CED Financial Management & Oversight 2

Question 1

A nonprofit's board treasurer notices that actual program expenses are 25% over budget midyear. What is the MOST appropriate immediate action?

Accepted Answer

Request a variance analysis from the CFO and convene a finance committee review

Answer

A variance analysis identifies the cause of the overage and informs corrective action before the finance committee decides next steps.

Question 2

Which financial ratio best measures an organization's ability to meet short-term obligations without selling long-term assets?

Accepted Answer

Current ratio

Answer

The current ratio (current assets ÷ current liabilities) measures short-term liquidity without relying on long-term asset sales.

Question 3

An executive director receives a restricted grant for a specific program. Which practice ensures proper stewardship of those funds?

Accepted Answer

Track the grant in a separate fund code and report expenditures to the funder per grant terms

Answer

Restricted funds must be tracked separately and spent according to funder stipulations, with reporting demonstrating compliance.

Question 4

What is the primary purpose of an audit committee in a nonprofit organization?

Accepted Answer

To oversee the integrity of financial reporting, internal controls, and the external audit process

Answer

The audit committee provides independent oversight of financial reporting integrity and the relationship with external auditors.

Question 5

A Certified Executive Director is reviewing the statement of cash flows. Which section reveals whether the organization can sustain operations from its core mission activities?

Accepted Answer

Operating activities

Answer

Operating activities show cash generated or used by the organization's primary mission-related programs and administrative functions.

(CED) Certified Executive Director Practice Test

(CED) Certified Executive Director Practice Test

CED Financial Management & Oversight 2