Functional expenses
Functional expenses are a nonprofit's costs grouped by purpose — program services, management and general, and fundraising — as reported in Form 990 Part IX.
This three-way split is what makes efficiency ratios possible: it separates money spent delivering the mission from money spent running the organization or raising more funds.
Only full Form 990 filers report the split; 990-EZ and 990-PF filers do not, which is why some organizations are graded on financial health instead.
Related terms
- Program expense ratio — The program expense ratio is the share of a nonprofit's total spending that goes to its programs and services rather than to management or fundraising.
- Overhead — Overhead is the share of a nonprofit's spending that goes to management, general operations and fundraising rather than directly to programs.
- Form 990 — Form 990 is the annual information return that most U.S. tax-exempt organizations file with the IRS, disclosing their finances, governance and programs.
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