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NGO Audit

NGO is an organisation established by a group of individuals to perform or render service to the nation and people. NGOs have to make an audit of books of the accounts every year. In their own interest, they have to get their accounts regularly audited every year and have to file an income tax return.

  • Setting up the working of an NGO
  • Liaison about procurement of grants, donations or funds
  • FCRA Registration and compliances
  • Other Registration such as 80G/12AA of Income Tax Act
  • Income tax Advisory 
  • Assistance in Internal and Statutory Audit 
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Overview of NGO Audit

A non-Profit Organisation (NGO) is an organisation which is operating its social activities with public donations. So, the NGO needs to make accounts and financial statements to show its performance to the general public.

NGOs are established as a public trust under the Trust Laws or Societies Registration Act or a company under the Companies Act, 2013. The NGO requires to receive a foreign contribution for getting its books of accounts audited by the Chartered Accountants (CA).

An NGO gets its accounts audited according to the Incorporation Law depending on its form of Registration. The audit is done as per the Trust Act, Societies Act, Companies Act or Income Tax Act.

Section 12A (b) of the Income Tax Act has made audit mandatory for an NGO in case the total income of the NGO exceeds the maximum amount that is not chargeable to Income Tax in any previous year. The receivables of an organisation are required to be mandatorily audited according to Section 12A (b) of the Act.

Introduction to NGOs

An NGO is established by a group of people to render service without the intention of profit but rather with the sole purpose of helping people in society. The NGO is a non-profit organisation where funds are raised from members, donors, or contributors. In NGOs, funds are also raised through donations and by accomplishing social objectives like giving education, economic assistance to the poor, providing health and medical facilities and dealing with other social issues.

An NGO is established to serve the people and the nation. The source of Income for an NGO is donations from the Government and other donors who are willing to contribute to society. The NGO maintains books of accounts related to the incoming and outgoing funds. The NGO can also get the book audited for their own interest by an independent auditor to assure the donors to rely on the reports. NGOs also file mandatory Income Tax returns.

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Benefits of Audit for NGOs

There are so many benefits of audit for an NGO. The most basic benefits of audit for the NGO are as follows:

  • The audit helps the NGO in providing proof of authenticity and honesty in the financial statements and practices carried them.
  • Auditors are updated with the amendments made by the Government.
  • Auditors provide valuable advice to the NGO on financial matters and controls.
  • An audit allows the NGO to take and apply the knowledge provided by the auditors.
  • The NGO also takes the help of an auditor to investigate particular issues.

Types of the Audit for the NGO

Four types of audits are carried out for an NGO to examine its activities of it and verify its working of it as per law and order without any interference, i.e., independently. These audits are as follows:

  • External Audit 

An independent external auditor executes the external audit. Such an Auditor gives a professional opinion on the fairness and credibility of the financial statements b conducting an examination of samples of the records.

The opinion of this auditor plays a vital role in providing a set of proof of the truthfulness and genuineness of financial reports.

  • Internal Audit

The internal audit is executed by the officers and other staff of the NGO or by any professional who is exclusively hired for the audit. The verification of the NGO's policies and procedures is done in an Internal audit.  

  • Donor Audit

The donor audit is performed by the donor themselves or any external auditors of the NGO. This ensures the donors that their donations are duly utilised.

  • Investigative Audit

The investigative audit is performed in a case where the NGO suspects an issue, and the auditor is required to uncover and investigate all the primary and secondary facts.  

Purposes of Audits

The different purposes of all types of audits are as follows:

  • External Audit

This audit examines the fairness, authenticity and accuracy of the financial statements of the NGO.

  • Internal Audit 

This audit examines the procedures and policies followed by the NGO.

  • Donor Audit

This audit examines all the terms and conditions followed by the NGO.

  • Investigative Audit

This audit searches for the evidence connected to the suspected fraud or any other issue.

Forms of Financial Statements for the purpose of NGO Audit

The financial statement forms part of the General-Purpose Financial statements of an NGO:

  • Balance sheet
  • Income and expenditure account
  • Cash flow statements

The fund-based accounting is relevant for the NGO. The Income and Expenditure Account has these three columns to provide income and expenses related to the restricted funds as differentiated from unrestricted funds:

  • Restricted funds
  • Unrestricted funds (Designated and General Funds)
  • Column reflecting the total income and expenses of restricted and unrestricted funds.  

The NGO separates designated funds from other unrestricted funds in the internal auditing records. The NGO must take care at the time of publishing the accounts. The NGO also provides an integrated balance sheet at the time of auditing.

The financial statement is prepared only after confirming the accounting standards and other relevant statutory requirements.

Steps were taken by the auditor in conducting the audit

The auditor follows different tasks performed or steps while conducting the audit. Following are such tasks or steps:

  • The auditor studies the memorandum of the NGO to know the activities and services of the NGO.
  • The auditor keeps a check on the grants received by NGOs from the foreign institutions and whether it was as per the appropriate rules and regulations or not.
  • Auditors check the use of the Government's grant, and a proper account is maintained for keeping a record of such grants.
  • The auditor also checks the donation received from any individual or institution and also checks the use of such donation.
  • The auditor examines the amount received as a subscription ratifying with the counterfoils of the receipts.
  • Auditors study the decision made by the executives.
  • The auditor makes physical verification of assets ratifying with the store ledger.
  • The auditor also checks the liabilities and proper transfer of them.
  • The auditor ensures the legality of NGOs and other compliances such as the Income Tax Act, ESIC, etc.
  • Auditor confirms the applicability of Sections 12AA and 80G.
  • Auditors conduct the background check of all the executives and officials of the NGO and other people who are connected with the NGO.

Contents of the auditor's report in an NGO Audit

The contents of the auditor's report are as follows:

  • A balance sheet of society name with address
  • Income and Expenditure Account
  • Receipts
  • Payment account

The format of the auditor's report is as follows:

  • The auditor receives all the explanations and information that are necessary for the purpose of the audit.
  • The book of account is appropriately maintained as per the law.
  • The balance sheet and income and expenditure account dealt with the report
  • The account gives a fair view of the following:
  1. The state of affairs of NGO in case of a balance sheet
  2. The surplus amount in the case of income and expenditure account.
  3. Payment of the society during the end of the financial year for the receipts and payments account.

Documents included in Annual Accounts of NGO Audit

The list of documents that are included in audited annual accounts for NGO audit is as follow:

  • Auditor's report
  • Balance Sheet signed by Chief Functionary & Board Members of the NGO
  • Income and Expenditure Account signed by Chief Functionary & Board Members of the NGO
  • Receipts and Payment Account (in case of FCRA registration) signed by Chief Functionary & Board Members of the NGO
  • Notes of Accounts
  • Fixed Assets Schedule
  • Complete Schedules
  • Year, no errors and figures for the previous year should be mentioned in the schedules
  • Original copy of the documentation.
  • Payment of salary, fees, remuneration or reimbursements to the members or other person involved.
  • Any other document required.

The Audit Procedure for NGO

The NGO carries out its social activities with the help of donations, and so an NGO needs to prepare the financial accounts and statements to showcase the authenticity of its performance and efforts to the general public. When an independent CA audits the accounts, it sums up its validity in the eyes of the public. The procedure for auditing is as follows:

  • Auditor first checks the books with the previous data, accounts and trial balance.
  • Auditor then checks the receipt and payment accounts and also the income and expenditure accounts.
  • Then the auditor checks the total amount the NGO has received and its expenses. He also checks the nature of expenses.
  • The auditor, at last, prepares the audit report after thoroughly verifying and checking all the financial statements.

CorpBiz Procedure for NGO Audit

  • Purchase a Plan for Expert Assistance
  • Add Queries Regarding NGO Audit
  • Provide Documents to Corpbiz Expert
  • Complete Procedural Actions for NGO Audit
  • Get your work done.

Frequently Asked Questions

The audit report is prepared by the auditor with all facts related to the audit. An audit is an examination of books of accounts based on the regularity, rationality, economy and efficiency. The auditor checks the books of accounts based on the evidence. The auditor prepares the financial statement based on the information collected from examining documents and records presented as evidence. The auditor prepares a record with the facts found in the audit course, known as an Audit Report.

The NGO appoints a CA to audit the books of account. The auditors must visit at least once a year or as per the requirements. The auditor examines the books of account. Then they prepare a balance sheet, income and expenditure, income and receipt and payment accounts that are submitted to the donors and the line departments.

The NGO is required to audit the accounts every year regularly and file income tax returns because the Government, corporate, or other charitable sources ask for the last three years' audit report while providing the grants. According to the IT Act, auditing of accounts is important for having revenue beyond a specific level that may change into a budget.

The NGO must have a CA for consulting on auditing work because they are experts in checking the financial accounts.

It is always the duty of an auditor to check the grants received by the NGO. He checks whether such grants are received as per the legal provisions provided for the same.

The auditor prepares the audit reports addressing the shareholders and presents the same to the concerned department and to the company.

The auditor considers the following facts while preparing the report:

  • Addressed to the appropriate authority
  • Opinion of Auditor in connection to the financial statements
  • Repost should be based on the examination of all books of accounts
  • Date showing the duration of the audit
  • The report should be clean, qualified and adverse.
  • Facts in the report should be clear, correct and concise.

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