Nonprofit organization - Basic comprehension of a Statement of Functional Expenses

Non Profit Bylaws Template California - Nonprofit organization - Basic comprehension of a Statement of Functional Expenses

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The statement of functional expenses gives users a dissimilar perspective on the non-profit organization's financial situation, providing details not available on other reports. It shows expenses, such as salaries, rent, postage, like an revenue statement, but the expenses are allocated to more than one column.

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Non Profit Bylaws Template California

When you look at a statement of functional expenses, you will see lines listing expenses to your left and then, three columns labeled: program, normal & administration (G&A), and fund-raising- like a matrix. Note that this statement presents expenses only, no revenues.

If you want to verify how much was spent in salaries for programs, for example, you enumerate to the statement of functional expenses, focusing on the "salaries" line and agenda column. Some organizations' statements show multiple agenda columns, one for each program. For instance, a non-profit could have a column for food program, and other column for job training, showing expenses separated by program-instead of combining all agenda expenses in one column.

Donors and other stakeholders look into this statement to verify how expenses were allocated. Usually most expenses are shown under program, then G&A, and lastly fund-raising. If fund-raising has the most expenses, something is wrong- non-profits are "alive" to fulfill a program, a mission statement, not to raise funds. Raising funds is ancillary function, not the main event and too much in that area raises red flags.

Allocating no expenses to fund-raising also can raise red flags, since very few organizations have no fund-raising expenses at all. If nothing is showing in that column, the credibility of the price budget can come into question. A typical budget presents programs with about 80% of total expenses, G&A with 15%, and fund-raising with 5%.

One of the challenges in allocating expenses is to make sure it is reasonable. Usually time sheets are filled out by everyone in an organization so that salaries are allocated properly. Occupancy may be a good way to allocate utilities or insurance. If programs occupies 90% of space, then 90% of utilities expenses are allocated to program. The budget must pass exterior Cpa firm yearly audits, so it needs to be sensible and consistent.

The statement of functional expenses is required on the information tax returns-990 and is an integral part of the financial statements of many non-profits.

Example of a statement of functional expenses:

Abc Organization

Statement of Functional Expenses

6/30/20Xx

[Columns] Programs/ normal and menagerial / Fund-raising/ Total

Salaries

Consultants

Legal

Feed

Veterinary Expenses

Utilities

Office supplies

Total

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