Performance of NGO_effective usage of accounting and auditing in evaluation of ngo

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“Effective usage of accounting and auditing to evaluate the performance of NGOs”
Dr. T. Joseph M.Com., M.Phil. MBA., Ph.D.,
Associate Professor – Dept. of Commerce, Loyola College (Autonomous), Chennai – 600
034. Email: joethomos@gmail.com
&
Sundar A. Rodriguez M.Com., FCA. DISA., CFSA (USA).,
Research Scholar - Dept. of Commerce, Loyola College (Autonomous), Chennai – 600 034.
Email: rodriguezco@gmail.com
Introduction:
Non-Governmental organizations (NGOs) are now recognized as key third sector, and plays a
very vital intermediary role between the government and the people, and also acts as a catalyst
for the overall development of the people, and also acts as a watchdog to oversee the working
of the various people centred programs implemented by government and government agencies.
First use of the phrase – NGO:
However, the phrase "non-governmental organization" only came into popular use with the
establishment of the United Nations in 1945. Article 71 of Chapter 10 of the United Nations
Charter permitted a consultative role for organizations which are neither governments nor
member states. The definition of "international NGO" is first given in resolution 288 (X) of the
Economic and Social Council of the United Nations on February 27, 1950: "Any international
organization that is not founded by an international treaty." The Council recognized the vital
role of the organizations and other "major groups" in sustainable development in Chapter 27 of
Agenda 21, which led to significant arrangements for a consultative relationship between the
UN and NGOs.
Definition:
The role and the form of the NGOs are so fluid that it is very difficult to be put into a box called
definition. This had been repeatedly stated in various definitions.
"The diversity of NGOs strains any simple definition. They include many groups and
institutions that are entirely or largely independent of government and that have primarily
humanitarian or cooperative rather than commercial objectives. They are private agencies in
industrial countries that support international development; indigenous groups organized
regionally or nationally; and member-groups in villages. NGOs include charitable and
religious associations that mobilize private funds for development, distribute food and family
planning services and promote community organization. They also include independent
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cooperatives, community associations, water-user societies, women's groups and pastoral
associations. Citizen Groups that raise awareness and influence policy are also NGOs"
- World Bank
Encyclopedia Britannica defines NGO as follows: “Nongovernmental organization (NGO), voluntary group
of individuals or organizations, usually not affiliated with any government that is formed to provide services or to
advocate a public policy. Although some NGOs are for-profit corporations, the vast majority are nonprofit
organizations. Some NGOs, particularly those based in authoritarian countries, may be created or controlled by
governments. By most definitions, political parties and criminal or violent guerrilla organizations are not
considered NGOs. The issues addressed by NGOs run the gamut of human concerns (e.g., human rights,
environmental protection, disaster relief, and development assistance), and the scope of their activities may be
local, national, or international. Some NGOs fulfill quasi-governmental functions for ethnic groups that lack a
state of their own. NGOs may be financed by private donations, international organizations, governments, or a
combination of these.”
The United Nations Rule of Law division defines NGOs as:
A non-governmental organization (NGO, also often referred to as "civil society organization" or CSO) is a not-for-
profit group, principally independent from government, which is organized on a local, national or
international level to address issues in support of the public good. Task-oriented and made up of people with a
common interest, NGOs perform a variety of services and humanitarian functions, bring public concerns to
governments, monitor policy and programme implementation, and encourage participation of civil society
stakeholders at the community level. Some are organized around specific issues, such as human rights.
The most concise definition is that used by Vakil (1997:2060), who drawing on elements of structural-operational
definition set out above – states that NGOs are “self-governing, private, not for profit organizations
that are geared to improving the quality of life for disadvantaged people”. One can therefore contrast NGOs
with other types of “third sector” groups such as trade unions, organizations concerned with arts or sport, and
professional associations.
History of NGO in India
Hieun Tsang in 630AD wrote, “Towards the west of the junction of the two rivers (Ganga and Yamuna at
Allahabad) there was a great plain, called the Arena of Charitable offerings as from very ancient times kinds from
different parts of India frequented this spot for the purpose of charity.
Between 1800 and 1900, the Charity by ordinary people with the zeal for social development started, which was
initiated by the religious missionaries, and social reforms thinkers and practioners. The government at that time,
understanding the importance of such activities and to govern it came up with the relevant acts like – Societies
Registration Act of 1860 and the Trusts Act of 1882.
The pre independence period of 1900-1947 had the politics as the fulcrum of the NGOs. Thus the concept of
swaraj and rural development etc., propounded by Gandhiji etc., found its place in the objectives and mission
The post-independence period of 1947-2000 was more towards consolidating the sector, and also the structured
involvement of the government in the development programs. Thus in 1953, Central Social Welfare Board was
constituted to support the NGO’s working in the field of development.

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Since India is a spiritual country, the mind-set of the people following different religion were doing charity,
whether organized or not as follows:
· Zakat – for Muslims
· Dan – for Hinds and Jains
· Kar Seva – for Sikhs
· Tzedakah – 10% of the income for charitable purpose – both – under Judaism and Christianity.
Statistics – NGOs in India:
The figures concerning the NGOs are mind
boggling.
In 2006-07 the data pertaining to one section
of NGOs – those registered with the Ministry
of Home Affairs, as per the regulation of the
Foreign Contribution Regulation Act, to
receive the foreign contribution was 33,973.
The total foreign contribution received by
these organizations during the years 2006-
07, 2005-06 and 2004-05 is given in the
picture given on the left.
Further the top five donor countries during
this period were USA, Germany, UK,
Switzerland and Italy.
The other disturbing factor is that the top 5
states who received the most of the foreign
contribution were apart from Delhi are the
four southern states. These area were
supposed to be better than the other states
and also better than the national average.
However, the reason for this was attributed
to the fact that the organizations working
India wide, had their head offices in these
states but they were working in other areas
also. So this figure is distorted.
The other aspect of the foreign contribution
in India was that even the sworn enemy of
India, Pakistan has contributed towards the
social development of India, by funding the
Indian NGOs.
Special Issues of Non-Governmental Organizations – Reasons thereof:
A first wave of academic literature on NGOs emerged in 1990s (such as Clark, 1990, Korten,
1991, Fowler, 1997) that was normative and applied rather than primarily analytical in its focus.
Which such work presented a wide range of case studies of NGOs in action and began to raise
important questions about NGO performance and accountability, it was not until the following
decade that a second wave of more detailed, theoretically grounded research on NGOs began
to become more common within the field of interdisciplinary field of development studies (e.g.,
Hilhorst, 2003; Igoe & Kelsall, 2005)

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As any other organization including those with profit motive, the principles of accounting and
financial management principles apply for the not for profit organizations.
But due to the operational requirements and the work undertaken by NGOs comes with its own
issues. The work undertaken by NGOs is wide-ranging, but NGO roles can be usefully analysed
as having three main components – implementer, catalyst and partner (Lewis, 2007).
The implementer role is concerned with the mobilization of resources to provide goods and
services to people who need them.
The catalyst role can be defined as the NGO’s ability to inspire, facilitate or contribute to
improved thinking and action to promote social transformation
The role of partner reflects the growing trend for NGO’s to work with government, donors and
the private sector on joint activities, such as providing specific inputs within a broader
multiagency program or project or undertaking socially responsible business initiatives.
Evaluating the performance of NGO’s – Accounting Issues and its importance:
Accounting Issues – Not for Profit Organizations:
There are unique issues concerning NGOs which comes up together with accounting issues.
The major accounting problems issues are listed below:
· Contribution in Kind.
· Assets created and held in fiduciary relationship with Community Based Organizations
(CBOs) by NGOs.
· Grant Budgets and reflecting them in the accounting statements appropriately.
· Non synchronisation of the financial statement and the activities report and the budget.
Contribution in Kind:
This refers to the contribution made usually by the beneficiaries or target group, towards the
activities originally envisaged by the NGO for their betterment. Sometimes this could also be
the funds raised through donations and other surpluses of the NGO which are diverted to be
used for the programs.
Contribution in kind may occur in many forms, including, but not limited to:
Tea and snacks provided for the beneficiaries meetings.
Free labour by the beneficiaries in say building community centre etc.
Giving free space for conduction of meetings.
Participants travelling using their own resources to reach where the training is given
Permitting the usage of their equipments like tractor etc in the course of the construction
activities.

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Assets for CBOs:
The NGO involves in providing assets which are either purchase or construction of assets,
which are to be handed over to the CBOs or the community as a whole at the completion.
Though the nature of the expenses would be capital in nature, this could not be treated as assets
in the books of NGOs as they are going to be handed over, and till the control over the assets
are to be transferred, and the NGO holds it in fiduciary relationship
Grant Budgets:
The grant budgets prepared by the NGO and submitted to the funding agencies, both nation,
international, is unique in the sense, that unlike the counterparts with profit motive, this budget
is prepared not as operational budget and capital budget, but a budget for the program which
has definite objective and inbuilt mechanism to assess the success rate. In this budget there
could be capital components which would be a part of requirement of the NGO to discharge its
function as the implementer of the program, and also those assets which are to be handed over
to the CBO etc. Thus within the normal capital budgeting there is a demarcation of assets that
would be in the control of the NGO for ever, in this case the ownership is with it; and in the
other case, the NGO would have the control over it till the time it is handed over to the CBOs
etc. This poses problem in accounting.
Non synchronisation of the financial statement and the activities report and the budget.
An improper accounting of these would give a distorted accounting representation of the
activities carried on by the NGO, resulting in mismatch between the “activities report” and the
“financial statement”.
Since the financial statement and activities report of the organization are the basic documents
for proper evaluation of the functioning of the NGO’s any disparity between the two due to
faulty accounting practices or improper accounting practices may leads to certain activities of
the NGOs not being reflected in the financial statements, would make the evaluation process
more difficult.
Evaluation of performance of NGOs:
The performance of NGO can be measured by how well it achieves its own goals, and with
what efficiencies. This can be studied by ensuring the programs are aligned with the objectives
for which the NGO was established and striving for. When it is clear that the programs are
aligned with the objectives, then the assessment of the functions has to be done, to ensure the
three “Es” are there – Effectiveness, Efficiency and Economy.
Another important aspect of the evaluation of the performance is to not only to look from the
financial angle but also taking into cognizance of the non-financial measures. The non-financial
measures are equally important, and in most cases it is what counts. This comprehensive
framework to evaluate both financial and non-financial measures are evaluated is highly
recommended. (Epstein and McFarlan, 2011).

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Further, when the program is designed the NGO usually have inbuilt success criteria. This
success criteria are mostly outcomes. Here a differentiation has to be made between the output
and outcome. For any given input there should be an output. For example, when the funds are
given for conduction of say, 4 training programs, then the conduction of 4 training program is
output. However, if the objective of the training program is to make the participants to be trainer
and then train others, say the realistic criteria for success is that about 40 people other than
those trained are trained. Then the outcome of this particular segment of the program would be
the end result, which in this case is 40 people duly trained by the trainers who were trained in
the program.
In evaluating the performance of NGOs, the outcome is more important that output. However,
the output is also important to the extent that it facilitate the ultimate achievement of the
outcomes.
There are various financial measures of performance of NGOs and also non-financial
performance measurement techniques.
However, this study limits itself to the use of accounting and auditing techniques that could be
used efficiently.
Audits – Present Scenario:
The audit of the NGOs are done to comply with the provisions of the statute under which it is
registered, with specific compliance issues addressed. It could be in relation to the act under
which it is formed and managed, or under the Foreign Contribution (Regulation) Act 2010, or
under the Income Tax Act. In some cases as per the requirements imposed by the funding
agencies, both national and international, the audit is carried out with the sole purpose of
certification, to certify that the funds received where utilized for the purpose for which it was
granted. This type of audit is generally called as Statutory Audit or Compliance audit.
There are other types of audits that are suitable for the NGOs. The important ones are
Performance Audit and Social Audit.
Performance audit:
Performance audit refers to an independent examination of a program, function, operation or
the management systems and procedures of a governmental or non-profit entity to assess
whether the entity is achieving economy, efficiency and effectiveness in the employment of
available resources.
It refers to an independent examination of a program, operation of NGO to assess whether the
entity is achieving economy, efficiency and effectiveness. The examination is objective and
systematic, generally using structured and professionally adopted methodologies.
The International Association of Supreme Audit Institutions (INTOSAI) has published
generally accepted principles of performance auditing in its implementation guidelines. This
guidelines, though originally propounded to be used by its members in evaluating the

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government programs, could be modified to suit the requirements of the NGO and used for
evaluating its programs and activities.
It should be understood that the performance auditing differs from performance measurement.
The performance measurement is mostly done by the management of the NGO, and that would
form part of the activities report, where the activities originally planned to be implemented is
discussed together with its implementation or non-implementation and the variance thereof..
The scope of the performance audits may include the detection of fraud, waste and abuse, if it
had been included clearly at the outset.
Objectives of Performance Audit:
The performance audit assess whether organizations assess whether organizations are
undertaking their functions efficiently, effectively and economically. These are often referred
to as the three E’s.
• Effectiveness: This relates to the outcomes or results of a program or activity. A performance
audit will compare the planned outcomes with actual outcomes. Here the emphasis is on
outcome and not outputs.
• Efficiency: This relates to the best way of doing things. However, the emphasis here would
be to do it within acceptable quality. It is concerned with the effective usage of resources
(inputs) to obtain the planned outputs Here the emphasis is on outputs and not outcome. The
relationship between the inputs and outputs are studied, and also whether the process used to
manipulate or use the inputs, had resulted in desired outputs with reasonable and acceptable
quality, that had been envisaged in the project planning process
• Economy: This generally refers to the cheapest way of doing things, but with regard to
acceptable quality. It is concerned with minimizing the cost of resources used (e.g. people,
materials, equipment).
Performing Performance Audits:
Performance audits are important because they seek to improve the accountability and
performance of non-governmental organizations so that the community receives value for
money through effective implementation of the program by the NGO.
Performance audits may review one or all of the three E’s. However, it would be prudent on
the part of the auditor, to evaluate all the three “Es”.
As any audit, this too has three phases namely, Planning, Fieldwork and Reporting.
During the planning phase, the performance audit team develops the audit objectives, criteria
and plans the field work. The audit criteria are standards of performance against which an
organization or program is assessed. The criteria may be based on international standards, best
practices, or procedures or guidelines.
The selection of good criteria gives a good result. The best possible way would be to fix the
criteria jointly by the auditor and the auditee. This could avoid the pitfall at a later stage when

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the findings are presented, the auditee would say that their expectations or the requirement
from the funding agencies were this. That would spoil the entire audit process. However,
auditor should not be getting carried away by what the auditee says. He has to verify whether
the criteria as suggested by the auditee is in line with the Memorandum of Understanding
entered between the NGO and the funding agency or such other document which stipulates
what are the expected outcomes using the listed inputs. The criteria should also include the
perceptions of the different stakeholders including the beneficiaries who were made to believe
certain things by the NGO. This brings about a benchmark from the perspective of different
stakeholders, against which the results could be evaluated.
During the field work phase, the audit team will collect information relevant to each audit
criterion, which includes interviewing people, undertaking surveys, review of documents and
data, and physical verification. The audit team has to ensure that all the criteria were verified
and all the aspects of the operations of the NGOs are covered subject to the audit objective.
At the end of the fieldwork the audit team would have an exit conference with the auditee,
where not only the findings are highlighted but also suitable recommendations, which would
improve the working of the NGOs are discussed. The recommendations should however, be
practical and appropriate. The inputs from the NGO is also obtained and then the final report
is prepared with suitable modifications as to the implementation of the recommendations by
the NGO during the report preparatory times.
Performance Audit vs. Financial Audit:
The financial audit is to give an independent opinion on the true and fair view of the financial
statements. They also check compliance with relevant accounting standards and laws
applicable to the NGO. Performance audits do not examine financial accounts, however, it uses
it as a basis of understanding the operations, and to ascertain the process of quantification of
its inputs and outputs/outcomes. Performance audit seek to express an opinion on how
economically, efficiently or effectively a NGO undertake its operations towards the
achievement of its objectives overall and the achievement of the objectives of the program
which is envisaged in the original program planning document. The performance audit add
value and improve the performance of NGO.
Social audit:
Social audit refers to a process of reviewing official records and determining whether state
reported expenditures reflect the actual monies spent on the ground. Expanding this to apply
for the activities of the NGOs would help us to have a better understanding of the NGO’s
leading to its proper evaluation.
Social audit as a term was used as far back as the 1950s.
Social audit is based on the principle that democratic local governance should be carried out as
far as possible with the consent and understanding of all the stakeholders; thus it is a process
and not an event.
Social audit is a way of measuring understanding reporting and ultimately improving NGO’s
social and ethical performance. This helps to narrow gaps between vision and reality, between

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efficiency and effectiveness. It is a technique to understand, measure, verify, report on and to
improve the social performance of the organization.
Though the NGOs were originally formed to be voices of the stakeholders, especially the
marginalized and the poor, had over the period of time forgot it, as now instead of “bottoms
up” approach, the “top down” approach is practiced. Under this the NGO without
understanding the ground realities or the needs of the beneficiaries, thrusts on the beneficiaries
what it thinks best.
Advantages of Social Audit:
Trains the NGO to understand better the beneficiaries, communities, target population,
thorough participatory planning, leading to “bottoms up” approach.
Encourages the effective participation of the beneficiaries in the planning process,
which would give them a clear picture of what is to be expected through the program.
Promotes collective decision making, wherein all the stakeholders play a part. Thus the
program of NGO becomes “our” program.
It ultimately benefits the beneficiaries, as they would be getting what they need, subject
to the inputs available. If the expectations are not achievable, then through the process
of dialogue, the NGO could influence the beneficiaries about the ground realities and
thereby bring down the bar of expectation to the reasonable level, which would be
accepted by all the parties concerned.
Leads to overall development of human resources and social capital.
Objectives of the social audit:
The broad objectives of the social audit are:
To assess the physical and financial gaps between needs and resources available for the
developmental activities that are carried out by the NGO.
Increasing the efficiency and effectiveness of the program
To create an awareness both to the beneficiaries, as to what they can expect from the
program, and to the NGO about how best the expectations of the beneficiaries could be
addressed to with the available resources.
To verify the policies and procedures pursued by the NGO and to ascertain that it is in
line with the objective of the program, and also that it does not contravene the laws in
place.
Review of Literature:
The following literatures were reviewed:
· Tools not indicators – Alex Jacobs, 16 Aug 2011.

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· Performance measurement in NGOs – Pratibha Sharma – The Management
Accountant – Dec 2012.
· Evaluating your program – Developing Successful and Sustainable Programs – Office
of Juvenile Justice and Delinquency Prevention, Washinton, USA.
· Balancing Transnational Charity with Democratic Order, Security, Social Harmony
and Accountability: A Critical appraisal of the Foreign Contribution (Regulation) Act
2010 – Prof. Dr. P. Ishwara Bhat – Journal of Indian Laws and Society – Volume 4:
Monsoon.
· India witnessing NGO boom, there is one for every 600 people – Dhanjayan Mahapatra
– TNN – Feb 2014.
· National Policy on the Voluntary Sector, Government of India – May 2007
· People for Profit – The NGO story – Anurag Sanghi – November 2010.
· Performance Audit Guidelines: ISSAI 3000 – 3100 – INTOSAI – July
2004.Performance Audit Guidelines – Key Principles: ISSAI 3100 – INTOSAI
· Social Audit – Investopedia.
The literatures which are available deals exclusively either about the overall discussion on the
evaluation of NGOs, the aspects of performance audits and social audits. However the
documents were are address the key issues of the usage of accounting and auditing concepts
especially those of performance and social audit concepts for evaluation of NGO, hence this
study.
Objective of the paper:
To ascertain the gap between the financial statements and the activities report; and find
out ways to effectively synchronize it using appropriate accounting methodologies.
To evaluate the applicability of the concepts and techniques of performance audit and
social audit, to the functioning of NGO’s.
To have a holistic approach to evaluate the NGO’s using appropriate accounting
techniques and performance social audit.
Methodology:
This is based on the Conceptual Research concept, mainly because the literature available does
not seek to address the issue of usage of accounting and specialized auditing concepts for
evaluating the functioning of NGO and its achievement of the key objectives of the various
programs carried out by it.
Gap between the financial statements and activities report – Reasons and Solutions:
The financial statement together with the activities report form the very basis of the evaluation
of the activities of the NGO, especially to ascertain whether the inputs that are given for the
program had resulted in the expected results, namely, the output.

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This basic requirement is often not there in the NGO sector, due to the special nature of the
accounting issues concerning NGOs which were discussed earlier.
This could be explained using the data below:
Exhibit 1
Budget
Code Training Budget
People's
Contribution
Funding
Agency
5.1 9 Trainings to Trainers
5.1.1 Meeting hall rent @1000 9000 9000
5.1.2 Travel to Participants 0
20 for each meeting for 9 meetings 1800 200 1600
5.1.3 Tea and snacks for 9 meetings 1800 200 1600
5.1.4 Food for participants 4500 4000 500
5.1.5 Resource person honorarium 9000 9000
5.1.6 Miscellaneous 1000 500 500
Sub Total 27100 4900 22200
6.1 Community Based organization Support 0
6.1.1 Construction of Community Centre 125000 22500 102500
6.1.2 Training Materials 5500 5500
6.1.3 Agriculture equipments including heavy 178500 165000 13500
Sub Total 309000 187500 121500
In 5.1 which pertains to Training component of the budget, Rs. 4900.00 has to be raised through
people’s contribution to complete the program.
This people’s contribution if it is not properly accounted would result in the following:
The total expenditure for training would be Rs. 22,200 and not Rs. 27,100.00. Again, the
financial statement would also give a wrong presentation – for example, in case of Travel to
participants, the amount would be equal to only 8 trainings, likewise in case of tea and snacks
also it would be presenting only for 8 meetings etc.
This anomaly could be avoided by passing suitable entries which would sum up to:
Training - Travel to Participants Dr. 200.00
Training - Tea and snacks for 9
meetings Dr. 200.00
Training - Food for participants Dr. 4000.00
Training - Miscellaneous Dr. 500.00
To Peoples Contribution 4900.00

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When this entry is passed, then the revised Receipts and Payments Account for the Training
Component would be like the following:
Receipts and Payments Account for Training Component
Receipts
To Contribution - Funding Agencies 22,200.00
Peoples Contribution 4,900.00
Total 27,100.00
Payments:
By Meeting hall rent @1000 9,000.00
Travel to Participants
20 for each meeting for 9 meetings 1,800.00
Tea and snacks for 9 meetings 1,800.00
Food for participants 4,500.00
Resource person honorarium 9,000.00
Miscellaneous 1,000.00
Total 27,100.00
This would be in line with the budgeted expenses. Provided the inputs were properly utilized
for which it was granted and also the mobilized people’s contribution, are used appropriately
and properly.
The need to account for local contribution is there. But how to go about it and what are its
ramification in the preparation of reports etc is very important.
This includes the following:
How to estimate the value of money for the services or materials received?
How the same is to be documented?
Whether the same is input through proper accounting entries?
What disclosure has to be made in the Financial Accounts?
Whether the process of accounting for local contribution is acceptable internationally?
How to present it for the consumption of different stakeholders.
What is the yardstick to be used to include the same in the financial books and reflect it in the
financial statements?

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The basic premises, is to go by the concept of materiality. The NGO has to decide on the limit
by which it is to be decided whether it is to be accounted for. Once that limit is fixed anything
that is over and above it has to be properly accounted for.
Now comes the process of valuing. The most appropriate methodology to value it would be to
value on the reasonable basis, which could be what in the normal course in the locality would
cost, if it had been solicited to be done by workers etc.
Once the valuation is done, now it has to be decided as to how to document it to substantiate
the same, which would be accepted as a valid document by the auditor who is bound by the
GAAP etc. The document should prepared in such a manner the person who is contributing
gives an acknowledgement that such and such in kind contribution was made and the
reasonable value of the same is so much. This should be corroborated by other supportive
documents like the approval given by the Self Help Group or such other CBOs which was part
of the process stating that they were aware of the contribution, and the amount stated therein is
reasonable. This could also be supported by the report given by the animator of the NGOs who
was coordinating the work. This document has to be used both as a receipt as well as
expenditure.
Then comes the disclosure aspect for it.
A sample format of the disclosure statement is given below:
Disclosure:
The contribution received in kind were accounted both as receipt as well as appropriate
expenditure in the annexed financial statement. This contribution received in kind is
made based on the assumptions that, it is of material value, it has a ready market and
would have otherwise purchased for money and the same could be valued on a
reasonable basis.
During the year 2013-2014, items and services worth was received as contribution in
kind These were utilized as below
Training expenses 5,500.00
Construction of Community Hall 45,500.00
Planting of saplings 9,000.00
Total 60,000.00
The above had been accounted as expenditure in the Income and Expenditure Account
or as assets in Balance Sheet, as appropriate.
Audit as a tool of evaluation of the NGO’s:
In the present scenario especially in India, the audits are mainly statutory ones, which ensures
compliance of the various provisions of the acts which are applicable to NGO’s. Even when
the utilization certificate are issued by the auditor which is a requirement often imposed by the
funding agencies both national and international does not really bring out the entirety of the
operation and effective usage of funds.

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The activities of the NGO’s using the inputs, which may be either financial or otherwise, would
result in outputs and outcomes. The proper evaluation would be to match these outputs and
outcomes with the success criteria given in the planning document.
The normal audit could effectively verify whether the output is there, by going through the
documentation and personal verification. The difficulty lies in the verification and evaluation
of the outcomes, which is the cornerstone for the evaluation of the activities of the NGO’s.
Thus apart from the normal auditing other special types of audit like performance audit, social
audits etc., has to be undertaken to have an independent appraisal of the effectiveness of the
programs carried out by the NGO which would result in correct evaluation of the activities of
the NGO’s.
Effective usage of Performance Audit in the process of evaluation of performance of
NGO:
The Performance Audit could be done for the entire operations of the NGO during a period or
specifically for a particular program or activity that had been carried out during a period of
time.
The stakeholders interest are better protected and gives better picture of the effective usage of
the funds from the funding agencies, and also the effective and efficient usage of it to achieve
the objectives, which primarily address the issues of the beneficiaries or target population.
In the course of the performance audit, the reengineering of the whole process that went into
the carrying out of the program is done so that the various steps and the appropriate inputs that
are used are studied and the end result or output is compared with the expected output/outcome
that was the objective for undertaking the program.
This not only seeks to find out the three “Es”, but it also seeks to address the negatives by
coming up with recommendations which could be utilized by the NGO to correct itself in future
for the said program or activity.
Social Audit – A tool for evaluation of the performance of NGO:
The social audit which has hitherto been a tool at the hands of the NGOs to assess the various
governments program, could be used to evaluate the performance of the NGOs themselves.
Since the process involves the review of the impact of the programs carried out, by involving
various stakeholders, including, but not limited to, the beneficiaries, the funding agencies, the
government authorities, the CBOs like self-help group, the other NGO working in the same
field or for the same beneficiaries, the CBOs of other NGOs, general public, media persons
including journalists, legal experts etc., the different perceptions of the different stakeholders
emerge which would be used as a criteria, subject to the overall limit set forth by the NGO in
the planning document, and then to assess the effective implementation of the program, through
visible or invisible effects or outcomes, as explained or shared by the beneficiaries and other
stakeholders.

of 11115555
Major findings:
The proper accounting of special transactions which is not reflected in the financial statements,
which makes it impossible to synchronize the activities report with it. This gap makes it
impossible to evaluate the programs carried out by the NGO’s which are stated in the activities
report but not in the financial statement.
The audit of the NGO’s are mainly done as “compliance audit” with focus more on the
compliance with the applicable statutes. Thus the compliance audit is not adding value to the
NGO’s other than for sending the same to the government and funding agencies.
The evaluation of the NGO’s should focus more on the performance evaluation; that is to
evaluate the various programs carried out by it, and make sure that the inputs given had resulted
in the required outputs and more importantly outcomes.
The appropriate audit type that would facilitate the evaluation of the NGO’s, are both
performance audit and social audit combined together, provided the gaps between the financial
statements and the activities report are addressed by appropriate accounting methodology.
Recommendation/Suggestion:
The evaluation of the work carried out by the NGO’s are unique and it is quite different from
the trading/manufacturing organization, hence appropriate accounting methodology which
would address its uniqueness of NGO’s which would result is the synchronization of the
financial statements with the activities report and then the techniques of performance audit and
social audit is to be applied to do proper evaluation of the NGOs.

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