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Financial Management of Nonprofits #383626

Course Overview

Credit

Amount

CPA

Course Author: Steven M. Bragg, CPA Field of Study (CPA): Business Management & Organization

Course Description

Publication/Revision Date: This course was updated on 3/18/2026.

Financial Management of Nonprofits is a practical guide for nonprofit managers who need to strengthen financial stewardship while advancing mission impact. This course discusses nonprofit-specific governance, budgeting, liquidity, cost analysis, risk management, and compliance issues. It shows readers how to manage restricted funds, interpret financial statements, and plan for long-term growth. This course turns financial complexity into confident leadership.

Table of Contents

Chapter 1 - The Nonprofit Financial Environment1

Introduction	1
Legal and Economic Characteristics of Nonprofit Organizations	1
Legal Status and Tax-Exemption Under U.S. Tax Code	1
Role of Nonprofits in the Economy and Civil Society	2
The Relationship Between Mission, Strategy, and Financial Decision-Making	3
Why Mission Matters in Financial Decisions	3
Strategic Planning and Budgeting as Mission-Alignment Tools	4
Case Examples of Mission-Finance Alignment and Conflict	4
Distinctions Between Nonprofit and For-Profit Financial Objectives	5
Profit Motive versus Surplus Generation	5
Measuring Success: Mission Impact vs. Shareholder Value	6
Revenue Models and Reinvestment of Funds	7
Financial Risks and Constraints Unique to Nonprofits	8
Stakeholders in Nonprofit Financial Management	9
Donors, Grantmakers, and Funders	9
Clients and Communities Served	10
Boards of Directors and Staff Leadership	11
Regulators, Watchdogs, and the General Public	12
Financial Stewardship and Public Trust	13
Stewardship Responsibilities of Financial Managers and Boards	13
Transparency, Reporting, and Disclosure Practices	14
Building Donor and Public Confidence	15
The Cost of Eroded Trust and Financial Mismanagement	16
Ethical Foundations of Nonprofit Financial Management	17
Core Ethical Principles in Nonprofit Financial Management	17
Conflict of Interest Policies and Practices	18
Ethical Budgeting, Fundraising, and Spending	19
Creating an Ethical Financial Culture in the Organization	20
Summary	22
Review Questions	23

Chapter 2 - Nonprofit Governance24

Introduction	24
Fiduciary Duties of Nonprofit Boards	24
Duty of Care	24
Duty of Loyalty	25
Duty of Obedience	25
Roles of Finance Committees and Audit Committees	26
Finance Committee	26
Audit Committee	26
Management versus Board Responsibilities in Financial Oversight	27
Board Financial Literacy and Reporting Expectations	28
Accountability to Donors, Regulators, and the Public	29
Accountability to Donors	29
Accountability to Regulators	30
Accountability to the Public	30
Summary	30
Review Questions	31

Chapter 3 - Fund Accounting32

Introduction	32
Purpose and Principles of Fund Accounting	32
Net Asset Classifications and Internal Fund Structures	33
Chart of Accounts Design for Nonprofits	36
Tracking Restrictions, Designations, and Internal Controls	40
Tracking Donor-Restricted Funds	40
Tracking Board-Designated Funds	41
Internal Controls for Restricted and Designated Funds	41
Integration of Fund Accounting with Budgeting and Reporting	43
Budgeting in a Fund Accounting Environment	44
Reporting with Fund Accounting Information	45
Continuous Integration	46
Accounting Systems for Nonprofits	47
Summary	50
Review Questions	51

Chapter 4 - Nonprofit Financial Statements52

Introduction	52
The Core Financial Statements	52
Statement of Financial Position	52
Statement of Activities	53
Statement of Cash Flows	55
Functional Expense Reporting and Program Service Disclosures	58
Functional Expense Categories	58
Required Functional Expense Reporting	58
Program Service Disclosures and Descriptions	59
Notes to Financial Statements and Required Disclosures	61
Role of the Notes	61
Summary of Significant Accounting Policies	61
Net Asset Restrictions	61
Endowment Funds and Underwater Endowments	62
Liquidity and Availability of Resources	62
Commitments and Contingencies	63
Contributions Receivable and Allowances	63
Fixed Assets and Depreciation	63
Investments and Fair Value	63
In-Kind Contributions	64
Subsequent Events	64
Use of Financial Statements by Donors, Boards, and Regulators	64
Donors	64
Boards of Directors	65
Regulators	67
Watchdog Organizations and the Media	67
Transparency and Comparability Across Nonprofit Organizations	67
Financial Transparency in Nonprofits	68
Comparability Across Organizations	68
Role of Accounting Standards	68
Benchmarking and Ratios	68
Limitations of Comparability	69
Transparency as Trust-Building	69
Comparability to Drive Improvement	69
Narrative and Context Still Needed	69
Summary	70
Review Questions	71

Chapter 5 - Financial Planning72

Introduction	72
The Revenue Budget	72
The Management and Administration Budget	74
The Fundraising Budget	75
Program and Grant Budgets	75
The Compensation Budget	76
The Compensation Budget	76
Treatment of Hourly Pay and Overtime	78
The Benefits Budget	79
Budget Recasting	81
Budget Linkages	81
Cash Forecasting	81
The Short-Term Cash Forecast	82
The Medium-Term Cash Forecast	85
Summary	85
Review Questions	87

Chapter 6 - Financial Sustainability88

Introduction	88
Contributions, Grants, and Donor-Restricted Funding	88
Government Contracts and Reimbursement Models	90
Program Service Revenue and Earned Income Strategies	91
Special Events and Fundraising Economics	93
Diversification of Revenue Sources	94
Long-Term Sustainability and Revenue Risk Management	95
Summary	96
Review Questions	97

Chapter 7 - Liquidity Management98

Introduction	98
Cash Flow Challenges Unique to Nonprofits	98
Timing Differences Between Revenues and Expenditures	99
Managing Restricted Cash and Short-Term Liquidity	100
Cash Reserves and Operating Reserve Policies	102
Working Capital Analysis for Nonprofits	104
Short-Term Financing and Lines of Credit	105
Summary	105
Review Questions	107

Chapter 8 - Cost Analysis108

Introduction	108
Direct Versus Indirect Costs in Nonprofit Operations	108
Cost Allocation Methodologies and Compliance Considerations	110
Program Cost Analysis and Unit Cost Measurement	111
Shared Services and Overhead Management	112
Financial Evaluation of Programs and Services	113
Using Cost Information for Strategic Decisions	114
Summary	115
Review Questions	116

Chapter 9 - Risk Management117

Introduction	117
Internal Control Frameworks in Nonprofit Organizations	117
Segregation of Duties in Resource-Constrained Environments	118
Safeguarding Assets	119
Risk Assessment and Mitigation Strategies	120
Fraud Risks Unique to Nonprofits	121
Role of Management and the Board in Risk Oversight	122
Summary	123
Review Questions	124

Chapter 10 - Compliance Issues125

Introduction	125
Federal, State, and Local Compliance Requirements	125
IRS Form 990 and Public Disclosure Obligations	126
Grant Compliance and Monitoring	128
Single Audits and Other Compliance Audits	129
Relationship with External Auditors	130
Preparing for Regulatory Review and Examination	131
Summary	133
Review Questions	134

Chapter 11 - Financial Analysis135

Introduction	135
Financial Ratios Adapted for Nonprofit Organizations	135
Measuring Financial Health and Sustainability	137
Linking Financial Performance to Mission Outcomes	139
Program Efficiency and Effectiveness Metrics	140
Benchmarking Against Peer Organizations	142
Communicating Financial Performance to Stakeholders	143
Summary	144
Review Questions	145

Chapter 12 - Long-Term Growth146

Introduction	146
Financial Implications of Growth and Program Expansion	146
Capital Planning and Financing Major Initiatives	147
Endowments, Quasi-Endowments, and Long-Term Investments	148
Mergers, Affiliations, and Restructurings	149
Scenario Planning and Long-Term Financial Resilience	150
Summary	151
Review Questions	151

Answers to Chapter Questions153

Glossary165

Index166

Course Details

Author: Steven M. Bragg, CPA

Steven Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a Bachelor’s degree in Economics from the University of Maine. He has been a two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written more than 300 books and courses, including New Controller Guidebook, GAAP Guidebook, and Payroll Management.

Publication/Revision Date: 3/18/2026

Course Exam Questions (online): 60 (multiple-choice)

Program Delivery Method: NASBA QAS Self-Study

Available Formats of Course Text: PDF or PDF plus printed copy sent in the mail

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None

* This program is appropriate for professionals at all organizational levels.

Sponsor ID Numbers

National Registry of CPE Sponsors ID: 107615

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Identify the constraints to which a nonprofit is subjected.
Specify the mission-related issues that nonprofit managers need to consider.
Describe the different stakeholders who are interested in the operations of a nonprofit.
Identify the types of financial decisions that are impacted by a nonprofit's stated mission.
Specify the types of revenue sources that a nonprofit is likely to use.
Identify the various duties to which a nonprofit board is subjected.
Recall the various financial oversight practices of a nonprofit board.
Specify the activities of the committees of a nonprofit board.
Describe how a conflict of interest policy protects a nonprofit.
Specify the indicators of weak nonprofit governance.
Specify the main purpose of fund accounting.
Recall the types of donor restrictions of contributed assets.
Recall the reasons for using board-designated funds.
Specify the structure of an optimal nonprofit chart of accounts.
Identify the types of controls that a nonprofit may use.
Recall how functional expense reporting is used.
Recall how the statement of activities is used.
Specify the various types of nonprofit disclosures related to liquidity.
Identify the benefits of having a nonprofit issue notes to its financial statements.
Recall how a cash forecast can be used to provide the maximum value to a nonprofit.
Specify how budget recasting should be used.
Identify the planning mistakes associated with reimbursement-funded programs.
Recall how the diversification of revenue sources can reduce concentration risk.
Specify how sustainability risk can be reduced by a nonprofit.
Identify the red flags associated with earned income.
Recall the sustainability issues associated with special events for fundraising.
Specify the practices that can improve long-term sustainability planning.
Identify why the days cash on hand metric is so useful for a nonprofit.
Recall how a nonprofit should use a line of credit.
Specify the conditions that indicate mis-use of a line of credit, and how such mis-use can be minimized.
Identify the operational tests for classifying a cost as direct or indirect.
Recall why the aggressive reclassification of indirect costs can be harmful.
Specify why cost allocation can be strategically important to a nonprofit.
Identify how to best support unit cost measurement for a program.
State how to best manage shared services decisions.
Recall how a nonprofit can offset having too few people to use the segregation of duties.
Specify the reasons for elevated fraud risks in a nonprofit.
Identify the controls that a nonprofit can use to safeguard its assets.
Recall a nonprofit board's best role in risk oversight.
Specify the value of using a COSO-aligned internal control framework.
Identify the compliance risks associated with the IRS Form 990.
Recall why grant compliance monitoring is so critical.
Specify the circumstances under which a nonprofit must undergo a Single Audit.
Identify how to best prepare for a regulatory review.
Recall the uses to which the various monitoring metrics can be put by a nonprofit.
Specify why trend analysis is so useful for nonprofits.
Identify the conditions under which a nonprofit should conduct a benchmarking analysis.
Recall the most common financial mistakes when expanding programs.
Recall how to make capital planning more effective for a nonprofit.
Specify why mergers can be financially risky for a nonprofit.
Recall why scenario planning improves the long-term resilience of a nonprofit.

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