Finance for Non Finance Staff Role of Finance & Accounts in an NGO You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو. Objectives of an NPO Primary objective: Maximise social benefits/services/impact for beneficiaries it serves Secondary objective: Economy - control costs Efficiency - achieve objective in minimum costs (Process, doing things right) Effectiveness - measure of achievement with reference to objectives (Result, doing the right thing) Change - The New Norm for NPOs Change Donor expectation Statutory and regulatory landscape Govt orientation towards charity Technological developments Change offers: Risks and opportunities Impacts organisation in terms of future growth, even existence. Types of Resources an NPO uses Material - capital goods, program goods, supplies, technology Money - financial resources Manpower - Human resources of organisation Main Functions of an NPO Program Finance & Accounts Admin Communications, Advocacy and Public Relations Research New Business (fund raising) Training & Capacity Building Every staff in every of above function performs a finance role Financial Management Financial Management is the business function that deals with planning, organizing, monitoring and controlling financial resources of an organization. It focuses on spending financial resources to deliver greater social impact Why financial management: Accountability and Transparency to donors and communities we serve Allocation of financial resources for organisation activities Investment decision for resources Statutory/regulatory compliance Financial Reporting to stakeholders Futuristic planning-Financial security, Sustainability and long term growth Internal Controls framework Custody of financial resources to minimise resource misuse and embezzlement Better decision making on Finance to fulfil the Mission based o data and analysis Enhanced credibility and trust thereby giving a competitive edge Manging risk through Internal Controls Meeting organisation goals Finance Function in an NPO Finance function  ensures organization's financial health and sustainability The finance function’s role in an NGO is: Manage financial resources of the organization Make strategic finance decisions for sustainability Operational support-uphold internal controls and support other functions including fundraising Report to stakeholders to help decision-making Statutory and regulatory compliance Manage risks through suitable internal controls Difference between Accounting & Finance though used interchangeably:  Accounting looks Back while Finance looks Forward! 3 key roles of Finance function in an NPO Enable Value Creation Shape Value Creation Narrate Value Creation These are in chronological order Role is performed by CFO and team he/she leads in Finance function duly supervised by Chief Functionary and Governing Board Value creation for an NPO means maximising social outputs/outcomes using the various resources Role of Finance Function in NPO Enables Value Creation through Planning: Financial Resources for operations Financial sustainability For Controls (Framework)-Polici Forecasting-long term and short term Budgets-organisation and programs/projects Fund flows Operating Cash Resource Allocation: manpower, material, money Banking Treasury & cash management HR, Goods and services procurement as per policy and prevalent laws Inventory management-slow moving, waste, loss Asset management-depreciation, obsolescence, loss etc Recording: a. Book keeping i.e. recording transactions Accounting i.e. summarisation, analysis and interpretation of financial data Closing and reconciling-bank, vendor, employee, grant  etc Role of Finance Function in NPO SHAPES value creation through Performance Measurement and Management Budget monitoring (budget variance analysis) - organisation, projects Measuring Value for money (VFM) - ratios Return (social return) on investment (SROI), Social impact audit Monitoring Controls Budgetary (realignment, reallocation) Adherence to policies and procedures for Internal control Audits and assurances-statutory, internal donor, Govt Monthly MIS-Financial, Program Facilitator - support on finance to all other functions NARRATES the value creation through Financial reporting Donors - periodic FR, annual audited UC, supporting fundraiser with financial data Govt bodies - IT, FCRA, Registering agency, EPF, ESI, TDS, GST Board/top management - financial health Focal point with external stakeholders on institutional matters obtaining statutory approvals financial assessment by donors, govt etc. Role of Non Finance Staff in Financial Matters Non finance staff handle resources which have value Non finance staff authorise various types of expenditure - travel, procurement, office exp, statutory dues Non finance staff own and operate project budgets Project decisions of Non finance staff in field have financial implications - allowance/disallowance Decisions in field of Non finance staff have compliance implications with laws of land Non Finance staff actions affect reputation and even our very existence Please note: Information is for reference only. Read our disclaimer  here . Grant Management You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو. What is a Grant? Funds given from one entity to another for a public benefit/charitable purpose Usually given to a charitable entity or NPO Is not an automatic entitlement, it is for an obligation to be discharged Grant is trust money with 3 actors-grantor, grantee (trustee with fiduciary responsibility to grantor and beneficiary) and beneficiary Grantor does not get direct benefit and grantee is not expected to payback if utilised for the intended purpose Grant comes in different forms from different sources-govt (grant-in-aid), retail, corporate, foundation Are awarded directly or through a competitive process Exchange Transaction vs Grant Exchange transaction (as per GST Act) involves: Supply of goods and services Consideration In course of furtherance of business Grant is not exchange transaction since there are No specific beneficiaries Nothing in return from beneficiaries or benefit derived by grantee Not for furtherance of business Understanding above for grant contract is crucial otherwise contributions maybe considered as exchange transactions inviting GST and TDS implications and also charitable status maybe jeopardised. Grant Management Involves two key players: Grantmakers-grantor/donor Grantseekers-grantee/donee Grant management is a system that includes identifying, applying for and securing grants, adhering to grant conditions, evaluating outcomes. Grant management process in grant management system (GMS) is the grant management lifecycle. The Grand Management Process Planning Opportunity Application Award Execution Closeout Grant Management Life Cycle Pre award Planning-need identification, SWOT, due diligence preparatory etc Scout Funding opportunity Grant application & review-eligibility and Qualification Award Award Negotiation Award Decision Award Notification/Contract Post Award fund request-advance, reimbursement etc, Implementation Reporting-program and finance Post award amendment-key changes and approval, budget realignment, NCE Performance/impact Closeout Reapplication Principles of grant management Accountability, Transparency & Trust for grant funds Efficiency & Effectiveness with grant funds Compliance with laws of the land Adherence to terms and conditions of Grant Agreement Internal controls in place Communication & Timely Reporting - narrative and financial as per grant contract Fund Accounting NGOs follow Fund Accounting for managing grants: Fund accounting is an accounting system for recording and tracking project resources (fund) whose use is limited/restricted by specific conditions by donor through a grant contract This accounting system emphasizes  accountability/productively over profitability which is the accounting basis for for-profits Features: Separate funds (buckets/compartments) Restriction on use Separate budget established for each fund/project and income credited and expenses debited from the fund Transparency Software for recording Good internal controls Monitoring and Reporting  mechanisms ensures fund accounting Type of funds for NPOs Grant word is not comprehensively defined in Indian laws, referred to as Voluntary contribution/donation (VC) in Income Tax law. FC under FCRA and CSR fund under CSR law. ICAI has classified funds for NPOs in its Technical Guide on Accounting for NPOs: Unrestricted funds: Funds with no specific  restrictions on use (purpose)/time Corpus (acknowledged in IT law)-non-refundable, non reducible, reinvestment obligation. Corpus only when specific donor direction that it be treated as corpus by donor not income but capital per IT Act to be invested in section 11(5) modes of investment considered application when  replenished not application if given to another charity. Corpus income shown in I&E. Donations i.e. no obligations attached, a gift Designated/earmarked funds-appropriated and set aside for specific purpose/future, self imposed by management and not binding in law for NPOs General funds-surplus/deficit transferred from I&E which are  not designated. Free reserves Restricted funds: funds with conditions/restrictions Project/program grants-to be utilized as per terms and  conditions of award, Restriction-by purpose and by time. There could be other conditions/restrictions. Principle of fund based accounting Endowment: fund amount cannot be utilized, only income utilized for general/specific purpose as per donor stipulation.  The recipient owns it but does not control it. Restricted funds maybe Permanent restriction Temporary restriction: restricts use for a certain period or  meeting objectives after which it becomes unrestricted. Format of financial statements as per ICAI BALANCE SHEET AS AT _________________________________________ 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) FIXED ASSETS-Tangible Assets/Intangible Assets/Capital Work-In-Progress INVESTMENTS-Long Term/Short term CURRENT ASSETS-LOANS, ADVANCES & DEPOSITS-Grant Receivable TOTAL Significant Accounting Policies and Notes on Accounts Net Assets In NPOs, net assets is like net worth (share capital+reserves & surplus) in case of for profit entities Net assets=Total Assets-Total Liabilities Net assets means owner funds (capital) although there are no owners in charitable institutions generally In an NPO, net assets mainly include corpus and general funds Format of financial statements as per ICAI Name of Entity ______________________________________ INCOME AND EXPENDITURE ACCOUNT FOR THE PERIOD/YEAR ENDED __________ INCOME Schedule Schedule Current Year Previous Year Grants & Donations Other Income-rent, interest, incidental business Income, Fee & Subscription, TOTAL (A) EXPENDITURE Program Exp Administrative and General Expenses, Finance costs Depreciation & Amortisation Expenses TOTAL (B) Excess of Income over Expenditure (Surplus) or excess of Exp over Income (Deficit)(A-B) (Net Income in for profit entity) Balance Being Surplus (Deficit) Carried to Balance Sheet-General Fund, Transfer to Designated fund, Building fund/ Others (specify) Significant Accounting Policies and Notes on Accounts Accounting for grant recognition by NGOs in India Practise followed as per convention-no legal directive: Option 1: Gross grant treated as income Option 2: Gross grant routed through Balance Sheet only-asset and liability side settled Option 3: Grant treated as income to the extent of expenditurewhile unutilised grant is a liability--hybrid method AS 9 mentions income recognition to the extent of expenditure for grants applicable if there is business/commerce etc Follow the principle of prudence in selecting the option for recognition. Recipient, Sub- recipient and Vendor Recipient is the organization receiving the grant, sometimes called the Prime recipient because it has full responsibility for grant funds. The document evidencing this arrangement is grant contract Sub-recipient is involved in substantive activities of the award project. The recipient passes on some or all of its duties to the sub-recipient called sub award. All the terms and conditions from the grant award flow down to sub- recipients through a document evidencing it called sub grant contract Vendor/service provider provides goods/services to the recipient to accomplish project’s purposes. Selected terms and conditions might be passed through to the vendor. The document evidencing is a goods/service contract Cost-Key concepts Cost-amount spent to acquire an asset Expense-amount spent on regular operations Classification of expense for NPOs Natural expense head-WHAT (type of expense) the funds are being spent on-salary, rent, hotel accommodation etc The natural expenses are grouped into group heads like HR cost, Travel, capital cost, office exp, legal & professional etc Group head-Travel-natural expense-conveyance, airfare, meals, accommodation etc Group head-HR-natural expenses-salary, HRA, PF, Gratuity Furcation expense head- WHY (purpose of expense) the funds are being spent Program cost (program implementation, MEL) Support cost (Accounting, Admin, Fund raising) Cost - Key concepts NPOs should follow functional expense head for presenting reports, that is what is the basis for their constitution and work. Broadly the functional heads are two-Program/service delivery and Support/Admin & General Costs for a project for NGO Direct costs (100% direct traceability to a program/support function) to benefit the beneficiary as per project design. No cost if no project. Common/Shared costs-benefit multiple projects-shared cost apportionment based on time, space, no of employees/beneficiaries/ no of project locations Understanding and computing direct and shared cost crucial for correct and realistic budget formulation Apportionment method and share of common cost included in common cost policy Common cost be reviewed every year within the purview of common cost policy Total cost for a project: Direct cost+ Common Direct cost Shared cost apportioned to the project Institutional/Management cost/indirect cost if permitted basis donor grant management policy to address contingency/create a reserve Other types of cost Capital & Revenue cost: Capital Costs: Capital costs are one-time fixed assets purchases that will be used for revenue generation over a longer period- more than one year. Revenue Costs: are referred to as operating expenses are short-term expenses that are used in running the daily business operations. Fixed and Variable Costs: Fixed cost is one that does not change in total within a reasonable range of activity.Since the fixed cost remains constant in total, the fixed cost per unit of activity decreases when the volume increases and vice versa Variable cost or expense is where the total cost changes in proportion to changes in volume or activity. Historical cost: original cost of asset when it was purchased. Sunk cost: money spent that cannot be recovered. Marginal cost: change usually decrease in the cost of producing one more unit or serving one more customer. Opportunity cost: value of next best alternatives when taking a decision given the resource constraint. Cost Principles in grant budgeting for NPOs Costs budgeted for a project grant should be Allowable cost-costs which are not subject to any restrictions/limitations in the grant award. Allocable cost-costs which are incurred specifically for the attainment of the objective of the grant. Reasonable cost-cost which is generally recognized as necessary to be incurred by a prudent person in the conduct of normal business Consistent: cost applied in same fashion throughout the grant Unallowable cost-those costs that cannot be incurred and paid under the grant. Budget basics A budget is estimation of revenue and expenses over a specified future period, usually the project period for a grant. It is financial plan (blueprint) of the project plan. One need to budget the plan and not vice versa Budget is a Planning (align with objectives)Tool, Control (within policy framework) Tool, Compliance (ceiling) Tool and Mirrors the Financial Report A budget covers quantitative, qualitative and cost aspects. The purpose of budget is to: Ascertain reasonable estimation of costs for interventions/activities in a grant proposal/award. Segregates costs-direct/common/indirect or OH costs Cost matching/sharing (co-financing) for multi donor grant, in kind match. Is a framework for donor-donee in a grant award Enables course correction based on measurement of actual achievements versus estimates  Statement of SOF and Estimated Costs Enables Recognition-activity, group, period, income, expenditure, deficit, surplus Pre requisites Organisation structure. Data. Chart of accounts. Managerial support. Formal process for formulation. Types of Budgets: Activity budget Activity based budget as the name suggests, covers the costs required for implementing a project activity. In ABB, one looks at resources required for completing an activity and the resources cost For example , if project strategy is to build capacity of civil society leaders, workshops is an activity. Workshops costs would be towards hiring resource persons, booking a venue, transportation cost, food, lodging and materials and handouts. Illustration: Activity Budget for Conducting a Workshop Particular of  Expense Rate per unit No of Units Total in Rs Trainer Fees @ Rs 1000 per day 3 days 3,000 Venue @ Rs 500 per day 3 days 1,500 Rental for Furniture @ Rs 500 per day 3 days 1,500 Rental for Equipment @ Rs 100 per day 3 days 300 Catering Exp for Lunch and tea two times @ 100 per person 55 persons X 3 days = 165 16,500 Conveyance paid to attendees @Rs 50 per person per day 50 attendees x 3 days = 150 7,500 Printing of handouts @ Re 1 per page 50pages x 50 copies = 2500 pages 2,500 Grand Total 32,800 Line Item Budget A Line-item budget presents the budget under broad heads It lists income and expenses by category Major donors like USAID, European Commission prefer to have their budget templates by line items. It helps better tracking for trends in major cost categories Illustration: Line Item Budget Expenses Unit # of Units Unit Rate ($) Costs ($) Human Resources  CEO Per day 3 350 1050 Trainer Fees Per day 2 200 400 Subtotal Human Resources 1450 Travel Trainer Airfare Per Person 1 300 300 Participant Transportation Per Person 30 10 300 Subtotal Travel 600 Equipment and Supplies Materials and hand-outs  Per Person 30 15 450 Subtotal Equipment and Supplies 450 Other costs, Services Venue Per day 2 300 600 Catering Per Person 30 15 450 Subtotal Other costs, Services Subtotal 3550 Overhead (10%) 355 TOTAL 3905 Other Types of Budget Incremental budget: Next year’s budget prepared by making marginal changes to the current year’s budget. The current budget is used as a base to which incremental assumptions are added or subtracted from the base amounts to determine new budget amounts. Value Proposition Budgeting focuses on allocating the ideal amount of financial resources that provides the highest value to the customer. Another name for Value Proposition Budgeting is Priority Based Budgeting or value based budgeting. Zero-based budgeting (ZBB) based on efficiency and need at that point rather than budget history. Formulation starts from scratch that only includes operations and expenses essential, no expenses are automatically added to the budget. Performance based budget (PBB) considers input of resources and the output of services. The goal is to link funding to results delivered, thus 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 Separate word document to explain the budget nos. For each line item and activity, provide complete details so that it can be referred 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 of the calculation of the estimated costs. Note that the estimation should be based on real costs Balanced, Surplus and Deficit budgets A balanced budget is a e budgeting process where total expected revenues are equal to total planned spending. A budget deficit occurs when expenditures surpass revenue. A budget surplus means there is additional money to spend at the end of the accounting period Budget Monitoring & Budgetary Control Budget Monitoring is the process: Record actual expenditure versus budget estimates at the line/activity level in books Measure variance using a budget variance report to ascertain positive/negative devotions The workplan delivered helps budget monitoring at a  particular point of time Tally software can setup 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 Interest apportionment With a single bank account for multiple projects, interest apportionment for reporting to donor has to be made as per well defined method Interest apportionment not applicable for dedicated bank  account Interest can be additive or deductive from grant as specified in grant agreement. HR cost allocation Staff cost for shared HR in a grant should be allocated and charged to donor grants as per project grant in line with common cost allocation policy Monthly salary register/sheet with salary allocation of staff to donor projects, deductions/adjustments, variance versus previous month with reasons and banking streams for payout. This is required for donor verification and audit Payment of salary out of FC and local funds Applicability of time sheets in donor contracts Robust Grant Monitoring System Grant monitoring is a process to measure/review performance during grant period. It assesses physical & financial progress, identify risks and corresponding mitigation measures, ensure that funds are used as intended and programs achieve desired outcomes and impact. Important Tools and Process: Complete understanding of terms and conditions  of Grant contract Budget and LFA clearly known to both finance and programme teams Periodic Budget Variance/Deviation Analysis by  finance, program team and management review Timely course correction through realignment etc through addendum in grant contract. Timely reporting-narrative and financial reports as  stipulated in grant contract Grant Contract - General Conditions 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 Grant Contract - General Conditions Notice of Changes Compliance with laws   Indemnity Publications and Licenses Visibility, Publicity Force Majeure Relationship of parties Governing Laws Notice  Waiver Grant Contract - General Conditions 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 Conditions Scope of Work Deliverables Budget Eligible Costs Grant Disbursement/Reimbursement Log Frame and Work Plan Basis of accounting Separate Books of Account for the project Separate Bank Account for Grant Funds Bills and Voucher separately and defaced with mention of project Limit on Cash Expenditure. Treatment of interest Procurement rules Program/Financial reporting-Often there are templates for interim and final reports Input Tax credit Monitoring/Evaluation Audit Recovery Treatment of Fixed Assets-templates in case FA are not allowed to be retained automatically Income generated from project activity Sustainability Closure of grant Record and retention Please note: Information is for reference only. Read our disclaimer  here . Overview of Financial Statements of NGOs You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو. Need for Financial Reporting Framework for NGOs Financial reporting should provide true and fair view of state of affairs in conformity with generally accepted accounting principles (GAAP). India GAAP is based on Accounting Standards formulated by ICAI TFV means financial statements are accurate, complete and present a fair representation of the company's financial position and performance. This confirmation is provided by an external auditor as per its opinion in the auditor report. This auditor is accredited with the apex accounting body i.e. ICAI Financial reporting (statements) should provide uniformity, clarity and common understanding to various stakeholders. For NGOs, lack of awareness and uniform applicability, inconsistency in basis of accounting, non-uniform terminology etc. results in financial statements being neither standard nor comparable. Financial reporting framework for NGOs is detailed in Technical Guide on Accounting of NGOs (Jan 2022) by ICAI for uniformity and standardisation. Components of Accounting Framework as per Technical Guide Elements of financial statements: Identify and define the items that should be considered as income, expenses, assets and liabilities in NPOs. Principles for recognition of items: These principles lay down the timing of recognition (when) in the financial statements. Principles of measurement: These lay down at what amount items should be recognised. Presentation and disclosure principles: These explain the manner of presentation and disclosures required. Note: 1, 2 and 3 are sector-neutral (not different for NPOs and for profit entities), while presentation and disclosure differ for the two sectors. Accounting Terms Assets These are resources or items that the NGO owns Assets have future economic value that can be measured and can be expressed in monetary terms. Examples include investments, cash, inventory, accounts receivable, land, supplies, equipment, buildings and vehicles. Three categories: Fixed Assets Investments Current Assets Liabilities These refer to the legal financial obligations or debts that NGOs incur during business operations. They are settled over time through the transfer of economic benefits such as money, services or goods. Liabilities include payables, loans, accrued expenses, provisions. Two types: Long term Short term Equity/Capital, Net Assets Refers to the amount of money that is required to return to its shareholders after all assets are liquidated and all liabilities paid off. Equity capital is not returned to founders/promoters in NGOs Revenue/Income Refers to income that an NGO generates for/on its normal operations i.e. grants, donations, interest etc. Expenses Expenses refer to the costs of operations that for profit incur to generate revenue. In NPOs, income is received for making expenses normally. Common expenses include employee wages, payments to suppliers, equipment depreciation and factory leases. What is a financial statement? Financial statement is a collection of summary-level reports about an organization's financial results, position and cash flows. Financial statements include: balance sheet as at the end of the financial year, income and expenditure account during the financial year, Receipt & payment (cash flow) statement during the financial year and Accounting Policies (principles for preparing the financial statement based on Accounting Standards) and explanatory notes These come with Auditor Report with its opinion on the TFV of financials statements BS, I&E, R&P Balance Sheet : Presents assets and liabilities I.e. what you own and owe. Income & Expenditure Statement : Presents income earned and expenditure incurred during the year, Any excess is carried to the Balance Sheet Receipt & Payment Statement : Present actual receipts of funds and payments during the reporting period. FCRA registered entities have to prepare FCRA financial statements separately for its FC operations. Key Points for Preparation of Financial Statement Basis of accounting: Accrual system of accounting recommended Prepared annually Contain standard information for various stakeholders Comparative information for at least one year Different from donor reporting, govt compliance but these are extracted from the financial statements  Should reflect restricted and unrestricted funds separately Format: Schedule III of Companies Act for section 8 company and other forms of charitable organisations also follow CA MRL and ML Management Representation Letter (MRL) is issued by the client (Auditee/NGO) to the auditor in writing as part of Audit Evidence. Management takes responsibility for the complete and accurate information provided to auditor to provide TFV. This document during the audit clarifies the separation of responsibilities of the auditor and auditee (management). Management Letter (ML)  is a letter sent from auditors to Governing Board advising them of findings indicating control weaknesses identified during the audit, and suggestions to remedy these. It is an outcome of the audit process. The Board is supposed to respond to the observations and confirm compliance within a timeframe Maintaining Books of Accounts for NGOs There was no regulation regarding books of accounts by NGOs upto FY 21-22 Section 12A(1)(b)(i) inserted for maintaining of books of accounts and other documents wef AY 23-24. Books of accounts & other documents: The specified books of accounts shall include Cash book Ledger Journal Copies of serially numbered receipts, original copy of invoices, etc. Record of all the projects and institutions run by the organisation Record of income of the organisation during the previous year Record of application out of the income during the year Record of specified application out of the income of preceding years Record of voluntary contribution with a specific direction to form Corpus Record of contribution received under 80G(2)(b) being treated as corpus Record of Loans and Borrowings Record of properties held by the organisaiton Record of specified persons, as per section 13 (3) of the Act Any other document Bookkeeping Guidelines Form of keeping books of accounts and documents: Kept in written form or electronic form or digital form or printouts or any other form of electromagnetic data storage device. Place of maintaining books of accounts and other documents: shall be kept and maintained at its "registered office“. If the accounts are maintained other than the registered office or at various project locations, intimate Assessing Officer in writing, giving full address of the other places supported by resolution of the board Period for which books of accounts & other documents should be kept: Kept and maintained for a period of ten years from the end of the relevant assessment year Organisation having income subject to section 11(4) and 11(4)(a) to maintain separate set of books of account of such income in line with the provision under Income Tax Act. Accounting Standards Formulation of uniform Accounting Standards is necessary in the preparation of accounting information and its presentation in financial statements for bringing about a greater degree of uniformity in accounting measurements. Accounting Standards lay down the rules for measurement and presentation of accounting information by organizations and are prescribed by ICAI AS-1: Disclosure of Accounting Policies Fundamental assumptions: Going concern, Consistency, Accrual. Considerations  in selection of accounting policies to reflect true and fair view of the financial statement  a. Prudence:  Profits are not anticipated but recognized when realized. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only as an estimate. b. Substance over Form : The accounting treatment and presentation of transactions and events in financial statements should be governed by their economic substance and not merely by the legal form. c. Materiality:  Financial statements should disclose all “material” items, i.e. items the knowledge of which might influence the decisions of the user of the financial statements. AS-1 Points to Remember Areas for accounting policy disclosure for NPOs-Depreciation, FA valuation, valuation of investment, treatment of employee benefits, contingent liabilities.  All significant accounting policies used in the preparation and presentation of financial statements should form part of the financial statements as a Schedule. Change in the accounting policies which has a material effect should be disclosed and amount by which the financial statements is affected should also be disclosed. Where such amount is not ascertainable, wholly or in part, the fact should be indicated. If the fundamental accounting assumptions are not followed, the fact should be disclosed in financial statements. AS-10: Accounting for Fixed Assets Gross and net book values of fixed assets at the beginning and end of an accounting period showing additions, disposals, acquisitions and other movements; Expenditure incurred on account of fixed assets in the course of construction or acquisition; and Revalued amounts, the method adopted, the nature of indices used, the year of any appraisal made and whether an external valuer was involved AS-13: Accounting for Investments Investments are assets held by an organization for earning income by way of dividends, interest and rentals, for capital appreciation, or for other benefits. Classification of Long term and short term investments should be as specified in the standards. The requirements of this Standard regarding cost of investment, carrying amount of investment, disposal, reclassification etc should be followed. Overview on Procurement, Contracts, Fixed Assets & Inventory Management for NGOs You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو. Procurement Procurement is the process to acquire goods, services and works to fulfil the organization's operations (projects) and achieve desired objectives Procurement is an end-to-end function from initial identification of a need to final payment and record-keeping. As PC member, signatory to contracts, users and verifiers, it is mandatory that Non Finance staff have thorough knowledge of procurement process for efficient and effective procurement Key aspects of procurement Need assessment as per program and budget in grant contract Cost (value for money through price discovery/competition) & Operational Efficiency (desired outcome/impact) Accountability & Transparency (ethical considerations/at arm’s length) Adherence to Procurement Policy & procedures-Tool of Risk Management Supplier diversity-strategic sourcing Team effort-appropriate segregation of duty and authorisation hierarchy Contract Management Record keeping of procurement process Continuous improvement in procurement policy and procedures as organisation evolves Procurement Categories Purchase of: Capital Goods Program goods and Office supplies Services Works 5 Rights of strategic Procurement “Right Quality” “Right Quantity” “Right Place” “Right Time” “Right Price” Procurement Policy A procurement policy is a set of guidelines and rules that govern how an organization acquires goods and services. It outlines the procedures, standards, and principles that guide the procurement process, ensuring it's fair, transparent, and compliant with legal requirements. it's a roadmap for procurement activities within an organization. Benefits of a Policy Cost control Transparency and fairness Risk mitigation Compliance Procurement Policy elements Purpose Authorization & Delegation-Roles & Responsibilities Procurement Process Procurement Methods Documentation and formats for the procurement method and process Vendor management Ethics Procurement Cycle (Process) Precise technical specs Budget for item Constitute Purchase committee Research potential suppliers Solicit Bids Bid evaluation and vendor selection Issue Purchase Order/ Contract Signing Receipt & Inspection Invoice Approval & payment Procurement process S.No Step Who Remarks 1. Purchase Requisition Program coordinators/concerned staff members Document to capture all details eg. Explanation of the purpose, quantity, quality of goods/services , timeframe, project, budget availability etc. 2. Forwarding and approval of requisition By Requisitioner Approval by Program Manager. 3. Calling bids/Request for Proposal (RFP) Admin Department Either from approved list or eligible vendors. Bids must be written. Oral bids with justification allowed upto a certain threshold or through web-search. Understand the concepts- Open bid, Sealed bid/Closed bidding, Public bidding, Two stage bidding 4. Comparative Analysis, Negotiation with vendor and final offer, final vendor selection and terms of purchase finalized. L1 is the vendor generally selected Procurement Committee (PC) All deliberations and justifications for vendor selection are captured in the MoM of PC/ Justification note for vendor selection. 5. Issue of Purchase order or contract Approved by appropriate authority as per authorization matrix PO contains relevant details and terms and conditions of procurement. Delivered to and acknowledged by vendor. In case of services, work order or contract issued. For small value contracts, email order confirmation sent and acknowledged by vendor. Advance payment. 6. Receiving the goods or services Physical delivery received, by the admin in-charge. User will certify the qualitative aspects whether the goods / services are as per terms and conditions of the PO/ Work order. Receipt documented and entry in Stock Register/Fixed Asset Register. In case of works contracts, the running bills checked with MBs and material consumed etc. and certified by Technical Specialists. 7. Payment & Issue Accountant Admin Payment and correctly record in the books of accounts Issue goods and obtain receipt For consultancy assignment, a formal contract is entered into with the consultant, documenting all the terms and conditions including deliverables and deadlines, payments, deduction of tax at source. For general use items like stationary, office supplies etc., the procurement committee may consider obtaining quotations for annual rate contract. Procurement Methods The threshold and nature of procurement play a major role in selection of procurement method Procurement without quotation-over the counter purchase. For very small procurement generally upto Rs.25k Procurement through RFQ/RFP to limited vendors called closed/limited/restricted tendering is generally from the pre selected vendors in the vendor database through limited invitation-threshold to be decided by organisation Public/advertised/open Tendering/bidding-announcement/advertisement for inviting vendors from public at large-large value procurement Quality & Cost Based Selection (QCBS)/Two stage Bidding-technical and financial evaluation and then combined score of both to arrive at the selection E/online procurement. Fixed Budget procurement-ceiling fixed for the item/service Least Cost procurement–minimum cost is the consideration specially for standard items Single Sourcing While competitive bidding is prescribed manner of procurement, there are occasions when procurement cannot be done following competitive process. These are Only one source – when only one responsible source exists. This is true where the work involved is of specialized nature requiring unique expertise or supplier of proprietary goods and services . Unusual and compelling urgency– Justified and recorded Where there is a continuation of previous work which another vendor cannot do due to patent rights Sole source procurement to be suitably documented by way of a “Sole Source Justification Note” and approved by competent authority. Exception to Policy An exception is a deviation from the prescribed procurement procedure as per policy due to justifiable circumstances like national security, emergency situations or a lack of competitive options. All exceptions from policy to be justified and approved by appropriate authority. Approved Vendor List/Vendor Database Contains list of vendors or suppliers vetted by the Admin department. Referred by Admin Department for bid solicitation. Suppliers are identified and included in database for goods regularly used. The credentials of vendors in terms of statutory registration, credibility, business standing and feedback has been verified, so it is easy to go ahead with the procurement. Duly screened vendors also ensure that they are not related to the organization hence the transactions with them are ‘at arm’s length’ Maintaining Audit Trail Audit Trail refers to the string of evidence mainly documentary to check the occurrence and transparency of transactions. The organization should maintain documentary/ electronic evidence of the process and the basis of decision for a procurement. Contract Management Why contract management As non finance staff, you sign contracts/agreements as authorizers/ users. You often question the need for making contracts. Why not just get ahead with the work, just get the goods, receive goods and invoice and make payment? Many times, you may have signed agreements assuming that everything is in order since finance and admin have checked but later realize mistakes or overlooking terms and conditions leading to loss or litigation. What is a contract A contract is a legally binding agreement between two or more parties that creates an obligation to perform/not perform a particular action. It involves an offer (one party proposes), acceptance of offer by the other party but with element of consideration (payment with value exchanged) and is usually in writing but can also be oral. Contracts ensure parties are legally capable of contracting, understand their rights and responsibilities i.e. mutuality and can be enforced by law (legality) Contract Agreement Promise Offer Acceptance  Consideration Legally enforceable Contract Management Contract management in procurement is the process of administering contracts with vendors through their entire lifecycle, from creation to completion, renewal or termination. It ensures that both the organization and the supplier fulfill their contractual obligations thereby mitigating risks and maximizing the value in the procurement. Clauses of an agreement/contract Parties- name is correct and person signing are authorized Date-when signed/accepted by both parties is when it becomes enforceable Period of contract and Renewal...check correctness and agreement of the parties. Scope of work including deliverables...Checked by the user.. Price and Escalation ..Same as per quote Other commercial terms: transport, insurance, marketing etc. Payment clause Period for completing delivery clause and liquidated damages Warranty clause Termin ation Clause: notice period etc. in case party is not interested to continue or default in deliverables. Clauses of an agreement or contract Non compete Confidentiality Limitation on Liability Sub contracting Indemnification clause Force Majeure clause Amendment Dispute Resolution & Governing Laws : Court of law or arbitration or mediation or conciliation.etc Place, date, Signature and witness Practical Aspects while signing contracts Read and understand the contract and details before signing Avoid vagueness Seek professional advice. Encaser there are no violations of law of land. Know your rights and duties. Should be in writing and complete in all respects. Remember signing the contract makes it legally enforceable Fixed Assets Management What is Fixed Assets An item which fulfils the following criteria: The item has a useful life of more than a year. The item is not of a consumable nature. Acquisition value of more than Rs.5000/- Fixed Asset Categories: IT equipment Furniture & Fixtures Office Equipment Policy on Fixed Assets Follow procurement procedure as per procurement policy Assign Asset Code once assets received including in kind Record asset in Asset Register Issue and return of assets to staff Physical verification and annual inventory Depreciation of assets and recording in account books Disposal of Assets having completed useful life as per policy Loss of Asset policy Insurance of Fixed Assets Role of Admin in FA Management Use of readily available software to automate FA management Inventory Management Inventory and procedures Inventory include Promotional material as part of a project. IEC material. Consumables for conducting certain tests. Stationery distributed as part of a project. Program goods that are distributed and consumed for a particular project Gifts distributed during trainings Inventory procedure Procured as per procurement policy Receipt, Recording and Issue of Inventory Storage space, stacking and security Return and recording of unutilised inventory Physical inventory on periodic basis Disposal of inventory no longer useful Role of Admin staff in inventory management Overview on Key Statutory Laws for NGOs (Income Tax, FCRA, CSR) You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو. Income Tax Law Types of entities that can register as charitable institutions in India For charitable activity, the following entities can be constituted:  Society Trust Not for profit Company While above entities have separate incorporation laws, the various laws apply uniformly for all above type of entities Definition of Charitable purpose in Income Tax Section 2(15) "charitable purpose" includes Relief of the poor, Education, Yoga, Medical relief, Preservation of environment (including watersheds, forests and wildlife) and Preservation of monuments or places or objects of artistic or historic interest, and The advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves carrying on trade, commerce, business, service for a cess, fee or any other consideration unless— such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and the aggregate receipts from such activities during the previous year do not exceed twenty per cent of the total receipts. Types of registration/approval of charitable institutions under IT Act 1.10(23C) (approval category merged with 12A) 12A, 12AB (earlier 12AA now deleted) 10(46) - a body notified by Central/State Govt 80G Approval for tax deductions to donors for Donations S 35 - approved institutions for scientific research etc New regime of income tax registration for charitable organisations wef 1.4.2021 Re-registration/approval of existing charitable entities u/s 10(23C), 12A,35 and 80G approval for a period of 5 years, thereafter renewal once every 5/10 years. Perpetual registration abolished. Department wants to have database and better control/monitoring on charitable institutions which has been fragmented and decentralised until now. Types of Approvals: Re-registration/Revalidation of existing registered entities-5 years Registration for Unregistered entities Provisional registration for new entitites-3 years Provisional to Normal registration for new entities- Total period 5 years Modification of objects clause for 12A entities(within 30 days) If registered/approved both under 10(23C) and 12A, then retain one, the other becomes inoperative Renewal of registration after 5 years Renewal of 12AB registration and 80G approval of existing registered entities Renewal (Form 10AB) 6 months before expiry of 5 years and after due inquiry process Most 12AB and 80G registration have been issued upto AY 26-27. Som renewal application in 10AB have to be filed by 30th Sep 2025 separately for 12AB and 80G. Renewal will be in Form 10AD for both 12AB and 80G. In Finance Act 2025, Small NGOs i.e. where income is less than Rs. 5 cr in previous 2 years preceding the year in which renewal application is made will get 12AB registration for 10 years instead of 5 years. Not applicable for 80G approval and for provisional registration, registration by unregistered institutions which remains as 5 years. Applicable from 1.4.2025 Department’s power to cancel registration Power to cancel registration for Specified Violations i.e. spent income for other than object business income not incidental and no separate books private religious purpose, particular religious community/caste violation of other laws which affect achievement of objectives benefits u/s 13 (not reasonable) section 11(5) non compliance conditions not complied specified in registration certificate (Form 10AC). Reference by AO to CIT/PCIT who shall pass order within 6 months from quarter in which notice was issued. Accreted Income or Exit Tax-Section 115TD of IT Act (1.6.2016) Accreted income is excess of fair market value of assets over total liabilities of Trust. Accreted income is taxed at MMR Conditions when 115TD triggered: 12AB registration cancelled Modification of objects not applied for regn/not in line with condition of registration and application rejected Merged into an entity not with similar objects and not registered under 12AB failure to transfer assets upon dissolution to another 12AB/10(23C) entity within 12 months Newly added: non registration, non renewal, non conversion of provisional to regular registration wef 1.10.24 Merger of charities with same/similar objects-new section 12AC specifying situations of merger when accreted tax will not be applicable effective 1.4.2025. Anonymous donation-Section 115BBC of IT Act For charitable trust, if name and address of donor is not known, it is anonymous donation. Not applicable to Religious Truss or charitable cum religious trust except where the donation is for an educational or medical institution Tax payable 30%. Threshold: Rs.1 lakhs or 5% of total donation received whichever is higher. Statement of Section 80G donation 80G provisions: Cash donation upto Rs.2k permitted, not in kind and only through banking channels. No anonymous donation permitted u/s 80G.  80G deduction-100%/50% with or without qualifying limit i.e. subject to 10% of adjusted Gross Taxable income. Donation to charitable institutions falls under 50% with qualifying limit. 80GGA deduction-100% for donation for scientific research and rural development projects Form 10BD-Statement of Donation provided approved under 80G Donation type: a. Corpus b. Specific c. Others UIN of donor-PAN, Aadhar. If PAN / Aadhaar is not available then either the passport No. /Election photo identity / Driving License/ Ration Card/ Tax Payer identification Number where the person resides outside India. Mode of receipt-cash, kind, electronic and cheque, others File by 31st May for each FY. Fee and Penalty for delayed filing Revision can be made Section 80G approval can be applied even if charitable status benefit taken which was not allowed earlier- effective 1.10.2024 Section 80G-Receipt/certificate of donation Form 10BE Submission Guidelines Due by 31st May for the preceding financial year Associated with the donor's UIN Penalties apply for late submission Generate and download receipt for donations from web portal after filing Form 10BD Provide the donor with system-generated Form 10BE for 80G benefit claim Code of Taxation for Charitable Institutions  Chapter III-Incomes which do not form part of total income: Section 11: Income from property held under trust for charitable or religious purposes. Section 12: Income of trusts or institutions from voluntary contributions for charitable and religious purpose. Section 12A – Conditions for applicability of sections 11 and 12 Section 12AA – Procedure for Registration-repealed  Section 12AB – Procedure for Registration under new regime Section 13: Section 11 not to apply in certain cases. Section 11: Income from property held for charitable or religiouspurposes. Section 11(1): the following income shall not be included in the total income of the previous year of the person in receipt of the income— Income derived from property held under trust wholly for charitable or religious purposes, to the extent such income is applied to such purposes in India; and to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution and provided it is deployed in Section 11(5) modes of investment. Deemed Application-1 year As per clause (2) of Explanation to section 11(1): If, in the previous year, the income applied to charitable or religious purposes in India falls short of 85% of the income from property held under trust by any amount— for the reason that the whole or any part of the income has not been received during that year, or for any other reason, Then at the option of the person in receipt of the income (such option to be exercised before the expiry of the time allowed under section 139 (1) for furnishing the return of income) in form -9A be deemed to be income applied to such purposes during the previous year in which the income was derived. Inter charity donation permitted Note: If DA amount is not utilized in the next year then the amount will be taxable income.  Accumulation-5 years As per section 11(2): If, in the previous year, the income applied to charitable or religious purposes in India falls short of 85% of the income derived during that year from property held under trust, but is accumulated or set apart for application to such purposes in India, such income shall not be included in the total income of the previous year provided the following conditions are complied with, namely:— such person furnishes a statement in the prescribed form (Form 10) and in the prescribed manner (Online) to the Assessing Officer, stating the purpose and period for which the income is being accumulated or set apart which shall in no case exceed five years (not applied amount taxable in 5th year alone); the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) and utilised for the purpose for which accumulated Not transferred to an entity covered under Section 12A of the Act Form 10 is furnished on or before the due date specified under section 139 (1) for furnishing the return of income for the previous year. Repurposing of accumulation can be permitted by the Department. Disallowance of Cash/bearer Payments Section 40(A)(3) provides that “Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], exceeds Ten Thousand Rupees, no deduction shall be allowed in respect of such expenditure”. Note: The expenditure as disallowed above, will be taxed @ 30% The cash payments made by staffs and reimbursed by organisation shall also be treated as cash payment Disclose non-compliances in ITR, if same noticed by Assessing Office during Income Tax Assessment, additional penalty and interest may also be levied. Exceptions in Rule 60D Disallowance for Non Deduction of Tax at Source Section 40(a)(ia) provides that 'Where the assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B then the amount equal to 30% of expenditure shall not be allowed at the time of computation of Income’ Note: The expenditure as disallowed above, will be taxed @ 30% Disclose non-compliances in ITR, if same noticed by Assessing Office during Income Tax Assessment, additional penalty and interest may also be levied. Section 12A Conditions for Applicability of Section 11 & 12 The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless organization is registered under section 12AB Books of accounts of the organization have been maintained and audited by the Chartered Accountant Organization has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section. Section 13 of Income Tax Section 13(1): Section 11 not to apply when Trust for private religious purposes which does not ensure for the benefit of the public. Trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste. If any part of income of trust ensures directly or indirectly for the benefit of any person referred to in sub-section (3). If any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3). Non compliance of Section 11(5)-permitted modes of investment Section 13(6): The exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income referred to in sub-section (2) of section 12, by reason only that such trust has provided educational or medical facilities to persons referred to in sub section 3. S. 115BBC-Tax @30% on denied income for 13(1)© and 13(1(d) violations. 2. Penalty for providing unreasonable benefits to specified persons- s 271AAE penalty equal to amount of benefit in first year and twice for subsequent year Section 13(3): List of persons a. the author of the trust or the founder of the institution. b. any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees; increased to Rs.1 lakhs in that PY and aggregate Rs.10 lakhs during lifetime of institution by Finance Act 2025 c. where such author, founder or person is a Hindu undivided family, a member of the family; cc. any trustee of the trust or manager (by whatever name called) of the institution; d. any relative of any such author, founder, person, member, trustee or manager as aforesaid; e. any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. "relative", in relation to an individual, means— a. spouse of the individual; b. brother or sister of the individual; c. brother or sister of the spouse of the individual; d.any lineal ascendant or descendant of the individual; e. any lineal ascendant or descendant of the spouse of the individual; f. spouse of a person referred to in sub-clause (b), sub-clause (c), sub-clause (d) or sub-clause(e) g. any lineal descendant of a brother or sister of either the individual or of the spouse of the individual Section 13(2): The income or the property of a trust deemed to have been used or applied for the benefit of a person referred to in 13(3) If any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both. if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate;  if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate if any income or property of the trust or institution is diverted during the previous year in favor of any person referred to in sub-section (3) Objective of TDS Regular Inflow of Revenue for Government Checking of Tax Evasion Widening of Tax Base Tax deducted at source(TDS) and Tax Collected at source (TCS) TDS deducted from income • Deducted by payer • Imposed when payment crosses threshold TDS return-24Q/26Q TCS is collected from sale • Collected by seller • Collected on specific goods under section 206C TDS return-27EQ TDS Sections Section 192 (Salary) Section 194 C (Contractual Payment) Section 194 J (Fees for Professional & Technical Payment) Section 194 I (Rent) 192 – TDS on Salary Deduct at rate of Income Tax computed on the basis of rates in force Rates in force for person other than Senior Citizens Income Tax Slab Tax Rate Up to ₹2,50,000* Nil ₹2,50,001 to ₹5,00,000 5% of total income exceeding ₹2,50,000 ₹5,00,001 to ₹10,00,000 ₹12,500 + 20% of total income exceeding ₹5,00,000 Above ₹10,00,000 ₹1,12,500 + 30% of total income exceeding ₹10,00,000 New Tax Regime Rates in force: Any individual opting to be taxed under the new tax regime from FY 2020-21 onwards No exemptions and deductions available such as HRA, most Chapter VI-A deduction (80C, 80D), Interest on housing loan etc. Standard deduction and 80CCD(2) allowed. Income Tax Slab FY 25-26 Tax Rate Up to Rs 4 lakh Nil Rs 4 lakh to Rs 8 lakh 5% Rs 8 lakh to Rs 12 lakh 10% Rs 12 lakh to Rs 16 lakh 15% Rs 16 lakh to Rs 20 lakh 20% Rs 20 lakhs to Rs 24 lakhs 25% Rs 24 lakh and above 30% 194 C – Payments to Contractors Tax is to be deducted at source: On the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or On the whole of the invoice value, if the value of the material is not mentioned separately in the invoice. TDS Rate: 1% where payment is to an individual / HUF 2% where recipient is any other person Limit: If the credit or payment in pursuance of the single contract does not exceed Rs. 30,000 in FY no deduction shall be made at source. However, if the aggregate of all amount paid / credited or likely to be credited exceeds in F.Y. Rs. 1,00,000 then tax at source is to be deducted. Section 194 C includes: Advertisement Broadcasting and telecasting including production of programmes for such broadcasting and telecasting Catering Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer Engagement of manpower on contract Carriage of goods or passengers by any mode of transport other than by railways – NO TDS if PAN is provided and vehicles up to 10 194 J – TDS on Fees for Professional or Technical Services Threshold Exemption Limit: In Finance Act, increased to Rs. 50,000 in a FY Particulars TDS Rate Professional Fees 10% Technical Fees 2% Payment to call center operator (Domestic Co. only) 2% Professional services means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession notified by the Board for the purposes of section 44AA or of this section. Fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial (running or management of business), technical (technical expertise) or consultancy (advisory) services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or which would be income chargeable under the head “Salaries”. 194 I – Rent Particulars Rate of TDS Renting of machinery / plant / equipment 2% Renting of land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings 10% In Finance Act 2025, increased to Rs. 6 lakh in aggregate and not more than Rs. 50k per month Section 195 Payment made to non-resident Indian is taxable for applicable income like fee for technical services, royalty, dividend etc. subject to checking DTAA with that country No threshold Section defines Indian resident – stay in India for min 182 days in a FY or min 60 days in a FY and min 365 days in past 4 FYs. If not, Section 185 applies Declaration on information of foreign payments and TDS – Form 15CA (remittance less than Rs. 5 lakhs) and/or 15CB (Certificate by CA for more than Rs. 5 lakhs and check on DTAA) with Department and provided to bank for remittance Report in TDS return Form 27Q FCRA "foreign contribution" means donation, delivery or transfer (directly or through another person) by any foreign source (i) of any article (not FC if gift for personal use not exceed Rs. 1 lakh in market value),(ii) of any currency, whether Indian or foreign (iii) of any security as defined in section 2 (h) of SCRA, 1956 Explanation to S.2 - Any amount received by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce within/outside India or any contribution received from an agent of a foreign source towards such fee/cost shall not be FC. Deemed FC -interest, rent, pass-on now prohibited also FC. Foreign Hospitality Foreign Hospitality means any offer, not being a purely casual one, made in cash or kind by a foreign source for providing a person with the costs of travel to any foreign country or with free boarding, lodging, transport or medical treatment. Required for: (a) Members of a Legislature b) office bearers of political parties c) Judges d) Government servants, Public Servants e) Employees of any corporation or any other body owned or controlled by the Government. There are specified exclusions also. Application made online ordinarily two weeks before the proposed date of onward journey. Emergency medical aid required during travel, report within 60 days of return unless amount is not exceeding Rs.1 lakhs. "person" includes - an individual; a Hindu undivided family; an association; a company registered under section 25/8 of the Companies Act, 1956/2013 "Person" receive foreign contribution subject to following conditions:- a) must have a definite cultural, economic, educational, religious or social Programme (CEERS) b) must obtain FCRA registration/prior permission from Central Government c) must not be prohibited under Section 3 of FCRA, 2010. Person does not include: (a) only statutory body wholly owned by Govt (Jan 2020) which must mandatorily get its accounts audited by CAG (b) Govt of India and foreign Govt transactions (Section 51). Broadly 3 category of persons: Prohibited, Regulated and Not-regulated . Prohibited person candidate for election; Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper; Public Servant, Judge, Government servant or employee of any corporation/body controlled or owned by the Government; Member of any legislature; Political party or office bearer thereof; organization of a political nature as may be specified under sub-section (1) of Section 5 company engaged in the production or broadcast of audio/audio visual news or current affairs programs Correspondent or columnist, cartoonist, editor, owner of the association or company referred to in point Individuals or associations who have been prohibited from receiving foreign contribution. Public servant included in prohibited category in 2020 Prohibited from receiving FC but can be on the Board. Foreign source includes: (i) Government/agency of foreign Government; (ii) international agency (excluding UN, IBRD, IMF or agency Central Government may notify (list of 117 entities as per portal); (iii) a foreign company; (iv) a corporation, not being a foreign company, incorporated in a foreign country (v) a multi-national corporation (vi) an Indian company with >50% of share capital held by: a. foreign Government; b. foreign citizens; c.corporations incorporated in a foreign country; d. trusts, societies or other associations of individuals (whether incorporated or not) in a foreign country; e. foreign company; [provided that such company shall not be a foreign source (FEMA compliant)-Finance Act 2016] (vii) a trade union in a foreign country (viii) a foreign trust/foundation mainly financed by a foreign country; (ix) a society, club or other association or individuals formed or registered outside India; (x) a foreign citizen Very important to know that FC is from foreign source, should have adequate documentation. NRI is not a foreign source but OCI/PIO/Indian acquired foreign citizenship is. Administrative expenses The following shall constitute administrative expenses:- (i) salaries, wages, travel expenses or any remuneration realised by the Members of the Executive Committee or Governing Council of the person; (ii) all expenses towards hiring of personnel for management of the activities of the person and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel; (iii) all expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organisation or Association is functioning, stationery and printing charges, transport and travel charges by the Members of the Executive Committee or Governing Council and expenditure on office equipment; (iv) cost of accounting for and administering funds; (v) expenses towards running and maintenance of vehicles; (vi) cost of writing and filing reports; (vii) legal and professional charges; and (viii) rent of premises, repairs to premises and expenses on other utilities: Provided that the expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training shall not be counted towards administrative expenses: Provided further that the expenses incurred directly in furtherance of the stated objectives of the welfare oriented organisation shall be excluded from the administrative expenses such as salaries to doctors of hospital, salaries to teachers of school etc. FCRA Architecture for regulated entities Registration: Registration, Prior Permission Regulation: bank accounts-3 tier to operate FC, separate books to account for receipt and utilisation, AR and Declaration, Intimation of various kinds of changes Restriction: ceiling on Admin cost, prohibition on speculative activity, prohibition on FC transfer to another person, use of FC only for defined purpose as per 5 limbs Consequences: suspension, cancellation, prosecution, penalty Reporting Forms FC-1: Gift of articles in kind, securities FC-2: Approval for foreign hospitality FC-3A to C: Registration, Prior Permission and Renewal FC-4: Annual Return FC 6A-6E: Change in Name, Address, Objects, Bank, Board Members FC 7: Surrender of registration Major reasons for rejection of registration/renewal No activity, defunct, claimed activities not verified or field visit shows no activity in past 2-3 years Key functionary convicted/proceeding in progress Form incomplete/information concealed No response to clarification sought Office bearers not available at the address provided Organisation not existing at the given address Registration already cancelled Diversion of FC/anti development work/malicious protest Affiliation with radical/terrorist entities Adverse inputs during field inquiry Affect social/religious harmony or forced religious conversion Registration conditions-Rs. 15 lakhs spend on object in last 3 AFS and not in existence for 3 years Rejection of Renewal application No FC spend in last 5 years Non filing of FC4 in any of last 6 FYs Violation of Act & Rules-20% admin exp, discrepancy in FC4, not utilised FC for purpose, FC 6A-6E violation,not filing audited FC financials with FC 4, FC funds transfer to non FC bank, inter charity donation, mixing of FC and local funds CSR Law S.135 of Companies Act, 2013- Corporate Social Responsibility (CSR) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, at least one independent director. The Board's report under section 134 shall disclose the composition of the Corporate Social Responsibility Committee. The Corporate Social Responsibility Committee shall, — (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII; (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the company from time to time. The Board of every company referred to in sub-section (1) shall, - (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website and (b) ensure that the activities in CSR Policy of the company are undertaken by the company. The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. CSR is from Profits, cannot be claimed as business expenditure, therefore no tax benefit as clarified by MCA but courts have granted 80G benefit for CSR spends. Provided that the company shall give preference to the local area and areas around it where it operates, for spending the CSR amount. Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount. Section 135 of Companies Act-changes effective Jan 2021 Paradigm shift in CSR regime-Spend or explain to Mandatory. If a company fails to spend required CSR amount in any financial year: a. The unspent amount is required to be transferred to any fund specified in Schedule VII, within a period of six months of the expiry of the financial year (in the case there is no ongoing project). b. The unspent amount is to be transferred to a special account to be opened by the company in a scheduled bank to be called the unspent CSR account within 30 days from the end of the financial year (in the case of an ongoing project). Such amount shall be spent on CSR activities within three financial years failing which the unspent amount is required to be transferred to any fund specified in Schedule VII, within 30 days. Introduction of penal provisions: Penalty of twice the unspent CSR or INR 1 crore, whichever is less may be imposed on the company, and penalty of 1/10th of unspent CSR or INR 2 lakh, whichever is less may be imposed on all officers in default. Definition of CSR Activities permitted in Schedule VII under Section 135 of Companies Act 2013. Exclusion activities undertaken in pursuance of normal course of business of the company; contribution of any amount directly or indirectly to any political party under section 182 of the Act; activities benefitting employees of the company as per Code on Wages (apprentices not included) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services; activities carried out for fulfilment of any other statutory obligations under any law in force in India.  Note: corpus donation, kind contribution, activities outside India except training of sports person is not CSR. Modes for undertaking CSR CSR activities can now be undertaken by the company itself or through a. Section 8 company/registered public trust/registered society-12A and 80G registration under Income-tax Act, 1961 established by the company, either singly or along with any other company, or b. Section 8 company/registered trust/registered society established by the government; or c. Any entity established under an Act of Parliament or a state legislature; or d. Section 8 company/registered public trust/registered society, (with 12A and 80G registration under Income-tax Act, 1961) having an established track record of at least three years in undertaking similar activities. Companies may now engage international organisations for designing, monitoring and evaluating the CSR projects and for capacity building of their personnel for CSR. Notified by CG under this Act. Administrative overheads have been defined and capped to 5% of total CSR expenditure. Admin OH means any expenditure for general management and administration for CSR function but designing, implementation, monitoring and evaluation of CSR projects will not be part of admin overheads. CSR Committee CSR Committee mandatory if CSR spend is more than Rs. 50 lakhs in a year or there is unutilised CSR fund otherwise discharged by BOD. The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following, namely: a. the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act; b. the manner of execution of such projects/programmes as specified in rule 4; c. the modalities of utilization of funds and implementation schedules for the projects d. monitoring and reporting mechanism for the projects or programmes; and e. details of need and impact assessment, if any, for the projects undertaken by the company: Annual Report format on CSR activities from 1.4.2020 (Annexure II) to be appended to the company AR - unspent, impact asstt. Admin OH, capital assets, location of CSR projects etc. Visibility and UC by CFO Display of CSR activities on company website. The Board of Directors of the Company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access. UC by CFO of the company that the CSR funds have been spent as per AAP not the CSR Committee. Impact assessment Rule 8: Companies having an average CSR obligation of INR 10 crore or more in three immediately preceding financial years will be required to do impact assessment, through an independent agency. CSR projects having outlays of INR 1 crore or more. Completed not less than one year before undertaking the impact study. Ceiling 2% or Rs. 50 lakhs per FY whichever is higher. Cost to be budgeted in the year of undertaking impact assessment. CSR, ESG and Sustainability overlap Sustainability: The outcome achieved by balancing the social, environmental and economic impacts of business. It is the process that ensures that business goals are pursued without compromising any of the three elements (source: NGRBC). Sustainability is the umbrella for ESG (BRSR) and CSR, both are ways business demonstrate commitment to sustainable business practices. CSR is the starting point of ESG. CSR strategy can be refined to fit into ESG (BRSR) metrics. BRSR lends credibility to CSR by quantifying it. Reporting compliance for corporates on Sustainability Form CSR 2 Annual Action Plan (AAP) Annual CSR Report (Annexure II) appended to Board Report Business Responsibility Report (BRR)-discontinued Business Responsibility and Sustainability Report (BRSR) BRSR Core-July 2023- subset of BRSR requiring mandatory disclosure on select key performance indicators on ESG like upstream and downstream value chain partners with reporting by 150 companies from 23-24 to all by 26-27 and guidelines for assurance providers. Introduced in Feb 2022 effective 20-21. Applicable to companies covered under 135(1). e-CSR 2 information: (capture most details that we have covered in section 135 and required in Rules). It includes details of triggers, spend on ongoing and other than ongoing projects, unspent CSR amount, set off, assets created, impact assessment. Filed within 30 days of holding of AGM as addendum to AOC 4. Journey of ESG (BRSR) in India 2011: MCA issued the National Voluntary Guidelines (NVGs) on Social, Environmental and Economic Responsibilities of Business. 2012: SEBI mandated the top 100 companies (extended to 500 companies) by market cap submit BRR to report compliance with NVGs. 2017: SEBI recommended Integrated Reporting for BRR-together on financial and sustainable matters in single reporting. 2018: MCA issued national Guidelines on Responsible Business Conduct (NGRBC) to improve on NVGs. 2021: SEBI introduced improved BRRF requiring in form of BRSR applicable to top 1000 companies by m-cap from 22-23. 9 Principles in NGRBC Principle 1: Ethical Business Conduct - Businesses should conduct and govern themselves with integrity and in a manner that is ethical, transparent and accountable. Principle 2: Product Responsibility - Businesses should provide goods and service in a manner that is sustainable and safe. Principle 3: Employee Welfare - Businesses should respect and promote the well- being of all employees, including those in their value chains. Principle 4: Stakeholder engagement - Businesses should respect the interests of and be responsive to all its stakeholders. Principle 5: Human Rights - Businesses should respect and promote human rights. Principle 6: Environmental Responsibility - Businesses should respect and make efforts to protect and restore the environment. Principle 7: Public Policy Engagement - Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent. Principle 8: Inclusive Growth - Businesses should promote inclusive growth and equitable development. Principle 9: Consumer engagement - Businesses should engage with and provide value to their consumers in a responsible manner. BRSR Each principle of NGRBC has core elements which enhance the operationalisation and objectivity of the principles. BRSR is part of SEBI's Listing Obligation and Disclosure Regulations (LODR). BRSR format: General information Management & Policy disclosures Principle wise performance disclosure-essential indicators and leadership indicators Voluntary BRSR permitted. Overview on Key Policies for NGOs You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو. What are Organisation Policies? Organization policies are internal rules and regulations for smooth operations. Policies act as a framework for decision making. Polices are tools of internal control. Policies cover various areas/functions/matters of an organization. Policies ensures suitable risk management system. a. Statutory POSH-The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, Child protection policy if working with children. b. Others Finance & Admin. HR. DE&I (diversity, equity and inclusion) policy. Code of conduct/ethics. Conflict of interest, Risk Management, IT, Data backup and privacy. Whistleblower. Anti bribery and anti corruption (ABC), Lobbying. Key aspects of Organisation Policies Purpose : They outline the organization's values, expectations and standards of behavior. Formal and Written : Policies are typically documented for uniform understanding and policy compliance. Operational Procedures : They define how tasks are performed, such as leave requests, expense reimbursements, or data security procedures. Legal Compliance : Policies ensure the organization adheres to relevant laws and regulations. Communication : They provide a clear understanding of expectations and help prevent misunderstandings. For Employees : Policies are meant for being followed by employees for discharging duties. Consistency : Policies ensure that everyone is treated fairly and that decisions are made in a consistent manner. Risk Management : Policies help identify and mitigate risks, including security risks and compliance risks. Need for Policies A control tool to monitor resource use efficiently and effectively. To enhance completeness and accuracy of transactions. To provide accurate and reliable reports to enable management for effective decision making. A framework for reference by the staff, management, auditors and other stakeholders i.e. auditor, external agency. A training resource. Policy vs Procedure Policies are principles or rules for decision-making. They show the "why" behind an action. Policies provide the overall framework and direction. Finance policy is a policy... Procedure explain the "how" to carry out the policy. Procedures outline the practical steps to achieve policy goals. Provide step-by-step instructions/ checklist or process guide to follow. Procedure is clearly defined list of the tasks to be carried out. As a timetable for processing transactions and producing reports. ...but how to record accounting transactions, how to do banking etc are procedures. Who formulates Policies Responsibility rests with Governing Body as part of its fiduciary (trust) responsibility. The Governing Body may delegate formulation of draft policy to a sub committee of the Governing Body which comprise of subject matter experts. Draft policy is considered, modified and authorized by the Governing Body for implementation. Policy is a dynamic construct and all modifications made in future based on the evolution of the organization are considered and approved by Governing Body. Such revisions are notified from a particular date, generally the date of approval in the GB meeting. Who implements policies The Head of the function is primarily responsible for ensuring that the policy is fully implemented. Head Finance is responsible for the Finance policy and HR Head for the HR Policy. Some policies maybe the responsibility of Chief Functionary like Conflict of Interest etc. Policies are applicable throughout the organization. The policy holders through the Chief Functionary make recommendations to Governing Body for modifications/revision in policy based on need and relevance at particular point in time. Finance Policy Contents Authorization Matrix Accounting Payment & Advances Budgeting and Budget Monitoring Fund Flows Investment, Treasury and Banking Donor Management Procurement Travel Policy Assets management Petty cash Management Audits and assurance Statutory Compliance Fraud Management Sub grants Authorisation Matrix What it covers : Who has the original authority to take various decisions as per the formation document of the organization as well as the matrix for delegation of such authority. It specifies the level and threshold amounts of authorization for financial or other decisions. Role and Takeaway for people from other departments : Who will approve the requisition for expenditure/ expenditure incurred. Who has the authority to approve transactions/documents like vouchers, travel bills, budgets, Purchase orders, Agreements, new recruitment etc. Accounting What it covers : Method of accounting, Accounting software, Chart of Accounts, Accounting Codes, Cost Centers, Project Codes, Books of accounts and other records, form, place, period as per law, Flow of Accounting Process, Reconciliation and Closing, Final accounts and reporting. Role and Takeaway for people from other departments : Correct organizational data is generated for correct decision making and reporting. Understand and fill up correct codes. As cost-center heads / supervisors, make informed and knowledgeable approvals. Payments and advances What it covers : Types of payments-vendor, employee, consultant, works etc., approval matrix, authorisation, timelines, Advance-travel, program and personal, eligibility for advance, settlement of advance. Role and Takeaway for people from other departments : Ensure payments are authorised as per delegation and after expenses has been approved. Check policy, eligibility and entitlement for various advances. Budgeting What it covers : Budget org structure for org and project budgets, tracking budget through variance analysis; budgetary controls, procedure for budget check; procedure for revision of budget; authority for approval of unbudgeted exp. Common/shared cost allocation policy, post award budget amendments like realignment, NCE etc. Role and Takeaway for people from other departments : Understanding your role in the budget making process and budget tracking; Process of budgetary check when you requisition for an expenditure; what to do when something is not budgeted; procedure for revision of budgets; ultimately helps you keep in track for achieving the objectives of the project as owners of the budget. Procurement What it covers : Procurement process/cycle. Cateogry and Methods of Procurements; thresholds for applicability of procurement procedure based on materiality. Sole sourcing, E procurement, Vendor Management, Lease of offices. Role and Takeaway for people from other departments : For getting the right goods/services which fits your requirement and thus contributing to the success of the project. Also contribute to cost management and value for money. Travel Policy What it covers : Travel Approval and Expenditure claim procedure, Approval and claim format; Details of modes of travel, lodging and boarding and cost benefit analysis; Local conveyance; Entitlements details as per different levels; Different categories of cities; Per Diem details; Travel insurance while on international travel; Safety & security of employees during travel; Travel policy best practices. Role and Takeaway for people from other departments : Travel policy gives standardized rules and regulations while on travel. It saves time of employees as processes and procedures are clearly mentioned. Also results in better analysis with the inputs received from employees review. It helps in cost management. It determines do's and don'ts of conduct/behaviour while travelling. Risk Management What it covers : Risk Management Policy and Process, Internal Controls, Insurance, Fraud Detection, prevention, reporting and investigation, Ethics, accountability and Transparency. Role and Takeaway for people from other departments : Understand your responsibilities in contributing to the control environment as a responsible employee and citizen. HR Policy Contents Leave Policy Employee Referral Policy Attendance Policy Recruitment Policy Compensation & Performance Appraisal Policy Probation and Confirmation Policy Internet Policy Dress Code Policy Whistle Blower Policy Late Coming Policy Transfer Policy Promotion Policy Mobile Policy Job Rotation Policy Laptop Policy Reward and Recognition Policy Code of Conduct Policy Harassment Policy Nepotism Policy Recruitment Need analysis and requisition for a recruitment; preparing job description and budgetary approval for recruitment; Various channels for recruitment, process for various types of recruitment-external or internal(IJP); selection process and selection committee; process of skill matching; process of approval and documentation of a recruitment process; background verification, appointment letter and on-boarding. Induction Probation Compensation and benefits Compensation elements and breakup, salary band for fixation and increment; Retiral and other benefits-EPF, ESI, Gratuity etc, Other benefits i.e. insurance, communication allowance etc; Reward and Recognition policies; trainings skill and value related; Leave & Holiday Policy Type and number of leaves eligibility for staff; procedure to avail each type of leave, carry forward of unused leave, monetization of leave. Public holidays Performance Management How goals for employees for each year will be set. How these will be measured: weightage for competency and values. How the ratings will be decided; Formats for self appraisal, feedback forms and mechanism for feedback; timelines; mode of communication, process of escalation in case differences arise etc. Prevention of Sexual Harassment at workplace Policy against sexual harassment of women at workplace, it can be gender neutral also, Internal committee (IC) where employee strength exceeds 10, create awareness and visibility of POSH and IC, management facilitate enquiry for POSH matters to IC, Annual reporting by IC to management and district authority if more than 10 employees. POSH compliance in Directors Report for company. Other Policies Risk Management Policy : Procedure for mapping the risks in the organization. Then taking mitigating measures for high risks so that the same are brought to an acceptable level; incorporating all the risks and their mitigations with the process with which they are associated. Conflict of Interest Policy : define, identify, handle and report conflict of interest situation. Disaster Management Policy : What to do if disaster strikes; where to get back-ups; what to do to prepare for disaster; keeping back-ups off site, alternate places of operation, insurance policies. Security Policy : Developing a security manual, identify security threats, protocol for management of security at every location. Overview of Risks & Internal Controls for NGOs You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو. Why understand risk management Risks is a must discussion now in NGO-funder relationship, idea is how to understand, capture and manage risks by NGOS. Good risk management is (a) basic to an effective organisation and (b) ensures better delivery of services to community. Fundamental concepts in organisation risk management- risk appetite (willingness to take risk to achieve objectives) and risk tolerance (ability or boundary to take risk/acceptable deviation from risk appetite). Risk appetite is about "taking risk" and risk tolerance is about "controlling risk". Risk appetite denoted risk profile at aggregate level while risk tolerance is at activity level i.e. on case by case basis. Risk management is how to bridge the gap between risk appetite and tolerance. Understand the need for internal controls commensurate with risks. 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 and Sustainability 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 risks : personnel issues, technology issues etc within the organization. External risks : economic, political, legal, act of God etc. in external environment. Residual risk : The risk which inevitably remains after all reasonable mitigation measures have been taken. No organization is completely free from risks. The environment will always contain risks. Risk management/mitigation : Organizational practices, procedures and policies (P&Ps) that reduce the probability of risks being realized and limit harmful consequences. Enterprise/Integrated risk Management (ERM) : An organizational management that considers, combines, and prioritizes assessed risks in all risk areas (security, fiduciary, operational, informational, and reputational) in order to strategize and implement mitigation measures. Risk mitigation is risk reduction, it cannot be made zero. Types of risks facing Organisations Ethical risk: due to unethical behaviour Operational risk: inability to achieve objectives, capacity/competence gaps, financial/funding constraints, access constraints Safety risk: accident/illness Financial risk: improper financial planning and management Reputational risk: damage to image and reputation Security risk: violence/crime Fiduciary risk: breach of trust like corruption/fraud/theft/diversion Legal/compliance risk: violating laws or regulations Information risk: data breach/loss, digital risk, systems breach Competition risk: competitor take your market for goods/services Risk Management Policy- Need Donor audits/due diligence by prospective donors Need to instil a sense of identifying, understanding and addressing risks in the organisation as it grows Create awareness about risk mitigation strategies when faced with risks in our respective areas of work. Staff embrace and own risk management process Act as 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 Management Process Prioritise 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) in order to reduce the risk. Internal controls are mechanisms or procedures or rules to mitigate or reduce the risks and loss to an acceptable level. Internal Controls are of 3 types- a. preventive controls: in place to prevent adverse events b. detective controls: detect error/problem after it has occurred-internal audits, Reconciliations, physical inventorying c. Corrective controls-based on error detected Benefits and Limitations of Internal Controls Benefits Early warning system Prevents fraud Avoids external audit findings Avoids statutory and regulatory penalties and actions Limitations Collision Human error Unforeseen circumstances Key Areas of Internal Controls in NGOs The below Internal Controls can be grouped into one of the following buckets: (a) Financial Controls (b) Operational Controls (c) Compliance Controls The below are illustrative but not exhaustive and discussed in following slides: Legal compliance Governance Budget Income Expenditure Purchase/Procurement Human Resource Management Assets/Inventory Management Accounting Cash and Bank Donor Reporting Program Implementation 1. Internal Controls around Legal compliance Statutory and regulatory compliance-difference All applicable statutory registrations are in order and valid (entity registration, 12AB, 80G, PAN, TAN, FCRA, NGO Darpan, MCA, EPF, ESIC, PT, Shops & Establishments Act etc). All annual/periodic regulatory filings upto date (ITR, TDS, EPF, ESI, PT ROS/ROC etc). Proactively check adverse proceedings/pending matters under various laws. Aware that a statute or rule applies to NPOS. Continued education/awareness/knowledge for changes happening in statutory and regulatory landscape. 2. Internal Controls around Governance Board has fiduciary (manage assets/resources for someone) duties/responsibilities. Governance structure as per bye laws/rules. Meetings as per bye laws, proceedings documented as minutes of meeting. Changes notified & approvals obtained from statutory bodies. Board to put in place risk management/mitigation system. All statutory and other business as per timeline after proper scrutiny and review. Legal action against/violations by board members. Section 13 disallowances for transactions with board members. Approval of P&Ps and sub committees. 3. Internal controls around Budgeting & Budgetary Controls What is a budget? How budget helps organisation in planning and execution of grant projects. What is Budgetary Controls-process, periodicity, ownership of program and finance teams. Course correction/Budget revision to address deviation/variance (favorable or adverse). 4. Internal controls around Grants and other Incomes Grant funds credited in designated Bank account. Grant-proper safety and record keeping. Treatment of interest. Periodic grant Reconciliation. Segregation of duties in Finance. issuance of money Receipt and donation certificate to donor. Timely reporting. Proper receipt and recording of income other than grants which include rent, interest, incidental business activity etc. 5. Expenditure Programme Expenditure or Administrative Expenditure Revenue or Capital Expenditure Head Office Expenditure or Field Level Expenditure Internal Controls around Expenditure Expenditure plan aligned with field requirement and project plan. Monitoring to prevent misappropriation/excessive spend/fraud. Qualified Finance Staff to avoid inaccurate/delay in payments. Proper recording of transactions, report and invoices. Tracking over-utilisation and under-utilisation of expenses under budget head for donor budgets for reallocation/realignment. Proper filing/documentation (bills, vouchers, invoices). 6. Internal Controls around Purchase/Procurement Procurement is act of buying or obtaining goods/services. It includes preparation and processing of a demand until the end receipt is obtained and payment is approved and released. Procurement process cycle. Internal Controls around Purchase/Procurement Initiate procurement after checking budget provision. Identify vendors after proper assessment. Vendor database. Obtaining appropriate bids/tenders. Competitive bids for price discovery. Proper scrutiny of bids by the PC. Terms and conditions in PO/contract. Issue of Purchase Orders (PO) by authorized staff only. Accurate and complete information in the PO. Procurement tracker. 7. Human Resource (HR) Management Management of people who work in an organization is HR Management. Need to manage HR: For better management of an organization. For better performance and results. For better resource mobilization and funding for the organization. Controls around HR Management HR Planning Recruitment of staff as per JD Proper orientation for new recruits Avoid Nepotism Identification of capacity building needs and training of HR Objective performance appraisal Proper handing over for exiting employee Discontinue access to database for resigned employee Maintaining Employee personal information Salary structure Grievance and complaints redressal mechanism Compliance with social security laws for employees 8. Fixed Assets & Inventory Management FA is item of economic value which has a life of more than 1 year. Inventory refers to items such as consumables, durables that are normally consumed within a year. Controls around Fixed Assets & Inventory Asset & Inventory management section in finance policy. Indent for assets and consumables based on need and budget. Purchase approved by PC and as per grant budgets. Specification of assets/inventory captured in PO. Annual verification of fixed assets and consumables. FA Register, Asset Identification No. marking on assets. Assets which are disposed off are removed from FA Register. Stock Register of consumables. Sale of FC assets. Disposal of building, land or higher value assets after Board approval and treatment of CG. 9. Internal Controls around Accounting Accounting is the process of recording, summarizing, analyzing and reporting financial transactions. Area of internal control in accounting- Compliance with new Rule regarding maintenance of books of accounts. Compliance with new Rule regarding maintenance of Other documents. Accounting Software Controls in accounting: Accuracy Standard formats for recording Evidence and supportings Complete and transparent Audit 10. Controls around Cash and Bank transactions Cash is kept in cash box (fixed to wall). Reduce cash transaction and practice online options/universal banking. Cash vouchers numbered and Receipts duly signed by receiver and approved. Dual signatory. Monthly bank reconciliation. Control on cash withdrawal transactions. Signatories per delegation. Update KYC of signatories. Promote online banking. 11. Controls around Donor compliances Timely and accurate preparation of reports. Activities are in line with activity schedule. Data properly collected with reference to objectives of program. Donor reporting guideline and formats are adhered to. 12. Controls around Program Implementation Project Implementation plan carried out as per proposal. No/ minimal mismatch between LFA and budget. Impact of adverse events are effectively monitored. Program implementation is effectively monitored in audit. Appropriate tools of assessment are used. Data presentation is properly done. Outcome of program is properly reported. Concept of Efficiency & Effectiveness In non profits, efficiency refers to maximizing impact with available resources, while effectiveness assesses whether the NGO achieves its stated goals and outcomes. Efficiency focuses on how resources are used while effectiveness focuses on the results achieved. Efficiency measures the degree to which an organization can convert inputs (funds, time, manpower) into intended outputs (programs, services, people served). It emphasizes minimizing waste and maximizing value for each unit of resource invested. Effectiveness assesses whether an NGO is achieving its stated goals and objectives, and whether it's making a significant difference in its area of operation. It assesses outcomes and impact, including whether lives are being improved and problems are being solved. Examples: Tracking progress toward goals, measuring outcomes, and evaluating long-term impacts are ways to assess effectiveness.   Efficiency Effectiveness Definition Efficiency refers to the act of performing activities with minimum wastage of time and optimum usage of resources timely and without error. Effectiveness is the extent to which someone or something is successful towards meeting the desired outcome. Focuses on Doing the assigned task in a correct way Doing the assigned task accurately Focuses on Efficiency is focused on the inputs and outputs Effectiveness is focused on the extent to which work is done and the end result achieved Effort oriented Efficiency is effort oriented on operations Effectiveness is effort oriented on strategy Time oriented Efficiency is time oriented Effectiveness is not time oriented Deep dive into Audit & Assurance, Fraud, Ethics, Accountability and Transparency You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو. Audit and Assurance Audit is a Systematic and independent primarily through examination of financial records, transactions, and processes to assess their accuracy, transparency, and compliance with regulations and accounting standards. It is conducted through an internal team or an independent external auditor. The goal is to ensure the reliability and validity of financial information and to identify errors/irregularities and the effectiveness of internal controls. Assurance is a broader term which enhances the reliability and credibility of various information, including financial and non-financial data, processes, and systems. Audit is a subset of Assurance. Assurance provides independent and professional opinions that reduce information risk (risk from incorrect information) and is broader than Audit. Examples include financial statement audits, compliance audits, IT audit, Sustainability audit and assessments of internal controls and systems. Rationale for Audits Financial audits and reviews are governance tools used to provide assurance to an organization's management and stakeholders that the resources and assets of the organization are being used judiciously for the intended purpose. Audit is a more thorough examination that provides a higher level of assurance, while a review is a less intensive assessment with a lower level of assurance. An audit verifies the accuracy of financial statements while a review assesses whether the statements seem plausible and reasonable. The priority of the audit process is to improve continuously on implementation of the financial and administrative policies. It is also an opportunity to identify and enhance financial control and documentation. A second priority of the auditing process is to identify gaps in policies or areas with substantial control risks so that such risks may be mitigated. A third priority is to establish independently that all personnel are handling financial affairs with integrity. Why we don't like audits Disrupts routine work to attend to audit. Auditors ask for lot of information which needs to be located and shared. Auditors point to mistakes in work. Auditors make wrong observations/opinions or misunderstand things is what we think. How should we approach Audit Audit should be welcome, it is a constructive activity for the organization. Audits create a sense of wanting to improve post audit and working on removing findings in future. Cooperate with auditors so that the audit process results in appropriate findings and recommendations. Mutual understanding of auditor-auditee is critical to success of an audit assignment. Successful audit is like a badge of honor. Audit should not be looked at negatively but as an opportunity to improve operations and organization. Audit builds trust in various stakeholders. Types Of Audits Statutory: Mandatory under Income Tax Act, FCRA, Societies Registration Act and Other Statutes. Mostly involves certifying figures are correct. Donor: Provides assurance to donors that funds allotted applied as per contract and laws of land. Internal: Provides Independent assurance to Management that policies are being followed, legal and contractual liabilities are met, assets are protected etc.. Audit Process Period/Reporting Period for audit. Management Representation Letter (MRL) Management Letter (ML). independent auditor report and qualifications if any, Unique Document Identification Number (UDIN) no from UDIN portal of ICAI. Action Taken Report (ATR). Audit process - Before Audit begins Organize your records and systems for easy review by anybody, whether superior management or donors or auditors. Obtain a copy of 'Scope of Work' from the concerned before audit begins to understand your role in it. Auditors send a list of data or information required in advance. Keep such information ready or provide it to auditor beforehand. Appoint a staff as point person for the auditors, the point person should be from the department being audited and has a fair idea about the rest of the operations in the organization. For onsite audit, keep a designated place where the auditors may work and keep the records. Read the Management Representation Letter provided to Auditor. Audit Process - During Audit Schedule opening meeting: except for internal auditors, other auditors will be outsiders and will need orientation about the organization, business, policies and procedures, projects etc... The better orientation you provide the less chances of misunderstandings at a later stage. Understand what the auditor wants from you. If they want to undertake field trips, decide when and where they want to go and organize things accordingly. Designate point person for clarifications with a timeline for response. Clarifications are not final observations. Provide Clarifications to the auditors as per schedule. Ask the auditor to share draft observations as soon as possible. Prepare response for the closing meeting. Audit Process - After Audit Hold a closing meeting at the end of the audit. It is not necessary to provide all responses at the time of Closing meeting but it is necessary that all observations are disclosed and discussed in the closing meeting. The Closing meeting is to understand the observations. Management Letter and Responses. Prepare an action plan after the Final Report is received and allot responsibility for implementing the action points. Review the action plan periodically until implementation or next audit. Action Taken Report (ATR) before next audit cycle. Awareness of Fraud What constitutes fraud? Fraud is an intentional act, often illegal, used to gain an unfair advantage or cause harm. It typically involves misrepresenting information, concealing facts, or using misleading tactics to deceive others for personal gain. Elements of Fraud: 1. Deception 2. Intent 3. Materiality 4. Harm to Organization. Red Flag: A signal that indicates something unusual and not normal. Prevent fraud through: 1. Internal Controls 2. Awareness training (deference) 3. Detection through Audit 4. Whistleblowing mechanism (report wrong doing without fear of retaliation). It is intentional, if not then it is an error. Types of Fraud Corruption is misuse of entrusted power for personal or organizational gains. Conflict of Interest. Purchase : Bid Rigging, Un-necessary sole-source justifications, Restriction in solicitation documents to restrict competition, Providing advance information to contractors, procuring goods which are not required. Sales : Product substitution, Non tracking of service deliverables, Issuing credit for false customer claims and returns. Others : Bribery, kickbacks, extortion etc.. Embezzlement : Theft of Cash upon receipt and after accounting for it (Cash larceny). Skimming of Cash : Removing cash before the organization has accounted for it. Fraudulent Payments . Missing checks forged and paid for bogus transactions. Payee name altered. Check not released to the intended payee but diverted for a forgery resulting in un-cleared checks in bank reconciliation. Diverting advances to personal use. Exchange of currency at a higher rate (black market) and showing on books the exchange was made at official rate and pocketing the difference. Fraudulent write off and pocketing proceeds etc.. Attempts to overvalue/undervalue net worth or net income through: Timing differences. Fictitious/Understated revenues. Concealing/ overstating liabilities and expenses. Improper valuations and disclosures. Fraud Red flags Examples Behavioral Extremes of arrogance or meekness. Slow in work. Advocating honesty, loyalty and faithfulness. Spending habits not commensurate with the known sources of income. One or two key employees dominating the company. Key employees having close relationship with vendors. Employees having outside business interests conflicting with their job duties. Fraud Red flags Disorderliness: accounting/filing etc. Disaster situations. Good systems but left in autopilot mode; no proper oversight. Sudden profits in loss making business or vice versa. Incomplete information/ absence of records. Situations which are TGTBT (Too Good to be True). Existence of orphan funds (like a donation drive for a disaster or helping a staff etc.). Excess knowledge than the position warrants. Absence of rotation of duties. Several non material observations together creating material effect. Ethics, Accountability and Transparency Ethics Ethics is a system of moral principles. Ethics means doing the right thing in the right way. Ethics is concerned with what is good for individuals, organizations and society (moral philosophy). Organizations should have written Code of Ethics covering all legal and contractual requirement of Ethics under various laws. Need to share and train employees and other stakeholders the Code of Ethics. It includes corporate governance, bribery, discrimination, fiduciary responsibilities. Common examples of Ethical violation usually protected by Law Discrimination : based on age, gender, race, religion, disability, and more. Common instances of discrimination include firing employees when they reach a certain age or giving fewer promotions to people of ethnic minorities. Harassment : is often related to racism or sexism. This can come in the form of verbal abuse, sexual abuse, teasing, racial slurs, or bullying. Unethical Accounting : Showing more or less profits than they actually are. Health and Safety : Organizations may decide to cut corners to reduce costs or perform tasks faster failing to take workers' safety into account can lead to psychosocial risks (like job insecurity or lack of autonomy), which can cause work-related stress. Privacy Violation . Abuse of Leadership Authority . Nepotism and Favoritism . Ethical Dilemma Ethical Dilemma is a situation where individual is faced with a choice between two or more courses of action, none of which are morally ideal or completely satisfactory. In these dilemmas, a decision must be made but all options potentially violate ethical principles. The challenge lies in weighing competing moral values and making a choice that minimizes harm and adheres to ethical standards. Examples : Knowledge of Fraud but not reporting due to lack of courage or fraudster being a friend. Promote a product by misrepresenting it or hiding its negative health effects, official assets for personal use, accepting gifts or other benefits not allowed by policy. Dealing with vendors who are related. Accountability Accountability means being held responsible for actions and the outcomes. It involves taking ownership of responsibilities, delivering on commitments, and being transparent about both successes and failures. It fosters a culture of Ownership. An organization's accountability extends to its members, employees, and community. In a wider sense, accountability implies a willingness to be judged on performance, to accept and learn from mistakes. Accountability builds trust of stakeholders. Examples of Accountability An employee meeting deadlines on a project and being responsible for its quality. A company being transparent about its financial performance and reporting it accurately. A manager providing constructive feedback to employees and holding them accountable for their performance. Organization addressing concerns raised by customers and implementing changes to improve their experience. Tranparency Business transparency is the process of being open, honest, and straightforward about various company operations and sharing such information with all stakeholders concerned. It involves disclosing relevant details, decisions, and actions in a clear and accessible way, fostering trust and accountability. This can include sharing financial data, operational processes, company goals, and even challenges. A transparent workplace can lead to stronger teams, increased engagement, and a culture of trust and respect. It builds trusts of all stakeholders. Transparency builds business advantage. It helps informed decisions. Examples of Business Transparency Disclose your Plans : Even if they don't pan out, it's safer to inform Staff about potential changes rather than spring it on them last minute. For instance, one of the best tips for relocating your office is to talk to your staff. Work with them to organize the move and loop them into the details. Organization Culture : Having a Coaching culture is better than Command and control culture in organizations, which is important towards individuals feeling valued and comfortable within their roles. Follow Up on Promises : Stick to your word. Though it's a challenging thing to do as your company expands, it's worth it to stand by the promises you make. Bring Your Whole Self To Work : Build trust with your employees by bringing your whole self to work. Don't put on a façade; let people see the real you. You can form relationships with everyone in your company when you talk about your life. This will allow others to do the same, creating a culture of trust in your workplace.