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CNP practice questions

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Question 1Nonprofit Leadership and Governance

A nonprofit's board is reviewing its conflict-of-interest policy. Which provision best protects the organization's tax-exempt status and public trust?

  1. Allowing the board chair to decide case by case whether a conflict exists
  2. Limiting disclosure requirements to transactions exceeding a fixed dollar threshold
  3. Requiring annual written disclosure of potential conflicts and recusal from related deliberations and votes Correct answer.
  4. Permitting interested directors to vote when the transaction is clearly favorable to the nonprofit

Explanation

A defensible conflict-of-interest policy requires regular written disclosure and recusal so that decisions are made by disinterested directors. Recusal plus documentation supports the rebuttable presumption of reasonableness used under federal tax rules and protects public confidence. Case-by-case discretion without disclosure invites self-dealing allegations.

Question 2Nonprofit Leadership and Governance

Which statement accurately describes the fiduciary duty of care for a nonprofit board member?

  1. Deferring entirely to the executive director on all programmatic decisions
  2. Acting with the care an ordinarily prudent person would exercise in similar circumstances, including reasonable inquiry Correct answer.
  3. Guaranteeing that the organization never incurs a financial loss
  4. Personally approving every expenditure above a nominal amount

Explanation

The duty of care asks directors to act in good faith with the diligence of an ordinarily prudent person, which includes asking questions and reviewing materials. It is a standard of process, not a guarantee of outcomes. Personal approval of every expenditure or blanket deference defeats the purpose of oversight.

Question 3Nonprofit Leadership and Governance

A nonprofit wants its board to reflect the community it serves. Which governance practice most directly advances this goal?

  1. Filling vacancies quickly with personal acquaintances of current directors
  2. Rotating all directors off after one year regardless of performance
  3. Adopting a documented recruitment matrix that identifies needed competencies and lived experience, then recruiting deliberately against it Correct answer.
  4. Reducing the board size to speed decision-making

Explanation

A skills-and-experience matrix makes gaps visible and turns diversity goals into a structured recruitment process. Deliberate recruitment against documented criteria is the practice most directly linked to board composition outcomes. Informal networks and structural shortcuts do not address representation.

Question 4Nonprofit Leadership and Governance

Under U.S. federal tax law, which board action is most likely to trigger intermediate sanctions for excess benefit transactions?

  1. A board adopting a whistleblower policy
  2. A board approving a modest cost-of-living raise for all staff
  3. A director voting to approve a consulting contract with a firm the director owns at above-market rates Correct answer.
  4. A board hiring an independent auditor to review program spending

Explanation

Intermediate sanctions target insiders who receive more than fair market value from the organization. A director voting on a contract with a firm the director owns, at above-market rates, is a textbook excess benefit scenario. Routine compensation, compliance policies, and audits are ordinary governance actions.

Question 5Nonprofit Leadership and Governance

A board is drafting its bylaws. Which provision belongs in the bylaws rather than in board policy?

  1. The format of monthly program reports
  2. The organization's social media posting guidelines
  3. The number of directors, their terms, and the quorum required for board action Correct answer.
  4. The reimbursement rate for staff mileage

Explanation

Bylaws are the governing document that establishes structural rules such as board size, terms, officer roles, and quorum. Operational matters like social media, reporting formats, and reimbursement rates belong in policies or procedures that the board can revise more easily.

Question 6Nonprofit Leadership and Governance

A nonprofit with a 15-member board struggles to make timely decisions. Which change is most consistent with sound governance?

  1. Reduce the board to three members to ensure consensus
  2. Eliminate the executive committee and require full-board votes on every operational matter
  3. Delegate defined authority to standing committees with clear charters and reporting requirements Correct answer.
  4. Allow the board chair to act unilaterally between meetings

Explanation

Delegating defined authority to committees with charters and reporting obligations preserves oversight while improving responsiveness. Committees remain accountable to the full board. Unilateral authority or eliminating delegation entirely undermines either accountability or efficiency.

Question 7Nonprofit Leadership and Governance

Which practice best supports effective board oversight of the chief executive?

  1. Relying on informal feedback gathered at social events
  2. Setting annual written goals, conducting a documented annual performance review, and tying compensation to an independent market review Correct answer.
  3. Reviewing the executive only when a complaint is filed
  4. Letting the executive set their own goals and evaluation criteria

Explanation

Effective oversight requires clear written goals, a documented evaluation process, and independent compensation benchmarking. This combination supports accountability and satisfies rebuttable-presumption standards for compensation. Informal or reactive approaches leave performance and pay unexamined.

Question 8Nonprofit Leadership and Governance

A nonprofit discovers that a senior manager has been misappropriating funds. Which sequence best reflects governance responsibilities?

  1. Wait until the annual audit to avoid reputational harm
  2. Notify the audit or finance committee and board leadership, engage independent counsel and forensic review, then disclose as required Correct answer.
  3. Confront the manager privately and allow resignation in exchange for repayment
  4. Ask the manager's direct supervisor to investigate and decide on discipline

Explanation

Governance requires escalation to independent board leadership, an independent investigation, and appropriate disclosure to regulators and funders. Private arrangements or delay risk compounding harm and may violate legal duties. Supervisory self-investigation lacks independence.

Question 9Nonprofit Leadership and Governance

Which statement best describes the legal standard for the duty of obedience in nonprofit governance?

  1. Directors must obey the executive director's strategic plan without question
  2. Directors must maximize revenue in every fiscal year
  3. Directors must personally follow the instructions of the largest donor
  4. Directors must ensure the organization pursues its stated charitable mission and complies with applicable law and its governing documents Correct answer.

Explanation

The duty of obedience requires directors to keep the organization within its charitable purpose and compliant with law and governing documents. It does not mean following donor preferences or management directives. Revenue maximization is not the standard for a charitable organization.

Question 10Nonprofit Leadership and Governance

A foundation board is considering a grant to an organization whose founder is the cousin of one of its directors. What is the most appropriate governance response?

  1. Disclose the relationship, have the interested director recuse, and document the independent review of the grant decision Correct answer.
  2. Ask the founder to donate personally to the foundation
  3. Award the grant without discussion because family relationships are common
  4. Delay the decision indefinitely to avoid any appearance of impropriety

Explanation

Disclosure, recusal, and documentation allow the board to make an independent, defensible decision while preserving transparency. Avoiding the decision entirely is unnecessary, and ignoring the relationship undermines trust. The key is that disinterested directors decide.

Question 11Nonprofit Leadership and Governance

Which element is essential to a nonprofit's whistleblower policy under U.S. federal best practices?

  1. A requirement that reports be signed and shared with the accused's supervisor before review
  2. A rule that only board members may file reports
  3. A confidential reporting channel and an explicit prohibition on retaliation against good-faith reporters Correct answer.
  4. A provision allowing retaliation when a report proves unfounded

Explanation

Federal guidance and best practice call for confidential reporting and strong anti-retaliation protections so concerns surface early. Retaliation and narrow eligibility discourage reporting. Sharing reports with the accused before review can compromise an investigation.

Question 12Nonprofit Leadership and Governance

A board is evaluating whether to adopt a policy on board member term limits. Which consideration is most relevant to the governance rationale for term limits?

  1. Eliminating the need for board orientation
  2. Balancing continuity of institutional knowledge against the benefits of periodic renewal and fresh perspective Correct answer.
  3. Guaranteeing that the executive director cannot be removed
  4. Ensuring that founding directors retain permanent voting rights

Explanation

Term limits are a governance tool for balancing continuity with renewal. The trade-off is between retaining experience and bringing in new perspectives. They are not designed to protect founders or management, and they do not substitute for orientation.

Question 13Nonprofit Leadership and Governance

Which practice best demonstrates board accountability to the public in a nonprofit reliant on charitable donations?

  1. Publishing unaudited projections instead of actual results
  2. Publishing annual financial statements and program outcomes in an accessible form and reporting them to the board Correct answer.
  3. Keeping financial statements confidential to protect competitive advantage
  4. Reporting outcomes only to the largest funders

Explanation

Transparency about finances and results, reviewed by the board and shared publicly, is the clearest demonstration of accountability to donors and the community. Selective or unaudited reporting undermines credibility. Confidentiality of basic financial information is inconsistent with charitable accountability.

Question 14Nonprofit Leadership and Governance

A nonprofit's board chair also serves as the organization's paid executive director. Which governance concern is most significant?

  1. It guarantees faster fundraising decisions
  2. The concentration of governance and management authority in one person undermines independent oversight Correct answer.
  3. It eliminates the need for a conflict-of-interest policy
  4. It reduces the number of meetings the board must hold

Explanation

Separating board leadership from management preserves independent oversight and accountability. Combining the roles concentrates power and weakens the board's ability to evaluate the executive. Efficiency gains do not offset the governance risk.

Question 15Nonprofit Leadership and Governance

A nonprofit is considering adding an advisory council alongside its board. Which statement best distinguishes an advisory council from the board of directors?

  1. An advisory council can amend the bylaws without board approval
  2. An advisory council is legally responsible for financial audits
  3. An advisory council has the same fiduciary duties as the board
  4. An advisory council provides expertise and outreach but holds no fiduciary or voting authority Correct answer.

Explanation

Advisory councils offer expertise and community connections without fiduciary authority. Fiduciary duties and voting authority remain with the board. Advisory councils cannot amend bylaws or assume audit responsibility.

Question 16Nonprofit Leadership and Governance

Which approach best supports a board in fulfilling its duty of care when reviewing a complex strategic plan?

  1. Receiving materials in advance, asking probing questions, and documenting deliberation before voting Correct answer.
  2. Voting immediately to demonstrate confidence in management
  3. Delegating the vote to the executive committee without discussion
  4. Approving the plan contingent on not receiving further information

Explanation

The duty of care is satisfied through informed deliberation: advance materials, active questioning, and documented reasoning. Quick approval or delegation without review undermines the standard. Refusing further information is the opposite of prudent inquiry.

Question 17Nonprofit Leadership and Governance

A nonprofit's audit committee is being formed. Which composition best supports its function?

  1. Independent directors with financial literacy, none of whom are employees or have material relationships with the auditor Correct answer.
  2. The executive director, the finance director, and the board chair
  3. A single director who also serves as bookkeeper
  4. The organization's outside auditor and the treasurer

Explanation

Audit committees should be composed of independent directors with financial literacy so they can oversee the audit and internal controls objectively. Including management or the auditor compromises independence. A bookkeeper-director lacks independence as well.

Question 18Nonprofit Leadership and Governance

Which statement best captures the board's role in risk oversight for a nonprofit?

  1. Purchasing insurance as the sole risk management strategy
  2. Identifying and prioritizing major risks, assigning oversight responsibility, and monitoring mitigation through regular reporting Correct answer.
  3. Delegating all risk decisions to staff without board visibility
  4. Reviewing risks only after an incident occurs

Explanation

Board risk oversight involves identifying and prioritizing risks, assigning responsibility, and monitoring mitigation. Insurance is one tool but not a substitute for oversight. Reactive or fully delegated approaches leave the board uninformed.

Question 19Nonprofit Leadership and Governance

A nonprofit is revising its mission statement. Which board action is most appropriate?

  1. Allowing a single major donor to rewrite the mission unilaterally
  2. Leading a process that engages stakeholders and formally adopting the revised mission in the governing documents Correct answer.
  3. Leaving the mission unchanged indefinitely because it is legally immutable
  4. Delegating mission revision entirely to a marketing consultant

Explanation

The board holds ultimate responsibility for mission, and revisions should involve stakeholder input and formal adoption. Donor-driven or consultant-driven rewrites bypass governance. Mission statements can be revised through proper process, though changes may require attention to governing documents.

Question 20Nonprofit Leadership and Governance

Under U.S. federal tax rules, which board practice supports the rebuttable presumption that compensation is reasonable?

  1. Using comparable data, approving compensation with disinterested directors, and documenting the basis for the decision Correct answer.
  2. Avoiding documentation to preserve flexibility
  3. Approving compensation with the executive present and voting
  4. Setting compensation based on the executive's prior salary alone

Explanation

The rebuttable presumption is supported by reliance on appropriate comparability data, approval by disinterested directors, and contemporaneous documentation. Self-referential or undocumented decisions fail these conditions. The executive's participation in the vote undermines independence.

Question 21Nonprofit Leadership and Governance

A nonprofit's board learns that a director has missed most meetings and committee assignments for a year. Which response best reflects governance expectations?

  1. Ignore the absences to avoid interpersonal conflict
  2. Apply the attendance and participation provisions in the bylaws or policy, including a documented conversation and possible removal under stated procedures Correct answer.
  3. Remove the director immediately without notice or process
  4. Ask staff to cover the director's committee duties permanently

Explanation

Boards should apply their own attendance and removal provisions consistently and with documentation. Ignoring absences erodes accountability, while removal without process risks legal challenge. Staff should not absorb governance duties.

Question 22Nonprofit Leadership and Governance

Which governance document typically authorizes the board to act and defines its powers?

  1. The annual report
  2. The fundraising plan
  3. The employee handbook
  4. The articles of incorporation filed with the state Correct answer.

Explanation

Articles of incorporation establish the organization's legal existence and, together with bylaws, define board authority. Annual reports, fundraising plans, and handbooks are operational or informational documents. They do not confer governance authority.

Question 23Nonprofit Leadership and Governance

A nonprofit board is considering a merger with another organization. Which governance step is most important before committing?

  1. Approving the merger without reviewing the other organization's liabilities
  2. Relying on the executive directors' informal agreement
  3. Conducting due diligence on legal, financial, and mission fit, and obtaining independent legal and financial advice Correct answer.
  4. Announcing the merger publicly before board review

Explanation

Mergers require thorough due diligence and independent advice so the board can assess legal, financial, and mission implications. Informal agreements, premature announcements, or ignoring liabilities expose the organization to significant risk. The board must make an informed decision.

Question 24Nonprofit Leadership and Governance

Which practice best supports the board's oversight of program effectiveness?

  1. Adopting measurable outcome indicators and reviewing progress against them at regular board meetings Correct answer.
  2. Counting only the number of events held each year
  3. Reviewing outcomes only when a funder requests them
  4. Relying on anecdotal success stories from staff

Explanation

Outcome-based oversight uses defined indicators and regular review to assess whether programs achieve their intended results. Activity counts and anecdotes do not demonstrate effectiveness. Funder-driven reviews are too sporadic to support ongoing governance.

Question 25Nonprofit Leadership and Governance

A nonprofit's board is reviewing a proposed policy that would allow directors to serve on the boards of organizations that compete for the same grants. Which governance approach is most appropriate?

  1. Permit the service without disclosure because competition is normal
  2. Disclose the interlocking relationship and manage it through recusal and monitoring where a conflict arises Correct answer.
  3. Prohibit all outside board service regardless of circumstances
  4. Require the director to resign from the nonprofit immediately

Explanation

Interlocking directorships are common and can be managed through disclosure, recusal, and monitoring. Blanket prohibitions may deter qualified directors, while undisclosed service risks conflicts. Immediate resignation is an overreaction where conflicts can be managed.

Question 26Nonprofit Leadership and Governance

A board member of a community health nonprofit votes on a contract with a vendor that employs her spouse. Which action best satisfies the director's fiduciary obligations?

  1. Disclose the relationship, recuse from discussion and vote, and ensure the minutes record the disclosure and recusal Correct answer.
  2. Vote in favor only if the contract price is demonstrably below market, documenting the comparison
  3. Abstain from the vote but remain in the room to answer questions about the vendor's performance
  4. Resign from the board temporarily and let the remaining directors decide without any recorded disclosure

Explanation

The duty of loyalty requires a director with a personal interest to disclose it and step out of both deliberation and decision so the board acts in the organization's sole interest. Recording the disclosure and recusal in the minutes creates the contemporaneous evidence regulators and auditors expect. Recusal without disclosure leaves the conflict invisible to oversight bodies.

Question 27Nonprofit Leadership and Governance

Which document typically establishes a nonprofit corporation and defines the scope of the board's authority?

  1. The board policy manual
  2. The articles of incorporation Correct answer.
  3. The annual Form 990
  4. The strategic plan

Explanation

Articles of incorporation are filed with the state and create the legal entity, stating purposes and powers that the board then exercises. Bylaws and board policies operate within that framework but cannot expand authority the articles do not grant. The Form 990 and strategic plan are reporting and planning instruments with no constitutive effect.

Question 28Nonprofit Leadership and Governance

A nonprofit's bylaws are silent on how vacancies are filled. A director resigns mid-term. Which step is most appropriate for the board?

  1. Ask the executive director to appoint a replacement from the staff leadership team
  2. Appoint a successor by board vote and then amend the bylaws to specify the vacancy procedure Correct answer.
  3. Leave the seat vacant until the next annual member meeting regardless of urgency
  4. Dissolve the seat permanently and reduce the board size without any formal action

Explanation

Where bylaws are silent, the board generally may fill a vacancy, but good governance requires acting transparently and then closing the gap so future vacancies follow a written rule. Amending the bylaws converts an ad hoc fix into durable procedure. Permanent elimination of a seat is a structural change that requires formal amendment, not informal action.

Question 29Nonprofit Leadership and Governance

Which practice gives the strongest evidence that a board has exercised the duty of care in overseeing a major capital campaign?

  1. Receiving monthly progress reports and periodically challenging assumptions about donor capacity and cost ratios Correct answer.
  2. Relying on the campaign consultant's written assurance that fundraising targets are conservative
  3. Delegating all campaign oversight to the development director and reviewing results annually
  4. Approving the campaign plan unanimously at a single meeting after a brief presentation

Explanation

The duty of care requires directors to stay informed and probe material assumptions on an ongoing basis, not merely to ratify a plan. Regular reporting combined with active questioning shows the deliberative process courts and regulators look for. One-time approval, full delegation, or reliance on a consultant's assurance leaves the board without independent knowledge.

Question 30Nonprofit Leadership and Governance

A nonprofit's board wants to strengthen its oversight of the chief executive's performance. Which arrangement is most consistent with sound governance?

  1. An annual written evaluation against pre-agreed goals, conducted by the board or a board committee with input from staff Correct answer.
  2. A satisfaction survey of donors used as the sole measure of executive performance
  3. A peer review conducted solely by other senior managers who report to the executive director
  4. An informal conversation between the board chair and the executive director with no written record

Explanation

Effective executive oversight rests on goals set in advance and a documented evaluation owned by the board, which has the authority to hire and assess the chief executive. Written records allow continuity and fair comparison across years. Reviews run by subordinates or single stakeholder groups do not reflect the board's accountability relationship.

Question 31Nonprofit Leadership and Governance

A nonprofit's board is reviewing a proposal to enter a joint venture with a for-profit company. Which analysis is most important for the board before approving?

  1. Whether the for-profit partner has a larger board of directors
  2. Whether the venture will generate favorable publicity for the nonprofit's brand
  3. Whether the venture advances the mission and how risk, control, and any private benefit are allocated Correct answer.
  4. Whether the venture can be launched without amending the nonprofit's bylaws

Explanation

Joint ventures require the board to test mission alignment, understand the allocation of control and financial risk, and ensure no impermissible private benefit flows to the for-profit partner. These factors drive both fiduciary soundness and tax-exempt status. Brand publicity, partner board size, and bylaw mechanics are peripheral to that core analysis.

Question 32Nonprofit Leadership and Governance

Under U.S. federal tax rules, which board process best supports the rebuttable presumption that an executive's compensation is reasonable?

  1. The board approves the package after reviewing a salary survey prepared by the executive
  2. An independent committee reviews comparable data, approves the amount, and documents the basis for its decision concurrently Correct answer.
  3. The full board votes after the executive presents a summary of peer salaries at the meeting
  4. The board chair negotiates the package alone and reports the outcome at the next meeting

Explanation

The rebuttable presumption under IRC section 4958 arises when an authorized body of disinterested individuals relies on appropriate comparability data and records the basis for its determination at or before the decision. Independence and contemporaneous documentation are both essential. Packages shaped or presented by the executive lack the required independence.

Question 33Nonprofit Leadership and Governance

A nonprofit relies heavily on restricted grants. Which board practice best protects the organization's legal and fiduciary position?

  1. Allowing program staff to decide independently how to reallocate restricted funds when needs shift
  2. Tracking restricted funds separately and monitoring compliance with donor-imposed conditions throughout the grant period Correct answer.
  3. Recording restricted grants as unrestricted revenue once the cash is received
  4. Pooling all grants into the general operating account and reporting totals to donors at year end

Explanation

Restricted gifts carry enforceable conditions, so the board must ensure funds are segregated, spent as promised, and monitored for compliance. Failure to honor restrictions can trigger repayment demands and undermine donor trust. Pooling, unilateral reallocation, or premature recognition as unrestricted all breach those conditions.

Question 34Nonprofit Leadership and Governance

A board member has missed most meetings and committee assignments for a year. Which response is most consistent with good governance?

  1. Ignore the absences until the director's term expires to avoid interpersonal conflict
  2. Publicly censure the director at a membership meeting without prior private discussion
  3. Apply the attendance provisions in the bylaws, discuss expectations privately, and remove the director if the standard is not met Correct answer.
  4. Quietly remove the director from the roster without any formal board action

Explanation

Bylaws commonly set attendance standards and removal procedures, and following them gives any removal legal footing. A private conversation first is both fair and effective, and formal board action creates a defensible record. Informal removal or indefinite tolerance exposes the board to dispute and leaves the seat ineffective.

Question 35Nonprofit Leadership and Governance

Which statement best describes the board's fiduciary duty of obedience?

  1. Directors must maximize surplus each year to build reserves
  2. Directors must personally guarantee organizational debts
  3. Directors must ensure the organization pursues its stated mission and complies with the law and its own governing documents Correct answer.
  4. Directors must defer to the largest donor on matters of program strategy

Explanation

The duty of obedience requires directors to keep the organization within its charitable purposes and applicable law, including its articles and bylaws. It is distinct from the duties of care and loyalty. It does not impose personal liability for debts or subordinate governance to a donor's preferences.

Question 36Nonprofit Leadership and Governance

A nonprofit's board is considering adopting a policy permitting directors to serve simultaneously on boards of organizations that compete for the same grants. Which approach best manages the resulting risk?

  1. Prohibit the practice outright without any exception process
  2. Permit it with disclosure, case-by-case approval by disinterested directors, and recusal from related funding decisions Correct answer.
  3. Permit it silently as long as the director does not mention the other board service
  4. Require the director to resign from one of the boards within thirty days of any overlap

Explanation

Interlocking board service is not inherently improper, but it creates conflicts around shared funders, confidential information, and strategic decisions. A written policy requiring disclosure, disinterested approval, and recusal manages the risk while preserving the director's value. Blanket prohibition or silent tolerance both forgo that balance.

Question 37Nonprofit Leadership and Governance

Which practice best demonstrates that a board is accountable to the public for the charitable assets it stewards?

  1. Publishing audited financial statements and an annual report that describes program results and governance Correct answer.
  2. Holding board meetings closed to all outsiders without published minutes or summaries
  3. Reporting only the minimum required on the annual information return
  4. Restricting financial information to directors and the auditor to protect confidentiality

Explanation

Public accountability is shown through transparent disclosure of finances, program outcomes, and governance, typically via audited statements and an annual report. Charitable assets are held in trust for public purposes, so transparency is a governance obligation, not a courtesy. Minimal disclosure or closed proceedings frustrate that obligation.

Question 38Nonprofit Leadership and Governance

A board is designing its committee structure. Which design best supports effective governance?

  1. Create many standing committees so every director holds a leadership title
  2. Assign all committee work to the executive director to ensure coordination
  3. Use a small number of committees with written charters, defined authority, and reporting to the full board Correct answer.
  4. Let each committee set its own scope and report only when it identifies a problem

Explanation

Committees should exist for a clear purpose, operate under written charters that define authority and limits, and report to the full board, which retains decision-making power. This structure prevents fragmentation and keeps accountability with the board. Proliferation, self-directed scope, or staff-run committees dilute that accountability.

Question 39Nonprofit Leadership and Governance

A nonprofit's board learns that the organization has been operating a program outside the purposes stated in its articles of incorporation. Which action is most appropriate?

  1. Review the activity against the stated purposes, seek legal advice, and either amend the articles or wind down the program Correct answer.
  2. Ask the auditor to reclassify the program's expenses so the discrepancy disappears
  3. Discontinue the program immediately and terminate the program director
  4. Continue the program and note the discrepancy in the next annual report

Explanation

Operating outside stated purposes implicates the duty of obedience and may jeopardize tax-exempt status, so the board must assess the activity and choose a lawful path. Amending the articles is appropriate if the activity fits the mission; otherwise the program should end. Reclassifying expenses conceals rather than resolves the problem.

Question 40Nonprofit Leadership and Governance

A nonprofit with a 21-member board finds that meetings are unwieldy and decisions stall. Which change is most consistent with sound governance?

  1. Add another ten directors so more viewpoints are represented
  2. Eliminate the board and replace it with an executive committee of five
  3. Reduce the board to a workable size through a bylaws amendment and delegate detailed work to chartered committees Correct answer.
  4. Keep all 21 directors but let the chair decide most matters between meetings

Explanation

Board effectiveness depends on a size that allows genuine deliberation, so reducing membership through a proper bylaws amendment is the standard remedy. Delegating detailed work to committees with defined authority preserves broad oversight while speeding decisions. Eliminating the board or concentrating power in the chair undermines accountability.

Question 41Fundraising and Resource Development

A nonprofit's board wants to build a dependable base of annual, unrestricted gifts from individual donors. Which fundraising program best matches that goal?

  1. Annual fund campaign Correct answer.
  2. Capital campaign
  3. Special event gala
  4. Planned giving program

Explanation

The annual fund is the recurring program that raises unrestricted operating support from individuals year after year. Capital campaigns target large one-time gifts for facilities or endowments, and planned giving involves deferred estate-based gifts.

Question 42Fundraising and Resource Development

A development office is preparing a case for support. What is the primary purpose of this document?

  1. To calculate the organization's indirect cost rate
  2. To record pledges in the donor database
  3. To list every donor who gave in the prior year
  4. To articulate why the organization merits investment and what gifts will accomplish Correct answer.

Explanation

A case for support states the need, the organization's response, and the impact a gift will produce, giving solicitors a shared rationale. It is a persuasive and informational document, not an accounting or stewardship record.

Question 43Fundraising and Resource Development

Which statement correctly describes the relationship between a gift and a grant in nonprofit fundraising?

  1. Gifts and grants are legally identical in every respect
  2. A gift is voluntary with no expectation of direct benefit, while a grant is provided for a specified purpose with reporting obligations Correct answer.
  3. A grant is always unrestricted while a gift is always restricted
  4. Gifts must be recorded as exchange transactions under accounting rules

Explanation

Gifts are voluntary contributions made without receiving goods or services in return, whereas grants typically carry a defined scope, budget, and reporting requirements. This distinction affects accounting treatment, stewardship, and compliance.

Question 44Fundraising and Resource Development

A donor relations manager wants to thank donors promptly and consistently after each gift. Which practice best supports this goal?

  1. Delegating all acknowledgment to the auditor
  2. Sending an acknowledgment within a defined short window after the gift is received Correct answer.
  3. Acknowledging only gifts above a set dollar threshold
  4. Waiting until the annual report is published to acknowledge gifts

Explanation

Timely, consistent acknowledgment is a core stewardship practice and also supports the donor's ability to substantiate a charitable deduction. Organizations typically set a short standard window, such as a few business days, for gift acknowledgment.

Question 45Fundraising and Resource Development

In a donor database, what does a moves management system primarily track?

  1. The number of volunteers scheduled each week
  2. The sequence of cultivation and solicitation steps for each major donor prospect Correct answer.
  3. The organization's compliance with payroll tax filings
  4. The organization's investment portfolio performance

Explanation

Moves management records each deliberate action taken to advance a prospect toward solicitation, such as visits, proposals, and asks. It gives development staff a shared view of where relationships stand and what comes next.

Question 46Fundraising and Resource Development

A hospital foundation wants to identify individuals with strong capacity and affinity before launching a major gift effort. Which tool is most appropriate?

  1. A prospect screening and wealth-rating exercise Correct answer.
  2. A random sample of prior event attendees
  3. A staff satisfaction survey
  4. A review of vendor contracts

Explanation

Prospect screening combines wealth indicators with known affinity and linkage data to rank prospects by likelihood and capacity. This lets staff focus major gift effort where it is most productive.

Question 47Fundraising and Resource Development

Which metric best measures how well an organization retains its donors from one year to the next?

  1. Average gift size
  2. Number of solicitation calls made
  3. Donor retention rate Correct answer.
  4. Cost per dollar raised

Explanation

Donor retention rate is the share of donors who gave in one period and gave again in the next, directly capturing loyalty. Cost per dollar raised and average gift describe efficiency and gift size, not retention.

Question 48Fundraising and Resource Development

A development director is drafting a direct mail appeal. Which element most directly drives response by giving the reader a concrete reason to give now?

  1. A glossary of fundraising terminology
  2. A list of every staff member's credentials
  3. A detailed organizational history spanning several pages
  4. A specific, compelling offer with a clear call to action and deadline Correct answer.

Explanation

Direct mail succeeds when the reader understands a specific need, sees the impact of a gift, and is asked to act by a stated date. Clear offers and calls to action outperform general institutional description.

Question 49Fundraising and Resource Development

A foundation receives a $50,000 gift restricted to a specific scholarship fund. How should development staff treat this gift?

  1. As restricted revenue to be used only for the scholarship fund and reported accordingly Correct answer.
  2. As a pledge that requires no acknowledgment
  3. As unrestricted revenue available for any purpose
  4. As a loan to be repaid to the donor

Explanation

Donor restrictions are legally binding, so the gift must be recorded and spent only for the designated purpose. Staff should also track and report on the use of restricted funds to honor the donor's intent.

Question 50Fundraising and Resource Development

A prospect has given $2,500 annually for years and has strong ties to the organization. Using standard major gift thresholds, what is the most reasonable next step?

  1. Move the prospect into a major gift portfolio for individualized cultivation Correct answer.
  2. Send only generic annual fund appeals indefinitely
  3. Ask for a planned gift commitment immediately
  4. Remove the prospect from all mailing lists

Explanation

Sustained giving plus strong affinity signals readiness for personalized cultivation and a larger ask. Assigning the prospect to a major gift portfolio allows tailored relationship building before solicitation.