What are Foundation Expenses?
Beyond making grants, private foundations incur operating costs — administrative salaries, board meeting expenses, program-related travel, professional services, and similar expenditures. These are tracked in Impactfully as Expenses, separate from grants but managed through a similar approval workflow.
Expenses are not purely an administrative matter. Their classification directly affects the foundation's MRD compliance, and the approval workflow around expenses is an important internal control. Understanding expenses primarily means understanding their compliance implications and ensuring appropriate oversight is in place.
Expenses and MRD — Why Classification Matters
Not all expenses are equal from a compliance standpoint. The IRS distinguishes between expenses that count as qualifying distributions toward the 5% MRD requirement and those that do not. How each expense is categorized in Impactfully determines which bucket it falls into.
| Expense Type | Counts Toward MRD? | Examples |
| Charitable / Administrative | Yes — qualifies as a distributable amount | Program staffing, grant-related admin, foundation operations, board meeting costs |
| Investment-Related | No — does not count toward MRD | Investment management fees, custody fees, advisor fees on the endowment |
This means that the category an RM selects when submitting an expense is not just an organizational choice — it has direct compliance consequences. For foundations that are close to their MRD threshold, correctly categorized administrative expenses can be the difference between compliance and a penalty.
| Watch Point: If a foundation appears to be behind on MRD but has significant administrative activity, confirm that expenses are being categorized correctly. Miscategorized investment expenses as administrative would inflate the MRD calculation — and vice versa. |
The Expense Approval Workflow
Impactfully supports committee-based approval for expenses, using the same governance structure as grants. Whether committee approval is required for a given expense — and which committee reviews it — is determined by the member's configured permission limits.
The workflow from an oversight perspective is straightforward:
- Submission: RM submits the expense. If it meets approval criteria, it routes automatically to the designated committee.
- Review: Committee members vote via Impactfully — they receive a notification and can approve or request more information. Voting rules (majority, unanimous, etc.) are set per committee.
- Decision: Once approved, the expense proceeds to payment processing. If declined, it is closed without payment.
- Edit Lockout: A key control: once an expense is submitted, the submitter loses the ability to edit or delete it. Changes can only be made if a committee member returns it for more information.
Why the edit lockout matters for governance The inability to edit a submitted expense is an intentional control — it prevents the submitter from altering the record after it has entered the oversight process. This ensures the committee is always reviewing what was actually submitted, not a revised version. If a correction is needed on a submitted expense, it requires committee action (returning it to the submitter via the Questions workflow) — creating a traceable record of the change.
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What Good Expense Governance Looks Like
A well-governed foundation has clear policies around what types of expenses are acceptable, who can submit them, what approval thresholds apply, and which committees review them. Impactfully provides the infrastructure to enforce these policies — but the policies themselves need to be defined and communicated by the foundation's leadership.
| Governance Element | How It's Configured in Impactfully | Questions to Ask |
| Who can submit expenses? | Member-level permission: 'Submit Expense' must be explicitly granted. | Are only the appropriate staff members enabled to submit foundation expenses? |
| Are large expenses reviewed? | Spending limits on the Submit Expense permission can trigger committee routing above a threshold. | Is there an approval threshold for expenses above a certain amount? |
| Who approves? | Committees are configured with designated members and a voting rule. | Does the foundation have an appropriate expense review committee in place? |
| Is there an audit trail? | All submitted expenses are permanent records; the approval workflow is logged. | Are expenses categorized correctly and consistently for MRD reporting? |
Expense Categories — What You Need to Know
Expense categories in Impactfully follow a hierarchical structure configured by Foundation Source — they are not customizable by the foundation itself. Categories are arranged in levels separated by colons, from broadest to most specific.
Example: Category: Subcategory: Sub-subcategory (for example, Employee Expenses: Travel:Airfare).
The category hierarchy is intentionally detailed to support accurate MRD tracking and meaningful financial reporting. The key implication is that proper use of categories is a training and oversight matter, not a technical one — the system provides the structure, but your RMs need to understand why selecting the right category matters.
Key Question for Your Review Conversations "Does this foundation have committee approval configured for expenses above a meaningful threshold, and are expense categories being used consistently for accurate MRD tracking?" |