Statement Of Functional Expenses

The statement of functional expenses breaks down your expenses by category.

There are 3 categories of expenses. The functional expenses categories are:

  1. Program expenses
  2. Management and general expenses
  3. Fundraising expenses

This divides your expenses by their functions. The purpose of a statement of functional expenses is to show how much of your money and time you spent on each of the categories mentioned above.

An easy way to allocate these expenses if by having your volunteers and employees record what they do with their time.

ASU 2016-14 provides guidance on how to do this. It used to be that only certain organizations were required to have a statement of functional expenses, but now all non-profits are required to have a statement of functional expenses.

This means that you have to break out all of your expenses into a functional allocation of expenses for nonprofits under ASU 2016-14.

These include expenses for everyday activities like salaries and wages, employee benefits, utilities, accounting, advertising, marketing, equipment, etc. This classification is what is called the natural classification.

Program services are services that result from the non for profit fulfilling their mission.

Program Services

Program services are services that result from the non for profit fulfilling their mission.

List of program expenses

Some common expenses that might relate to program services are

  • salaries and wages of employees that work for the entity.
  • Supplies that are used to support the mission of something like a food kitchen.
  • Expenses for research.
  • Expenses related to disaster relief.

Management & General Expenses

Management and general expenses include expenses that aren’t directly related to any program of the nonprofit. These are typically a little easier to identify.

This typically includes expenses for

  • Salaries and wages of the governing board
  • Salaries and wages of CEO and his supporting staff
  • Accounting staff
  • Insurance
  • Legal fees
  • Payroll taxes
  • Rent
  • Travel
  • Utilities

It might be hard to allocate salaries of some employees between program and management and general expenses. This is where having employees track their time would be a good idea. There are some grants that mandate that you must track you time. When you can’t determine whether something is a program expense or a m&g expense, then it should be automatically classified as an M&G expense.

Fundraising expenses

These are the activities that help generate the support for your non-profit. This includes expenses that help support receiving gifts, grants and contributions.

Some examples of fundraising expenses include

Salaries and wages for people fundraising
Direct mail campaing asking for funds

Fundraising expenses do not typically include expenses from things like sweepstakes, lotteries or raffles.

Important ratios

How to read the statement of functional expenses. You can use the following important ratios to help you understand and read the statement of functional expenses.

Program spending ratio

This is the ratio of your program expenses over your total expenses. This shows how much of your money is actually going towards supporting your non-profit’s mission

Fundraising efficiency ratio

This ratio shows how much it costs for each dollar of fundraising. You divide fundraising expenses by your total contributions.