Nonprofit’s Statement of Functional Expenses Business Forms

However, answer “No” if the organization merely informed its governing body members that a copy of the Form 990 is available upon request. Answer “No” if the organization redacted or removed any information from the copy of its final Form 990 that it provided to its governing body members before filing the form. For example, answer “No” if the organization, https://www.bookstime.com/ at the request of a donor, redacted the name and address of that donor from the copy of its Schedule B (Form 990) that it provided to its governing body members.

• X was reported as one of Y Charity’s five highest compensated employees on one of Y’s Forms 990, 990-EZ, or 990-PF from 1 of its 5 prior tax years.
• An organization must, at minimum, allocate expenses among program, management, and fundraising for purposes of the IRS 990 report and the organization’s audit (if applicable).
• Allocating expenses by function is an unavoidable part of running a nonprofit organization.
• These are general amounts, and the actual percentage will vary depending on the program.
• Include expenses for medical supplies incurred by health care/medical organizations.

Mastering Your Statement of Functional Expenses

A well-prepared statement of functional expenses not only enhances transparency and builds trust with donors but also reduces the stress of nonprofit financial reporting. A statement of functional expenses, sometimes referred to as a schedule of functional expenses, is a financial report that details how your nonprofit allocates costs across different cash flow categories. Analyzing each nonprofit financial statement provides unique insights into your organization’s financial situation and allows you to make data-driven decisions about how to manage funding.

How the Statement of Functional Expenses Fuels the Debate

If the post office doesn’t deliver mail to the street address and the organization has a P.O. If the organization receives its mail in care of a third party (such as an accountant or an attorney), enter on the street address line “C/O” followed by the third party’s name and street address or P.O. An organization must support any claim to have liquidated, terminated, dissolved, or merged by attaching a certified copy of its articles of dissolution or merger approved by the appropriate state authority. If a certified copy of its articles of dissolution or merger isn’t available, the organization must submit a copy of a resolution or resolutions of its governing body approving plans statement of functional expenses of liquidation, termination, dissolution, or merger.

Statement Of Functional Expenses

The organization must report the sales revenue regardless of whether the sales activity is an exempt function of the organization or an unrelated trade or business. Enter the gross amount of interest income from savings and temporary cash investments, dividend and interest income from equity and debt securities (stocks and bonds), and amounts received from payments on securities loans, as defined in section 512(a)(5), as well as interest from notes and loans receivable. Don’t deduct investment management fees from this amount, but report these fees on Part IX, line 11f. Reporting on line 1 according to ASC 958 is generally acceptable (though not required) for Form 990 purposes, but the value of donated services or use of materials, equipment, or facilities may not be reported.

Provide the name of the person who possesses the organization’s books and records, and the business address and telephone number of such person (or of the organization if the books and records are kept by such person at a personal residence). If the books and records are kept at more than one location, provide the name, business address, and telephone number of the person responsible for coordinating the maintenance of the books and records. The organization isn’t required to provide the address or telephone number of a personal residence of an individual. Documentation permitted by state law can include approved minutes, email, or similar writings that explain the action taken, when it was taken, and who made the decision. For this purpose, contemporaneous means by the later of (1) the next meeting of the governing body or committee (such as approving the minutes of the prior meeting), or (2) 60 days after the date of the meeting or written action.

• As with General and Administrative costs, many donors prefer to support organizations with relatively low fundraising expenses.
• An excess benefit transaction can have serious implications for the disqualified person that entered into the transaction with the organization, any organization managers that knowingly approved of the transaction, and the organization itself.
• If the organization is unable to distinguish between these amounts, it should report all such fees and amounts on line 11e.
• Donors may also stipulate that assets, such as land or works of art, be used for a specified purpose, be preserved, and not be sold or donated with stipulations that they be invested to provide a permanent source of income.
• It must then report the corresponding liability (the amounts to be paid to the creditors on the debtors’ behalf) on line 21.

If you are required to file a Form 990, consider the natural expenses outlined on Part IX and how your current accounts fit into those categories. These are costs that have been incurred in a combined educational and fundraising campaign. Many organizations publish a monthly or quarterly newsletter containing both educational material and a fundraising solicitation. (Actually, many organizations add a solicitation request to every mailing.) This type of publication is subject to the “joint cost” allocation process. If you are sending material out to the public that is partly educational and partly a solicitation for support, you must be aware of the “joint cost” rules.

• Costs like rent, utilities, or shared salaries are divided based on a reasonable and consistent method—such as the percentage of staff time spent on different activities.
• No one ratio or financial statement can tell the full story of a nonprofit business model.
• For purposes of the excise tax on excess business holdings under section 4943, a donor advised fund is treated as a private foundation.
• Both the basic and preferred membership packages are for a 12-month period and include about 50 productions.
• Accurate allocation of fundraising expenses is crucial for providing a true picture of fundraising efficiency.

Any person who willfully fails to comply with the public inspection requirements for annual returns or exemption applications will be subject to an additional penalty of $5,000 (section 6685). If the local or subordinate organization receives a written request for a copy of its annual information return, it must fulfill the request by providing a copy of the group return in the time and manner specified under Request for copies in writing, earlier. The local or subordinate organization must permit public inspection, or comply with a request for copies made in person, within a reasonable amount of time (normally not more than 2 weeks) after receiving a request made in person for public inspection or copies and at a reasonable time of day.

• In column (D), report any revenue excludable from unrelated business income by section 512, 513, or 514.
• Report direct expenses of fundraising events on Part VIII, line 8b, rather than in Part IX, column (D).
• These methods do no necessarily need to be complex, but as mentioned consistent and documented and periodically reviewed for appropriateness.
• If a donor makes a payment in excess of $75 partly as a contribution and partly in consideration for goods or services provided by the organization, the organization must generally notify the donor of the value of goods and services provided.
• It also doesn’t include hospital facilities that are operated by entities organized as separate legal entities from the organization that are taxable as a corporation for federal tax purposes (except for members of a group exemption included in a group return filed by an organization).

When in doubt, please consult your lawyer tax, or compliance professional for counsel. Sage makes no representations or warranties of any kind, express or implied, about the completeness or accuracy of this article and related content. If you want to report your functional expenses properly AND  always have audit-ready financial reports at your disposal, an experienced nonprofit accountant can help. Tracking and allocating functional expenses is a major bookkeeping challenge for small nonprofits.