Financial Management & Oversight Flashcards
7 cards from real CED practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Management & Oversight flashcards as text
A nonprofit executive director wants to build a three-month operating reserve. Which funding source is MOST appropriate for establishing this reserve?
Answer: Surplus from unrestricted operating revenue
Operating reserves should be built from unrestricted operating surpluses because restricted and federal funds carry usage constraints.
Under GAAP for nonprofits (ASC 958), how must organizations classify net assets?
Answer: Without donor restrictions and with donor restrictions
ASC 958 requires nonprofits to present net assets in two classes: without donor restrictions and with donor restrictions.
An executive director discovers a staff member has been falsifying expense reports for six months. What is the FIRST step in responding to this internal fraud?
Answer: Notify the board chair and legal counsel before taking further action
Legal counsel and board leadership must be notified first to protect the organization legally and ensure a proper investigation is conducted.
Which budgeting approach starts each fiscal year with a zero base and requires every expense to be justified anew?
Answer: Zero-based budgeting
Zero-based budgeting requires justifying all expenditures from scratch each cycle rather than using the prior year's budget as a baseline.
A board member asks why the audited financial statements show a surplus but the organization is struggling to pay bills. What most likely explains this discrepancy?
Answer: Most of the surplus consists of restricted funds that cannot be used for operations
A surplus can exist on paper while restricted funds tied to donor intent are unavailable for general operations, creating a cash flow problem.
What does the functional expense allocation method require nonprofit organizations to do?
Answer: Allocate expenses between program services, management/general, and fundraising
Nonprofits must allocate expenses by function—program, management/general, and fundraising—to demonstrate mission alignment and administrative efficiency.
Which document provides the most comprehensive picture of a nonprofit's financial health for a prospective major donor conducting due diligence?
Answer: The most recent IRS Form 990
The IRS Form 990 provides audited financial data, executive compensation, program descriptions, and governance information in a standardized public format.