Wikimedia Foundation reports/Financial/Audits/2017-2018 - frequently asked questions

See also: Financial statements, year ending June 30, 2018 (PDF)

External Audit Overview

The objective of an external audit is for the auditor to express an opinion on the fairness of the financial statements and the financial activities of the Wikimedia Foundation (WMF) for the fiscal year (FY) - in this case fiscal year 2017-2018 (covering 1 July 2017 - 30 June 2018).

Our auditors, KPMG, issued their opinion that the Wikimedia Foundation's financial statements for the fiscal year 2017-2018 are presented fairly, and in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP).

Furthermore, KPMG noted that there were no issues with the accounting of our financial records - including donation revenue, payroll, payables including processed payments and grants, fixed assets, cash and investments. The Foundation’s processes, which support our financial transactions, have no deficiencies or weaknesses of significant importance. This affirmed that the Wikimedia Foundation's existing processes are sufficiently designed with appropriate control activities to initiate, authorize, record, process, or report financial data reliably It further supported that the Wikimedia Foundation is upholding its financial fiduciary responsibility and being a good steward of the donors’ funds.

What’s the purpose of this frequently asked questions (FAQ) document?

This frequently asked questions (FAQ) document provides a general overview of the Wikimedia Foundation's FY 2017-2018 audited financial statements and additional details about areas that have generated many inquiries in the past. Detailed information available in the footnotes to the financial statements is generally not repeated in the FAQ. The financial statement footnotes are an integral part of the financial statements and should be read in their entirety;

What are financial statements for?

Financial statements provide an overview of basic information about an organization's financial position, its overall financial health. Normally, financial statements are read by a number of different audiences, including the management of the organization, board members, donors, and others.

What do these statements represent?

The audited financial statements of the Wikimedia Foundation's most recently completed fiscal year, covering the time period from 1 July 2017 to 30 June 2018. They were prepared by the accounting staff of the Wikimedia Foundation, and our audit firm, KPMG, certified that they meet the requirements of the U.S. GAAP. These audited statements were presented to the Wikimedia Foundation Audit Committee -- a board subcommittee -- which has approved them, and shared with the full Wikimedia Foundation Board of Trustees.

When will next year's audited financial statements be published?

Next year's audited financial statements will be released around October 2019.

Will the Wikimedia Foundation release interim financial statements?

We release interim statements for the mid-year period between the annual audits. Our next statements will be basic, unaudited, mid-year financial statements covering the period from 1 July  2018 – 31 December 2018. These will be released by the end of February 2019.

When will the 2017-18 Form 990 be published?

We will soon begin working on the Form 990 for 2017-2018 with the guidance from KPMG. It will be completed, approved by the Audit Committee, and published in May 2019.

Key highlights

What’s the overall takeaway?

The Wikimedia Foundation’s financial position is healthy as of 30 June 2018. Our cash and investment balances increased from the prior year due to better fundraising activity than planned as we continue to invest in the activities outlined in the approved FY18-19 Annual Plan.

Refer to the Fundraising Report for more details on our FY 2017-2018 fundraising activity.

Our overall increase of 17.8% in operating expenses from FY 2016-2017 is primarily in Salaries and wages, Awards and grants, Donations processing expenses, In-kind service expenses and Other operating expenses. Salaries and wages increase is consistent with our approved FY17-18 Annual Plan. Awards and grants increased from prior year due to a higher demand for grants from our communities. Donations processing expenses increased as a direct result of higher fundraising revenues. In-kind service expenses increased solely due to legal services provided on the NSA case at no costs. Lastly, Other operating expenses increased primarily due to the additional funding to the Wikidata project that is under the management of Wikimedia Deutschland.

Wikipedia and the many other Wikimedia projects are created by volunteers. How do they fit into the report?

Under U.S. GAAP, general volunteer activity is not reflected in a non-profit's financial statements. As a result, we do not attempt to quantify the value of volunteer contributions or include it as an in-kind donation of services.

This is in no way intended to diminish the significance of the volunteers' contributions. The Wikimedia Foundation projects wouldn't exist without the volunteers around the globe and we value their contribution enormously. There is a reference to the work done by our global volunteer communities in footnote 6 that accompanies the financial statements.

What are the Wikimedia Foundation’s other sources of revenue?

The vast majority of the Foundation’s revenue comes from individual donations. Every year, millions of people from around the world support the Wikimedia projects, mostly in the form of small, individual contributions. We also receive gifts from corporations and foundations, interest and dividends on investments, and "other income,” including revenue from merchandise sales.

Why is the Wikimedia Foundation increasing its cash and investment balance?

The Wikimedia Foundation’s goal is to ensure we have an appropriate amount of available operating cash. As a non-profit it is prudent to ensure that we have sufficient cash funds in the event that unforeseen opportunities arise, or an external or internal event limits our ability to raise funds. This is important for stability and the overall financial health of the organization.

There is no general guideline on what amount of cash availability is appropriate for a non-profit; different non-profits maintain different levels of available operating cash depending on their age, maturity, and mission. The cash and investment balance of the Wikimedia Foundation on 30 June 2018 represents about 17 months of operating funds, based on our Fiscal Year 2018-2019 Annual Plan; we believe the amount is appropriate for a growing non-profit of our size and age. Our goal is to have at least one year of operating funds so that we’re able to sufficiently support our operating expenses if we are unable to raise the required budget through our usual fundraising activity. Additionally, we want to have the ability to use our surplus to fund specific and non-recurring investment opportunities.

What is the Wikimedia Foundation’s approach to investment?

Our investment philosophy favors preservation of capital, income and liquidity over capital appreciation, which has higher volatility. Our priority is to have at least 6-9 months of available cash liquidity to support the short term needs.

Terms and Definitions

What is "in-kind service revenue”?

"In-kind service revenue” includes goods and services that the Wikimedia Foundation would normally pay for, but have been donated to us at no charge, such as bandwidth and hosting services and pro-bono legal services. Further detail is available in the Footnotes to the Financial Statements under Non-cash Contributions (Note 1.(l)).

What is "other income, net”?

"Other income, net" for the Foundation consists primarily of revenue from merchandise sales and rebate from our corporate credit card program.

What is "investment income, net"?

"Investment income, net" is primarily interest and dividends earned on the Wikimedia Foundation's cash and investment portfolio. During this audit period, some of the Foundation's cash was invested in certificates of deposit, mortgage backed securities, U.S. Treasury securities, corporate bonds, and stocks.

What are "other operating expenses"?

"Other operating expenses” include expenses for facilities such as rent and office and non-office supplies, insurance, annual staff meeting, recruiting, staff development, property taxes and Wikidata project funding.

What is the "functional allocation of expenses”?

The functional expense statement is created to break out the purpose of spending -- how much an organization spends on program activities that further the mission, versus administrative support and fundraising activities. Expenses are reviewed and allocated among three categories: Programs, General and Administrative Support, and Fundraising.

What are "Programs” expenses?

The "Programs" category includes all the work done by the Wikimedia Foundation that directly supports the Wikimedia mission.  For example, it includes all technology spending with the exception of spending supporting the office (e.g., office equipment). It includes, for example, servers, bandwidth and the salaries of the technical staff. It also includes costs, such as staff salaries and grant expenses, incurred by the Community Engagement department. The industry benchmark for program spending is 65% or more of total of spending, which the Foundation spent approximately 74% towards their programmatic activities.

What are "General and Administrative” expenses?

The "General and Administrative" category includes all costs for business insurance, staff recruitment expenses, and the salaries and expenses of the Talent & Culture, partially Legal, Administrative, and Finance staff, as well as an allocation for general office expenses such as rent.

What are "Fundraising” expenses?

The "Fundraising" category includes all spending associated with fundraising activities. For example, it includes the salaries of the Fundraising staff, expenses related to the online fundraiser (e.g., PayPal and GlobalCollect fees), and all fundraising-related travel and conference costs.