Management of non profit organisation module 2 uma k

Management of Non profit organization -MODULE 2
UMA K, Assistant professor. Page 1
Module 2: Functional Management: Distinct features of nonprofit accounting, Sources of
finance and their implications, Staff and Volunteers NPOs, Taxation issues.
• Functional Management.
• Distinct Features Of Nonprofit Accounting,
• Sources Of Finance And Their Implications,
• Staff and Volunteers NPO’s.
• Taxation Issues.
________________________________________________________________________
INTRODUCTION:
Accounting is essential for Non-trading institutions or NPO. Generally they maintain a
cash book and later they prepare a summary of cash transactions appearing in the cash book.
This summary takes the form of an account known as RECEIPT AND PAYMENT
ACCOUNTS.
Such concerns also prepare “Income and Expenditure account” (which is more or
lessonthe lines of Profit and loss a/c) and the Balance sheet.
FUNCTIONAL MANAGEMENT
Functional Management: Functional management means the functioning or operational
department in an organizational management. Organization is established by group of people,
like it consist of different departments are production, marketing, finance, human resources so
on. Functional management is management of different kinds of functional areas of
organizations. A success of organization is depends on the co-ordination of the different
functional areas. In non profit oriented organization as also consist of the same functional areas
in profit oriented organization.
The following are the main functional areas of non profit oriented organization,
➢ Accounting Section
➢ Human resource
➢ Taxation
➢ Financial
➢ Office

In the current chapter mainly concentrate on accounting system of NPO, Human Resources
management in NPO and Taxation issues of non profit oriented organization.
Nonprofit Accounting: A non profit organization is legal and accounting practices is
maintained for the purpose of to protect the benefits of whole society, rather than profit oriented
organization. Non profit organizations are prepare Receipts and payment account and Income
and Expenditure account to show the inflow and outflow of funds to the organization and
Balance sheet shows the financial position at the end of the period.
Funding sources for charities and nonprofit organizations
The range of different funding sources that the governing body needs to consider.The main
sources of income are:
• Gifts and donations
• Grants
• Loan financing and equity capital
• Contracts
• Trading
Each source has specific governance issues relating to it.
1. Gifts and donations: Donations generally come from individuals (e.g. from a fundraising
appeal or given as a legacy), from companies, or from charitable trusts and foundations. Unless
they have been given in response to a particular appeal you generally have considerable freedom
in how to apply them. Gifts and donations are a particularly IMPORTANT source of income for
charities and can attract tax relief. Raising funds however can be time-consuming and costly –
and you could even lose money.
Key issues for members of the charity or non-profit board body to consider.
• Is your fundraising effective and economic? Have you set cost/income ratios for your
fundraising (recognizing that some types of fundraising are more expensive than others) and
are you achieving them? Are you claiming back tax (e.g. through Gift Aid)?

• Is your fundraising legal? The rules about fundraising can be detailed and complex and you
may need to seek advice. There are for example rules on data protection, the use of
professional fundraisers, and for house-to-house collections and LOTTERIES.
• Is your fundraising ethical? Do you comply with the Institute of Fundraising’s Codes of
Fundraising Practice? Have you signed up to the self-regulatory scheme for fundraising?
• Are your fundraising activities likely to damage your reputation in any way? Do you have
policies for example on corporate donations?
• Have you made clear what the appeal is for, and what you will do if you raise more or less
than target? Have you ensured that the money will be spent on the purpose for which it was
given?
The Institute of Fundraising has developed its Codes and Conduct to provide a guide to the
law and best practice in relation to fundraising activity throughout the United Kingdom.
The Charity Commission sets out its advice in Charities
2. Grant funding:
Grants are typically made by the public sector or by charitable trusts and foundations. The
money does not have to be repaid and is usually exempt from tax. Many grant funders will only
fund organisations with charitable status. Some grant makers prefer not to fund organisations that
have built up significant reserves or generate cash surpluses. This can disadvantage those with a
business-like approach to running a sustainable social enterprise. Grants almost always come
with conditions, for example:
• particular outputs or outcomes
• achieving agreed milestones
• unspent monies are returned to the funder
• Reporting requirements on the progress of the project or use of the money.
Before pursuing grant funding the charity or non-profit board should consider the
following.
• Is this an activity consistent with our aims and strategy – or is this grants encouraging us to
drift from our mission?
• Can we meet the grant conditions?

• Will the cost of seeking grant monies outweigh the benefits?
• How will the activity be maintained or wound up after grant funding ends?
3. Loan financing and equity capital:
Debt and equity finance are routinely used in the for-profit sector, but are less common in the
not-for-profit sector. Debt finance is essentially loans and overdrafts, which have to be repaid.
Equity finance does not have to be repaid. Instead, the investor takes a stake in the organisation,
entitling them to a share in the rewards (and risks) of the organisation. Both forms of finance are
described more fully below.
4. Loan financing:
A loan is simply a sum of money which is borrowed and has to be paid back, usually with
interest. Loan finance is potentially useful for a range of non –profits. They are a flexible form of
funding that can be quicker and easier to secure than grant funding. However they have to be
repaid and may require assets to be offered as security.
Loans are often ‘secured’ against an asset (such as property) but may sometimes be
‘unsecured’. Lenders usually look for a successful track record of operations and income
generation. Consequently a small charity or start up social enterprise may find it difficult to get a
loan. Providers of loan finance to the non-profit sector include: BIG, Charities, Charity and
Finance and the Community.
Members of the charity or non-profit board should consider:
• Is loan finance the best option?
• Does our governing document give us the power to borrow and,
• Potentially, to pledge assets as security?
• Do we have the appropriate skills and systems to manage the loan and its repayment?
• Have we appraised the risks and agreed steps to manage those risks?
Equity capital:
Equity capital is provided by external investors in return for a (permanent) stake in the
organization and if the organization is successful, the investors share in the rewards. It does not
have to be repaid and does not require security. An equity investor tends to take a long-term view

of the organization and may also want to contribute expertise. Their money is at risk if the
organization fails. Equity finance is most likely to be used by social enterprises.
Only organizations with an appropriate legal structure can raise share capital, typically a
company limited by shares, a community interest company (limited by shares), or an industrial
and provident society. Charities and companies limited by guarantee cannot raise equity finance.
Conflicts can arise if investors have different objectives and priorities from those of the social
enterprise’s founders (for example if they are more interested in financial rather than social
returns). Social enterprises may not be attractive to many traditional equity investors.
Members of the charity or non-profit board should consider:
• Do you have the power to raise equity finance?
• Do potential investors share your objectives?
• Do you wish to distribute profit to external investors?
The Social Enterprise Coalition has material focusing on non-grant finance.This is still a
relatively new form of finance for the non-profit sector and there are comparatively few sources
of equity finance. Sources of venture capital for social enterprises include: Triodos;
Venturesome; Bridges Community Ventures Ltd.
5. Contracts:
A contracts a form of trading where there is a formal agreement between two parties. It means
that each party has agreed to do something and that if either of them fails to do it they are
covered both by the terms of the contract and by contract law.
A contract is a commercial agreement and the income from it may be liable for tax and
VAT. An increasing number of non-profits are contracting with the public sector to deliver
specific services. But there are potential pitfalls. Delivering public services may distract the
organisation from its primary aims or undermine its independence.
There is also a danger that contracts are underfunded so that the organisation can only
provide a substandard service or has to use its own resources. Achieving Full Cost Recovery is
essential to long term sustainability. And for charity trustees it is against the law to use charitable
resources to subsidise public services.

Members of the charity or non-profit board should consider the following.
• Does the contracted service fit your organization’s aims?
• Can you fulfill all the terms of the contract, and provide evidence that you have done so?
• What would be the consequence of not fulfilling the contract?
• Does the contract price cover all your costs?
• Have the risks been appraised and steps agreed to manage them?
6. Trading:
Many non-profits earn income by selling goods and services to members, service users, the
general public, or other organisations. Some organisations earn all their income this way. You
have flexibility about how to spend your earned income.
Examples of trading by non-profits include:
• Selling tickets to events
• Selling publications or products
• Hiring out a venue
• Selling in-house expertise to interested parties e.g. publishing, training, consultancy.
Charities can trade. However, if the trading activity is significant and is not related to your
primary purpose there are charity and tax law implications and you should seek specialist advice.
You may need to set up a separate trading arm.
Trading is likely to pose particular challenges for charities. Questions to be considered
include:
• Does your governing document allow you to create and invest in a trading subsidiary?
• Will the proposed trading involve significant risk to a charity’s assets?
• Would investment in a trading subsidiary be in line with the charity’s current investment
policy?
The Charity Commission has specific guidance on Charities.

FUNCTIONAL DIFFERENCES IN MANAGERIAL JOB BEHAVIOUR: There are
different types of manager according to their functions. They are
1) Functional Managers: This group of managers is responsible for a given functional area of
the organization. They are categorized in to
A) Financial Manager: They deal with organization’s financial resources. They are
responsible for activities such as accounting, cash management and investment. The number of
financial managers varies according to the size of the organization
B) Marketing Manager: They work in areas related to marketing like getting the
customers to buy the product or services offered by the organization. The primary focus of a
marketing manager is to develop new products, promote sales and distribution of the product and
services of the organization
C) Production Manager: They are responsible for maintaining the production process
and to look after the manufacturing system of the organization. They are from engineering
background that is in charge of production and maintenance of the equipment’s and machinery.
The different job levels are work manager, plant manager etc.
D) Human Resource Manager: They are responsible for hiring and developing
employees. They are involved in human resource planning, recruiting and selecting employees,
training and development, designing compensation and benefit system, formulating performance
appraisal systems etc.
E)Operation Manager: They are responsible for the organization system that transforms
inputs such as material,labour,capital and technology into inputs i.e. finished products or
services. They must also deal with the problems of facilities, layout, production control and
scheduling, inventory control and quality control.
F) Research and Development Manager: They co ordinate with the activities of
scientist and working on specific projects in an organization.
2) General Manager: They are familiar with all the functional areas of management rather than
specialized training in any one area and are usually responsible for the overall functions of the
organization.
3) Line and Staff Manager: Line Managers are responsible for the major work activities that
contribute directly to the production of the organization’s product or services. The job title may

be Vice President, General manager, Plant Manager Staff Manager are responsible for the
provision of specialized services in support of the line managerE.g.; Vice President – Personnel,
VP - Finance
LEVEL DIFFERENCES IN MANAGERIAL JOB BEHAVIOUR:
The levels of management can be classified in three broad categories: - Top level /
Administrative level, Middle level Management, Low level / Supervisory.
Top Level of Management: It consists of board of directors, chief executive or managing
director. The top management is the ultimate source of authority and it manages goals and
policies for an enterprise. It devotes more time on planning and coordinating functions.
Role of Top Management
• Top management lays down the objectives and broad policies of the enterprise.
• It issues necessary instructions for preparation of department budgets, procedures, schedules
etc.
• It prepares strategic plans & policies for the enterprise.
• It appoints the executive for middle level i.e. departmental managers.
• It controls & coordinates the activities of all the departments.
• It is also responsible for maintaining a contact with the outside world.
• It provides guidance and direction.
The top management is also responsible towards the shareholders for the performance of
the enterprise
Middle Level of Management: The branch managers and departmental managers constitute
middle level. They are responsible to the top management for the functioning of their
department. They devote more time to organizational and directional functions. In small
organization, there is only one layer of middle level of management but in big enterprises, there
may be senior and junior middle level management.
Role of Middle level Management:
They execute the plans of the organization in accordance with the policies and directives of the
top management.

• They make plans for the sub-units of the organization.
• They participate in employment & training of lower level management.
• They interpret and explain policies from top level management to lower level.
• They are responsible for coordinating the activities within the division or department.
• It also sends important reports and other important data to top level management.
• They evaluate performance of junior managers.
• They are also responsible for inspiring lower level managers towards better performance.
Lower Level of Management Lower level is also known as supervisory / operative level of
management. It consists of supervisors, foreman, section officers, superintendent etc. According
to R.C. Davis, “Supervisory management refers to those executives whose work has to be largely
with personal oversight and direction of operative employees”. In other words, they are
concerned with direction and controlling function of management.
Role of Lower level Management
• Assigning of jobs and tasks to various workers.
• They guide and instruct workers for day to day activities.
• They are responsible for the quality as well as quantity of production.
• They are also entrusted with the responsibility of maintaining good relation in the
organization.
• They communicate workers problems, suggestions, and recommendatory appeals etc to the
higher level and higher level goals and objectives to the workers.
• They help to solve the grievances of the workers.
• They supervise & guide the sub-ordinates.
• They are responsible for providing training to the workers.
• They arrange necessary materials, machines, tools etc for getting the things done.
• They prepare periodical reports about the performance of the workers.
• They ensure discipline in the enterprise.
• They motivate workers. They are the image builders of the enterprise because they are in
direct contact with the workers.

Problems faced by Non-profit oriented Organisations:
 Competitions from other sector qualified staff
 Increasing societal demands to do more
 Competitions for funding support
 Lack of human resource management expertise
 Low staff pays and limited carrier advancement possibilities,
 Limited training and development activity
 Considerable time needed to recruit and train staff
 A young staff liable to jobs hoping
 An aging society and older volunteers
Distinct Features of Nonprofit Accounting,
You buy goods of daily consumption from the general store of your locality, such as
clothes from cloth shop or you see a movie in a cinema hall. These are all business organizations
that deal in purchasing and selling goods and services. Their objective is to earn profit. You must
have studied in a school; you go to a hospital for treatment. You may be a member of a sports
club of your area. These are the organizations that are founded not to earn profits but to provide
services to their members and to the public in general. You have learnt the preparation of
financial statements of profit organizations. While performing the activities these organizations
also engage in financial transactions. They also want to know the results of their activities for a
particular period. For this they also prepare financial statements. You will study in this lesson the
system of accounting of these organizations i.e. Not for Profit Organizations (NPOs) such as
sports club, literacy society, etc.
Such organizations are: schools, hospitals, charitable institutions, welfare societies, clubs,
public libraries, resident welfare association, sports club etc. These are called Not-for-Profit
Organizations (NPOs). These organizations provide services to their members and to the public
in general. Their main source of income is membership fees, subscription, donation, grant-in-aid,
etc. As the money is involved in the activities of these organizations, they also maintain
accounts. These organizations prepare certain statements to ascertain the results in financial
terms of their activities for a particular period say, one year.
Characteristics of Not-for-profit organizations (NPOs)

Following are the main characteristics or the salient features of Not for Profit organizations
(NPOs):
1. The objective of such organizations is not to make profit but to provide service to its members
and to the society in general.
2. The main source of income of these organizations is not the profit earned from purchase and
sale of goods and services but is admissions fees, subscriptions, donations, grant-in-aid, etc.
3. These organizations are managed by a group of persons elected by the members from among
themselves. This group is called managing committee.
4. They also prepare their accounts following the same accounting principles and systems that
are followed by business for profit organizations that are run with an objective to earn profits:
Distinct Needs of Accounting for NPO:
➢ To compare the actual financial results of operations with organizations approved and
legally adopted budget
➢ To assess financial performance of the entity during the current accounting year
➢ To determines the compliance with rules, regulations and laws under which not for profit
accounting system is operating.
➢ To evaluate the organizations efficiency in spending money on meeting the assigned
tasks and responsibilities.
The types of financial statements that are generally prepared by Not-for- Profit
Organizations (NPOs) are:
1. Receipts and Payments Account
2. Income and Expenditure Account
3. Balance Sheet

The receipts and payments account is the summary of cash and bank transactions which helps
in the preparation of Income and expenditure Account and the Balance Sheet.
Income and Expenditure A/c is similar to Profit and Loss Account. NPOs usually prepare the
Income and Expenditure Account and balance Sheet with the help of Receipts and Payments
Account.
Following are the statements about Not-for-Profit organization. Put a Ö mark against the
statements which are the salient features of these organizations and × against the others:
(i) The main objective of these organizations is to make profits.
(ii) These organizations provide service to the society.
(iii) The accounting principles and system followed by such organizations are the same that are
followed by business organizations i.e. meant to earn profit.
Receipts and Payments Account–Meaning and Need
Like any other organizations Not-for-Profit Organizations (NPOs) also maintain cash book to
record cash transactions on day to day basis. But at the end of the year they prepare a summary
of cash transactions based on the cash-book. This summary is prepared in the form of an account.
It is called Receipts and Payments account. All cash receipts and payments are recorded in this
account whether these belong to current year or next year or previous year. All receipts and
payments are recorded in this account whether these are of revenue nature or capital nature. As it
is an account so it has the debit side and the credit side. All receipts are recorded on its debit side
while all payments are shown on the credit side. This account begins with opening cash or/and
bank balance. Closing balance of this account is cash in hand and or cash at bank/overdraft.
Items in this account are recorded under suitable heads.
Following are the main features of Receipts and Payments Account:
1. It is prepared at the end of the year taking items from the cash book.
2. It is the summary of all cash transactions of a year put under various heads.
3. It records all cash transactions which occurred during the year concerned irrespective of the
period they relate to i.e. previous/current/next year.
4. It records cash transactions both of revenue nature and capital nature.
5. Like any other account it begins with opening balance and ends with closing balance.

Need for preparing Receipts and Payments Account
• As most of the transactions of Not-for-Profit Organizations are for cash, the Receipts and
Payments Account shows most of the items at one place. As it is in a summary form, it gives
an idea of large number of transactions at a glance. It contains accounting information under
various heads. So it gives information item wise for the accounting year.
• It shows the closing cash or/and bank balance, this cash/Bank balance is taken to the Balance
Sheet.
• The Receipts and Payments Account serves the purpose of trial balance and becomes the basis
of preparing financial statements i.e. Income and Expenditure Account and Balance sheet for
the organization.
• Very small Not-for-Profit Organizations (NPOs) prepare only Receipts and Payments
Account.
• As the name itself suggests, Receipts and Payments Account is an account which has two
sides, the debit side and the credit side. All receipts are written on the debit side and payments
on the credit side. It has a definite format which is given below:

Income and Expenditure Account:
Income and Expenditure A/c is merely another name of profit and loss A/c is generally adopted
by Non-trading concerns like Clubs, Societies, and Hospitals etc.
This A/c is credited with all earnings and debited with all expenses. The difference
represents a surplus or deficit for a given period which is carried to the capital account.
Converting Receipts & Payment A/c into Income & Expenditure A/c in NPO:
1. Opening and closing balances of receipts and payments account should be excluded
2. All items of capital receipts and payments should be excluded
3. All incomes and expenditures of previous years and year to come should be excluded
4. All accrued income and outstanding expenditures relating to period should be included
5. Item such as bad debts, depreciation etc will have to be provided.
Balance Sheet:
“Balance Sheet is a screen picture of the financial position of a going business at certain
moment” by Francis R. Stead.
“Balance Sheet is a classified summary of the ledger balance remaining after closing all revenue
items into the profit and loss A/c” by L. C. Cropper
Balance Sheet of NPO:

In trading concerns, excess of assets over liabilities is called “Capital”. Here, in Non-
trading concerns, excess of assets over liabilities is called “Capital fund” . The capital fund is
build up out of surplus from income and expenditure A/c.
Following are the items of Not for Profit organizations. Classify them into Receipts and
payments.
(i) Donations (ii) Charity (iii) Subscription (IV) Purchase of Books (v) Legacies (vi) Honorarium
II. Identify the following statements as characteristics, need of Receipts and Payments
account
(i) Closing cash or/and Bank Balance is used to prepare Balance Sheet.
(ii) It is prepared from the items taken from cash book.
(iii) It records cash transactions both of revenue nature and capital nature.

(iv) It is used to prepare financial statements of the Not for profit organizations.
Specific Items of Receipts and Payments Account
1. Subscription
It is a regular payment made by the members to the organization. It is generally contributed
annually. It is one of the main sources of income. It appears on the debit side i.e. Receipts side of
the Receipts and Payments Account. Apart from amount for current year, it may include amount
pertaining to previous year or advance payment for next years.
2. Entrance fees or Admission fees
Whenever a person is admitted as a member of the organization certain amount is charged from
him/her to give him/her admission. This is called entrance fee or admission fee. It is an item of
income and is shown on the debit side of the Receipts and Payments Account.
3. Life membership fees
Membership, if granted to a person for the whole life, special fee is charged from him/her, this is
called life membership fees. It is charged once in the life time of a member. It is a capital receipt
for the organization.
4. Endowment fund
It is a fund which provides permanent means of support for the organization. Any contribution
towards this fund is an item of capital receipt.
5. Donation
Donation is the amount received from some person, firm, company or any other body by way of
gift. It is also an important item of receipt. It can be of two types:
(a) Specific donation: It is a donation received for a specific purpose. Examples of such
donations are: donation for library, donation for building, etc.
(b) General donation: It is a donation which is received not for some specific purpose. It can be
of two types:
(i) General donation of big amount
(ii) General donation of small amount
6. Legacy It is the amount which is received by organizations as per the will of a deceased
person. It is treated as a capital receipt.
7. Sale of old newspapers/periodicals and sports material

Old newspapers used/condemned sport material is sold and fetches some money. It is a source of
revenue. It is taken to the debit of Receipts and Payments account.
8. Purchase of fixed assets: Assets such as building, machinery, furniture, books etc. are
purchased for the organization. These are items of capital expenditure. These are shown on the
credit side i.e. the payment side of Receipts and Payments Account.
9. Payment of honorarium: This is another item of payment. This is an amount paid to persons
who are not the employees of the organization but take part in the management of the
organization. Remuneration paid to them is called honorarium. For example, payment made to
the secretary of the club as honorarium. This is a payment of revenue nature.
10. Purchase of consumable items: Items such as stationery, sports material, drugs and
medicines etc. are called consumable items. Payments are regularly made by Not-for-Profit
Organization (NPO). These are shown on the payment side.
Payments are made for rent, salary, and insurance, office expenses etc. which are payments made
as revenue expenditure by both businesses for profit and not for Profit Organizations (NPOs).
Preparation of Receipts and Payments Account
Following are the steps followed to prepare Receipts and Payments A/c:
• At first the cash and bank balance carried forward from the last year is written on its debit
side. In case there is bank overdraft at the beginning of the year, enter the same on the credit
side of this account.
• The amounts are written under relevant heads such as subscription, donations etc. on the
receipts side and salary, rent, purchase of sports equipment, books etc. on the Payment side.
• The amounts comprise of only cash and all cash received or paid during the period for which
Receipts and Payments Account is prepared. No distinction is made between the items of
revenue nature or capital nature and whether these belong to current year, previous year or
the coming year.
Finally, this account is balanced by deducting the total of the credit side i.e. the total payments
from the total of the debit side i.e. total receipts and is put on the credit side as ‘balance cld’. It
shows the closing cash and Bank balance which is written on the asset side of the Balance sheet
of the concerned organization.

RECEIPTS AND PAYMENTS ACCOUNT AND CASH BOOK
You have learnt about Cash Book and Receipts and Payments Account. You have also
learnt that Receipts and Payments Account is prepared with the items taken from the cash Book.
There is a distinction between the two which is given as below:
Difference between Receipts and Payments Account and Cash Book
1. It is prepared at the end the accounting year. It is prepared on day to day basis.
2. Every item appears only once. Items appear number of times on different
dates depending upon their occurrence.
3. It serves the purpose of Trial Balance to
prepare the financial statements.
It is a means of maintaining record of cash
transactions.
4. It reflects the activities of the organization. It is only a systematic record of day to day cash
transactions.
5. It is prepared only by Not-for- Profit
Organizations (NPOs).
It is also prepared by business organizations
meant to earn profit.

SOURCES OF FINANCE AND THEIR IMPLICATIONS,
The basic sources of funds for nonprofit organizations are:
1. Individual donors – This chart from Giving USA shows that individual donors make up
nearly ¾ of all charitable donations in the United States. Based on this information alone,
nonprofits should hold multiple annual friends raisers, continually build networks, expand online
and mobile communications, and invest in tracking systems for individual donors. Make sure
you spend quality time on this slice of your fundraising pie.
2. Foundations – There are both private and public foundations that can be a regular source of
funds. A good starting place in the DC area is to visit the Foundation Center at 1627 K Street or
www.foundationcenter.org.washington to search for organizations that might be a match for your
cause. The typical types which support NPS include: a. Family Foundations – Foundations that
receive endowments from families. e.g. – Gates Foundation etc. b. Corporate Foundations –
Foundations that receive endowments from corporate entities. There is a trend where corporate
foundations are moving back under the for-profit umbrella and becoming more directly linked to
advancing corporate goals and corporate social responsibility. c. Community Foundations –
Community Foundations are typically associated with a specific geographic area and pool the
donations of several donors who don’t want to set up their own private foundations. Community
foundations seem to be on the rise as this article details
3. Bequests – these are gifts also known as planned giving. A bequest is a planned donation left
in the name of a nonprofit as part of a will. These donations tend to be larger and therefore the
time and effort to establish the connection and commitment starts well before the individual’s
end of life.
4. Corporate giving - NPS has seen corporate support in three major forms: a. Philanthropic –
no strings attached donation similar to individual giving b. Event sponsorship – episodic or short
term support typically event based c. Cause marketing – longer term thematic engagement
Remember to work with your park or program manager on the donor review requirements for
corporate donors.
5. Government grants and financial aid – Government (at local, state and federal levels) offers
grants and financial aid to a large number of nonprofit organizations every year. For example the
US Department of Transportation Tiger Grants are open now through June. A vast listing of
Government grants can be found at Grants.gov

6. Earned Income – funds gained from various business mechanisms such as retail sales, license
plate programs, property lease or rental, program fees, investment accounts, and others.
Depending on the situation, these dollars can be a semi-stable and consistent source of funds for
nonprofits.
7. Federated Funds- Federated funds are established by a grouping of individual nonprofits
which join together to raise funds and support projects. The most well-known model is United
Way. Federated Funds often give out grants or seek project applications to support.
8. Fiscal sponsors/venture capital – A new idea for nonprofit organizations which has been
used by the for-profit world for generations – finding investors willing to support capacity costs
or other programs of a new organization. To read an interesting take on this trend visit:
Implication or Allocations of fund in NPO:
1. Program services expenses
2. Fundraising expenses
3. Operations expenses
4. Purchase of fixed assets
5. Payment of honorarium
Things to know about the NPO financial statements:
1. Financial statements are scorecards
2. What financial statements to use
3. Knowing what’s behind the numbers
4. The diversity of financial reporting
5. The challenge of understanding financial Jargon
6. Accounting is an art, not a science
7. The auditor’s report
8. Consolidated financial statements
Fund accounting and Fund management in an organization:
Fund accounting is an accounting system emphasizing accountability rather than
profitability, used by NPO and governments.
In this system, a fund is a self – balancing set of accounts, segregated for specific purpose
in accordance with laws and regulations or special restrictions and limitations.

Fund accounting has also been applied to investment accounting, portfolio accounting or
securities accounting-all synonyms describing the process of accounting for a portfolio of
investments such as securities, commodities and real estate held in an investment fund such as
mutual fund or hedge fund.
Investment accounting, however, is a different system, unrelated to government and non-profit
fund accounting.
Non-Profit organizations and governments agencies have special requirements to show in
financial statements and reports, how money is spent, rather than how much profit was earned.
“As a charity, our greatest needs are for up-to-date records for the many funds we
manage, as well as the traditional financial statements. A new view has fulfilled this need, so that
we can know our fund balance on a daily basis. Our financial statements are published on the last
day of the current month- a feat never before achieved with any other accounting system” – Ron
Adams, Youth for Christ Canada
Process of Fund management in NPO:
1. The general function of fund accounting has to do with showing where money is spent.
2. It emphasis for the maintenance of several general ledgers, rather than the self balancing
accounts
3. The ledgers tracks the receipt and disbursement of resources as they relate to the
activities associated with a particular project
4. For accounting purposes, each individual ledger or fund must be reconciled within itself,
complete with detailed reports that support the current balance in the fund
5. All reports associated with the different funds are used as the supporting detail for a
cumulative report that is made available to members of the organization as well as its
directors
Basic tenets of fund management in NPO:
1. Objectives: Based on the mission of the fund
2. Pay-out policy: Decide how much of the investment funds must be available to support
the institution’s mission
3. Asset allocation: Determine the optimum balance of the portfolio to achieve the targeted
level of return at an acceptable level of risk

4. Manager selection: Select the right investment specialists for each part of your
diversified portfolio
5. Risk management: Systematically search for risks in every fact of the investment
process
6. Costs: “Can we get the same results at lower cost?”
7. Responsibilities: Defining the roles of the trustees, investment committee, staff and
consultants
STAFF AND VOLUNTEERS NPO’S.
Volunteer: One who enters into, or offers for, any service of his own free will.
Volunteering: Volunteering is the practice of people working on behalf of others or a particular
cause without payment for their time and services.
Volunteerism: Volunteerism is a key component for NPO. Volunteers serve a variety of roles
within organizations. Most notably, NPO are each governed by a volunteer board of directors.
Volunteers are also utilized as fundraisers, service delivery staff, staff management, and in
numerous other capacities. Volunteers bring personal experiences and professional expertise to
enhance the NPO.
The American Red Cross for example, is staffed almost entirely by volunteers. Arts
organizations, community development activities and religious organizations are all heavily
dependent on volunteer labour.
First step-----How to recruit them?
Second step----How to best use them?
Third step-----How to get rid of them?
How to attract and motivate volunteers?
According to Wiesbrod, there are two classes of reasons of people to be volunteer:
1. Motivated by INVESTMENT gains :
The expectation that volunteer efforts will increase their own experience and skills and thus
enhance their later careers.
2. Attracted by CONSUMPTION:
They are interested in the mission of the organization and gain utility from helping the non-
profit accomplish its goals.

Volunteer participation in various fields:
Type of Non-profit Value of Volunteer labour a
percentage of expenditures
Social Service 23%
Community Development 22%
Education and Research 11%
Health care 6%
Arts and Culture 21%
Religious 17%
Employees V/S Volunteers:
• Employees are entitled to worker’s compensation, insurance, overtime and protection of
various other statutes.
• Volunteers are not subject to worker's compensations laws or wage and hour laws.
• Volunteer’s works under the same kind of supervision as a paid employees with their
emerging plans.
Sources of Manpower for NPO:
❖ Ex-defence service officer
❖ Persons retired on VRS
❖ Commitment causes
❖ Age group of sixties
❖ Through recommendation and others
Staffing In NPO:
• Staffing in NPO is similarly to the staffing process in the Profit sector.

• The NPO need to attend the same tasks as profit seeking companies do when they turn to the
challenges of establishing and maintaining a solid work force.
• “An effective Non-Profit manager must try to get more out of the people he or she has” by
Peter F. Ducker in Managing the NPO.
• The yield from the human resources really determines the organization’s performance. And
that’s decided by the basic people decisions whom we hire and whom we fire, where we
place people, and whom we promote.
• The quality of these human decisions largely determines whether the organization is
being run seriously, whether its mission, values and its objectives are real and meaningful to
people rather than just public relations and rhetoric.
To accomplish staffing in NPO it has six personnel issues:
❖ Assessing Personnel needs
❖ Recruiting personnel
❖ Screening personnel
❖ Selecting and hiring personnel
❖ Orienting new employees to the organization
❖ Deciding compensation issues
Assessing Personnel needs: Leaders and managers of NPO should study workload history,
trends in the larger philanthropic community, pertinent changes in the environment in which they
operate (Layoffs, plant closings, introduction of a new organization with a similar mission,
legislative developments etc.)
➢ Fill positions with people who are willing and able to take on the job
➢ Providing accurate and realistic job and skill specifications for each position in the work
place
➢ Written job descriptions are essential to communicating job expectations
➢ Employees have chosen on the basis of positive impact not on the basis of friendship or
expediency

Recruiting personnel: “When human resource properly engaged it can be worth tens of
thousands of dollars in conserved personnel costs to even the smallest organizations” by Larry
W. Kennedy.
NPO has two basic avenues to publicize their work and staffing needs:
1. Local Media: Newspapers, newsletters, radio and Tv advertising.
2. Other community organizations: Municipal government, churches, civic groups, other
NPOs
Screening personnel: Recognize that all personnel, whether they are heading up your
organization’s annual fundraising drive or lending a hand for a few hours every other Saturday,
have an impact on the group’s performance.
Recognizing that would be volunteers and employees bring both assets and negative
attributes to your organization, Non profit groups should be flexible in accommodating those
strengths and weaknesses.
“If you want people to perform in an organization, you have to use their strengths – not
emphasize their weaknesses” said by Drucker
Selecting and hiring personnel
Orienting staff and Volunteers to the organization:
Training is a vital component of successful NPO management. But many non-profit managers
fail to recognize that training initiatives should be built for all members of the organization, but
just those who are salaried employees.
“Specialized training should be designed for every person in the organization, including
Board members and Volunteers” by Kennedy.
Poor performance by Volunteers:
Organization of all types have a right to assume certain standards of performance from paid
employees, and if that standard is not met, they should by all means take the necessary steps to
ensure that they receive the necessary level of performance from that position, even if that means
firing a poor workers.
Ducker noted that most non-profits will sooner or later have to deal with people who
volunteer because they are profoundly lonely.
When it works, these volunteers can do a great deal for the organization and by giving
them a community, gives even more back to them. But sometimes these people for psychological

or emotional reasons simply cannot work with other people, they are noisy, intrusive, abrasive,
rude.
Man power planning in NPO:
• Analysing the current manpower inventory
• Making future manpower forecasts
• Expert forecasts
• Trend analysis
• Work load analysis
• Work force analysis
• Other methods
3. Developing employment programmes
4. Design training programmes
Importance of Manpower planning in NPO:
1. Key to managerial functions
2. Efficient utilization
3. Motivation
4. Better human relations
5. Higher productivity
Deciding compensation issues: Compensating Organization’s Employees and Volunteers:
The NPO can establish an employee pension and retirement income plan. It can provide
for sick pay and vacation pay. It may arrange for group life, accident and health insurance
coverage for its officers and employees.
Although successful business executives have learned that workers are not entirely
motivated by pay checks or promotions, they need more , the need is even greater in NPO.
Critical issues of compensation:
➢ There is no proper management in an organization
➢ Insufficient fund
➢ Insufficient sources of fund
➢ Misunderstanding between employer and employee
➢ There is no proper allocation of funds towards compensating to employees

Quality and Retention Strategy:
➢ Paying competitive wages
➢ Providing flexibility
➢ Championing longevity
➢ Respecting employees
➢ Increasing and improving communications
➢ Paying retention bonus
Training and development:
Training is a vital component of successful NPO. But many NPO managers fail to recognize that
training initiatives should be built for all members of the organization, not just those who are
salaried employee.
Nonprofit Organizations play important roles in our society and it is critical for them to
perform effectively.
Nonprofit managers have demonstrated a growing interest in management practices and
principles that will help them build high-performing organizations rather than just strong
programmes with the help of training to volunteers.
Although management is generic, the non profit environment is challenging with unique
demands and calls for custom made capacity building and organizational development
programmes.
Training Methodology in NPO:
The class room training is interactive and experiential with maximum learner
participation. Group discussion, presentations, debates, case study discussions, pair work, role
plays and quizzes are some of the techniques used to ensure understanding and skills building.
Training system in NPO:
❖ Develop Your Orientation Program
❖ Assign Orientation Leaders
❖ Schedule Orientation
❖ Conduct the Orientation
❖ Train Your Volunteers
Leadership qualities for Non-profit Leader

• Ethics, Integrity and Trust
• Managing Vision and Mission
• Presentation Skills
• Decision Quality
• Interpersonal Skills
• Client Focus
• Motivating Others
• Organizational Dexterity
• Writing Skills
• Approachable
• Sense of Humor
Definition of volunteering
– Provision of a service to the community
– Done of one’s own free will
– Done without monetary reward
Definition of paid work
– Performed for a wage or salary
– Conditions set through awards or agreements
– Legal rights and responsibilities
Rights of volunteers
What are your rights in the workplace as a volunteer?
• To work in a healthy and safe environment (refer to Occupational Health and
• Safety Act[s]);
• To be employed in accordance with equal opportunity and anti-discrimination legislation;
• to be adequately covered by insurance;
• To be given accurate and truthful information about the organization for which you are
working;
• To be reimbursed for out-of-pocket expenses incurred on behalf of the organization ;
• to have a copy of the organization’s volunteer policy and any other policy that affects your
work;

• Not to fill a position previously held by a paid worker;
• Not to do the work of paid staff during industrial disputes;
• To have a job description and agreed working hours;
• To have access to a grievance procedure;
To be provided with orientation to the organization;
To have your confidential and personal information protected under the PrivacyAct 1988; and
Responsibilities of volunteers:
• To accept the agencies aims and roles
• To be punctual and conscientious
• To do what was agreed in the duty statement
• To be reliable
• To notify their supervisor if they can’t work
• To maintain confidentiality
• To support other volunteers and paid workers
• To be a team member
• To know their limitations
• To be familiar with policies and procedures which affect their work
• To adhere to OHS procedures
• To maintain boundaries
• To undertake training
• To participate in the organization
• To agree to police or other mandated checks
• To accept supervision, support and feedback
Rights of Paid Staff have
That volunteer will share the aims and goals of the organization
To be able to rely on volunteers’ attendance in order to plan service provision
That volunteer will adhere to duties agreed to in their duty statement
That volunteer will attend meetings, training and developmental activities wherever possible
That volunteer will not overstep boundaries

That volunteer will not bring the organization into disrepute
To be able to undertake their duties without undue interruption
To be confident legislative requirements are understood and met
To be sure confidentiality and privacy of information will be protected
To have volunteers work as part of a team
Not to be pressured to reimburse expenses not agreed to
Not to have to work of paid staff assigned to volunteers
Paid Staff also have responsibilities:
• To recruit fairly and honestly
• To provide accurate duty statements
• To provide orientation and training
• To ensure work given to volunteers is rewarding and meets their needs
• To ensure volunteers are not placed in positions previously held by paid staff
• To ensure policies and procedures are clearly written and easily available
• To listen to concerns and suggestions of volunteers
• To include volunteers in the organization’s planning and operations
• To ensure adherence to legislative requirements
• To provide adequate insurance coverage
• To reimburse out-of-pocket expenses as agreed in policy
• To provide constructive feedback on performance on a regular basis
• To ensure procedures are in place to reward and recognize volunteers
Taxation Issues.
Introduction: In India, NPOs Are Commonly Known As Non-Governmental Organizations
(NGOs).
The following laws or Constitutional Articles of the Republic of India are relevant to the NGOs:
1.Articles 19(1)(c) and 30 of the Constitution of India
3. Income Tax Act, 1961
4. Charitable and Religious Trusts Act, 1920
5. Religious Endowments Act, 1863
6. Charitable Endowments Act, 1890

7. Public Trusts Acts of various states
8. Societies Registration Act, 1860
9. Section 25 of the Indian Companies Act, 1956
10. Foreign Contribution (Regulation) Act, 1976
Structure of a Non Profit Organization in India:
Non Profit Organizations:
Public Trusts: “Not-for-profit entity in India
• Trust established for charitable purposes
• Benefit of public at large or a class of beneficiaries
• Entitled to special treatment under the law of taxation
SOCIETIES:
• Registered for charitable purposes
• Promotion of Literary, Scientific & Charitable purposes.
SECTION 25 COMPANIES
• Promoting commerce, art, science, religion, charity or any
• other useful object
• Apply its profits or other income for promoting its objects

Tax-Exempt Status for Ngo’s:
• Lawful purpose
• Religious or charitable purposes
• Registered with the CIT under Section 12 A
• 85% of its income in any financial year (April 1st to March 31st)
• Surplus income - specific projects
• Funds - deposited as specified in section 11(5) of the Income Tax Act
• Income or property - not be used or applied directly or indirectly
• File its annual income return
• Income must be applied or accumulated in India
• Trust income may be applied outside India to promote
• international causes

Provisions in the Income Tax Act, 1961: The Income Tax Act gives all categories equal
treatment, in terms of exempting their income and granting 80G certificates, whereby donors to
non-profit organizations may claim a rebate against donations made.
Provisions in the Income Tax Act, 1961 Impacting Trusts:
SECTION 2(15): Defines a charitable objective
SECTION 10(23C): Provides exemption to educational, medical, charitable and public religious
institutions, existing not for the purposes of profit.
SECTION 11 – 13: Provides for tax treatment in case of charitable trusts
SECTION 80 G: Deals with deduction in respect of donations to certain funds, charitable
institutions etc.
SECTION 161 – 164: Deals with liability in special cases i.e. of representative assesses, which
includes taxation of private discretionary trusts
AUTHORITY TO WHOM RETURNS HAVE TO BE FILED
Not-for-profit organizations are required to file annual tax returns and audited account statements
with various agencies
At the state level:
• Charity Commissioner (for trusts)
• The Registrar of Societies (referred to in some states by different titles, including the Registrar
of Joint Stock Companies), and
• The Registrar of Companies (for section 25 companies).
At the National or Federal Level: The income tax department and Ministry of Home Affairs.
(Only for not-for-profit organizations receiving foreign contributions).
Income of Trust Exempted Under Section 11:

Anonymous donations – Taxed at the rate of 30% - U/s 115 BBC
Any trust or institution referred to in section 11;
• Any university or other educational institution referred to in section10(23C)(iii ad) and (vi)
i.e. its annual receipts is less than or more than Rs. 1 core
• Any hospital or other institution referred to in section 10(23C)(iii a e)and (iv a) i.e. its annual
receipts is less than or more than Rs. 1 core
• Any fund or institution referred to in section 10(23C)(iv); (established for charitable purposes
• Any trust or institution referred to in section 10 (23C) (v); (established for public religious
purposes or public religious & charitable purposes).

1. Case study (Compulsory): Illustrate with example the utility of Government, Corporate and
Charities as sources of finance to NPOs.
2. Case Study (Compulsory): Taking example of a NPO of your choice explains its strategy of
resource mobilization and its implications.
Reference:
• https://www.patc.net/App_Themes/PublicView/docs/Council%20Documents/NPSNCR/FFW
F/8%20sources%20of%20funds%20for%20Nonprofits.pdf
• https://www.slideshare.net/altacitglobal/tax-exemption-for-non-profit-activities
• Tax Exemption For Non-Profit Activities- Filma Varghese

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