Audit Committee/2015-07-30

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Audit Committee Meeting
Thursday, July 30, 2015
Wikimedia Foundation Office/San Francisco
9:00–10:30 PDT (16:00-17:30 GMT )


Participating by phone:
Michael Snow (partial), Denny Vrandecic, Stu West, and Alice Wiegand
Participating in person:
Garfield Byrd, Ben Creasy, Tony Le, Lila Tretikov (partial), Amy Vossbrinck
Participating from KPMG:
Nancy Rose
Written comments submitted by:
Florian Gerl and Michael Snow

Approval minutes

The minutes from the March 16, 2015 Audit Committee Meeting were approved via email and posted prior to this meeting. Made available during today's meeting for any final comments.

Welcome to new Audit Committee Members

Denny Vrandecic and Alice Wiegand were welcomed as new members of the Audit Committee.

Pre Audit Report with KPMG

Nancy Rose, Lead Engagement Audit Partner at KPMG, presented the Audit Plan for FY 2014-15. Nancy reviewed the members of the KPMG Audit Team which includes: a Tax Partner, Tax Manager, Development and Exempt Organizations Senior Manager, Audit In-Charge, and Lead Engagement Audit Senior Manager. The Engagement Quality Control Reviewing Partner provides a second level review of the Audit. If during the Audit, any issues arise regarding the audit process, KPMG has also assigned a Client Service Partner to the audit who can be contacted at any time.

Audit Objective: The audit enables the auditor to determine if the financial statements and internal controls of the Foundation are in line with generally accepted accounting principles. This determination is made through a thorough review of the documents that support the Foundation's accounting transactions.

Responsibilities: Foundation Management: Providing access to all financial books and records and pointing out any unusual transactions or new issues to KMPG.

Audit Committee: Oversight of the financial reporting process and the establishment and maintenance, by management, of programs and internal controls designed to prevent fraud.

KPMG: Determine if the financial records of the Foundation are presented fairly and in conformity the GAAP. Communicate their findings to management and the Audit Committee, including any matters that may arise related to significant deficiencies or material weaknesses that may require the attention of management.

The assessment is done using a sampling of the transactions, not an examination of every transaction. The quality of the information provided is also examined.

Based on the nature of the Foundation's work, KPMG will pay particular attention to the areas where there may be intentional or accidental misstatements: Chapter payment processing, temporarily restricted or unrestricted net assets, the classification of operating expenses, accounting for contributions, payroll and procurement, cash and cash equivalents, fair value of investments, fixed assets, and financial statement disclosures.

Nancy asked if there were any other areas that the Audit Committee members felt should be examined or any changes that should be addressed. The Audit Committee members raised no specific areas of concern and pointed out that there has been a change in the way that grants are handled and how donations are recorded.

KPMG will be on site at the Foundation offices in San Francisco the week of August 3 for Risk Assessment, for 2 weeks beginning on August 24 for testing, and intends to complete the audit the week of September 7.

Should KPMG find any material weaknesses or deficiencies during the audit, they will notify WMF management and the Audit Committee immediately.

Discussion: In addition to the Audit, KPMG also does consulting work for WMF regarding the Foundation's international grants program. The two KPMG teams are completely separate and there are no independence issues here.

A question was raised about the WMF hedge fund investments. These are not traditional hedge funds, they are fully tradeable at all times. WMF does not hold restricted investment assets.

In October KPMG will be working with WMF on an audit of internal controls.

The Audit Committee may want to consider addressing issues of cyber security.

Nancy asked that Audit Committee members let Amy know if there are any further questions regarding the audit and Amy will email them to Nancy.

Nancy and Lila left the meeting.

Q and A Review of Documents sent to committee members prior to today's meeting

Chapter Financial Review Reports

Chapter Financial Review Reports were provided for the Committee’s review for Wikimedia Argentina, Wikimedia Serbia, and Wikimedia Netherlands. Chapters are reviewed during a site visit every two to three years. The timing of the visits depends on the efficiency of the Chapter regarding money management and controls as well as whether or not there has been a change in leadership. The chapters are independent organizations and are not obligated to institute recommendations made by the Foundation, but they typically do make the suggested changes.

WMF assists chapters with non financial help. We also work with chapters to develop processes and skills that support better governance. There is typically not a single “right” model; each chapter is unique.

WMF OnSite Financial Review Report

Because WMF needs to lead by example, Garfield conducted and provided a financial review report for WMF. It was discovered that a review was needed regarding WMF's internal controls. This work will be performed by KPMG in October.

The WMF Board is looking to include several members who have a broad financial background.

There was a discussion about the possibility of setting up a Finance Committee which could take on issues that the Audit Committee does not have the bandwidth to address, e.g. a review of fixed asset purchases, and what should the size of the overall budget be for WMF.

There was a discussion around the risks regarding finances, budget, fundraising and forecasting. It cannot be assumed that a cycle of infinite abundance will last forever. We need to be sure that we are reaching the metrics that need to be reached and if not we need to shift funds elsewhere within WMF. The Foundation is interviewing to hire a budget and financial analyst to help with this work.

Financial Site visit Protocol

This document was provided for review for the new members of the Audit Committee.

2015-16 Risks Document

The Risks Document is currently updated once a year; another option is to update it quarterly or twice a year. Discussions are on-going regarding the best timing. The primary value of the document is that is offers the WMF staff and the Board a vehicle for discussing how to deal with risks. It also assures the Board that the staff is considering risks and applying midcourse corrections if needed. The idea that some risks are theoretical and others are real was discussed and it was suggested that the risks might be divided into those categories.

Regarding the risk that the community may “take a harmful position”, it was suggested that being proactive in helping community members more completely understand the well established, core values of the mission could help mitigate this risk.

Endowment Update

Garfield Byrd, Geoff Brigham,Terry Gilbey, and Lisa Gruwell are having final conversations regarding the structure for the endowment. When these conversations are completed, a recommendation will be made to the WMF Board of Trustees.

Gift Threshold(s) requiring internal review/board approval

From 2006 to the present day, if a single donor wished to make a contribution to WMF amounting to more than $100K in a single year, the donation required a review by the Board of Trustees. WMF only accepts donations with no strings attached and the Board can reject a donation if it does not meet standards set by the Board and the Foundation.

The Audit Committee suggests that this donation threshold for Board review be increased, either to a set amount, or as a percentage of either the total budget from last year or as a percentage of total fundraising.

A discussion followed and the Audit Committee would like to recommend that the threshold be increased to $250K as, of the donations currently reviewed by the Board, a third to a half are over $250K.

Action Items

Garfield will talk with Caitlin Virtue and Stephen LaPorte about draft language for the Audit Committee to review regarding changing the donation threshold which requires Board review to $250K.

Executive Session

There was a brief executive session

Submitted by Amy Vossbrinck