Wikimedia Foundation reports/Financial/Audits/2019-2020 - frequently asked questions
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 2019-2020 (covering 1 July 2019 - 30 June 2020).
Our auditors, KPMG, issued their opinion that the Wikimedia Foundation's financial statements for the fiscal year 2019-2020 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 2019-2020 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 2019 to 30 June 2020. 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 2021.
Will the Wikimedia Foundation release interim financial statements?
We publish quarterly interim financial reports between the annual audits as part of the published Board of Trustee materials and quarterly “Tuning Session” reporting.
When will the 2019-20 Form 990 be published?
We will soon begin working on the Form 990 for 2019-2020 with the support and guidance from KPMG. It will be completed, approved by the Audit Committee, and published in May 2021.
What’s the overall takeaway?
In addition to upholding its fiduciary responsibilities, The Wikimedia Foundation’s financial position continued to be healthy as of 30 June 2020 - the final date covered by this audit. Our cash and investment balances increased approximately 7% from the prior year due to the revenue generated from our fundraising campaigns and investment income. These resources allow us to continue to invest in the activities outlined in the Medium-term plan and fulfill our annual plan for the FY20-21 that was approved by the Board.
Refer to the Fundraising Report for more details on our FY 2019-2020 fundraising activity.
Our overall increase of 23.1% in operating expenses from FY 2018-2019 is primarily in salaries and wages, awards and grants, professional services, and other operating expenses. Salaries and wages increase is consistent with our approved FY19-20 Annual Plan. We increased our awards and grants as we continue our commitment to support our Affiliates, Organized Groups, and Community Members, and to build our Endowment (a $5 million payment to the Endowment is included in the awards and grants total). Professional services expenses were higher as compared to last fiscal year due to our continued investments in our systems and structures, new contributors and content, and our reach across all demographics to support our Medium-term plan priorities. To better foster the expansion and sustainability of the movement, we further increased other operating expenses to support staff development, the annual all staff convening as well as other office and information technology expenses resulting from planned growth.
What is new on this year’s audit report?
The only addition is Note (1)(b) - Risks and Uncertainties as this is a required disclosure under the auditing standards. In past years, we did not include since there were no identified risks or uncertainties that would significantly impact our operations. However, the COVID-19 pandemic has a significant economic and health impact globally and continues to evolve with a lot of uncertainties, thus we are required to describe how the Foundation is impacted and what mitigation measures have been taken.
This year’s report says that the Wikimedia Foundation provided an unconditional grant of $8.723 million to Tides Advocacy for the Wikimedia Knowledge Equity Fund. What is the Wikimedia Knowledge Equity Fund?
A portion of our grant to Tides Advocacy will be used to launch the Wikimedia Knowledge Equity Fund, a new fund that the Wikimedia Foundation is establishing this fiscal year to invest in new grant-making opportunities in support of groups that are advancing equitable, inclusive representation in free knowledge. The remainder will be used to equitably fund the annual operating expenses of other Wikimedia affiliate organizations in service of our mission of free knowledge. The Wikimedia Foundation is still setting up the specifics of the Knowledge Equity Fund and will share more information in late 2020.
Why is this an unconditional grant? What does that mean?
This means that the Foundation has no right of return to the grant funds provided, with the exception of unexpended funds. However, the grant funds must be used to support the purposes described in the grant agreement and application.
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 would not 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. Refer to the Fundraising Report for more details on donations by Continents and Sources.
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 and in particular, with the COVID-19 pandemic which brings a significant amount of volatility and uncertainty for a majority of businesses, including non-profit organizations.
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 2020 represents about 19 months of operating funds, based on our Fiscal Year 2020-2021 Annual Plan, which has increased slightly from fiscal years 2018-2019 and 2017-2018; we believe the amount is appropriate for a growing non-profit of our size and age, especially during the uncertainty of the COVID-19 environment. Our goal is to have at least one year of operating funds so that we are 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 to meet our objective of sustaining free knowledge through Wikipedia and the other Wikimedia projects for people around the world. This includes activities such as hosting, and running our sites, as well as maintaining our general and administrative operations.
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, subscription 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, sales of old data center equipment, payment processing fees recovered from the Endowment, 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 mortgage backed securities, U.S. Treasury securities, corporate bonds, and stocks (Note 3) .
What are "other operating expenses"?
"Other operating expenses” include expenses for facilities such as rent and office and non-office supplies, software, 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 programmatic 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 spending; the Foundation spent approximately 75% towards the programmatic activities and in line with this figure.
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 department, 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 Ingenico processing fees), and all fundraising-related travel and conference costs.