Certified Nonprofit Professional Practice Exam

Who is ultimately responsible for the final approval of a nonprofit's annual budget?

1. The Executive Director

2. The Finance Committee

3. The Board of Directors

4. The General Membership

The correct answer is: The Board of Directors

The ultimate responsibility for the final approval of a nonprofit's annual budget rests with the Board of Directors. This is because the Board serves as the governing body of the organization and is responsible for overseeing all significant decisions, including financial matters such as budgets. Their role includes ensuring that the budget aligns with the nonprofit's mission, strategy, and goals while allowing for proper allocation of resources to support activities and programs. The Finance Committee typically plays a critical role in the budgeting process by preparing, reviewing, and making recommendations regarding the budget. However, their authority is typically advisory, and the final decision-making power lies with the Board. The Executive Director may propose the budget based on operational needs and strategic planning but is accountable to the Board for managing the organization’s finances effectively. In many organizations, the General Membership may provide input during the budgeting process or vote on the budget in certain circumstances, especially in membership-based organizations, but they do not hold the ultimate approval authority, which is reserved for the Board of Directors. This governance structure ensures proper oversight and accountability in nonprofit financial management.