npo audits
DESCRIPTION
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. - PowerPoint PPT PresentationTRANSCRIPT
NPO Audits
1
2 Special Issues
5 Audit Management
6 Standards & Guides
4 Role & Responsibility
1 Types & Scope
3 Preparation
2
NGOS
DONOR AGENCIES
SCHOOLS & HOSPITALS
Focus
NPOs - Not for Profit Organisations
Include:
• Schools, colleges, hospitals
• Project-based NGOs
• Donor Agencies
3
Scope of Audit
4
Audit Types
Client?
NGO
Donor
Internal
Tax / FCRA
GPFS
Systems
Utilisation
Pre-funding
5
Audit Scope
• Derived mainly from
• Terms of engagement or
• Terms of Reference
• Whose side are you on?
6
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
7
Tax Audit• Form 10B / 10BB
• Utilisation of funds
• for charitable purposes
• within India
• Personal gain?
• Form 3CD
8
CAG on Trust Taxation
• Excess accumulation of surplus
• Investment of capital gains
• Commercial activities
• Separate books
11
CAG on Trust…• Claims for
• Deficit of earlier years
• Depreciation claim
• Repayment of loans
• 80G - control over receipts issued
• Deficiencies in audit report format
12
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
13
14
Internal Audit• Checking
• Transactions
• Updating of records
• Legal Compliance
• Review of system design and lapses
• Risk-based internal auditing
15
16
Donor-initiated Audits
17
Pre-funding Audit• Objective
• Forecasting risk to donor funds
• Focus
• Legal status / compliance
• Assessing control systems
• Accounting and reporting capacity
• Funds absorption capacity
18
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
19
Risk-based Internal Audit
• 3rd Generation Audit Approach
• Primarily for business organisations
• Simplified for use in NGO audits
20
Source: AuditAble 5, www.AccountAid.net, (c) AccountAid India
FRAMS+• Financial Risk Assessment & Mitigation
System
• Assesses risk in six areas
• Suggests mitigation
• Plus?
• Verification of funds utilisation
• Validation of donor reports22
23
NGO Audit Aspects
24
Accountingcorpus,
earmarked funds, unspent grants,
depreciation
Diversiondouble booking,
overlap, salaries, fake supportsBook-keeping
multiple books, allocation (expenses/ income), recoveries
ComplianceFCRA, income tax, TDS, service tax, gratuity
Environmentsize, systems, locations, staff, donor directives
Issues: NGO Audits
25
Environment
26
Big is small…
27
Locations
• Remote - difficult to reach
• Most payments in cash
• Difficult getting reliable bills
• Distributed records
28
Staff and Systems
• Technical background / training of staff
• Understanding of systems - differences
• Systems - Donor driven
29
Accounting Issues
30
Corpus• Concept
• Corpus or endowment fund
• Nominal corpus vs. real corpus
• Using corpus funds
• Investing corpus funds
• Corpus donations - tax issues
31
Unspent Grants
• Donations and grants
• General grant or project grant
• Accounting and presentation
• Safeguarding unspent funds
32
33
Ear-marked Funds
• Different types of funds
• Discretionary or general
• Restricted or ear-marked
• Accounting and safeguarding
34
Depreciation
• Historical purpose
• Relevance to NGO operations
• Under Income Tax
• For donor reporting
• Matching of revenue and expenses
35
36
Book-keeping
37
Separate Books• Origins and purpose
• ‘Separate Accounts’ or ‘separate books of account’
• Legal requirements
• Income Tax
• FCRA
• Donor directive
• Alternative?38
Source: AuditAble 13, www.AccountAid.net, (c) AccountAid India39
Source: AuditAble 13, www.AccountAid.net, (c) AccountAid India40
Allocation Issues• Common expenses
• Allocating to multiple donors
• Basis?
• Interest on bank account
• Allocating to donors
• Average monthly balances
41
Recoveries• Use of NGO resources
• Costing and setting a price
• Accounting and control issues
• Suggested approach
• Direct cost or market, whichever is lower
42
Double Booking
• Problem of double booking
• Expenses
• Salaries
• Common Methods
• Suggested solution
43
UNDP Funds
BM Funds
SDTT Funds
Overlap
• Program overlap
• Segment overlap
• project staff used for fee-based activities
• Identifying and dealing with overlap
45
Bills and Supports• Importance of proving expenses
• Field realities
• Blank bills / signed vouchers
• Alteration of bills
• Paper bills / rubber stamped bills
• Printing of bills
46
47
FIRM NGO
? Movement
Multiple Entities
49
Compliance
50
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?
51
Income Tax
• Expenditure outside India
• Transactions with key persons
• Including managers
• Minimum spending norms
52
Service Tax• Applicability similar to other service
providers
• Narrow exemption window
• Applicable to
• Grants given as consultancy contracts
• CSR contracts - advertisement?
53
TDS
• General compliance issues
• Employees as consultants
• 192 or 194J
• Documentation
54
Gratuity
• Applicable since Oct’98
• Implications
• Non-provision
• Remedy for employee
55
Provident Fund
• Exempted repeatedly since 1986
• Current notification valid till 31-Mar-15
• Conditions for exemption
• 12A
• No funds provided for PF
56
Role & Responsibility
57
Role
• Guidance, hand-holding, advisory, compliance, audit
• Book-keeping and audit - conflict?
• Internal audit and statutory audit - conflict?
• Donor mandate vs. NPO mandate
58
Responsibility
• Professional liability
• Diversity of views
• Audit tenure
• Communicating with previous auditor
59
Audit Reports
60
Structure
• Driven by scope of audit
• Form based
• ToR based
• Devised by Auditor
• Relevance of Audit Standards
61
Style• Who will use the report
• General circulation
• Only client
• Client + others
• Language
• User needs
62
On-site Training
Com
plia
nce
67
FRAMS - Summary
68
Risk Hea
t Map
69
Observation
70
Three-band Classification
71
Audit Management
72
Client Interaction
73
Attitude?
74
Properly dressed?
75
Sector Knowledge
76
Audit Planning• Travel
• Facilities / infrastructure
• Coordination
• Communicating
• Team selection
• Team Orientation
77
Building the Practice
• Practice models
• NGO based
• Donor based
• CSR based
• Mixed NPO and Corporate
• Fees and other unmentionables…
78
Standards
79
Authority LevelsStandards on… Authority… Auditing (SA) Mandatory
… Review Engagements (SREs)
Mandatory
… Assurance Engagements (SAEs)
Mandatory
… Related Services (SRSs) Mandatory… Quality Controls (SQCs) Mandatory
Guidance NotesRecommendat
ory81
Standards on Auditing
Audit Type Relevant
General Purpose Financial Statement
Audit
SA 200 to SA 720
Special Purpose Financial Statement
Audit
SA 800 to SA 810
Tax / FCRA AuditSA 200 to SA
720
82
Standards on Related Services
Audit Type Relevant
Prefunding Audit SRS 4400
Grant Audit SRS 4400
FRAMS+ SRS 4400
83
Standard on Internal Audit (SIA)
Audit Type Applicability
Internal Audit SIA 1 to SIA 18
84
Reference Material
85
86
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)
87
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 88