Splitting Expenses for Form 990 Part IX and the Statement of Functional Expenses

Form 990 Part IX asks a 501(c)(3) to split its expenses three ways: Program Services, Management and General, and Fundraising. Argenta can now hold that split on your expenses and give you the figures on a Statement of Functional Expenses. The form itself is still yours to file; what Argenta does is produce the numbers so you are not rebuilding them in a spreadsheet each year.

The three classes, plus one

• Program Services is the work you exist to do.
• Management and General is running the organization: administration, governance, accounting.
• Fundraising is the cost of asking for money.
• Unclassified is anything you have not classified yet. Nothing is ever guessed for you, and nothing quietly defaults into Program Services.

The three classes are the columns, with Unclassified alongside them until everything is classified.

Classify a whole account at once

Most of the work is done in one place. On the chart of accounts, open an account and set Default Functional Class. Every expense posted to that account picks up that class on the statement, so classifying your accounts once handles nearly all of your expenses without touching them individually.

Leave an account Unclassified if you are not sure. That is a better answer than a guess, because a guess is invisible later and Unclassified is not.

Set it once on the account and every expense posted there picks it up.

Override a single expense

An expense can disagree with its account. Open the expense and set its own Functional Class, and that wins over whatever the account says. This is for the one-off: the conference that was really fundraising, the supply order that went to a program rather than the office.

Program materials bought on the office supplies account, moved to Program Services on the expense itself.

Split a shared cost

Some costs genuinely belong to more than one class. Rent, a director's salary, the phone bill. On the expense, use Split This Expense:

1. Click Add A Split.
2. Pick a class and type the percentage that belongs to it.
3. Add more rows until the percentages add up to 100.

The running total turns green at 100 percent. Below or above that the expense will not save, which is deliberate: a split that does not total 100 would quietly lose part of the cost. Clear Splits removes them all and hands the expense back to its single class.

While an expense has splits, its single Functional Class field is switched off, because the splits are the answer and two answers would conflict. You cannot split into Unclassified either, since the point of splitting is to say where the money went.

The running total turns green at 100 percent, and the single Functional Class field switches off while splits are in use.

Running the Statement of Functional Expenses

The report is in the Report Center, called Statement of Functional Expenses. It reads down your natural expense categories and across the functional classes, which is the shape Part IX is in.

• One row per natural expense category, the kind of thing you spent money on.
• One column per functional class, plus a Total column.
• An Unclassified column appears only if something actually landed there, so a statement with everything classified is not carrying an empty column forever.
• A Total Expenses row and a Percent of Total row along the bottom. That percentage is the number people ask about most, since it is what shows how much of your spending reached your programs.

It exports to CSV and PDF like the other reports.

The heading carries the dates you ran, and both exports sit beside it.

The tie-out box, and why it matters

Underneath the statement is a box comparing its grand total against Total Expenses on your Income Statement. The two are built from the same expenses over the same dates, so they should agree, and the box turns green when they do.

Check it before you use the numbers. Two financial statements that disagree are a problem you want to find now rather than in an audit, and this saves you comparing two screens by hand.

Green means the two statements agree.

If you see an Unclassified total

A warning appears whenever anything is Unclassified. It is not an error, it is a to-do list: those expenses have no class, on the expense or on their account. Work back through the accounts they came from and set a default class, which fixes them in batches rather than one at a time.

Unclassified money is still counted in the totals. Argenta would rather show you a statement that foots with a visible gap than one that looks tidy because something was dropped.

The warning names the amount and tells you the two places to fix it.

Filtering by fund

If you filter the statement to a fund, expenses with no fund on them cannot be included, and the report tells you how many were left out and what they came to. If that count surprises you, those expenses are missing a fund rather than missing a class.

The Fund filter, left on All Funds unless you narrow it.