Governance and F&A
Sriram Sabhapathy Jitendra Kedia
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?
Central theme of this session
Credibiliy Governance
• Consensus oriented
• Accountable
• Follow the rules of law
• Equitable and inclusive
• Transparent
• Responsive
http://www.indianngos.com/capacitybuilding/governance.asp
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
Not for profit entities
Trust
Society
Section 25 Company
How do you start up?
Legal, Tax & Regulatory Considerations
Business Plan & Operational Model
Type of Funding? Source of Funding?
Governance & Management Considerations?
Liability?
Transaction Costs?
Sector Specificity of Activities?
Scale
Sustainability
Features Trust Societies U/s 25 Company / Nonprofit
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 Charity Comm.
Registrar of Companies
Legislation / Statute Relevant state Trust Act - Bombay Public Trust Act 1950, Indian trust Act,1882
Societies Registration Act 1860 Indian Companies Act 1956
Objects Social benefits & Charitable, Religious, Welfare of the member, Families, Employee Welfare trust. Ex. PF Trust
Literary, Charitable, Scientific and resource oriented, Health and any social purpose.
Non profit Activities
Re-ammendment or Modification of Objects
Alteration can be undertaken only by the Founder or settler. If the founder deceased alteration of objects is Impossible
Easy Legal Procedures
Complicated Legal Procedures Legislation / Statute
Trust Vs. Society Vs. Sec 25
Features Trust Societies U/s 25 Company / Nonprofit
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, Amar Jyoti Charitable Trust
Trade Associations ITC Ltd, NTPC LTD, TCS LTD
Statutory Regulations Nominal Limited. Exhaustive
Dissolution or Take over by State
Possible Possible Very risky and difficult.
Penalties Lesser penalties Lesser penalties Higher Penalties
Trust Vs. Society Vs. Sec 25
Governance – Critical things to do
• Register yourself (we talked)
• Tax return
• 12A
• 80G
• FCRA
(i) Audit Report in Form 10B
(ii) Balance Sheet
(iii) Income and Expenditure Account
(iv) Receipt and Payment Account
(v) Copy of the Registration Certificate
(vi) In case the organization has accumulated income, resolution for accumulation.
(vii) Form 10 in which application for accumulation is made
Risks
Financial management
Ineffective utilization
Improper budgeting
Delay in availability of funds
Misuse of funds
Erroneous / Delayed reporting
Loss of funds
Loss of funds in transit
Diversion of funds/assets
Avoidable legal penalties
• Excessive purchase of supplies
• Idling of human resources
• Under or over estimation of amounts
• Insufficient detailing of line items
• Delays in requesting funds from Donor
• Delays in release of funds to program units
• Use of funds for unbudgeted line items
• Use of funds for other projects or activities
• Advanced / delayed booking or reporting of expenses
• Delays in sending financial reports to donors
• Theft of cheque/draft remitted by donor agency
• Loss of cash during transit between branches
• Theft of funds by showing fictitious or inflated payments to employees or suppliers
• Interest and penalties assessed due to non-compliance with TDS provisions
F&A risks traps
Assets
Cash and bank
Expenditures
Revenues
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
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
Cash and Bank
What you have
• Cash-in-Vault
• Bank Accounts
What you do
• Ledgers and Reconciliation Statements
• Vouchers and Receipts
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
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
Expenditures
What challenges you face
• Rising Cost(s)
• Timely deposits of Government dues
What next?
•Budgeting
•Analysis
•Master Tracker
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
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
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