CNC Nonprofit Legal & Ethical Considerations 3

Question 1

Under the Sarbanes-Oxley Act, which provisions apply directly to nonprofit organizations?

Accepted Answer

Only the whistleblower protection and document destruction provisions apply to nonprofits

Answer

While most of SOX applies to publicly traded companies, the whistleblower protection (Section 1107) and document destruction prohibitions (Section 1102) explicitly cover nonprofits.

Question 2

A 501(c)(3) organization's 'public support test' under IRS regulations is used to determine:

Accepted Answer

Whether the organization qualifies as a public charity rather than a private foundation

Answer

The public support test ensures that an organization receives broad public support, distinguishing public charities (which receive wider support) from private foundations (funded by few donors).

Question 3

Which ethical principle requires nonprofit staff to put the organization's mission and clients' interests above personal gain?

Accepted Answer

Fiduciary duty

Answer

Fiduciary duty legally and ethically requires board members and officers to act in the best interest of the organization rather than personal financial interests.

Question 4

When a nonprofit engages in unrelated business activities, the income from those activities is subject to:

Accepted Answer

Unrelated Business Income Tax (UBIT)

Answer

Income from activities not substantially related to the exempt purpose is subject to Unrelated Business Income Tax (UBIT) at corporate tax rates.

Question 5

An employee reports suspected fraud by the CFO to the board chair and is subsequently demoted. Under Sarbanes-Oxley, this situation likely constitutes:

Accepted Answer

Whistleblower retaliation, which is prohibited

Answer

SOX prohibits retaliation against employees who report suspected fraud, and adverse employment actions following a protected report are presumed to be retaliatory.

(CNC) Certified Nonprofit Consultant Practice Test

(CNC) Certified Nonprofit Consultant Practice Test

CNC Nonprofit Legal & Ethical Considerations 3