![]() ![]() While that may be a useful figure, I think we need to always keep in mind just what expenses are admin and what are program so we know just what is being measured. That post also brings up the specter nonprofits face of spending too much on overhead expenses and the focus on the financial ratio of administrative expenses to program expenses. It links to this pdf of overhead cost definitions which is very handy. But this is the world we operate in and those are the rules, so it is best to make sure we understand the rules so we can present our numbers in the most honest fashion to show what it costs to do the work we do.Īnother nice breakdown of what administrative / overhead costs are comes from this post from the Nonprofits Assistance Fund. ![]() This point, of course, can be argued and I think it is where much of the confusion resides when talking about classifying nonprofit expenses. The organization can’t get by without those expenses but, according to the IRS and others, they have no direct effect on the mission. Administrative costs are indirect expenses, they affect the mission of the organization indirectly. Program costs are considered direct expenses, expenses that have a direct effect on fulfilling the mission of the nonprofit organization. I’ve linked to this topic in my Q&A section and below is what the IRS says about administrative costs in the updated Form 990 instructions on page 33:Ĭlick on the image for a larger / clearer viewĪ nonprofit’s expenses are classified by what they were used for within the three broad categories / functional areas of administration, program and fundraising. Just because the expense is for an independent contractor does not mean it is automatically an administrative cost. If the consultants worked on administrative tasks, their fees would be an administrative cost, if they worked in program areas it would be program costs. Is the money paid to these people “administrative costs” straight across, or can we separate it out by program? Doesn’t this all come under administrative costs?Īnswer: How you code the transactions will depend on the type of work you paid for. Question #2: We have two independent contractors doing work for our nonprofit. If your organization does an audit it will show depreciation as a part of your total expenses and allocate it across all your functional areas. This helps show the cost of doing the work, as at some point equipment will have to be replaced and it is good to know which program is “using” it the most. Question #1: Should a depreciation expense be included in the calculation when looking at the percentage of administration expenses to total operating expenses with a nonprofit?Īnswer: It is a good idea to allocate and include depreciation expense in program(s), admin and fundraising. Below are the questions and the answers I sent: Two questions recently got me thinking about administrative and overhead expenses. ![]()
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