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Re: AdminRest: Finances and Accounting

2004-11-18 15:07:04

Personally, I do not think that an IETF BCP is the correct place to include a lot of specifics about how the accounting for the IASA activity will be handled. I think that those details should be worked out, and adjusted as needed, by the IAOC (in consultation with ISOC, accountants and tax lawyers).

If we insist on including this level of detail, though, we need to make sure that we get it right, and I don't believe that the current text reflects the right way to handle these things.

For example, there are some serious problems with co-mingling designated/restricted funds (such as targeted donations) with non-restricted funds (such as IETF meeting fees), and WE SHOULD NOT specify that these things need to go into a single account. That would have the effect of placing unnecessary restrictions on previously unrestricted funds, and that just isn't sound accounting policy.

I completely agree with the idea of an annual budgeting process and planned allocations from the general ISOC funds to the IASA function. I think that this discipline and advanced forecasting is healthy and responsible. However, I see no reason to restrict the planned payments to being four quarterly payments of equal size. There is no reason to believe that ISOC funding sources and/or the IASA budget will be flat on a quarter-to-quarter basis. So, I'm not arguing against the independence of the IASA budget and/or the responsibility of the IAOC & IAD to maintain it. I am merely arguing that we (the IETF community) should not constrain the model to a flat, quarterly funding model when that is unlikely to best fit the needs of the organization.

If there are some high-level guidelines within which we want the IAOC/IAD to operate, we can include them in the BCP. But, it would be foolish to document a detailed accounting policy in a BCP that will later require IETF consensus to adjust or change. We need to pick trustworthy and reasonably well-qualified people to sit on the IAOC, and then we need to trust them to develop and maintain reasonable accounting practices for the IASA function (in cooperation with ISOC, accountants and tax lawyers).

Margaret


At 4:55 PM -0800 11/17/04, Fred Baker wrote:
A question for those maintaining the document?

There is a fair bit of change in section five, regarding IASA funding. In a nutshell, it now says:

 - IETF has three revenue streams:
        * IETF meeting fees
        * Donations of various kinds designated to the IETF
        * ISOC funding derived from other sources
 - the first two get deposited in the IASA checkbook
 - the third gets deposited in quarterly lump payments
 - there is an intent to have built up enough money for the IASA to run for
   six months without receiving a dime, over a period of three years.

All that sounds good on the surface, but it differs rather markedly from current ISOC accounting practice, and it seems to over-constrain the problem and its solution. Someone who knows more about accounting than I do will mention the difference between a cash accounting scheme and an accrual accounting scheme, the latter being more usual in corporate accounting.

IETF does indeed have these present revenue sources. CNRI/Foretec currently collects IETF meeting fees and uses them pursuant to IETF meetings, databases, and teleconferences. ISOC accepts donations designated to IETF-related activities. ISOC also uses funds from other revenue sources (other donors) to further IETF purposes.

ISOC places donations "to the IETF" in accounts so designated. When the money is spent - usually on the RFC Editor, which is our largest single IETF-related expense - the revenue is recognized, and the books show both the revenue and the expense.

The effect of section 5, if I am reading it correctly, is to present ISOC with an always-on expense - ISOC immediately transfers any such money to IASA. The money is therefore immediately recognized as both revenue and an expense in the ISOC ledger and as a net deposit in the IASA checkbook.

ISOC current practice with regard to other IETF (and ISOC) expenses is to pay them as bills are presented. Bills are not presented on nice neat quarterly boundaries; the insurance bill is paid annually, IAB telechats are paid out of the monthly phone bill, meeting expenses and other payments from the IETF Chair's Discretionary Budget are paid episodically, and so on. The current issues in the RFC Editor's office (into which I will not delve in detail; due to an accounting error, they have suddenly needed an infusion of cash) result in ISOC paying an unplanned and unbudgeted lump sum payment. In short, like any other ISOC bill, IETF-related expenses are paid as valid bills are received, sometimes by surprise.

A significant part of IETF expenses will be in deposits for future meetings. Generally, the most expensive way to plan and pay for an excursion in a hotel or conference center is "at the last minute". As a result, most organizations that plan conferences have deposits on hotels and such at least a year out. A quick look at http://www.icann.org/meetings/, for example, shows meetings paid for through next summer, and on in development in December 2005. When the document talks about a six-month reserve, I therefore have to ask: which six months of the year? Does this cover one planned meeting fee, or two? On an accrual basis, that's not much of an issue, but on a cash basis, it is a big one.

The effect of section 5, if I am reading it correctly, is to transfer these budgetary bumps and grinds to the IASA rather than allowing the ISOC to help out, making "oops, we're low on cash" something that has to be discussed as opposed to ISOC simply backstopping things as we have heretofore agreed. By treating them on a cash basis rather than an accrual basis, this section seems maximize the pain they cause.

I wonder whether the IETF would consider talking with ISOC's accounting office to normalize these issues now, and whether the problem really needs to be this tightly constrained?

  Regards,
    Fred Baker

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