Governance and F&A

Sriram Sabhapathy Jitendra Kedia

A few questions to think about

• How many of us here have a dedicated or ‘go-to’ – Trusted Board of Advisors or Mentors

– Chartered accountants

– Company secretaries

– Lawyers

• Do you think the above is important to your organization?

• Why?

Central theme of this session

Credibiliy Governance

• Consensus oriented

• Accountable

• Follow the rules of law

• Equitable and inclusive

• Transparent

• Responsive

http://www.indianngos.com/capacitybuilding/governance.asp

Things to check today - Agenda

Starting up & moving towards a registered entity

Types of legal structures - is your choice right? • Overview of legal entities

Governance - Critical things to do

Need for internal controls and governance

• F&A related risks faced by NGOs today

What you need to know – Finance and Accounts • Assets • Cash and Bank • Expenditures • Revenue

Not for profit entities

Trust

Society

Section 25 Company

How do you start up?

Legal, Tax & Regulatory Considerations

Business Plan & Operational Model

Type of Funding? Source of Funding?

Governance & Management Considerations?

Liability?

Transaction Costs?

Sector Specificity of Activities?

Scale

Sustainability

Features Trust Societies U/s 25 Company / Nonprofit

Company Set up and running Cost Nominal Nominal Comparatively More

Required Members Minimum = 2; Maximum = No limit Minimum = 7; Maximum = No limit Minimum = 7; Maximum = No limit

Charter Trust Deed By laws and Rules & Regulation Memorandum of Association and Article of Association

Formation procedure Very Easy Simple Little Hard

Jurisdiction Deputy Registrar / Charity Commissioner Registrar of Societies - For Maharastra Charity Comm.

Registrar of Companies

Legislation / Statute Relevant state Trust Act - Bombay Public Trust Act 1950, Indian trust Act,1882

Societies Registration Act 1860 Indian Companies Act 1956

Objects Social benefits & Charitable, Religious, Welfare of the member, Families, Employee Welfare trust. Ex. PF Trust

Literary, Charitable, Scientific and resource oriented, Health and any social purpose.

Non profit Activities

Re-ammendment or Modification of Objects

Alteration can be undertaken only by the Founder or settler. If the founder deceased alteration of objects is Impossible

Easy Legal Procedures

Complicated Legal Procedures Legislation / Statute

Trust Vs. Society Vs. Sec 25

Features Trust Societies U/s 25 Company / Nonprofit

Company Nature of control One man control, i.e. Settler Democracy system Board of Directors & Management

committee

Management Board Trustees Governing Body Board of Directors & Management committee

Legal Status Limited Legal Status Limited Legal Status. Full Legal Status

Example Mother Teresa Charitable trust, Amar Jyoti Charitable Trust

Trade Associations ITC Ltd, NTPC LTD, TCS LTD

Statutory Regulations Nominal Limited. Exhaustive

Dissolution or Take over by State

Possible Possible Very risky and difficult.

Penalties Lesser penalties Lesser penalties Higher Penalties

Trust Vs. Society Vs. Sec 25

Governance – Critical things to do

• Register yourself (we talked)

• Tax return

• 12A

• 80G

• FCRA

(i) Audit Report in Form 10B

(ii) Balance Sheet

(iii) Income and Expenditure Account

(iv) Receipt and Payment Account

(v) Copy of the Registration Certificate

(vi) In case the organization has accumulated income, resolution for accumulation.

(vii) Form 10 in which application for accumulation is made

Risks

Financial management

Ineffective utilization

Improper budgeting

Delay in availability of funds

Misuse of funds

Erroneous / Delayed reporting

Loss of funds

Loss of funds in transit

Diversion of funds/assets

Avoidable legal penalties

• Excessive purchase of supplies

• Idling of human resources

• Under or over estimation of amounts

• Insufficient detailing of line items

• Delays in requesting funds from Donor

• Delays in release of funds to program units

• Use of funds for unbudgeted line items

• Use of funds for other projects or activities

• Advanced / delayed booking or reporting of expenses

• Delays in sending financial reports to donors

• Theft of cheque/draft remitted by donor agency

• Loss of cash during transit between branches

• Theft of funds by showing fictitious or inflated payments to employees or suppliers

• Interest and penalties assessed due to non-compliance with TDS provisions

F&A risks traps

Assets

Cash and bank

Expenditures

Revenues

Assets

Assets you own

• Laptops & Accessories / I-Pads – Hardware and Software

• Books

• Saleable Inventories

• Others

What you do

• Fixed Assets Register (FAR)

• Physical Verification

• Depreciation

• Transfers

• Disposals

Assets

What risks you face

• Quantification – What and How many

• Tracking Location

• Theft & Losses

• Others

Now what?

• Updated Fixed Assets Register (FAR)

• Periodical Physical Verification

• Adequate Insurance

• Timely Disposals

Cash and Bank

What you have

• Cash-in-Vault

• Bank Accounts

What you do

• Ledgers and Reconciliation Statements

• Vouchers and Receipts

Cash and Bank

What risks you face

• Idle cash / high overdrafts -> potential loss of interest income

• Incomplete records / difficulty in reconciliation

What next?

• Budgeting & tracking

•Analysis

• Periodical reconciliation

Expenditures

What you spend on

• Manpower Cost

• Regular office needs

• Government Fees

• Marketing, promotions, PR

• Other misc. expenses

What you maintain

• Ledgers and Statements

•Payroll Details

• Vouchers and Receipts

Expenditures

What challenges you face

• Rising Cost(s)

• Timely deposits of Government dues

What next?

•Budgeting

•Analysis

•Master Tracker

Revenues

What you earn from

• Donations

• Merchandise sales

• Advertisements & subscriptions

• Membership

What you maintain

• Donor information systems

• Ledgers and statements

• Member Directory

• Vouchers and Receipts

Revenues

What challenges you face

• Unaccounted Sales

• Low collection from other sources

• Variability in Membership Fee

What next?

• Updated Records

• Budgeting and Analysis

• Internal Checks and Balances

Conclusion

• Things to help you do better

• Nothing new, but do your present stuff with a difference

• Change is static

• You win. We all win

• This is definitely not the end, but might be a beginning