Statement of Functional Expenses

Statement of Functional Expenses

The Statement of Functional Expenses is a required report for Form 990 that shows your expenses broken down in two dimensions: by nature (what you spent money on) and by function (what purpose it served). It's one of the most important transparency tools for nonprofits.

The Three Functions

• Program Services: Expenses directly related to delivering your mission. If you run a food bank, this includes food costs, warehouse rent, and staff who pack boxes.
• Management & General: Administrative overhead that keeps the organization running—accounting, HR, office supplies, insurance, and executive salaries.
• Fundraising: Costs of raising money—events, appeals, donor cultivation, marketing campaigns, and development staff salaries.

How Allocation Works

Some expenses clearly fall into one function (a food bank truck is obviously a program expense). Others need to be allocated across functions. For example, if your executive director spends 60% of their time on programs, 25% on admin, and 15% on fundraising, their salary is split accordingly. Alignmint handles these allocations automatically based on the functional category assigned to each expense account in your Chart of Accounts.

Why It Matters

Donors, grantors, and watchdog organizations like Charity Navigator use this report to evaluate how efficiently you use funds. A healthy nonprofit typically spends 75% or more on program services. The report provides transparency that builds trust with stakeholders.

Generating the Report

1. Go to Reports → Statement of Functional Expenses
2. Select the fiscal year or date range
3. Click "Generate"
4. Export to PDF or Excel

Form 990 Connection

This report maps directly to Part IX of Form 990. When you use the Form 990 Builder in Tools, the data from this report flows into the 990 worksheet automatically.