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NPO Audits

NPO Audits. 2. 5. 6. 4. 1. 3. Special Issues. Preparation. Types & Scope. Role & Responsibility. Standards & Guides. Audit Management. Focus. NPOs - Not for Profit Organisations Include: Schools, colleges, hospitals Project-based NGOs Donor Agencies. Schools & Hospitals. NGOs.

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NPO Audits

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  1. NPO Audits

  2. 2 • 5 • 6 • 4 • 1 • 3 • Special Issues • Preparation • Types & Scope • Role & Responsibility • Standards & Guides • Audit Management

  3. Focus NPOs - Not for Profit Organisations Include: • Schools, colleges, hospitals • Project-based NGOs • Donor Agencies • Schools & Hospitals • NGOs • Donor Agencies

  4. Scope of Audit

  5. Audit Types • GPFS • Tax / FCRA • NGO • Internal • Client? • Pre-funding • Donor • Utilisation • Systems

  6. Audit Scope • Derived mainly from • Terms of engagement or • Terms of Reference • Whose side are you on?

  7. GPFS Audit • Required under registration law or own bylaws • True and Fair view • Assets and Liabilities, including fund balances • Surplus or deficit • Receipts and Payments

  8. Tax Audit • Form 10B / 10BB • Utilisation of funds • for charitable purposes • within India • Personal gain? • Form 3CD

  9. CAG on Trust Taxation • Excess accumulation of surplus • Investment of capital gains • Commercial activities • Separate books

  10. CAG on Trust… • Claims for • Deficit of earlier years • Depreciation claim • Repayment of loans • 80G - control over receipts issued • Deficiencies in audit report format

  11. FCRA Audit • Validation of receipts, utilisation and balance • Does not cover details in form FC-6 itself • Correctness of FCRA BS, I&E, R&P • Compliance with accounting and banking norms

  12. Internal Audit • Checking • Transactions • Updating of records • Legal Compliance • Review of system design and lapses • Risk-based internal auditing

  13. Donor-initiated Audits

  14. Pre-funding Audit • Objective • Forecasting risk to donor funds • Focus • Legal status / compliance • Assessing control systems • Accounting and reporting capacity • Funds absorption capacity

  15. Grant Audit • Objective • Proper use of funds • Focus • Verifying utilisation of funds • Validating donor reports • Compliance with grant conditions • General assessment of systems and records

  16. Risk-based Internal Audit • 3rd Generation Audit Approach • Primarily for business organisations • Simplified for use in NGO audits

  17. Source: AuditAble 5, www.AccountAid.net, (c) AccountAid India

  18. FRAMS+ • Financial Risk Assessment & Mitigation System • Assesses risk in six areas • Suggests mitigation • Plus? • Verification of funds utilisation • Validation of donor reports

  19. NGO Audit Aspects

  20. Issues: NGO Audits • Environment • size, systems, locations, staff, donor directives • Accounting • corpus, earmarked funds, unspent grants, depreciation • Compliance • FCRA, income tax, TDS, service tax, gratuity • Diversion • double booking, overlap, salaries, fake supports • Book-keeping • multiple books, allocation (expenses/ income), recoveries

  21. Environment

  22. Big is small…

  23. Locations • Remote - difficult to reach • Most payments in cash • Difficult getting reliable bills • Distributed records

  24. Staff and Systems • Technical background / training of staff • Understanding of systems - differences • Systems - Donor driven

  25. Accounting Issues

  26. Corpus • Concept • Corpus or endowment fund • Nominal corpus vs. real corpus • Using corpus funds • Investing corpus funds • Corpus donations - tax issues

  27. Unspent Grants • Donations and grants • General grant or project grant • Accounting and presentation • Safeguarding unspent funds

  28. Ear-marked Funds • Different types of funds • Discretionary or general • Restricted or ear-marked • Accounting and safeguarding

  29. Depreciation • Historical purpose • Relevance to NGO operations • Under Income Tax • For donor reporting • Matching of revenue and expenses

  30. Book-keeping

  31. Separate Books • Origins and purpose • ‘Separate Accounts’ or ‘separate books of account’ • Legal requirements • Income Tax • FCRA • Donor directive • Alternative?

  32. Source: AuditAble 13, www.AccountAid.net, (c) AccountAid India

  33. Source: AuditAble 13, www.AccountAid.net, (c) AccountAid India

  34. Allocation Issues • Common expenses • Allocating to multiple donors • Basis? • Interest on bank account • Allocating to donors • Average monthly balances

  35. Recoveries • Use of NGO resources • Costing and setting a price • Accounting and control issues • Suggested approach • Direct cost or market, whichever is lower

  36. Double Booking • Problem of double booking • Expenses • Salaries • Common Methods • Suggested solution

  37. UNDP Funds • BM Funds • SDTT Funds

  38. Overlap • Program overlap • Segment overlap • project staff used for fee-based activities • Identifying and dealing with overlap

  39. Bills and Supports • Importance of proving expenses • Field realities • Blank bills / signed vouchers • Alteration of bills • Paper bills / rubber stamped bills • Printing of bills

  40. Multiple Entities • FIRM • NGO • ? • Movement

  41. Compliance

  42. FCRA • Separate set of accounts and records • Columnar presentation for FCRA and non-FC • Filing nil FC-6, FC-7, FC-8 • India-based foreign sources?

  43. Income Tax • Expenditure outside India • Transactions with key persons • Including managers • Minimum spending norms

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