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Finance, Accounting and Governance for non-profit @ Diffusion Pune 2012

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"Finance, Accounting and Governance" module lead by Sriram Sabhapathy & Jitendra Kedia from ISB (Diffusion Pune - 2 day residential workshop for non-profit and social enterprises)

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Finance, Accounting and Governance for non-profit @ Diffusion Pune 2012

  1. 1. Governance and F&ASriram SabhapathyJitendra Kedia
  2. 2. 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?
  3. 3. Central theme of this session Credibiliy Governance http://www.indianngos.com/capacitybuilding/governance.asp • Consensus oriented • Follow the rules of law • Transparent • Accountable • Equitable and inclusive • Responsive
  4. 4. 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
  5. 5. How do you start up? Legal, Tax & Regulatory Considerations Trust Business Plan & Operational Model Type of Funding? Source of Governance & Funding? Management Considerations? Not for profit Society entities Scale Liability? Sector Specificity of Activities? Sustainability Transaction Costs? Section 25 Company
  6. 6. Trust Vs. Society Vs. Sec 25 U/s 25 Company / Nonprofit Features Trust Societies 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 Registrar of Companies Charity Comm. Legislation / Statute Relevant state Trust Act - Bombay Public Societies Registration Act 1860 Indian Companies Act 1956 Trust Act 1950, Indian trust Act,1882 Objects Social benefits & Charitable, Religious, Literary, Charitable, Scientific and Non profit Activities Welfare of the member, Families, resource oriented, Health and any social Employee Welfare trust. Ex. PF Trust purpose. Re-ammendment or Alteration can be undertaken only by the Easy Complicated Modification of Objects Founder or settler. If the founder deceased Legal Procedures Legal Procedures Legislation / Statute alteration of objects is Impossible
  7. 7. Trust Vs. Society Vs. Sec 25 U/s 25 Company / Nonprofit Features Trust Societies 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, Trade Associations ITC Ltd, NTPC LTD, TCS LTD Amar Jyoti Charitable Trust Statutory Regulations Nominal Limited. Exhaustive Dissolution or Take over by Possible Possible Very risky and difficult. State Penalties Lesser penalties Lesser penalties Higher Penalties
  8. 8. Governance – Critical things to do • Register yourself (we talked) (i) Audit Report in Form 10B • Tax return (ii) Balance Sheet • 12A (iii) Income and Expenditure Account (iv) Receipt and Payment Account • 80G (v) Copy of the Registration Certificate (vi) In case the organization has accumulated income, • FCRA resolution for accumulation. (vii) Form 10 in which application for accumulation is made
  9. 9. F&A risks traps Ineffective utilization • Excessive purchase of supplies • Idling of human resources • Under or over estimation of amounts Improper budgeting • Insufficient detailing of line items Financial Delay in availability of • Delays in requesting funds from Donor Assets management funds • Delays in release of funds to program units • Use of funds for unbudgeted line items Cash and bank Misuse of funds • Use of funds for other projects or activities Expenditures Erroneous / Delayed • Advanced / delayed booking or reporting of expensesRisks reporting • Delays in sending financial reports to donors Revenues • Theft of cheque/draft remitted by donor agency Loss of funds in transit • Loss of cash during transit between branches Diversion of • Theft of funds by showing fictitious or inflated Loss of funds funds/assets payments to employees or suppliers Avoidable legal • Interest and penalties assessed due to non- penalties compliance with TDS provisions
  10. 10. AssetsAssets you own• Laptops & Accessories / I-Pads – Hardware and Software• Books• Saleable Inventories• OthersWhat you do• Fixed Assets Register (FAR)• Physical Verification• Depreciation• Transfers• Disposals
  11. 11. AssetsWhat risks you face• Quantification – What and How many• Tracking Location• Theft & Losses• OthersNow what?• Updated Fixed Assets Register (FAR)• Periodical Physical Verification• Adequate Insurance• Timely Disposals
  12. 12. Cash and BankWhat you have• Cash-in-Vault• Bank AccountsWhat you do• Ledgers and Reconciliation Statements• Vouchers and Receipts
  13. 13. Cash and BankWhat risks you face• Idle cash / high overdrafts -> potential loss of interest income• Incomplete records / difficulty in reconciliationWhat next?• Budgeting & tracking•Analysis• Periodical reconciliation
  14. 14. ExpendituresWhat you spend on• Manpower Cost• Regular office needs• Government Fees• Marketing, promotions, PR• Other misc. expensesWhat you maintain• Ledgers and Statements•Payroll Details• Vouchers and Receipts
  15. 15. ExpendituresWhat challenges you face• Rising Cost(s)• Timely deposits of Government duesWhat next?•Budgeting•Analysis•Master Tracker
  16. 16. RevenuesWhat you earn from• Donations• Merchandise sales• Advertisements & subscriptions• MembershipWhat you maintain• Donor information systems• Ledgers and statements• Member Directory• Vouchers and Receipts
  17. 17. RevenuesWhat challenges you face• Unaccounted Sales• Low collection from other sources• Variability in Membership FeeWhat next?• Updated Records• Budgeting and Analysis• Internal Checks and Balances
  18. 18. 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

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