CENTRE FOR WORLDSOLIDARITY

FINANCE MANUAL

Contents

Chapter-01 Executive Overview

Chapter-02 Governance Structure

Chapter-03 Financial & Accounting Policies

Chapter-04 Accounting Systems

Chapter-05 Budgeting Process

Chapter-06 Preparation and Approval of Vouchers

Chapter-07 Financial Procedures

Chapter-08 Internal Control

Chapter-09 Management of Investment

Chapter-10 Staff Matters

Chapter-11 Travel Norms

Chapter-12 Understanding Current Funds

Chapter-13 Understanding Corpus Funds

Chapter-14 Endowment Funds

Chapter-15 FCRA-Some Basic Concepts

Chapter-16 FCRA - Other Aspects

Chapter-17 Professional Tax

Chapter-18 Income Tax

Chapter-19 Ratio Analysis & Fund Accounting

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Contents in Detail

Chapter-01 Executive OverviewPreambleIntroductionAddress of the OrganisationBoard of TrusteesChief FunctionaryImplementing Partner and Other OrganisationsTrust Registration NumberFCRA NumberIncome Tax Registration NumberAccounting YearFCRA Designated AccountOther Bank Accounts Being Operatedfor Local FundsStatutory Auditors

Chapter-02 Governance StructureBoard of TrusteesNACM and RACMFinance CommitteeExecutive DirectorExecutive SecretaryConvenorProject Committee

Chapter-03 Financial & Accounting PoliciesFundamental Accounting, Assumptions& ConceptsMethod of AccountingForeign Exchange TransactionsInvestments

0101020203030303040404

0405

06060809101010

14151515

Fixed AssetsDepreciation

Revenue and Grant

Chapter-04 Accounting SystemsBooks of AccountsBooks of Accounts, Registers and FormsMaintained At Resource LevelJournal

Chapter-05 Budgeting ProcessBudgetary ProcessBudgeting ProcessBudget Variance Analysis

Chapter-06 Preparation and Approval of VouchersVouchersVoucher ChecklistProcedure for issuing ReceiptsEssentials Requisites of Invoice, Cash bills& Receipt

Chapter-07 Financial ProceduresPurchase ProceduresAssets Creation and AcquisitionCash Holding LimitContracts & Rental/Lease AgreementsInsurance of Movable and ImmovableAssets

151617

18

1919

212123

242527

28

30323333

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Chapter-08 Internal ControlIntroductionBasics of Good Internal Control SystemImportant Features of Internal ControlSalary & WagesCapital Expenditures & Fixed AssetsCash and Bank

Chapter-09 Management of InvestmentIntroductionManagement of Project Funds & InvestmentsYardstick of InvestmentsChecklist for making efficient investmentsTypes of investmentsInvestments Register

Chapter-10 Staff MattersStaff Recruitment PolicyStaff RemunerationAttendanceLeave PolicyLeaves applicable in CWSFamily Welfare LeavesMiscellaneous LeavesLeave Sanctioning Authority (LSA)Leaves RegisterAuthorisation of LeavePublic Holidays

Chapter-11 Travel NormsTravel Reimbursemennt

343435363738

404041414242

4343434445464747474848

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Chapter-12 Understanding Current FundsIntroductionCurrent or General FundsCurrent Unrestricted FundsCurrent Unrestricted Specified FundsCurrent Designated FundsCurrent Restricted Fund

Chapter-13 Understanding Corpus FundsWhat is corpus fund ?Donation received through charity boxesInternally generated corpus fundIncome from corpus fundRelevance of corpus fund

Chapter-14 Endowment FundsIntroductionEndowment FundTerm Endowment FundRestricted Endowment FundDesiganted Endowment Fund

Chapter-15 FCRA-Some Basic ConceptsIntroductionWhat is Foreign SourceWho can & who cannot receiveforeign contribution ?Controlling OfficeRegistration ProcedureChecklist of Documents to be submittedRejection of application for registrationTime limit for granting registration

515252545455

5758585959

6060616262

6465

656666666768

Obligations of registration under FCRAReceiving foreign funds without registrationPrior PermissionProcedure of getting prior permissionField EnquiryTime limitDeemed permissionAppeal grants rejection

Chapter-16 FCRA - Other AspectsForm FC-3Declaration & AuthenticationDelay in filing FC-3Bank accountsBank interest earnedBooks of accountContributions received in kindOffences under FCRAPersons liable for punishments under FCRAPenalties and punishments

Chapter-17 Professional TaxForm FC-3Tax by the employer

Chapter-18 Income Tax

Chapter-19 Ratio Analysis & Fund AccountingIntroduction of ratio analysisRatio generally used in profit sectorInter fund ratiosCorpus asset to project asset projectasset ratio

6869707071727272

73737474747575767676

7879

818282

83Total income to external grants/donations ratio 84

Fund balances to investment ratio 84

CHAPTER 1

EXECUTIVE OVERVIEW

PREAMBLE

1.01 Centre for World Solidarity, hereinafter referred to

as CWS, has committed itself to the cause of theunderprivileged and oppressed communities in theirstruggle for empowerment and in order to improve

their quality of life. The philosophy of CWS is basedon a non-political and non-sectarian approach.

1.02

CWS works on the princ

iples of stewardship inutilizing and managing the funds and resources.CWS has thus found it necessary to revise and updateits financial policy document so that it isinconsonance with the highest standards ofgovernance, accountability and legal compliances.

1.03 CWS works on various development initiativesthrough NGOs; Fellowship holders and Networksof NGOs and CBOs and while working with them,thrives to improve the standards of governance,accountability, transparency and legal compliances

INTRODUCTION

1.04 CWS, a trust registered under the Indian Trusts Actin the year 1992. It is also registered with theCommissioner of Income Tax under section 12-A

CWS works on theprinciples of

stewardship in utilizingand managing the

funds and resources.

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and 80-G of the Income Tax Act, 1961 as also withthe Ministry of Home Affairs under ForeignContribution Regulation Act, 1976 to receive andutilize foreign contributions. CWS is being managedby the Board of Trustees for the policy matters andthe Managing Trustee, Convener, Executive Directorand Executive Secretary with the assistance ofProjects Committee are looking after the day-to-dayaffairs of CWS. CWS gets Contributions andDonations from various Foreign as well as Indiansources and they are both from government and non-government sources. In addition CWS also involvesin doing consultancies and gets consultancy fee fromvarious organizations.

ADDRESS OF THE ORGANISATION

1.05 12-13-438, Street No.1, Tarnaka, Secunderabad,Andhra Pradesh (State). PIN – 500 017.Phone: 0091 40 27018257/27707906Fax: 0091 40 27005243Email: cwsy@hd1.vsnl.net.in

BOARD OF TRUSTEES

1.06 The Board of Trustees of CWS is as follows:1. Prof. Rama Melkote Managing Trustee2. Prof. P.N.Das Trustee3. Mr. Stanley Mukkath Trustee4. Mr.S.R. Sankaran IAS Rtd Trustee5. Prof. Arif A. Waqif Trustee6. Mr. K. Shivakumar Trustee7. Mr. Anil K. Singh Trustee8. Ms. Urzamma Trustee9. Ms. R. Manohari Doss Trustee10. Ms. Geethanjali Jena Trustee11. Prof. Asa Hans Trustee

CWS getsContributions andDonations from

various Foreign as wellas Indian sources

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CHIEF FUNCTIONARY

1.07 Mr. K. Rama Rao is the Executive Secretary of CWS

IMPLEMENTING PARTNER AND OTHERORGANISATIONS

1.08 CWS implements various programmes in 5 federalstates of India through NGOs; Fellows and Networkson a partnership basis. CWS also collaborates withother organisations and institutions includinggovernment departments. CWS facilitates fundingto the partner organisations from various nationaland international organisations, help partners inbuilding their capacities; collaborate with partnerson campaigns, advocacy/lobby for policy changesand proper implementation of various policies andprogrammes. CWS also involves itself in variousresearch studies, which helps the civil society. Aspart of dissemination of information, CWS collects,prepares and sends information on variousdevelopment initiatives to all its partners.

TRUST REGISTRATION NUMBER

1.09 CWS is Registered under The Indian Trust Act, videNo. 854/IV/92, dt. 24/07/1992 at the Office of theSub Registar, Bownapally, Secunderabad.

FCRA NUMBER

1.10 CWS is also registered under FCRA and has FCRAno- 010230305, issued by Ministry of Home Affairs,New Delhi. Order intimation dated 03/08/1994.

CWS also involvesitself in various

research studies, whichhelps the civil society.

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INCOME TAX REGISTRATION NUMBER

1.11 CWS is also registered under Income Tax Act, 1961withI.T. Registration Number 12A & 80G/16/93-94,PAN Number : AAATC 2837 RTAN Number : HYDC 00800 C

ACCOUNTING YEAR

1.12 CWS follows the Financial Year as the AccountingYear i.e. 1st April to 31st March

FCRA DESIGNATED ACCOUNT

1.13 FCRA Designated Account :Account No. 10243575933(old no. 01100005038)with State Bank of India,South Lallaguda Branch,Tarnaka,Secunderabad – 500 017,Andhra Pradesh,India

OTHER BANK ACCOUNTS BEING OPERATEDFOR LOCAL FUNDS

1.14 Account No. 01/00012176 with Andhra Bank,Tarnaka, Branch, Secunderabad 500 017, A.P. India

1.15 Account No. 01/000093 with Corporation Bank,Tarnaka Branch, Secunderabad 500 017, A.P. India

1.16 All the above three accounts are being operatedjointly by the Managing Trustee, Convenor and theExecutive Secretary (any two of the three are thesignatories for all the bank withdrawals)

All the above threeaccounts are being

operated jointly by theManaging Trustee,Convenor and the

Executive Secretary

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STATUTORY AUDITORS

1.17 M/s Sampath & Ramesh, Chartered AccountantsSidhartha Harini ApartmentsLower Tank Bund Raod (Near DBR Mills)Hyderabad.

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CHAPTER 2

GOVERNANCE STRUCTURE

BOARD OF TRUSTEES

2.01 CWS - Board of Trustees (BOT) consisting of 11Indian members, a majority of whom have to bewomen as per the Trust Deed. Each Trustee normallygives way for a substitute after a maximum of twoterms, each term running to three years though it isnot mandatory as per the Trust deed. The Trusteeselect a Managing Trustee from among themselves.The BOT also appoints a staff member as ExecutiveSecretary for a renewable term of three years. TheTrustees are drawn from diverse backgrounds anddifferent regions of India. Changes of board oftrustees in CWS since inception from time to timenoted and recorded in the minutes book.

2.02 The BOT meets twice in a year, generally in themonth of February and September. The BOT meetingheld in the month of September is known as NationalAnnual Consultative Meeting, where representativesfrom partner organisation, fellows and networks arealso invited. All programme and financial issues areplaced before a larger constituency of stakeholdersin the annual BOT.

NACM AND RACM

2.03 As per the Trust Deed of CWS, organising

CWS - Board ofTrustees (BOT)

consisting of 11 Indianmembers, a majority of

whom have to bewomen as perthe Trust Deed

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consultative meetings on an annual basis with allthe partners with whom CWS works is mandatory.For various logistical reasons, CWS organises theconsultative meetings on regional basis for all thefive states CWS works in February/March everyyear. These regional consultative meetingsrepresented by all the partner organisations; fellowsand network representatives. Apart from thepartners, CWS also invites selected non-partners andgovernment officials for the RACMs. Each of theRACMs will select representatives for the NACMand NACM is being organised every year in themonth of September alongwith the BOT Meeting.All programmes; budgets; reports; plans for futureare presented and discussed in the NACMs andRACMs.

2.04 The annual meeting of the BOT coincides with theannual meeting of CWS partners called NationalAnnual Consultative Meeting (NACM). The NACMreceives activity reports, financial statements andalso proposals for the following periods, includingbudgets. NACM has also started playing anallocative role vis a vis free funds of a modest orderin the following specific aspects : gender, dalits,tribals and minorities environment andorganizational development. In addition, the NACMrecommends on continuation of the tenure ofincumbent Trustees for a second term and also onappointment of new Trustees in vacancies. Whilethe NACM is a recommendatory body in a formalsense, its recommendations have been renderedmandatory in practice. Each NACM is at presentbeing preceded by regional ACMs (RACMs) ofstates consisting of partner NGOs (including non-partner NGOs) and individual fellows of theparticular state; also the participation of CWSpartners in the NACM is being limited to a smallnumber of representatives nominated by RACMs.Atleast one member from the new independentinstitutions that have evolved from CWS initiativessuch as WASSAN will also be invited to participatein NACMs in addition in other non-partners andspecial invitees

CWS organises theconsultative meetingson regional basis forall the five states CWS

works in February/March every year

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2.05 The Role of NACM may be stated as under :· To keep partners, through representatives of the

RACMs, informed about the progress of variousactivities of CWS, and to do so in a formalmeeting of the Board of Trustees each of the twomeetings having the members of the other asparticipants.

· To have reports and financial statements for thepreceding year approved in this joint meeting.

· To approve programmes and budgets for thecoming year in this joint meeting.

· To have the progress of CWS discussed in ascompletely a transparent manner as possible towhich end reporting will be done in the mainlanguages in use in the states where CWSfunctions.

· To make recommendations for filing vacancieson the BOT for consideration by the nextmeeting of the BOT.

· To create appropriate structures involvingpartners for overseeing planning and facilitatingthe CWS programmes.

· To carry out any other collateral functions forthe effective functioning of CWS.

FINANCE COMMITTE

2.06 The Board also constituted a Finance Committeecomprising trustees, selected staff, convenor,Executive Director, Executive Secretary and partnerand non-partner representatives to assist the Boardon all matters relating to financial management ofCWS. The present FC has the following members:i) Prof. Arif Waqif, Trustee of CWS and Professor

and Dean, School of Management Studies,University of Hyderabad.

ii) Mr. K. Shivakumar, Trustee of CWS andChartered Accountant, mostly working on theNGO management.

One role & NACM isto create appropriatestructures involving

partners foroverseeing planningand facilitating theCWS programmes

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iii) Ms. Bimla Chandrasekharan, Director, Ekta andrepresenting partners of CWS.

iv) Mr. Ramlal Prasad, Director, Jan Seva Parishadand representing partners of CWS

v) Ms. Kalamani, Director, Panchayati Raj Desk,CWS

vi) Mr. K. Rama Rao, Director Finance andExecutive Secretary

2.07 In addition to the above members Convenor and theExecutive Director are permanent invitees to the FC.The FC comprises two trustees, two staffrepresentative, two partners representatives.

2.08 The Finance Committee meets once in four monthsis complemented by the Executive Committee andProjects Committee, which meets more frequentlyfor all the matters relating to the financialmanagement of CWS and assists the board of CWS.

2.09 The functions of FC include the following :

- Advisor to BoT- Recommend financial statements to BoT- Review financial status and investment patterns

- Look into the financial aspects of projectpartners

EXECUTIVE DIRECTOR

2.10 This post is newly createad and two years old.Executive Director is overall in-charge of theorganisation (a kind of CEO). The ED is expectedto provide leadership to the staff and plan CWS workand programmes. The ED will also be responsiblefor the recruitment of CWS staff and for staffdevelopment. The ED will be the link between theBoard and staff.

The FC comprises twotrustees, two staffrepresentative, two

partnersrepresentatives

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EXECUTIVE SECRETARY

2.11 Technically the ES is the Chief Functionary of theorganisation. Responsible for all the compliances,legal and otherwise. One of the signatories for bankoperations. Acts as link between the board and thePC, staff etc. Convening the Board meetings inconsultation with the Managing Trustee etc. Sincethe ES also the Joint Executive Director, responsiblefor all the finances and governance of CWS and alsohelps partners in building their capacities. Donormanagement is also the responsibility of the ES incoordination with the Convenor and ExecutiveDirector.

Executive Secretary is not a paid post and one amongthe staff members are elected to the post for a periodof three years but can be renominated.

CONVENOR

2.12 Convenor is one of the founder members of theorganisation. Provides overall leadership andguidance to the organisation. Link between the BOT-NACM and the staff and partners.

PROJECT COMMITTEE

2.13 The Projects Committee (PC) is the importantstructure of CWS in charge of CWS work on acontinuous basis.

2.14 Membership - Until recently all staff have beenmembers, including those from (what is called forformal reasons) the core as also from time boundprogrammes. In practice the distinction between thecore staff and programme staff is unreal as bothcategories are recruited for continuing work only.Where some special work needs short term inputsfrom a person or persons that work is organized

Convenor is one of the founder members of

the organisation.Provides overallleadership andguidance to the

organisation

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contractually. Such short term appointees undercontract may attend the PC meetings as invites.

2.15 Reorganised Projects Committee - Until a decisionis made to the contrary all the programmes staffmembers will from now on be members of the PC.This will ensure that all members become familiarwith the ongoing activities of all programmes andprojects within the CWS and develop an holisticunderstanding of activities within CWS and givetheir inputs to promote integration.Prior to the PC meeting the staff of each programmehave their internal discussion, prepare their agendafor the PC and an abstract of each item on theagenda. This document is given to the convenor ofPC a week before the date of the PC meeting forcirculation to the staff. The CWS staff members ,consultants and advisors who are stationed out oftown will attend the PC meeting whenever they arein town during PC meetings. A PC special committeewill address emergency issues and matters requiringattention prior to the following PC meeting. The PCwilll also constitute task-specific committee willnormally be formed during ther PC meeting and itslife will be restricted until the next PC meeting oruntil the completion of its task, whichever is earlier.

2.16 Role and Frequency Of meetings of the ProjectsCommittee: The PC meets once in two months. Itis the decision making body on sanctions andcontinuation projects, programmes undernetworks,fellowships, and it reviews and assessesthe performance of the various projects andprogrammes on an ongoing basis. The PC is alsoinvolved in the planning of the CWS programmefor the subsequent phase including decisions oninclusion of the additional areas of work and newdirections for existing programs, allocation ofresources to each program and the drawing up ofthe CWS budget. The PC along with the RecruitmentCommittee and a representative of the concerneddesk is responsible for the recruitment of staff, forthe finalisation of their job description and for the

A PC special committeewill address emergency

issues and mattersrequiring attention

prior to the followingPC meeting

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upgradation of their skills by participation inworkshops and trainings. It assigns organizationalresponsibilities to the staff and overseas monitoringof project, network and fellowship work. Its workis subject to ratification by the Board of Trusteesand some of the latters members are on occasionsinvolved in the work of PC or its sub-committees.The PC organizes the NACM and the RACMsconsisting of CWS Partners, Network Members(whether funded or not by CWS), Trustees and thestaff members of CWS and special invitees.

2.17 Field-related responsibilities of the ProjectsCommittee-The field-related concerns of the PC fallunder two categories:Social-Economic:· Womens Work· Dalit Work· Human Rights and Social Watch· Panchayati Raj Initiatives· Tribals and Minorities(evolving)Environment :· Natural Resource Management· Sustainable Agriculture· Sustainable Forestry· Urban Environment

CWS partner NGOs; members of Networks andindividual Fellows normally implement both thecategories of work, except in some specialcircumstances when CWS itself gets involved inimplementation.

2.18 Work Division among Staff : Every member of theProgramme Staff is expected to examine proposalsreceived, or make proposals, in specific areas ofwork in specified geographical areas and present thesame to the PC for discussion and concurrence.Some staff members are also assigned theresponsibility of keeping track of the progress ofimplementation of activities in each state, includingthat of networks and of fellows, and of partner NGOs(Please see Enclosure 1 for the current division of

The PC along with theRecruitment

Committee and arepresentative of the

concerned desk isresponsible for therecruitment of staff

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responsibilities and allocation of these tasks in eachstate). Staff of kindred institutes are also involvedin monitoring CWS groups and inCWS work, so thatthere is synergy and movement in step.

2.19 Fellowship Committee : The FellowshipCommittee meets once in every three months toreview, monitoring and organize support for Fellows.The Committee meets with all Fellows at least oncein every year. Programme staff are allocated theresponsibility of interacting with a given number ofFellows with a view to giving suggestions andcontacts and help in strategizing their immediatework, and work beyond the fellowship period.

The FellowshipCommittee meets oncein every three monthsto review, monitoringand organize support

for Fellows

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CHAPTER 3

FINANCIAL &ACCOUNTING POLICIES

FUNDAMENTAL ACCOUNTING, ASSUMPTIONS& CONCEPTS

3.01 Entity Concept – CWS considers itself an entityseparate from the person who manages it. It is anartificial legal entity.

3.02 Fiscal Entity Concept – Each fund and restrictedproject undertaken on behalf of donor agencies istreated as a separate Fiscal Entity. The assets/liabilities and the income and expenditurespertaining to each Fiscal Entity are separatelymanaged and recorded.

3.03 Historical Cost Concept – All transactions arerecorded at cost price. Any fluctuations in the marketvalue are not accounted for.

3.04 Going Concern Concept – It is assumed that theorganisation has a perpetual existence. The short-term projects (less than 6 years) are not subject tothe Going Concern Concept.

3.05 Monetary Unit – All transactions will be recordedin monetary terms. Quantification of non-cashaspects should be done as per the approvedprocedures.

3.06 Consistency Concept – Accounting policies shall

CWS considers itselfan entity separate from

the person whomanages it. It is an

artificial legal entity.

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be applied consistently from one accounting periodto another.

3.07 Prudence Concept – Revenues/incomes shall berecognized on cash basis only.

METHOD OF ACCOUNTING

3.08 CWS shall maintain its book of accounts and prepareits financial statements on Cash Basis Method ofaccounting except in ******

FOREIGN EXCHANGE TRANSACTIONS

3.09 Transactions in foreign currencies are recorded atexchange rates prevailing on the date of transactions.

INVESTMENTS

3.10 All investments of CWS shall be as per theprovisions of section 11(5) of the Income Tax Act,1961. The investments shall be valued at cost, incase the market value of the investments falls belowthe cost price then suitable disclosures will be madein the financial statements.

3.11 The fixed deposit receipts and other securities shallbe kept under lock and key under the dual controlof the executive director and the executive secretary.

FIXED ASSETS

3.12 All fixed assets shall be recorded at purchase priceplus any attributable cost of bringing the asset to itsworking condition.

3.13 CWS’s organizational fixed assets shall be

The investments shallbe valued at cost, in

case the market valueof the investments falls

below the cost pricethen suitable

disclosures will bemade in the financial

statements

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distinguished from bilateral project fixed assets. Theassets procured out of the general fund or other fundsbelonging to CWS shall be treated as generalcategory assets. The assets purchased out of projectfunds or restricted funds shall be treated as projectassets.

3.14 Donated assets shall be recorded at a nominal value.The finance committee may also decide to recordsuch assets at a reasonable value. Such value shallbe reflected in the balance sheet by creation of acorresponding capital reserve on the liabilities side.

3.15 Fixed assets which are charged off, as expenditurein the income and expenditure account shall bereflected in the asset side of the balance sheet bycreation of a capital reserve on the liabilities side.

3.16 The project assets shall be treated according to theterms of the project agreement. In the absence ofany clause pertaining to treatment to fixed assets inthe project agreement the assets shall be convertedinto general asset after obtaining a formal permissionfrom the respective donor. Assets lying as projectassets for more than 6 years or the useful life of theasset (whichever is less) shall be treated as generalassets.

DEPRECIATION

3.17 Depreciation on fixed assets shall be provided on asystematic basis for each accounting period throughout the useful life of the asset as per the ratesprescribed by the Income Tax Act, 1961.

3.18 Depreciation shall be charged on all assets includingthose assets, which are charged off as expenditurein the Income and Expenditure account. Chargingof depreciation becomes necessary in order to protectthe capital/corpus of the organisation. Otherwise thereplacement of the asset will not be possible withoutexternal support.

Donated assetsshall be recorded at anominal value. The

finance committee mayalso decide to record

such assets at areasonable value

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REVENUE/GRANT

3.19 CWS mobilizes resources for its programme andactivities from the following sources:i) Grants received from International/Domestic

Partner/Foreign Donor for Programmes/Projectsto be directly implemented by CWS. In suchcases, all restricted project grants shall becredited to a specified restricted fund and shallnot be treated as income.

ii) Grants received from International Partner/Foreign Donor for projects to be implementedby project partners. In such cases, all restrictedproject grants shall be credited to specifiedproject partners restricted funds and shall notbe treated as income.

iii) Voluntary Contributions received fromInternational and Domestic Donors shall betreated as income of the trust. Such Voluntarycontributions shall be applied for the purposesof the trust and may also be accumulated as perthe provisions of the prevailing laws.

iv) Corpus Contributions received fromInternational and Domestic Donors shall not betreated as income of the society. Such corpuscontributions shall be credited to the corpus fundand shall permanently remain with the trust.

v) Income generated from consultancies shall betreated as income of the trust. Such income shallbe treated on par with other voluntarycontributions received and shall be applied forthe purposes of the trust and may also beaccumulated as per the provisions of theprevailing laws.

Corpus Contributionsreceived from

International andDomestic Donors shall

not be treated asincome of the society

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CHAPTER 4

ACCOUNTING SYSTEMS

BOOKS OF ACCOUNTS

4.01 Computerised primary books of accounts shall bemaintained. Certain registers and subsidiary booksof accounts shall be maintained manually as percircumstantial needs. CWS implements variousprogrammes and projects with the financialassistance from various National and InternationalResource Agencies. CWS maintain two separate setsof centralized books of accounts, one for foreigncontributions and one for local contributions.Resource Centres located away from Hyderabad willbe maintained through Imprest Systems. Thefollowing books of accounts will be maintained byCWS:i) Cash book with Bank column for Foreign

receipts and utilizations.ii) Cash Book with bank column for Indian receipts

and utilizations.iii) Programme/project wise ledgers fro each of the

programmes /projects.iv) Journal book for the accounts relating to Foreign

contributions.v) Journal book for the accounts relating to Indian

contributions.vi) Cash scroll for the management of day to day

cash.

CWS maintain twoseparate sets of

centralized books ofaccounts, one for

foreign contributionsand one for local

contributions

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vii) Foreign contributions receipts register.viii)Assets Register.ix) FC 6 register for the assets purchased through

foreign currency under deemed purchaseschemes.

x) Attendance Register, Advances Register,Salaries Register, Stock Register, Fixed AssetsRegisters, FDR’s Register, Cheque IssuedRegister, Inwards and Outward Register –Foreign Contribution Receipts / Payments andIndian Receipts / Payments – Summary Register.

xi) Appointment Letters, Leaves, Accommodation,Medical Reimbursement, Provident Fund,Gratuity, Payment of Fee, Honorarium, TravelReimbursement Policies

xii) Quotations, Invoices, Correspondence - Internaland External, Receipts, Third Party Payments,Bank Accounts

BOOKS OF ACCOUNTS,REGISTERSAND FORMS MAINTAINEDAT RESOURCE LEVEL

4.02 Various books of accounts, registers and formsmaintained including the Jharkhand Resource Centreand Orissa Resource Centre are :i) Cash Book, Operating Expenses Statement and

Bank Reconciliation Statementii) Meeting Registeriii) Cash and Bank Payment Voucheriv) Journal Voucherv) Medical Expenses Reimbursement Formvi) T.A.Bill/Conveyance Bill Form

JOURNAL

4.03 The journal is one of the books of original entry and

The journal is oneof the books of

original entry and eachtransaction is recordedtherein on the principle

of “Double EntrySystem”

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each transaction is recorded therein on the principleof “Double Entry System”. This book is forrecording all non-Cash transactions, such astransfers between accounts, non-Cash contributions,debit notes from funding agencies, exchange rateadjustments, accruals. Hence journal book isgenerally used for:a. Opening and closing entriesb. Rectification / correction entriesc. Transfer entriesd. Adjustments entriese. Non-cash contributionsf. Debit notes received from funding agenciesg. Exchange rate adjustmentsh. Accrual / pre paid expensesi. Transactions of a special nature like between

different projects within an organizationj. Adjustments or transactions where Cash in flow

outflow is not involved.k. Inter account transfers

Kindly note: Journal entry cannot be used for anyCash in Hand transactions. The passing of a journalentry towards adjustment, correction, etc., requiresproper sanctioning from the proper authority.One hasto minimize the use of journal entries.Too manyjournal entries may arise doubts and suspicions.

The passing of ajournal entry towards

adjustment, correction,etc., requires propersanctioning from the

proper authority

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CHAPTER 5

BUDGETING PROCESS

BUDGETARY PROCESS

5.01 A budget is the most crucial aspect of projectplanning and conceptualization. Budgeting is adelicate exercise of quantifying the proposedactivities into financial terms.

5.02 The process of developing a budget shall always bea participatory process where inputs from, preferably,all the stakeholders is taken and processed by thefinance desk.

5.03 CWS shall prepare the following types of budgetdepending upon the need and circumstances:i) Core Programme and Administration budgetii) Individual Project budgetsiii) Project partners co-ordination and monitoring

budgetsiv) Specific purpose budgetv) Emergency Budget

BUDGETING PROCESS

5.04 The steps involved in the preparation of a budgetare as under:1. Ideas and inputs are collected from the partners

in the current phase for the next phase

Budgeting is a delicateexercise of quantifyingthe proposed activities

into financial terms

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2. The works and experience of the last phase andthe outcome thereof considered

3. On the basis of the above various desks preparetheir respective projects proposals/budgets

4. The finance desk prepares the administrativecomponents

5. All the proposals are discussed, debated andapproved at PC level.

6. Finally the budgets are placed before BoT forratification.

Flowchart No. 1, provides a birds eye view of thebudgeting process

FLOWCHART 1

BUDGETING PROCESS

Inputs from Inputs from past projectfield/partners period/experience

Financial Desk for

Finally the budgets areplaced before BoT for

ratification

Respective Desk Administrative Component

Project Committee

BoT for Ratification

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BUDGET VARIANCE ANALYSIS

5.05 To ensure effectiveness of budgeting processes, afrequent budget variance analysis shall be done foreach budget on monthly, quarterly and yearly basis,as may be decided from time to time.

5.06 Any intra-head variations in excess of 20% shall beexplained and documented by the respective desk/department. Further approval of the ExecutiveSecretary/Director shall be necessary in such cases.

5.07 Any under/over utilisation of funds in excess of 20%shall be explained and documented by the respectivedesk/department. Further approval of the ExecutiveSecretary/Director shall be necessary in such cases.

5.08 Any out of project expenses/payments or expenses/payments, which are not permissible, shall not beallowed even if the amount involved is small orinsignificant.

Any intra-headvariations in excess of20% shall be explainedand documented by the

respective desk/department

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CHAPTER 6

PREPARATION AND APPROVALOF VOUCHERS

VOUCHERS

6.01 Vouchers are the office documents authorizing theaccountant to pass the necessary entries, to beaccompanied by supporting documents like bills,invoices, tickets, etc., filed Chronologically, separatefor Bank, Cash, Petty Cash in Hand and journal.

6.02 Vouchers of Cash, bank, petty Cash and journalshould be independently filed in the order ofoccurrence. Every voucher should be duly numberedand such numbers should be mentioned in therespective books maintained.While writing apayment voucher:· Date· Name of the person· Purpose - clear explanation should be given· Amount in figures and words· Signature of the person· No over-writing· Generally use one single colour ink for one

voucher· Guest, meeting, travel expenses should be

accompanied with details and break-ups· When vehicles are hired, details like: number

of the vehicle, opening and closing meterreading, the place commuted from and to, etc.,must be provided.

Vouchers of Cash,bank, petty Cash and

journal should beindependently filed in

the order of occurrence

24

· One cannot sign a voucher on behalf of someoneelse.

6.03 The following points are to be observed with regardto vouchers of all types :· A duly authorised person should approve any

payment within suitable limits and under nocircumstances should vouchers be authorised bythe person preparing the voucher.

· In a case where a Cash bill or Cash receipt isgiven, the same shall be attached to the voucherand there is no need for the payee’s signature orfor a revenue stamp on the voucher.

· For payments exceeding Rs.500/- a revenuestamp of appropriate value must be affixed andthe payee or the person authorised by the payee,should sign and in the case of a third person,write his/her address.

· Where expenditure cannot be supported byexternal documentary evidence, a detailedstatement of account for the expenditureincurred by the payee, duly signed by the payee,should be attached with the voucher or be writtenon it.

· The head of account under which the transactionfalls must be clearly written.

· Payment should not be released either in Cashor by cheque unless the voucher, supported withproper evidence, is produced and is complete inall aspects.

VOUCHER CHECKLIST

6.04 Before signing the voucher as authorised signatory,kindly check the following:Check for the accountability of the voucher with thefollowing:· Is the particular expenditure allowed as per the

budget head?· Can this be verified from the explanations given

on the voucher?

One cannot sign avoucher on behalf of

someone else.

25

· The date on the voucher· Account head· Narration· Amount in figures and words (both should be

same)· The name of the receiver and receiver ’s

signature (it should be the same person)· The signature of the one, who prepared the

voucher.

6.05 Supports for the voucher· Is the voucher properly supported by payment

bills / details?· Is the sum total of supports tally with the total

mentioned on the voucher?· Are the supports account-worthy? Can they be

verified? (Cross checked)· Are all the supports properly dated and the

narration clearly mentioned?· Where third party supports not available, are the

supports properly vouched for and are theyreliable?

6.06 Veracity of the Expenditure (Is it is a genuineexpenditure?)· Is the expenditure really incurred?· Is there sufficient proof for its genuineness?· Can the expenditure truly verified to an external

agency?

6.07 If you are satisfied, then approve the voucher bysanctioning this expenditure.Beware!! By signing the voucher, you are approvingthe expenditure, and the responsibility of the voucheris shifted to you. You own the expenditure asaccountable and genuine. Therefore you are liableto answer to all the concerned authorities about theveracity and accountability of this expenditure.

6.08 The plan attributes for a Voucher1. Proper authorisation and segregation of duties

at initiation stage

By signing thevoucher, you are

approving theexpenditure, and theresponsibility of thevoucher is shifted to

you

26

2. Fair price being obtained via bids/ quotations3. Proper authorisation and segregation of duties

at ordering stage4. Evidence of receipt of goods or service by the

F.O.5. Evidence of requests for payment from third

parties.6. PV is properly authorised by the Accounting

(within Budget)7. PV is properly authorised by FD or equivalent.8. PV is mathematically correct appropriately

account coded & has been date stamped9. All necessary deductions have been withheld

from payments10. Supporting documents especially their party

documents have been cancelled11. Confirmation from payees of evidence of receipt

of funds12. Entered in advance payment log book/listing.

PROCEDURE FOR ISSUING RECEIPTS

6.09 Following are the procedures for issuing receipts :· Receipts should be serially numbered· A duplicate copy of the receipt should be

retained on record.· The address of the donors should be mentioned

in the receipt book· Each receipt should be signed by a duly

authorized person.· If a donation received is towards the corpus fund

of the institution then a letter should be obtainedfrom the donor and kept in a separate file forcorpus donations. The letter should be voluntaryand not in a standardized format.

· If an institution has obtained 80G exemption fordonations then the necessary information mustbe printed on the receipt or a seal affixed on thereverse side of the receipt, giving full details of

If a donationreceived is towards the

corpus fund of theinstitution then a letter

should be obtainedfrom the donor

27

the exemption issued, i.e., reference number,date of issue and period for which it is valid.

· Separate receipt books must be kept for foreigncontributions and local contributions.

ESSENTIALS REQUISITES OF INVOICE,CASH BILL & RECEIPT

6.10 Kindly understand the difference between these.Each has its own role in the accounts, kindly do notmix them up. Only Cash Bill can be taken straightinto accounts. All the others are linked one withanother, and just any one by itself is insufficient foraccountability. Look at these carefully.

6.11 Proforma Invoice (Quotations) - This is merely aquotation giving the estimated cost of goods orservices. This is not a supporting document. It hasto be followed by an invoice. This is just to receivequotations from different parties concerned.Suppliers provide estimates through ProformaInvoices. This is helpful especially if one needs toshow that one has checked the price and quality atmore than one place and is ordering the goodsaccordingly. Certain donors demand at least threequotations before one makes a purchase of an itemabove certain limits.

6.12 Invoice - After getting the quotations, theorganisation places an order with the concerned firmfor the supply of a particular commodity. Whilesupplying the commodity/item, the firm sends theInvoice along with delivery challan.

6.13 Invoice is a Credit Bill - a bill for goods and / orservices provided where the payment is yet to bemade. This is itself is not a supporting documentfor payment. This has to be supported by a receiptacknowledging the payment towards the invoice. Aproper invoice should contain all the particulars, likename of the organisation, serial number, date,

Only Cash Bill can betaken straight into

accounts. All the othersare linked one with

another, and just anyone by itself isinsufficient foraccountability

28

description of goods and / or services provided. Itshould be signed.

For the purpose of accounting, you need the receiptalong with the invoice. The firm issues a receipt onaccepting the payment made as per the invoice.

Be careful and be on the watch out: There arechances that invoices may be accounted in projectand receipt at another place. Invoice and Receiptsare like husband and wife. They cannot be separated.No divorce is allowed by any law whatsoever.

6.14 Cash Bill - Cash Bill is a simple bill given by therecipient to the organisation in acknowledgment ofthe receipt of money. This by itself is a supportingdocument for any payment only if it is printed withthese details of the firm issuing the cash bill: Nameof the establishment, serial number, date descriptionof the goods or services, amount in figures and wordsetc.

Cash Bill is a simplebill given by therecipient to theorganisation in

acknowledgment of thereceipt of money

29

CHAPTER 7

FINANCIAL PROCEDURES

PURCHASE PROCEDURES

7.01 Purchase/Works Request against approved budgetcan be approved by the Project head with the programstaff recommendations. If not, it is necessary toobtain approval from Executive Director. It isExecutive Director’s discretion to approve the workwith or without purchase committee consultation.For this the Director will constitute a purchasecommittee from time to time.Limit for Purchase / Works for approvedbudgeted items:1. If a request (single or one month utilization) is

less than Rs.5000/-, Project head is free to decideabout the supplier.

2. If a request (single or one month utilization) isabove Rs.5,000/- and less than Rs.10,000/-Coordinator may approve the purchase with therespective Project head’s recommendation.

3. If a request (single or one month utilization) isabove Rs.10,000/-, the purchase needs to bebrought to the Purchase Committee by way of apurchase request.

7.02 Program Officer is responsible to obtain approvalin the prescribed format for approved budgeted Itemsfrom Project Head within Rs. 5,000/-. For request

It is ExecutiveDirector’s discretion toapprove the work withor without purchase

committee consultation

30

above Rs.5,000/- permission to be obtained fromExecutive Director with recommendation of theProject Head. The Finance Officer should allocateunique number to each PR, after verifying theavailability of budget line item.On emergency,Program Officer may approve the purchase beforePurchase Committee scrutiny subject to the approvalfrom the Purchase Committee.If it is a regularpurchase, the previous Purchase Committee decision(evidence through comparative chart within 3months) may be considered and ordered with thesame supplier for the same quality and cost. If acost is different, it cannot be taken intoconsideration.Otherwise Purchaser should collectminimum three quotations from different vendors.

7.03 Following information should be available inquotations:Content of Quotation1. Quality Description2. Unit cost3. Validity of quotation4. Packing & Forwarding charges (if any)5. Cash discount (if any) – Quantity wise.6. Tax (if any)7. Guarantee8. Date of delivery9. Payment details – mode & type

7.04 After obtaining the quotations from differentvendors, a Comparative Chart need to be preparedwith his/her recommendation to purchase sourcewith detailed justification and submitted to thePurchase Committee.

7.05 Duties of Purchase Committee1. Scrutinize quotations2. If necessary Purchase Committee may obtain

opinion from external source for somespecialized goods.

3. Selection of Supplier / Service Provider4. Terms & Conditions of the purchase / service.

The Finance Officershould allocate unique

number to each PR,after verifying the

availability of budgetline item

31

7.06 Duties of the Purchaser1. Convene Purchase Committee meeting,2. Preparing minutes of the Purchase Committee

proceedings,3. Have a track on Department needs and study

Technical, Financial Feasibility4. Collecting quotations from vendors5. Preparing Comparative Chart and table his/her

recommendation to Purchase Committee.6. Issuance of Purchase order to vendors as per the

purchase committee decision and satisfyPurchase Committee intention.

7. Ensure “value for money”.8. Receiving and verifying the ordered goods and

ensure quality & quantity of the goods.9. Maintenance of “Stock/Assets Register”.10. Issuing of goods to departments according to

their approved need.

7.07 Once the goods received, relevant field knowledgePurchase Committee member and the DepartmentManager should acknowledge the quality andquantity of the received goods and documentaryevidence built be made available.

7.08 Receiving of Goods / Service Goods ReceivingNote - Purchaser should follow with the supplier /service provider to complete the task within the timedecided by the PC/ time mentioned in PO. Oncethe Goods / Service is received or completed, in thecase of service, work completion certificate shouldbe obtained from the user and in the case of Goodsa “GOODS RECEIVED NOTE” (GRN) need to beprepared with the acceptance of user, one purchasecommittee member and purchaser in accordancewith the terms and conditions of the Purchase Order.

ASSETS CREATION AND ACQUISITION

7.09 Assets acquired / created under various programmesshould be in accordance with program proposals /

Assets acquired /created under variousprogrammes should be

in accordance withprogram proposals /with the consent of

donor

32

with the consent of donor. These assets acquired /created are reflected in dead stock register separatelyshowing particulars of immovable and movableproperties along with standard particulars likeforeign source and domestic source, date ofacquisition, invoice number, amount, quantitysituation etc.

CASH HOLDING LIMIT

7.10 CWS Level - Cash Balances are always maintainedat bare minimum level and physical cash balancesare frequently verified by the auditors / members ofthe accounts department with the cashier.

7.11 Resource Centre Level - Minimum and Maximumcash balances each month maintained shall beseparately reported before the MonitoringCommittee from time to time to determine theminimum cash holding limit keeping in view ofnature, size and requirement of the Resource Centre.

CONTRACTS & RENTAL/LEASE AGREEMENTS

7.12 The Resource Centre Offices, Network Officeslocated in different areas / places where the officeportions taken on rent. The practice of entering intoformal rental / lease agreements is being practicedand documentary evidence are preserved

INSURANCE OF MOVABLE ANDIMMOVABLE ASSETS

7.13 Insurance of all movable and immovable assets isrequired to be made and renewed regularly. The typeof insurance cover required for various type of assetsshall be determined by the Finance Committee

7.14 Computer and other electrical instruments shall beprotected through Annual Maintenance Contract.

Cash Balances arealways maintained atbare minimum leveland physical cash

balances arefrequently verified

33

CHAPTER 8

INTERNAL CONTROL

INTRODUCTION

8.01 Internal Control implies development of systemswithin the organisation to ensure efficientfunctioning and minimise the possibilities ofmismanagement and inefficiency.

8.02 The nature and extent of Internal Control can bedeveloped on the size and activities of theorganisation. It is very difficult to recommend anyuniversal system for all organisations, therefore itis important to understand the features andmechanism of Internal Control. All organisationsshould develop their own systems of Internal Controldepending on their needs and resources.

BASICS OF GOOD INTERNALCONTROL SYSTEM

8.03 Following are points of a good internal controlsystem :i) Proper allocation of functional responsibilities

within the organisation.ii) Proper operating and accounting procedures to

It is healthy practiceas well as internal

separation that thesetwo are separate sothat less chances of

fraud

34

ensure the accuracy and reliability of accountingdata, and safe guard of assets.

iii) Quality and competence of personnel withregard to their duties and responsibilities.

iv) The review of the work of one individual byanother whereby the possibility of fraud or erroris minimised.

IMPORTANT FEATURES OFINTERNAL CONTROL

8.04 Following are the important features of InternalControl System :i) An organisational chart depicting the hierarchy

of the authority and responsibilities should beprepared :

ii) The organisation chart should show a cleardefinition and allocation of duties andresponsibilities of officials and employees.

iii) Rotation of duties of employees dealing withcash, stocks, stores and other valuables and alsoat various projects.

iv) Preparation of an accounting manual.v) The budget, to cover all aspects of expenditure/

allocation of funds and receipts of funds.vi) System of budgetary control, periodical review.

Actual expenditures and receipts should becompared with the budgeted figures.

vii) Where an organisation has more than one projector office expending or receiving funds, all theabove six points stated are required to beadhered to at each centre/office.

viii)Further the branches or smaller offices arerequired to send at pre determined intervals i.e.depending upon the size of the organisationdaily/weekly/fortnightly/monthly/statements ofall receipts, expenses, stocks etc.

ix) Complete reconciliation of figures betweendifferent project offices and head office. Anyunreconciled element should be looked intoimmediately.

Cancelled chequesshould be in the safe

custody of a designatedauthority that is

accountable to theBoard

35

x) Surprise verification of cash, stock, assets,investments etc. by the internal auditor, theorganisation executives.

xi) Maintenance of records as per the requirementsof statute in force and as directed/desired byfunding agencies, government grant authorities.

xii) All the work should be completed within thetime frames stipulated and records should beauthenticated by proper authorities.

xiii)All the surplus funds should be properlyinvested keeping in view the provisions ofincome tax as well as the safety and return oninvestments.

xiv)The organisation should have adequateinsurance cover for all its assets including cashin safe and in transit. It is advisable to get fidelitycover for employees handling cash.

xv) Regular board meetings and the involvement ofthe board members in decision making andreview of work.

SALARY & WAGES

8.05 The employment should be approved by competentauthority and the pay structure and all other perksof each employee should be given in writing to theaccounts departments.

8.06 All adjustments from payroll on account of newappointments, leave, all allowances, recoveries,deductions, termination, suspensions etc., shall bemade only after receiving proper authorisation fromthe competent authority.

8.07 The Account Department/Head of Accounts/Accountant shall be responsible for accounting ofall payroll adjustments, monthly payroll processingand payment of salaries to the staff.

8.08 All information relating to the payroll is confidentialand care must be taken to maintain confidentiality.

Banks are thetraditional avenues for

investment and theyield is quite low,

capital appreciationpossibilities are very

limited

36

8.09 Records for each employee showing followingparticulars should be kept :i) Date of Employmentii) Complete resume of employee with references.iii) Rates of pay.iv) Increments & promotions.v) Leave availed/encashed.vi) Retirement/dismissal.vii) Advances outstanding.

8.10 Attendance Register with checking in and out time.

8.11 All payments of salaries and wages is preferably tobe made in account payee cheques or otherwise cash.Salary register is to be maintained.

CAPITAL EXPENDITURES& FIXED ASSETS

8.12 Purchase of fixed assets and capital expendituresshould be approved by the board and should be asper the budget.

8.13 The purchase should be done after inviting tenders/quotations. The most suitable supplier should beidentified and accordingly purchase order should beissued.

8.14 The fixed assets should be recorded at actual costin the books of accounts. The following are a partof the actual cost of a fixed asset :i) Taxes, Customs/Excise Duties and or other

Duties/Levies incurred on the asset.ii) Cost of Insurance and Freight.iii) Cost of Commissioning and erection, if any.iv) Legal Charges.v) Consultancy Fees.vi) Architectural Fees.

Should be invested inaccordance with theprovisions of section11(5) of the Income

tax act, 1961

37

vii) Interest on Loans taken specifically for theproject until completion of the Project.

8.15 When land is purchased the actual cost of land shallinclude stamp duty, legal fees and cost ofdevelopment of the land.

8.16 In case of additions or repair to the assets it shouldbe noted that large amounts which result in creationof new asset or increase the capacity of the assetshould be added to the actual cost. Small amountsspent on repair maintenance etc. should not becapitalised and should be treated as revenueexpenditures.

8.17 Record of fixed assets should be maintained in aregister.

8.18 The location of each asset should be explicitlymentioned in the register and any changes thereinshould be noted.

8.19 Physical verification of all assets, with correctnessof location is to be annually made by the internalauditor or organisation personell.

8.20 All assets requiring insurance are to be insured andperiodically renewed.

CASH AND BANK

8.21 Cashier & Accountant to be Separate - It ishealthy practice as well as internal control that thesetwo are separate so that these less chances of fraud.

8.22 Petty Cash and Large Cash Payments to beseparate - Both for accounting and control purpose,it is wise to segregate into petty cash payments andlarger payments. Different persons could handle thetwo payments.

8.23 Cheque Payment Vs Cash Payment - As far as

Small amounts spenton repair maintenance

etc. should not becapitalised and shouldbe treated as revenue

expenditures.

38

possible all amounts of Rs.5,000/- and more shouldbe paid through Account Payee Cheque or DemandDraft.

8.24 Cash Receipt - Cash received by the organisationshould be promptly deposited. Its receipt should beacknowledged through pre-numbered receipts,which are properly recorded in the cash book.

8.25 Physical Verification of Cash - There should beproper inbuilt mechanism within the organisationfor a higher authority to verify the actual cash onhand with the balance shown in the book at leastonce a month. One could also occasionally checkthis on surprise visits.

8.26 Bank Transactions - It is advisable to have as fewbank accounts as possible except where separatebank accounts are required by funding agencies orby law. Do not issue as far possible bearer or postdated cheque. Do not issue a cheque withoutsufficient balance in the account since dishonoringof a cheque will attract criminal liability. Cancelledcheques should be in the safe custody of a designatedauthority that is accountable to the Board. All thebank transactions are to be properly recorded.

It is advisable tohave as few bank

accounts as possibleexcept where separate

bank accounts arerequired by fundingagencies or by law

39

CHAPTER 9

MANAGEMENT OF INVESTMENT

INTRODUCTION

9.01 Planning for investments is a very important thingin an organisation. There should be a proper policyto draw up investment plan. The following factorscould be considered:- Nature of funds available for investment in short

terms deposits and long term deposits.- Time plan for implementation of the project for

which funds are received.- The type of cash flow required in the

organisation.

MANAGEMENT OF PROJECT FUNDSAND INVESTMENTS

9.02 All project funds shall be invested into appropriatesecurities preferably in fixed deposit receipts withthe bank. The investment of available project fundshakll be done on the basis of quarterly cash flowplan.

9.03 All funds available under all other funds includingcorpus and endowment fund shall be invested inappropriate security depending upon the tenure ofthe respective funds.

It is healthy practiceas well as internal

separation that thesetwo are separate sothat less chances of

fraud

40

YARDSTICK FOR INVESTMENTS

9.04 · Yield· Safety· Liquidity· Capital appreciation· Investment mix· Government restrictions

CHECKLIST FOR MAKINGEFFICIENT INVESTMENTS

9.05 1. Ensure that the yield on the investments ismaximized

2. Venture into investments that do not jeopardizethe safety of the money invested

3. Check the liquidity of the investment in orderto facilitate easy realization of funds wheneverrequired.

4. Examine the past experience of the organisationbefore making the investment.

5. Seek advice of a financial consultant / expertbefore making the investment.

6. Approval of the governing body or advisorycommittee must be sought before investment.

7. Private investments like investments inpartnership firms or companies should be strictlyavoided as it is not legal permissible.

8. Investments should be spread out to reducefinancial risks. It is not good to put all eggs inone basket.

9. Incentives and brokerages are offered by variousfinancial institution. However, it is not good toput all eggs in one basket.

10. Give preference to the interests of theorganisation than to the person who takes theinvestment eg., investing just to oblige anofficial in an organisation is not a goodinvestment decision.

Private investmentslike investments in

partnership firms orcompanies should be

strictly avoided as it isnot legal permissible

41

11. Be cautious of people with a vested interestpainting a bad picture of another organisationeg., a banker saying that investment in a publicsector bond is bad.

TYPES OF INVESTMENTS

9.06 Funds of Non-Profit Organisation, whether charitableor religious, should be invested in accordance with theprovisions of section 11(5) of the Income tax act, 1961.

INVESTMENTS REGISTER

9.07 An investment register should be maintained, showing :a) the nature and description of the investments.b) in the case of investments in companies, the

name of company in which the investment hasbeen made.

c) certificate numbers.d) distinctive numbers.e) cost, amount paid-up and face value.f) the names in which the investments have been

made.g) due dates for receipt of interest.h) date on which dividends are ordinarily received.i) maturity dates.j) All the investments kept by an authorised

official with adequate security measures.k) All investments should be eriodically verified

physically with the Register.l) Periodic review of all investment income, to

ensure timely receipt.m) All transactions of investments should be

authorised by the board or a person to whompower has been delegated.

Funds of Non-ProfitOrganisation, whethercharitable or religious,should be invested inaccordance with theprovisions of section

11(5)

42

CHAPTER 10

STAFF MATTERS

STAFF RECRUITMENT POLICY

10.01 Staff recruitment authority is Executive Directorof CWS. He may appoint a selection committeewith senior staff and any other HRD expert inconsulation with the Managing Trustee. Theselection process will be short listing of theresumes of the applied followed by interviews.Selected candidates will be given contracts for aperiod three months probation. Every new recruitshall undergo induction training of not less thanfifteen days by senior staff.

STAFF REMUNERATION

10.02 Staff will be paid monthly salary as contractedevery month. All staff are eligible for socialsecurity benefits offered by CWS from time totime. Eg: Provident Fund, gratuity, medicalinsurance etc.

ATTENDANCE

10.03 Attendance registers shall be maintained at every

Staff will be paidmonthly salary ascontracted every

month. All staff areeligible for socialsecurity benefits

43

place of employment not only to the salariedemployees but also to those are drawinghonorarium according to the terms and conditionsof such work on honorarium basis or stipend basis.The concerned officer or the head of thedepartment or project officer whichever the caseshall verify the attendance and certify in thefollowing format.Name Designation: Duration from———to ——total working days——— days worked ——analysis of non working days Loss of pay———leaves —— total permissible leaves ——— leavesavailed——balance of leaves———.

LEAVE POLICY

10.04 Leave is a permission granted to a staff / employeeof CWS to be absent from actual duty. Leavecannot be claimed as a matter of right. When theemergency of the staff so require in the interest ofthe organization, discretion to refuse or revoke ofany description of leave is reserved with thesanctioning authority. Leave ordinarily begins onthe day on which transfer of change is effected andends on the day on which the change is resumed.Holidays can be prefixed or suffixed to leavesubject to the conditions and prior approval of thesanctioning authority.

10.05 A staff on leave cannot take up any service orsetting up of private practice etc. except with theprior written permission of the Executive Director.Staff who remains absent after the end of his/herleave will attract loss of pay for the period ofabsence, unless extension of leave is granted bythe competent authority. The applicant for grantof leave should specify the period of leave, natureof leave, leave address and in the case of leave onMedical certificate, the Medical certificate shouldbe enclosed. In addition to the holidays announcedby CWS in the calendar year, the staff may availthe leaves mentioned in this policy.

A staff on leave cannottake up any service orsetting up of privatepractice etc. except

with the prior writtenpermission of the

Executive Director

44

LEAVES APPLICABLE IN CWS

10.06 Casual Leave - Casual leave is a concession toenable a staff in special circumstances to be absentfrom duty, without such absence being treated asleave. The maximum available casual leaves areseven days in a calendar year. Casual leaves cannotbe taken for more than 3 days at a stretch. Theycannot be combined with privilege leaves.

10.07 Privilege Leaves - The description of this leavesare 15 days in a calendar year which may be availedby the staff for a period not exceeding of 7 daysat a stretch., provided for such leave a staff shouldapply for leave minimum four days prior to theperiod of absence. Privilege leave cannot be takenalong with casual leave. Combining privilege leavewith Sundays or other public holidays notified byCWS is allowed only with prior permission fromthe sanctioning authority.

10.08 Sick Leave - The description of this leave isapplicable to all staff. It is normally permissiblefor __ days with full pay, ___ days half pay (50%of basic salary), provided a Medical certificate bya competent medical practitioner shouldproduced. In case of prolonged sickness due todisablement, such sick staff is entitled to availleave for three months with half pay (50% of basicsalary) with 100% HRA. After three months ifsuch staff is not able to attend his / her duties dueto prolonged sickness or ill-ness, should takecompulsory retirement with two months full payincluding HRA.

10.09 Special Disability Leave : The leave of thisdescription is admissible to an employee who isdisabled by injury inflicted or caused or inconsequence of due performance of official dutiesor in consequence of his official position.

This leave is granted on medical certificate issuedby the competent medical authority for a periodnot exceeding 90 days (three months) with half

Combining privilegeleave with Sundays orother public holidays

notified by CWS isallowed only with prior

permission

45

pay (50% of basic salary, including HRA),provided such employee has severed theorganization for a period of not less than fiveyears, from the date of his joining the organization.After three months if such staff is not able to attendhis / her duties due to prolonged sickness or ill-ness, should take compulsory retirement with twomonths full pay including HRA.

Note: The disability does not include the disabilitycaused in the road accidents while going fromresidence and vice versa, but includes roadaccident while proceeding on official duty fromoffice to office, or a work spot in the field.

FAMILY WELFARE LEAVES

10.10 Maternity Leave - The description of this leaveis admissible to on the basis of medical certificateissued by the competent medical officer/practitioner for a period not exceeding 90 days(three months) for each confinement and notexceeding 4 weeks in case of abortion, includingmiscarriage and termination of pregnancy.Maternity leave for confinement is to be sanctionedto staff with less than two surviving children.

10.11 For family planning operations- A leave of twodays is permissible for male employee forvasectomy operation, where as a leave of sevendays is permissible for female employee fortubectomy operation.

10.12 Hysterectomy - A leave of 30 days (one month)with full pay, including HRA, is admissible forfemale employee for hysterectomy, provided amedical certificate from a competent medial officer/practitioner is to be produced by such employee.

10.13 Paternity Leave - A leave of this description isgranted to male employee for a period of five daysfor only two deliveries of his wife.

Maternity leave forconfinement is to be

sanctioned to staff withless than two surviving

children

46

MISCELLANEOUS LEAVES

10.14 Marriage Leave: The leave of this description isadmissible for an employee if he / she is gettingmarried for the first time. The maximum periodof leave is ____ days.

10.15 Educational Leaves: An employee may avail theleave of this description on loss of pay for a periodof 15 days. This leave can be combined withprivilege leaves, provided such leave should notexceed more than 15 day. In case of examinations– which is inevitable a prior permission from thecompetent authority should be attained by furnishingrespective hall ticket from the University or Board.

LEAVE SANCTIONING AUTHORITY (LSA)

10.16 The leaves mentioned here in are sanctioned bythe following authorities.1. In case of Project Officers, Coordinators and

the Accounts Officer the leave sanctioningauthority shall be the Executive Director-CWS.

2. In case of the staff working at Head office theleave sanctioning authority shall be theExecutive Director.

3. In case of Resource Centres the leavesanctioning authority shall be the ProjectOfficer.

LEAVES REGISTER

10.17 Each Leave Sanctioning Authority shall maintaina register showing clearly the date of application,name of the applicant, leaves sanctioned, categoryof leaves and balance of leaves. Every month therespective LSA shall furnish a statement of leavesavailed the balance of leaves name wise to the

In case of ResourceCentres the leave

sanctioning authorityshall be the Project

Officer

47

Administrator. Proforma of leave applicationprovided by CWS should be used.

AUTHORIZATION OF LEAVE

10.18 Leave of any nature exceeding more than oneweak, such leave shall be authorized by theExecutive Director-CWS in case of his absenceby the concerned project Head. Mere applicationfor leave shall not be deemed as leave approved.Leave is declared to have been approved when theLSA gives his assent by way of his/her signatureon the application, or else, it will be treated asunauthorized absence. Any person who violatesthis rule, such absence will be treated as lose ofpay.

10.19 Unauthorized absence - Unauthorized absenceby any staff attracts disciplinary action ofsuspension. The leave sanctioning authority shallsuspend such staff and reinstatement will beeffected only with written approval of theExecutive Director if s/he satisfies with the reasonsoffered by the absentee.

PUBLIC HOLIDAYS

10.20 The Executive Director CWS will notify the datesof public holidays every calendar year for thefollowing festivals / occasions.- New year Day -1 , Makara Sankranthi -1- Sankranthi -1, Mahashivarathri -1 - Good Friday –1, Ugadi -1- Rakha Bandhan -1, Ganesh Chathurthi -1- Dasera -2, Depawali -1- Ramzan –1, Christmas -2

The Executive DirectorCWS will notify the

dates of public holidaysevery calendar

48

CHAPTER 11

TRAVEL NORMS

TRAVEL REIMBURSEMENT

11.01 For the purpose reimbursement of travel andmaintenance to the Project heads and Coordinatorstheir designated location of office of work will betreated as origin of their travel and reimbursedactual bus, auto, second class sleeper and taxi (asand when permitted) will be reimbursed. Dailymaintenance will be reimbursed at the ratesmentioned above.

11.02 In case of travel for attending trainings actual travelby bus, auto, train (2nd class sleeper) and Taxi (asand when permitted) including maintenance for theduration of travel as mentioned above will be paid.If training fee include boarding and lodging dailyout of pocket expenses will be reimbursed @Rs.____/- per day or Rs._____/- whichever is least.In case of attending sponsored trainings the samerates of reimbursement will be allowed as offeredby the sponsor irrespective of CWS rule andestimated amount will be advanced to the personsponsored to attend and upon returning from thetraining he or she shall refund the same. Per diemreimbursement made to trainee or participant bysponsor will not be counted for settlement ofadvance and daily maintenance will not beallowed.

Staff will be paidmonthly salary ascontracted every

month. All staff areeligible for socialsecurity benefits

49

11.03 The rates of reimbursement applicable to ExecutiveDirector and other project heads will be Rs.______/- for travel within project area and Rs._____ outsideproject area. Actual train (3rd AC), bus, Taxi, airfarewill be reimbursed. Actual lodging expenses of 3 starhotel stay will be reimbursed along with supportivestaff.

11.04 Travel reimbursement shall be claimed in theformat as provided in Annexure ***

50

CHAPTER 12

UNDERSTADINGCURRENT FUNDS

INTRODUCTION

12.01 The main purpose of fund accounting is to properlyaccount for all resources received or used. It classifiesthe available reserves and resources into fundsaccording to specific conditions and limitationsplaced by the respective donor. The classification intovarious funds is an acknowledgment of thestewardship/trusteeship responsibility, which comesalong with restricted grants from external parties.

12.02 An NGO may have numerous fund accounts but forexternal reporting purposes similar funds arecombined into fund groups. For instance, separateaccounting may be done for all restricted projectsbut for overall reporting purposes all such individualfund account may be combined into a common fundaccount – restricted funds. In this chapter we arediscussing certain current funds. Current funds implythat they are available for application for eitherrestricted or unrestricted purposes. All funds otherthan permanent or long term funds such as corpusand endowments are considered as current funds.Current funds basically includes all the active fundsof an NGO. The fund which are available forapplication for any purpose with or without restrictionare current funds. Another way of looking at currentfunds could be the funds which find a place in the

The main purpose offund accounting is to

properly accountfor all resourcesreceived or used

51

income and expenditure account of the organisation.For example, a corpus fund is a permanent fund andany receipt towards corpus is directly taken to thebalance sheet without being shown as income in theincome and expenditure account. The following arefew of the commonly used fund groups under currentfunds.

CURRENT OR GENERAL FUNDS

12.03 Current or General Funds, hereinafter referred to asCF, are those funds, which reflect the financialresources/surpluses available for general operations.Such funds are generally created from- the excess of income over expenditure of a charity

in a normal course of functioning- income generation activities- interest earned from various unrestricted fund- rent received- membership fees- miscellaneous sources, etc

12.04 In each financial year an NGO may have certainunrestricted funds available from the abovementioned sources. Such funds can be utilized incarrying out the primary objectives of theorganization. Normally, the current fund isdetermined at the end of the year being the residualbalance available after accounting for all restricted,unrestricted and specialized funds. But if a properfund accounting system is in place then theorganization can know the amount of CF availableduring the year. As a result, the management can planits spending on such activities against which nofunding is available.

CURRENT UNRESTRICTED FUNDS

12.05 Current unrestricted funds, hereinafter referred to asCUF, reflect the grant and resources received without

Normally, the currentfund is determined at

the end of the yearbeing the residual

balance available afteraccounting for all

restricted, unrestrictedand specialized funds

52

any conditions or stipulation by the donor agencies.In other words, all voluntary contributions where thedonor does not specify any condition regarding theuse of fund can be treated as CUF. The distinctionbetween a CF and CUF is the internality andexternality of their generation. All CUF are generatedthrough external sources and all CF are generated bythe organization through its own sources. But in boththe cases there is no restriction on the use of suchfunds for any specific purposes. Therefore, if an NGOis in a position to calculate both the CF and CUF,anytime during the year then it can plan its ownunrestricted activities for which no fund from anydonor is available.

12.06 A voluntary contribution generally should beconsidered as an unrestricted fund. In practice projectgrants are also treated as voluntary contribution butif we go by strict legal interpretation then a grantreceived for a particular project cannot be consideredas voluntary in nature. A contribution is voluntary ifno conditions are attached with it. In a restrictedproject it is more of a partnership where the NGOutilises the grant on the basis of the restrictionsattached. Therefore, a project grant is not voluntaryin nature.

12.07 In the category of CUF, those donations and grantare included which are absolutely voluntary and donot come with any conditions attached. In thiscontext, it is important to note the difference betweendonations/grants and other incomes. Donations/grants cannot be claimed legally as a matter of rightfrom the donor but other income can be claimed. Inother incomes there is a quid pro quo i.e. somethingis received against something. If rent is received thenthe payee has used the premises. If interest is receivedthen the bank has used the funds. All income otherthan voluntary donations can be legally demandedfrom the person from whom they are outstanding.But a voluntary contribution is solely at the wishesof the donor and he may or may not give withoutincurring any legal obligation.

A voluntarycontribution

generally should beconsidered as anunrestricted fund

53

CURRENT UNRESTRICTEDSPECIFIED FUNDS

12.08 There could be some unrestricted voluntarycontribution received for a broader spectrum ofactivity. For instance, an NGO collecting funds forthe girl child through donation boxes, such receiptsare voluntary in nature but at the same time the largerintent of the donor is specified. Therefore, even ifthere is no restriction for any particular type of activitybut the funds have to be spent for the benefit ordevelopment of the girl child. Choosing the type ofactivity may be at the discretion of the NGO but thesegment of activity is defined at the time of receipt.In such cases, the restriction is on the specificobjective rather than a particular activity as in thecase of a restricted fund supported with a projectproposal and budget.

CURRENT DESIGNATED FUNDS

12.09 Current designated funds, hereinafter referred to asCDF, is created out of unrestricted funds by themanagement of the NGO or the trust. The board ofan NGO may designate the unrestricted current fundfor any specific purpose or activity . The designationmay be for programme or administrative purposes.The board of the NGO may change the designationat any time and redesignate the same for otherpurpose. For instance, the CDF may be created forsome of the following purposes :- any specific activity designated by the Board of

Directors- emergency medical expenses for staff members

with approval of the board- internal research for improving the quality of

programs- staff capacitation measures which are not funded

under any restricted projects- participation in seminars, conferences,

international meets- expenses on fund raising initiatives, etc.

There could be someunrestricted voluntarycontribution received

for a broader spectrumof activity

54

12.10 Designation of funds can be done from unrestrictedfunds only. Because restricted funds are not in thediscretionary domain of the NGO. If an NGO is ableto designate a particular fund then it implies that it isnot specifically accountable to any external agenciesfor that particular fund. Therefore, the restricted fundsincluding projects grants can only be used for thespecified purposes.

12.11 Apart from the unrestricted funds there is one morecategory of fund which can be designated by the NGOfor any specific purpose, it is the redesignation of anexisting designated fund. Because designation createsan revocable restriction. The management of an NGOcan create and revoke designation on various funds.But for both designation or revocation of designationthe decision should be taken at the board level as perthe bye-laws of that organisation.

12.12 The designated funds can provide a deep insight intothe programmes and values of the organisation.Because it is something at the disposal and discretionof the organisation. In case of a restricted fund theorganisation does not even have the opportunity ofbecoming judicious in identifying the modes andpurposes of application. But in case of designatedfunds the organisation can internally decide thepurpose, mode and methodology for retention or useof funds. The various kinds of designated fundscreated can provide a clear idea about the approachof the NGO, the important activities and thesustainability perspectives.

CURRENT RESTRICTED FUND

12.13 Current restricted fund, hereinafter referred to asCRF, are the funds available with the organisationwith conditions and stipulation imposed by thedonors. All project grant based on project agreementsare restricted funds. They are CFs available forapplication in the short or medium terms. But theNGO does not have any discretionary power for

The designated fundscan provide a deep

insight into theprogrammes and values

of the organisation.

55

determining the mode and purpose of utilisation.Such funds have to be used as per the approvedbudgets and activities. Even the expenditures headsare pre-determined for such funds.

12.14 The stewardship/trusteeship aspect of the NGO isvery apparent in the framework of restricted fund.Such funds are treated as the belonging of the donorand NGO is merely a catalytic conduit for applicationof such funds. The NGO keeps and utilises fund onbehalf of the donors. Therefore, it has the dualresponsibility of effectively utilising as well assafeguarding such funds. At the end of each project,if there is any surplus then such surplus may eitherbe refunded or may be transferred to the CUF withprior approval from the donors. Any asset, surplusor deficit at the end of the project belongs to the donorand it has to be retained or refunded as per the termsof the agreement or any other direction received fromthe donor.

12.15 A restricted fund may have an interface withunrestricted funds also. For instance, in some projectsthe donor does not fund 100% of the budgetedamount. A specified percentage of the project cost isprovided by the NGO as own means of contribution.If such own means of contribution comes frominternal unrestricted sources then the expendituresfor the project will come from two sources one fromthe restricted fund belonging to the donor and theother from the unrestricted fund from which ownmeans of contribution was made. Then an accountingentry for transferring the own means fromunrestricted funds account to restricted funds has tobe passed which would not have been required inconventional accounting system.

A restricted fundmay have aninterface with

unrestricted funds also

56

CHAPTER 13

UNDERSTANDINGCORPUS FUNDS

WHAT IS A CORPUS FUND ?

13.01 The term ‘corpus’ is often confused andmisunderstood. The literal meaning of the term‘corpus’ is the main part/organ of a body. The term‘corpus’ also denotes the sum and substance of anissue/entity. From a layman’s point of view a corpusfund should be understood as the capital of theorganisation ; the funds generated and kept for theexistence and sustenance of the organisation.

13.02 For a charitable organisation corpus fund are ofparamount importance. Normally a corpus funddenotes a permanent fund kept for the basicexpenditures needed for the administration andsurvival of the organisation. The corpus fund isgenerally not allowed to be utilised for the attainmentof the purposes, but the interest/dividend accrued onsuch fund can be utilised as well as accumulated.

13.03 Corpus funds are generally created out of corpusdonation. A donation will be treated as corpusdonation only if it is accompanied by a specificwritten direction of the donor. In the absence of anywritten direction of the donor, a contribution or grantcannot be transferred to corpus fund. It is importantto understand that in case of a corpus fund, the fundsare restricted but the purposes are not restricted.

Normally a corpusfund denotes a

permanent fund keptfor the basic

expenditures neededfor the administration

and survival of theorganisation

57

Corpus fund is an unrestricted permanent fund. Therestriction is on the use itself rather than the type ofuse. A corpus fund may be used in exceptionalcircumstances, where the survival of the NGO is atthreat. Such decisions are rarely taken and should betaken at general meetings. As such there is no legalbar on application of corpus funds for charitablepurposes. But for all practical purposes corpus fundis a permanently closed fund with no strings orrestriction for future application attached.

13.04 As discussed above, it is difficult to create a corpusfund unless a written consent is received from thedonor because creation of a corpus fund impliesreduction of program activities to that extent.Therefore, the law does not encourage creation ofcorpus fund. For instance, under the Indian IncomeTax laws 85% of voluntary contribution received arerequired to be applied for charitable purposes. In otherwords, only 15% of the income is available foraccumulation every year. If the board of an NPOwants to create corpus fund then it cannot go beyond15% of its income even if it is available foraccumulation.

DONATION RECEIVED THROUGHCHARITY BOXES

13.05 Any donation received through charity boxes willnot be considered as corpus donation even if thedonation box is marked with the word ‘corpus’.Suppose, an NGO puts a donation box with ainscription ‘all donation will be towards the corpusof the organisation’, the donation so collected willnot be considered as corpus donation because aspecific direction from the donor has to come inwriting in order to constitute a corpus donation.

INTERNALLY GENERATED CORPUS FUND

13.06 The board of an NGO may create corpus fund from

Any donation receivedthrough charity boxes

will not be considered ascorpus donation even if

the donation box ismarked with the word

‘corpus’

58

its internal accrual and surpluses. It is not necessarythat a corpus fund will be created out of corpusdonation only. A corpus fund can be created fromthe current years income or other available UFs. Tocreate a corpus fund from the current years incomethe prevailing legal provisions and the bye-laws ofthe organisation have to be kept in mind. For instance,under the Indian Income Tax Laws maximum 15%of the income can be transferred to the corpus fundeach year.

INCOME FROM CORPUS FUND

13.07 The income generated from corpus fund is treatedas a part of the income of the charitable organisationalong with other grants and incomes. Therefore, theincome from corpus fund is also subject to thecondition of applying 85%.

RELEVANCE OF CORPUS FUND

13.08 Building of a corpus fund is important, in order toensure smooth sustenance of an organisation. If asizeable corpus exists, the core activities of theorganisation can still continue in the period whengrants and external help are not available.

13.09 A sizeable corpus fund reduces the financialvulnerability and thus assures long term existence.At the same time a large corpus or the tendency topile corpus fund may not be in the interest of theobjectives of the organisation. Therefore it isnecessary that a judicious balance is maintainedbetween a corpus fund and the funds that are utilised,keeping in view the current and future activities ofthe organisation.

The board of an NGOmay create corpus fundfrom its internal accrualand surpluses. It is notnecessary that a corpusfund will be created outof corpus donation only

59

CHAPTER 14

ENDOWMENT FUNDS

INTRODUCTION

14.01 An endowment fund, hereinafter referred to as EF,is similar to a corpus fund but it comes with therestriction of certain specific purposes. For example,a donor may create an endowment for themaintenance of an monument of historical orreligious importance. The income from theendowment so created would go towards themaintenance of the said monuments. The EF socreated may be permanent and perpetually availableto the trustee organisation like a corpus but the useof its income is restricted for a specific purpose.Therefore, it can be seen that unlike corpus fund anEF is a restricted long term fund.

ENDOWMENT FUND

14.02 These funds account for resources that may not beexpended currently. The principal of this fund maybe preserved. The income out of this fund is usuallyavailable either for a restricted or for a generalpurpose. The EF obtains resources from gifts,investment income and appreciation of principal andtransfers from other funds, if any. Incomes from thesefunds usually are transferred to another fund where

An endowment fund,hereinafter referred toas EF, is similar to a

corpus fund but itcomes with the

restriction of certainspecific purposes

60

it may be expended. Decreases in fund balance occurfrom the termination of endowments and also fromthe transmission of endowments resources to otherfunds in accordance with endowment agreements.

14.03 Interest revenue out of such fund is accrued at theend of accounting year. The fund is usually investedin some securities and such investment is valued atcost price. If the income out of such investment isavailable for unrestricted purposes, it is recognisedin the unrestricted fund. On the other hand, if theincome is to be used for some specific purpose, it istransferred to that specific fund.

14.04 The only time, the investment income is recognisedin the EF is if the terms of agreement specify that theincome must be added to the endowment principal.There may be two types of endowments-perpetualendowment and term endowment. In the first case,such endowments are given in perpetuity and the fundprincipal is never spent or repaid. Term endowmentsare gifts for which the donor has specified a date orevent after which the funds may be spent.

TERM ENDOWMENT FUND

14.05 A term endowment fund is similar to an endowmentfund apart from the fact that it is not perpetual andexpires after a specific time period or event. Forexample, a donor may identify 50 slum children andcreate an endowment for their education. The incomefrom the fund may be used for the education of thechildren for a period of, say, 10-15 years. After theexpiry of the endowment period, the donor mayspecify the residual use of such funds. For instance,it may go to the corpus or general fund of theorganisation or the donor may specify the distributionof the fund amongst the 50 beneficiaries.

14.06 In the above example the endowment is for a specificperiod, which can be related to a future event. Theendowment fund may expire on the completion of

A term endowmentfund is similar to an

endowment fund apartfrom the fact that it is

not perpetual

61

certain educational degree or on the completion ofcertain age of the beneficiaries. For all other practicalpurposes, a term endowment and an endowment aresimilar in nature, barring the fact that a termendowment fund expires on the happening of adefinite future event or at the expiry of a definiteperiod. Other endowments are open-ended withoutany time limitation clause.

RESTRICTED ENDOWMENT FUND

14.07 An endowment is termed as ‘restricted endowmentfund’, hereinafter referred to as REF, when the sourceis external in nature. If an endowment is created outof donors contribution as per the conditions andlimitations attached by the donor then the EF socreated is restricted in nature. Such EF may be for afixed period or perpetual in nature. A REF isdistinguished from other endowment funds on thebasis of the source of the funds. The distinction istechnical in nature but for all procedural purposes itis similar to other endowment funds. However, it maybe noted that a REF cannot be revoked under anycircumstances as the restrictions come from anexternal source. But a designated endowment fundmay be revoked by the general body or the boardprovided the constitution and the bye-laws permitsuch a revocation.

DESIGNATED ENDOWMENT FUND

14.08 When an EF is created out of internal accruals andunconditional voluntary contributions received, it isknown as Designated Endowment Fund, hereinafterreferred to as DEF. The board of an organisation maydesignate certain funds for long term activities. TheEF so created may be for a fixed period or perpetualin nature. A DEF is an discretionary long term fundcreated by the board/trustees of the organisation. Suchfunds are bound by the norms and regulations

An endowment istermed as ‘restrictedendowment fund’,

hereinafter referred toas REF, when the

source is external innature

62

approved by the board. Generally such funds are alsopermanent and not available for the general activitiesof the organisation. But since the designation iscreated by the NGO it self, therefore there is a legalpossibility of revocation of such designation. Unlikethe REF which are not available for revocation underany circumstances.

But since thedesignation is created by

the NGO it self,therefore there is a legalpossibility of revocation

of such designation

63

CHAPTER 15

FCRA - SOME BASIC CONCEPTS

INTRODUCTION

15.01 The Foreign Contribution Act, 1976 herein afterreferred as FCRA, was passed by the Indianparliament in 1976. The main objects of the Act isto regulate the acceptance and utilization of theforeign funds & hospitality flowing into India.This Act is used as a preventive measure to curbForeign contribution coming for nefarious or anti-national purpose. The protection of sovereignty,democracy and republication nature of the IndianGovernment, values enshrined in the IndianConstitution, are the bywords that form the basisof the FCRA.

15.02 FCRA makes it obligatory on the part of therecipients of Foreign Contribution to submitannual returns specifying the acceptance andutilization of the foreign funds.

15.03 _____ associations were under the FCRA as on31st March, 2004. The total foreign contributionreceived during the year 2003-04 was Rs. ______crores.

WHAT IS FOREIGN CONTRIBUTION

15.04 Foreign contribution means the donation, delivery

This Act is used as apreventive

measure to curbForeign contributioncoming for nefarious

or anti-nationalpurpose.

64

or transfer, made by any foreign source of any:i) article, not given to a person as a gift, for

personal use, if the market value, in India, ofsuch article exceeds One thousand rupees;

ii) Currency , whether Indian or Foreign;iii) Foreign security as defined in clause 2(I) of

the Foreign Exchange Regulation Act, 1973.

15.05 It may be noted that the contribution made by acitizen of India living in another country, from hispersonal savings, through the normal bankingchannels, is not treated as foreign contribution. Itis advisable to obtain the passport details of theconcerned citizen of India before accepting suchcontributions.

WHAT IS FOREIGN SOURCE

15.06 Foreign source means the government of anyforeign country or territory or its agency;intentional agency; a foreign company; citizen ofa foreign country.

15.07 Foreign source includes all foreign persons ororganizations unless and until they are notifiedby the government as exempt from the definition.Government has notified a lot of organizationswhich or not to be considered as foreign source.They are organizations like UNO, IMF, WorldBank, ILO etc.

WHO CAN & WHO CANNOT RECEIVEFOREIGN CONTRIBUTION

15.08 Foreign contribution cannot be accepted by acandidate for election; correspondent, columnist,cartoonist, editor, owner, printer or publisher of aregistered news paper; judge, government servantor employee of any corporation; members of anylegislature; political party or office bearer thereof.

Foreignsource includes all

foreign persons or

organizations unless and until

they arenotified by thegovernment as

exempt from thedefinition.

65

15.09 The organization which can receive foreigncontribution should have a definite cultural,economical, educational, religious or socialprogram. Further it has to obtain the priorpermission of the Central Government or get itselfregistered with the Central Government, to receiveforeign contribution.

CONTROLLING OFFICE

15.10 The implementation of FCRA is looked into acentralized manner by the Ministry of HomeAffairs. Though, as and when required, interactionwith state intelligence Bureau is made by theMinistry of Home affairs. The address of theconcerned authority is the Secretary, Governmentof India, Ministry of Home Affairs, internalsecurity wing-FCRA, 4th Floor, Lok Nayak Bhavan,Near Khan Market, New Delhi-110003.

REGISTRATION PROCEDURE

15.11 An organization in order to receive foreign fundsis required to register itself with the FCRAauthorize. Normally registration is granted toorganizations with more then 3 years activeexistence. Organizations desirous or registeringthemselves with FCRA department should have adefinite cultural, economic, educational, religiousor social program. An application in From FC-8,along with documents is required to be filed withthe FCRA department.

CHECKLIST OF DOCUMENTS TOBE SUBMITTED

15.12 List of documents to be submitted are as follows:i) Form FC – 8 duly filled up in triplicate.

The organizationwhich can receive

foreign contributionshould have a

definite cultural,economical,educational,

religious or socialprogram.

66

ii) Audited statements of accounts of past threeyears.

iii) Annual Report specifying activities of past5 years.

iv) Detail if the beneficiaries and detail of thesocio-economic factors of the region inwhich the NGO is working.

v) List and geographical detail of the state, anddistricts proposed for work.

vi) Certified copy of the registration certificate.vii) Certified copy of the Bye-Laws and

Memorandum and Article of Associationwhichever is applicable.

viii) Copy of certificates of exemptions orregistration issued by the Income TaxDepartment u/s 80G and 12A.

ix) Copy of any prior permission granted to theorganization.

x) Copy of resolution of governing body of theorganization, authorizing the registrationunder FCRA.

xi) Copy of Power of Attorney or the resolutionof Governing Body by which the ChiefFunctionary is authorized to submit FC-8.

xii) List of present members of the governingbody of the organization and the officebearers.

xiii) Copy of any journal or other publication ofthe organization.

REJECTION OF APPLICATIONFOR REGISTRATION

15.13 An application may be rejected under the followingcircumstances where a government considers thatgranting registration may effect:i) the sovereignty and integrity or India ; orii) the public interest; oriii) freedom or fairness of election to any

Legislature; or

Detail if thebeneficiaries and detail of

the socio-economicfactors of

the region in which the NGO is

working.

67

iv) friendly relations with any foreign state; orv) harmony between religious, social, linguistic

or regional groups, castes or communities.

15.14 It may be noted that the FCRA department is notentitled to reject any application arbitrarily withoutassigning any reason for the rejection. However ifthe application is rejected the organization canappeal to the High Court of its state within sixtydays of such rejection.

TIME LIMIT FOR GRANTING REGISTRATION

15.15 There is no time limit mentioned under the FCRAeither for granting or rejecting the application.Normally the application should be processedwithin a period of 6 months, but it is found thatapplication is kept in abeyance for over 2 to 3years.

OBLIGATIONS OF REGISTRATIONUNDER FCRA

15.16 An organization registered under FCRA is requiredto adhere to the following.

i) Bank Account: It is mandatory required tomaintain a separate bank account. This bankaccount should be specifically used for thereceipt and utilization of ForeignContributions. Local Fund should not bedeposited in this account, however the initialdeposit required for the opening of an accountcan be made through local fund. For domesticcontribution an organization may openseparate bank account(s).

ii) Separate Bank Accounts: It is necessary thatthe organization should maintain separatedCash Book and Ledger for FCRA

It may be noted thatthe FCRA

department is notentitled to reject any

applicationarbitrarily without

assigning any reasonfor the rejection

68

transactions. Under no circumstances theFCRA transactions should be mingled withdomestic contributions in the books ofaccounts.

iii) Annual Return: Each year within fourmonths from the end of the financial year,the annual return in form FC-3 is required tobe filed with the FCRA department.

iv) FCRA Balance Sheet: It may be noted thatonly FCRA Balance Sheet and Receipts &Payments account are required to be filedwith the annual return.

v) Non-Cash Contributions: It is mandatoryto maintain accounts and records of all theForeign Contributions received in kind.

vi) Election: Organization registered with FCRArequires the approval of FCRA authorities if50% or more of their office bearers arechanged in election. This provision has beenmade to safeguard against commercial takeover FCRA registered organizations.

vii) Funds to Non – FCRA NGO’s : A FCRAregistered organization cannot give FCRAfund to organization which are not registeredwith FCRA department. In other words FCRAfunds can only be given to FCRA registeredcan directly utilize the fund for the purposesfor which it has received.

viii) Any organization which is not registered withFCRA can receive foreign fund only aftergetting prior permission from the FCRAdepartment.

RECEIVING FOREIGN FUNDSWITHOUTREGISTRATION

15.17 An organization can receive foreign funds even if

Each yearwithin four monthsfrom the end of thefinancial year, theannual return in

form FC-3

69

it is not registered. The FCRA department grantspermission to receive foreign funds on case to casebasis. If any organization has a commitment fromthe foreign donor it can apply for prior permissionto the FCRA department.

PRIOR PERMISSION

15.18 NGOs who are of recent origin or whoseapplication for registration has been rejected canalways apply for prior permission to bring foreignfunds in Form FC-1A as per Annexure – 20. Thisprior permission is given on case to case basis andNGOs has to take this permission each time itwants to bring in funds.

15.19 FCRA under section 10(b) may instruct anyassociation to take prior permission beforereceiving any foreign contribution even if theassociation holds permanent FCRA registration.Otherwise prior permission is generally requiredunder following circumstances.i) FCRA number is cancelled or the permanent

registration has not been granted.ii) FCRA registration is frozen where more then

50% of office bearers are changed withoutapproval.

iii) Where a registered organization is instructedby the Central Government to take priorpermission before receiving foreigncontribution.

PROCEDURE OF GETTING PRIORPERMISSION

15.20 In order to obtain prior permission the followingdocuments are required to be submitted.i) Form FC 1A, duly filled up in triplicate.

FCRA undersection 10(b) may

instruct anyassociation to takeprior permission

before receiving anyforeign contribution

70

ii) Audited Statements of accounts of past threeyears.

iii) Annual report specifying activities of past 3years.

iv) Detail of the beneficiaries and detail of theproject for which foreign contribution isexpected. The detail should include narrativeas well as financial details.

v) Letter of commitment from the foreign donoragreeing in principle to provide funds.

vi) Certified copy of the registration certificateunder the societies act/ companies act.

vii) Certified copy of the Bye-Laws andMemorandum and Article of Associationwhichever is applicable.

viii) Copy of certificates of exemption orregistration issued by the Income TaxDepartments u/s 80G and 12A.

ix) Copy of any prior permission granted to theorganization.

x) Copy of resolution of Governing Body of theorganization authorizing the prior permission.

xi) Copy of Power Attorney or the resolution ofgoverning body by which the chieffunctionary is authorized to submit FC – 1A.

xii) List of present member of the governing bodyof the organization and the office bearers.

xiii) Copy of any Journal or other publication ofthe organization.

FIELD ENQUIRY

15.21 The FCRA department after receipt of theapplication writes to the Intelligence Bureau of theGovernment of India, to assess the background andthe credibility of the applicant organization. Theintelligence bureau may also assess the objectiveand activities; whether the activities are sensitiveto any particular class such as SC and ST andwhether the activities are anti-national in nature.

Detail of thebeneficiaries and

detail of the project forwhich foreigncontribution is

expected. The detailshould include

narrative as well asfinancial details

71

15.22 The Intelligence Bureau may visit the office of theorganization and verify the books of accounts andother records available. Esquires may also be madethrough the local police station and neighborhoodpeople and organization.

TIME LIMIT

15.23 The prior permission is either granted or rejectedwithin a period of 90 days. Where there aredifficulties in disposing the application within 90days, the department may inform such difficultiesto the applicant and may take another 30 days toprocess the application.

DEEMED PERMISSION

15.24 If nothing is heard from the FCRA departmentwithin 120 days, of the submission of applicationfor prior permission, it will be assumed that thepermission has been granted. But virtue of thisprovisions prior permission is deemed and theorganization can go ahead to receive foreign funds,even without receiving any written priorpermission.

15.25 The permission of allowing such deemedpermission is ensure efficient & expeditionsprocessing of the application for prior permission.It also prevents needless loss in the inflow offoreign funds into India.

APPEAL AGAINST REJECTION

15.26 If within 120 days the application for priorpermission is rejected then the applicant can gofor appeal within 30days from the date ofcommunication of such order or rejection.

The prior permissionis either granted orrejected within aperiod of 90 days

72

CHAPTER 16

FCRA - OTHER ASPECTS

FORM FC – 3

16.01 All NGOs receiving foreign contribution arerequired to file an annual return of the FCRAauthorities in Form FC – 3 as per Annexure – 21.It is a disclosure of all such grants received andutilization thereof. This from is required to be filedevery year irrespective of the fact whether foreigncontributions are received or not. In cases whereforeign contributions are not received a nil returnis to be filed. Under rule 8(2) along with the FormFC-3, a Balance Sheet and the Receipt andPayment Account duly audited by the externalauditor should be annexed in duplicate. It may benoted that the FC-3 has been amended recentlyvide a notification made on 26th July, 2001.

DECLARATION & AUTHENTICATION

16.02 The FC-3 form is required to be signed by theChief Functionary of the organization and acertificate is also required to be given by aChartered Accountant giving a brief summery ofthe FCRA funds movement and the opening &closing balances of FCRA funds.

The FC-3 form isrequired to be signed

by the ChiefFunctionary of theorganization and a

certificate is alsorequired to be given by

a CharteredAccountant

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16.03 The Term “Chief Functionary” has not beendefined in the FCRA Act or Rules. Normally thehead of the organization should be constructed asthe Chief Functionary. The organization may alsodesignate any office bearer as the ChiefFunctionary through a General Body/GoverningBody resolutions, for the purposes of filing theFCRA returns, Forms etc.

DELAY IN FILING FC-3

16.04 FCRA is silent about delay in filing FC-3 unlikethe Income Tax Act where provisions for delayedfiling of return are specifically mentioned. Owingto the silence in FCRA it can be construed that anNGO would stand the risk of losing the FCRA itcan be constructed that an NGO would stand therisk of losing the FCRA registration if it does notfile returns properly but whenever an NGO is notable to file FC-3 by 31st of July it should write aletter to the FCRA office explaining thecircumstances causing the delay. Normally FCRAauthorities condone such delay in filling or returns.

BANK ACCOUNTS

16.05 It should be noted that a separate bank accounthas to be maintained specifically for FCRA. AnNGO is not permitted to keep more then one bankaccount for FCRA purpose. Even change of bankaccount is not permitted unless specific permissionto that effect is taken. Details such as accountnumber, name and address of the bank are requiredto be submitted to FCRA authorities.

BANK INTEREST EARNED

16.06 Interest earned on FCRA bank account should also

FCRA is silentabout delay in

filing FC-3 unlikethe Income Tax Actwhere provisions for

delayed filing of returnare specifically

mentioned

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be treated as foreign contribution and accordinglywill be reflected in FC-3 account. Similarly anyinterest earned from investment or term depositsmade out of FCRA funds is also treated, as foreigncontributions consequently should be reflected inFC-3 account.

BOOKS OF ACCOUNT

16.07 An NGO is required to maintain separate booksof accounts specifically with regard to the receiptsand application of foreign funds. Here it isworthwhile to know that certain organizationwhich receive foreign funds form more then onesources and are required to maintain separateaccounts for each of such sources under theinstitution of the donor agencies. Under FCRA,an NGO does not have the liberty of maintainingmore then one cash book for various types offoreign receipts. One may keep subsidiary booksof accounts but generally a consolidated cash bookand ledger should be maintained for the FCRAfunds. Further, under no circumstances localcontributions or related transactions should bereflected in the FCRA accounts.

CONTRIBUTIONS RECEIVED IN KIND

16.08 As we have discussed earlier, it is permissible toreceive articles, it materials in kind under FCRA,and NGO receiving articles and materials fromforeign sources is required to maintain properrecord of such receipts. Each year a separatestatement is required to be filed in form no FC-6as per goods or materials received. Under rule 8(a) it is required that separate accounts should bemaintained for such foreign contribution.

An NGO is required to maintain separate

books of accountsspecifically with

regard to the receiptsand application of

foreign funds

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OFFENCES UNDER FCRA

16.09 NGO’s receiving foreign contribution should bevery careful about violating the provisions ofFCRA. The following are a few common offenceswhich are subject to severe penalty andpunishment.i. NGOs accepting foreign contribution without

registration or prior permission.ii. NGOs having FCRA registration but

receiving foreign contribution in differentbank account

iii. NGOs having FCRA registration and notfiling annual return in FC-3 form.

iv. NGOs having FCRA registration filing falseinformations in the annual return.

v. NGOs with FCRA registration or priorpermission not maintained the required booksof accounts.

vi. NGOs receiving foreign contribution onbehalf of other NGO not having FCRAregistration.

PERSONS LIABLE FOR PUNISHMENTSUNDER FCRA

16.10 The following persons may be liable to penalties& punishments depending on the nature of theoffences:· NGO· Chief Functionary· Governing body members· Other officers· Other persons who indulge.

PENALTIES AND PUNISHMENTS

16.11 Under FCRA laws severe penalties & punishments

NGO’sreceiving foreign

contributionshould be very

carefulabout violating the

provisions of FCRA.

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are specified which can be invoked depending onthe nature and quantum of the offence and thepersons involved. Th following are the possiblepenalties under FCRA:i. Seizure an confiscation of foreign

contribution receiptsii. Fine upto 5 times the value of the foreign

contribution spent.iii. Inspection and seizure of accounts and

records.iv. Compulsory prior permission requirement

under FCRA.v. Imprisonment upto 5 years & / or fine.vi. Prohibition on accepting foreign contribution

for 3 years for person convicted twice.

Prohibitionon accepting foreign

contributionfor 3 years for

person convictedtwice.

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CHAPTER 17

PROFESSIONAL TAX

FORM FC – 3

17.01 The Andhra Pradesh Tax on Professions, Trades,Callings and Employments Act, 1976.

17.02 The above act provides for levy on collection oftax on professions, trade, callings andemployments in the state of Andhra Pradesh. Itprovides for two types of collection of tax as below,i.e. (i) Payment by person who is engaged in anyprofession, trade, calling or employment in thestate of Andhra Pradesh as per the schedule(ii) Payment by employer by deducting the amountfrom the salary or wages paid by him to theemployees, who are employed on regular basis.

17.03 Payment by person engaged in profession, tradeetc.- The different persons prescribe different ratesin the schedule to the act for the amount payable.Though the definition of person includes “anysociety” but these is no specific clause in theschedule for the payment of tax by the societiesregistered under the Andhra Pradesh registrationof societies act. Hence it is clear that only thosesocieties, associations which are engaged in anyprofession, trade, calling are liable to pay theprofessional tax at the rate depending upon thenature of its trade, Profession.

The Andhra PradeshTax on Professions,Trades, Callings and

Employments Act, 1976

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17.04 The above view is supported by the clarificationby the commissioner Vide PT.CLR.Cr.748/90-91,dated 11.01.1991.

17.05 Though there is no separate notification exemptingthe societies engaged in the activities of charitablenature, conclusion can be drawn from thenotification No.FD.11 CPT 92(II) / 30.04.92,wherein non- profit companies solely engaged inactivities of a charitable nature are exempted frompayment of professional tax.

TAX BY THE EMPLOYER

17.06 The employer should collect professional tax fromtheir employees at the rate specified in S.No.1 ofthe schedule and to be remitted to the governmentevery month. This applies to employees appointedby the employer on regular basis.

17.07 Hence, it is more important that the relationshipof employer and employee should be of regularone, accordingly any person appointed with aspecific assignment or part time basis orconsultants are exempted from this provision.

17.08 Appointment of a person on a regular basis by anysociety attracts professional tax and employer isbound to deduct the professional tax at source andto pay to the government.

17.09 An application shall be made within 90 days incase of person engaging in the trade or professionand with in 30 days by other persons in thespecified applications forms as below:-- Form 1 – for deduction of tax from the

employees- Form 2 – Persons liable to pay tax on their

profession or trade

The employer shouldcollect professional

tax from theiremployees at the ratespecified in S.No.1of the schedule andto be remitted to thegovernment every

month.

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CHAPTER 18

INCOME TAX

TO BE INSERTED

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CHAPTER 19

RATIO ANALYSIS AND FUNDACCOUNTING

INTRODUCTION OF RATIO ANALYSIS

19.01 Ratio Analysis, hereinafter referred to as RA, is acomparative study between two variables in orderto derive certain meaningful informations. Forexample, in a military store, if there are 1000 gunsand 2000 bullets then such figures do not makeany sense independently except being statisticaldata. But if we say that the ratio between guns andbullets is 1:2 then certainly the informationbecomes very meaningful and may even requireimmediate action. In this example, the militarypersonnel may realise that the bullets available maynot be sufficient for even one round of ammunitionfor the guns, which may result in further andimmediate procurement of bullets.

19.02 From the above example, it can be seen that certaininformations may not make too much of sense ifread individually. But if we make a comparisonbetween two informations or variables thensuddenly we may get a very deep insight into thestate of affairs with the help of the ratios.

19.03 RA compares 2 sets of informations and providesthe relative strain of each other. The commonfeatures of RA are as under :- A ratio is the relationship between two variables

Ratio Analysis,hereinafter referred toas RA, is a comparative

study between twovariables in order to

derive certainmeaningful

informations

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-

-

-

These variables should have logicalrelationship with each otherComparative calculations of financial figuresare broughtThe ratios derived are interpreted. Suchinterpretation may or may not be on the basisof predetermined norms.

The ratios derivedare interpreted. Suchinterpretation may or

may not be on the basisof predetermined

norms

RATIOS GENERALLY USED INPROFIT SECTOR

19.04 Ratios generally used in profit sector as under :-------------

Working Capital Turnover RatioCurrent asset Turnover RatioInventory Turnover RatioAverage Holding Period RatioRaw Material Inventory Turnover RatioWork-in –process Inventory Turnover RatioFinished-goods Inventory Turnover RatioReceivables Turnover RatioAverage Collection Period RatioCash Turnover RatioCash Holding Period RatioPayables Turnover Ratio (Times)Average Payment Period Ratio

INTER FUND RATIOS

19.05 Corpus fund to general fund ratio - A corpus fundto general fund ratio gives an idea about theproportion of perpetual long term funds incomparison to the unrestricted funds available.Suppose the ratio is 1:20, which means the corpusfund is Rs.100 and the general fund is Rs. 2000.In such a case the NGO can consider increasingthe corpus fund by transferring some fund fromthe general fund. On the contrary if the ratio is the

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other way round i.e. 20:1, it would imply that theNGO is accumulating and hoarding too much offunds with practically no resources available forits general activities.

19.06 Corpus fund to restricted fund ratio - This ratioprovides a comparison between the corpus fundand the restricted funds of the NGO. The balancesheet of an NGO may look very healthy due tolarge amount of restricted fund but it would notmean that the NGO is financially healthy orsustainable as the restricted funds do not belongto the NGO. With the help of this ratio an NGOcan ascertain how healthy and sustainable it is interms of finances.

19.07 Restricted fund to unrestricted fund ratio- Bothrestricted fund and unrestricted fund may be usedfor various activities but unrestricted fund arewithin the discretionary powers of the NGO. Withthe help of this ratio an NGO can know thequantum of discretionary funds available fordesignation of activities, of its own choice. Whenthe unrestricted funds are seen in proportion to therestricted funds then it is easier to analyse themateriality and importance of such funds inrelation to the overall activities.

19.08 Designated fund to restricted fund ratio - Bothdesignated fund and restricted fund have been setaside for specific purposes and therefore changescannot be made in their application pattern. Thisratio helps the NGO in analysing the quantum offunds it was able to generate and designate incomparison to the restricted funds. Greaterquantum of designated funds reflects financial andsocial soundness of the NGO.

CORPUS ASSET TO PROJECTASSET RATIO

19.09 Corpus asset are the long term assets available with

The balance sheet ofan NGO may look very

healthy due to largeamount of restrictedfund but it would notmean that the NGO is

financially healthy

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the NGO. Project asset are generally created fromrestricted fund and belong to the respective fund/donor. In a way project asset do not belong to theNGO and at the end of the project period they areeither merged with corpus assets or disposed offas per the terms of the project agreement. This ratioprovides an insight into the net worth and thefinancial strength of the NGO. If the quantum ofcorpus asset is high then it implies that the NGOhas greater ability to sustain in the long run. Andif the quantum of project asset is higher then itimplies that the NGO is able to handle largenumber of projects but its sustainability in the longrun could be a matter of concern.

TOTAL INCOME TOEXTERNAL GRANTS/DONATIONS RATIO

19.10 This is a very important ratio. Normally NGOs arelargely dependent on external sources for theiractivities. NGOs also have certain income of theirown, which could be through- income generation activities- interest earned from various unrestricted fund- rent received- membership fees- miscellaneous sources, etc

19.11 The income from own sources reflect sustainableand long term attributes. Through this ratio onecan analyse the quantum of dependence of externalfunding. It would be very useful if this ratio isanalysed for the past 4-5 years. Through such ananalysis one can find whether the NGO is makingsuccessful efforts towards becoming financiallyindependent in the long run.

FUND BALANCES TO INVESTMENT RATIO

19.12 It is very important to see that what proportion of

The income fromown sources reflect

sustainable and longterm attributes

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the closing fund balances is invested in propersecurities or is held in the bank. It may so happenthat the funds are showing very high balances butthey are supported by inferior or fictitious asset.Some of the instances are as under :- A loan could have been given to some other

NGOs/functionaries- Programme and other advances might have

been given to staff and other functionaries- Immovable properties or dead investment

might have been made

19.13 This is one of the most important ratio becauseunless a fund remains invested properly, balancesavailable are meaningless. An analysis of thequality of the asset available against each fund ispossible through this ratio.

It may so happenthat the funds areshowing very high

balances but they aresupported by inferior

or fictitious asset

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