"Finance, Accounting and Governance" module lead by Sriram Sabhapathy & Jitendra Kedia from ISB (Diffusion Pune - 2 day residential workshop for non-profit and social enterprises)

1. Governance and F&A
Sriram Sabhapathy
Jitendra Kedia

3. A few questions to think about
• How many of us here have a dedicated or ‘go-to’
– Trusted Board of Advisors or Mentors
– Chartered accountants
– Company secretaries
– Lawyers
• Do you think the above is important to your organization?
• Why?

4. Central theme of this session
Credibiliy Governance
http://www.indianngos.com/capacitybuilding/governance.asp
• Consensus oriented • Follow the rules of law • Transparent
• Accountable • Equitable and inclusive • Responsive

5. Things to check today - Agenda
Starting up & moving towards a registered entity
Types of legal structures - is your choice right?
• Overview of legal entities
Governance - Critical things to do
Need for internal controls and governance
• F&A related risks faced by NGOs today
What you need to know – Finance and Accounts
• Assets
• Cash and Bank
• Expenditures
• Revenue

6. How do you start up?
Legal, Tax & Regulatory Considerations
Trust
Business Plan &
Operational Model
Type of Funding? Source of Governance &
Funding? Management
Considerations? Not for profit
Society
entities
Scale Liability?
Sector Specificity
of Activities?
Sustainability Transaction Costs? Section 25
Company

7. Trust Vs. Society Vs. Sec 25
U/s 25 Company / Nonprofit
Features Trust Societies
Company
Set up and running Cost Nominal Nominal Comparatively More
Required Members Minimum = 2; Maximum = No limit Minimum = 7; Maximum = No limit Minimum = 7; Maximum = No limit
Charter Trust Deed By laws and Rules & Regulation Memorandum of Association and Article of
Association
Formation procedure Very Easy Simple Little Hard
Jurisdiction Deputy Registrar / Charity Commissioner Registrar of Societies - For Maharastra Registrar of Companies
Charity Comm.
Legislation / Statute Relevant state Trust Act - Bombay Public Societies Registration Act 1860 Indian Companies Act 1956
Trust Act 1950, Indian trust Act,1882
Objects Social benefits & Charitable, Religious, Literary, Charitable, Scientific and Non profit Activities
Welfare of the member, Families, resource oriented, Health and any social
Employee Welfare trust. Ex. PF Trust purpose.
Re-ammendment or Alteration can be undertaken only by the Easy Complicated
Modification of Objects Founder or settler. If the founder deceased Legal Procedures Legal Procedures Legislation / Statute
alteration of objects is Impossible

8. Trust Vs. Society Vs. Sec 25
U/s 25 Company / Nonprofit
Features Trust Societies
Company
Nature of control One man control, i.e. Settler Democracy system Board of Directors & Management
committee
Management Board Trustees Governing Body Board of Directors & Management
committee
Legal Status Limited Legal Status Limited Legal Status. Full Legal Status
Example Mother Teresa Charitable trust, Trade Associations ITC Ltd, NTPC LTD, TCS LTD
Amar Jyoti Charitable Trust
Statutory Regulations Nominal Limited. Exhaustive
Dissolution or Take over by Possible Possible Very risky and difficult.
State
Penalties Lesser penalties Lesser penalties Higher Penalties

9. Governance – Critical things to do
• Register yourself (we talked)
(i) Audit Report in Form 10B
• Tax return
(ii) Balance Sheet
• 12A (iii) Income and Expenditure Account
(iv) Receipt and Payment Account
• 80G (v) Copy of the Registration Certificate
(vi) In case the organization has accumulated income,
• FCRA resolution for accumulation.
(vii) Form 10 in which application for accumulation is
made

10. F&A risks traps
Ineffective utilization • Excessive purchase of supplies
• Idling of human resources
• Under or over estimation of amounts
Improper budgeting
• Insufficient detailing of line items
Financial Delay in availability of • Delays in requesting funds from Donor Assets
management funds • Delays in release of funds to program units
• Use of funds for unbudgeted line items Cash and bank
Misuse of funds
• Use of funds for other projects or activities
Expenditures
Erroneous / Delayed • Advanced / delayed booking or reporting of expenses
Risks
reporting • Delays in sending financial reports to donors Revenues
• Theft of cheque/draft remitted by donor agency
Loss of funds in transit
• Loss of cash during transit between branches
Diversion of • Theft of funds by showing fictitious or inflated
Loss of funds
funds/assets payments to employees or suppliers
Avoidable legal • Interest and penalties assessed due to non-
penalties compliance with TDS provisions

11. Assets
Assets you own
• Laptops & Accessories / I-Pads – Hardware and Software
• Books
• Saleable Inventories
• Others
What you do
• Fixed Assets Register (FAR)
• Physical Verification
• Depreciation
• Transfers
• Disposals

12. Assets
What risks you face
• Quantification – What and How many
• Tracking Location
• Theft & Losses
• Others
Now what?
• Updated Fixed Assets Register (FAR)
• Periodical Physical Verification
• Adequate Insurance
• Timely Disposals

13. Cash and Bank
What you have
• Cash-in-Vault
• Bank Accounts
What you do
• Ledgers and Reconciliation Statements
• Vouchers and Receipts

14. Cash and Bank
What risks you face
• Idle cash / high overdrafts -> potential loss of interest income
• Incomplete records / difficulty in reconciliation
What next?
• Budgeting & tracking
•Analysis
• Periodical reconciliation

15. Expenditures
What you spend on
• Manpower Cost
• Regular office needs
• Government Fees
• Marketing, promotions, PR
• Other misc. expenses
What you maintain
• Ledgers and Statements
•Payroll Details
• Vouchers and Receipts

16. Expenditures
What challenges you face
• Rising Cost(s)
• Timely deposits of Government dues
What next?
•Budgeting
•Analysis
•Master Tracker

17. Revenues
What you earn from
• Donations
• Merchandise sales
• Advertisements & subscriptions
• Membership
What you maintain
• Donor information systems
• Ledgers and statements
• Member Directory
• Vouchers and Receipts

18. Revenues
What challenges you face
• Unaccounted Sales
• Low collection from other sources
• Variability in Membership Fee
What next?
• Updated Records
• Budgeting and Analysis
• Internal Checks and Balances

19. Conclusion
• Things to help you do better
• Nothing new, but do your present stuff with a difference
• Change is static
• You win. We all win
• This is definitely not the end, but might be a beginning