the FY 2022-2023 Annual Report, and the FY2023-24 Annual Report will be published in early 2025. We will publish the Form 990 covering FY 2023-2024 in the May 2025 timeframe. You can also read the Endowment’s FY 2024-2025 Annual Plan.
Key Highlights
[edit]What are the overall takeaways?
[edit]Our net assets were $144.3 million, made up primarily of cash of $20.1M and investments of $123.4M, which will allow the Endowment to sustain its mission as a permanent fund that can support in perpetuity the operations and activities of current and future Wikimedia projects.
The Endowment’s total revenue was $132.0M for the nine months from 30 Sep 2023 - 30 June 2024. However, the vast majority of this revenue came from the transfer of $116.2M of the Endowment from the Tides Foundation, which previously housed the Endowment. This was a one-time transfer to establish the Endowment as its own standalone 501(c)(3) organization. The Endowment received $13.4M in donations during FY 2023-2024 and had $2.4M in investment income, reflecting both a continued interest in supporting our mission from our donors and also positive investment returns over this time period.
Our expenses totaled $5.0 million, made up of $2.9M in grants to support the technical innovation of the Wikimedia projects and $2.1M in operational costs - primarily paid to the Wikimedia Foundation for fundraising and general and administrative support services provided to the Endowment.
What are the Endowment’s sources of revenue?
[edit]The Endowment is funded by donations both large and small and through planned gifts, where donors include gifts to the Endowment in their estate plans. We also receive investment income (including interest, dividends and realized gains/losses).
In the FY 2023-2024 audit report, the vast majority of the Endowment’s revenue came from the transfer of $116.2M of the Endowment fund from the Tides Foundation in September 2023. This was a one-time transfer to establish the Endowment as its own standalone 501(c)(3) organization. Those funds were raised between 2016 and 2023.
What types of financial transactions does the Wikimedia Endowment have with the Wikimedia Foundation?
[edit]There are three main types of transactions between the Endowment and the Foundation:
- Cost sharing agreement: The Endowment does not have any employees of its own. In order to maximize cost efficiency, Beginning in FY 2023-2024, the Endowment formed a cost sharing agreement with the Foundation in which the Endowment pays the Foundation for the work the Foundation does to support the Endowment, primarily fundraising and general and administrative support. Costs include direct business expenses for which the Endowment reimburses the Foundation, such as donation processing fees, business registration fees, website hosting costs, marketing material, printing, mailing, consulting, and travel and transportation. Costs also include Foundation staff time to support the Endowment, such as Fundraising, Legal, and Finance staff time. The Endowment recognized expenses of $2.1M related to services provided to the Endowment by the Foundation in FY 2023-2024. These costs are included within the Endowment’s expenses based on the nature of the cost.
- Donation revenue: While the Endowment can receive donations directly, for example via wires sent to the Endowment’s bank account, donations made to the Endowment online are processed via the Foundation’s payment processors. Monthly, the Foundation transfers those donations to the Endowment for donations raised in the prior month. As of June 30, 2024, the Foundation owed the Endowment $525.6K for donations raised on behalf of the Endowment in the month of June. This was subsequently paid in July 2024.
- Funding: During the nine months from 30 Sep 2023 - 30 June 2024, the Endowment provided the Foundation with funding of $1.5M for MediaWiki improvements, $600K for the Abstract Wikipedia project, and $500K for exploring strategies for expanding beyond the Foundation’s existing audiences of consumers and contributors. Each year, the Endowment uses a portion of its earnings for funding to support the long-term sustainability of Wikimedia projects. Since fiscal year 2022-2023, Endowment funding has supported technical infrastructure and innovation on the projects.
Detailed financials for the Foundation are available in the Foundation’s audit report.
What is the Endowment’s approach to cash and investments?
[edit]The Endowment’s goal is to ensure we have an appropriate amount of available operating funds in cash, with the majority of funds invested in line with the investment policy. The primary goal of the Endowment’s investment program is to preserve the purchasing power of the Endowment by achieving long-term returns while also preserving capital. This will allow the Endowment to fulfill its mission to act as a permanent fund that can support in perpetuity the operations and activities of current and future Wikimedia projects.
Terms and Definitions
[edit]What is "investment income, net"?
[edit]"Investment income, net" is primarily interest, dividends, and realized gains/losses earned on the Endowment's cash and investment portfolio, net of investment management expenses. During this audit period, the Endowment was primarily invested in publicly traded securities (Note 3), in line with the investment policy. The primary goal of the investment program is to preserve the purchasing power of the Endowment by achieving long-term returns.
What are "other operating expenses"?
[edit]"Other operating expenses" primarily include general and administrative expenses such as for software, legal costs, and insurance.
What is the "functional allocation of expenses"?
[edit]The functional expense statement is created to break out the purpose of spending. Expenses are reviewed and allocated among three categories: Programs, General and Administrative Support, and Fundraising.
What are "Programs" expenses?
[edit]The "Programs" category includes all the work done by the Endowment that directly supports the Wikimedia mission, primarily providing funding to support the Wikimedia projects.
What are "General and Administrative" expenses?
[edit]The "General and Administrative" category is primarily costs paid to the Wikimedia Foundation for general and administrative support, such as Finance and Legal personnel staff time to support the operations of the Endowment.
What are "Fundraising" expenses?
[edit]The "Fundraising" category includes all spending associated with fundraising activities. For example, it includes the cost charged from the Wikimedia Foundation for Fundraising staff support, donation processing expenses related to online fundraising, and all fundraising-related travel and conference costs.