Management and General Expenses
Posted on Wednesday, June 14, 2017
Both generally accepted accounting principles and IRS Form 990 require nonprofit organizations to report information about expenses by their functional classification. The three main types of functional expenses are program, management and general, and fund raising. Management and general and fund raising expenses are considered supporting services.
There is no specific requirement as to how much of an organization’s expenses should be spent on each function; however, there are recommended standards that third parties use to evaluate expense allocations. The Better Business Bureau looks for at least 65% of total expenses to be spent on program services. Charity Watch views 60% or greater spent on programs as reasonable for most charities, with high efficient charities spending 75% or more on programs. The United Way of Allen County recommends no more than 25% spent on supporting services. Actual percentages for nonprofits by function vary depending on the organization’s size, age, location, mission and programs.
Unfortunately, many nonprofits feel the need to keep management and general expenses as low as possible; however, the reality is that these types of expenses are necessary in operating a nonprofit.
The following activities are considered management and general. These types of expenses are necessary based on the organizational structure rather than the mission and therefore, should not be allocated to programs.
- Business management
- General record keeping and payroll
- Soliciting funds other than contributions and membership dues
- Administering government, foundation and similar contracts, including billing and collecting fees and grant and contract financial reporting
- Disseminating information to the public about the organization’s stewardship of contributions, making announcements about appointments, and producing the annual report
- Human resources (employee benefits management and oversight)
- All other management and administration except for direct conduct of program services, fund raising activities, or membership development activities
It is important for nonprofit organizations to manage their expenses so that they are using their resources for their exempt purpose; however, management and general expenses are necessary for operating the organization and should not be understated to show a more favorable program expense allocation.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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