Minutes of the Meetings of the Finance Committee of the Internet Society

A meeting of the Finance Committee of the Internet Society (ISOC) was held on Monday, March 7, 2012 at 13:00 UTC. In attendance were Eva Frolich, Chair of the Finance Committee, Bert Wijnen and Jason Livingood as members of the Finance Committee.

Also in attendance were Lynn St.Amour, ISOC’s President and Chief Executive Officer, Greg Kapfer, Chief Financial Officer and Sandra Spector, Finance Director.

Call to Order

Eva called the meeting to order.

Review of Q1 2012 Financial Reports

A report was supplied to the Committee on April 30 for Committee review of the Society’s Q1 2012 Financial Report and Management Commentary. Greg noted that most revenue items were on target for Q1, but that targets for each quarter grows as we reach for our stretch goals. Greg solicited questions from the Committee.

Bert asked for comment from management on the potential for achieving the individual membership revenue target for the year, as the Q1 2012 Management Commentary points out that the budget for this revenue line is heavily weighted toward the final three quarters, and the 2012 full year budget is a substantial increase over the prior year. Lynn stated that the 2012 revenue goal is a stretch goal, but that we were not prepared after only one quarter to adjust our team expectations.

Bert commented that he was specifically concerned because he had commented on the 2012 budget, indicating that the increase from 2011 budget (30K) to 2012 budget (90K) looked very aggressive given that the 2011 actual was only 10K while budgeted at 30K.

Greg then responded to Bert’s questions on departmental under spending in Q1. Greg gave a summary of significant areas of savings against departmental expense budgets.

Greg pointed out that many of the expenses for the Global INET were currently in prepaid assets and would be expensed in April 2012 (Q2), along with recognition of related sponsorship revenues. Greg then asked for any other questions on the Q1 Financial Report and Management Commentary. There were no further questions or comments.

Strategic Operating Reserve – Discussion regarding adequacy of current reserve policy

The Committee then undertook a discussion of ISOC’s Strategic Reserve practice and adequacy of funds. Greg pointed out the difference between ISOC’s “strategic reserves” and PIR’s accumulated cash. He pointed out that per accounting principles, a liability for PIR’s potential future obligations for multi-year domain name registrations are reflected on PIR’s books. Jason asked if the PIR registry contract with ICANN was based on an “assumed renewal”. Lynn confirmed that it was, and that it could only be taken away if PIR was found to be in breach and had not cured that breach in the allotted time. She also said that the terms are the same for the .COM, .NET. .BIZ and .INFO contracts, most of which come up for “renewal” ahead of the PIR contract. As all these contracts are meant to be the same, the risk of any significant changes to them was seen to be very little.

The Committee then discussed the need to increase ISOC’s Strategic Reserves. Greg informed the Committee of a study BDO Siedman was conducting on the accounting implications of different treatments of PIR cash surplus.. The Committee then discussed the need to increase ISOC’s Strategic Reserves above six months cash. Greg noted that ISOC had increased its Strategic Reserves by about $2 million each of the past several years, based on it growth in operating needs and holding to the six month target. The increased amount of PIR contribution plus growth in ISOC generated revenue would in turn increase programme expenditures and therefore continue the need for an a higher cash reserve over the foreseeable future.

Eva then asked if ISOC had prepared detailed calculations at varying levels of Strategic Reserves, which Greg responded that one was completed for six months reserve at $11.4 million. Eva suggested calculating for twelve months. Greg then pointed out that the IAOC retreat was being held the following week in May and as they were discussing the reserve, more information would be obtained after the retreat. Bert asked if a potential endowment for the IETF would impact the reserve analysis. Lynn stated that the endowment funds may not replace ISOC contributions to the IETF, but may provide both long-term continuity assurance and expanded opportunities for the IETF.

Investment Policy for proposed Endowment Fund

The Finance Committee then discussed the Investment Policy for the Endowment Fund which had been previously reviewed by the Finance Committee and sent to the Board of Trustees. Eva commented that no responses from the Board had been received. Lynn suggested that the Board still be requested to formally approve the Investment Policy at the May Board call. As part of this approval process, Greg suggested that the Board delegate the approval of the asset allocation table within this Investment Policy to the Finance Committee. Eva suggested messages from the staff and from the Committee be sent to the Board to emphasize the need for Board approval.

Future Meeting Dates and Times

The Committee reviewed the next date of the Finance Committee meeting, August 3rd in Vancouver in the morning (TBD) with the 2nd Quarter Financial results being sent to the Committee by July 29th.

AOB

Eva called for any other business. The Committee briefly discussed the timing of the presentation of the 2013 Business Plan for review by the Finance Committee, which will be impacted by the date of the end-of-year Board meeting. Lynn said she would review the timing of sharing 2013 Business Plan drafts with the Finance Committee assuming that the Board meeting may be as early as early October 2012.

Adjournment

With no other business, the meeting was adjourned at 14:00 UTC.