Standard 8

Spend at least 65% of its total expenses on program activities.

Please note that standards 8 and 9 have different denominators.
Formula for Standard 8:
Total Program Service Expenses   should be at least 65%

Total Expenses

An organization that does not meet Standards 8, 9 and/or 10 may provide evidence to demonstrate that its use of funds is reasonable. The higher fund raising and administrative costs of a newly created organization, donor restrictions on the use of funds, exceptional bequests, a stigma associated with a cause and environmental or political events beyond an organization's control are among factors which may result in expenditures that are reasonable although they do not meet the financial measures cited in these standards.

Information Needed from Charity to Determine Compliance:

The charity provides the most recent financial statements required for its income level, as specified in Standard 11. Depending on the size of the charity's income, this financial statement may be in the form of audited or reviewed financial statements, internally produced financial statements or IRS Form 990.

Application:

In calculating this financial ratio, the Alliance will also consider any issues about the accuracy of the charity's financial statements as described in Standard 13.

The Alliance proceeds as follows in determining the program expense ratio:

  1. Using the charity's audited or reviewed financial statements, the Alliance divides the reported total program service expense by the total reported expenses in order to determine the ratio of program expense to total expense.

  2. If the charity does not have audited or reviewed financial statements, the Alliance uses the IRS Form 990 to calculate this ratio. Using the IRS Form 990, the Alliance divides the Form's line 13 (total program service expense) by line 17 (total expenses) to determine the ratio of program expense to total expense.

  3. If a charity does not have an audited or reviewed financial statement or IRS Form 990, the Alliance uses the latest available unaudited financial statement to calculate the program service expense ratio, as in (a) above.

  4. If the charity does not have audited, reviewed or unaudited financial statements but completes the IRS Form 990-EZ, the Alliance uses this form to calculate this ratio. Using the IRS Form 990-EZ, the Alliance divides line 32 (total program service expense) by line 17 (total expenses) for the same ratio.

A charity that does not meet the 65% program expense standard and believes there is an extenuating circumstance as noted in the paragraph contained in the standards should inform the Alliance of its position.

In applying this standard, the Alliance prefers to use the audited financial statements rather than the IRS Form 990 for reasons including the following:

  • In some cases, the audit report combines the finances of the subject charity with the finances of entities closely affiliated with it through financial and governance relationships, as required by generally accepted accounting principles (GAAP). However, the IRS may require these different entities to file separate IRS Form 990s instead of a combined form

  • The audit report may include the value of donated services and the use of facilities as an expense item, while the IRS Form 990 does not include these expenses.

  • The audit report may include certain note disclosures relevant to the application of this standard that would not appear in the IRS Form 990.