The auditors of an NGO registered under the Societies Registration Act, 1860 (or under any law corresponding to this Act, in force in any part of India) or the Indian Trusts Act 1882 are normally appointed the Management of the Society or Trust. The auditors of NGO registered under section 25 of the Companies Act, 1956 are appointed the members of the company. Some of the statues such as the Companies Act, 1956, Foreign Contribution (Regulation) Act 1976, Income Tax Act 1961 required that the accounts of the NGO be audited and submitted to the prescribed authorities and failure to do so could lead to forfeiture of certain exemptions and benefits. In the case of NGO/PDA’s different statutes have specified certain audit reports. The Foreign Contribution (Regulation) Act 1976 has prescribed the format and requires that the same be furnished to the Ministry of Home Affairs within 60
days from the close of the financial year i.e. May 30 each year. While planning the audit, the auditor may concentrate on the following:
- Knowledge of the NGO’s work, its mission and vision, areas of operations and environment in which it operate.
- Updating knowledge of relevant statutes especially with regard to recent amendments, circulars, judicial decisions viz. Foreign Contribution (Regulation) Act 1976, Societies Registration Act, 1860, Income Tax Act 1961 etc. and the Rules related to the statutes.
- Reviewing the legal form of the Organisation and its Memorandum of Association, Articles of Association, Rules and Regulations.
- Reviewing the NGO’s Organisation chart, then Financial and Administrative Manuals, Project and Programme Guidelines, Funding Agencies Requirements and formats, budgetary policies if any.
- Examination of minutes of the Board/Managing Committee/Governing Body/Management and Committees thereof to ascertain the impact of any decisions on the financial records.
- Study the accounting system, procedures, internal controls and internal checks existing for the NGO and verify their applicability.
- Setting of materiality levels for audit purposes.
- The nature and timing of reports or other communications.
- The involvement of experts and their reports.
- Review the previous year’s Audit Report.
The audit programme should include in a sequential order all assets, liabilities, income and expenditure ensuring that no material item is omitted.
Corpus Fund: The contributions / grants received towards corpus be vouched with special reference to the letters from the donor(s). The interest income be checked with Investment Register and Physical Investments in hand.
Reserves: Vouch transfers from projects / programmes with donors letters and board resolutions of NGO. Also check transfer of gross value of asset sold from capital reserve to general reserve and adjustments during the year.
Ear-marked Funds: Check requirements of donors institutions, board resolution of NGO, rules and regulations of the schemes of the ear-marked funds.
Project / Agency Balances: Vouch disbursements and expenditure as per agreements with donors for each of the balances.
Loans: Vouch loans with loan agreements, receipt counter-foil issued.
Fixed Assets: Vouch all acquisitions / sale or disposal of assets including depreciation and the authorisations for the same. Also check donor’s letters/agreements for the grant. In the case of immovable property check title, etc.
Investments: Check Investment Register and the investments physically ensuring that investments are in the name of the NGO. Verify further investments and dis-investments for approval the appropriate authority and reference in the bank accounts for the principal amount and interest.
Cash in Hand: Physically verify the cash in hand and imprest balances, at the close of the year and whether it tallies with the books of account.
Bank Balance: Check the bank reconciliation statements and ascertain details for old outstanding and unadjusted amounts.
Stock in Hand: Verify stock in hand and obtain certificate from the management for the quantities and valuation of the same.
Programme and Project Expenses: Verify agreement with donor/contributor(s) supporting the particular programme or project to ascertain the conditions with respect to undertaking the programme / project and accordingly, in the case of programmes/projects involving contracts, ensure that income tax is deducted, deposited and returns filed and verify the terms of the contract.
Establishment Expenses: Verify that provident fund, life insurance premium, employees state insurance and their administrative charges are deducted, contributed and deposited within the prescribed time. Also check other office and administrative expenses such as postage, stationery, travelling, etc.
The receipt of income of NGO may be checked on the following lines:
- Contributions and Grants for projects and programmes: Check agreements with donors and grants letters to ensure that funds received have been accounted for. Check that all foreign contribution receipts are deposited in the foreign contribution bank account as notified under the Foreign Contribution (Regulation) Act, 1976.
- Receipts from fund raising programmes: Verify in detail the internal control system and ascertain who are the persons responsible for collection of funds and mode of receipt. Ensure that collections are counted and deposited in the bank daily.
- Membership Fees: Check fees received with Membership Register. Ensure proper classification is made between entrance and annual fees and life membership fees. Reconcile fees received with fees to be received during the year.
- Subscriptions: Check with subscription register and receipts issued. Reconcile subscription received with printing and dispatch of corresponding magazine / circulars / periodicals. Check the receipts with subscription rate schedule.
- Interest and Dividends: Check the interest and dividends received and receivable with investments held during the year.