Donor Due Diligence

• Understanding Donor Pre-Grant Assessment: Institutional & Financial Due Diligence
• Institutional & Financial Due Diligence (Continued); Risks & Controls: Areas of Internal Controls
• Risks & Controls: Areas of Internal Controls; Donor Due Diligence Checklist & Readiness Roadmap
• Grant Management: End to End
• All About Grant Budget; Grant Contract Terms and Conditions

Understanding Donor Pre-Grant Assessment: Institutional & Financial Due Diligence

Layout of Presentation

1. Donor Landscape: Funding India's Future. Where the money is, and where it is headed.
2. Overview, Rationale & Process. What due diligence is, why donors do it, and how the process unfolds.
3. Institutional & Financial Due Diligence. The two pillars donors examine before committing a grant.

Part 1: Donor Landscape

India's Social Sector Is Growing Fast, But the Funding Gap Is Growing Faster

• INR 27L cr: Total social sector funding in FY25, projected to reach INR 50L cr by FY30
• INR 18L cr: Projected funding gap by FY30 vs. NITI Aayog norms, up from INR 16L cr in FY25
• INR 1.43L cr: Private philanthropy in FY25, about 5% of total funding, growing 9 to 11% annually
• 20 to 25%: CAGR private giving would need to sustain to stop the gap from widening further

What this means

Public spending will keep dominating funding flows, but private philanthropy, where NGOs have the most direct influence, needs to grow faster than it currently is.

Families contribute about 42% of all private giving in India

Personal philanthropy from UHNIs, HNIs and affluent individuals, plus CSR from family-owned/run businesses, together form the backbone of private capital, making family relationships the single highest-leverage funding channel.

Source: India Philanthropy Report 2026, Bain & Company and Dasra

Public Spending Still Dominates: Private Capital Remains the Underused Lever

Social sector funding (INR lakh crore)

Year	Public sector	Private sector
FY20	13	1
FY25E	26	1
FY30P	47	3

• Public spending accounts for about 95% of total social sector funding and is growing at 13% CAGR, led by healthcare and education.
• Private spending/giving (family philanthropy, CSR, retail, foreign) accounts for 5 to 7% of the total, forecast to grow more slowly (9 to 11% CAGR) than the sector needs.
• Even with strong public growth, the mismatch with NITI Aayog-recommended demand keeps widening.

Source: India Philanthropy Report 2026, Bain & Company and Dasra

Private Capital: Family Philanthropy and CSR Are the Largest and Most Accessible Sources

India's Private Funding by Segment, FY25E

Segment	Amount	Share
Retail	43k	30%
Family philanthropy	39k	27%
CSR	37k	26%
Foreign	24k	17%

Fastest-Growing Donor Cohorts (FY25 to 30 CAGR)

• UHNI giving: 23 to 25%. Expanding UHNI base, mega-donations, and democratization of large-ticket giving. Estimated to be 9 to 11% of total private giving in 2030 (82k both, i.e. family philanthropy).
• HNI & affluent giving: 12 to 14%. Rising investable wealth and growing formalization of family philanthropy. Estimated to be 23 to 25% of total private giving in 2030.
• Retail / digital giving: 9 to 11%. UPI and crowdfunding fueling a 25 to 30% rise in NGO donations. Estimated to be 28 to 30% of total private giving in 2030 (75k).
• CSR: 8 to 10%. GDP growth and more firms crossing statutory CSR thresholds. Estimated to be 23 to 25% of total private giving in 2030 (63k).

Source: India Philanthropy Report 2026, Bain & Company and Dasra

Family Giving Is Diversifying, Professionalizing, and Increasingly Led by Women

• 63% of families have women leading their philanthropic efforts
• 49% of families have inter-gen or now-gen leaders anchoring giving decisions
• 66% of families now employ dedicated staff, enabling structured governance
• 35% of families now fund GEDI causes, up from a legacy focus on education & health alone

Where Families Give Today (%)

Cause	%
GEDI	35
Climate action	28
Livelihoods	27
Ecosystem strengthening	7

Ecosystem strengthening (funding NGO capacity, networks & infrastructure) has the fastest growth in future aspiration (+36 percentage points), signaling rising family interest in capacity-building support, not just program funding.

Source: India Philanthropy Report 2026, Bain & Company and Dasra

CSR Capital Is Concentrated and Unevenly Distributed Across States

Where the money flows

• Private-sector CSR spend: about 67% from family-owned/run firms; about 33% from other private firms
• Family-owned CSR spend: about 52% from the top 2 to 3% of firms; about 48% from other family firms

Reading the funnel: of all private CSR, roughly two-thirds flows through family-owned firms, and within that group, just the top 2 to 3% account for over half the capital (see Implication).

Implication

A small set of large family businesses (Tata, Ambani, Jindal, Birla, Bajaj, Adani, Premji) drive an outsized share of CSR capital. Direct relationships with these houses and their foundations are disproportionately valuable.

Opportunity: NGOs working in Bihar, UP, Jharkhand and Meghalaya can make a strong, differentiated equity case to CSR and family funders looking to diversify their geographic footprint.

Source: India Philanthropy Report 2026, Bain & Company and Dasra

CSR Per Capita Tends to Be Higher in Wealthier (GSDP) States

There is an opportunity to redirect capital toward high-MPI, low-CSR regions to maximize social impact.

• The chart plots private CSR spend per capita FY24 (INR) against GSDP per capita FY24 (INR) for each state, coloured by Multidimensional Poverty Index (MPI). A lower MPI score denotes lower multidimensional poverty. Bubble size indicates the number of registered companies in that state with positive CSR spends.
• Punjab and West Bengal emerge as outliers, with a relatively large number of registered companies but lower per-capita GSDP and CSR spending.

Notes: GSDP is gross state domestic product; MPI measures simultaneous deprivations across health & nutrition, education, and standard of living. Values are illustrative reconstructions of the source chart. Sources: Ministry of Statistics and Programme Implementation; NITI Aayog National MPI 2023 Progress Review; UIDAI State/UT-wise Aadhaar Saturation; MCA Portal; Bain-Dasra analysis

Three Forces Could Unlock INR 1.25 to 1.35L cr of New Philanthropic Capital by FY30

A. Domestic family wealth

Family offices have grown 7x since 2018 (45 to 300+), signaling more structured, professionally advised giving, and a shift toward long-term, governed partnerships with NGOs.

B. The Indian diaspora

About 34 million strong, with remittances up 14% CAGR (FY21 to 25). Diaspora giving is moving beyond cheques toward trust-based support combining funding with time, skills and networks.

C. Asian philanthropic hubs

As global aid declines about 10 to 18%, hubs like Singapore, Hong Kong and the UAE are professionalizing philanthropy. India's metros already have credibility; the task is to extend it further.

Together, these forces mark a formative window for India's philanthropic ecosystem. The imperative is to build durable infrastructure (advisory capacity, giving vehicles, governance, intermediaries) that channels this capital effectively, including to NGOs beyond metro cities.

Source: India Philanthropy Report 2026, Bain & Company and Dasra

Five Ways Indian NGOs Can Position for This Shift

1. Professionalize governance & reporting. Families and family offices increasingly demand structured governance and evidence-backed outcomes before committing multi-year support.
2. Court family philanthropy directly. Families drive about 42% of private giving. Building direct relationships with family offices and next-gen leaders is now a core fundraising channel.
3. Lean into emerging causes. GEDI, climate action, livelihoods, arts & heritage, animal welfare and ecosystem strengthening are gaining traction beyond legacy education/health funding.
4. Target underfunded geographies. High-MPI states (Bihar, UP, Jharkhand, Meghalaya) are underfunded relative to need, a strong pitch for CSR and family funders diversifying footprint.
5. Engage the diaspora as partners, not just donors. Diaspora givers increasingly want to contribute time, expertise and networks alongside capital. Invite them into advisory or governance roles.

Source: India Philanthropy Report 2026, Bain & Company and Dasra

Part 2: Overview, Rationale & Process

What Is Donor Due Diligence?

Donor due diligence, also called pre-grant assessment, is the structured process a donor uses to verify that an NGO is legally compliant, financially sound, well governed, and capable of delivering the results it proposes, before releasing a grant.

Literal meaning: the required carefulness to avoid harm or loss. It is not an audit of wrongdoing. It is a risk-management step that protects both the donor's funds and the NGO's own credibility for future funding.

Who conducts it

• Bilateral & multilateral agencies: EU, UN bodies etc.
• Foundations & trusts: domestic and international grant-makers
• Corporates (CSR): companies covered under Section 135
• Intermediary / re-granting NGOs: passing funds to smaller partners

For donors

De-risks capital: confirms funds reach a legally compliant, well-run entity and will be used as proposed.

For NGOs

A strong track record of passing due diligence builds a reputation, the single biggest lever for winning and renewing larger, multi-year grants.

Why Donors Conduct Due Diligence

1. Mitigate fiduciary risk. Reduces the risk of fund misuse, diversion or mismanagement by verifying financial systems and controls in advance.
2. Ensure legal & regulatory compliance. Confirms the NGO is legally registered and compliant under various Indian laws.
3. Assess alignment & delivery capacity. Establishes whether the NGO's activities fit what the donor can fund, and whether it has the governance, staff and systems to deliver.
4. Remove bias in decision-making. Creates a documented basis for a transparent and accountable partnership that can scale over multiple funding cycles.

The Due Diligence Lifecycle

1. Desk Review
2. Legal & Governance
3. Financial Review
4. Programmatic Assessment
5. Site Visit
6. Risk Rating & Decision

Each stage narrows the field: organisations exit the pipeline at the point when they fail minimum thresholds, so early stages are deliberately quick and low-cost for both sides.

Typical duration: 6 to 12 weeks, depending on donor size, grant value, and whether this is a first-time or repeat relationship.

Stage 1: Desk Review & Pre-Screening

A rapid paper check against minimum eligibility thresholds. The majority of applicants are screened here before any deeper review begins.

What is reviewed

• Registration certificates and validity dates: 12A, 80G, FCRA, CSR-1 certificates
• Basic mission-fit with donor's funding priorities
• Past grant history and any prior adverse action by donor
• Website, annual report, and public disclosures

Typical outputs

• Go / no-go decision within 1 to 2 weeks
• Shortlist of eligible organizations
• Initial risk flag (low / medium / high)
• Proceed with full application if shortlisted

Stage 2: Legal & Governance Assessment

Confirms the NGO is a legitimate, properly constituted entity with governance structures capable of independent oversight.

Documents examined

• Trust deed / MoA & bylaws / AoA
• Board composition, R&R which demonstrates compliance through meeting minutes etc.
• Other statutory registrations, filing history of statutory compliances under all applicable laws

Governance checks

• Board independence and diversity
• Conflict-of-interest and related-party policies
• Frequency and quorum of board meetings
• Delegation of financial authority

Stage 3: Financial Due Diligence

Tests whether the organisation can responsibly receive, account for, and report on grant funds at the proposed scale.

Records reviewed

• Audited financial statements (3 years)
• Income & expenditure statement, balance sheet
• Bank statements and reconciliations
• Budget vs. actual for recent grants

Systems assessed

• Accounting software and chart of accounts
• Internal financial controls and segregation of duties
• Procurement and payment approval process
• Statutory audit and regulatory filing track record

Stage 4: Programmatic & Impact Assessment

Evaluates whether the NGO's technical approach, team, and track record can plausibly deliver the results proposed.

Evidence requested

• Theory of change / logical framework
• Past project reports and evaluations
• Beneficiary reach and outcome data
• Staff details and organisational capacity

Capability checks

• Monitoring & evaluation systems in place
• Data collection and quality-assurance methods
• Partnerships and local stakeholder relationships
• Ability to scale within the proposed timeline

Stage 5: Site Visit & Interviews

Verifies on-paper claims against reality, a decisive step for medium and large grants.

Who is met

• Founder / Executive Director and senior staff
• Board members (where feasible)
• Finance and programme teams
• Beneficiaries and community stakeholders

What is verified

• Physical presence at stated project locations
• Key financial and program records
• Sample beneficiary interviews and record checks
• Culture, staff morale, and safeguarding practices

Stage 6: Risk Rating & Funding Decision

Findings from every stage are consolidated into a single risk rating that determines funding terms and monitoring intensity.

Decision inputs

• Consolidated findings notes across all stages
• Weighted risk score against matrix
• Recommended grant conditions and safeguards
• Sign-off by grants committee

Possible outcomes

• Approved: standard terms and reporting
• Approved with conditions: phased disbursement
• Deferred: resubmit after remediation
• Declined: does not meet minimum threshold

Part 3: Institutional & Financial Due Diligence

Two Pillars of Pre-Grant Due Diligence

Institutional Due Diligence

Is the organisation legitimate, well governed, and capable of delivering the programme?

• Constitutional: legal registration & compliance
• Statutory registrations (12A, 80G, FCRA) & compliance
• Governance & board composition
• Mission alignment
• Policies & procedures
• Programmatic track record & M&E systems
• Visibility

Financial Due Diligence

Can the organisation be trusted to receive, manage and report on donor funds accurately?

• Audited financial statements: state of financial health
• Statutory auditor report
• Internal financial controls
• Budgeting & planning
• Grant management
• Banking arrangements
• Accounting systems
• Risk & fraud management

Institutional Due Diligence 1: Constitutional

a. Permitted legal forms

• Public charitable, charitable-cum-religious or religious organisation as per Indian law: society, trust, or Section 8 company
• Each type of entity has its own unique features, but applicable laws like Income Tax, FCRA and Labour laws treat them uniformly
• Mere constitution does not entitle an entity to benefits like tax exemption or FC receipts, unless registration and compliance with specific laws is ensured

b. Registration / incorporation documents

• MOA & Rules and Regulations for a society
• Trust deed for a trust
• MOA and AOA for a Section 8 company
• These documents are the charter, rules and procedures for running the entity

c. Mandatory provisions to check in constitutional documents

• Name, state, geography, objects, liability, property
• General body, governing body, BOT, BOD
• Powers and duties
• Accounts, banking, audit
• Amendment, dissolution; irrevocability (for a trust)

Why this matters

• It is very important that constitution documents are complete. Gaps here surface repeatedly at each stage of due diligence.

d. Registration with the appropriate authority

• As per statute and state procedure: sub-registrar or charity commissioner for a trust deed (the deed, not the trust, is registered)
• Registrar of societies, or as prescribed, for a society
• ROC for a Section 8 company: Section 8 licence and COI
• Knowing your registration number and date is crucial

e. Modifications to incorporation documents

• Compliance for such modification is required under multiple laws: the constitution-related authority, Income Tax, FCRA etc.

f. Renewal of registration

• As may be required by state law, applicable mainly to the society form in several states

g. Vintage of the organisation

• The organisation's age and track record matters to donors while evaluating credibility

Institutional Due Diligence 2A: Statutory Registration: Income Tax

Understanding ITA 2025 is imperative: Chapter XVII-B, Special Provisions for Registered NPO

Registered Non-Profit Organization (RNPO)

Any person having a valid registration under any specified provision of the Act, where such registration has not been cancelled.

Who can be an RNPO

Public Trust, Society, S8 Co, Recognised University/educational institution, institution financed wholly/partly by Government, entities in Schedule III Sl. No. 36 (Sec. 10(46) under ITA 1961), Schedule VII (Sl. 17 to 19: Govt-financed universities, medical institutions or institutions with gross receipts up to Rs. 5 cr p.a.)

"Charitable Purpose": Section 2(23)

• Relief of the poor
• Education
• Yoga
• Medical relief
• Preservation of environment (watersheds, forests, wildlife)
• Preservation of monuments, places or objects of artistic/historic interest
• Advancement of any other object of general public utility

Religious purpose is not separately defined, unlike under ITA 1961.

Types of Registration/Approval for RNPO under ITA 2025

1. Non-approval entities. Erstwhile Section 10(23C)(iiab to ae) non-approval entities now sit under Schedule VII, Table Sl. No. 17 to 19. Approval entities under Section 10(23C) merged into 12A.
2. 12A/12AB registration. Erstwhile Section 12A/12AB registration for tax exemption is now under Section 332.
3. Bodies created by Govt & Scientific & research institutions. Erstwhile Section 10(46) notified bodies move to Schedule III (Sl. No. 36); Section 35 R&D deduction moves to Section 45.
4. 80G(5) donor deduction approval. Erstwhile Section 80G(5) approval for donations to certain funds and charitable institutions is now under Section 354.

Other Provisions: Key Provisions & Registration Forms

Key provisions

• Prohibition on commercial activity for RNPOs under first six limbs unless incidental to the object; for general-public-utility (GPU) object, commercial activity must advance GPU and is capped at 20% of total receipts
• 85% utilization threshold of income for availing full tax exemption remains
• Books of Accounts, Audit, filing of ITR & permitted modes of investments

Forms to know & compliances

• Provisional registration/approval: Form 104 (earlier 10A); approval in Form 106 (earlier 10AC) for 3 years
• Renewal, provisional-to-regular, fresh registration (never registered earlier), modification of objects: Form 105 (earlier 10AB); approval in Form 107 (earlier 10AD). Registration for 10 years for NGOs whose income in 2 tax years prior to application is 5 cr, otherwise 5 years. Approval only for 5 years under Section 354 (80G)
• Strict timelines for filing forms; if filed late, condonation is needed to proceed

Institutional Due Diligence 2A: FCRA: Recent Updates (OG of June 2026)

Key functionary: standard/uniform definition

• Includes director in a company, partner in a firm, trustee, Karta of an HUF, office bearer, member of the GB/MC or other controlling authority of a society, trust, trade union, AOP. Also covers any person with control over, or responsibility for, management of the association

Restriction on foreign nationals

• An association having foreign nationals (other than of Indian origin) as key functionary will ordinarily not be considered for registration or prior permission, barring an exception granted by the Central Government

Minimum activity for continuation of registration

• Minimum FC spend of Rs. 10 lakh on 'reasonable activity' in the past 2 financial years in decision to cancel or deny renewal of registration

Scope of registration: purpose & geography

• NGOs must specify purpose/activity (from 105 listed activities across 5 CEERS objects under Schedule: Purposes for Registration) and the state/UT of operations, for registration and change
• Existing registered entities have one year (up to 21.6.2027) to select specific purposes and states/UTs via Form FC-6F with fees, subject to approval

Institutional Due Diligence 2A: CSR

CSR: Applicability & Implementation

Who must comply

• A company falls under Sec. 135 of CA 2013 if turnover ≥ Rs. 500 cr, net worth ≥ Rs. 100 cr, or net profit ≥ Rs. 5 cr: outlay of 2% of average net profit of the past 3 years, on Schedule VII activities
• CSR Policy (LAP), CSR Committee, CSR projects (one-time/standalone and ongoing)
• Unutilised CSR outlay must be deposited within 30 days into an Unutilised CSR bank account

Implementation & exclusions

• Mode of implementation: an NPO with 12A and 80G registration, a 3-year track record, and CSR-1 registration
• Impact assessment required as per CSR outlay and size of project
• Exclusions in CSR: employee welfare, activities in the ordinary course of business, in-kind support, corpus contributions, and activities outside India (except sports training)

CSR: Revamped eCSR Form & the ZCZP Instrument

Revamped eCSR-1 Form (July 2025)

• Adds email ID OTP verification and period of incorporation as fields
• ZCZP (Zero Coupon Zero Principal instrument) added to Schedule VII of CA 2013 in May 2026
• Companies (CSR Policy) Amendment Rules 2026 (May 2026) lay down ZCZP modalities for companies and NPOs

ZCZP: for company & listed NPO

• Company can subscribe to ZCZP to fulfil CSR obligation up to 10% of total CSR outlay in a FY. Not required to (a) undertake impact assessment for that expenditure, (b) obtain a CFO utilisation certificate for ZCZP amount or (c) have its Board monitor implementation of the ZCZP-funded project
• NPO-ZCZP duration should not exceed 3 succeeding financial years from the year of issue

Proposed Amendments to CSR (Companies Amendment Bill 2026)

Status

• The Companies Amendment Bill 2026 is with the Joint Parliamentary Committee before it is taken up by Parliament to become law

Key proposals

• Raise the net-profit trigger for Section 135 coverage from Rs. 5 cr to Rs. 10 cr
• Mandate an expert on CSR within the CSR Committee
• Make a CSR Committee optional where the CSR obligation is up to Rs. 1 cr (up from Rs. 50 lakh presently)
• Extend the deposit window for unutilised CSR amounts from 30 to 90 days
• Empower the Central Government to exempt certain categories of companies from CSR compliance

Institutional Due Diligence 2A: The 3 Labour Codes: Compliance Checklist

• Comp structure as per definition of "Wage" under the Code on Wages. Revisit and revise existing comp structure
• Applicability of Minimum Wages, Payment of Wages chapters under Code on Wages to NGOs
• Mandatory coverage of NGOs under ESI
• Mandatory registration and insurance for gratuity
• A new flexi-hiring category: Fixed Term Employment (FTE); only regular/permanent and FTE are permitted HR-engagement categories
• Engagement of contract labour in 'core activity' is prohibited
• Employee vs. Worker classification: EL, overtime and comp-off applicable to "worker" category
• Mandatory appointment letter and wage slip, as per the applicable state-rules template
• Labour Identification No (LIN) and all registrations i.e. EPF, ESIC etc. seeded in LIN
• PT registration and S&E license as per state Acts; they co-exist
• Health, safety and welfare provisions as per OSH standards

Institutional & Financial Due Diligence (Continued); Risks & Controls: Areas of Internal Controls

Layout of Presentation

1. Institutional & Financial Due Diligence. Continued from Session 1.
2. Risks & Controls. Understanding the risk-control tangle.
3. Internal Controls. Areas of internal controls that donors examine closely.

Part 1: Institutional & Financial Due Diligence (Continued)

Two Pillars of Pre-Grant Due Diligence

Institutional Due Diligence

Is the organisation legitimate, well governed, and capable of delivering the programme?

• Constitutional: legal registration & regulatory compliance
• Statutory registrations & regulatory compliance
• Governance
• Mission fit
• Policies & procedures
• Programmatic track record & M&E systems
• Visibility
• Past donor relationships and references

Financial Due Diligence

Can the organisation be trusted to receive, manage and report on donor funds accurately?

• Annual financial statements: state of financial health & progress
• Audit and assurance
• Internal financial controls
• Budgeting
• Grant management
• Banking arrangements
• Accounting systems
• Risk management

Institutional Due Diligence 2A: The 3 Labour Codes: Compliance Checklist

• Comp structure as per definition of "Wage" (Code on Wages) aligned with SS benefits. Revisit and revise existing comp structure
• Applicability of Minimum Wages, Payment of Wages provisions to NGOs
• Mandatory coverage of NGOs under ESI provisions
• Mandatory registration and insurance for gratuity, if covered
• A new flexi-hiring category: Fixed Term Employment (FTE); only regular/permanent and FTE are permitted HR-engagement categories
• Engagement of contract labour in 'core activity' is prohibited
• Employee vs. worker classification: EL, overtime and comp-off applicable to "worker" category
• Mandatory appointment letter, wage slip as per template in state rules
• Labour Identification No. (LIN) registration
• Annual leave provisions for workers
• PT registration and S&E licence continue as per state Acts; they co-exist
• Health, safety and welfare provisions as per OSH standards

Institutional Due Diligence 2A: Statutory & Regulatory Registration (Continued)

PAN, TAN

• TAN: deduction/collection and deposit of tax at source
• Incorporation date on PAN and registration certificate must match
• For a Section 8 company, the CIN, PAN and TAN are allotted on issue of the COI

GSTIN

• Registration required for making 'taxable supply' beyond threshold
• Notification 12/2017 exempts an org registered under Section 12A undertaking a charitable activity as defined under GST
• Understanding what constitutes a taxable supply matters: it can jeopardise charitable status itself
• CSR funders need not set up service contracts or insist on GST/TDS since grants are not a taxable supply under the GST Act

NITI Aayog's NGO Darpan

UIN and updating information on the Darpan portal. Mandatory for seeking government grants, FCRA registration and reporting, opening/updating local and FC bank accounts (bank/FI to conform under PMLA), and 80G approval.

DPDP Act, 2023

• Prepare a policy on digital personal data protection as per the DPDP Act and Rules; full rollout of Act and Rules from 1st May 2027
• Map personal data collected: beneficiaries, donors, volunteers, staff
• Prepare a privacy notice and consent form as Data Fiduciary
• Use technology to handle access, correction and erasure requests from the Data Principal
• Identify a contact person for grievances and data-protection queries
• Review contracts with vendors: payment gateways, CRMs, cloud hosts
• Put basic security measures in place: access control, backups, encryption
• Prepare a data-breach response plan with reporting timelines as per DPDP
• Train staff who handle personal data: compliance, programme, finance

Registration with Social Stock Exchange (SSE)

• To register and list securities of NPOs on the SSE
• Valid for 3 years, extendable by 1 more year by the SSE

Institutional Due Diligence 2B(i): Statutory & Regulatory Reporting Compliance

Income Tax: Annual Filing

• Form 112: audit report (earlier 10B / 10BB), by 30th Sep
• Form ITR-7: income tax return, by 31st Oct
• Form 113: statement of donation (earlier 10BD), by 31st May
• Form 114: donation receipt / certificate (earlier 10BE), by 31st May
• Form 108, 109: deemed application / accumulation (9A, 10 earlier) for shortfall in 85% utilisation, before filing ITR-7
• Form 145, 146: for remittance abroad (Form 15CA, 15CB earlier), before remittance

Income Tax Proceedings

• IT assessment: Section 270

FCRA

• Annual Return in Form FC-4 with increased disclosures: digital footprints, detailed activity report, publication details, etc.
• Changes via Forms FC-6A to 6F: name, objects, FC bank, key functionary, scope of registration (new Form FC-6F)
• New Form FC-3BB for subsequent instalment under Prior Permission

GST

• Monthly or quarterly statement of outward supply: GSTR-1
• Monthly or quarterly return: GSTR-3B, Annual GST Return

TDS, SSE, Labour Codes

• TDS/TCS: monthly challan, quarterly return; new form numbers under ITR 2026
• SSE: Annual disclosure (within 60 days) and Social Impact Report (31st Oct) per SEBI's LODR, for registered and listed NPOs
• Labour Codes: Annual Return under OSHWC Code by 31st Jan for a CY; EPF ECR filing & Annual Return; ESIC challan by 15th of following month & six-monthly return; PT and S&E Act reporting as per state requirement

Institutional Due Diligence 2B(ii): Constitution-Related Compliance Reporting

Annual reporting to the registration authority differs by legal form:

Trust

• To Charity Commissioner as per the Trust Act for the specific state
• Where there is no separate state trust act, there is no annual reporting requirement

Society

• Differs by state but generally requires annual reporting of the Governing Body list as at the AGM
• Audited financials as approved by the general body to the RoS/designated officer in the respective state

Section 8 Company

• e-Form AOC-4 (audited financial statement, within 30 days of AGM)
• MGT-7 (Annual Return, within 60 days of AGM; AGM on or before 30 Sept)
• ADT-1 (auditor appointment, 15 days from AGM)
• Director KYC DIR-3: once every 3 years (by 30 June)

Institutional Due Diligence 3: Governance

Governance is about fiduciary duty (trust) and risk management.

• Constitution documents lay down governance structure (general body/governing body). These must align with byelaws for a society, trust deed for a trust, and AOA for a Section 8 company
• Understanding and compliance with rules & regulations relating to:
  • Memberships, tenure, re-election for general & governing bodies
  • Meetings, quorum, notice, minutes
  • Conflict of interest: diluting fiduciary duty
• Clear roles and responsibilities (powers and duties) of General Body, Governing Body and executive management to ensure:
  • Governance oversight: activities aligned with established frameworks
  • Organogram and reporting lines
  • Delegation: sub-committees and reporting

Institutional Due Diligence 4: Mission, Vision & Core Values

These state the purpose of an organisation's existence, its culture and direction. This helps donors assess mission alignment with their funding priorities and goals.

Mission

The organisation's purpose, and how it differentiates itself from others. A mission statement should be specific and indicate how the organisation will meet the needs of its stakeholders.

Vision

The organisation's future goals and what it hopes to achieve. A vision statement sets the direction for the organisation to meet its mission.

Core Values

The organisation's core principles and ethics, and how people should behave. Core values define the organisation's defining features and shape its culture.

Where donors find mission alignment: constitutional documents, strategic plan, logical frameworks/theory of change, operational geographies, themes/objects, Annual Reports.

Institutional Due Diligence 5: Policies & Procedures

Statutory

• PoSH: The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
• Apprentices Act, 1961
• Child protection: Protection of Children from Sexual Offences (POCSO) Act, 2012
• Vulnerable Adults Act, 2018

Others

• Finance & admin: travel, procurement
• HR
• DE&I (diversity, equity and inclusion) policy
• Code of business conduct / ethics, Whistleblower
• Conflict of interest
• Risk management
• IT
• Personal Digital Data Protection policy
• Anti-bribery, anti-corruption, lobbying, Terrorism financing: for US grants, Blocked Persons List

Formulation, revision, implementation in letter and spirit to demonstrate a robust internal-controls framework. Policies should facilitate action and are therefore dynamic documents as the organisation evolves. Policies & Procedures must be in simple language, easy to understand and followed by all staff categories. That is key.

Institutional Due Diligence 6: Visibility & Reputational

• Website: place statutory registrations, AFS (both conso and FC) and AR for 3 years
• Social media presence for demonstrating scale and delivery of services
• Partnerships and collaboration: strategic
• Awards
• Accreditations
• Publications
• Testimonials
• Intellectual property: trademarks, patents, etc.
• Address and contact details including registered office: does it match statutory documents?
• Name and contact details of Chief Functionary or point of contact
• IEC demonstrating ecosystem engagement and innovation in approach and interventions

FC Annual reporting now requires detailing visibility and publications annually.

Institutional Due Diligence 7: Programmatic Capacity & Track Record

Donors look for demonstrated delivery experience of a similar scale and nature: evidence that the NGO can execute, not just plan, the proposed intervention.

Documents / evidence reviewed

• Past project reports and completion certificates
• Technical expertise / sectoral specialisation
• Existing infrastructure and field presence

What donors assess

• Beneficiary reach and outcome data over past 3 to 5 years
• Third-party evaluations or case studies

Institutional Due Diligence 8: Monitoring, Evaluation & Learning (MEL)

A credible MEL system shows the NGO can track its own performance and course-correct, giving donors confidence that outcomes will be measured and reported accurately and reliably.

Documents / evidence reviewed

• MEL framework and indicator tracking tools
• Data collection and quality-assurance processes
• Reporting formats used for past donors

What donors assess

• Baseline / midline / endline study practices
• Grievance redressal for beneficiaries: DPDP Act

Institutional Due Diligence 9: Past Donor Relationships & References

A track record of well-managed grants, and donors willing to vouch for the NGO, is one of the strongest institutional signals available in due diligence.

Documents / evidence reviewed

• List of current and past donors / grant sizes
• History of grant compliance / any past red flags
• Media coverage or public reputation review

What donors assess

• Donor reference checks and recommendation letters
• Co-funding and partnership arrangements

Financial Due Diligence 1: Annual Financial Statements

Provide insights and assurance on the state of financial health and financial progress, spending patterns and credibility of accounting practices.

• Trust and Society to use format of financial statements prescribed by ASB, ICAI from 1.4.2025
• Annual financials are top-level disclosure to various stakeholders on the pulse (present) and direction (future) of an org
• Donors generally insist on 3 financial years' FS to understand build-up and observe trends/progression
• Separate financial statements for FC operations
• Understand your annual audited financials. At times leadership struggles to read and interpret them although they are signatories

Key Components of Audited Financial Statements

Balance Sheet: liabilities and assets of an org as at a point in time

• Unrestricted / own funds: corpus, reserves & surplus / net asset (excess of income over expenditure)
• Restricted funds: unutilised grants
• Loans and borrowings
• Current liabilities and provisions
• Investments: corpus, accumulation
• Fixed assets
• Cash and bank
• Deposits and debtors (receivables): grants receivable

I&E Statement (during a time period)

• Grants and donations: trend, expansion of donor base, excessive cash donations/subscriptions
• Other income: interest, rent, business incidental
• Expenditure heads: presentation based on functional (why) and not natural (what) heads
• Surplus / deficit

R&P (Cash) Statement

• Movement of inflow and outflow of cash

Accounting Policies and Notes to Accounts

• Most organisations do not pay attention; very often it is not included in financial statements. Accounting policy exhibits the standards followed for arriving at and presenting items of financial statements (ICAI-prescribed) so they are standard, comparable and consistent. Notes to accounts are management's explanatory notes for important items, for clarifying to the reader.

What Donors Look for in Audited Financials

• Size and trend of organisation
• How much net assets or free reserves are available
• Level of investments
• Fixed assets, particularly land and building
• Level of cash
• Unutilised grant or grant receivable amounts and trends
• Proportion of grant and other income
• Breakdown of expenses: programme vs admin
• Current assets other than cash vs current liabilities
• Donors now demand a 3-year projected fund-flow statement for visibility

Financial Due Diligence 2: Audit & Assurance

• Type of audit conducted for NPOs: Statutory (as required by Income Tax law); Internal (depending on size and stage of evolution); Donor (as per grant contract conditions); FCRA (undertaken by MHA); C&AG (mainly for govt and semi-govt entities)
• Formal appointment of statutory auditors by General Body with a formal engagement contract
• Audit process: periodicity, MRL, ML, ATR, independent auditor's report and qualifications if any, UDIN no. from ICAI's UDIN portal
• Red flags, adverse observations, litigations, etc. pointed out in audit reports
• Assurance undertaken: broader range of subjects
• Audit and assurance are proxy indicators for donors on red flags for taking funding decisions
• Period of association of auditor: rotation once every 3 to 5 years is critical

Risks & Controls: Areas of Internal Controls; Donor Due Diligence Checklist & Readiness Roadmap

Structure of session

1. Risks & Controls. Understanding the risk-control tangle.
2. Internal Controls. Internal control areas that donors examine closely.
3. Due Diligence Checklist & Readiness Roadmap. Completing the full circle from Session 1.

Two Pillars of Pre-Grant Due Diligence

Institutional Due Diligence

Is the organisation legitimate, well governed, and capable of delivering the programme?

• Constitutional: legal registration & regulatory compliance
• Statutory registrations & regulatory compliance
• Governance
• Mission fit
• Policies & procedures
• Programmatic track record & M&E systems
• Visibility
• Past donor relationships and references

Financial Due Diligence

Can the organisation be trusted to receive, manage and report on donor funds accurately?

• Annual financial statements: state of financial health & progress
• Audit and assurance
• Internal financial controls
• Budgeting
• Grant management
• Banking arrangements
• Accounting systems
• Procurement
• HR

Part 1: Risks & Controls

Why Understand Risk & Risk Management

• Risk is now a must-discuss in the NGO-funder relationship. The idea is how to understand, capture and manage risks
• Robust risk management is (a) basic to an effective organisation and (b) ensures better delivery of services to the community
• Fundamental concepts: Risk Appetite (willingness to take risk to achieve objectives) and Risk Tolerance (ability/boundary to take risk, i.e. acceptable deviation from risk appetite). Risk appetite is about "taking risk"; risk tolerance is about "controlling risk." Risk appetite denotes risk profile at an aggregate level; risk tolerance applies at activity level, case by case
• Risk management is how to bridge the gap between risk appetite and risk tolerance
• Understand need for internal controls commensurate with risks being mitigated

Why Risk Management Is Important for NGOs

1. Financial stability
2. Operational efficiency
3. Compliance management
4. Disciplined planning
5. Informed decision making
6. Reputation management
7. Building trust
8. Improved communication
9. Long-term impact & sustainability

Risk: Key Concepts

• Threat: A danger in the environment, a potential cause of harm, e.g. legislative changes, technology, competition, inflation, globalisation, etc.
• Risk: The probability and potential impact on achievement of objectives while encountering a threat.
• Internal & external risks: Internal risks: personnel issues, technology issues, etc. within the organisation. External risks: economic, political, legal, act of God, etc. in the external environment.

Residual risk: the risk which inevitably remains after all reasonable mitigation measures have been taken. No organisation is completely free from risk; the environment will always contain risk.

Types of Risks Facing Organisations

• Ethical: Due to unethical behaviour
• Operational: Inability to achieve objectives; capacity/competence gaps; funding & access constraints
• Financial: Improper financial planning and management
• Reputational: Damage to image and reputation
• Safety: Accident / illness
• Security: Violence / crime
• Fiduciary: Breach of trust: corruption, fraud, theft, diversion
• Legal / compliance: Violation of / non-compliance with laws or regulations
• Information: Data breach/loss, digital risk, systems breach
• Competition: Competitors for service delivery

Risk: Key Concepts (Continued)

Risk Management / Mitigation

• Organisational practices, policies & procedures (P&Ps) that reduce the probability of risks being realised and limit harmful consequences

Enterprise (Integrated) Risk Management (ERM)

• Risk management that considers, combines and prioritises assessed risks in all risk areas (security, fiduciary, operational, informational and reputational) to strategise and implement mitigation measures

Risk mitigation is risk reduction. It cannot be made zero.

Risk Management Policy: Need

• Donor audits for ongoing grants/due diligence by prospective donors
• Need to instil a sense of identifying, understanding and addressing risks in the organisation as it grows; basic to a for-profit entity
• Create awareness about risk-mitigation strategies when faced with risks in respective areas of work
• Staff embrace and own the risk-management process
• Is a tool for governance and control

Risk Management Process

• Risk universe analysis
• Risk identification
• Risk assessment: risk assessment matrix based on likelihood and impact of identified risks

Risk assessment matrix (Likelihood vs Consequence)

Likelihood	Insignificant	Minor	Moderate	Major	Catastrophic
Almost Certain (5)	Low	Medium	High	High	High
Likely (4)	Low	Low	Medium	High	High
Possible (3)	Low	Low	Medium	Medium	High
Unlikely (2)	Low	Low	Low	Low	Medium
Remote (1)	Low	Low	Low	Low	Low

After assessment:

1. Prioritise risks: Risks to be taken up for mitigation
2. Risk response: Risk registers with roles and responsibilities of staff
3. Monitoring
4. Reporting

Internal Controls

Business practices that serve as "checks and balances" on internal stakeholders (staff/key functionaries) and/or external stakeholders (vendors) to reduce risk. To the donors, they assure that funds will be effectively utilised for the intended purpose.

Rationale for Internal Controls

• Compliance: with laws and regulations
• Accountability: promote accountability
• Fraud prevention: preventing fraud and embezzlement
• Operational efficiency: improving accuracy and timeliness of program and financial delivery and reporting

Internal Controls: Types

• Preventive: approvals, authorisations, verifications, reconciliations, reviews of operating performance
• Detective: audits and reviews, account reconciliations, physical inventories
• Corrective: remedy problems through detective controls
• Physical controls: security measures like locks, alarms etc.

Donor Due Diligence & Internal Controls

A direct correlation: every due diligence lens maps to a core internal control component.

Donor due diligence focus	Internal control component
Financial Management Assessment: Reviewing budgets, accounting systems, and audit history before an award	Control Environment: Tone at the top, ethics policies, lines of authority
Governance & Compliance Review: Checking board oversight, policies, and legal registration	Risk Assessment: Identifying and prioritizing risks to funds and mission delivery
Risk & Fraud Screening: Background checks, sanctions screening, and fraud-risk indicators	Control Activities & Information Systems: Segregation of duties, approvals, reconciliations, and reporting systems
Program & Results Monitoring: Verifying that funded activities deliver intended outcomes	Monitoring Activities: Ongoing supervision, internal audit, and corrective follow-up

A Reinforcing Cycle

Strong internal controls and favorable due diligence results reinforce each other continuously.

1. Strong Internal Controls: Clear policies, segregation of duties, active oversight
2. Favorable Due Diligence: Fewer findings, faster review, higher confidence rating
3. Funding Secured: Grants awarded or renewed, fewer restrictive conditions
4. Reinvestment in Controls: Funding builds systems, staff, and audit capacity, which leads back to strong internal controls

When Controls Are Weak

• Delayed disbursements while donors verify systems
• Restricted funding and added reporting conditions
• Reputational damage among peer donors and partners
• Loss of eligibility for future grants

Part 2: Internal Controls

Key Areas of Internal Controls in NGOs

Internal controls can be grouped into one of the following buckets: (a) Financial (b) Operational (c) Compliance. Illustrative but not exhaustive; discussed in the following sections.

1. Legal & Compliance (done in institutional DD)
2. Governance
3. Budget
4. Purchase / Procurement
5. Human Resource Management
6. Assets / Inventory Management
7. Accounting
8. Cash and Bank
9. Donor Reporting
10. Proceedings & Penalties
11. MIS & Software

Governance & Delegation

• Current general and governing body members: due process of appointment, change or rotation as per rules with proper documentation as per rules. Too long a holding of positions is a negative
• Founder as Chief Functionary for a long duration is evaluated against strategic contribution for such periods
• Key office bearers (Chairman, Secretary and Treasurer): their association and discharging of roles and responsibilities
• Blood relative/conflict of interest is a negative; independence of Board is questionable
• Related person (ITA 2025; Specified person, Section 13 ITA 1961): transactions and benefits thereof
• Any beneficial relations with other organisations
• Governing body members duly updated with registering authority, Darpan and FCRA
• Number and periodicity of meetings of general body and governing body as per constitution documents or law
• Attendance and minutes of meetings maintained in minutes register, held with CEO
• Meetings take up items of business as per roles/duties of the respective body laid down in the constitution document
• Formal documentation of action taken on decisions in previous meetings
• Sub-committees delegated Board responsibility should be as per constitution documents, and recommendations be duly approved by the governing body. Sub-committees could normally be FAC, HR, Grantee selection, etc.
• Demonstration of strategic guidance, compliance and internal controls through policies and procedures
• Does the governing board/executive committee have public servants?
• Does the organisation or any directors/trustees have political or faith based affiliations?
• Do key functionaries have a track record of adverse proceedings?
• Does the organisation's work fall within the definition of political nature/party politics?
• Key staff succession risk assessment?
• Does the organisation understand boundaries in matters relating to Advocacy, Rights & Entitlements, Activism, etc.?

Accounts & Finance

Systems & Records

• Fund-based accounting
• Finance policy and systems implemented in letter and spirit
• Accounting software, COA, basis of accounting etc.
• Accounting records: vouchers, supporting bills/invoices for expenses, PO/contract, approvals, printouts, filing
• Monthly and annual closing of books
• Delegation matrix for approvals
• Segregation of duties / checks and balances

Compliance & Assurance

• Maintenance of books of accounts and other records as per Income Tax Act
• Qualification and vintage of accounts/finance staff
• Separate accounting for local, FC and business-incidental
• Data security, backup and audit trail; rectification entries in succeeding period
• Concurrent and internal audit
• HO-branch accounting and reconciliation

Record Keeping

Rule 187 of ITR 2026: Specified Books of Accounts

• Cash book
• Ledger
• Journal
• Copies of bills issued
• Original bills received and payments made

Other Documents

• Record of all projects and institutions run by the organisation
• Record of income of the organisation during the tax year
• Record of application out of the income during the tax year
• Record of specified application out of income of preceding years
• Record of voluntary contribution with a specific direction to form corpus
• Record of contribution received under 80G(2)(b), treated as corpus
• Record of loans and borrowings
• Record of properties held by the assessee
• Record of related persons as per Section 355 of ITA 2025
• Any other document

Since August 2022, Rule 17AA of the Income Tax Department specifies what records to maintain, in what form, where, and for what period, and the consequences for non-compliance.

Form, Place & Period

• Form: written, electronic or digital form, print-outs, or any other electromagnetic data storage device
• Place: kept at the "registered office"; if not, intimate the Assessing Officer in writing with a Board Resolution within 7 days with full addresses of other places
• Period: kept and maintained for six years from the end of the relevant tax year

Donors may stipulate record-retention clauses in their respective grant contracts. For other records, specific provision may be made in policy.

Costs, Budgets and Budgetary Control

• Understanding the concept of costs: functional and natural heads
• Policy framework for allocation of costs: HR, travel, utilities mainly
• Common cost and apportionment as per common-cost policy
• Budget formulation and approval process: annual master budget including all projects
• Templates may vary by donor but the basic principles of formulation are the same: LOE, unit of measurement and unit cost for an activity, budget by line item and total budget
• Expenditure reporting vis-à-vis budget: rolled up or detailed
• Budget monitoring process: budget vs actual, derived from software
• Budgetary control process: action based on tolerance/variance permitted, which may vary by donor

Human Resources

• Org structure: updated
• Recruitment, selection, engagement contract
• Employee vs consultant vs contractual dilemma
• Compensation and breakup: compliance with social security laws
• Employee benefits: leave, insurance coverage, gratuity
• Payroll and allocation of employee costs
• Attendance records and allocation to donor projects
• Performance appraisal
• Disciplinary action
• Employee strength currently, including in finance function
• Understanding of various social security laws (central and state) so policy and procedures are as per law

HR recalibration in all matters requiring compliance with the New Labour Codes. Team due diligence: leadership, experience, alignment with mission, vision and culture values, transparency, etc.

Procurement

Procurement Policy

• Most activities in grants fall within realm of procurement
• Sample procurement transactions insisted upon by donors to validate policy implementation
• Team's understanding and compliance of Procurement Policy for goods, services and works
• Does the donor insist on following its own procurement policy/guidelines?
• Dedicated admin staff to handle procurement in the organisation
• Conflict of interest, ethics and transparency issues

Fixed Assets & Inventory

• Distinction between asset and inventory understood by staff
• Acquiring asset and inventory following procurement process laid down in policy
• Recording, marking, issue and return, upkeep, depreciation, verification, loss, sale due to obsolescence of fixed assets
• Recording, issue and return, verification, disposal of inventory not needed/useful
• Insurance of assets to cover loss due to various reasons
• Recording of land and building in books
• Fixed assets presented separately in FC audited financials and annual reporting for FC assets in FC-4

Cash & Bank

Petty Cash & Banking

• Petty cash: custody, administration and replenishment. Restrict petty cash to small office payments
• Reduce cash handling and transactions to the bare minimum since banking is universal; good practice
• Provisions on banking in constitution document: sometimes only a nationalised bank / SB account is insisted upon
• Local and FCRA accounts: do's and don'ts
• Dedicated bank account for grants
• Recording and treatment of interest in pool account

Controls & Reconciliation

• Signatory to bank accounts (see constitution documents): dual signatories, non-related, prefer net banking
• Bearer payments: Section 40A(3) provisions
• Bank reconciliation and follow-up
• Minimise visits to branch; sometimes one person engaged for banks only
• Bank statement copies for past 2 years to ascertain operations are through banking channels

Donor Grants

• Current status of grant funding: donor funding is a factor of annual budgets and spends for past few years
• Besides audited (historical) data, donors obtain projections of grants and income in future years
• Understanding the donor is essential for positioning your organisation
• Understanding and internal dissemination of the grant contract
• Grant compliance checklist: accounting, utilisation and reporting differ by donor: FC, CSR, others
• Cost center accounting for ensuring fund based accounting
• Programme & financial reporting: template, periodicity, etc. for each grant contract
• Timely request for course correction and revision
• Community contribution, leverage, cost matching help build your case
• Communication is key

Compliance: Proceedings and Penalties

• Income Tax: assessments, proceedings
• TDS/TCS deposit, return related
• FCRA: violations and offences
• Labour Codes: PF, ESI, PT, gratuity, LIN, Annual Return
• GST related
• Proceedings against Chief Functionary/Board members

MIS & Software

1. Accounting, TDS, Assets
2. HR: payroll, timesheet, leave, etc.
3. Audit
4. Programme MIS
5. Grant Management for donor entities
6. Integrated MIS (all parts on the same application)

Part 3: Due Diligence Checklist & Readiness Roadmap

Sample of Donor Due Diligence Checklist

Grant Management: End to End

Session Layout

Readiness Roadmap & Takeaways from Sessions 1 to 3, then Grant Management end-to-end.

1. Readiness Roadmap. A recap of Sessions 1 to 3 takeaways on readiness for donor due-diligence.
2. Grant, Grant Management & Lifecycle. What a grant is and the five-stage lifecycle that governs it end-to-end.
3. Fund Accounting and Fund Types. How NPOs record and report restricted vs. unrestricted resources.
4. Cost, Cost Types & Common Cost Allocation. Direct vs. shared costs, and the methods used to allocate them fairly.

Part 1: Readiness Roadmap (Recap of Sessions 1 to 3)

Readiness Roadmap

• Understand donor funding landscape: background, status and future direction.
• Strengthen institutional, financial and internal controls pillars learnt in previous sessions, in a phased manner per a defined plan.
• Understand donor category, credentials and applicable regulatory framework.
• Continuous education of key staff and governance members on statutory/regulatory changes and actions required.
• Risk management policy and operational framework.
• Be proactive and manage/mitigate adverse proceedings: organisation, staff and office bearers.
• Use a generic checklist for the due-diligence folder/binder, divided into sections and updated when statutory and regulatory provisions change, to avoid last-minute scrambling.
• Periodic self-assessment: run an internal readiness audit and assign a score/rating.
• Use technology that is scalable and cost-effective.
• Spread your work through social-media platforms: low cost, high impact and reach. Demonstrate your competitive edge.
• Be progressive, innovative and forward-looking as the funding environment and donor expectations keep evolving.
• Internal controls and key policies & procedures: practised and demonstrable.
• Chief functionary/key staff should have clarity on vision, mission and values.
• Reduce undue reliance on the auditor (referring the donor to the auditor, the auditor conveying a message). Ensure proper briefing and dialogue with the statutory auditor.
• Be careful in your working style. Donors need you, but you need to respond to them on time and to their expectations. Build this understanding among key staff who facilitate due-diligence.
• Build an RM team as your organisation grows; until then, keep dedicated staff as the focal point for donor due-diligence.

Key Takeaways

1. Due diligence is a two-way trust exercise. Strong documentation doesn't just satisfy donors; it strengthens the NGO's own governance and financial discipline.
2. Institutional and financial readiness go hand in hand. A legally sound structure without financial controls (or vice versa) will not pass most donor assessments.
3. Preparation should be continuous, not reactive. Keeping registrations, audits and policies current avoids last-minute scrambles when an opportunity arises.
4. Transparency builds long-term funding relationships. NGOs that handle due-diligence well are more likely to secure renewed and larger grants over time.

Part 2: Grant, Grant Management & Lifecycle

What is a Grant

• Funds given by an entity to another (usually a charitable entity/NPO) for a public benefit or charitable purpose.
• Not an automatic entitlement. It is given to fulfil an obligation, with time and purpose restrictions.
• Grant is trust money: the grantee holds fiduciary responsibility (trusteeship) for the funds.
• The grantor does not get a direct benefit, and the grantee is not required to repay it if utilised for the intended purpose.
• Reporting is linked to it: both financial and narrative reporting obligations apply.
• Grantors include government (grant-in-aid), retail, corporate, foundation and foreign donors, each governed by different laws.

Grant types: project, program, institutional (core), endowment and emergency. Awarded directly or through a competitive (discretionary) process.

Exchange Transaction vs. Grant

Exchange Transaction (per GST Act)

• Involves supply of goods and services.
• Involves consideration.
• Takes place in course of furtherance of business.

Grant: Not an Exchange Transaction

• There are no specific beneficiaries.
• Nothing is received in return from beneficiaries, or benefit derived from the grant.
• Not for furtherance of business.

This distinction is crucial. Mistaking a grant for an exchange transaction risks GST/TDS exposure and can jeopardise charitable status.

Grant Management

Grant management is the systematic administration and implementation of a grant through its lifecycle: identifying the opportunity, applying for it, securing it, adhering to grant conditions, and evaluating outcomes to ensure funds are used effectively (impact) and accountably.

1. Grantmakers: The grantor / donor, creating and awarding grants.
2. Grantseekers: The grantee / donee, seeking and applying for grants.

A Grant Management System (GMS) automates and centralises the grant lifecycle for both sides.

Why It Matters So Much for NGOs in India

Strong grant management turns donor funding into lasting, credible impact, and keeps an NGO legally and financially able to operate and sustain.

1. Regulatory Compliance: IT, FCRA and CSR rules demand precise fund tracking. Mismanagement risks cancellation and funding freezes.
2. Funder Trust & Renewal: Timely, accurate reporting is the single biggest driver of repeat grants from institutional and CSR donors.
3. Multi-Donor Complexity: Indian NGOs often juggle government, CSR, foreign, institutional and individual funding, each with different rules and reporting cycles.
4. Proof of Impact: Good systems link every rupee spent to an outcome, giving NGOs evidence to scale and attract new funding.

Grant Management Lifecycle

1. Pre-Award: Identify, assess, design
2. Award: Contract & set up compliance
3. Implementation: Deliver, spend, track
4. Compliance & Reporting: Monitor, file, report
5. Closure: Close, evaluate, learn

A grant is not managed at disbursement or at reporting alone. It is managed continuously, across every stage.

Stage 1: Pre-Award

Identifying & Assessing the Right Opportunity

1. Donor & Opportunity Mapping: Track CSR calendars, foundation RFPs, multilateral windows and government schemes aligned to your mission and geography.
2. Eligibility & Registration Check: Objects, active 12A/12AB and 80G status, FCRA registration/prior permission (for foreign funds), and CSR-1 filing (for CSR funds).
3. Strategic Fit Assessment: Screen every opportunity against mission alignment, organisational capacity, and existing grant concentration risk. Run a SWOT analysis.

Pre-award due-diligence checklist

• Registration certificate & PAN/TAN in order
• 12A/12AB and 80G validity dates, CSR-1
• FCRA registration / prior permission valid
• Board resolution to accept the grant
• Conflict-of-interest screen on the donor
• Capacity to meet donor's reporting cadence

Designing the Proposal & Budget

1. Theory of Change: Articulate the problem, intervention logic, building a story and expected outcomes in a clear causal chain.
2. Logframe / Results Matrix: Define outputs, outcomes, indicators, baselines and targets that donors can verify.
3. Realistic Budgeting: Cost programme and admin lines completely; build in statutory costs (PF, ESI, TDS) and a reasonable indirect-cost rate if permitted.
4. Risk & Assumptions: Flag implementation, financial and compliance risks upfront, with mitigation built into the design.

Stage 2: Award

Contracting & Compliance Set-Up

The award stage is where compliance obligations get locked in. Get the paperwork and internal set-up right before the first rupee is spent.

1. Review the Grant Agreement: Reporting frequency, permitted variances, IP and data ownership, termination and audit clauses. Negotiate before signing, not after.
2. Confirm the Funding Route: Foreign funds: designated FCRA bank account and utilisation account. Domestic/CSR funds: dedicated project bank account.
3. Set Up Cost Centre: Create a project-wise cost centre or fund code in the accounting system so every transaction is traceable to its grant from day one.
4. Brief the Team: Walk programme and finance teams through donor-specific rules: procurement thresholds, branding, and prior-approval requirements.

Stage 3: Implementation

Fund Flow & Financial Management

Fund flow: Donor Disbursement → Designated Bank Account → Project Cost Centre → Field / Programme Spend → Utilisation Certificate

Every rupee should be traceable from donor disbursement to final utilisation report, with no gaps in the trail.

1. Segregation of Funds: Keep restricted grant funds separate from unrestricted/general funds. Never co-mingle across projects.
2. Budget vs. Actual Tracking: Review variance monthly; flag and explain deviations beyond the donor's approved re-allocation threshold.
3. Advance & TDS Management: Track staff and vendor advances to closure; deduct and deposit TDS on time to avoid disallowance.

Programmatic Monitoring & Field Tracking

• Build M&E Framework: Translate logframe indicators into simple field data-collection tools before the project starts.
• Track Outputs & Outcomes Separately: Outputs show activity happened; outcomes show it mattered. Donors ask for both.
• Use a Simple MIS: Well-structured spreadsheet or low-cost MIS for consolidating multi-site data.
• Schedule Field Verification: Plan periodic site visits and spot checks: internal, and where required, joint visits with the donor.

Sample indicator dashboard

Indicator	Value
Beneficiaries reached	92
Trainings held	78
Health camps	105
Livelihoods supported	64

Stage 4: Compliance & Reporting

Donor Reporting & Communication

Good reporting is not a compliance task. It is a relationship tool.

Narrative reports

• Progress against each logframe indicator.
• Delays, deviations and course-correction.
• Human stories that illustrate the numbers.

Financial reports

• Budget vs. actual by line item, with variance notes.
• Supporting documentation for audit sampling.
• Bank reconciliation attached where required.

Good practice

• Match the donor's required frequency & platform: monthly, quarterly, annual.
• Proactive flagging of risks: never a surprise at year-end.
• One named point of contact for donor queries and post-award amendments.
• Share statutory reporting compliances from time to time.

Stage 5: Closure

Grant Closure

1. Final Utilisation Certificate: Reconcile total spend against the sanctioned budget and submit the final UC with supporting vouchers.
2. Asset Disposal / Transfer: Follow the donor agreement on equipment and asset ownership: transfer, retain, or dispose as specified.
3. Final Narrative & Evaluation: Document outcomes achieved, deviations from plan, and an honest assessment against original objectives.
4. Lessons-Learned Review: Run an internal debrief with programme and finance teams; capture what should change for the next grant.
5. Document Archiving & NOC: Retain agreements, financial records and reports for the statutory/donor-specified period. Obtain NOC for the grant if feasible.

Part 3: Fund Accounting and Fund Types

Fund Accounting

NGOs follow Fund Accounting for grant management.

Fund accounting is an accounting system for recording and tracking project resources (a "fund") whose use is limited or restricted by specific conditions set by the donor in a grant contract. It emphasizes accountability and productivity over profitability, which is the basis for-profits use.

Key Features

• Separate funds (buckets / compartments)
• Restriction on use
• Separate budget established for each fund / project: income credited and expenses debited from the fund
• Transparency
• Accounting software for recording and tracking
• Monitoring and reporting mechanisms ensure fund accounting
• Ensures internal controls

Fund Accounting vs. Commercial Accounting

	Fund Accounting (Grants)	Commercial Accounting
Primary focus	Accountability & stewardship of restricted resources	Profitability & shareholder value
What's tracked	Separate funds: restricted, temporarily restricted, unrestricted	One consolidated set of accounts
Core reports	Statement of Activities & fund/program-level statements	Income statement & balance sheet at org level
Success measured by	Compliance, mission impact, and proper fund use	Net profit and return on investment

Type of Funds for NPOs

Income of NPO as per ITA 2025

• Receipts from charitable or religious activity for which registered.
• Capital/revenue receipts from property/investment held.
• Voluntary contribution.
• Gains of permitted commercial activity in the tax year.

The word "grant" is not comprehensively defined in Indian law. It is referred to as Voluntary Contribution/donation (VC) under Income Tax law, FC under FCRA, and CSR fund under CSR law.

ICAI Classification of Funds for NPOs (Technical Guide on Accounting for NPOs)

A. Unrestricted Funds: funds with no specific restriction on use, purpose or time.

• a. Corpus (acknowledged in IT law): non-refundable, non-reducible, reinvestment obligation. Treated as corpus only when: (a) donor specifically directs it be treated as corpus; (b) not income but capital per IT Act; (c) invested in Section 350 modes of investment; (d) considered application when replenished; (e) not application if given to another charity. Corpus income is shown in the I&E.
• b. Donations: no obligations attached; a gift.
• c. Designated / earmarked funds: appropriated and set aside for a specific purpose/future, self-imposed by management, not binding by law.
• d. General funds: surplus/deficit transferred from the I&E which are not designated. Free reserves.

B. Restricted Funds: funds with conditions, restrictions or obligations.

• Project / program grants: to be utilized as per the terms and conditions of the award. Restricted by purpose, time and budget; may carry other conditions such as reporting or refund if unutilized. This is the principle of fund-based accounting.
• Endowment: the fund amount itself cannot be utilized; only the income is used for a general/specific purpose per donor stipulation. The recipient owns it but does not control it. An endowment may carry:
  • Permanent restriction
  • Temporary restriction: restricts use for a certain period or until objectives are met, after which it becomes unrestricted.

NPO Financial Statements

Format Prescribed by ICAI: Balance Sheet

Sources of Funds (Liabilities)	Schedule	Current Year	Previous Year
Unrestricted Funds: Corpus Fund / General Fund / Designated Funds
Restricted Funds: Unutilised Grants (Deferred Revenue), Endowment
Loans / Borrowings: Secured / Unsecured
Current Liabilities & Provisions
Total

Application of Funds (Assets)	Schedule	Current Year	Previous Year
Fixed Assets: Tangible / Intangible / Capital Work-in-Progress
Investments: Long Term / Short Term
Current Assets, Loans, Advances & Deposits: Grant Receivable
Total

Plus: Significant Accounting Policies and Notes on Accounts.

Net Assets

Net Assets = Total Assets minus Total Liabilities

• In NPOs, net assets is like the net worth (share capital + reserves & surplus) of for-profit entities.
• Net assets means owner funds (capital), although there are generally no owners in charitable institutions.
• In an NPO, net assets mainly include corpus and general funds.

Format Prescribed by ICAI: Income & Expenditure

Income	Schedule	Current Year	Previous Year
Grants & Donations
Other Income: rent, interest, incidental business income, fee & subscription
Total (A)

Expenditure	Schedule	Current Year	Previous Year
Program Expenses
Administrative and General Expenses, Finance Costs
Depreciation & Amortisation Expenses
Total (B)
Excess of Income over Expenditure (Surplus) / Excess of Expenditure over Income (Deficit) (A minus B)

Balance being Surplus/(Deficit) is carried to the Balance Sheet: General Fund, Transfer to Designated Fund, Building Fund/Others (specify). Plus Significant Accounting Policies and Notes on Accounts.

Accounting for Grant Recognition by NGOs in India

Practice followed as per convention. There is no legal directive.

1. Option 1: Gross grant treated as income.
2. Option 2: Gross grant routed through the Balance Sheet only; asset and liability side settled.
3. Option 3: Grant treated as income to the extent of expenditure, while unutilised grant is a liability. This is the hybrid/matching method.

AS 9 mentions income recognition to the extent of expenditure for grants, applicable where there is business/commerce. Follow the principle of prudence in selecting the option for recognition.

Recipient, Sub-Recipient and Vendor

1. Recipient / Prime Recipient: The organization receiving the grant with full responsibility for the grant funds. The document evidencing this arrangement is the grant contract.
2. Sub-Recipient / Sub-Awardee: A nonprofit organization involved in substantive project activities. The recipient passes on some or all of its duties to the sub-recipient; terms and conditions flow down through a sub-grant contract.
3. Vendor / Service Provider: Provides goods/services to the recipient so it can accomplish the project's purposes, per specified terms performed by the vendor. The document evidencing this is a goods/service contract.

Part 4: Cost, Cost Types & Common Cost Allocation

Cost: Key Concepts

• Cost: amount spent to acquire an asset.
• Expense: amount spent on regular operations: staff, materials.

Natural Expense Head: WHAT

• The type of expense the funds are being spent on: salary, rent, hotel accommodation, etc.
• Grouped into heads like HR cost, Travel, Capital cost, Office costs, Legal & professional.
• e.g. Travel group: conveyance, airfare, meals, accommodation.
• e.g. HR group: salary, HRA, PF, gratuity.

Functional Expense Head: WHY

• The purpose the funds are being spent for.
• Program cost: program implementation, MEL.
• Support cost: accounting, admin, fund raising.

NPOs present reports using the functional expense head, the basis for their constitution and work. Broadly, the two functional heads are Program/Service Delivery and Support/Admin & General.

Direct Costs

• 100% direct traceability to a program/support function, to directly service beneficiary as per project design.
• No cost incurred if there is no project.

Common / Shared Costs

• Benefit multiple projects.
• Apportioned based on time, space, number of employees/beneficiaries or number of project locations.

Understanding and computing direct and shared cost is crucial for correct, realistic budget formulation and recovering the true/full cost.

Direct vs. Common Costs

Every allocation exercise starts by classifying two types of cost.

Direct Costs

Traceable 100% to one specific project or funder; no splitting needed.

• Field staff salaries working on a single project.
• Project-specific travel & field visits.
• Training materials for one program.
• Beneficiary transfers / grants-in-aid in a project.
• Equipment bought for one project.

Common (Shared) Costs

Benefit multiple projects at once; must be allocated using a fair basis.

• Office rent, utilities, maintenance, security, housekeeping & internet.
• Finance, HR, RM & leadership (admin) salaries.
• Audit & legal fees, insurance, bank charges.
• Travel, conveyance, shared vehicle costs.
• Office supplies, general communication, capacity building, depreciation.

Total Project Cost

Common cost is allocated as per the organisation's Common Cost Allocation Policy, and should be reviewed every year within the purview of that policy.

Total Cost for a Project = Direct Cost + Common Direct Cost + Common/Shared Cost Apportioned

Institutional/Management cost, overhead or indirect cost (negotiated indirect cost recovery: NICRA), if permitted, is added per the donor's grant management policy to address contingency or create a reserve.

Other Types of Cost

1. Project/Program-Based: Program vs. non-program (admin, fund raising).
2. Nature of Expense: Personnel vs. non-personnel.
3. Time Horizon: Capital vs. Revenue (recurring) cost.

Capital Costs

• One-time fixed-asset purchase costs used for revenue generation over a long period, more than one year.

Revenue Costs

• Operating expenses that are short-term, used in running the daily business operations.

Fixed vs Variable Cost: Fixed cost does not change in total amount over a reasonable activity range, but the fixed cost per unit decreases as volume increases (and vice versa). Variable cost changes in proportion to changes in volume/activity.

More Cost Concepts

1. Historical Cost: The original cost of an asset when it was purchased.
2. Sunk Cost: Money already spent that cannot be recovered.
3. Marginal Cost: The change (usually a decrease) in the cost of producing one more unit or serving one more customer.
4. Opportunity Cost: The value of the next-best alternative when taking a decision, given the resource constraint.

Common (Shared) Cost Allocation

The process of dividing a shared cost among the programs, funders or departments that benefit from it.

• Accurate project accounting: Funders see the true cost of running the program they funded, not just direct spend.
• Compliance: FCRA rules cap or scrutinise how much can sit in "administrative" cost.
• Fair cost recovery: Shared resources (staff, office, IT) get charged to the projects that actually use them.
• Donor trust: Transparent, defensible allocation keeps audits and donor due-diligence smooth.

A One-Line Example

An NGO's accountant, Priya, spends 40% of her time on a WASH project and 60% on an education project. Her ₹60,000 monthly salary is a SHARED cost. Cost allocation is the rule that splits it:

• ₹24,000 (40%) to the WASH Project
• ₹36,000 (60%) to the Education Project

3 Pieces in Shared (Common) Costs

1. Common Cost Pool / Category: Program staff, Support/Admin staff, Facilities, Leadership & Governance.

2. Allocation Method / Driver / Base

• Direct Allocation Method (percentage of direct costs): simple and easy to implement.
• Time allocated/spent: Program, HR, Finance & Compliance staff (backbone).
• Headcount: Resource Mobilization, IT, Capacity Building, General Comms, Office supplies.
• Square footage: rent, utilities, maintenance.
• Usage: vehicle.

3. Full Cost Recovery: such that Income = Expenditure.

All About Grant Budget; Grant Contract Terms and Conditions

Session Layout

1. Common Cost Allocation: continuation from Session 4
2. Budget, budget cycle, budget types; sample project budget
3. Grant contract terms and conditions
4. Challenges and tips for grant management

Part 1: Common Cost Allocation (Continued from Session 4)

3 Pieces in Shared (Common) Costs

1. Common Cost Pool / Category: Program staff, Support/Admin staff, Facilities, Leadership & Governance.

2. Allocation Method / Driver / Base

• Direct Allocation Method (percentage of direct costs): simple and easy to implement.
• Time allocated/spent: Program, HR, Finance & Compliance staff.
• Headcount: Resource Mobilization, IT, Capacity Building, General Comms, Office supplies.
• Square footage: rent, utilities, maintenance.
• Usage: vehicle.

3. Full Cost Recovery: such that Expenditure (costs) = Income.

Percentage of Direct Costs Allocation Method

1. Identify Total Common Costs at the beginning of financial year (or as part of budgeting).
2. Identify Total Direct Costs: estimate the total direct costs for all programs/projects for the period.
3. Calculate the Common Cost Rate = Total Estimated Common Costs ÷ Total Estimated Direct Costs × 100%.
4. Allocate to Programs/Projects: Program's Direct Costs × Common Cost Rate.

Worked Example

• Estimated Annual Common Costs = INR 5,00,000
• Estimated Total Annual Direct Costs (all programs) = INR 1,00,00,000
• Common Cost Rate = (5,00,000 ÷ 1,00,00,000) × 100% = 5%
• If Program A has direct costs of INR 25,00,000, its allocated common cost = 25,00,000 × 5% = INR 1,25,000

Other Allocation Methods / Drivers / Base

The "base" is the yardstick used to split a shared cost proportionally.

Method	Measured by	Typical use
Time / Effort	Timesheets or % of hours worked	Salaries of staff working across projects
Headcount	Number of staff per project/department	IT support, HR services, common training
Square Footage	Floor area occupied by each team	Office rent, electricity, housekeeping
Transactions / Usage	Count of invoices, calls, km driven	Finance processing, vehicle & fuel costs

Worked Illustrations

Illustration 1: Allocating Salary by Time

A Program Coordinator's ₹50,000 monthly salary, split by her signed timesheet.

Project	Share	Amount
Livelihoods Project	45%	₹22,500
Health Project	35%	₹17,500
Admin & Overhead	20%	₹10,000

How the split works

1. Maintain a signed monthly timesheet recording hours per project.
2. Convert hours to a % of total working time for the month.
3. Multiply gross salary (₹50,000) by each project's %.
4. Post each amount to that project's ledger. Keep the timesheet as audit evidence.

Illustration 2: Allocating Rent by Floor Area

₹1,20,000 monthly office rent for 3000 sq ft area, split across the project teams occupying the space.

Formula: Project sq ft ÷ Total sq ft × Total Rent

Project	Area	Share	Rent / month
Project A	1,200 sq ft	40%	₹48,000
Project B	900 sq ft	30%	₹36,000
Project C, D and so on

Illustration 3: Allocating IT Costs by Headcount

A ₹36,000 annual software & IT-support bill, split across 30 staff by project headcount.

Team	Staff	Share	IT Cost/yr
Education Project	12	40%	₹14,400
WASH Project	9	30%	₹10,800
Livelihoods Project	6	20%	₹7,200
Admin Team	3	10%	₹3,600

Even shared software licenses need a rational, documented basis. Headcount is simple, defensible, and easy to audit.

A Sample Monthly Allocation Worksheet

How one NGO documents its shared-cost split across three funded projects.

Shared Cost	Basis	Education	WASH	Livelihoods	Total
Program & Leadership salary	Timesheet %	₹18,000	₹15,000	₹12,000	₹45,000
Office rent	Sq. footage	₹16,000	₹12,000	₹8,000	₹36,000
Utilities, HR, Finance, Compliance, IT support	Headcount	₹4,800	₹3,600	₹2,400	₹10,800
Vehicle & fuel	KM logged	₹6,300	₹8,100	₹3,600	₹18,000
Total Allocated		₹54,100	₹46,200	₹32,000	₹1,32,300

Keep timesheets, floor plans and vehicle logs on file as audit trail for donors and auditors.

Sample CCA Policy Document Structure

1. Purpose & Scope: Why the policy exists and what it covers.
2. Definitions: Direct cost, shared (common) cost, cost pool, allocation base (method, driver).
3. Cost Classification Rules: How to decide if a cost is direct or shared.
4. Shared Cost Pools: The organisation's specific shared cost pools.
5. Allocation Method(s): Direct / step-down / reciprocal / ABC, as adopted.
6. Compliance Ceilings: FCRA 20% cap, CSR 5% cap, donor-specific limits.
7. Roles & Approvals: Who prepares, reviews and signs off allocations.
8. Review & Revision: Frequency of review and amendment procedure.

Part 2: Budget, Budget Cycle and Budget Types

Budget Basics

A grant budget translates program goals into estimation of revenue (income) and expenses for a specified future period (project period).

It is the financial blueprint of the project plan. One needs to budget the plan and not vice versa.

Budget is a Planning Tool (workplan-cost numbers), Decision making tool (resource allocation), Control & Compliance Tool (ceiling) and Accountability document (report to donors).

A budget covers quantitative, qualitative and cost aspects.

The Purpose of Budget

• Framework for donor: done in a grant
• Statement of reasonable estimation of costs for interventions/activities and funding sources to meet the costs in a grant proposal/award.
• Segregates costs: direct/common/indirect or OH costs, cost matching/sharing (co-financing) for multi-donor grants, in kind.
• Enables recognition: activity, group, period, income, expenditure, deficit, surplus
• Enables course correction

The Budget Cycle

1. Planning
2. Formulation
3. Approval
4. Implementation
5. Monitoring
6. Review & Revise

A continuous loop: lessons from monitoring feed directly into next year's planning.

Principles of Good Budgeting

• Realistic: Draws from past data, verified prices and honest needs assessment
• Participatory: Built with input from program, finance and field teams
• Transparent: Assumptions and cost heads are documented and explainable
• Flexible: Allows for reasonable revision as circumstances change
• Mission-aligned: Reflects strategic priorities and donor agreements
• Comprehensive: Covers every cost head: direct, shared, indirect/contingency

Steps in Budget Formulation

1. Review the strategic plan and annual work plan
2. Consult program, finance and field teams
3. Estimate costs by activity and cost head
4. Project income from all funding sources
5. Reconcile projected expenditure with income
6. Submit for management and board approval

Step 1: Needs Assessment & Program Planning

Why it comes first: A budget built without real programme needs is just a guess. Needs assessment ensures every rupee traces back to a planned activity and outcome. It feeds directly into cost estimation.

• Align the budget with the annual work plan and logframe
• Identify target beneficiaries, geography and activities
• Assess staffing and resource requirements per activity
• Factor in inflation and local/seasonal price variation

Step 2: Roles & Responsibilities in Formulation

1. Program Team: Drafts activity and possibly cost estimates
2. Finance Team: Consolidates inputs, checks compliance & arithmetic
3. Programme / Executive Director: Aligns the draft with strategic priorities
4. Board / Governing Body: Reviews and formally approves the final budget
5. Donor (where applicable): Approves donor-specific line items and formats

Step 3: Estimating Costs

Direct Costs

• Programme staff salaries & benefits
• Training, workshops and capacity building
• Materials, supplies and equipment for activities
• Travel and field visit costs
• Direct beneficiary support / transfers

Indirect / Overhead Costs

• Administrative and support staff salaries
• Rent, utilities and office maintenance
• Statutory audit and compliance fees
• Office equipment and IT infrastructure
• Communication, banking and bank charges

Step 4: Projecting Income Sources

• Institutional grants: Foreign and domestic foundations, multilaterals
• CSR contributions: Corporate social responsibility partnerships
• Government schemes: Central and state grants-in-aid
• Individual giving: Retail donations and crowdfunding
• Earned income: Fee-based services and consultancy
• Corpus / interest: Reserve funds and investment income

Step 5: Budget Approval Process

Draft by Finance → Review by Program Heads → ED / CEO Review → Board Approval → Donor Approval* → Budget Circulated

*Required when grant agreements mandate donor sign-off on the budget.

Budget Monitoring & Budgetary Control

Budget Monitoring is a process that:

• Records actual expenditure versus budget estimates at the line/activity level in books
• Measures variance using a budget variance report to ascertain positive/negative deviations
• The workplan delivered helps budget monitoring at a particular point of time
• Tally software can set up budget and record expenditure, so the variance report is real time.

Budgetary Control is the process to:

• Evaluate results of budget monitoring, i.e. actual income and expenditure versus original/revised (realigned) budget through variance report
• Deviation/tolerance triggers action
• Budgetary control ensures timely action/approvals, i.e. budget realignment, reallocation, NCE

Variance Analysis: Budget vs Actual

• Compare actual income & expenditure to budget periodically: monthly or quarterly
• Calculate variance, in value and as a percentage, for each line item
• Investigate significant variances, typically above 10 to 15%
• Document reasons for variance and agree corrective action
• Report variance analysis to management and donor

Cost Head	Budget	Actual	Var %
Salaries	24.0L	23.4L	-2.5%
Programme	18.0L	20.7L	+15%
Travel	4.5L	3.9L	-13%
Admin	6.0L	6.1L	+2%

Figures in ₹ Lakh, illustrative.

Budget Types

Activity Budget

Organized by ACTIVITY or program component.

Groups all costs needed to run one activity, combining staff time, travel, and supplies into a single total.

• Pro: Shows the true cost of each program activity
• Pro: Preferred by program managers & grant reports
• Con: Same expense type repeats across activities

Examples

• Training Workshops: staff + venue + materials
• Community Outreach: staff + travel + printing
• Monitoring & Evaluation: staff + travel + data tools
• Supply Distribution: staff + transport + supplies

Example activity totals: Training workshops $18,400; Community outreach $12,900; Monitoring & evaluation $9,300; Supply distribution $24,200.

Line Item Budget

Organized by the TYPE of expense, across the whole program.

Groups all costs by category (salaries, travel, supplies) regardless of which activity they support.

• Pro: Simple to prepare and track spending
• Pro: Familiar format for auditors & donors
• Con: Doesn't show true cost per activity

Categories: Personnel / Salaries; Travel & Transport; Equipment & Supplies; Rent & Utilities; Communications.

Example line items: Personnel salaries $45,000; Travel & transport $8,200; Equipment & supplies $6,500; Rent & utilities $5,100.

Which Should You Use?

	Line Item Budget	Activity Budget
Organized by	Expense type (salaries, travel, supplies)	Program activity or component
Best for	Financial reporting & compliance	Program planning & grant proposals
Easy to see	Total spend per category	Total cost per activity
Common users	Finance teams, auditors	Program managers, donors

Many NGOs combine both: activities grouped at the top, each broken into line items underneath.

Other Budget Types

• Incremental budget: Next year's budget is based on marginal changes to the current year's budget, used as a base to which incremental amounts are added to determine new budget amounts.
• Value Proposition Budgeting: Focuses on allocating the ideal amounts of financial resources that provide the highest value to the customer. Also called Priority or value budgeting.
• Zero-based budgeting (ZBB): Based on efficiency and need at that point rather than budget history. Formulation starts from scratch and only includes essential operations and expenses; no expenses are automatically added to the budget. Cost rationalization.
• Performance based budget (PBB): Considers input of resources and the output of services. The goal is to link funding to results delivered, thus also called Outcome based budgeting.
• Fixed Budget: Not modified for variation in actual activity and costs.
• Flexible budget: Budget changes in response to activity level and costs.

Budget Justification Note

A separate Word document to explain the budget numbers.

• For each activity in line, provide complete details so that it can be referred to for direction and validation during implementation
• Provides narrative clarification of each budget item, demonstrating the necessity of the costs and how they relate to the program activity
• Provide justification for calculation of the estimated costs. Note that the estimation should be based on real costs

Sample Budget

Project at a Glance

• Implementing organisation: Example NGO
• Donor: Example Donor Agency
• Currency: INR (₹)
• Project duration: 12 months

Calculated-line assumptions

• Staff benefits rate: 12%. Percentage of salaries: social security and health insurance
• Indirect cost rate: 7%. Percentage of direct costs; should follow the donor's rules

Total Budget: ₹3,40,85,920

The donor is asked to fund 96.6% of the project.

Item	Amount
Total project budget	₹3,40,85,920
Donor amount	₹3,29,29,600
Co-funding / other sources	₹11,56,320
Total direct costs	₹3,18,56,000

Funding split: Donor 97%, Co-funding / other 3%.

How the Budget is Calculated

Every line follows the same simple logic.

1. Total cost: No. of units × Unit cost × Duration / Frequency
2. Donor amount: Total cost × Donor %
3. Co-funding: Total cost minus Donor amount, covered by the NGO or other sources
4. Calculated lines: Staff benefits and indirect costs are driven by the rates on the assumptions above

Budget Summary by Category

Budget category	Total cost	% of total	Donor amount	Co-funding / other
1. Personnel	₹1,30,09,920	38.2%	₹1,22,17,920	₹7,92,000
2. Consultants & Professional Services	₹8,58,880	2.5%	₹8,58,880	₹0
3. Travel & Transport	₹7,83,200	2.3%	₹7,83,200	₹0
4. Equipment	₹10,56,000	3.1%	₹10,56,000	₹0
5. Supplies & Materials	₹10,04,960	2.9%	₹9,73,280	₹31,680
6. Training & Workshops	₹11,52,800	3.4%	₹11,52,800	₹0
7. Sub-grants to Partners	₹47,52,000	13.9%	₹47,52,000	₹0
8. Direct Program Activities	₹66,00,000	19.4%	₹66,00,000	₹0
9. Communication & Visibility	₹5,80,800	1.7%	₹5,80,800	₹0
10. Monitoring, Evaluation & Learning	₹8,53,600	2.5%	₹8,53,600	₹0
11. Office & Operating Costs	₹12,03,840	3.5%	₹8,71,200	₹3,32,640
12. Shared (Indirect) Costs	₹22,29,920	6.5%	₹22,29,920	₹0
Total Project Budget	₹3,40,85,920	100.0%	₹3,29,29,600	₹11,56,320

Detailed Budget Lines

Budget line	Unit type	# of units × Unit cost × duration	Total cost	Donor %	Donor amount
1. PERSONNEL
1.1 Project Manager	Person-month	1 × ₹3,08,000 × 12	₹36,96,000	100%	₹36,96,000
1.2 Field Officers	Person-month	3 × ₹1,58,400 × 12	₹57,02,400	100%	₹57,02,400
1.3 Finance & Admin Officer	Person-month	1 × ₹1,32,000 × 12	₹15,84,000	50%	₹7,92,000
1.4 Driver	Person-month	1 × ₹52,800 × 12	₹6,33,600	100%	₹6,33,600
1.5 Staff benefits (social security & health)	% of salaries	12% of salaries	₹13,93,920	100%	₹13,93,920
Subtotal			₹1,30,09,920		₹1,22,17,920
2. CONSULTANTS & PROFESSIONAL SERVICES
2.1 Baseline survey consultant	Consultant-day	20 × ₹22,000	₹4,40,000	100%	₹4,40,000
2.2 External financial audit	Lump sum	1 × ₹2,64,000	₹2,64,000	100%	₹2,64,000
2.3 Gender & safeguarding expert	Consultant-day	8 × ₹19,360	₹1,54,880	100%	₹1,54,880
Subtotal			₹8,58,880		₹8,58,880
3. TRAVEL & TRANSPORT
3.1 Vehicle fuel & maintenance	Month	1 × ₹39,600 × 12	₹4,75,200	100%	₹4,75,200
3.2 Staff per diems (field)	Person-day	60 × ₹3,960	₹2,37,600	100%	₹2,37,600
3.3 Air travel: monitoring visits	Round trip	2 × ₹35,200	₹70,400	100%	₹70,400
Subtotal			₹7,83,200		₹7,83,200
4. EQUIPMENT
4.1 Laptops	Item	4 × ₹79,200	₹3,16,800	100%	₹3,16,800
4.2 Motorbikes	Item	3 × ₹1,93,600	₹5,80,800	100%	₹5,80,800
4.3 Solar power kit	Item	1 × ₹1,58,400	₹1,58,400	100%	₹1,58,400
Subtotal			₹10,56,000		₹10,56,000
5. SUPPLIES & MATERIALS
5.1 Hygiene kits	Kit	500 × ₹1,320	₹6,60,000	100%	₹6,60,000
5.2 Training materials	Kit	400 × ₹704	₹2,81,600	100%	₹2,81,600
5.3 Office stationery & consumables	Month	1 × ₹5,280 × 12	₹63,360	50%	₹31,680
Subtotal			₹10,04,960		₹9,73,280
6. TRAINING & WORKSHOPS
6.1 Community training: venue & refreshments	Participant-day	400 × ₹1,056 × 2	₹8,44,800	100%	₹8,44,800
6.2 Trainer fees	Trainer-day	10 × ₹13,200	₹1,32,000	100%	₹1,32,000
6.3 Participant transport reimbursement	Participant	400 × ₹440	₹1,76,000	100%	₹1,76,000
Subtotal			₹11,52,800		₹11,52,800
7. SUB-GRANTS TO PARTNERS
7.1 Local CBO sub-grants	Sub-grant	4 × ₹10,56,000	₹42,24,000	100%	₹42,24,000
7.2 Partner capacity-building support	Partner	4 × ₹1,32,000	₹5,28,000	100%	₹5,28,000
Subtotal			₹47,52,000		₹47,52,000
8. DIRECT PROGRAM ACTIVITIES
8.1 Cash transfers to households	Household-month	150 × ₹5,280 × 6	₹47,52,000	100%	₹47,52,000
8.2 Community awareness events	Event	12 × ₹44,000	₹5,28,000	100%	₹5,28,000
8.3 Livelihood starter grants	Grant	60 × ₹22,000	₹13,20,000	100%	₹13,20,000
Subtotal			₹66,00,000		₹66,00,000
9. COMMUNICATION & VISIBILITY
9.1 Radio spots	Spot	120 × ₹2,200	₹2,64,000	100%	₹2,64,000
9.2 IEC materials printing	Piece	2000 × ₹132	₹2,64,000	100%	₹2,64,000
9.3 Visibility items	Item	10 × ₹5,280	₹52,800	100%	₹52,800
Subtotal			₹5,80,800		₹5,80,800
10. MONITORING, EVALUATION & LEARNING
10.1 Data collection platform	Month	1 × ₹8,800 × 12	₹1,05,600	100%	₹1,05,600
10.2 Mid-term review	Lump sum	1 × ₹2,20,000	₹2,20,000	100%	₹2,20,000
10.3 Final external evaluation	Lump sum	1 × ₹5,28,000	₹5,28,000	100%	₹5,28,000
Subtotal			₹8,53,600		₹8,53,600
11. OFFICE & OPERATING COSTS
11.1 Office rent	Month	1 × ₹70,400 × 12	₹8,44,800	70%	₹5,91,360
11.2 Utilities & internet	Month	1 × ₹22,000 × 12	₹2,64,000	70%	₹1,84,800
11.3 Bank charges & insurance	Month	1 × ₹7,920 × 12	₹95,040	100%	₹95,040
Subtotal			₹12,03,840		₹8,71,200
12. SHARED COSTS
12.1 Shared costs	% of direct costs	7% of direct costs	₹22,29,920	100%	₹22,29,920
Subtotal			₹22,29,920		₹22,29,920

Part 3: Grant Contract Terms and Conditions

Grant Contract: General Terms

• MOU versus grant contract/agreement distinction
• Recitals/Preamble
• Definitions
• Grant amount and purpose (including prohibited/disallowed use)
• No Pledge
• Complementary funding
• Designated contacts for various aspects of the grant
• Conflict of interest and ethical conduct
• Confidentiality
• Term and termination
• Notice of Changes
• Compliance with laws
• Indemnity
• Publications and Licenses
• Visibility, Publicity
• Force Majeure
• Relationship of parties
• Governing Laws
• Notice
• Waiver
• Severability: any clause not enforceable does not make other clauses non-enforceable
• Assignment/Delegation
• Acknowledgement: understand and consent
• Counterparts
• Entire agreement
• Arbitration
• Jurisdiction
• Remedies: injunctive relief from court

Grant Contract: Operational Terms

a. Scope of Work b. Deliverables c. Budget d. Eligible Costs e. Grant Disbursement/Reimbursement f. LogFrame and Work Plan g. Basis of accounting h. Separate Books of Account for the project i. Separate Bank Account for Grant Funds j. Bills and Vouchers kept separately and defaced with mention of project k. Limit on Cash Expenditure l. Treatment of interest m. Procurement rules n. Program/Financial reporting: often there are templates for interim and final reports o. Input Tax credit p. Monitoring/Evaluation Audit q. Recovery r. Treatment of Fixed Assets: templates in case FA are not allowed to be retained automatically s. Income generated from project activity t. Sustainability u. Closure of grant v. Record and retention

Part 4: Challenges and Tips for Grant Management

Grant Management Challenges

1. Building consistent long-term relationship with grantor
2. Turnover and lack of experience of key grant staff
3. Use of technology
4. Non-robust program and finance MIS
5. Timely decisions
6. Audit findings and reputational loss

How to Manage a Grant Effectively

Managing a grant is about maximising impact through:

1. A thought-out project plan
2. Transparency
3. Robust financial management system and practices
4. Monitoring mechanism: physical and financial progress
5. Compliance with grant terms and conditions
6. Final reporting and audit
7. Grant closeout
8. Impact and Sustainability

Tips

1. In the grantor relationship, communication is key; be honest
2. Create a grant/project calendar
3. Create a resource library/repository
4. Review before submitting a proposal: a mentor
5. Collaborate
6. Be on top of your costs while budgeting
7. Never say die: never give up or think only others will get it
8. PAVE: Performance, Accountability, Value, Empathy
9. What is your unique story? Don't just chase funding
10. Objectivity vs Subjectivity