Week 2 Flashcards
With respect to nonprofit boards, which of these statements is (are) true?
I. A board’s authority is rooted in state and federal law.
II. A board’s responsibilities are outlined in the organization’s bylaws.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
The correct answer is C. Both statements are true.
Which statement is true, with respect to board leadership?
A) Boards advise, rather than govern or manage.
B) Boards should oversee the organization’s day-to-day operations.
C) Boards should focus on their vision, mission, and strategic plans.
D) Boards co-manage with the executive director or CEO.
C) Boards should focus on their vision, mission, and strategic plans.
The correct answer is C. The board is the highest level governing body for an organization; its focus is on their vision, mission, and strategic plan.
Boards must meet the “prudent person” standard of care. Which statement best defines the “prudent person” standard, as applied to boards?
A) The board can be expected to perform within the limits of what any reasonably intelligent and prudent person would be expected to do or not do.
B) The board can be expected to perform at a prudent, expert level.
C) The board can be expected to perform within the limits of its own prudence.
D) The board can be expected to make decisions that are prudent in the light of full information.
A) The board can be expected to perform within the limits of what any reasonably intelligent and prudent person would be expected to do or not do.
The correct answer is A. This is the definition of the prudent person standard: a rule that states that people or a group can be expected to perform within the limits of what any reasonably intelligent and prudent person would be expected to do or not do. This means that the standard is not that of an expert, much less an expert who has perfect information.
Under Sarbanes-Oxley, nonprofits must have which of these policies in place?
I. whistleblower protections
II. document retention policies
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
The correct answer is C. Both of these are the two provisions of the act which apply to nonprofits.
All of these are true with respect to Form 990, EXCEPT
A) It is confidential.
B) It forces a board review of policies and procedures.
C) It makes charities accountable to the public, media, IRS, and state regulatory agencies.
D) It forces a review of actual practices.
A) It is confidential.
The correct answer is A. Far from being confidential, the 990 is a public document. It is most often posted on the organization’s website. All the other statements are true.
According to BoardSource, which statement is true regarding the governance and management of a nonprofit?
A) The board manages, and the CEO governs.
B) The CEO manages, and the board governs.
C) The CEO and the board jointly manage and govern.
D) The board manages and governs.
B) The CEO manages, and the board governs.
The correct answer is B. Boards govern, CEOs (or Executive Directors) manage, and both should respect the other’s role and areas of autonomy.
Which of these are shared responsibilities of boards and CEOs?
A) implementing the annual fundraising plan
B) hiring and supervising staff
C) management of day-to-day operations
D) governance
A) implementing the annual fundraising plan
The correct answer is A. Generally, boards do not handle tactical assignments, but when it comes to fundraising, they are expected to get actively involved in implementation.
Which role(s) is (are) the board’s responsibility for effective planning in a nonprofit?
I. Insist that planning take place, participate in a strategic planning process, assess the process itself, formally approve the plan, use plan goals to guide budget and priorities, and track implementation and progress.
II. Supervise staff in implementing the plan, evaluate staff performance, and tie staff performance to pay.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
A) I only
The correct answer is A. The roles in List I are correct; the roles in List II are tactical and would fall at the CEO/ED level, or lower.
Each of these questions is part of a nonprofit board’s responsibilities, EXCEPT
A) “How profitable are we?”
B) “How well are we doing?”
C) “Whom do we serve, and how?”
D) “What difference are we trying to make as an organization?”
A) “How profitable are we?”
The correct answer is A. All are correct, except the suggestion that nonprofit boards should consider profitability. They may consider sustainability, perhaps, but not profitability, since the organization is a nonprofit.
BoardSource asked boards to give themselves a report card on their ten basic responsibilities. Which of these recieved the lowest grade?
A) Legal and ethical oversight
B) Recruitment of new board members
C) Strategy
D) Fundraising
D) Fundraising
The correct answer is D. Fundraising scored lowest. Fewer than 20% gave themselves an A or a B.
A technology company contracts with a university to do research that will be proprietary to the company. The income from such contracts becomes an ever-increasing percentage of the college’s total revenue. Which of these is (are) the IRS implication(s)?
I. Revenue from such contracts will likely be taxed as unrelated business income.
II. The university’s tax exemption may be lost, if it has drifted far from its exempt mission.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
C) Both I and II
The correct answer is C. Clearly, the income will be taxable as unrelated business taxable income, since doing research that will be proprietary to a tech company is not part of the school’s exempt purpose. In an extreme case, the IRS might even revoke the school’s tax exemption, if it has drifted so far from its mission that it is behaving more like a vendor to business than as a provider of education and knowledge to the public. Charities can also get in trouble with the IRS for mischaracterizing a gift as a “fee for services.” For example, an overly generous “gift” from a catering company to name a college stadium may disguise what is may be considered concession revenue from a vendor wanting to lock in the sale of hot dogs and soda.
The enthusiasm with which charities have embraced earned-income strategies is being countered today by increased IRS scrutiny as to whether this is correctly characterized, whether taxes are paid on the unrelated business income, and whether the charity has drifted off-mission to become a business in its own right.
Which item(s) below is (are) within the scope of a nonprofit board’s responsibilities
I. Hire and evaluate the executive director.
II. Hire and evaluate the head of fundraising.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
A) I only
The correct answer is A. Yes, the board does hire the top person who manages the operation, but that person should then hire the key leaders under him or her. The executive director should hire and evaluate the head of fundraising. The board should not micromanage the executive director’s hiring decisions. Doing so can cause crossed wires with the executive director.
With respect to diversity on nonprofit boards, which statement(s) below is (are) true?
I. Diverse boards are acknowledged to be essential to the optimization of a nonprofit’s success
II. Diversity on most nonprofit boards continues to lag among the populations served
A) I. only
B) II. only
C) Both I and II
D) Neither I nor II
C) Both I and II
The answer is C. Both are widely acknowledged to be true. A diverse board allows access to a wider array of community resources, better matches mission with populations served, increases the variety of viewpoints, improves decision-making, allows for better response to external influences, avoids stagnation – and the list goes on. But much work remains to be done in building more diverse boards.
Aristotle divided knowledge into know-how (techne), as with a craft; mastery of theories (episteme); detached wisdom (sophrosyne); and practical wisdom at the point of attack (phronesis). Which of these forms of knowledge is most important in board deliberations?
A) Practical wisdom
B) Knowledge of theory
C) Mastery of a trade or craft
D) Detached wisdom
A) Practical wisdom
The correct answer is A. Yes, certain trades may be represented, like law, accounting, and managerial skill; and there is a place for book learning and theory; and there is room for detached wisdom – but boards must deliberate in the heat of the moment and make difficult choices under ever-changing circumstances, as must a war party on the eve or in the heat of battle.
Among his other achievements, Aristotle was the tutor to the future Alexander the Great. He understood that knowledge applied in action, under almost impossible circumstances, was among the highest of human achievements. The test of such dexterity is not an exam score or diploma but success under pressure against against high odds.
Federal law permits a nonprofit to engage in a certain amount of income-producing activity that is unrelated to the organization’s exempt purpose and which may be subject to:
A) UBIT
B) UIPT
C) UNPA
D) UBII
A) UBIT
The correct answer is A: UBIT (Unrelated Business Income Tax)
