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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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slide2

2

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

NPOs - Not for Profit Organisations

Include:

  • Schools, colleges, hospitals
  • Project-based NGOs
  • Donor Agencies
  • Schools & Hospitals
  • NGOs
  • Donor Agencies
audit types
Audit Types
  • GPFS
  • Tax / FCRA
  • NGO
  • Internal
  • Client?
  • Pre-funding
  • Donor
  • Utilisation
  • Systems
audit scope
Audit Scope
  • Derived mainly from
    • Terms of engagement or
    • Terms of Reference
  • Whose side are you on?
gpfs audit
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
tax audit
Tax Audit
  • Form 10B / 10BB
      • Utilisation of funds
        • for charitable purposes
        • within India
        • Personal gain?
  • Form 3CD
cag on trust taxation
CAG on Trust Taxation
  • Excess accumulation of surplus
  • Investment of capital gains
  • Commercial activities
    • Separate books
cag on trust
CAG on Trust…
  • Claims for
    • Deficit of earlier years
    • Depreciation claim
    • Repayment of loans
  • 80G - control over receipts issued
  • Deficiencies in audit report format
fcra audit
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
internal audit
Internal Audit
  • Checking
    • Transactions
    • Updating of records
    • Legal Compliance
  • Review of system design and lapses
  • Risk-based internal auditing
pre funding audit
Pre-funding Audit
  • Objective
    • Forecasting risk to donor funds
  • Focus
    • Legal status / compliance
    • Assessing control systems
    • Accounting and reporting capacity
    • Funds absorption capacity
grant audit
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
risk based internal audit
Risk-based Internal Audit
  • 3rd Generation Audit Approach
    • Primarily for business organisations
  • Simplified for use in NGO audits
frams
FRAMS+
  • Financial Risk Assessment & Mitigation System
  • Assesses risk in six areas
    • Suggests mitigation
  • Plus?
    • Verification of funds utilisation
    • Validation of donor reports
issues ngo audits
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
locations
Locations
  • Remote - difficult to reach
    • Most payments in cash
    • Difficult getting reliable bills
  • Distributed records
staff and systems
Staff and Systems
  • Technical background / training of staff
    • Understanding of systems - differences
  • Systems - Donor driven
corpus
Corpus
  • Concept
  • Corpus or endowment fund
  • Nominal corpus vs. real corpus
  • Using corpus funds
  • Investing corpus funds
  • Corpus donations - tax issues
unspent grants
Unspent Grants
  • Donations and grants
  • General grant or project grant
  • Accounting and presentation
  • Safeguarding unspent funds
ear marked funds
Ear-marked Funds
  • Different types of funds
    • Discretionary or general
    • Restricted or ear-marked
  • Accounting and safeguarding
depreciation
Depreciation
  • Historical purpose
  • Relevance to NGO operations
    • Under Income Tax
    • For donor reporting
    • Matching of revenue and expenses
separate books
Separate Books
  • Origins and purpose
      • ‘Separate Accounts’ or ‘separate books of account’
  • Legal requirements
    • Income Tax
    • FCRA
    • Donor directive
  • Alternative?
allocation issues
Allocation Issues
  • Common expenses
    • Allocating to multiple donors
    • Basis?
  • Interest on bank account
    • Allocating to donors
      • Average monthly balances
recoveries
Recoveries
  • Use of NGO resources
    • Costing and setting a price
    • Accounting and control issues
  • Suggested approach
    • Direct cost or market, whichever is lower
double booking
Double Booking
  • Problem of double booking
    • Expenses
    • Salaries
  • Common Methods
  • Suggested solution
slide42

UNDP Funds

  • BM Funds
  • SDTT Funds
overlap
Overlap
  • Program overlap
  • Segment overlap
    • project staff used for fee-based activities
  • Identifying and dealing with overlap
bills and supports
Bills and Supports
  • Importance of proving expenses
  • Field realities
    • Blank bills / signed vouchers
    • Alteration of bills
    • Paper bills / rubber stamped bills
    • Printing of bills
multiple entities
Multiple Entities
  • FIRM
  • NGO
  • ?
  • Movement
slide49
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?
income tax
Income Tax
  • Expenditure outside India
  • Transactions with key persons
    • Including managers
  • Minimum spending norms
service tax
Service Tax
  • Applicability similar to other service providers
    • Narrow exemption window
  • Applicable to
    • Grants given as consultancy contracts
    • CSR contracts - advertisement?
slide52
TDS
  • General compliance issues
  • Employees as consultants
    • 192 or 194J
    • Documentation
gratuity
Gratuity
  • Applicable since Oct’98
  • Implications
    • Non-provision
  • Remedy for employee
provident fund
Provident Fund
  • Exempted repeatedly since 1986
    • Current notification valid till 31-Mar-15
  • Conditions for exemption
    • 12A
    • No funds provided for PF
slide56
Role
  • Guidance, hand-holding, advisory, compliance, audit
  • Book-keeping and audit - conflict?
  • Internal audit and statutory audit - conflict?
  • Donor mandate vs. NPO mandate
responsibility
Responsibility
  • Professional liability
    • Diversity of views
  • Audit tenure
  • Communicating with previous auditor
structure
Structure
  • Driven by scope of audit
    • Form based
    • ToR based
    • Devised by Auditor
  • Relevance of Audit Standards
style
Style
  • Who will use the report
    • General circulation
    • Only client
    • Client + others
  • Language
  • User needs
slide61

Compliance

  • On-site Training
audit planning
Audit Planning
  • Travel
    • Facilities / infrastructure
    • Coordination
  • Communicating
    • Team selection
    • Team Orientation
building the practice
Building the Practice
  • Practice models
    • NGO based
    • Donor based
    • CSR based
    • Mixed NPO and Corporate
  • Fees and other unmentionables…
slide80
ICAI
  • Accounting of special Authorities under Central or state Act (CCONPO, ICAI - 2013)
  • Technical Guide on Internal Audit of Not -for- Profit organisation (IASB, ICAI-2013)
  • Guidance Note on Accounting by Schools (Tec. Dir., ICAI-2005)
  • Management Control Systems in Non-Profit Organisations with Special Reference to Hospitals (Tec. Dir. ICAI-1996)
  • Technical guide on accounting for Not-for-Profit organisation (NPO’s) (Tec. Dir., ICAI - 2009)
other sources
Other Sources
  • Not-for-Profit GAAP (Wiley, 2012)
  • Taxation of Charitable Trusts (BCAS, 2007)
  • http://www.bcasonline.org
  • www.AccountAid.net
  • http://fmsfindia.org.in
  • http://www.charitycommission.gov.uk