Audit Committee/2013-07-23


 * Audit Committee Meeting, July 23, 2013
 * Wikimedia Foundation San Francisco Headquarters
 * 1200-1330 PDT (1900-2030 UTC)

The meeting was called to order by Sam Klein at 12:05 pm PDT


 * Attendees: Stu West. Chair (in person), Sam Klein, member (joined via conference call), Michael Snow, community member (joined via conference call)


 * Also Present: Tony Le, Garfield Byrd, Sue Gardner, Frank Schulenburg, and Amy Vossbrinck


 * Present from KPMG: Nancy Rose

Approval of Minutes
The minutes from the March 7, 2013 Audit Committee Meeting were approved. Going forward, they will be publicly published (with any confidential items redacted). If there are items that are confidential and should be excluded from public minutes, Audit Committee Members are asked to identify those items during the meeting.

KPMG Presentation of Audit Plan
Nancy Rose presented a 30 page document which included an introduction of the KPMG Client Service team, an explanation of the audit plan, information about the KPMG Audit Committee Institute and KPMG's engagement letter. The document, with the Fee schedule redacted, will be published.

The objective of the audit is to ensure that the financials are reasonable and are not materially inaccurate. The focus is on a not-for-profit environment. At the conclusion of the audit WMF provides a letter indicating that it has provided all the information requested and KPMG issues a “no material weaknesses” letter.

The Audit Committee provides oversight. If there is a material weakness, the Audit Committee will be told immediately and a letter will be provided by KPMG identifying those weaknesses.

The goal is to offer a clean audit which covers fraud, internal controls, and a reasonable verification of certainty that there are no material misstatements.

Audit Process
June 2013 – KPMG met with Garfield Byrd and Tony Le to set up the process for the audit for the July 2012 – June 2013 fiscal year.

August 12 - August 16, 2013 – a risk assessment will take place. Risks to be examined include: changes in Chapter Agreements and new grants. The classification of operating expenses will be reviewed.

Aug 26 - Sept 6 – KPMG will be on site at the Foundation offices in San Francisco to test records.

September 13, 2013 – The audit will be complete.

Fall Audit Committee Meeting – Garfield will provide a report to the Audit Committee regarding the audit and KPMG will meet with the Audit Committee.

November 2013 – The audit results will be examined as they apply specifically to grants. The Foundation's grants program is fairly new and somewhat unusual so a specific focus on this aspect of the Foundation's work is important.

Sue Gardner, Stu West, and Garfield Byrd all commented on the high level issues that need to be considered during the audit. The Wikimedia Foundation has grown fairly rapidly. Revenue is planned to be flat in the coming year, but staff size continues to grow and the grantmaking program is new and relatively complex, and is driving continued increase in spending. The Foundation is putting all safeguards in place suggested by KPMG regarding the distribution of grants, but because the complexity and dollar amount of the program is increasing, we will need to pay special attention to it during the audit process.

12:30 pm Nancy Rose left the meeting.

Audit Committee Membership
Stu West reached out to current Audit Committee Members as well as members of the Wikimedia community to recruit new members for the committee. Current committee members agreed to serve again but there was no additional interest from members of the Wikimedia community. Stu would still like to engage more people to maintain a healthy community participation in the workings of the Audit Committee.

He suggested that individuals who currently serve on FDC or GAC may be willing to also serve on the Audit Committee, as may people who stood for FDC or GAC.

There is not a huge time commitment for members of the Audit Committee as the Board Representatives on the Audit Committee make the decisions and the Foundation's staff does the majority of the work. Non board members serve an important function, providing oversight and awareness with respect to the Audit Committee, but it is not a big time commitment. Because of the Audit Committee's transparency, more participation by the Wikimedia community may not be needed, but participation can provide an onramp into other work at the Foundation and can lay a foundation for FDC participation. Chapters looking to set up their own Audit Committees can benefit from observing the workings of the Audit Committee.

Garfield Byrd was asked to reach out to both the Chapters who are looking to establish audit committees and individuals who are interested in FDC to see if they would like to visit a meeting of the Foundation's Audit Committee. Should he find someone who is interested, he will refer them to a current member of the Audit Committee for an initial conversation and an invitation to attend a meeting of the Committee. Advisers to the Audit Committee can be added at any time.

Endowment Report/Investment Options – Review and next steps
The original investment plan for the Foundation was written when the organization was a 10th of its current size. This plan advocated a no risk investment policy. A new plan is needed as reserves grow.

Garfield Byrd offered a proposal that presents 5 investment options, ranked in order of risk. The Audit Committee and the Foundation need to decide what level of risk is acceptable. It was agreed that evaluating the options should be undertaken by management. The conclusions should be presented to the Board for a final decision.

The Audit Committee recommends that Options 1 and 2 are no longer appropriate for the Foundation and that the focus should be on Options 3 and 4 with more research to be done on Option 5.

The assessment was:

Options 1 and 2 are more appropriate for where the Foundation was. Options 3 and 4 do not present much of a risk difference and should be looked at closely. Option    5 may be appropriate in the future. This option will require a significant amount of time from the Foundation's Board and from the Fundraising Department. The Legal Department will need to be    consulted.

Questions, issues and concerns regarding a new investment plan
Is the Foundation ready to invest in conservative stocks? There is no point in putting time into researching this if the Foundation does not feel comfortable with the idea.

What is the Foundation's risk tolerance?

An endowment campaign involves questions regarding donor maturity so it    would be important to discuss this with Lisa Gruwell and Zack Exley.

The face-to-face conversations with potential donors required to manage a successful endowment campaign require finding the right people to conduct these conversations. Identifying these people takes time.

Endowment campaigns often involve large donors who require a seat at the table – how would be Board feel about this?

It might be possible for the Foundation to raise a $500M endowment, but is this the right answer for our brand, our staff and the new Executive Director?

It will be important not to hire the new Executive Director based on his/her ability to raise funds in an endowment campaign, An endowment campaign is not the focus or top priority of the Wikimedia Foundation, and we do not aspire to recruit a fundraising ED with experience in capital campaigns.

The Foundation needs to know how much liquid capital is needed as that information informs an endowment/investment plan.

As the Foundation moves forward with this discussion, the focus needs to be on the milestones and markers that show us we are ready to move forward. How will we know when it is time to take the next steps?

At the moment the Audit Committee is doing the prep work regarding endowments and investment. We need to help the community understand that we are looking into the issue and explain that this is an interim phase to investigate possibilities.

Stu West reviews the Foundation's current investments once a quarter. He is open to any recommendation regarding the best balance going forward.

Rockefeller & Company is our current financial adviser. Garfield Byrd has consulted them and several others regarding changing the Foundation's investment portfolio. They can help the Foundation design a risk neutral portfolio; including a portfolio that contains stocks. It will be important to assemble a portfolio that has a wide diversity of stocks. Garfield will gather all the information regarding a new investment strategy and possible endowment strategy and will provide a set of choices. We need to be sure that the Board of Trustees is comfortable with the final choice.

Action Items
Garfield Byrd will publish the Foundation's investment strategy on meta and will send it to the Board ahead of time.
 * Garfield Byrd will continue driving the document retention policy process for the Foundation. He is working with the Legal Department to address issues related to electronic documents. The IRS requires that the Foundation have a policy, but they do not direct what the policy should be.
 * Garfield Byrd, in the natural course of his interaction with the Chapters and with FDC will reach out to both the Chapters who are looking to establish audit committees and individuals we are interested in FDC to see if they would like to visit a meeting of the Foundation's Audit Committee; with an eye to finding possible new members or advisers for the Audit Committee and for training purposes.
 * Garfield Byrd will create three documents:
 * A brief explanation for the Board entitled.“What is an endowment?” to be available in 10 days. The document will include links to several good articles about endowments.
 * A document recommending a new investment strategy. Due at the Fall Audit Committee Meeting.
 * A backgrounder document on the Foundation's current thinking regarding an endowment campaign. Substance of the document to be driven by Fundraising, Finance and Legal. Due at the Fall Audit Committee Meeting.
 * Sam Klein will post the minutes from last Audit Committee Meeting on the Board Wiki.
 * Amy Vossbrinck will share a rough draft of minutes in a Google document with the Audit Committee.
 * All Audit Committee Members are asked to review the rough draft of the minutes and offer edits by July 31. The resulting document will be posted on https://meta.wikimedia.org/wiki/Audit_committee.
 * Unassigned - Fundraising FAQs need to be updated now that the new Annual Plan has been published and posted on the Wiki.

Sam Klein adjourned the meeting at 1:25 pm


 * Respectfully submitted: Amy Vossbrinck