Ensure Transparency, Accountability & Legal Compliance for Your Organization
Introduction
A Non-Governmental Organization (NGO) is a not-for-profit entity formed by individuals or groups to serve society and create positive social impact. NGOs often work in areas such as education, health, disaster relief, poverty alleviation, women empowerment, and more.
To ensure financial integrity and trust, NGOs must maintain proper books of accounts, get them audited, and file returns as required by law. An NGO Audit verifies that donations and grants received are utilized appropriately and that the organization complies with applicable regulations.
📞 Consult Now | 🌟 4.6 ★ | 🗳️ 101 Ratings
Common Forms of NGO in India
NGOs in India can be registered under different legal structures:
1. Trust
- Formed for philanthropic or religious purposes.
- Registered under Indian Trusts Act, 1882 or related state acts.
- Governed by a Trust Deed.
2. Society
- Voluntary group of people working jointly for a common cause.
- Registered under Societies Registration Act, 1860.
- Requires Memorandum of Association and Rules & Regulations.
3. Section 8 Company
- Incorporated under Companies Act, 2013.
- Established for charitable purposes like education, science, art, social welfare, environment, etc.
- Cannot distribute profits among members.
Why NGO Audit is Important?
NGOs operate largely on public donations, grants, and subsidies. An audit ensures:
✅ Proper utilization of funds
✅ Compliance with tax and regulatory laws
✅ Donor confidence and transparency
✅ Eligibility for government grants and renewals
An audited financial statement adds credibility and strengthens donor trust.
Audit Procedure for NGOs
The auditing process for NGOs includes:
- Reviewing financial statements like Receipts & Payments, Income & Expenditure, and Balance Sheet.
- Verification of donations received, grants, and utilization of funds.
- Review of vouchers, invoices, and supporting documents for expenses.
- Segregation of revenue and capital expenses.
- Reconciliation of accounts and preparation of audit report.
- Social audit to verify that expenses align with the NGO’s purpose.
Auditor’s Role and Responsibilities
During an NGO audit, the auditor must:
- Understand the scope and purpose of the NGO
- Ensure compliance with Income Tax Act, FCRA, Labour Laws, ESIC, etc.
- Verify that sources of income are legitimate
- Check proper documentation for grants, especially government grants
- Verify that expenditure is transparent and well-documented
- Check compliance with Section 12AA and 80G provisions
- Ensure all donations are recorded, and donors are provided with valid receipts
- Conduct a background check of key personnel, if required
Types of NGO Audits in India
1. External Audit
- Conducted by an independent Chartered Accountant.
- Validates accuracy, fairness, and transparency of financial reports.
- Important for statutory filings and donor confidence.
2. Internal Audit
- Conducted by in-house or third-party professionals.
- Reviews policies, procedures, internal controls, and financial health.
- Helps in early detection of irregularities.
3. Donor Audit
- Requested by major donors or funding agencies.
- Verifies that contributions are utilized as agreed.
- Builds donor trust and facilitates future funding.
4. Investigative Audit
- Conducted when fraud or misappropriation is suspected.
- Helps gather evidence for further legal or corrective action.
Objectives of Each Audit Type
| Audit Type | Purpose |
|---|---|
| External Audit | Validates fairness and authenticity of financial statements. |
| Internal Audit | Reviews adherence to internal processes and statutory compliance. |
| Donor Audit | Assures donors of the proper use of funds. |
| Investigative Audit | Uncovers fraud or mismanagement through detailed scrutiny. |
Benefits of NGO Audit
🔍 Proof of Authenticity
An audit proves the NGO’s legitimacy and transparent use of funds.
📈 Professional Guidance
Auditors offer insights and suggestions to improve accounting practices and compliance.
💼 Better Funding Opportunities
Audited financials help NGOs attract corporate and government funding.
📃 Legal Compliance
Ensures timely filing under the Income Tax Act and other applicable laws.
Final Thoughts
Whether you are a small grassroots group or a large organization receiving international funding, NGO audits are essential for transparency, compliance, and trust-building. A professionally conducted audit not only strengthens your credibility but also prepares your organization for sustained social impact.
📞 Need Help With NGO Audit? Let’s Talk.