Week 3 Flashcards
Penelope Burk speaks of a “triumvirate” whose decisions govern gift planning in a nonprofit. All of these choices are members of the group, EXCEPT
A) The head of advancement
B) The executive director
C) The comptroller
D) The board
C) The comptroller
The correct answer is C. Burk does not mention the comptroller, though the pressure for money now will filter up to the board from the comptroller through the executive director and the financial statements and projections which the comptroller provides to the board.
Endowments may begin in which way(s)?
I. an endowment-building campaign
II. a donor-restricted legacy gift that comes in by surprise
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 I and II are possible. Of course, the charity can put together a campaign to build an endowment, often by asking that a donor mention the charity in the donor’s will. The charity then puts the incoming bequests into an endowment. But a charity may also find itself having to start an endowment when they receive an unexpected first legacy gift. When the donor specifies that the gift should fund a program in perpetuity, the charity finds itself having to set up an endowment to support the program specified.
According to Burk, which issue below is the most common source of disagreement between fundraisers and their executive directors?
A) Length of time to close a gift
B) Cost to recapture a lapsed donor
C) Staff development
D) Cost to renew a donor
A) Length of time to close a gift
The correct answer is A, the length of time to close a gift. The process takes time, especially for planned gifts.
What is a “term endowment”?
A) It is restricted under the terms of the gift agreement.
B) A segregated account that is termed an endowment.
C) It is an endowment set aside for a period of years.
D) It is a rainy day fund that is termed an endowment.
C) It is an endowment set aside for a period of years.
The correct answer is C. A “term endowment” is an endowment set aside for a period of years.
Each of these is a way endowments are traditionally established, EXCEPT
A) A charity may ask a donor to hold the endowment.
B) A charity may establish a supporting organization to hold its endowment.
C) A charity may set up a designated fund at a community foundation.
D) A charity may set up a segregated account of its own.
A) A charity may ask a donor to hold the endowment.
Charities generally do not think of the donor as holding an endowment for them. The other formats are permissible. A donor might hold principal and give the income or grants to the charity, but this would not necessarily be considered an endowment. Still, an advisor might see possibilities in creating an outsourced endowment held in a charitable tool (like a foundation, donor-advised fund, or charitable lead trust). The charity would be a beneficiary, but only to the extent that they met donor expectations from year to year. Perhaps, instead of a gift agreement, there might be a pledge or some other meeting of the minds. But since the donor holds the money rather than gives it outright, the charity remains accountable. The balance of power shifts to the donor in enforcing compliance with donor desires.
Which of these is (are) driving the fusion of major and planned gifts?
I. Donor demand for a quicker process
II. Demand by the charity’s board for short-term results
A) I only
B) II only
C) Both I and II
D) Neither I nor II
B) II only
The correct answer is B. Often, the organization’s leadership is primarily interested in securing funds for immediate use. Planned gifts are valued, but they won’t serve an organization in the future that doesn’t have the money to stay open today.
All of the following are ways a board can (and should) participate in fundraising EXCEPT
A) Introducing staff to prospective donors
B) Arranging a table at a benefit
C) Writing promotional materials
D) Giving at full capacity
C) Writing promotional materials
The correct answer is C. All of these actions are listed by BoardSource as appropriate board roles, except writing promotional materials. That is a staff function or an action that can be delegated to outside resources.
Which of the following statements is (are) true?
I. Annual giving and planned giving compete for donor time and attention.
II. Annual giving serves as a feeder into major giving.
A) I
B) II
C) Both I and II
D) Neither I nor II
B) II
The correct answer is B. The annual giver is a likely source of planned gifts. The annual gift bonds the donor to the organization. The relationship may then mature to include major gifts and planned gifts.
As the term is used in this course, “stewardship” describes which of these?
I. using donated funds in accordance with donor intent
II. investing endowments prudently
A) I
B) II
C) Both I and II
D) Neither I nor II
C) Both I and II
The correct answer is C. The best answer is both.
What is the best definition of the term “quasi-endowment”?
A) A fund held by the client in a foundation or a donor-advised fund from which gifts are made to the charity
B) A fund which the client pledges to the charity, but which the charity has not yet received
C) A stream of annual gifts, with a bequest or life insurance policy at death to endow the gift
D) An endowment restricted not by donor requirements, but by a revocable board resolution
D) An endowment restricted not by donor requirements, but by a revocable board resolution
The correct answer is D. A true endowment is restricted permanently: the board cannot revoke it. A quasi-endowment is restricted by a board resolution and can be revoked.
Endowments serve all of these purposes, EXCEPT
A) Supporting new programs
B) Reducing the need for fundraising
C) Expanding charities’ reach and capacity
D) Helping ensure that services are not reduced during an economic downturn
B) Reducing the need for fundraising
The correct answer is B. The existence of an endowment may be given as an excuse by donors for not giving money, but nonprofit organizations with very large endowments – even Harvard – must continue their fundraising activities.
What is meant by a spending policy for endowments?
A) Rules for determining the permitted ratio of investment expenses to assets under management
B) Rules for how the endowment account can be spent on fundraising costs
C) Rules for computing how much of the fund’s income or growth can be spent for current uses
D) Rules for how much can be spent on managing endowment assets
C) Rules for computing how much of the fund’s income or growth can be spent for current uses
The answer is C. The endowment exists to fund current programs in perpetuity; this leads to the question of how much can be spent in a given year. The spending policy addresses this.
How is the term “true endowment” defined?
A) Money restricted by board resolution
B) An endowment in which many people contribute to a specific fund
C) Money set aside for a term of years
D) Money permanently set aside
D) Money permanently set aside
The correct answer is D. A true endowment consists of money permanently set aside, with only the income or growth used for particular purposes. Often, these purposes are restricted. A restricted endowment fund is often given by a single donor.
Which is (are) true about major gifts and gift-planning processes?
I. The timeline and tempo of the processes are similar.
II. Their typical prospects differ.
A) I only
B) II only
C) Both I and II
D) Neither
B) II only
The correct answer is B. Major gift donors are strong potential planned gift donors. The timeline and the tempo for securing planned and major gifts differ.
What is an acceptable cost-per-dollar-raised for renewing donors in their third year in an annual gifts program?
A) 5-15 cents per dollar raised
B) 20-30 cents per dollar raised
C) 40-50 cents per dollar raised
D) 60-70 cents per dollar raised
B) 20-30 cents per dollar raised
The correct answer is B. It takes about 20-30 cents to raise each dollar to renew annual donors in their third year.
