CNC Financial Sustainability & Cash Flow Management 2

Question 1

An endowment fund differs from an operating reserve in that:

Accepted Answer

Endowments are permanent funds where only investment returns are typically distributed

Answer

Endowments are restricted to capital expenses only

Answer

Operating reserves earn no investment income

Answer

Endowments must receive annual IRS approval

Question 2

What is the typical annual payout rate applied to most nonprofit endowments?

Accepted Answer

4–5%

Answer

1–2%

Answer

8–10%

Answer

15–20%

Question 3

When is a 'deficit budget' an acceptable planning tool for a nonprofit?

Accepted Answer

When the organization intentionally draws down reserves for strategic purposes

Answer

It is always a sign of financial mismanagement

Answer

It is illegal for 501(c)(3) organizations

Answer

When IRS approval has been obtained in advance

Question 4

Which document do nonprofit boards primarily use to monitor monthly financial performance?

Accepted Answer

Statement of financial activity compared to budget

Answer

IRS Form 990

Answer

Grant closeout reports

Answer

Annual independent audit findings

Question 5

What is 'functional expense allocation' in nonprofit accounting?

Accepted Answer

Dividing costs among program services, management/general, and fundraising

Answer

Assigning all expenses to specific restricted grant budgets

Answer

Calculating accumulated depreciation of fixed assets

Answer

Reporting international program expenses in a separate statement

Question 6

A nonprofit consulting engagement reveals the client relies on one grant for 70% of its budget. The PRIMARY risks this represents are:

Accepted Answer

Both mission drift and financial fragility

Answer

Audit qualification only

Answer

Mission drift toward funder priorities only

Answer

Organizational financial fragility only

Question 7

What does a 'cost-per-outcome' analysis help a nonprofit determine?

Accepted Answer

The efficiency and cost-effectiveness of its programs

Answer

Whether executive compensation is within sector norms

Answer

The maximum allowable overhead ratio under GAAP

Answer

How to allocate endowment payout across departments