With the end of the FY10 financial year, I would like to take this opportunity to address questions raised by community members and provide some insights on the overall state of finances at ICANN.
Last year, as the FY10 budget was adopted, we committed to perform a midyear review of financial performance against the adopted budget. The midyear review revealed that FY10’s operating expenses were expected to exceed the FY10 budget by nearly $3 million. We communicated about this expected overrun in October and again in January: See http://www.icann.org/en/minutes/minutes-bfc-28jan10-en.htm and http://www.icann.org/en/minutes/minutes-04feb10-en.htm. Although this overrun would still allow for positive contributions from operations to the Reserve fund, the contributions would be less than planned. The reasons for the overrun include:
- Executive personnel expenses were higher than planned resulting in part from positions being filled earlier than called for in the plan, but mostly resulting from additional staff transition expenses not included in the FY10 adopted budget. This included keeping ICANN’s former President and CEO on board as a consultant for an overlap period of six months with the new President and CEO.
- Professional service and travel costs associated with the end of the JPA and the development and ultimate signing of the Affirmation of Commitments were greater than anticipated in the adopted FY10 budget.
- Professional services, especially those associated with the extension of the new gTLD implementation program, and the costs for the Independent Review Panel’s time required to review and analyze the voluminous materials submitted, including hearing testimony, were more extensive than anticipated.
With the oversight of the Board Finance Committee, staff endeavored to combat the cost overruns by implementing a number of stringent cost containment strategies. For example: we delayed some new hires, eliminated some open positions, reduced travel costs by better coordinating staff and Board coverage at industry meetings, and we asked all staff to travel even more economically (note: ICANN’s staff policy has called for economy class travel for staff to all ICANN international meetings since March 2008). More efficient conference call and other technology solutions were researched and implemented. In addition, a number of large invoices were negotiated down and large contracts were either consolidated or renegotiated for lower rates.
One key tenet of the cost containment effort was to ensure the continuity of essential ICANN activities.
Despite the cost containment efforts, several new unanticipated and required expenses materialized during the second half of the year, including:
- additional security for the Nairobi meeting approved by the Board,
- travel and other support activities for the beginning of the Affirmation reviews not contemplated in the FY10 budget,
- additional new gTLD demand studies were initiated,
- additional executive staff costs (recruiting and other) incurred to fill out the executive team,
- remote participation at the Nairobi meeting was enhanced,
- Translation and interpretation services were greater than planned due to the sheer volume of words translated (although rates were managed down),
- and more
At the strong urging of the community, ICANN has taken an increasingly detailed approach to budgeting – both for revenue and expenses. And, over the last few years, ICANN has come closer to hitting both revenue and expense targets. This improves accountability, but it has also limited the ability of staff to respond nimbly to the changing environment and resultant requests that occur during the fiscal year. A partial answer to this issue is that going forward, staff is going to work even more closely with the Board, Supporting Organizations and Advisory Committees to identify the financial impact of decisions, and ensure these aspects are considered at the time decisions are made before implementation begins.
For FY10, we expect operating expenses to be close to $58 million, or almost $2 million over the planned budget for the operating expense line item. We won’t know the final audited numbers for some time (after all bills for the fiscal year have been received and processed, including the the expenses of running the Brussels meeting).
What does all this mean for ICANN? ICANN’s financial position is strong. Even with world markets uncertain, ICANN’s reserve fund is over $46 million. This reflects investment gains earned while investing in a moderately low risk portfolio. Even without the expected investment earnings on the reserve, ICANN still is on track to contribute positively from operations. Not as much as originally planned, but still positive. We’ll make sure the community sees the final FY10 numbers once the year-end audit is complete.
Compliance is another major focus area for ICANN. We recently submitted and posted the IRS’s 2008 Form 990 covering the fiscal year ending 30 June 2009. The Form 990 is an information return required for all U.S. not-for-profit organizations. The regulatory reporting requirements were substantially increased this year, and required a significant effort for the finance and legal teams, with Board oversight, to get this new Form 990 filed on schedule. You can see the new Form 990, along with FAQs, here: http://www.icann.org/en/financials/fiscal-30jun09.htm. One item some in the community have looked for in the Form 990 is compensation data for ICANN staff. Note that you did not have to wait for that. Exceeding any kind of regulatory requirement, in January 2010 ICANN published executive compensation at: http://www.icann.org/en/financials/fiscal-30jun10.htm
Also in the area of compliance is an ongoing review of ICANN’s internal reporting and accounting processes. During this review, we found that there had been errors made in ICANN’s 401(k) employee retirement program (explained in more detail at http://www.icann.org/en/financials/report-401k-compliance-project-16jun10-en.pdf). ICANN has already sought relief under the voluntarily correction programs administered by the U.S. Internal Revenue Service and U.S. Department of Labor, with no anticipated material financial impact to ICANN if the IRS accepts ICANN’s proposed corrections. Reportedly, ICANN was one of thousands of U.S. companies last year that participated in the IRS voluntary correction program. Still, we are committed to meeting the highest standards of compliance and we’ve put steps in place to avoid this in the future, including an internal oversight committee.
The last two years have been the "years of reporting" for the ICANN finance team. ICANN has gone from a few pages of basic reporting (i.e., adopted fiscal year budget and annual audit) to a long list of reports posted monthly on the ICANN dashboard and other reports posted regularly on the finance sections of the website. The posted draft budget alone is over 80 pages. Much of this increase in reporting is in response to community feedback. At a recent Board Finance Committee meeting, the Directors reviewed a Board information package with 28 of ICANN’s standard financial reports, a fraction of the total, most shared publicly. While most community members seem to recognize the progress in reporting, I’ve found that with more information comes even more detailed requests for information. The Directors are reviewing the reporting to ensure that we remain accountable and transparent but not overburdened with reports of little use. Your feedback is welcome on this topic.
Finally, let me point you to the FY11 Operating Plan and Budget recently adopted by the Board. ( See http://www.icann.org/en/public-comment/public-comment-201006-en.htm#draft-budget.) It is the most detailed ever for ICANN. More details and more views than ever: over 80 pages, six appendices, and translated into the five UN languages. Never resting on our laurels, we’re also contemplating changes to the planning process itself – seeking to get the SOs and ACs even more involved in the process, and earlier, to yield an ever higher quality budget in Fiscal Year ending 30 June 2012 and beyond.
Looking forward to FY11, a strong theme from the community has been the desire to get specific insight on projects of interest at the SO/AC level, or stakeholder group level, and to ensure the community members can get their input into the process earlier. This is an important focus for staff right now, and we will consider incremental modifications to the just-adopted budget, as well as an enhanced process for the next budget year that will begin soon.
I hope this more informal discussion of some of the important topics in ICANN’s finances has been helpful. Of course, this in no way replaces our formal reports that you normally receive.
I am always pleased to talk with community members, so please contact me directly if you have any questions or comments.
Chief Financial Officer