Management and General Expenses
Posted on Wednesday, May 06, 2015
Both generally accepted accounting principles and the IRS require nonprofit organizations to report their expenses by function – program, management and general, and fund raising.
Program expenses are relatively easy to determine because these are expenses that are necessary in carrying out the organization’s mission or purpose. These are the expenses that “touch” the programs, for example, the food served at a daycare, the space used for an afterschool program or the salaries of a counselor working with clients.
Fund raising expenses are also fairly easy to determine as these are the costs associated with getting donors to contribute to the organization.
The remaining expenses should then be management and general, while this seems easy enough, often times nonprofit management incorrectly categorizes management and general expenses as program expenses. Management and general expenses are the costs associated with the overall administration of the organization. Of course these costs are necessary to keep the organization and its programs running, but they are not directly connected with a particular program or with fund raising so they should be considered management and general. For example, your audit expense is a management and general expense even though you most likely need an audit to obtain funding for a specific program grant. However, the audit expense does not directly relate to providing a program service. It is an overall expense of doing business. Other common management and general expenses include accounting, legal, general liability insurance, investment expenses, office management, and board meetings.
In addition, some expenses such as salaries and supplies need to be allocated between program expenses and management and general expenses in a reasonable manner.
Determining functional expense allocation can be challenging for nonprofits, but having a procedure in place to determine the function of each expense will assist in the process.
See our previous blog, Functional Expenses, for additional information.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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