## Audit of Non-Governmental Organisations (NGOs)
### What is an NGO?
NGOs are non-profit organisations that raise funds from members, donors, or contributors to achieve social objectives — education, medical facilities, economic assistance to the poor, disaster management, etc.
### Legal Forms of NGOs in India
| Form | Governing Law |
|---|---|
| Society | Societies Registration Act, 1860 |
| Trust | Indian Trusts Act, 1882 |
| Non-profit Company | Companies Act, 2013 — Section 8 |
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### Sources and Application of Funds
#### Sources of Funds
Grants and donations, fund-raising programmes, membership fees, subscriptions, technical assistance fees, sale of produce or publications, advertisements.
#### Key Concepts in Fund Classification
| Fund Type | Description | Accounting Treatment |
|---|---|---|
| Corpus Contribution | Promoter-type contribution forming the capital of the NGO; with donor's specific direction to form part of corpus | Capital receipt — shown as liability in Balance Sheet, NOT as income |
| Revolving Fund | Rotated as temporary loans to other NGOs/beneficiaries | Interest earned may go back to the fund or to I&E Account per fund rules |
| Grant for Fixed Assets | Specifically for purchasing/constructing assets | Applied to acquire the specified asset |
| Contributions in Kind | Assets such as land, buildings, vehicles, food, books, raw materials | Valued and recorded appropriately |
S. 11(1)(d), Income Tax Act, 1961: Voluntary contributions directed to form part of the corpus are excluded from total income — no tax liability on such receipts.
#### Application of Funds
Establishment costs, administrative/office expenses, maintenance expenses, programme/project expenses, donations and contributions given.
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### Audit Planning — Key Considerations
The auditor should:
1. Understand the NGO's mission, vision, areas of operations, and operating environment
2. Update knowledge of relevant statutes: FCRA 2010, Societies Registration Act 1860, Income Tax Act 1961 (amendments, circulars, judicial decisions)
3. Review the legal form, MoA, AoA, Rules & Regulations
4. Review Organisation chart, Financial & Administrative Manuals, Programme/Project Guidelines, Funding Agency requirements, budgetary policies
5. Examine minutes of Board/Managing Committee/Governing Body for financial impact of decisions
6. Study accounting system, procedures, internal controls and internal checks
7. Set materiality levels
8. Determine nature and timing of reports
9. Consider involvement of experts and their reports
10. Review the previous year's audit report
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### Audit Programme — Area-wise Procedures
| Item | Audit Procedure |
|---|---|
| Corpus Fund | Vouch contributions/grants with donor letters confirming corpus direction; verify interest income with Investment Register and physical investments |
| Reserves | Vouch transfers from projects with donor letters and board resolutions; check capital reserve adjustments |
| Ear-marked Funds | Check donor requirements, board resolutions, scheme rules |
| Project/Agency Balances | Vouch disbursements per donor agreements for each balance |
| Loans | Vouch with loan agreements and counterfoils of receipts issued |
| Fixed Assets | Vouch acquisitions/disposals, depreciation, authorisations, donor letters; verify title for immovable property |
| Investments | Verify Investment Register and physical investments; confirm in NGO's name; check approvals for purchases/sales and bank entries for principal and interest |
| Cash in Hand | Physical verification at year end; agree to books |
| Bank Balance | Check bank reconciliation; investigate old/unadjusted items |
| Inventory | Verify quantities; obtain management certificate for quantities and valuation |
| Programme & Project Expenses | Verify donor agreement conditions; check TDS deduction, deposit, and return filing for contract-based programmes |
| Establishment Expenses | Verify PF, LIC premium, ESI deductions deposited within prescribed time; check administrative expenses |
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### Checking Income Receipts
| Income Type | Audit Procedure |
|---|---|
| Contributions & Grants | Check donor agreements and grant letters; verify foreign contributions deposited in the designated FCRA bank account |
| Fund-raising Programmes | Verify internal controls; identify persons responsible for collection; ensure collections are counted and deposited in bank daily |
| Membership Fees | Cross-check with Membership Register; distinguish entrance fees, annual fees, and life membership fees |
| Subscriptions | Reconcile with subscription register, receipts issued, and dispatch of magazines/circulars; verify against subscription rate schedule |
| Interest & Dividends | Cross-check with investments held during the year |
FCRA 2010 Compliance: Financial statements in the prescribed format must be furnished to the Ministry of Home Affairs within 60 days from the close of the financial year (i.e., by 30 May each year).