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Minutes | Board Finance Committee (BFC) Meeting 25 June 2016

BFC Attendees: Cherine Chalaby (Co-Chair), Ron da Silva, Chris Disspain, Asha Hemrajani (Co-Chair), Markus Kummer and George Sadowsky

Other Board member Attendees: Rinalia Abdul Rahim, Rafael Lito Ibarra and Lousewies van der Laan

ICANN Executive and Staff member Attendees: Akram Atallah (President, Global Domains Division), Susanna Bennett (Chief Operating Officer), Xavier Calvez (Chief Financial Officer), Melissa King (VP, Board Operations), Taryn Presley (Sr. Manager, FP&A), Wendy Profit (Board Operations Specialist), and Amy Stathos (Deputy General Counsel)

Invited Guest: J. Beckwith Burr

The following is a summary of discussions, actions taken and actions identified:

  1. Approval of Minutes – The Committee approved the Minutes from the 9 June 2016 BFC meeting.

  2. BFC Schedule: The BFC reviewed the upcoming BFC schedule for FY16 Q4 and FY17 Q1 and Q2.

  3. FY16 Operations Forecast – The BFC reviewed the FY16 operations forecast, which shows a revenue surplus of US$12.8 million and that baseline expenses were underspent by US$2.8 million, resulting in a baseline surplus total of US$15.6 million. Overall, there will be a deficit due to the expenditure of US$21.7 million on all initiatives, including the IANA Stewardship Transition.

  4. FY16 Contingency – The BFC reviewed the FY16 contingency budget and noted that, of the US$2.9 million reserved for the contingency budget, US$1.9 million has been spent, with US$1 million remaining.

  5. Root Zone Maintainer Agreement (RZMA) – The BFC discussed that it is tasked with evaluating the financial aspects, and not the merits, of the proposed RZMA. Specifically, the BFC noted that the questions it must answer are as follows: (i) are the costs reasonable?; (ii) has the procurement process been respected?; and (iii) are the costs affordable? In terms of reasonableness of costs, the fees are US$300,000 per year over eight years, with some possible additional development costs. Staff reported that this amount is reasonable for two FTEs notwithstanding the cost of tools or equipment. In terms of the procurement process, staff reported that Verisign has been the sole provider of services as the Root Zone Maintainer, and that it is in the community's best interests to continue with Verisign in that role to maintain the stability of the root zone given Verisign's unique expertise. Staff reported that engaging Verisign for this purpose without going out for an RFP is fully consistent with ICANN's Procurement Guidelines. Further, ICANN is working directly with Verisign at NTIA's request. In terms of affordability, staff reported that this was not budgeted for in FY17, so 75% of the money or US$225,000 will come from the contingency. However, going forward it will be part of the normal operating budget. The BFC evaluated the RZMA and staff's report, and has found that the costs are reasonable, the procurement process has been respected, and the costs are affordable. Based on only the financial aspects of the contract, the BFC agreed to recommend to the Board that it approve the contract, following the Board's evaluation and approval of the merits of the contract.

    • Action:

      • Staff to finalize papers for the Board's review.

  6. FY18 Operating Plan and Budget Planning Process – Staff provided the first draft of the current budget planning process for FY18, and explained that there is an added level of complexity since the scope of activities under PTI will now be a separate budget process, separate from the activities that will remain with ICANN. From an financial standpoint, the PTI-related activities have been and will continue to be carried out by the IANA Department and other contributing departments, but the cost information related to those activities needs to be packaged in an isolated fashion and the budget process requires different timing and must be specific to the PTI scope of activities. The substance does not change, but the information will be packaged in two budgets, rather than one budget. The BFC discussed that there will be a level of engagement relating to the PTI budget, which is under consideration and development. Timing of the PTI budget process is likely to occur earlier than the ICANN budget process.

  7. PTI Implementation Status – The BFC discussed the status of PTI implementation from a financial standpoint. Since PTI will be a separate legal entity, there will need to be separate financial and accounting records specific to PTI. The BFC discussed intercompany cash pooling (one bank account that supports cash requirements for more than one entity) and separate cash flows. The BFC noted that it needs to evaluate whether separate accounts are needed and whether a separate reserve fund for PTI is needed. This will be discussed over the next several weeks. The BFC further noted the need to conduct separate audit and separate tax filings, such as needing to prepare a separate Form 990 for PTI. Staff reported that there is agreement on the need for financial stability, but the method for funding is still under discussion. The BFC discussed whether, if separation occurs, any set-aside for financial stability would follow with the separated PTI.

  8. FY17 IANA Stewardship Transition Expense Budget – The FY17 budget for the IANA Stewardship Transition costs, including external legal counsel and internal implementation, will be US$8.8 million. The BFC discussed that the funding of these expenses is designated as coming from the Reserve Fund as a temporary measure; further discussions are taking place to determine the final funding source(s) for these expenses. Staff reported that the conversation has started and that ICANN will start engaging with the community at the Public Meeting in Helsinki regarding the appropriate funding source(s) going forward. The BFC discussed that the Board has recommended that these funds come from the Reserve Fund at the outset, but agreed that the Reserve Fund needs to be replenished because it is well below the target level and continues to decrease. The BFC discussed whether the transition work will continue beyond FY17, and how that could impact the discussion. The BFC also discussed having a separate communication to the community regarding the current status of the Reserve Fund, the current policy regarding the target level of the Reserve Fund, and that such policy for the target remains in place unless and until the community comes to a consensus regarding a change in that policy.

  9. AOB - Letter from Co-Chairs of CCWG to SOs and ACs Regarding FY17 Estimate – The BFC discussed that the CCWG sent a letter to the SO and AC leaders regarding the historical costs and the estimated FY17 costs for the IANA Stewardship Transition. The BFC then discussed sending a follow-up letter to the SO/AC chairs noting the need for information regarding how the estimated FY17 budget will be followed, and the need for certain cost controls such as: (i) budget managers responsible for the spending related to the two streams of activities that are not managed by ICANN; (ii) tracking and reporting of expenditures; and (iii) an agreed-upon approach for using independent legal counsel.

  10. Committee Report – The BFC discussed the bi-annual committee reports that are to be provided to the Board. For the BFC, the first report will cover the entirety of FY16, and then every report thereafter will cover the prior six-month period. The report for FY16 will include resolutions and recommendations passed, a brief description of the activities surrounding the FY17 Operating Plan & Budget, and the IANA Stewardship Transition expense review and PCST work.

  11. Any Other Business – The BFC discussed concerns over the amount of work that is required of the Finance Team, the need to ensure that there are sufficient resources to complete all of the work, and the BFC's appreciation for the Finance Team's excellent work.

Published on 22 July 2016