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Financial Overview

Financial Oversight

Frequently asked questions concerning Internet2 governance, especially as it pertains to financial oversight.

Describe the oversight structure for Internet2.

Internet2 is governed by a Board of Trustees (BOT), whose members are elected from its member/owners. BOT election rules are outlined in the organization’s bylaws. As directed in the bylaws, the BOT creates committees, including an Audit and Finance Committee (AFC). The AFC is chaired by a BOT member, who is selected for his or her special expertise in accounting and finance. In addition, the BOT Chair and three other BOT members populate the AFC. Internet2’s CEO and CFO serve on the AFC as ex-officio members. The AFC oversees the finances of the Internet2 organization and reports to the full Board of Trustees.

How does the Audit and Finance Committee (AFC) oversee the financial activities of Internet2 and ensure accuracy of Internet2’s financial records?

The Audit and Finance Committee formally meets with management a minimum of three times a year, in advance of scheduled Board of Trustees meetings. The AFC formally reports on the results of its meetings to the full Board. Additional meetings are scheduled as needed. The AFC Chair sets the meeting agenda based not only on issues of interest to the BOT, but also based upon the financial issues facing the organization resulting from Internet2’s fiscal calendar, which is January 1st through December 31st.

In addition, the AFC engages independent outside auditors to conduct an annual, full scope financial audit of Internet2’s accounting and financial records and practices as well as an annual A-133 compliance audit of all Federal Grant activity. The independent auditors meet with the AFC each fall to present an audit plan and then again in the spring to present the results of the audit. The AFC meets with the auditors in “Executive Session,” which excludes the participation of Internet2 management, in order to receive an unfiltered, unbiased view of Internet2’s financial management competency and practices. A third AFC meeting is held in the summer to review management-prepared budgets and to shape those budgets for recommendation to the full Board. (More on the budget process below.)

As a 501c3 corporation, Internet2 is obligated to prepare and file an annual Federal Form 990. The “990” is reviewed by the AFC and then presented to the full Board for review and discussion. Upon completion of this process, the 990 is filed with the IRS.

The financial records are maintained on and audits are conducted based upon accounting standards known as “Generally Accepted Accounting Principles” or GAAP. From the inception of the audit process for Internet2, begun in 1999, through the current year ended, Internet2 has received an “unqualified” or “clean” opinion from the external, independent auditors for each year’s financial report. An unqualified opinion certifies that the financial information presented in Internet2’s financial statements present fairly the financial position of the organization and is materially correct. The current auditors are PricewaterhouseCoopers.

How does Internet2 ensure alignment between its budget and programmatic funding and the organization’s mission and strategic objectives?

The formation of a 501c3 organization requires the articulation of the organization’s mission and not-for-profit (NFP) purpose. A major portion of the Board of Trustee’s purpose is to make certain the organization functions within the framework of its charter. But the mission and purpose of most NFP’s are intentionally broad to allow for changes in the social and economic environment in which the organization functions. Within this organizational structure, the Board of Trustees provides Internet2 management with an annual set of strategic objectives used to direct the activities of the organization.

The BOT designates an advisory committee known as the Programs and Priorities Committee (PPC). The PPC is chaired by a BOT member and includes four other BOT members as well as three Internet2 community members who do not have to be BOT members. The PPC interacts with the Internet2 senior management team who present proposed program initiatives designed to fall within the mission and purpose of the organization and to more specifically address community-driven strategic objectives. Each senior manager establishes a Program Advisory Group (PAG) from a cross-section of the Internet2 member community. The PAGs help senior managers develop the program priorities that will be presented to the PPC. The PPC weighs the options and recommends specific priorities to the full Board for discussion and approval.

The BOT delivers the final, approved strategic objectives to management, who in turn develop the budget for the coming year and related projections for the three years beyond. When the finance team presents the budgets to the AFC, the specific linkage to the strategic objectives are highlighted and specifically discussed as part of the review and approval process.

Where can I learn more about Internet2’s finances and budget issues?

In addition to this website, Internet2 makes an open presentation each year at the Internet2 Annual Meeting. This meeting is mandated in the organization’s bylaws and addresses the most recent independent audit results as well as provides an overview of the current year’s budget objectives. Questions can also be directed to the CFO, James A. Pflasterer, at japflasterer@internet2.edu.
Historical Financials

The following historical financial information provides a clear view of Internet2’s financial growth and maturation in supporting the mission set for the organization by the research and education community. The organization’s annual financial statements are audited by external, independent auditors selected by the Audit and Finance Committee of the Board of Trustees. (See “Financial Oversight.”)

Internet2 Annual Audit – 2015 & 2014 (531.2 KB)

Internet2, as a 501(c)3 not-for-profit corporation, organized under the laws of the District of Columbia, generates revenues for the purpose of executing the mission of the organization.

Facilitate and coordinate the development, deployment, operation and technology transfer of advanced, network-based applications and network services to further U.S. leadership in research and higher education and accelerate the availability of new services and applications on the Internet.1

Strategic objectives and the related programmatic focus might shift from year to year, but are always in service of the organization’s mission.

Internet2, through the leadership, guidance, and support of its research and education members, continues to improve the stability of operations, the strength of its balance sheet, and the quality and scope of services provided within its mission on behalf of its membership.

1 From the original 501(c)3 filed with the IRS.

Projections

Internet2 management engages in an annual process to both identify strategic objectives for the organization and to align those strategic objectives with the organization’s budget. The annual process is overseen by the Board of Trustees and spans a five-year period that includes a re-forecast of the current year’s budget and extends projections through the ensuing four years.

Internet2, as a 501(c)3 not-for-profit corporation, organized under the laws of the District of Columbia, generates revenues for the purpose of executing the mission of the organization.

Facilitate and coordinate the development, deployment, operation and technology transfer of advanced, network-based applications and network services to further U.S. leadership in research and higher education and accelerate the availability of new services and applications on the Internet.1

Internet2 seven strategic areas (Fall 2010) The level of revenue generation dictates the depth and breadth of mission objectives the organization can pursue on behalf of the research and education community. Strategic objectives and the related programmatic focus may shift from year to year, but are always in service to the organization’s mission. The most recent set of strategic objectives generated by the community and delivered to management through the governance structure via the Board of Trustees is depicted in this image (see right).

The tactical implementation of the budget might vary slightly from year to year, but ultimately all actions and budget commitments are directed towards the accomplishment of these strategic objectives.

Internet2 completed the installation of a state-of-the-art, 100GB fiber optic network in mid 2013. The network was funded through a combination of a $62M Federal ARRA grant called BTOP and about $34M in matching funds provided by the higher education community through Internet2. The new network provides fast, abundant broadband connectivity to the innovative higher education community, spawning expanded use of the network for both research and education. The advanced nature of the network is transformative and continues to expand the number of connections, bringing with it the revenues necessary to both operate the expanded/expanding network and to renew the network asset, to remain a state-of-the art, advanced network. Internet2 intends to continue to utilize episodic grant funding to the extent possible to fund asset upgrade cycles but has also developed the stable cash flows to support routine capital purchases through appropriate levels of debt financing.

Internet2, governed and strategically directed by the Board of Trustees, has established a solid financial foundation in the continued pursuit of the organization’s mission.

1 From the original 501(c)3 filed with the IRS.