NGO Audit

NGO Audit in India is governed by various legal frameworks including the Income Tax Act, 1961, Foreign Contribution Regulation Act (FCRA), 2010, and the specific laws under which the NGO is registered (Societies Registration Act, Indian Trusts Act, or Companies Act).

Why NGO Audits Are Important

NGO audits provide transparency, build donor trust, ensure compliance with regulations, and help identify financial management improvements. Regular audits demonstrate accountability and enhance the credibility of the organization with stakeholders, government agencies, and funding partners.

Types of NGO Audits

• External Audit: Conducted by independent Chartered Accountants to verify financial statement accuracy
• Internal Audit: Examines operational efficiency and internal control systems
• FCRA Audit: Specifically for NGOs receiving foreign contributions
• Project-Specific Audit: Focused on particular projects or grants
• Compliance Audit: Ensures adherence to applicable laws and regulations
• Performance Audit: Evaluates the effectiveness of programs and activities
• Special Purpose Audit: Conducted for specific requirements or investigations
• Tax Audit: Required under Section 12A(b) of the Income Tax Act

Legal Requirements for NGO Audits

NGOs must undergo mandatory audits as per the Income Tax Act if their income exceeds the non-taxable limit. Those registered under FCRA must have their accounts audited annually. The audit must be conducted by a qualified Chartered Accountant, and reports must be submitted within specified deadlines to maintain tax exemptions and legal compliance.

Documents Required for NGO Audit

• Books of Accounts and Financial Records
• Registration Documents (Trust Deed/Society Registration/Section 8 Certificate)
• Tax Exemption Certificates (12A, 80G)
• FCRA Registration (if applicable)
• Bank Statements and Reconciliations
• Donation Records and Receipts
• Fixed Asset Register
• Minutes of Board Meetings

NGO Audit Process

The NGO audit process involves these key steps:

Financial Statements Required for NGO Audit

• Balance Sheet: Shows assets, liabilities, and funds as of the reporting date
• Income and Expenditure Account: Records income earned and expenses incurred
• Receipts and Payments Account: Tracks actual cash flows (mandatory for FCRA NGOs)
• Notes to Accounts: Includes significant accounting policies and other disclosures
• Fixed Assets Schedule: Details of assets owned by the NGO
• Fund Utilization Reports: Shows how funds were used for specific projects
• Consolidated Statements: Combined reporting of all funds (restricted and unrestricted)
• Comparative Figures: Previous year's data for comparison

Conclusion

NGO Audit is a critical process that ensures transparency, accountability, and compliance with legal requirements. By maintaining proper financial records and undergoing regular audits, NGOs can build trust with donors, improve operational efficiency, and demonstrate their commitment to ethical practices. Professional audit services help NGOs focus on their mission while ensuring proper financial management and regulatory compliance.