Financial Management & Oversight Flashcards

A board is considering accepting a large in-kind donation of real estate. Which financial risk should the executive director highlight FIRST?

Answer: The organization may inherit environmental liabilities or deferred maintenance costs

Real property can carry hidden liabilities such as environmental contamination, liens, or significant repair costs that outweigh the asset's value.

Which board policy directly governs how an organization invests its long-term financial assets and defines acceptable risk levels?

Answer: Investment policy statement (IPS)

An investment policy statement establishes asset allocation targets, permissible investments, risk tolerance, and performance benchmarks for the organization's investments.

A nonprofit executive director is preparing the annual budget and wants to ensure it aligns with the strategic plan. Which approach BEST achieves this alignment?

Answer: Identify strategic priorities first and allocate resources proportionally to those priorities

Tying budget line items to strategic priorities ensures resources are deployed where the board has decided the organization should focus.

What is the significance of the 'days cash on hand' metric for a nonprofit executive director?

Answer: It indicates how many days the organization can cover operating expenses using available cash

Days cash on hand equals cash and equivalents divided by average daily operating expenses, measuring organizational resilience to revenue disruptions.

When an executive director presents the monthly financial report to the board, which format MOST effectively communicates financial performance?

Answer: A budget-to-actual comparison showing variances with explanatory notes for significant items

Budget-to-actual reports with variance explanations give board members actionable context to make informed oversight decisions.

An organization's auditor issues a 'qualified opinion.' What does this mean for the executive director?

Answer: The financial statements are fairly presented except for a specific material departure from GAAP

A qualified opinion indicates that financial statements are generally accurate but contain a specific exception that prevents a clean unqualified opinion.

Which practice BEST demonstrates a board's fiduciary duty in relation to an organization's financial statements?

Answer: Reviewing and approving audited financial statements and asking substantive questions of the auditor

Board fiduciary duty requires active engagement with financial statements and direct dialogue with auditors, not passive reliance on staff summaries.