Internal Audit

Internal Audit Report of NGO

Internal Audit Report of NGO

Internal Audit is an investigation into the company’s internal controls, which includes the corporate governance or the accounting process. Such audits help in assuring compliance with the prevailing laws, etc. It also helps to maintain timely financial reporting.

What are NGOs or Non- non-governmental organizations?

 Non-governmental organizations are those which any particular person does not own. The profit is not distributed by way of dividends. Profits earned by the NGOs are spent on important non-profit activities. The revenue source for these organizations is funding grants from multilateral agencies through membership fees, donations or any other miscellaneous source.

Associations that can act as Non- Governmental Organizations

The below-mentioned forms of associations may act as NGOs-

  • A company which is registered under Section 25 of the Companies Act of 2013.
  • A registered trust under the Indian Trusts Act of 1982 has two or more two persons as trustees.
  • Society of persons registered under the Societies Registration Act of 1860.
  • A statutory body consisting of a membership of persons.
  • A trust which is constituted under the Charitable Endowments Act of 1920.

Audit of NGOs

NGOs play a vital role in a nation’s economic and social development. NGOs can also receive a contribution from foreign resources in order to get their books of accounts audited by the Chartered Accountants. Depending upon NGOs’ registration form, they can get their accounts audited. This Audit must be done according to the Trust Act, Societies Act, and Companies Act 2013. It must also be done as per the Income Tax Act 1961.

Legal Provisions Governing NGOs Audit

The auditing of the NGOs should be done as per the Societies Act, Companies Act 2013, Trust Act, etc. Under the Income Tax Act of 1961, according to Section 12A(b), the law audit is compulsory where the total income of the NGO exceeds the maximum amount not chargeable to the Income Tax in any previous year.

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Benefits of NGO Audit

It assesses the activities of an NGO; it is an investigation into the acts of the NGO and whether it aligns with the purpose and objectives or not. The NGO audits help understand whether transparency is present in the financial statements. The auditor can also provide analysis of specific issues or about the financial controls of the NGOs.

How to conduct an NGO Audit?

The following tasks need to be conducted while performing NGO Audit:-

  • The auditor should investigate about the received amount in the subscription, ratifying with the counterfoils of the receipts.
  • Whether the transfer of the assets is proper or not, the auditor must keep a check on the liabilities.
  • The auditor must have some insights about the company because NGOs have their own memorandum.
  • The decisions taken by the executives must also be evaluated as to what was the outcome of the same.
  • The auditor must also analyse whether the grant from the foreign institutions is accepted according to the rules and regulations concerning the nation’s financial sector.
  • Whether the grant from the government is being utilized properly or not, it is also to be checked if the accounts are properly maintained.
  • If the NGO has received any grant from any organization or individual, the accounting of such amount should be checked.

Types of Financial Statements

Mainly, there are four types of financial statements for conducting NGO Audits. These are defined as below-

  1. External Audit
  2. Internal Audit
  3. Donor Audit
  4. Investigative Audit

External Audit

The independent auditors generally carry it out. They check the financial statements’ fairness by carefully examining the sample of records. It tells about the reliability of the financial reports, which is of crucial use to the donors and trustees.

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Internal Audit

This type of Audit can be carried out by the staff or employees of the organization or experts who are specifically hired for the job. It also checks whether the organisation’s policies or procedures are being followed. In this way, the trustees get an idea about how the organization is managing the risks.

Donor Audit

This Audit is sometimes carried out by the donors themselves or the normal external auditors of the organization. It creates and maintains the donors’ confidence that their funds are being used properly and that the terms and conditions of the grant are being complied with. To receive further funding, a successful NGO Audit is also a requirement.

Investigative Audit

An investigative audit is conducted when fraud is detected, or the auditors are called for to establish the facts. Further evidence may also be provided by the auditors so that the organization will decide the next course of action.

What to include in an NGO Audit Report?

The report for the NGO audit should include the following-

  1. Payment Accounts
  2. Receipts
  3. The balance sheet of the society, along with the name
  4. Expenditure Account and Income

Documents to be included

The following documents should be included in the Audit of annual accounts for NGO audits-

  1. Balance sheets, which the Board Members and the Chief Functionary of the NGO should sign.
  2. The report of the auditor
  3. The Board Members and Chief functionaries of the NGO
  4.  should sign the expenditure account and Income.
  5. The Board members and the Chief Functionary sign the Payment Accounts and receipts.
  6. Complete and Fixed Asset schedules
  7. Notes of Accounts
  8. The salaries paid to the members, fees or reimbursements, etc
  9. The original documentation copy

Conclusion

Hence, the auditing of NGOs becomes crucial as the non-governmental organizations are believed and supposed to be the helpers of the society at large. They also deal with the important prevailing issues of the society. In such a scenario, if these organizations are not working fairly themselves, then the trust of society will be gone from them. Therefore, the need for auditing these organizations arise in the manner we have witnessed above.

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FAQs

  1. What is the audit report for a nonprofit organization?

    The audit report for a non-profit organization outlines the findings of the auditor. It checks the company’s financial performance.

  2. How do you audit a non-profit organization?

    First, we check the internal controls of the organization, and the financial credibility of the organization is to be tested. The auditor should also investigate the cash flow statements.

  3. What is an NGO audit report?

    The NGO audit reports refer to checking the books with the previous data. It discloses information about the income expenditures of the company, etc.

  4. What are the types of financial statements?

    The financial statements are of four types: External Audit, Internal Audit, Donor Audit and Investigative Audit.

  5. What are the documents to be included in the internal Audit?

    The documents that should be included are the balance sheets, notes on the accounts, the complete and fixed assets schedules, etc.

  6. What is an investigative Audit?

    The investigative Audit is conducted when fraud is detected, or the auditors are called for to establish the facts.

  7. What are the legal provisions governing internal audits?

    The Companies Act of 2013, the Indian Trusts Act, the Societies Act, etc.

  8. What is a Donor Audit?

    This type of Audit is conducted to ensure the donors develop confidence in the business in the long run. And the company is not devoid of any grants that it may have from donors in the future.

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