Reporting Management and General Expenses: Getting It Right under FASB ASU 2016-14
By Mark Piszko, CPA, CGMA, Partner
As required by the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, not-for-profit organizations (NFPs) must include in their financial statements or note disclosures total expenses by function and natural class. Functional expense classifications include major classes of program services and supporting activities. The new ASU also requires enhanced disclosure regarding the method(s) used to allocate indirect expenses, or those costs allocated to more than one activity.
As defined by the FASB:
Program services are the activities that result in goods and services being distributed to beneficiaries, customers, or members that fulfill the purposes or mission for which the NFP exists. Those services are the major purpose for and the major output of the NFP and often relate to several major programs.
Most NFPs are quite familiar with the program services expenses associated with their mission. But, in some cases, NFP organizations are hesitant as to which expenses should be identified as supporting activities, particularly those classified as management and general.
Supporting activities are all activities of an NFP other than program services. They generally include the following:
- Management and general activities
- Fundraising activities
- Membership development activities
Management and General Activities
As stated above, NFPs are, at times, unsure how to categorize certain expenses as management and general. According to FASB guidance, management and general activities include the following:
b. Business management
c. General recordkeeping and payroll
d. Budgeting
e. Financing, including unallocated interest costs
f. Soliciting funds other than contributions and membership dues; for example, the costs associated with:
2. Responding to government, foundation, and other requests for proposals for customer- sponsored contracts for goods and service
3. Administering government, foundation, and similar customer-sponsored contracts, including billing and collecting fees and grant and contract financial reporting
h. Making announcements concerning appointments
i. Producing and disseminating the annual report
j. Employee benefits management and oversight (human resources)
k. All other management and administration expenses except for direct conduct of program services, fundraising activities, or membership development activities.
The costs of oversight and management usually include the salaries and expenses of the governing board, the chief executive officer of the NFP, and the supporting staff. However, if such personnel spend a portion of their time directly conducting or supervising program services or categories of other supporting services, their salaries and expenses shall be allocated among those functions.
Allocating Expenses from Management and General Functions
FASB guidance contains several examples of certain management and general activities that illustrate direct conduct and direct supervision of program or support activities which, accordingly, should be allocated to the program or support functions that receive a benefit:
Example A: Chief Executive Officer Allocation
Example B: Chief Financial Officer Allocation
Example C: Human Resources Department Allocation
Example D: Grant Accounting and Reporting Allocation
Required Disclosure
The information required to be disclosed by the ASU includes the cost allocation method(s) used to allocate costs of activities identifiable with one or more programs, fundraising, or membership-development. The ASU provides the following example of the required note disclosure:
Note X. Methods Used for Allocation of Expenses from Management and General Activities
Contact Us
If you have any questions about properly reporting functional expenses — or not-for-profit accounting and auditing matters in general — please contact Mark Piszko, CPA, CGMA, Partner-in-Charge, Not-for Profit Services, at mpiszko@pkfod.com or 646.449.6316 or the partner in charge of your account.