Nonprofit Financial Management Flashcards

A Community Action Agency receives a significant federal grant. According to the cost principles outlined in the OMB Uniform Guidance (2 CFR Part 200), for a cost to be allowable, it must be necessary, reasonable, allocable, and what else?

Answer: Treated consistently as either a direct or indirect cost.

The OMB Uniform Guidance (2 CFR Part 200) establishes four main cost principles for federal awards. A cost must be: 1) reasonable, 2) allocable, 3) treated consistently, and 4) allowable. A key aspect of consistency is that a cost cannot be charged as a direct cost for one federal award and as an indirect cost for another in similar circumstances, as this could lead to double-charging the government.

The finance director of a Community Action Agency is preparing the key financial reports for the quarterly board meeting. Which financial statement provides a snapshot of the agency's assets, liabilities, and net assets at a specific point in time?

Answer: Statement of Financial Position

The Statement of Financial Position, also known as a balance sheet in the for-profit world, reports on an organization's financial health by summarizing its assets (what it owns), liabilities (what it owes), and net assets as of a specific date.

To reduce the risk of fraud and error, a fundamental internal control practice in nonprofit financial management is the segregation of duties. Which of the following scenarios best exemplifies this principle?

Answer: The employee who authorizes payments is different from the employee who writes and signs the checks.

Segregation of duties is a key internal control that involves separating the key functions of a financial transaction to prevent any one person from having sole control. Having different individuals responsible for authorizing payments, disbursing funds, and reconciling accounts creates a system of checks and balances that safeguards assets and reduces the risk of misappropriation.

A Community Action Agency's accountant needs to allocate the monthly rent expense across several different programs (e.g., Head Start, Weatherization, CSBG). According to federal cost principles, the methodology used for allocating this indirect cost must be:

Answer: Based on an equitable distribution that reflects the relative benefit received by each program.

According to 2 CFR 200.405, a cost is allocable to a federal award or other cost objective if it is assignable in accordance with the relative benefits received. This means the allocation method (such as using square footage for rent) should result in an equitable distribution of the cost to the programs that benefited from it.

Which of the following financial documents is primarily focused on detailing an organization's spending across its major functional areas, such as program services, management and general, and fundraising?

Answer: Statement of Functional Expenses

The Statement of Functional Expenses is a core nonprofit financial report that presents a detailed breakdown of an organization's expenses by their functional classification (program, management/general, fundraising). This statement provides transparency on how the organization utilizes its resources to fulfill its mission.

A Community Action Agency expends $800,000 in federal awards during its fiscal year from various federal agencies. This level of expenditure triggers what specific compliance requirement?

Answer: A Single Audit or a Program-Specific Audit.

Under the OMB Uniform Guidance (2 CFR Part 200, Subpart F), a non-federal entity that expends $750,000 or more in federal awards during its fiscal year is required to undergo either a Single Audit or a program-specific audit. This audit is a comprehensive review of both the entity's financial statements and its compliance with federal award requirements.