At its August 2011 meeting, the Board had an extensive discussion on the topic of fundraising, chapters, financial controls, and accountability. The Board unanimously agreed to this letter to the community on the topic on August 5, 2011.
The Board of Trustees has recently reviewed our fundraising model and issues related to the way donor funds are received. This review followed detailed discussions among the Board's Audit Committee and with our outside auditors, which highlighted issues about the level of financial controls over donor funds that go directly to the chapters who act as payment processors. This review focused on the model established last year, under which donors in certain countries are exclusively directed to the local chapter during the annual fundraiser. In our 2010-2011 year, about $4M net went directly to 12 chapters, representing roughly 15% of the total funds donated to the movement.
There are several problems with this model, and with the current fundraising situation. Some chapters have received large sums of money early in their organizational lives, before they have built the capacity and financial controls to safeguard and best use those resources in pursuit of the mission. Some chapters have received many times their planned budget in a single fundraiser. Additionally, in some countries, transferring funds internationally has been limited by regulatory constraints.
There are also currently no movement-wide controls applied consistently to all entities that receive donor funds. Some chapters, despite being well-funded, have not reported in a timely way on their activities, their financial status, and their use of donor funds, or have had difficulties following the regulatory requirements of their countries.
This fundraising model has also contributed to significant resource disparity among chapters. Some of the largest fundraising chapters have revenue far greater than their stated need and capacity to spend, while other chapters receive revenue only from Foundation grants or have almost no revenue at all. The model also suggests that chapters are entitled to funds proportional to the wealth of their regions, which amplifies the gap between the Global North and South.
We need to improve our model to address these concerns and to improve the distribution of donor funds across the Wikimedia movement.
Our design principles for improving the fundraising model are:
- We are deeply committed to decentralized pursuit of our mission and to supporting the long-term sustainability of chapters and other movement partners.
- Because of its role as operator of the websites, the Foundation has to be satisfied that any organization directly receiving donor funds will treat them with an appropriately high level of care and transparency.
- An organization can directly receive donor funds as a payment processor if the following criteria are met:
- There is sufficient money raised in the geography to merit the logistical effort.
- The organization offers tax deductibility or other incentives to local donors.
- Regulatory issues about any international funds flows are fully resolved.
- The organization's current financial resources are not enough to fund proposed program work.
- The Foundation can confidently assure donors to the chapter that their donations will be safeguarded, that our movement's transparency principles will be met, and that spending will be in line with our mission and with the messages used to attract donors.
- The donation process should clearly disclose basic facts about the organization receiving the donation.
- The Foundation is committed to a grants program to continue to provide funds to those who can most effectively pursue our mission.
These concerns need to be substantially addressed prior to the start of the 2011 fundraiser. In particular, we expect all parties to live up to current fundraising agreements including full compliance with all reporting deadlines.
We appreciate that some chapters have already started working on their budgets assuming that they would participate as payment processors in the 2011 fundraiser, but may not be able to meet the new criteria outlined above. The Foundation will work with these chapters to follow through on the principles of the current Fundraising Agreement to provide the necessary funds to continue their programmatic work and to meet their operational needs.
The Foundation will significantly expand its grants program, and should work closely with the Audit Committee to continue improving the controls and disclosures around grants.