Wikimedia Foundation reports/Financial/Audits/2021-2022 - frequently asked questions

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External Audit Overview[edit]

The objective of an external audit is for the auditor to express an opinion on whether the financial statements and the financial activities of the Wikimedia Foundation for the fiscal year (FY) - in this case FY 2021-2022 (covering 1 July 2021 - 30 June 2022) are presented fairly.

Our auditors, KPMG, issued their opinion that the Wikimedia Foundation's financial statements for FY 2021-2022 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 is a responsible steward of the donors’ funds.

What is the purpose of this frequently asked questions (FAQ) document?[edit]

This frequently asked questions (FAQ) document provides a general overview of the Wikimedia Foundation's FY 2021-2022 audited financial statements and additional details about areas that have generated 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?[edit]

Financial statements provide an overview of basic information about an organization's financial position and 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. The Wikimedia Foundation is required to report its audited financial statements under U.S. GAAP. The Foundation is also required to report financial statements within the Internal Revenue Service (IRS) Form 990; however, the basis of accounting is different under tax regulations.

What do these statements represent?[edit]

The audited financial statements of the Wikimedia Foundation's most recently completed fiscal year, covering the time period from 1 July 2021 - 30 June 2022. They were prepared by the accounting staff of the Wikimedia Foundation, and our audit firm, KPMG, certified that they meet the requirements of 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?[edit]

Next year's audited financial statements, which will cover the fiscal year running from July 2022-June 2023, is targeted to be released around October 2023.

When will the 2021-2022 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 Wikimedia Foundation, the two documents have different tax reporting requirements as stipulated by the IRS. We will soon begin working on the Form 990 for 2021-2022 with the support and guidance from KPMG. It is our target and intention that the Form 990 will be completed, approved by the Audit Committee, and published around April - May 2023, barring unforeseen circumstances.

Key highlights[edit]

What is the overall takeaway?[edit]

In addition to upholding its fiduciary responsibilities, the Wikimedia Foundation’s financial position continued to be healthy as of 30 June 2022 - the final date covered by this audit. Our cash and investment balances increased approximately 4% from the prior year due to the revenue generated from our fundraising campaigns. These resources allow us to continue to invest in the activities outlined in the Medium-term plan and fulfill our annual plan for the FY 2021-2022 that was approved by the Board.

Our operating expenses increased by 31% from FY 2021-2022, driven primarily by increases in salaries and wages expense, as well as awards and grants expense. The increase in salaries and wages was consistent with our approved FY 2021-2022 Annual Plan.

What is new on this year’s audit report?[edit]

There are no additional notes in the FY 2021-2022 financial statements.

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

Under U.S. GAAP, general volunteer activity is not reflected in a nonprofit's financial statements. As a result, the report does not include quantifying the value of volunteer contributions or include it as a contribution of nonfinancial services.

This is in no way intended to diminish the significance of the volunteers' contributions. The Wikimedia 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?[edit]

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 donations from corporations and foundations, interest and dividends on investments, and "other income," including revenue from merchandise sales. Refer to Fundraising for more details.

What is the Wikimedia Foundation’s approach to cash and investments?[edit]

The Wikimedia Foundation’s goal is to ensure we have an appropriate amount of available operating funds. It is considered financial best practice for organizations of all sizes to maintain financial reserves and working capital policies. This is true for companies, non-profits, and even governments. For nonprofits in particular, reserves are critical due to the way nonprofits raise funds, with a significant majority of funding being raised in a single quarter or season of a year. There are a range of benchmarks that provide guidance on the level of reserves that are considered appropriate for an organization of a given size and budget.

We maintain a reserve via our cash and investments balance as a source of emergency funding. In keeping with the purpose of non-profit reserves, our reserve is designed to sustain our work and grant funding to affiliates and volunteers in the event of unplanned expenses, emergencies, or shortfalls in fundraising. In the past the amount of funding we keep in reserves has varied based on our size and maturity as an organization. This year we asked our Board to consider a more clear and visible policy to guide our approach to reserves, especially in light of worrying trends in the global economy. In line with organizations of our size, the board adopted a resolution that guides the Foundation to have a minimum of 12 months of working capital in reserve and a target of up to 18 months. This capital can be drawn on in the event of sudden or unexpected loss of revenue. As of FY 2021-2022, we had $240 million in our reserve which amounts to just over 16 months of operating expenses; we believe the amount is appropriate for a growing non-profit of our size and age, especially during the uncertainty of inflationary conditions and the COVID-19 environment.

On page 4, salaries and wages have increased by approximately US$20.3 million from the prior year, what is causing this increase?[edit]

This increase represents the addition of new staff between July 2021 and June 2022 as well as our annual compensation adjustments for existing staff. This is consistent with the growth outline in our approved annual plan for the year 2021-2022 to support our programmatic priorities.

The Wikimedia Foundation's compensation practices reflect our desire to compensate people for their work in a manner that is equitable, reasonable, and consistent with our values and culture. The primary mechanism for compensation is base pay, supported by strong benefits and paid time off allotments, and a commitment to professional development. As a donor-funded nonprofit, the Wikimedia Foundation does not provide bonuses, but it does typically offer annual cost of living adjustments.

In setting the salaries for all of our paid positions for the 2021–2022 fiscal year, our Talent & Culture department uses a set of salary ranges specific to job roles and levels which are determined and updated using data from the Mercer salary survey. Pay is also based on the location of the staff, which allows the Foundation to maintain a diverse international workforce with competitive local market salaries. We hire in over 50 countries and almost 50% of our people are based outside of the US, which is a reflection of our values as a global movement.

The largely technical and high-skill nature of some of our work requires competitive wages to recruit and retain the best talent and compensate them fairly for their expertise and commitment. We believe that the Wikimedia Foundation continues to pay competitively, but within the average range for comparable organizations and roles.

Terms and Definitions[edit]

What is "contributions of nonfinancial assets and services"?[edit]

Contributions of nonfinancial assets and services (formerly known as "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 Contributions of Nonfinancial Assets and Services (Note 1.(l)).

What is "other income, net"?[edit]

"Other income, net" for the Foundation consists primarily of revenue from merchandise sales from our online store, 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"?[edit]

"Investment income (loss), net" is primarily interest, dividends, realized gains/losses, and unrealized gains/losses 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). It is the Foundation’s investment intention to preserve capital, income and liquidity over capital appreciation, which has higher volatility.

What is “salaries and wages”?[edit]

"Salaries and wages" includes salary, benefits, retirement, wellness, and payroll taxes for full-time and part-time staff members in the US and outside of the US employed by Wikimedia Foundation or its Employer of Record. These costs as well as salaries vary significantly by geography. This number does not include fees paid to contractors, vendors, or consultants.

What are "other operating expenses"?[edit]

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

What is the "functional allocation of expenses"?[edit]

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?[edit]

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). In addition to our two main data centers, four caching data centers, and 32 internet peering connections, we maintain the software and infrastructure on which we operate some of the world’s most multilingual sites with over 950 separate wiki instances and over 2600 community-contributed tools, many of which are essential to maintaining the content and quality of Wikipedia, as well as seven mobile applications. We also maintain substantial data infrastructure that enables volunteers to gain direct access to wiki content and to analytical information about the wikis. This data is useful for our volunteers, but is also widely used by researchers, companies, and others as one of the largest free and open-source corpus of multilingual content, metadata, and supplementary data. Maintaining this infrastructure and continuously ensuring Wikipedia is online, available, and secure for its hundreds of millions of readers and editors around the world takes significant financial and staff resourcing.

The “Programs” category also includes salaries for technical staff that contribute to the maintenance of our systems, distributed among site reliability engineering, software engineering, security, and a range of other supporting roles. It also includes expenses for all of our grant programs, including funding for affiliates, conferences, research, and individual contributor projects.

The Better Business Bureau standard percentage benchmark for allocation to programmatic spending is 65% or more of total spending; the Foundation spent approximately 77% towards the programmatic activities.

What are "General and Administrative" expenses?[edit]

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?[edit]

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.