# Audit of Charitable Institution

## Verification of Income

### 1. Subscriptions and Donations

Step 1 - Verify Subscription Rates:

Ascertain changes made in the amount of annual or life membership subscription during the year

Step 2 - Receipt Book Verification:

Whether official receipts are issued
Confirm control over unused receipt books
Obtain all receipt books covering the period under review
Test check counterfoils with cash book
Obtain printed list of subscriptions/donations and agree with total collections
Examine internal check on box collections
Verify total subscriptions and donations received with figures published in reports by the charity

### 2. Rent

### 3. Investments Income

Vouch amounts received with dividend and interest counterfoils
Check calculations of interest on securities with fixed rates
Check that dividend is received where investment has been sold ex-dividend or purchased cum-dividend
Compare dividends received with schedule of investments - special enquiries for investments where no dividend received

## Verification of Expenditure

### Grants Payment

### Securities and Properties

### Other Verifications

Verify cash and bank payments
Ascertain that funds contributed for special purpose have been utilised for that purpose (purpose-tied funds restriction)

Worked example

### Example 1

Example - Box Collection Internal Check:

A charity has donation boxes at various locations. Auditor should verify:

1. Boxes are sealed and serially numbered

2. Boxes are opened in presence of 2+ authorised persons

3. Cash counted, recorded in counting sheet signed by all present

4. Cash deposited in bank same day/next day with reference

5. Reconciliation with bank deposit slips

### Example 2

Example - Purpose-Tied Fund Verification:

A charity receives Rs 10 lakh as donation specifically for 'flood relief in Kerala'. Auditor must:

Trace this Rs 10 lakh into a separate ledger/sub-account
Verify that expenditure debited matches actual flood relief activity in Kerala
Any unutilised balance remains as liability (specific fund) until utilised for stated purpose

### Example 3

Example - Cum-Dividend / Ex-Dividend:

Charity purchased shares 'cum-dividend' on 1st March (before record date 15th March):

⚠️ Common exam mistakes

Not maintaining control over unused/blank receipt books, leading to misappropriation of donations
Failing to segregate donations received for specific purposes from general donations
Ignoring 'cum-dividend' vs 'ex-dividend' status when verifying investment income
Not physically verifying immovable properties and inspecting title deeds
Treating purpose-tied donations as free income of the charity

Reference:

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