Program expenses definition
/What are Program Expenses?
Program expenses are those expenses incurred to deliver specific programs in accordance with the mission of a nonprofit entity. These expenses are distinct from the other main categories of expenses for a nonprofit, which are fundraising expenses and management & administration expenses. Donors want to see a high proportion of expenses being incurred in the program expenses area, which indicates a high level of mission efficiency. Typically, a well-run nonprofit entity has a ratio of program expenses to total expenses of at least 80%. This ratio indicates that the bulk of the funds contributed to a nonprofit are being spent on its primary mission, rather than being frittered away on administrative expenditures.
Example of Program Expenses
As an example of program expenses, a nonprofit is dedicated to providing disaster relief. It spends $2 million on food and shelter for various disaster recipients, $100,000 on fundraising efforts, and $80,000 on administrative staff. Of these amounts, only the $2 million spent on disaster-related food and shelter can be considered program expenses.
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Presentation of Program Expenses
Program expenses are presented as one or more line items in the statement of activities of a nonprofit entity. A sample presentation appears in the following exhibit.
