Wikimedia Foundation Audit Committee/2024-05-22
Wikimedia Foundation Audit Committee Meeting
May 22, 2024
Remote
10:00 - 11:30 am PDT
17:00 - 18:30 UTC
Participants WMF Chief Executive Officer: Maryana Iskander Board Chair: Nataliia Tymkiv Audit Committee Chair: Kathy Collins Audit Committee Board Members: Raju Narisetti, Lorenzo Losa Audit Committee Alternates: Mike Peel, Luis Bitencourt-Emilio Audit Committee Advisors: Michael Snow Staff Liaison: Jaime Villagomez Other Staff: James Baldwin, Nadee Gunasena, Helen Pang, Shelby Langan, Lisa Gruwell, Amy Vossbrinck, Jacob Rogers, Courtney Bass-Sherizen, Aeryn Palmer
Kick Off and Approval of April 16, 2024 Minutes
Moved to approve the April 16, 2024 Audit Committee Minutes: Mike Peel
Seconded: Kathy Collins
Approved by voting members: Raju Narisetti, Kathy Collins, Lorenzo Losa
Enterprise Risk Management (ERM) FY 25 Risk Narrative and ERM evolution - presented by the Controller, Deputy General Counsel and Associate General Counsel
The Committee was asked for feedback regarding the proposed changes to the ERM process and the FY24 High Risks Narrative to be shared with the WMF Board of Trustees in June.
The topics of the discussion were: ● The Evolution of ERM: Associate General Counsel presented the Foundation’s progress in its ERM framework, from initial adoption of ERM pre 2018 through today.
a. Evolving and refining Roles and Responsibilities: The controller described the roles and responsibilities for staff level and senior leadership:
i. Senior Leadership: Responsible for owning the risk and mitigants at the departmental level, support risk owners/risk responders in the execution of risk mitigation strategies.
ii. Staff Level: Staff should be aware of the organization’s enterprise risk management practices. Certain staff will be called upon to be assigned as the risk owner or risk responder.
b. Addressing Risk: The controller described historical practices applied to determining how high, medium and low risks are defined. Historical practices included quantifiable elements to assign risk, such as government fines, penalties, financial impact, non compliance fines. Current risk assessments are:
i. High Risk: strategic implications for the Foundation, impacting its ability to achieve its annual plan, fulfill its mission or sustain long-term success and financial soundness.
ii. Medium Risk: potential to cause moderate harm or adverse consequences to the organization if they were to occur. While not an existential threat, risks still require attention to mitigate but lack the same level of urgency and investment to mitigate.
iii. Low RIsk: risk impact would have little to no adverse impact on our mission, safety, finances, or reputation.
● The FY25 High Risks Narrative and Goals: The Controller presented a high level snapshot of the high risks and the goals for FY25.
a. FY25 improvement goals for high risks:
i. Update Risks and Assessments
ii. Add FY25 Planned Mitigating Strategies
iii. Update Likelihood of Risk Occurrences
iv. Better Identify Metrics and Measurements-Highlight current practices and expand/improve where needed
v. Establish ERM agendas for full year Audit Committee Meeting
b. The High Risks:
i. Legal/Compliance-Evolving Regulations
ii. Operational-Financial Sustainability
iii. Technology Vulnerabilities
iv. Brand-Disintermediation
v. Strategy-Relationships with volunteer communities, shift towards personality-driven experiences, AI, Generative AI’s impact and disinformation
c. A summary of high risks with its mitigants, including any metrics/measurements by risk owners was presented by the Deputy General Counsel. It was noted that the risks and mitigating strategies rolled into more than one APP priority. No new risks identified during the risk assessment aligned to APP. One question raised was whether there were any borderline high risk items or items on the watch list that need to be included. Legal indicated evolving risks continue to be expansive.
● The ERM Agenda Calendar for the full year was presented with the inclusion of the high risks narrative and planning to be aligned with the Annual Plan.
Updates & Takeaways: FY 23 - 24 - Budget Projection - presented by Senior Director of Finance Strategy and Planning and Accounting Principal
Updates & Takeaways: FY 23 - 24 Projection
● REVENUE: $186.6M (+5%) Revenue is projected to exceed the budget by +$9.6M. ○ Growing our recurring revenue program and successful banner campaigns has increased fundraising by +$5.7M and put the Foundation in a strong position going into next year. The Foundation is also releasing an additional +$2.9M of restricted revenue from prior year grants to match expenses on those grants.
○ Investment income increased +$1M due to our actions in response to current interest rates.
● EXPENSES: $177.7M (-0%) The Foundation’s overall expense projection is on track.
○ The Foundation’s expense projection reflects a revision to accounting for software development. In partnership with Product & Tech and in consultation with KPMG, we have clarified our software development lifecycle, which has updated how the accounting standards are applied to our work leading to a net increase of $3.9M in expenses for FY 24. In future years, the net impact of this accounting revision is minimal. The accounting revision clarified that software development costs will be primarily expensed as incurred rather than capitalized because the software is available publically (it does not apply to Enterprise which offers software as a service).; this adjustment is not considered material from an accounting perspective.. This one-time adjustment in FY24 has been offset by underruns from lower staffing levels in the second half of the year, availability of unspent risk pools that were unallocated in the budget, and through our reduced need for external services due to some projects being altered or postponed.
○ We have also worked to accelerate some activities into FY24 that were originally planned for FY25 to utilize some of the projected surplus.. For example, we have begun work on our fundraising payment platform and testing new Fundraising channels.
Annual Budget FY 24-25 - presented by Senior Director of Finance Strategy and Planning
Seeking recommendation from the Audit Committee to forward this budget to the WMF Board of Trustees in June for their approval.
In the Foundation’s FY24-25 Budget, we are supporting key areas of our Annual Plan:
1. Building diverse long-term revenue strategies. We are investing in near, medium, and long-term revenue strategies, including new fundraising channels. We are continuing to build a diversified revenue strategy that anticipates significant changes ahead for how people consume Wikipedia content.
2. Our biggest investment is in our Infrastructure goal. We are growing investment in our Infrastructure goal, reflecting our focus on supporting the technology needs of the movement. The percentage investment in the Foundation’s goals are as follows: Infrastructure /Product and Technology /Data Centers/Readers and Contributors (49.1%), Effectiveness/Admin and Fundraising (23.7%), Equity /Grants and Wikidata (17.3%), Safety and Integrity ( 9.9%).
3. Movement Funding is growing faster at +9%. We are continuing to prioritize growing grants and movement funding at a faster rate (+9%) than our overall budget (+6%). We are making these investments, while:
4. Growing by +6%. Our modeling still suggests +/-5-6% annual growth over a multi-year period.
5. Maintaining Programmatic ratio and reserve channels within our targets. Our programmatic ratio will remain within the best practice of 75+%, but decline slightly as we invest in new revenue channels. The ratios are Programmatic (76.8%), General and Administration (11.8%), Fundraising (11.4%).
6. Our working capital reserve remains at 17 months and within our board set target of 12-18 months.
Budgeting for Movement Charter outcomes
We have included a budget to support potential Movement Charter outcomes that is based on the prior year spending on the Movement Charter Drafting Committee plus normal year on year cost increases. We have also held the funds previously used for Summit.
Budget Discussion - The discussion centered around the following topics:
Expense detail: The Committee reviewed slides that showed expenses by type and also a slide that showed the major components of the P&T budget and the growth history of the P&T budget. In the pre-read material there was a slide on historical trends in grant allocation by geographic region.
Programmatic ratio: The programmatic ratio is part of an overall scoring done to rate the performance of an organization by external charity rating organizations. We receive the maximum number of points possible from the Programmatic ratio portion of Charity Navigator’s total rating, and have a total score of 99 out of 100.
Working capital ratio: It is an ongoing process to monitor income projections and determine what the Foundation would do if it looks like income will exceed expectations and the Foundation will have more than 18 months in reserve. In the event that we expect to exceed the target of 18 months, we would bring a proposal for corrective action to the Audit Committee. The same is true if we project a need to spend into the reserve because of lower than projected revenues or higher than planned expenses.
The Foundation spends 60% of the budget on staff, so making sure we have the right people in the right roles is essential. The attrition rate has been stable for the last approximately 12 months at 7% - with a historical rate of 10%. A question was asked regarding where the 38 open positions at the Foundation fall into the goals of Infrastructure, Effectiveness, Safety and Integrity and Equity Community responses to AP planning this year have been enhanced by:
● Providing more information earlier in the process, like publishing the Infrastructure OKRs on meta.
● Providing more opportunities for engagement through:
○ The Foundation joining existing movement forums
○ The “Talking: 2024” initiative
○ Individual sessions with Maryana for those who requested them.
Recommendation to send the FY 24 - 25 proposed budget to the WMF Board of Trustees for their review and approval
Moved: Raju Narisetti
Seconded: Luis Bitencourt-Emilio
Approved: Lorenzo Losa, Kathy Collins, Raju Narisetti
Meeting Adjourned for an Executive Session of trustees with the CEO and CFO.
Respectfully submitted by Amy Vossbrinck
APPENDIX: PASSED RESOLUTIONS
Resolution: Minutes Approval, April 16, 2024
This resolution was approved on May 22, 2024. RESOLVED, that the Audit Committee hereby approves the minutes from the April 16, 2024 Audit Committee meeting.
Move to approve Mike Peel
Seconded: Kathy Collins
Approved: Raju Narisetti, Mike Peel, Kathy Collins, Lorenzo Losa, Mike Snow
Resolution: Recommendation to send the FY 24 - 25 proposed budget to the WMF Board of Trustees for their review and approval
This resolution was approved on May 22, 2024
Whereas, the WMF Foundation Finance Department has prepared the FY 24 - 25 proposed Foundation budget and it has been reviewed by the Audit Committee RESOLVED, that the Audit Committee hereby approves the FY 24 - 25 Proposed Foundation budget for transmission to the Foundation’s Board of Trustees
Moved: Raju Narisetti
Seconded: Luis Bitencourt-Emilio
Approved: Lorenzo Losa, Kathy Collins, Raju Narisetti, Luis Bitencourt-Emilio, Mike Peel, Natalia Tymkiv, Michael Snow