CNE Financial Management & Fundraising 3 — Questions and Answers
Question 1: A nonprofit is considering a capital campaign. What is the primary purpose of a feasibility study conducted before launch?
- To satisfy IRS reporting requirements for large campaigns
- To assess whether the community will support the goal and identify potential lead donors (Correct answer)
- To determine the tax deductibility of campaign gifts
- To create a legally binding pledge agreement with donors
Correct answer: To assess whether the community will support the goal and identify potential lead donors
A feasibility study evaluates community readiness, donor capacity, and leadership support before committing to a capital campaign goal.
Question 2: Which financial statement shows a nonprofit's revenues, expenses, and changes in net assets over a period of time?
- Statement of Financial Position
- Statement of Activities (Correct answer)
- Statement of Cash Flows
- Statement of Functional Expenses
Correct answer: Statement of Activities
The Statement of Activities is the nonprofit equivalent of an income statement, showing revenues, expenses, and net asset changes.
Question 3: An organization receives a multi-year grant of $300,000 payable over three years with no conditions beyond reporting. How should year one revenue be recognized?
- $100,000 — only the current-year installment
- The full $300,000 — all years recognized upfront if unconditional (Correct answer)
- $300,000 deferred until all reports are submitted
- $100,000 unrestricted plus $200,000 deferred revenue
Correct answer: The full $300,000 — all years recognized upfront if unconditional
Under ASC 958, unconditional multi-year pledges are recognized in full at the time of the pledge, discounted to present value if material.
Question 4: What is the purpose of a nonprofit's investment policy statement (IPS)?
- To authorize the board treasurer to make all investment decisions unilaterally
- To establish guidelines for asset allocation, risk tolerance, and manager selection for the organization's investments (Correct answer)
- To restrict all nonprofit funds to FDIC-insured savings accounts
- To comply with state lobbying registration requirements
Correct answer: To establish guidelines for asset allocation, risk tolerance, and manager selection for the organization's investments
An IPS governs how invested assets are managed, setting parameters for risk, return objectives, and spending policies.
Question 5: A major donor wants to establish a fund within the nonprofit that will bear their family name and support a specific cause indefinitely. This is best described as a:
- Donor-Advised Fund held at a community foundation
- Named endowment fund (Correct answer)
- Fiscal sponsorship arrangement
- Charitable remainder trust
Correct answer: Named endowment fund
A named endowment fund is permanently invested with income used for a donor-designated purpose, honoring the donor's family.
Question 6: Under the Uniform Prudent Management of Institutional Funds Act (UPMIFA), what standard governs how nonprofits manage endowment funds?
- Funds must be invested solely in U.S. Treasury securities
- Prudent investor standard considering the portfolio as a whole (Correct answer)
- All earnings must be spent annually and cannot be retained
- Endowment principal can never be spent under any circumstances
Correct answer: Prudent investor standard considering the portfolio as a whole
UPMIFA requires nonprofits to apply a prudent investor standard, evaluating investments in the context of the total portfolio.
Question 7: What is 'cause marketing' in the context of nonprofit fundraising?
- A marketing campaign aimed at recruiting nonprofit volunteers
- A collaboration between a nonprofit and a for-profit company where the company promotes the cause and donates a portion of sales (Correct answer)
- A government-funded public awareness campaign for charitable causes
- Direct mail fundraising using cause-related imagery
Correct answer: A collaboration between a nonprofit and a for-profit company where the company promotes the cause and donates a portion of sales
Cause marketing links a commercial company's sales to donations to a nonprofit, benefiting both the brand image and the organization's funding.
CNE Financial Management & Fundraising 3
A nonprofit is considering a capital campaign.
What is the primary purpose of a feasibility study conducted before launch?