Practice Exam Flashcards
Consider the idea of “the tyranny of one number.” Why is it impracticable to hold planned gift officers to one number of dollars raised?
A) Planned gift people shouldn’t be measured by results.
B) Results in gift planning cannot be quantified.
C) The cash element in planned gifts is relatively minor.
D) Planned gifts fall into three main categories: current, deferred, and contingent and deferred. It is not logically possible to add these into a single, meaningful number.
D) Planned gifts fall into three main categories: current, deferred, and contingent and deferred. It is not logically possible to add these into a single, meaningful number.
D. To add apples, oranges, and potatoes to get one number is easier than to add current, deferred, and contingent deferred gifts into one number. Cash is easy to count. Deferred gifts are not so easy. How does a single count today produce an irrevocable remainder interest in a unitrust whose value is going up and down daily? As for revocable deferred, how can you reduce to a number the value of a revocable 50% interest in the estate of a woman aged 52 who is in good health?
Yet, counting is inevitable. For it to be done right, per the “Guidelines for Reporting and Counting Charitable Gifts,” 2nd ed., from the National Association of Charitable Gift Planners (as seen in Assignment 5), we should report three numbers, each at its face amount. The reluctance of boards and business offices to count in this way and their preference for current dollars is part of what is driving the fusion of major with planned gifts, often to the detriment of planned gift officers.
What is the difference between gift counting and gift valuing?
A) Gift counting is the process of determining the number of gifts received; gift valuing is the process of determining the discounted present value of those gifts.
B) Gift counting is the process of determining the nominal value of gifts; gift valuing is the process of determining the discounted present value.
C) Gift counting is for internal fundraising and marketing purposes; gift valuing is for the organization’s internal cash-flow projections.
D) Gift counting is for the comptroller, to determine the value of what the organization has received; gift valuing is for crediting the donor with a specific value for donor recognition purposes.
C) Gift counting is for internal fundraising and marketing purposes; gift valuing is for the organization’s internal cash-flow projections.
C. Gifts are counted (per guidelines promoted by The National Committee for Planned Giving) in a way that is simple to understand for fundraisers and donors and that is incentivizing. In this system, Gifts are counted toward campaign totals and donor recognition levels on a simple, three-part system: outright, irrevocable deferred, and revocable deferred. All gifts are counted at nominal value without discounting for the time value of money or for the likelihood of gifts actually coming to fruition.
Gift valuation, under the valuation standards promoted by the National Association of Charitable Gift Planners, is done for internal purposes, to help the business office predict and value the spendable cash flow from a planned gift. Valuation standards take into account when the charity is likely to realize spendable money, how much it will be able to spend, and the likelihood that the money will actually materialize.
Which of the following endowments is set up to last for only a certain period of time?
A) a true endowment
B) a term endowment
C) a quasi-endowment
D) all endowments
B) a term endowment
B. A term endowment lasts for only a term of years or for a set time period.
Traditionally, the fundraising function in a large organization has been broken down into three categories of giving: annual, major, and planned. In addition, the organization may have short-term campaigns. All of the statements below are examples of what gift planners mean when they write about the fusion of major and planned gifts, EXCEPT
A) The departments may be combined or fused.
B) Fundraisers may find themselves performing more than one role.
C) Fundraisers may ask for more than one gift at a time (i.e., a major gift commitment and a planned gift commitment) in a double ask.
D) Increasingly, fundraisers are being encouraged to fuse their work with that of financial planners and others, who look at gifts as financial and philanthropic strategies within a more comprehensive plan.
D) Increasingly, fundraisers are being encouraged to fuse their work with that of financial planners and others, who look at gifts as financial and philanthropic strategies within a more comprehensive plan.
D. Sadly, fusion is code for cutting planned giving jobs and fusing the staff with major gifts. It has meant spreading the planned giving team out over more cases and getting them to double as major gift officers. It has led to more calls made faster to make sure current dollars come in. This has not been good news to planned gift people.
A capital campaign is used for what purpose?
A) building unrestricted endowment
B) constructing a building or a major new program
C) raising money for current budgets
D) raising gifts from principal (non-cash assets and appreciated securities)
B) constructing a building or a major new program
Generally, the purpose of a capital campaign is to build an edifice — a building or a permanent program (like a center).
When a social investor is said to be “sector agnostic,” which of the following statement(s) is (are) implied?
I. The investor is focused on cost and results, regardless of the sector.
II. The investor is willing to invest in cost-effective solutions in whatever sector these may be found.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. The phrase “sector agnostic” is cited here from the work of Lucy Bernholz, who works in the high-tech, entrepreneurial world of Silicon Valley. Such thinkers take business and markets as their primary reference point. They see business as results-driven, and they see themselves as producing innovative and disruptive solutions that get results, whether those results are obtained through business, nonprofits, or governmental advocacy. They believe in dollars in, results out. To them, there is nothing special about the nonprofit sector, other than legal forms.
A charity comes to believe that its role is all about getting money in and putting results out, and it increasingly moves towards being a vendor or service provider for corporations. If the charity is a school, for example, it may do custom research for a company, train corporate staff, or otherwise create benefits to the funder first, and to the students second.
How might the IRS react?
I. The IRS might characterize the income as unrelated business taxable income.
II. The IRS might tax the charity on the earned income.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Advanced theorists with a business perspective like that of Lucy Bernholz are sometimes sector agnostic, viewing charities as machines for creating social return on investment and returns to the social investor. In the process, sectors blur, as if the differences between charities and for-profit businesses were just a matter of quaint terminology, in contrast to the new and up-to-date language of social entrepreneurialism.
The IRS, however, is not sector agnostic and does not embrace blurred lines between what is taxable and what is not, or between what is a gift and what is a business deal or investment. The IRS maintains that a charity exists for a social purpose, and that it has certain tax benefits because it selflessly helps the public. So, when a charity gets into the earned income business, the IRS wants to see that the income is clearly related to the charity’s tax-exempt purpose. Acceptable, mission-related income might include tuition at a school, admission fees for a museum, sales of bread made by trainees at a bakery maintained to help ex-prisoners transition to society from jail, or sales of donated clothing in a thrift shop maintained by a religious organization.
In other cases, a charity may be selling services for the sake of making money unrelated to its purpose; when the charity, in effect, becomes a vendor or a business in disguise, the IRS may recharacterize the income as “unrelated business taxable income.” Such income is taxed to the charity. If that income becomes a very large percentage of total receipts, the charity may lose its exemption.
Which of the following statements is (are) true?
I. A “moves manager” at a charity decides who will approach which donor, how, when, and with whom.
II. The “natural partner” is the person who has overall responsibility for that donor relationship.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
A) I only
A. The terminology goes back to Dave Dunlop, a highly regarded fundraiser. William Sturtevant writes about “moves management” at length in The Artful Journey: Cultivating and Soliciting the Major Gift. The system sees fundraising as a multistep process for several players.
The “moves manager” is a fundraiser who develops a list of potential high-dollar donors and manages the process of cultivating and soliciting them.
The “natural partner” is a person who is well positioned to get an appointment with and influence the donor. The natural partner could be the president, executive director, a board member, or a close friend of the prospect and a fellow donor. The primary player is the natural partner best positioned to make the ask or to support the fundraiser when the ask is made.
Which of the following statement(s) is (are) found in the “Model Standards of Practice for the Charitable Gift Planner”?
I. Primacy of Donor Intent: The principal basis for making a charitable gift should be a desire on the part of the donor to support the work of the charitable institution.
II. Explanation of Tax Implications: Congress has provided tax incentives for charitable giving. The emphasis in this statement on philanthropic motivation in no way minimizes the necessity and appropriateness of a full and accurate explanation by the gift planner of those incentives and their implications.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. These are word-for-word the first two of the ten canons in the “Model Standards of Practice for the Charitable Gift Planner.” Donor intent “to benefit the work of a charity” comes first; behind it comes a “full and accurate explanation” to the donor by the gift planner of the tax incentives and their implications.
Consider the approach taken by the following fictional investment advisory firm:
“As a good person, you will not want to invest in firms that violate your values. We will examine your portfolio for stocks and bonds that do not fit your value system, and we will eliminate those.”
Which of the answers below best describes this approach?
A) impact investing
B) investing for social return
C) screened investments
D) social venture philanthropy
C) screened investments
C. This is an example of negative screening. A portfolio is screened for investments that are out of phase with the values of the investor. For example, an investor might object to drinking, smoking, and guns, but his or her portfolio might contain stocks and bonds of companies tied to products and activities to which the investor objects. Negative screening can screen outsuch undesirable stocks and bonds - and positive screening can screen in virtuous ones.
Social venture philanthropy gifts dollars to charities, which are treated almost as if they were venture capital investments (big gifts that are termed “investments” and are accompanied by hands-on attention from the funder).
Impact investing generally seeks out smaller, early-stage businesses that may go on to have a disruptive, innovative, and positive social impact (solar panel manufacturing, oil from algae, smokeless cook stoves for the third world.)
Screened investing goes back to the 1960s and is associated with progressives who wanted to screen out, for example, arms manufacturing stocks. Its earliest roots are in funds held by religious organizations that did not want to invest in “sin stocks.”
Impact investing is a newer style that appeals to business people and younger people who want to make money on their investments and also do actual good, not just avoid evil.
The cost of imprisonment is very high. A country can save a great deal if prisoners do not return after they are released.
Let us say that we have identified a nonprofit program we feel will drastically reduce the number of prisoners who re-offend. We must figure out a way to fund this program. So, we create a for-profit firm that gets investors to pool their money for starting the program through a nonprofit.
We also enter into an agreement with government that will pay the investment syndicate back with interest if, and only if, the nonprofit program gets results above or beyond a specific benchmark.
With respect to this funding arrangement, which of the following statements is (are) true?
I. These arrangements are sometimes called “pay-for-performance” contracts.
II. These arrangements are sometimes called “social impact bonds.”
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. These are called social impact bonds or pay-for-performance contracts. Roca, mentioned in this course, is one nonprofit funded in part with these arrangements.
With regard to an endowment that is restricted by board resolution alone and not by the donor, which of the following statement(s) is (are) true?
I. It is termed a quasi-endowment.
II. It is spent as the executive director wishes.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
A) I only
A. These are not “true endowments” because they are not restricted by the donor. They are “quasi endowments” because the board sets the money aside for a purpose they restrict, and they can change or revoke in the future, if they so choose.
The executive director, however, cannot spend a quasi-endowment at will. He or she would have to get board approval to unrestrict the funds.
With respect to Form 990, the nonprofit board must attest that which of these is (are) in place?
I. policies pertaining to whistleblower protection, conflicts of interest, expense reimbursement, compensation, and joint ventures
II. practices demonstrating that the policies are actually followed
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Both are correct. Policies are needed, and lip service is not enough. Practices must also be in place, and the board must attest to both practices and policies.
Which of the following statement(s) is (are) true of planned gifts?
I. Planned gifts are often contingent gifts.
II. Planned gifts are often deferred gifts.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Both of these statements are true of what are termed planned gifts in the jargon of this field. A planned gift is generally a bequest, a split-interest gift, a life insurance policy, or a qualified plan designation. Bequests are often contingent because the will or the arrangement is subject to change. They are deferred. Life insurance and annuity beneficiary designations are contingent, and the money comes in later (deferred). Even a life policy owned by the charity is subject to the contingency that it might lapse if the donor ceases donating the premium amount. A CRT’s charitable beneficiary designation is often contingent. (If the document comes from the client’s attorney, he or she will suggest that the beneficiary be left subject to change.) With a CRT, the charity gets the money later. With a gift annuity, it may be irrevocably going to the charity that wrote it, and the charity is holding the money now, but the residuum is not available for deployment for the charity’s purposes until later. The point overall is that planned gift money is generally deferred and often contingent. This, in today’s world of organizations needing immediate money, makes it hard to sell boards on keeping or growing a planned giving program. Deferred and contingent seems less attractive to cash-strapped organizations than “now money” or irrevocable pledges.
With respect to social investing, which statement(s) below is (are) correct?
I. Impact investments generally go into startups or early-stage ventures.
II. Socially screened funds generally invest in publicly traded securities.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
C. Both are correct. Socially screened funds start with the universe of publicly traded securities and throw out the bad ones, the sin stocks, or the environmentally unsound ones. They might also screen in those that are considered socially conscious.
With impact investing, which is a much newer movement, the emphasis is on starting new ventures that actively seek to do good as well as make money. The impact investing world today is embryonic: few funds are available for retail investors because the startups are so small. Though they may be high tech companies, they are more like Mom and Pop businesses in scale. There is not much there yet for big funds to invest in. Those who fund these startups are, as with Mom and Pop firms, initially family and friends and then, perhaps, an angel investor.
Building out the financial ecosystem to support these startups through the process of getting started, getting first investors, and all the way up to going public is still a work in progress. Impact venture people talk of a “valley of death” between startup and getting initial investors and a “pioneer gap” in getting money beyond family and friends or one or two angel investors.
