Statement of Functional Expenses

by SST Partner and CPA, Becky DaVee

In August 2016 FASB approved expanded expense reporting requirements affecting all nonprofit organizations. In the past only voluntary health and welfare organizations reported their expenses in a Statement of Functional Expenses (SoFE).  Nonprofits will reports expenses segregated by programs, general and administration, and fundraising.

Several types of expenses cross all reporting categories for example, the Executive Director’s salary is typically allocated between programs, G&A and fundraising. The best way to determine the allocation is to conduct a time study (pick a representative sample of weeks) and record the time devoted to program work, G&A, and fundraising.  The study on time spent will determine how salary and related benefits are allocated. Occupancy costs (rent, utilities, property taxes, etc.,) can be allocated based on square footage of the facility. Calculate the space devoted to program services versus G&A and fundraising, then allocate the costs based on these ratios.

Grantors and donors are interested in how resources are managed. Many grant applications require organizations to report expenses incurred by the organization’s programs compared to G&A and fundraising costs. Allocations should be reviewed annually and modified for operational changes.  Reporting expenses functionally (“who”) and naturally (“what” was purchased) provides meaningful information to your stakeholders and funders and allows you to easily track budget variances.

On October 26th we are hosting a Lunch & Learn at The Hope Center in Plano, Texas to discuss the expanded reporting requirements affecting all nonprofits beginning in early 2018.  The L&L is free and CPE will be provided. To register click here. We hope to see you there.