Donor Due Diligence

Understanding Donor Pre-Grant Assessment: Institutional & Financial Due Diligence
Layout of Presentation
Donor Landscape: Funding India's Future. Where the money is, and where it is headed.
Overview, Rationale & Process. What due diligence is, why donors do it, and how the process unfolds.
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
Professionalize governance & reporting. Families and family offices increasingly demand structured governance and evidence-backed outcomes before committing multi-year support.
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.
Lean into emerging causes. GEDI, climate action, livelihoods, arts & heritage, animal welfare and ecosystem strengthening are gaining traction beyond legacy education/health funding.
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.
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
Mitigate fiduciary risk. Reduces the risk of fund misuse, diversion or mismanagement by verifying financial systems and controls in advance.
Ensure legal & regulatory compliance. Confirms the NGO is legally registered and compliant under various Indian laws.
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.
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
Desk Review
Legal & Governance
Financial Review
Programmatic Assessment
Site Visit
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
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.
12A/12AB registration. Erstwhile Section 12A/12AB registration for tax exemption is now under Section 332.
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.
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
Institutional & Financial Due Diligence. Continued from Session 1.
Risks & Controls. Understanding the risk-control tangle.
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
Risks & Controls. Understanding the risk-control tangle.
Internal Controls. Internal control areas that donors examine closely.
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
Financial stability
Operational efficiency
Compliance management
Disciplined planning
Informed decision making
Reputation management
Building trust
Improved communication
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:
Prioritise risks: Risks to be taken up for mitigation
Risk response: Risk registers with roles and responsibilities of staff
Monitoring
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.
Strong Internal Controls: Clear policies, segregation of duties, active oversight
Favorable Due Diligence: Fewer findings, faster review, higher confidence rating
Funding Secured: Grants awarded or renewed, fewer restrictive conditions
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.
Legal & Compliance (done in institutional DD)
Governance
Budget
Purchase / Procurement
Human Resource Management
Assets / Inventory Management
Accounting
Cash and Bank
Donor Reporting
Proceedings & Penalties
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
Accounting, TDS, Assets
HR: payroll, timesheet, leave, etc.
Audit
Programme MIS
Grant Management for donor entities
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.
Readiness Roadmap. A recap of Sessions 1 to 3 takeaways on readiness for donor due-diligence.
Grant, Grant Management & Lifecycle. What a grant is and the five-stage lifecycle that governs it end-to-end.
Fund Accounting and Fund Types. How NPOs record and report restricted vs. unrestricted resources.
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
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.
Institutional and financial readiness go hand in hand. A legally sound structure without financial controls (or vice versa) will not pass most donor assessments.
Preparation should be continuous, not reactive. Keeping registrations, audits and policies current avoids last-minute scrambles when an opportunity arises.
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.
Grantmakers: The grantor / donor, creating and awarding grants.
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.
Regulatory Compliance: IT, FCRA and CSR rules demand precise fund tracking. Mismanagement risks cancellation and funding freezes.
Funder Trust & Renewal: Timely, accurate reporting is the single biggest driver of repeat grants from institutional and CSR donors.
Multi-Donor Complexity: Indian NGOs often juggle government, CSR, foreign, institutional and individual funding, each with different rules and reporting cycles.
Proof of Impact: Good systems link every rupee spent to an outcome, giving NGOs evidence to scale and attract new funding.
Grant Management Lifecycle
Pre-Award: Identify, assess, design
Award: Contract & set up compliance
Implementation: Deliver, spend, track
Compliance & Reporting: Monitor, file, report
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
Donor & Opportunity Mapping: Track CSR calendars, foundation RFPs, multilateral windows and government schemes aligned to your mission and geography.
Eligibility & Registration Check: Objects, active 12A/12AB and 80G status, FCRA registration/prior permission (for foreign funds), and CSR-1 filing (for CSR funds).
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
Theory of Change: Articulate the problem, intervention logic, building a story and expected outcomes in a clear causal chain.
Logframe / Results Matrix: Define outputs, outcomes, indicators, baselines and targets that donors can verify.
Realistic Budgeting: Cost programme and admin lines completely; build in statutory costs (PF, ESI, TDS) and a reasonable indirect-cost rate if permitted.
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.
Review the Grant Agreement: Reporting frequency, permitted variances, IP and data ownership, termination and audit clauses. Negotiate before signing, not after.
Confirm the Funding Route: Foreign funds: designated FCRA bank account and utilisation account. Domestic/CSR funds: dedicated project bank account.
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.
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.
Segregation of Funds: Keep restricted grant funds separate from unrestricted/general funds. Never co-mingle across projects.
Budget vs. Actual Tracking: Review variance monthly; flag and explain deviations beyond the donor's approved re-allocation threshold.
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
Final Utilisation Certificate: Reconcile total spend against the sanctioned budget and submit the final UC with supporting vouchers.
Asset Disposal / Transfer: Follow the donor agreement on equipment and asset ownership: transfer, retain, or dispose as specified.
Final Narrative & Evaluation: Document outcomes achieved, deviations from plan, and an honest assessment against original objectives.
Lessons-Learned Review: Run an internal debrief with programme and finance teams; capture what should change for the next grant.
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.
Option 1: Gross grant treated as income.
Option 2: Gross grant routed through the Balance Sheet only; asset and liability side settled.
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
Recipient / Prime Recipient: The organization receiving the grant with full responsibility for the grant funds. The document evidencing this arrangement is the grant contract.
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.
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
Project/Program-Based: Program vs. non-program (admin, fund raising).
Nature of Expense: Personnel vs. non-personnel.
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
Historical Cost: The original cost of an asset when it was purchased.
Sunk Cost: Money already spent that cannot be recovered.
Marginal Cost: The change (usually a decrease) in the cost of producing one more unit or serving one more customer.
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
Common Cost Allocation: continuation from Session 4
Budget, budget cycle, budget types; sample project budget
Grant contract terms and conditions
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
Identify Total Common Costs at the beginning of financial year (or as part of budgeting).
Identify Total Direct Costs: estimate the total direct costs for all programs/projects for the period.
Calculate the Common Cost Rate = Total Estimated Common Costs ÷ Total Estimated Direct Costs × 100%.
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
Maintain a signed monthly timesheet recording hours per project.
Convert hours to a % of total working time for the month.
Multiply gross salary (₹50,000) by each project's %.
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
Purpose & Scope: Why the policy exists and what it covers.
Definitions: Direct cost, shared (common) cost, cost pool, allocation base (method, driver).
Cost Classification Rules: How to decide if a cost is direct or shared.
Shared Cost Pools: The organisation's specific shared cost pools.
Allocation Method(s): Direct / step-down / reciprocal / ABC, as adopted.
Compliance Ceilings: FCRA 20% cap, CSR 5% cap, donor-specific limits.
Roles & Approvals: Who prepares, reviews and signs off allocations.
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
Planning
Formulation
Approval
Implementation
Monitoring
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
Review the strategic plan and annual work plan
Consult program, finance and field teams
Estimate costs by activity and cost head
Project income from all funding sources
Reconcile projected expenditure with income
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
Program Team: Drafts activity and possibly cost estimates
Finance Team: Consolidates inputs, checks compliance & arithmetic
Programme / Executive Director: Aligns the draft with strategic priorities
Board / Governing Body: Reviews and formally approves the final budget
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.
Total cost: No. of units × Unit cost × Duration / Frequency
Donor amount: Total cost × Donor %
Co-funding: Total cost minus Donor amount, covered by the NGO or other sources
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
Building consistent long-term relationship with grantor
Turnover and lack of experience of key grant staff
Use of technology
Non-robust program and finance MIS
Timely decisions
Audit findings and reputational loss
How to Manage a Grant Effectively
Managing a grant is about maximising impact through:
A thought-out project plan
Transparency
Robust financial management system and practices
Monitoring mechanism: physical and financial progress
Compliance with grant terms and conditions
Final reporting and audit
Grant closeout
Impact and Sustainability
Tips
In the grantor relationship, communication is key; be honest
Create a grant/project calendar
Create a resource library/repository
Review before submitting a proposal: a mentor
Collaborate
Be on top of your costs while budgeting
Never say die: never give up or think only others will get it
PAVE: Performance, Accountability, Value, Empathy
What is your unique story? Don't just chase funding
Objectivity vs Subjectivity