posted July 18, 2017

Coming Soon! Change to Not-for-Profit Expense Reporting (Part 2) 

by Jill A. Shaw, CPA, Audit Partner

As discussed in Part 1 of this blog series, one of the new requirements under Accounting Standards Update 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, is enhanced disclosures over the methods used to allocate costs among program and support functions.Allocation of expenses is often times based on estimates and supporting documentation for those estimates can be very subjective. One of the reasons that allocations remain somewhat of a mystery is due to misunderstandings of what types of costs should be in each function. 

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The functional expense classifications for nonprofits are as follows:

Program Services

Costs relating to providing program services that fulfill the organization’s mission.

Support Services

Management and General – costs relating to the essential day-to-day administration and overall direction of the organization.

Fundraising – costs relating to obtaining financial support for the organization from potential donors.

Program service costs are often the easiest to identify, because those costs allow a nonprofit to fulfill their missions, however sometimes it may seem as though every cost relates to programs, because after all, isn’t every cost spent with the intention of meeting overall programmatic goals?Thankfully, accounting standards provide some specific guidance about what types of costs should be allocated to the support services classifications.

Examples of Management and General Costs:

  • oversight
  • business management
  • general record keeping
  • budgeting
  • financing
  • soliciting funds other than contributions and membership dues (for example, the costs associated with promoting the sale of goods or services to customers, including advertising costs)
  • responding to government, foundation, and other requests for proposals for customer-sponsored contracts for goods and services
  • administering government, foundation, and similar customer-sponsored contracts, including billing and collecting fees
  • disseminating information to inform the public of the organization's stewardship of contributed funds
  • making announcements concerning appointments
  • producing and disseminating the annual report
  • employee benefits management and oversight (human resources)

Examples of Fundraising Costs:

  • publicizing and conducting fund-raising campaigns
  • maintaining donor mailing lists
  • conducting special fund-raising events
  • preparing and distributing fund-raising manuals, instructions, and other materials
  • conducting other activities involved with soliciting contributions from individuals, foundations, government agencies, and others

If part of your organization’s method to allocate salary expenses includes maintaining timesheets for individuals whose responsibilities consist of tasks that fall into more than one functional category, consider providing those individuals with the above lists. Hopefully these lists help with the challenge of allocating costs!


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