CED Financial Management & Oversight 3

Question 1

A nonprofit executive director wants to build a three-month operating reserve. Which funding source is MOST appropriate for establishing this reserve?

Accepted Answer

Surplus from unrestricted operating revenue

Answer

Operating reserves should be built from unrestricted operating surpluses because restricted and federal funds carry usage constraints.

Question 2

Under GAAP for nonprofits (ASC 958), how must organizations classify net assets?

Accepted Answer

Without donor restrictions and with donor restrictions

Answer

ASC 958 requires nonprofits to present net assets in two classes: without donor restrictions and with donor restrictions.

Question 3

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?

Accepted Answer

Notify the board chair and legal counsel before taking further action

Answer

Legal counsel and board leadership must be notified first to protect the organization legally and ensure a proper investigation is conducted.

Question 4

Which budgeting approach starts each fiscal year with a zero base and requires every expense to be justified anew?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting requires justifying all expenditures from scratch each cycle rather than using the prior year's budget as a baseline.

Question 5

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?

Accepted Answer

Most of the surplus consists of restricted funds that cannot be used for operations

Answer

A surplus can exist on paper while restricted funds tied to donor intent are unavailable for general operations, creating a cash flow problem.

(CED) Certified Executive Director Practice Test

(CED) Certified Executive Director Practice Test

CED Financial Management & Oversight 3