2007-2008 Financial Statements Questions and Answers

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What is the period of time covered by these statements?
The statements cover the period from July 1, 2007 until June 30, 2008: in other words, Fiscal Year 2007-08.
What do these statements represent?
These are the audited financial statements of the Wikimedia Foundation, covering July 1, 2007 to June 30, 2008. They have been prepared by the accounting and financial staff of the Wikimedia Foundation, and a certified public accountant representing our audit firm has certified that they meet the requirements of the U.S. GAAP (generally accepted accounting principles). These audited statements have been given to the Wikimedia Foundation audit committee, which has approved them and given them to the Wikimedia Foundation Board of Trustees. The Board has also approved the statements.
Who is the Wikimedia Foundation's audit firm?
The Wikimedia Foundation's audit firm is KPMG. We selected KPMG as our new audit firm when we relocated to San Francisco.
What is the purpose of these statements?
Financial statements provide an overview of basic information about an organization's financial position. Financial statements are normally read by a number of different audiences, including the management of the organization, board members, donors and others.
Who created these statements?
The statements were made by the accounting and financial staff of the Foundation for the Executive Director.
When will we see the next financial statements?
The Wikimedia Foundation will be releasing basic, unaudited, mid-year financial statements later in the 2008-09 Fiscal Year. The 2008-09 Fiscal Year runs from July 1, 2008 to June 30, 2009: its midpoint is end of December 2008. We expect the mid-year financial statements to be complete by January 31, 2009; they will probably be distributed publicly by the end of February 2009.
How do the financial statements for 2007-08 compare with the statements for 2006-07? What's the overall takeaway message?
In general, both revenue and spending increased significantly compared with 2006-07. It was a year of big change for the Wikimedia Foundation. The Board of Trustees hired Sue Gardner as Executive Director. The Foundation's offices were relocated from Florida to San Francisco, a number of new staff were hired, and the amount of incoming donations nearly tripled compared with the previous year.
What happened to donations in 2007-08, compared with 2006-07?
Compared with 2006-07, in 2007-08 donations nearly tripled, from $2.2mm to $6.4mm. Overall, revenue increased by $4.3mm for a total of $7.1mm.
Why do you include the full "pledge" from the Sloan Foundation in your overall revenue statement for 2007-08?
Accounting practices require us to declare the entire $3mm pledge from the Sloan Foundation into our revenue statement for this year. We received $1mm in actual funding this year. We will receive another $1mm in the 2008-09 fiscal and then a third $1mm in the 2009-10 fiscal year.
Isn't it unusual, or unwise, to include the full $3m pledge in your 2007-08 statements, if you have only received $1mm?
Actually, we are required to record the pledge this way, under GAAP (generally-accepted accounting principles): it is not a decision we get to make ourselves. We don't include in our revenues verbal commitments or soft promises, but we do -and are required to- include pledges in which both parties have signed a legally enforceable agreement. During 2007-08, the Sloan Foundation and the Wikimedia Foundation signed a contract agreeing that $3mm will be transferred to Wikimedia over three years: in those circumstances it is standard to include the full total in our revenues for the year in which the agreement was signed.
What are your other revenue sources?
The vast majority of our revenue comes from donations from individuals: we are happy that every year, tens of thousands of people support the Wikimedia Foundation by making a personal donation. We also receive gifts from corporations and foundations, and we earn a small amount of money through mission-friendly business activities such as the sale of live-feed data services.
What is 'in-kind' revenue?
Goods and services that would normally be paid for but have been donated to us no charge, such as bandwidth and hosting services and pro-bono legal services.
Why did you change the method of depreciation from double-declining to straight-line?
The straight-line method is a more standard method for audit purposes. Double-declining depreciation is more typically used for an organization's tax records as opposed to their audit records.
What are non-cash contributions, and what non-cash contributions come into the Wikimedia Foundation?
Non-cash contributions include the in-kind revenue discussed above as well as donations that arrive in a form other than cash such as stock donations. In the 2007-08 year, the Foundation received in-kind revenue of $313K and stock donations of $50K.
How is the “functional allocation of expenses” arrived at?
The purpose of the functional expense statement is to show how an organization spends on support and fundraising versus how much it spends on expenses more directly related to mission delivery. Expenses are reviewed and allocated among three categories: Support, Fundraising and Programs. In part, this allocation is straightforward and objective: for example, the Wikimedia Foundation's spending on bandwidth and servers is clearly 100% program spending. Categorization of other spending is somewhat more subjective. For example, the Executive Director spends part of her time working in each category, and therefore her salary is allocated accordingly. However, the percentage of her salary allocated to each category is an estimate, not an exact representation of how her time was spent.
In the functional allocation of expenses, what kind of spending occurs in the “Projects” category?
The "Projects" category includes the salaries of program staff, all technical spending except spending which supports the office (e.g., printers, staff laptops, office Internet), costs related to the all-chapters meeting and other events such as Wikipedia Academies, some legal expenditures, etc.
In the functional allocation of expenses, what kind of spending occurs in the “General and administrative” category?
The "General and administrative" category includes such items as expenses related to the Board and Advisory Board, business insurance, general office expenses, and salaries for administrative and finance staff.
In the functional allocation of expenses, what kind of spending occurs in the “Fundraising” category?
The "Fundraising" category includes salaries of the fundraising staff and part of the ED's salary, expenses related to the online fundraiser including for example PayPal fees and the cost of improvements to the donor database, and any fundraising-related travel costs.
Why is the amount spent on projects (mission activities) so small, compared with the amount spent on what might be characterized as overhead (General and Administrative, plus Fundraising)?
The financial statements provide an accurate and complete picture of our General/Administrative and Fundraising activities, but unfortunately when it comes to mission-related activities, they only tell part of the story. That's because most of what could be characterized as the project/program/mission work of Wikimedia is accomplished by 100,000+ unpaid volunteers world-wide, whose activity doesn't show up in the financial statements.
We believe that when you factor in the activities of the volunteers, supported by the Foundation, it is clear that Wikimedia is both efficient and effective. Wikipedia and its sister projects serve more than 250 million unique visitors a month, making it the fourth-most-popular site in the world. We offer that service with a yearly total cost-per-user of less than three cents, and a paid staff of fewer than 25 people: no other website offers a similar level of service at such a low cost. (For example, Google, Yahoo and AOL employ staffs of, respectively, 20,000, 14,000 and 8,000.)
This is only possible because volunteers create the content in Wikimedia's projects and drive every other aspect of our program work. We have made a first attempt to quantify that volunteer contribution in a footnote in the 2007-08 audited financial statements, and we will provide more detailed metrics in the future. We believe that using the "percentage of spending allocated to overhead" as a metric to assess efficiency can produce irrelevant or misleading results, when applied to organizations in which the majority of program work is accomplished by volunteers.
How would you characterize the Wikimedia Foundation's spending on overhead in 2007-08? Is it appropriate to the size and scale of the organization?
We believe so, yes. In the prior year, 2006-07, the Wikimedia Foundation underspent on overhead. (For example, for part of that year, it had no Executive Director, no General Counsel and no fundraising staff.) That was not ideal: underspending can expose an organization to unnecessary risk, prevent it from reaching its full potential, and threaten sustainability. We believe that non-profit organizations need to invest appropriately in administration, management and infrastructure, in order to maximize their effectiveness.
We also value fiscal prudence, and we aim to be restrained in our spending. For example, our office is modest and located in a fairly low-cost neighborhood: we furnished it mainly through IKEA, eBay and Craigslist. We use free and open source software wherever possible, both on servers and clients, and even on our phone system. As of 2008, we have one-person-departments for many areas including business development, legal, communications, volunteer coordination, public outreach, partnerships, and accounting.
When will next year's audited financial statements be published?
Next year's audited financial statements will probably be released about the same time as this year: roughly, in November 2009.
When will the 2007-08 Form 990 be published?
The Form 990 for 2007-08 is being prepared now. It will probably be completed, approved by the Board, and published by end of mid-February 2009.