## NGO Audit: Donations Received and Remitted

When an NGO collects donations for a specific cause and redistributes them to implementing NGOs, the auditor must verify two separate flows: the inflow (donations received) and the outflow (remittances to beneficiary NGOs).

### Part A: Auditing Receipt of Donations

Area	Audit Procedure
Internal Control	Assess segregation of duties: authorised collection, custody of receipt books, safe custody of cash
Receipt Book Custody	Check system for issue/return of receipt books; physically verify unused books; check serial numbering
Cheque Donations	Verify carbon copy receipts signed by responsible official; confirm cheque details (bank, date, amount) on receipt
Bank Reconciliation	Reconcile bank statements with receipt book — by date, amount, and receipt number
Cash Donations	Vouch cash donation register extensively; where donor addresses available, consider sending thank-you letters (cross-check)
Foreign Contributions	Special compliance check under applicable laws (FCRA and related regulations)

### Part B: Auditing Remittances to Other NGOs

Area	Audit Procedure
Mode of Remittance	All remittances via account payee cheques; DD remittances — scrutinise recipient details thoroughly
Receipt Confirmation	Every remittance supported by acknowledgement/receipt from recipient NGO
Identity Verification	Verify recipient NGO is genuine: check address, 80G registration number
Direct Confirmation	Send confirmation letters directly to recipient NGOs
Utilisation	Verify funds were used for the stated purpose (flood/disaster relief) and not diverted
Selection System	Examine the process/criteria used to select which NGOs received remittances

### Why This Matters

Pass-through donations create a fiduciary risk: funds collected in good faith by donors may be misused or diverted. The auditor's role is to trace the entire chain from donor to ultimate beneficiary.

Worked example

### Example 1

Scenario (RTP Jan 25): An NGO in Kolkata collected significant donations for flood victims in Bihar and distributed funds to various NGOs operating in Bihar. Draft an audit program to audit: (1) receipts of donations, and (2) remittance of collected funds to different NGOs.

Receipt of Donations:

1. Assess internal control — division of responsibilities for collection, receipt book custody, and cash safekeeping.

2. Check system for issue/return of receipt books; physically verify unused books and numbering sequence.

3. For cheque donations: verify carbon copy receipts, signed by responsible official, with full cheque details.

4. Reconcile bank statements with receipt book entries (date, amount, receipt number).

5. Vouch cash donation register extensively; send thank-you letters where donor addresses are available.

6. Check compliance with FCRA for any foreign contributions.

Remittances to NGOs:

1. Confirm all remittances are by account payee cheque; scrutinise any DDs for recipient verification.

2. Confirm each remittance is supported by a receipt/acknowledgement.

3. Verify each recipient NGO: check address, 80G registration.

4. Send direct confirmation letters to all recipient NGOs.

5. Check that funds were used specifically for flood relief and not any other purpose.

6. Examine the criteria/system used to select recipient NGOs.

⚠️ Common exam mistakes

Auditing only the receipt side — the remittance side is equally important and has distinct procedures.
Overlooking FCRA compliance for foreign contributions — this is a separate and specialised compliance area.
Skipping direct confirmation to recipient NGOs — this is essential when the NGO cannot physically observe utilisation.
Not verifying the 80G registration of recipient NGOs — ensures they are legitimate charitable entities.
Treating all remittances the same regardless of mode — Demand Drafts require additional scrutiny compared to direct account-payee cheques.

Reference:

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NGO Audit – Audit Program for Receipt of Donations and Remittances to Other NGOs

Worked example

⚠️ Common exam mistakes