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ideas & ledgers

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What percent of nonprofit charitable donations are allocated to program services?

People are usually charitable. Reluctancy in giving arises when the contributors question how their donations are allocated. Will the donations go towards the program or operating costs? According to federal tax return Form 990, nonprofits segment Functional Expenses, as they are called, into one of the three categories: Program service, Management and general or Fundraising expenses.

Program service expense

These are costs related to the nonprofit’s program or service, the core reason why they exist. For example a shelter’s principle program is offering housing to people in need. Or alcoholics anonymous principle program is offering counseling services to its participants.

Fundraising Expenses

It’s true, it does cost money to make money. Cost associated with fundraising may include fundraising campaigns, maintaining donor lists or special fundraising events.

Management and general expenses

Management and general expenses are costs not associated with the program service expenses. These are overhead costs. Some of these cost may include senior management salaries such as the executive director, bookkeeper or the marketing - development officers. They can include costs such as utilities, printing or postage.

When you donate to a nonprofit, how are your contributions divided into these three categories? What percent goes to the Program? The percent allocated to Program service expenses really depends on the what type of nonprofit it is. A charter school’s overhead cost is likely to be higher than the overhead cost at the community food bank.

Let’s establish a baseline for Functional Expense. (Program services, Management & general and Fundraising)

  • Idealistic - Lean Efficient nonprofit Functional Expenses are 85%, 10% & 5%.

  • Standard - Realistic nonprofit Functional Expenses may be 75%, 15% &10%

  • A shelter’s located in NJ reported in 2015 Functional Expenses were 89%, 4% & 7%.

  • Ideally a charter school’s Functional Expenses should average 65%, 33% & 2%.

  • A high achieving charter school in Philadelphia in 2015 reported Functional Expenses at 69%, 31% & 0.

  • A top rated private school in Philadelphia in 2015 reported Functional Expenses at 78%, 15%, & 7%.

As you can see, depending on the industry Program services costs fluctuate. Other mitigating variables that contribute to fluctuation of Functional Expenses are market factors such as poverty and human capital. The erosion of higher investments in Program services expenses, also known as fiscal mismanagement, not misappropriations, is due to operational inefficiency. Operational Inefficiency is not employing the correct strategy to weather internal and external stakeholder shifts.

Clients engage Auphsite Consulting to review their organization’s Functional Expenses and put forth recommendations that align their Functional Expenses with industry standards. We welcome the opportunity to learn how we can serve.