Wikimedia Foundation reports/Financial/Audits/2022-2023 - frequently asked questions

Executive Summary

The Foundation’s full year audited financial statements (“audit report”) are an annual report that represents details on the financial statements and the financial activities of the Foundation. The report is audited by an external auditor (KPMG) to independently validate that the financial statements are presented fairly.

This year the audit report covers the fiscal year (FY) 2022-2023 (1 July 2022 - 30 June 2023), as well as the prior fiscal year (FY 2021-2022) for comparative purposes.

The Foundation’s audit report is made up of 1) the independent auditor’s report, 2) financial statements, and 3) notes to the financial statements, as described below.

Independent Auditor’s Report

This is a report from our external auditors, KPMG, issuing their opinion that the Wikimedia Foundation's financial statements for FY 2022-2023 are presented fairly, and in accordance with U.S. generally accepted accounting principles (U.S. GAAP).

Financial Statements

The financial statements provide an overview of basic information about an organization's financial position and its overall financial health. These are referred to as “consolidated financial statements” since they represent the financials of both the Wikimedia Foundation non-profit and Wikimedia Enterprise, a limited liability company. They are made up of the three below statements.

• Statement of Financial Position: provides an overview of assets, liabilities, and net assets as a snapshot in time - in this case, as of June 30, 2023 and June 30, 2022. As of June 30, 2023, the Foundation’s net assets were $255 million, which represents 17 months of operating expenses, in-line with our target.
• Statement of Activities: provides a summary of revenues (primarily donations) and expenses during the fiscal year. The Foundation’s total revenue increased by $25.5 million, to $180.2 million during fiscal year 2022-2023. The vast majority of this revenue came from donations, with a small portion coming from investment income and other revenue primarily related to Wikimedia Enterprise. While the Foundation experienced a shortfall in banner fundraising that caused us to miss our banner revenue target, we were able to offset some of the decline through major gifts and other donation channels. Donation revenue increased $4.1 million, from $164.8 million to 168.9 million. Our expenses totaled $169.1 million, of which 76% went to programmatic activities that further the mission, 11% went to fundraising expenses, and 13% went to general and administrative support. This amount of general and administrative spend is a fraction of what most top ten websites spend, aligning with our commitment to good stewardship and efficiency. There is more information on these topics available in our Annual Report.
• Cash Flow Statement: provides details on changes in the Foundation’s cash flows during the fiscal year. These cash flows are divided into cash flows from operating activities and investing activities. During FY 2022-2023, our cash increased by $24.9 million. This was driven by an overall increase in net assets of $15.6 million from the Foundation’s Statement of Activities, as well as a $5.3 million increase in cash held on behalf of and subsequently transferred to the Wikimedia Endowment (see “What is new on this year’s audit report” for more information). The increase in cash helped the Foundation maintain net reserves of 17 months of operating expenses, in line with the Foundation’s working capital goals.

Notes to the Financial Statements

These notes include a summary of significant accounting policies as well as additional details on specific accounts, as required by U.S. GAAP.

Audit Report Overview

What is an audit report and why does it matter for an organization?

An audit report is a collection of an organization’s audited financial statements. It gives an overview of an organization’s financial position and overall financial health. An organization’s audit report is typically shared with board members, donors, and other important stakeholders. The information from the audit report is then used in the financial piece of the organization’s Form 990—a form required by the US Internal Revenue Service in order for a nonprofit organization to maintain its 501(c)(3) status.

As part of the audit report, an external auditor (in the Foundation’s case, KPMG) expresses an opinion on whether the organization is presenting its finances accurately and in accordance with U.S. GAAP. In this audit report, KPMG issues their opinion that the Wikimedia Foundation’s financial statements for FY 2022-2023 are presented accurately, marking the 18th consecutive year of clean audits. It further affirms that the Wikimedia Foundation’s existing processes are designed with appropriate control activities to initiate, authorize, record, process and report financial data reliably, and designates the Foundation as a responsible steward of donor funds. Receiving clean audits year over year is critical to establishing the Foundation’s credibility and reliability in the nonprofit space.

What timeframe does the audit report represent?

The audit report covers the most recently completed fiscal year, the time period from 1 July 2022 - 30 June 2023, as well as the prior year for comparative purposes. It was prepared by the accounting staff of the Wikimedia Foundation, and our audit firm, KPMG, certified that it was presented in accordance with U.S. GAAP. The audit report was presented to the Wikimedia Foundation Audit Committee of the Board of Trustees, which has approved it and shared it with the full Wikimedia Foundation Board of Trustees.

When will the audit report for the current fiscal year (July 2023 - June 2024) be published?

Audit reports are published in the months after the fiscal year ends, meaning that they are a retrospective look back at the previous fiscal year. The audit report for the current fiscal year (July 2023-June 2024), is targeted to be released around October / November 2024.

When will the 2022-2023 Form 990 be published?

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 financial reporting requirements as stipulated by the IRS. We will soon begin working on the Form 990 for 2022-2023 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, submitted to the IRS, and published around April - May 2024, barring unforeseen circumstances.

What are the differences in the financial statements within the audit report versus the Form 990?

The financial information found in the audit report is used to build an organization’s Form 990; however, there are some differences in the financial statements and their presentation and a few differences in recognition in both reports.

In terms of the overall statements, instead of the Statement of Activities reported in the audit report, the Form 990 presents the Statement of Revenue (Part VIII) and the Statement of Functional Expenses (Part IX). Both the audit report and the Form 990 have a balance sheet (called the “Statement of Net Position for the audit report and called Part X - Balance Sheet for Form 990). The audit report also includes a Statement of Cash Flows that is not required for the Form 990.

In terms of presentation, the requirements in the above statements are sometimes different - typically, the Form 990 requires more granular reporting. For example, the “salaries and benefits” expense line item in the Statement of Activities in the audit report is broken out and reported as “compensation of current officers, directors, trustees, and key employees”, “other salaries and wages”, “pension plan accruals and contributions”, “other employee benefits”, and “payroll taxes” in the Statement of Functional Expenses within the Form 990.

In terms of recognition, there are a few differences where certain revenue and expenses are recognized in the audit report but not recognized in the Form 990. The Form 990 includes a reconciliation from the audit report to Form 990 within Schedule D - Part XI - Reconciliation of Revenue per Audited Financial Statements With Revenue per Return, including:

• Contributions of nonfinancial assets and services (also known as in-kind donations or donated services) - recognized in audit report but not recognized in the Form 990
• Unrealized gains and losses on investments and foreign exchange - recognized in audit report but not recognized in the Form 990
• Returns of unused grants - recognized in audit report but not recognized in the Form 990

Note that the Foundation typically conforms to the Form 990 in terms of budgeting.

Where else can I find information about the Foundation’s finances?

The audit report is one of several financial documents that provide information on the Foundation’s financials and organizational policies. As part of the Foundation’s commitment to accountability and transparency, we publish several other documents annually including our Form 990 and FAQs, annual report, annual plan, fundraising report, and grantmaking report.

Key Highlights

What is the overall takeaway?

In addition to upholding its fiduciary responsibilities, the Wikimedia Foundation’s financial position continued to be healthy as of 30 June 2023 - the final date covered by this audit report. The Foundation’s total revenue increased by $25.5 million, to $180.2 million during fiscal year 2022-2023. The vast majority of this revenue came from donations, with a small portion coming from investment income and other revenue primarily related to Wikimedia Enterprise. While the Foundation experienced a shortfall in banner fundraising that caused us to miss our banner revenue target, we were able to offset some of the decline through major gifts and other donation channels. Donation revenue increased $4.1 million, from $164.8 million to 168.9 million.

Our operating expenses totaled $169.1 million of which 76% went to programmatic activities that further the mission, 11% went to fundraising expenses, and 13% went to general and administrative support.

Our cash and investment balances increased approximately 8% from the prior year due to slightly higher revenue than expenses, as well as cash temporarily held for the Wikimedia Endowment. These resources allowed us to continue to invest and fulfill our annual plan for the FY 2022-2023 (ending 30 June 2023) that was approved by the Board.

What is new on this year’s audit report?

The following is new on this year’s audit report:

Lease Accounting Standard Implemented

The Foundation was required to implement a new accounting standard on leases, Accounting Standards Update (ASU) No. 2016 02, Leases (Topic 842). This affects how the Wikimedia Foundation reports its multi-year lease of our headquarters office building at 1 Montgomery Street Suite 1600, San Francisco, CA 94104. This standard requires renters to recognize almost all leases on their Statement of Financial Position (also known as a “balance sheet”), as a lease asset and a lease liability. Previously, most leases were not reported on the Statement of Financial Position.

The Foundation adopted this new accounting standard on July 1, 2022, the required adoption date for nonprofit entities. The adoption of this standard resulted in a $1.8 million right-of-use asset (meaning the right to use the office) and a $2.0 million lease liability (meaning the obligation to pay for the office) which now appear on the Statement of Financial Position. The right-of-use asset and lease liability do not equal due to previous lease incentives received, which reduced the right-of-use asset value. There was no impact to the Foundation’s Statement of Activities as a result of the adoption of this standard - lease payments will continue to be expensed over time within “other operating expenses” in the Foundation’s Statement of Activities.

Donations Payable to the Wikimedia Endowment

In the Foundation’s Statement of Financial Position, there is a new liability line item for donations payable to the Wikimedia Endowment, totaling $5.3 million as of June 30, 2023. This liability line item was not in previous reports because, historically, the Foundation transferred donations for the Wikimedia Endowment to the Tides Foundation every month. In April 2023, the Foundation stopped transferring funds to Tides in order to prepare for the Endowment becoming its own, independent 501(c)(3). While these funds are most clearly visible in this report as a liability line item for $5.3 million, they also are contained within the $76 million in cash and cash equivalent assets listed on the same page. They are listed as both an asset and a liability for the Foundation because they are funds raised and held by the Foundation that were owed to the Endowment.

At the start of FY 2023-2024, funds being held for the Endowment were transferred to the new 501(c)(3). These transfers have since continued monthly as new gifts to the Endowment have been received. Detailed financials for the Endowment will be available in its own audit reports and other disclosures starting with FY 2023-2024.

New Disclosure for Revenue from Contracts with Customers

Footnote 1(n) is a new disclosure related to revenue for Wikimedia Enterprise, to provide additional disclosure on how revenue is recognized. For more detailed information about the structure of Wikimedia Enterprise finances, see its financial report covering the calendar year 2022, which partly overlaps the period covered in our FY 2022-2023 audit report (for July - December 2022). Total revenue in the audit report for Enterprise is $3.22M, with $1.56M corresponding to the second half of calendar year 2022 and $1.66M corresponding to the first half of calendar year 2023. While Footnote 1(n) addresses revenue for Wikimedia Enterprise, Wikimedia Enterprise expenses are included as part of the Foundation's expenses in the audit report.

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

Under U.S. GAAP, volunteer activity is typically not reflected in a nonprofit's audit report. However, Wikimedia projects would not exist without the hundreds of thousands of volunteers around the globe that are active on them, and the report simply wouldn’t feel complete without mention of their tremendous efforts. For this reason, we made use of page 16 to highlight volunteer contributions.

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

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

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, nonprofits, 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 (which is reported within total assets on the Statement of Financial Position included in the audit report) as a source of emergency funding. In keeping with the purpose of nonprofit 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. Last year we asked our Board to consider a clearer and more 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 June 30, 2023, we had $255 million in our reserve, which amounts to just over 17 months of operating expenses and is consistent with our reserves for the last several years.

On page 4, salaries and benefits have increased by $13 million (15%) from the prior year. What is causing this increase?

This was primarily due to increased employee headcount throughout the prior fiscal year (fiscal year 2021-2022), as fiscal year 2022-2023 was the first full year of compensation for those new positions, and annual compensation increases for existing staff.

As outlined in our FY 2022 - 2023 annual plan, the Wikimedia Foundation grew very rapidly over the prior 3 years, with the addition of more than 200 new people between 2020 and the middle of 2022. Under the 2022−2023 annual plan, we chose to stabilize our growth and work to ensure that new resources would deliver maximum impact for our mission. In the context of stabilization, we anticipated a 17% increase in our 2022−2023 budget, most of this representing inflationary and other year-on-year costs. This was in line with the 15% increase in salaries and benefits that we saw.

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 Foundation recently published more information about compensation practices in a Diff post.

Terms and Definitions

What is "contributions of nonfinancial assets and services"?

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 of the audit report under Contributions of Nonfinancial Assets and Services (Note 1(m)).

What is "other income, net"?

"Other income, net" for the Foundation consists primarily of revenue for Wikimedia Enterprise, merchandise sales from our online store, sales of old data center equipment, payment processing fees related to the Wikimedia Endowment, and rebate from our corporate credit card program.

What is "investment income, net"?

"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 U.S. Treasury securities, corporate bonds, mortgage-backed securities, 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 benefits”?

"Salaries and benefits" includes salary, benefits, retirement, wellness, and payroll taxes for full-time and part-time staff members in the U.S. and outside of the U.S. 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. Those costs are reported in the Professional Services expense line.

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 convenings, recruiting, staff development, and personal property taxes. Prior to fiscal year 2022-2023, this also included Wikidata project funding, but Wikidata costs have now been reclassified to the “awards and grants” line item.

What is the "functional allocation of expenses"?

The functional expense statement is created to break out the purpose of spending. 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). In addition to our two main data centers, four caching data centers, 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 3,350 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 our grant programs, including funding for affiliates, conferences, research, and individual contributor projects, as well as internal staff time to support the grants program. The category also includes an allocation of Chief Executive Officer, Legal, Administrative, and Finance staff for the portion of their time spent directly supporting programmatic activity.

The Better Business Bureau standard percentage benchmark for allocation to programmatic spending is 65% or more of total spending; the Foundation spent approximately 76% towards the programmatic activities.

What are "General and Administrative" expenses?

The "General and Administrative" category includes all costs for business insurance, staff recruitment expenses, and an allocation for general office expenses such as rent. The category also includes the personnel cost for the Talent & Culture department, as well as an allocation of Chief Executive Officer, Legal, Administrative, and Finance staff.

What are "Fundraising" expenses?

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