CCAP Nonprofit Financial Management 3 — Questions and Answers
Question 1: A nonprofit's program expense ratio is calculated by dividing:
- Total program expenses by total revenue
- Total program expenses by total expenses (Correct answer)
- Management expenses by program expenses
- Fundraising costs by total contributions
Correct answer: Total program expenses by total expenses
The program expense ratio divides total program expenses by total expenses to show the proportion spent on mission activities.
Question 2: Which internal control best prevents fraudulent disbursements in a nonprofit's accounts payable process?
- Having the same employee approve and issue payments
- Requiring dual signatures on checks above a set threshold (Correct answer)
- Allowing verbal approvals for small expenditures
- Posting payments only at year-end
Correct answer: Requiring dual signatures on checks above a set threshold
Dual signature requirements create segregation of duties by requiring two authorized individuals to approve disbursements, reducing fraud risk.
Question 3: In nonprofit accounting, in-kind contributions of services should be recognized when they:
- Are received from any volunteer
- Require specialized skills and would otherwise be purchased (Correct answer)
- Are pledged in writing by the donor
- Exceed $500 in estimated fair value
Correct answer: Require specialized skills and would otherwise be purchased
GAAP requires recognition of contributed services only when they require specialized skills (e.g., legal, accounting, medical) and would otherwise need to be purchased.
Question 4: A CAA's board finance committee is reviewing a budget variance report. An unfavorable variance in program revenue means:
- Actual revenue exceeded budgeted revenue
- Actual revenue fell short of budgeted revenue (Correct answer)
- Program expenses exceeded the approved budget
- The program generated a surplus
Correct answer: Actual revenue fell short of budgeted revenue
An unfavorable variance in revenue occurs when actual revenue is less than the budgeted amount, signaling a potential cash flow concern.
Question 5: Which cost is typically NOT allowable under federal grants per OMB Uniform Guidance?
- Fringe benefits for grant-funded staff
- Alcoholic beverages purchased for a fundraising event (Correct answer)
- Indirect costs within an approved rate
- Travel at the federal per diem rate
Correct answer: Alcoholic beverages purchased for a fundraising event
Alcoholic beverages are explicitly listed as unallowable costs under 2 CFR 200.423 regardless of the funding source or event purpose.
Question 6: What is the primary function of a nonprofit's indirect cost rate agreement (NICRA)?
- Sets the maximum salary for executive directors
- Establishes the percentage of indirect costs chargeable to federal awards (Correct answer)
- Limits fundraising expenses to a fixed dollar amount
- Defines which programs qualify for federal funding
Correct answer: Establishes the percentage of indirect costs chargeable to federal awards
A NICRA is a negotiated agreement with a federal cognizant agency that establishes an approved rate for recovering indirect (overhead) costs on federal awards.
Question 7: Which type of budget presents revenues and expenses organized by program and supporting services rather than by line-item object code?
- Cash flow budget
- Capital budget
- Functional budget (Correct answer)
- Zero-based budget
Correct answer: Functional budget
A functional budget organizes financial information by program services and supporting services (management, fundraising), aligning with nonprofit reporting requirements.
CCAP Nonprofit Financial Management 3
A nonprofit's program expense ratio is calculated by dividing: