FORMATION AUDIT OF NGOs Dr V Bastin Jerome

FORMATION & AUDIT OF NGO’s Dr. V. Bastin Jerome Assistant Professor of Commerce St. Joseph’s College, Trichy - 2

Formation of NGO’s

Constituents 1. 2. 3. Trust - Registered document Society - Registrar of Societies Company - Sec. 25 of the Companies Act, 1956

Trust 1. 2. 3. 4. 5. 6. No separate Act Trust Deeds can be registered Settler Corpus Trustees Trust Deed

Trust Deed 1. 2. 3. 4. 5. 6. On a stamp paper as per stamp duty payable on the corpus amount. Must clearly and broadly define objects Strength of Board of Trustees Powers of the Trustees / remuneration / benefits Broad guidelines for management of trust On dissolution

Societies Status - Delhi / state - All India

Societies 1. 2. In state level at least 7 promoters (not blood related) In all India level at least 8 promoters from 8 different states of India

Societies 1. Memorandum of Association - name - objects - profits/benefits to promoters/board members - dissolution clause - subscribers

Societies 1. Rules & Regulations - define rules of membership - define rules for elections - define powers, duties and responsibilities of the board and each office bearer - define broad parameters of governance

Societies 1. Registration - covering letter in a file cover - power of attorney - confirmation from secretary / president - NOC for registered office - Memorandum of Association & Rules and Regulations signed by each promoter on each page - proofs of addresses for all promoters

Societies 1. 2. Certificate of Registration Certified copies from Registrar of - Memorandum of Association - Rules & Regulations

Societies 1. Registrations - PAN - TAN - u/s 12 AA of Income Tax Act - u/s 80 G of Income Tax Act - IEC code - VAT

Societies 1. 2. 3. Establish bank account Deposit membership fee Start members register

Companies 1. Registration process as usual - apply for name of approval - apply for license to operate as a company registered u/s 25 of the Companies Act 1956 - after obtaining license submit papers for incorporation - certificate of incorporation issued to mention that the company is registered u/s 25 of the Companies Act 1956

Audit of NGO’s

Types of Audit 1. 2. 3. 4. 5. 6. Transaction based audit System / Risk based audit Project based audit Donor based audit Efficiency audit Compliance / Statutory audit - Income Tax - FCRA - Registering authority

Engagement 1. 2. 3. 4. 5. Appointment by appropriate authority Engagement letter Scope of audit Reporting requirements Fee

Audit approach 1. 2. 3. 4. 5. “Knowledge of business” objects ; activities Audit objectives Audit plan Audit process Resources

l l l Transaction based audit System / Risk based audit Compliance / Statutory audit (as usual)

Project based audit 1. 2. 3. 4. 5. 6. 7. Understand activity under the project Budget for the project Separate bank account / books of accounts Direct revenues from the project - grants - donations - revenue incomes Direct project expenses – nature Allocation of expenses to projects Projects utilization certificates

Donor based audit 1. 2. 3. 4. Donor sanction letter Terms & Conditions Budget Reporting requirements

1. 2. 3. 4. 5. Corpus / Endowment fund Unutilized Grants Separate books of accounts for - foreign grants - local grants - revenue Accrual vs cash system of accounts Receipts and payments accounts

Efficiency audit 1. 2. 3. 4. 5. Donors / Governing body / Trustees Verification of expenses beyond accounting External help of specialists Common sense / matured judgment Team leaders

Computerized Environment 1. 2. 3. 4. 5. Size of NGO / No. of transactions Familiarity with software in use Asses software controls Use auditing softwares Remain abreast with technology

Statutory Compliances Income Tax Act 2. FCRA / FEMA / RBI 3. Registration laws 4. Labour laws 5. VAT / Service Tax 6. Commercial laws 7. Protection laws 8. General laws 1.

Auditing and assurance standards AAS 1 AAS 2 AAS 3 AAS 4 AAS 5 AAS 6 AAS 7 AAS 8 AAS 9 Basic Principles Governing an Audit Objectives and scope of the Audit of Financial Statements Documentation The Auditor’s Responsibility to consider Fraud and Error is an Audit of Financial Statements Audit Evidence Risk Assessments and Internal Control Relying Upon the work of an Internal Auditor Audit Planning Using the Work of another Auditor

Auditing and assurance standards AAS 10 AAS 11 AAS 12 AAS 13 AAS 14 AAS 15 AAS 16 AAS 17 AAS 18 AAS 19 AAS 20 Using the Work of an Expert Representations by Management Responsibility of Joint Auditors Audit Materiality Analytical Procedures Audit Sampling Going Concern Quality Control for Audit Work Auditing of Accounting Estimates Subsequent Events Knowledge of the Business

Auditing and assurance standards AAS 21 AAS 22 AAS 23 AAS 24 AAS 25 AAS 26 AAS 27 AAS 28 Consideration of Laws and Regulations in an Audit of Financial Statements Initial Engagements – Opening Balances Related Parties Audit Considerations Relating to Entities Using Service Organizations Comparatives Terms of Audit Engagements Communication of Audit Matters with Those Charged with Governance The Auditor’s report on Financial Statements

Auditing and assurance standards AAS 29 AAS 30 AAS 31 AAS 32 AAS 33 AAS 34 AAS 35 Audit in a Computer information Systems Environment External Confirmations Engagements to Compile Financial Information Engagements to Perform Agreed – Upon Procedures Regarding Financial Statements Engagements to Review Financial Statements Audit Evidence – Additional Consideration for Specific Items The Examination of Prospective Financial Information