CNC Nonprofit Organization Management 2 — Questions and Answers
Question 1: Which document outlines the rules and procedures governing a nonprofit's internal operations, such as meeting frequency and officer roles?
- Articles of Incorporation
- Bylaws (Correct answer)
- Form 990
- Strategic Plan
Correct answer: Bylaws
Bylaws are the internal governance document that establishes operating procedures, officer responsibilities, and meeting requirements for a nonprofit.
Question 2: A nonprofit's executive director wants to launch a new program outside the organization's stated mission. What is the FIRST step the board should take?
- Approve the program immediately to show leadership support
- Assess whether the program aligns with the mission or if a mission amendment is needed (Correct answer)
- Delegate full authority to the executive director
- File a new Form 1023 with the IRS
Correct answer: Assess whether the program aligns with the mission or if a mission amendment is needed
The board must first determine whether the new program fits the existing mission before proceeding, as mission drift can jeopardize tax-exempt status.
Question 3: What is the primary purpose of an annual audit for a nonprofit organization?
- To satisfy IRS requirements for tax-exempt status renewal
- To provide independent verification of financial statements and internal controls (Correct answer)
- To calculate the executive director's performance bonus
- To determine the organization's fundraising capacity
Correct answer: To provide independent verification of financial statements and internal controls
An independent audit provides assurance to stakeholders that the nonprofit's financial statements are accurate and that proper internal controls exist.
Question 4: Which term describes a situation where a board member has a personal financial interest in a vendor contract being considered by the nonprofit?
- Fiduciary breach
- Conflict of interest (Correct answer)
- Duty of loyalty violation
- Self-dealing per se
Correct answer: Conflict of interest
A conflict of interest arises when a board member's personal interest could improperly influence their decision-making on behalf of the organization.
Question 5: A nonprofit organization receives a $500,000 grant that must be used solely for building construction. How should this be classified on the financial statements?
- Unrestricted net assets
- Temporarily restricted net assets (Correct answer)
- Permanently restricted net assets
- Deferred revenue
Correct answer: Temporarily restricted net assets
Funds restricted by a donor for a specific purpose are classified as temporarily restricted (now called 'net assets with donor restrictions' under ASC 958) until the restriction is met.
Question 6: What governance best practice involves separating the roles of board chair and executive director to ensure checks and balances?
- Committee structure
- Dual leadership model (Correct answer)
- Executive session
- Segregation of duties
Correct answer: Dual leadership model
Maintaining separate individuals in the board chair and executive director roles prevents concentration of power and supports effective oversight.
Question 7: Which of the following is an example of program efficiency as measured in nonprofit performance evaluation?
- The ratio of fundraising expenses to total expenses
- The percentage of total expenses spent directly on mission-related activities (Correct answer)
- The growth rate of the endowment fund
- The number of donors acquired in a fiscal year
Correct answer: The percentage of total expenses spent directly on mission-related activities
Program efficiency measures how much of an organization's spending goes directly to its mission, typically expressed as a percentage of total expenses.
CNC Nonprofit Organization Management 2
Which document outlines the rules and procedures governing a nonprofit's internal operations, such as meeting frequency and officer roles?