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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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Have you prepared NGO Annual Budget for Next Year?

ngo annual budget chart

Is it necessary to prepare NGO Annual Budget?

Yes 100% and why not? Every organization, irrespective of size and work pattern, has to prepare its Annual Budget, keeping main object in mind. An annual budget should be prepared, which is mainly activity wise. Have a look at below example.

Current Scenario of NGO Annual Budget

Currently, most of the NGOs prepare Budget to give it to Funding Agencies and only restricted to activities in which funding agency is ready to fund. Instead NGO Annual Budget is given to funding agency and ask to fund accordingly to particular activities. I understand practically one has to adjust with funding agency requirements, however annual budget is to be prepared as part of disciplinary excercise and looking to its benefit given below.

Benefit of preparing NGO Annual Budget

First and foremost benefit is to give clear cut idea about which activity an NGO is going to undertake next year, how much funds already available and how much efforts require to raise remaining funds. It also helps in achieving Long Term Objectives. If NGO is having its 5 years plan or 10 years plan, NGO annual budget becomes an effective tool to convert plans into actions. Look at below chart,  showing Funds already available and  to be raised.

 

Next year NGO Annual Budget in Annual Report

Annual Report of NGO should always contain some of the points. Refer our this post. One of them is to put Next year activity planning along with Annual Budget of next year. This will give readers an opportunity to see organization’s future goals in quantification manner.

Summary

Fund raising activity is one of the tough task in any organization. To make that task easy, it is necessary to prepare 5 years activity plan and prepare Annual Budget etc..

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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What should be Good NGO Traveling Policy ?

ONE of the main question asked by funding agency before approving any budget is what is your NGO Traveling Policy? In NGO Traveling Expenditure is one of the major component of total budget, whether traveling for Project Implementation, Advocacy, Training, Monitoring, and thus there must be  particular NGO traveling policy for the organization.

IN this article, i would like to focus on which points to be keep in mind while framing traveling policy so that it becomes best.

Good NGO Traveling Policy is one which is in Writing

You may be have one of the best traveling policy and procedures implemented in your NGO, but if it is not on paper, it is useless. Traveling policy must be in writing and must be part of the NGOs Working Manual

Good NGO Traveling Policy is one which is Approved

After framing NGO traveling policy, it is advisable to approve and authorized by trustees or by board members or may be by chairman and secretary.

It should not be rigid

NGO Traveling Policy should not be rigid, in the sense, that one rate or one rule for traveling expenditure can not apply to all types of travelling

It should frame according to Types of Traveling and conveyance

There are different are types of traveling and conveyance we can see in NGO. Sometimes traveling expenditures are reimbursed, sometimes NGO is having own vehicle, sometime staff use own vehicle for project work, sometimes funding agency provide vehicles or provide funds to purchase vehicles. So NGO traveling policy should includes all these possibilities.

Supporting and proof of Traveling

NGO Traveling Policy should includes which type of supporting or proof staff has to give to account and finance department after traveling. It may be Traveling Summery Sheet or Monthly Conveyance Statement or Log Book etc..

Avoid CHARGING of Traveling Expenditure to Project

Some of the NGOs are following practice of charging fixed per kilometer amount and transfer this to some pool or fund and then fuel and maintenance are paid from that pool. It is strongly recommended not to follow this type of practice of “charging” Expenditure to Project.

Summary

Apart from above points, there may be many other points to be consider while framing traveling policy depending upon the nature and work of your NGO. But, one has to keep in mind all the above points to framing good traveling policy.

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 subject.

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NGO Travel Policy and Types of Traveling

Every organization, whether small NGO or big NGO, must have their own NGO Travel Policy. You have to keep in mind certain points while framing good NGO travel policy for your organization.

One of the main point is that, a Traveling Policy should not be rigid. In NGO, modes of traveling, purpose of traveling, areas of traveling are different and thus, a traveling policy should accommodate all. Some NGOs may have their own vehicles, some of NGOs ask staff to use their own vehicles for project work, some of NGOs blessed by funding agency and funds provided by them to purchase vehicles or sometime funding agency provides vehicles to NGO for Project work. Let us discuss one by one what should be traveling rules and policy for NGO in the light of different types of traveling and conveyance.

Lodging and Boarding

Here traveling expenditures includes :

  • Conveyance from Home To Station / Airport and back
  • Tickets
  • Food expenses
  • Hotel Stay Expenses

Supporting Documents – For this type of expenditure, generally advance given to staff and later on it is settled when they provide bills along with Travel Summary Sheet.

Conveyance – Staff using their own vehicle

When traveling is done by staff by their own vehicle, then the cost of fuel is to be reimbursed to them at the end of the month or fortnightly.

A Traveling Policy should include charges for per kilometer basis to be reimbursed to staff separately for two-wheelers and four-wheelers. eg. Rate for Two-wheeler Rs. 4 /km and Rate for four-wheeler Rs. 8/km.

Supporting Documents – For such kind of expenditure, a Conveyance Sheet has to be prepared by staff and get it approved from project coordinator.

Conveyance – Staff using NGO’s vehicle

In this situation where  NGO is having their own vehicle and  staff use it for project purpose, actual expenditure of fuel and repairs and maintenance are taken. If vehicle is used for more than two projects, then such expenditure is to be divided in proportion to usage of vehicle taken from log book.

Supporting Documents – For such kind of expenditure, a logbook of vehicle  has to be prepared by staff and get it approved from project coordinator. Avoid – charging fixed amount per km to particular project. Why ? check out our this post. 

Conveyance – Staff using vehicle provided by Funding Agency for Project

When funding agency has provided fund to purchase vehicles for project, i recommended that do not use the same for other projects.  All the  actual expenditure of fuel and repairs and maintenance are taken.

Supporting Documents – For such kind of expenditure, a Log Book of vehicle  has to be prepared by staff and get it approved from project coordinator. Again do not charge fixed per km amount to project. Why ? check out our this post. 

Summary

In short, NGO has to first check the scenario and situations of their own working environment and thereafter decide their own NGO Travel Policy. It is far more better to have different policies for different types of traveling and conveyance, instead of having one single policy like charging per km basis or actual basis.

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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5 Myths about Advance Requisition Form in NGO

myths-ARF

Advance Requisition Form is one of the important document which is very useful for Internal Control System. However there are many misunderstanding prevailing. Let us today, discuss five main myths regarding Advance Requisition Form in NGO.

Myths about Advance Requisition Form

 

1. Advance Requisition Form has to be prepared on Monthly

Generally, Advance Requisition form is to prepared on monthly basis. However it is not standard rule. NGO having more turnover can prepare it on fortnightly basis. Sometime, amount involved in project expenditure are not higher or geographical location of Field office is far from head office, even quarterly Advance Requisition From can be prepared.

2. Only Filed Staff has to prepare Advance Requisition Form

Anyone who is entitled to receive advance, has to prepare Advance Requisition Form in the NGO. Generally, in NGO, somehow, Management personnel receive advance money for project expenses or administrative expenses, are not preparing Advance Requisition Form. For Good Internal Control System,  even trustee or management is require to ask for advance only through Advance Requisition Form

3. It must be Accurate

Advance Requisition Form is kind of estimation of expenditure for next month. It may not be accurate. However care should be taken that figures of expenditure are purely on the basis of approved budget of projects and near to accurate.

4. Important only for giving Advance

Not at all, it is very good document for internal control system, one can check the track records of expenditures. Even comparison can be easily done for what advances ask and how it is used. So that there are many importance of one document, if prepare and analyze properly.

5. There is fixed format of Advance Requisition Form

Every NGO has to prepare format according to their requirements. Here you can find specimen copy of Advance Requisition Form. You can add or delete some of the information as per your requirements.

ARF

Summary

Once it is a part of the procedure of the NGO internal control system, it gives more transparency and efficiency in Financial and Management Control System

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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Advance Requisition Form and its Importance in NGO

What is Advance Requisition Form?

In NGO world, most of expenditures are generally spent by field workers to complete projects of NGO. And thus Project Advance is playing major role in accounting of NGO. This is the area where it needed more Internal Control and Check. One of the handy tool is Advance Requisition Form. It tells Accountant or Finance person that how much advance require for project expenses and other overheads in next month.

What items to be included in Advance Requisition Form?

As such no thumb rule on standard format of Advance Requisition Form, however following information must be there in good Advance Requisition Form.

  • Heading : Advance Requisition Form for ___________ month
  • Name :  Field Staff / Project Officer
  • Location : Field Office Name
  • Particulars (Showing Project Activities and overheads)
  • Amount (If advance required for both FC and Non-FC project, it should mention separately)
  • Accountant’s Remarks and Signature
  • Approves Remarks and Signature
  • Summary of Advance Account (Showing Last Month Balance + Current Month Advance – Current Month Expenditure = Closing Balance)

Standard Format of Advance Requisition Form

Download from here standard Format of Advance Requisition Form. This is a specimen copy, you can customized according to your organization’s need and internal control system.

ARF

Importance of Advance Requisition Form

  • Get clear cut idea how much fund needs for next month.
  • For which activities funds are needed?
  • To compare last month expenses to last month advance requisition.
  • Cumulative Advance Balance can easily trace out.
  • It is wonderful tool of Control Mechanism
  • It is very useful document for monthly program planning
  • For Accountant, Advance Requisition Form helps for Fund Management Planning

Summary

One of the general myths regarding Advance Requisition Form is that Management personnel, heading any project, need not require to prepare it. Irrespective of size of NGO, this is one of the best instrument to establish and maintain Internal Control System.

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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Have you Change Board Members Since FCRA Registration ???

CHANGE  BOARD MEMBERS MORE THAN 50% UNDER FCRA

After taking FCRA registration, NGO has to take prior permission before making any change Board Members in excess of 50%.  This condition is mentioned in the “Undertaking”  given by the applicant at the time of making Application for Registration or for Prior Permission.

Details are provided below –

Where such provision mentioned?

it is not mentioned in the Act or the Rules, it becomes binding on all the organisations by virtue of the ‘undertaking’ . Look at the below specimen of ‘Undertaking’. It is a part of application form of FCRA registration  or prior permission.

Why this kind of provision?

The primary purpose of this law is to prevent unscrupulous practices where the FC registered associations are taken over by changing the governance structure.

How to compute 50%?

Let us take one example. In an organization there were 7 Board Members at the time of Application made under FCRA. Later on one by one three Board Members were resign. Now fourth Board Member also wants to resign. So as per above undertaking, an organisation has to take prior approval from FCRA Department before change take place with fourth Board Member.

What if Change Board Members happen due to death?

There may be a change of more than 50% in the board as discussed above for reasons such as death or election by voting etc. which are not in the control of the organisations. In such cases, the organisation should inform the Central Government immediately after such change has occurred and get retrospective approval.

What is remedy  If prior approval of such 50% not taken in ignorance of law.

In such cases the organisation should inform the Central Government immediately after becoming aware of such requirement and request for condonation of the lapse. The Central Government may consider the matter if the reasons are justified.

Is it serious offence ? what are consequences ?

The Supreme Court in CIT v. Nagpur Hotel Owners’ Association [2001] 247 ITR 201, held that the additional condition in a Form can be held to be mandatory only if the purpose and the scheme of the pertaining Act is threatened to be defeated. In this case, the Supreme Court held in favour of the Government, but made it very clear that any condition specified in a Form should be within the provisions of the Act and Rules. In our opinion, any change in the Board of Directors in the normal course of activity, does not seem to be a violation of FCR Act or the Rules

Recommendation

However, it is recommended that all organisation should inform the FCRA department and take prior approal wherever it is possible. Further, those organisations who have not taken permission, even after such change has occured, should apply for permission and condonation.

source – FMSF

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