CCD Budgeting, Fundraising, & Financial Management 3 — Questions and Answers
Question 1: Under IRS rules, what is the maximum percentage of a nonprofit's activities that may be devoted to lobbying before jeopardizing tax-exempt status?
- No lobbying is ever permitted for 501(c)(3) organizations
- A substantial part, generally interpreted as no more than 20% of activities (Correct answer)
- Exactly 50% of total organizational activities
- Unlimited lobbying is permitted as long as it is nonpartisan
Correct answer: A substantial part, generally interpreted as no more than 20% of activities
501(c)(3) organizations may engage in lobbying as long as it does not constitute a 'substantial part' of activities, typically interpreted as under 20%.
Question 2: A camp's board finance committee reviews a variance report showing actual food costs are $8,000 below budget. What is the most important follow-up question?
- Should we reward the food service manager?
- Is the variance due to fewer campers served, menu changes, or true cost savings? (Correct answer)
- Should we permanently reduce the food budget for next year?
- Can the savings be transferred to the director's discretionary fund?
Correct answer: Is the variance due to fewer campers served, menu changes, or true cost savings?
Understanding the root cause of a favorable variance is critical before making any decisions, as it may reflect reduced enrollment rather than genuine efficiency gains.
Question 3: Which type of fundraising gift allows a donor to give an asset to a camp while retaining income from it during their lifetime?
- Annual fund pledge
- Charitable remainder trust (Correct answer)
- Corporate matching gift
- Donor-advised fund contribution
Correct answer: Charitable remainder trust
A charitable remainder trust allows the donor to receive income from the donated asset during their lifetime, with the remainder passing to the charity upon death.
Question 4: A for-profit camp wants to compare its operating efficiency against industry peers. Which ratio is MOST useful for this comparison?
- Current ratio
- Operating expense ratio (operating costs ÷ total revenue) (Correct answer)
- Debt-to-equity ratio
- Return on equity
Correct answer: Operating expense ratio (operating costs ÷ total revenue)
The operating expense ratio measures what percentage of revenue is consumed by operating costs, making it a direct efficiency comparison tool across organizations.
Question 5: What is the primary purpose of a camp's reserve fund policy?
- To accumulate funds for executive bonuses
- To provide a financial cushion for unexpected expenses or revenue shortfalls (Correct answer)
- To satisfy IRS requirements for nonprofit reserves
- To fund next year's capital campaign
Correct answer: To provide a financial cushion for unexpected expenses or revenue shortfalls
A reserve fund policy establishes guidelines for maintaining liquid funds that protect the organization from financial disruption caused by unexpected costs or revenue declines.
Question 6: A camp director is preparing a grant proposal budget. Which cost is most likely to be considered an 'indirect cost' by a foundation funder?
- Salaries for counselors hired specifically for the grant-funded program
- Equipment purchased exclusively for the grant activity
- A portion of the executive director's time for organizational oversight (Correct answer)
- Program supplies listed in the grant scope of work
Correct answer: A portion of the executive director's time for organizational oversight
Indirect (overhead) costs like a portion of the executive director's salary for organizational oversight are not directly tied to a specific program activity.
Question 7: When a camper family pays a deposit to hold a spot for next summer, how should this payment be recorded?
- As revenue in the current fiscal year
- As deferred revenue (a liability) until the service is provided (Correct answer)
- As a donation since it may be non-refundable
- As an operating expense offset
Correct answer: As deferred revenue (a liability) until the service is provided
Deposits for future services are deferred revenue (a liability) because the camp has not yet earned the income by providing the camp session.
CCD Budgeting, Fundraising, & Financial Management 3
Under IRS rules, what is the maximum percentage of a nonprofit's activities that may be devoted to lobbying before jeopardizing tax-exempt status?