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FCRA Dos and Don’ts

FCRA Dos and Don’ts

As a crucial Act, an organization should take utmost care regarding FCRA. However, many myths prevails regarding what should be “Dos” and “Donts” regarding FCRA. Ministry of Home Affairs have clearly issued advisory in regard to this. You can download PDF from here. We try to make it simple and in Graphical Format. Lets Start with “Donts”

1. Do Not Mix Foreign Contribution with Domestic Receipts

Dont's1

Our Interpretation*

  1. Bank accounts must be separate (obviously)
  2. Do not Transfer funds from FC Bank to NonFC (even Direct Bank Transfer)
  3. Books of Accounts must be separate.
  4. Keep Separate Cash Box (it shows good cash control system)
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FCRA and Administrative Expenses

Excess Administrative Expenses – one of the reason to cancel FCRA Registration

FCRA department may cancel your organization registration if you have excessive Administrative and Salary Expenses. Last month, FCRA Department has cancelled registration of SABRANG Trust. In the order regarding cancellation, one of the findings is, administrative expenses were excessive than permitted  by FCRA and no approval was taken. See para 5 of this order.

How much Administrative Expenses Allowed in FCRA?

As per Section 8 (1) (b) of the FCRA, 2010

“shall not defray as far as possible such sum, not exceeding fifty per cent. of such contribution, received in a financial year, to meet administrative expenses:”

So as per FCRA, limit for administrative expenses are 50%.

What is considered as Administrative Expenses?

Definition of Administrative Expenses is given in the Rule 5 of  FCR Rules, 2011. You can read it from here.

Let us interpret this rule.

 

  • As per Rule
  • (i) salaries, wages, travel expenses or any remuneration realized 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

     

  • (vi) cost of writing and filing reports;

     

     

  • (vii) legal and professional charges;

     

  • viii) rent of premises, repairs to premises and expenses on other utilities:

     

     

     

  • * This interpretation is Author’s own view and kindly take expert opinion before taking any decisions based on this interpretation
  • Our Interpretation *
  • Any payments to Governing Board Members, Trustees, Exe committee members whether in the form of consultancy, remuneration, honorarium, wages, travel should include in the Administrative Expenses. However, program staff salary and travel is to be considered as project expenses.

  • Any payments to managers or co-ordinators, coordinating activities and persons of the organization should be considered as administrative expenses.

  • All the expenses related to Functioning office are considered as administrative expense. However, expenses related to the premise specifically and exclusively used for the project activities, like Training Centers, Library etc.. are not considered in the administrative expenses.

     

  • Salary of accountant or office support staff and travel and other expenses of them should be considered as administrative expenses.
  • Any expenses related to documentation whether it is consultancy, salary, wages, travel etc.. should considered as administrative expenses.
  • Audit Fees, Advocate Fees, Legal fees should considered as administrative expenses.
  • Rent, Rates and taxes of Admin office and field office should considered as administrative expenses.However, expenses related to the premise specifically and exclusively used for the project activities, like Training Centers, Library etc.. are not considered in the administrative expenses.
  • * This interpretation is Author’s own view and kindly take expert opinion before taking any decisions based on this interpretation

 

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How to configure Tally ERP9 for NGOs – Cost Category

Series – How to Configure Tally ERP9 for NGOs

Topic – Using Cost Category for Three Di-mention Reports

Do you need to provide different reports to different funding agencies in different format ? Are you using EXCEL as main tool to get report ? Do you need to take figures from Tally and present it in different formats ??? If, so than read this blog to configure Tally ERP9 in such a way to get almost all the reports from it.

What is the Problem ?

NGO need to report to different agencies / people in different formats. Like funding agencies wants  to know “Expenditure as per budget Head”, Trustees or Program Head wants to know about Project wise / Area wise / Activity wise expenditures and Auditor wants to know expenditure in standard format like nature wise expenses and so on…

What is the solution ?

To Create such an accounting system so that expenditures are entered once but get the reports from different Di-mentions. Tally ERP9 is capable of doing this by using Cost Category features. Lets take a look how we do it.

Step 1 – Configure General Settings

Gateway → F11 Features → Accounting Features → Cost/Profit Centers Management → Maintain Cost Center → Yes → More than once Cost Category → Yes

Step1_TallyERP9_CostCategory

Step 2 – Create Cost Category

Gateway → Account Info → Cost Categories → Create

I have Created two categories

1) Project wise Expenses – For entering expenses as per Budget Head of the Project

2) Nature wise Expenses – For entering expenses as per Nature like standard expenses i.e Telephone Exp etc..

Step2_TallyERP9_CostCategory

Step 3 – Create Cost Centers (Project Name)

Gateway → Account Info → Cost Centers → Create

I have Created three Projects – Project A, Project B and Project C expenses under Cost Category “Project wise expenditure”

Step3_TallyERP9_CostCategory

Step 4 – Create Ledger Account  (Budget Head)

Gateway → Account Info → Ledgers → Create

Create Ledger Account same as per Budget Head of the Funding Agencies under Project Name as group (Indirect Expenses) .  See below image – I have created Ledger “Communication – Field (PA) under “Project A Expenses” under “Indirect Expenses”

Step4_TallyERP9_CostCategory

Step 5 – Cost Center (Standard Expenses)

Gateway → Account Info → Cost Centers → Create

Now create Standard Expenditures under theses second type of Cost Category “Nature wise Expenditures”. I have Created Telephone Expenses and such other Standard expenses – see below image.

Step5_TallyERP9_CostCategory

Step 6 – Voucher Entry

Now whenever voucher entry is made you have to select two components i) Project wise and ii) Nature wise.- see below image.

Step6_TallyERP9_CostCategory

Step 7 – Reports

Gateway → Display → Statement of Accounts → Cost Centers → Category Summary

From this Report, you can get total expenses bifurcated in both way Nature wise Expenses and Project wise Expenses. Have a look.

Step7_TallyERP9_CostCategory

Step 7 – Reports (Continue…)

Gateway → Display → Statement of Accounts → Cost Centers → Cost Center Breakup

From this Report, you can get total expenses Project wise. Have a look.

Step7.1_TallyERP9_CostCategory

Conclusion – Use your creativity

By using cost category and your creativity, you can fulfill any requirements and have wonderful reports.

I have created Area wise expenditure to know exactly how much expenses in Rural Area and Urban Area or Filed office Expenses and Head office Expenses. Have a look….

Step7.2_TallyERP9_CostCategory

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Expenditure of more than Rs. 20000 in Cash

FCRA advisory committee has issued a circular for all the NGOs having registration of FCRA  to spent expenditure of more than Rs. 20000 only by way of CHEQUE or DEMAND DRAFT. This means any CASH Expenditure for more than Rs. 20000 is not advisable as per this circular. The circular issued by FCRA department is attached here.

Let us get into the details.

Why such circular ?

FCRA department has mentioned in the circular that, they have observe many organizations has spend or withdraw huge cash from FCRA Bank and Utilization account.

Is there any provision in FCR Act 2010 ?

As such there is no specific section in the FCR Act, 2010 for limiting expenditure in cash. FCRA Department has given reference of  Sec 40a(3) of Income Tax Act for dis-allowance of expenditure of more than Rs. 20000. However in my opinion that section is applicable to only business income and not grants.

Consequences if spent expenditure for more than Rs. 20000

FCRA department has made it clear in circular that in case of payments expenditure  of more than Rs. 20000 by CASH, such associations are likely to require more intensive scrutiny by Government

What NGO has to do?

Try to make all the payments and expenditure of more than Rs. 20000 by crossed payee cheques or demand draft.

However, in practicality, sometimes NGO has to pay by CASH. In such circumstances there must be valid reason for that and NGO has to keep record for such explanation. So that in case of scrutiny, NGO can put its valid reasons before authorities. (It is author’s personal view)

For any further inquiry click here.

FCRA Department Circular

FCRA Cicrular_Rs20000

 

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How to file Audit Report of Trust?

Audit Report of Trust

As per Income Tax Act, every Trust has to file Audit Report for the relevant Assessment Year in Form 10B.

E-Filling of Form 10B

This Audit Report of Trust has to be filled in Form 10B. It is mandatory to file this form online with Income Tax department website. This form is initiated by Chartered Accountant of Trust and later on approved by Authorized Representative (Trustee/secretary/chairman) of the Trust.

Last Date

Last Date for filling Audit Report of Trust in Form 10B is 30th September. So For Financial year 2013-14 last date is 30th September 2014.

Video Tutorial

Just go through our video below showing tutorial on how to file Audit Report of Trust.

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NGO and Budget 2014 – Less “Khushi” More “Gham”

NGO and Budget 2014

Finance Minister has proposed many changes for NGOs and Trust in the Finance Act 2014. On one hand many relief are given and on the other hand adding more powers to CIT will cause hardship to NGOs. Let us take highlights of both :

Retrospective Tax Exemptions

It is proposed by Finance Minister that now a trust can claim exemption u/s 12 AA even for the period before applying registration of 12AA. Earlier trust can get tax exemptions only from the date of getting registration.

Exempt Past Assessment years

The Finance Bill, 2014 proposes to exempt Past Assessment Years where the assessment proceedings are pending before the AO on the date of registration.

Anonymous Donation

It is proposed that while calculating Tax Liability of Trust, instead of excluding entire amount of anonymous donation, only the amount in excess of 5% of total income or Rs. 1 Lac whichever are higher should be deducted.

Power of Cancellation

The amendment may create discomfort among NGOs is to increase powers of CIT to cancel Registration.  Earlier only in two cases CIT can cancel the registration 1) If he feels that activities of organization were not genuine and ii) activities were not being carried out in accordance with the object of the trust. In current Finance Act, another four such provisions added –

 if the institution’s activities are being carried out in such a manner that:

iii) its “income does not enure for the benefit of general public”

iv) “it is for benefit of any particular religious community or caste”

v) “any income or property of the trust is applied for benefit of specified persons like author of trust…”

vi)  its “funds are invested in prohibited modes”

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Pros and cons of per/km Travel Policy of NGO ?

In earlier posts, we have seen what should be good NGO Travel Policy.  As questions asked by many of my readers regarding each traveling policy in detail,  I inspire to write a blog on each  Traveling Policies prevailing in the NGO sectors in detail and also its advantages and disadvantages. Today, Let us take a traveling policy used by many NGOs, from small one to huge one, which is per kilometer charge to project.

Charging per kilometer to Funding Agency

We all know that NGOs have to agree on a specific budget with Funding Agencies. Many of the NGOs have decided per kilometer rate and charged to Funding Agency and chttp://kcjmngo.com/wp-login.phpreated a Fund with whatever name, be it Vehicle Maintenance Fund, Vehicle Fund, Traveling Fund Reserve…. etc.. Now from this fund, actual expenses for travel (Fuel, Servicing, Oil etc…) is paid but if you want to invest in other extras or accessories, like a dash camera from Blackboxmycar.com just for security, it will need to come from your budget. Is this an ideal policy? In my opinion a BIG NO. One should avoid this policy. Lets us discuss positive and negative points of this travel policy of ngo. Start with Negative.

Why one should avoid this policy?

  1. The amount charged to Funding Agencies may or may not be same as actual total expenses of travel. This lead to generate surplus amount in your Vehicle Fund in your Balance Sheet at the end of the year.
  2. This give wrong impression, that you are saving some money from year to year from Projects supported by funding agency.
  3. Some NGOs even raise a Bill of Traveling to Funding Agency as support. This will lead into double entry of Income and expenses. First time entered as income in Grant Received and Project Expenses and second time Traveling Income by raising invoice and actual travel expenses. If you are doing this , stop it immediately.
  4. By using this you are violating terms of Project Agreement with Funding Agency. Because you agreed to spent budgeted money on specific Project. However when you adopt this policy, you are saving some money and not actually spending all as per agreed budget.
  5. As per FCRA rules, you have to spent Foreign Grants for the purpose it is received. You can not create reserve or Vehicle Fund  from FC money.
  6. When Vehicle Fund gets accumulated from year to year and showing balance of considerable amount on Liability side on Balance Sheet, it is assumed that you have that much amount in your Bank or FDs on the assets side correspondingly. This sometime become obstacles in getting fund from Funding Agencies.

What is the solution then ?

In my opinion, Actual expenses of travel to be booked to project. In supporting, original fuel bills, maintenance bills should be attached. In second level supporting, a Log book should be maintained. In case of more than one project, bills and expenditure should be divided proportionately.

Summary

Try to adopt that Traveling policy which suits your organization and your funding agencies more. My advice is, if you are following this travel policy, add one clause in the agreement with funding agency.

 

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How to prepare Chart of Accounts in NGO

The new Financial Year is at the doorstep. There are some steps to be taken in the beginning of the year, so that the whole financial year will pass smoothly. One of such step is to prepare Standard Chart of Accounts in NGO.

What is Chart of Accounts in general?

In common terms, chart of accounts means, ledger accounts and group accounts shown in books of accounts. For different types of business activity and entity, chart of accounts is different. To maintain uniformity throughout the financial year, it is advisable to have standard chart of accounts. These charts will also help you to know how your seis tax relief investment scheme works.

Chart of Accounts in NGO

Why Chart of Accounts require in NGO ? As we know, there is vast difference in ledger accounts of corporate world and ledger accounts of NGO, specifically ledger accounts of Income and Expenses Group. When it comes to leading a business, some of the most important decisions you will make are about how you organize this list of GL accounts so that you, as the CEO, can create reports. In Corporate World, common ledger accounts are Sales Account, Service Income Accounts, Purchases, Salary Account, Telephone Expenses, Office Expenses, Stationary Expenses etc… However in NGO, apart from above, we have to take care of Budget line items of particular funding agency, so mainly ledger accounts are equal to line item of budget. Here an NGO grouping is made according to projects. Thus it is one of important exercise accountant has to do is preparing Standard Chart of Account in NGO at the beginning of the year. For those of you who are new to this task, you can work alongside other future CEOs at Search Fund Accelerator while taking advantage of the firm’s best practices and technologies in this and any other field.

Steps to prepare Chart of Accounts in NGO

 

Step 1 : Identify all continuing projects and its ledger accounts

Al l the ledger accounts of the projects, which are continue as on 1st April, are to be identified and put on paper or prepare an excel sheet with grouping.

Step 2: Identify other common Income and Expenditure Accounts

Apart from Projects, if NGO is doing other activities, like income generation, production, consultancy assignments etc… then, one hast to identify this type of common income and expenditure accounts and add in to that excel sheet.

Step 3 : Balance Sheet Items

Chart of Accounts also includes even balance sheet items. There are mainly two types of Balance Sheet items, some of which are same from year to year like Trust Fund Account or Corpus Fund Account or Building Reserve Fund Account, Name of Bank Accounts etc …. and others are changing in nature like Salary Payable Account, Audit Fees Payable Account etc.. One has to incorporate both these type of balance sheet items in the list.

Step 4 : Grouping

After finalizing all ledger accounts, next step is to give group name to it. We can give grouping according to project name like Bal Vikas Shiksha Group Expenses or Mahila Suraksha Project Expenses. Also, for Balance Sheet items, group  name is given like Grant Unutilized, Receivable Grant etc…

Step 5 : Enter Chart of Accounts in Accounting Software

Once exhaustive list of accounts are prepared, it should enter into Accounting Software maintained by NGO. Either you have to enter chart of accounts manually in the software or you can import excel into accounting software if such facility is there. In Tally ERP9, you can easily import chart of account from excel sheet.

Example of Standard Chart of Accounts

Please check out below an example of Chart of Accounts prepared by me. This is standard example, you have to prepare according to your NGO’s project and expenditures.

chart-of-accounts-ngo

Summary

Chart of Accounts in NGO is to be prepared every year, because every year some projects are closed and some new projects are implemented by NGO. Looking to benefits of preparing chart of accounts, it is highly recommended that one has to spare some time right at the beginning of financial year to prepare chart of accounts in NGO.

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Cleanup of NGO Balance Sheet before 31st March

BEFORE year ends on 31st March, NGO has to look out some points regarding its books of accounts.   An NGO has to prepare an Income & Expenditure Account, Balance Sheet and Receipts and Payments Account. In case of Income Expenditure Account and Receipts Payments Account, only current  year figures are taken and thus no cleaning process required for it.

However in case of NGO Balance Sheet, figures and items are carried forwarded from year to year. In many of the accounts, only opening balances are  carried down from years without having any transactions, and thus every year it is the duty of NGO Accountant to look at the Balance Sheet before 31st March, list out such types of dormant accounts and pass necessary journal entries to remove it, only after taking approval from higher designated person of the NGO.

Dormant Accounts in NGO Balance Sheet

Mostly Fund Accounts with very nominal balance, mostly in Unutilized Grants or Grants Receivables may be consider as dormant. If project was completed before 2 to 3 years back and if there is nominal balance either positive or negative, should be transfer to General fund.

Unused Bank Accounts

Because of emphasis of Government funded projects to open a Separate Bank Account for Project, it may be seen that in an NGO, more than 5 to 10 Bank Accounts are opened. As such, there is no limitation on Maximum number of Bank Accounts, it should be restricted for administrative smoothness. Secondly, some charges are debited every year even we do not use Bank Accounts. To avoid all such, it is lookout of accountant to identified such unused bank accounts and start procedure of closing it.

“Ghost” Fixed Assets

Some of the Fixed Assets in NGO are on paper but you could not find it physically. I say them “Ghost” Fixed Assets. All these type of “Ghost” Fixed Assets should be removed even from paper by passing resolution and journal entries.

TDS Receivable (Income Tax Refund Accounts)

TDS of NGO is deducted from consultancy, or on Interest on Fixed assets and such other types of Income. This TDS is claimed as refund in Income Tax Return of NGO. However due to slow process of Income Tax Department in issue of refund. These “TDS Receivable” Accounts are carried forwarded from years. Sometimes, refund is already deposited in bank account but not properly accounted for. Go to this link of Refund Status Website to check how much refund is pending and only those related refund accounts should reflect in the NGO Balance Sheet

Summary

NGO Balance Sheet is a financial mirror of any organization and thus it must be clean periodically, else the picture reflects, will not look transparent.

Hope this will help you in your NGO, if you have any question,  you can ask here or chat with us. Also your comments are welcome on the above subjects.

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Year-end 5 points to consider for NGO

As 31st March approaching near, books of accounts has to be reviewed. In this post, we try to answer following questions. Why one has to review its books of accounts get closed? In NGO, who has to review accounts? And Which are main five points to look into while reviewing accounts before 31st March?

Reason for year-end review

Precaution is better than Cure

After year end, any changes to books of accounts may lead to look like postmortem. Accounting is an ongoing activity and whenever books of accounts get changed back dated, auditor can easily smell it.

Responsibility of year-end review

Is it whole and sole responsibility of Accountant? NO. I would rather suggest that, Project Coordinator has also to look into the specific areas, like all the activities, which has to be completed before 31st March, must reflect in the books of accounts. Thus its a joint work of Accountant-Project Coordinator and Top Management.

5 Points one should look

1. Negative Cash

Go to Cash Book maintain in the accounting software and get daily balance. Even a single day negative cash balance cause you trouble. There are many reasons for cash going negative on particular day and also number of ways to solve it. Though there are many ways to solve it, once books of accounts get close and audit is started, it is difficult to rectify.

2. Advance Grant

Check, grant received in advance for programs after 31st March is not taken as current year income, specially when project period is not in consistent with our financial year. Suppose Project Period is from 1/7/2013 to 30/06/2014 and full grant already received before 31/03/2014, then amount equals to estimated expenditure from 1/4/2014 to 30/06/2014 transfer to next year as advance grant. See below image showing extract of Income and Expenditure account :

advance grant

3. Completed Projects

Projects, which are completed during current year, has to look for any over expenditure or savings of funds even of smaller amounts. It is not possible that every total amount spent is exactly same as grant received for particular project. Sometime, there is over expenditure of smaller amount or savings from project. There may be contribution from communities or contribution of NGO. All these transactions are properly accounted for before 31st March.

4. Fixed Assets

In many of NGOs, it it never ending problem, that Fixed Assets mentioned in Audited Report is not matched with Physical Fixed Assets. Though every NGO maintains Fixed Assets registers, they do not have habit of review it before year-end. At the year-end Fixed Assets in physical form, Fixed Assets mentioned in Books of Accounts and Fixed Assets Register must be tallied.

5. Fund Balance

This is most important point. It is best practice that fund balance in books of accounts at any point of time is to be matched with cash and bank balance. For this before year-end, a receipt and payment accounts is to be prepared showing Opening Balance of Cash and Bank, receipts during the year, spent during the year and closing cash and bank balance.

There may me many other points according to situations and scope of your NGO. However above points are crucial to look into before financial year ends.

 

For any inquiry or query. Click Here  or you can chat with us.

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