Nonprofit administrative expenses are a necessary investment in your infrastructure and operations and are essential for your organization to be more sustainable to be able to fulfill your mission.
Nonprofit Administrative costs reflect “how” your nonprofit exists.
Nonprofit organizations are subject to a unique accounting and reporting requirement that requires the reporting of expenses according to the purpose for which they are incurred. This process, referred to as functional expense allocation, is one of the more challenging areas of preparing a nonprofit’s financial statements.
Expenses for nonprofits are grouped in functional categories as either program or supporting service expenses. There are two categories of supporting service expenses management and general or administrative and fund raising.
How Nonprofit Administrative Expenses Are Implemented
Administrative expenses are the expenses incurred for the overall operations and management of your organization. Paying certain employees’ salaries, payroll taxes and fringe benefits, rent for your offices, utilities, legal expenses, audit fees and office supplies are all examples of the administrative costs that you incur in the process of remaining an ongoing concern.
There are no federal policies on the percentage of expenses that can be spent on administrative items where each nonprofit determines its own administrative costs. You may be wondering if you spending more than you should. To help put your administrative costs in perspective, you can refer to the Charity Navigator’s Ratings Table, which takes into account the differences in costs of running certain types of nonprofits and what their overheads tend to be. This will give you a reference point of where your expenses fall in the scheme of things.
Keep a Watchful Eye on Nonprofit Administrative Expenses
Remember, your board of directors, donors and granting agencies are keeping a watchful eye on your spending. Specifically, this includes the percentage of total expenses that nonprofits spend on administration. This will determine if your nonprofit is spending appropriately when it comes to fulfilling its mission and helping your community. Nonprofits are required to generate a Statement of Functional Expenses which clearly shows segments and analysis of administrative expenses.
It is important to evaluate what your nonprofit spends on administrative expenses and determine whether that percentage fits the norm of similar nonprofit organizations.
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