The phrase "audited financial statements" does not usually bring joy to the hearts of children or wake slumbering people from naps. However, if you're me, audited financials are pretty darn exciting. Firstly, I love them because they give us a baseline to measure against year afer year, and I love metrics. Secondly, audited financials are the cornerstone of a larger objective - openness and transparency in all our work. We continue to strive for this openness, publishing our financial statements quarterly, recapping and recording all our board meetings, and chattering with you all via email, IRC (#drupal-association), social media. 

Although we currently have no legal or financial obligation to conduct an annual audit, it's an opportunity we did not want to miss out on. The annual audit allows us to share an independently verified view of our financials with the community. It also allows us to learn from professionals in the field about best practices we should be applying in our own work. We learn something during every audit that makes the Association stronger. 

Ready to dive in? Here's what you need to know about our 2013 audit:

What IS a financial audit anyway?

Most of us think of an audit as a bad thing - something the government does when our tax filings don't seem right. That's definitely one kind of audit. Here at the Drupal Association, and for many other organizations, an audit is an annual opportunity to independently verify your financial statements and ensure that your financial operations are as strong as they can be. Audits can be conducted internally, but because of our size and our desire for transparency, we contracted with an external CPA firm, McDonald Jacobs, to conduct our audit.

What did our audit cover?

The Drupal Association's fiscal year aligns with the calendar year. Our audit covered financials and practices in fiscal year 2013, Jan 1, 2013 through December 31, 2013. 2013 was a pretty stable year for the Association in terms of operations. Though we grew signficantly and experienced a leadership change (hi there!), our programs and systems did not undergo any major changes. For 2013, the auditors looked at things like:

• Proper recording of income and expense: The first job of the auditor is to ensure that our financial statements are an accurate representation of the business we've conducted. Did we record transactions on the right date, to the right account, and the right class? In other words, if we said that 2013 revenue for programs was a certain amount, is that really true?
• Financial controls: Preventing fraud is an important part of the audit. Though everyone on the Drupal Association team is fantastic to work with, it's important to put the kinds of controls in place that can prevent common types of fraud, such as forged checks and payroll changes. Auditors look to see that there are two sets of eyes on every transaction, and that documentation is provided to verify expenses and check requests.
• Policies and procedures: Sarbanes-Oxley and other laws and regulation require that we have certain policies in place at our organization, including a whistleblower policy, for example. Our auditors looked at our policies to ensure they were in place and, in some cases, had been reviewed by the board and staff.

What are the documents the auditor provided?

The complete auditor's report includes three documents for 2013:

• Audit Communication Letter: This document outlines the role of the auditor to the board, and any problems encountered during the audit.
• Management Letter: This document addresses any internal financial controls issues.
• Financial Statements: All the numbers!

What did our auditors find?

Honestly, not a lot, and that's a good thing. In 2012, we had a very positive audit, but it did flag several issues for us to address and correct. In 2013, we were able to adress all of the issues raised by the auditors:

• Currency conversion: We manage several currencies at the Association as we do work around the globe. In 2013, we followed the advice of our auditors and have properly accounted for the conversion of currency (from Euro to US Dollar, for example) and any gains or losses associated with that conversion.
• Recognizing conference revenue: When you buy a ticket to a DrupalCon, we are liable to you until we are able to deliver the service you purchased - the Con. So, if you buy a ticket, and we cancel the Con, we owe you the ticket price. Because of that, we are not allowed to recognize Con revenue (from ticket sales, sponsorships, etc.) until the conference is actually held. In 2013, we properly held all revenue associated with a Con on our balance sheet, and did not recognize that revenue as income until the month in which the Con was delivered.
• Capitalizing Drupal.org expenses: Just like a building, a bulldozer, or a copy machine, Drupal.org is an asset. According to the Financial Accounting Standards Board, if we make an investment in this asset, like, say a major software upgrade, we can capitalize that expense over a standard period of time (we're using three years). This allows us to absorb the expense over the lifetime of its usefulness. We've been capitalizing any expenses associated with the completion of the D7 upgrade.

So what happened in 2013?

In short, we were able to sock away a fair amount of money. Our change in net assets was +$642,461. The success of 2013 is part of what helped the board decide that we can make a big investment in Drupal.org in 2014. We are beginning to see a payoff for this investment and are thrilled that we had the cushion to sustain it.

We grew! In the 2013 financial statements  we were able to make a direct comparison to 2012, our first audited year. In the Statement of Functional Expenses (which show where/how we spent our money), you can see that staffing costs increased, along with most other costs. This is a sign of our growing maturity as an organization. As a nonprofit, we work very hard to spend every penny we raise wisely, but as our community grows, so to does the need to serve that community. 

We still aren't telling a great story in our financials. In 2014, we set up our financials so that we can show you a little more detail. Rather than showing just income and expense overall, we can show you income and expense for each Con, Drupal.org, etc. Although we can't see it in the the audited financials yet, you can get a sneak peek in our financial statements.

What else do you want to know?

Let us know what other questions you have!

Flickr photo: Addison Berry