CED Risk Assessment & Management 3 — Questions and Answers
Question 1: A nonprofit board member wants to personally guarantee a loan to the organization. Which risk concern should the executive director raise?
- Conflict of interest that may compromise board member objectivity (Correct answer)
- The loan amount exceeding IRS nonprofit thresholds
- Violation of state payroll tax regulations
- Breach of the organization's investment policy
Correct answer: Conflict of interest that may compromise board member objectivity
A board member personally guaranteeing organizational loans creates a conflict of interest that can compromise independent governance.
Question 2: An executive director notices that one staff member has sole control over accounts payable and bank reconciliation. This situation represents:
- An efficient use of limited nonprofit staffing resources
- A lack of internal controls creating fraud risk (Correct answer)
- A compliance risk related to nonprofit tax exemption
- An acceptable practice for organizations under $500K budget
Correct answer: A lack of internal controls creating fraud risk
Concentrating financial duties in one person without oversight eliminates checks and balances, significantly increasing the risk of fraud or error.
Question 3: In enterprise risk management (ERM), which element ensures that risk management is embedded throughout all organizational levels?
- Risk appetite statement
- Risk culture and governance integration (Correct answer)
- Annual actuarial risk report
- Third-party risk audits
Correct answer: Risk culture and governance integration
ERM requires a risk-aware culture and governance integration so that risk thinking is embedded in decisions at every level of the organization.
Question 4: Which scenario illustrates a 'transfer' strategy in risk management?
- Canceling a high-risk community event
- Purchasing general liability insurance for an annual gala (Correct answer)
- Training staff to safely handle hazardous materials
- Accepting a small probability of donor data breach
Correct answer: Purchasing general liability insurance for an annual gala
Purchasing insurance transfers the financial consequence of a risk event to the insurer.
Question 5: What is a 'risk appetite' as used in executive-level risk management?
- The total dollar value of risks an organization can absorb without insurance
- The amount and type of risk an organization is willing to accept in pursuit of its mission (Correct answer)
- A regulatory threshold for acceptable nonprofit financial losses
- The minimum level of risk required to qualify for federal grants
Correct answer: The amount and type of risk an organization is willing to accept in pursuit of its mission
Risk appetite defines how much risk an organization's leadership is prepared to accept while pursuing strategic objectives.
Question 6: A severe weather event forces a nonprofit to close its main service facility for two weeks. This scenario is best addressed through which type of plan?
- Marketing contingency plan
- Business continuity plan (Correct answer)
- Annual operating budget revision
- Staff performance improvement plan
Correct answer: Business continuity plan
A business continuity plan outlines how an organization maintains essential operations during and after a disruptive event.
Question 7: Which risk management tool visually displays risks based on their likelihood and potential impact?
- Gantt chart
- Risk heat map (Correct answer)
- PEST analysis matrix
- Balanced scorecard
Correct answer: Risk heat map
A risk heat map plots risks on a grid by probability and impact, helping leaders prioritize which risks require the most attention.
CED Risk Assessment & Management 3
A nonprofit board member wants to personally guarantee a loan to the organization.
Which risk concern should the executive director raise?