MANUAL OF FINANCIAL MANAGEMENT AND LEGAL REGULATIONS
Item
- Title
-
MANUAL OF FINANCIAL
MANAGEMENT AND LEGAL
REGULATIONS - extracted text
-
Manual of Financial
Management and Legal
Regulations
FORM FC - 9
Certificat
BALANCE - SWEET .OF X Y 2
to be'given by Chartered Accountant
AS AT 31.12.19x.x
We have audited the account of XYZ, a wtner organisation
for the calendar year ending 31.12.1984 and examined all
relevant books and vouchers and certify that according to
the audited accounts i
AS AT
The brought forward foreign contribution ati
beginning of the year 1984 toas Rs. SO,000/-
I)
Foreign contribution of worth Rs. 35,00,000
were received by the Association during the
calendar year 1984.
ill)
The balance of unutilised toreign contribut
Association at the end o: the year 1984 was
iv)
Foreign contribution amounting to worth Rs.
have been utilised for the following puruOsi
Purpose of which
Foreign contribution
utilised
/ -
w
1®'
r’ r-Cr-v....
Previous Current
Balance Receipts
I
e,
w-
:■
Agricultural Activities 40,000
10,00,000
xiv)
Animal Husbandry
10,000
2,00,000
?00
FUNDS
A
3,00,000
4,10,000
>00
OTHER EARMARKED
FUNDS
B
4,75,000
40,000
500
GRANTS
C
1,00,000
2,20,000
CASH AND BANK £
100
LOANS
D
1,00,000
1,25,000
LOANS AND .'&V&
)00
CURRENT
LIABILITIES
50,000
45,000
O^Hpp. CURRENT
10,25,000
9,40,000
)00
Rural Development
10,000
10,00,000
Technical Education
1,00,000
xvii)
Research
1,00,000
xix)
Vocational Training
XX&
J
C7X
I1-/
. New °elhi
I
21.1.19xx
Deen Bandhu Biogas Plant
5,(
~~1
■■
■.
■
-
#
Pnrcirulan
.<4
5,<
Any other purpose,
other than above
details
CA
■
■
M
-
’
xxiii)
INVESTMENTS
'<
'
Relief for Netural
Calamaties
xxi)
■FIXED AScETS
e==:BSS3S=i
5,<;
• Health care and
family Planning
ASSETS
Rs. P.
s?
Xiii)
AS AT
Sche Amount
dule Rs. P.
LIABILITIES
Rs. P,
•>
I
5,(
~
O'’
<-0 kUjv ■- x-
80, C
.JXiXS'.iMLX
■’ -,
: New Delhi
: 21.1.1986
I
]
Cf
rniMiuni oamw
PETTY CASH BOOK
CASH/BANK PAYMENT VOUCHER
No.-
—12—
Datr-
15> .3 •
Dair
I
i or
PETTE
_ kaaMificfe
CAlJ
■
HER
* J-
-
Debit
RECEIPT
No.Dair
•«!
'’A
Amount
JU.
I
Amount
Hi.
Paniculan
Voucher
No.
n£
p.
(Head of Account)
H
"1
Cash Account
(Name of BamU
Bank Aecnunt
' *• .■
.
,
(tnipefilv)
V <!
p'. £> ■;
■-
'X-'
.•■ V'. r c iAi^'4\ :
:—^-tr
* -i:(Approved by)
IC
t<;..
[
d.^cX.
*•'<<<-pt'
5^
I
Prepared bv
Apptm-cd hv
Rcreivcd bv
Written by
(Received by)
» ()R VOLU^ARY AGENCIES ENGAGED IN
PROGRAMMES IN INDIA
DHVELOPM
MANUAL OF FINANCIAL
MANAGEMENT AND LEGAL
REGULATIONS
FOR VOLUNTARY AGENCIES ENGAGED IN
DEVELOPMENT PROGRAMMES IN INDIA
THAKUR, VAIDYANATH AIYAR & CO.
212, DEEN DAYAL MARG,
NEW DELHI
INDIA
X
-
All rights reserved. Mo part of this manual
mav be reproduced in any form, without permission
in writing from the publishers.
January. J986
PubKshed by Shri K.N. Gupta on behalf of
Thakur. Vaidyanath Aiyar & Co.
212. Deen Dayal Marg. New Delhi—110 002
Printed by N.K. Enterprises. 4782/2-23 Darya Ganj. New Delhi-110 002.
fr
Preface
I his Manual has been prepared with a view to providing general and specific guidelines to the
voluntary agencies engaged in development programmes in India. It purports to fill the gap
hitherto existing in recording and reporting of their operations which is so very necessary for
accomplishing their basic objectives. The Manual seeks to give a detailed description of
logistics, policy matters and mechanics as an aid in the preparation of budgets alongwith simple
and comprehensive system design for book-keeping and accounting functions. The utilisation of
resources and the ensuing flow of information for managerial planning and control have also
been presented in an easy to follow format. Special emphasis has been accorded to reporting
systems for general as well as special funds to highlight the growing quest for adequate
accountability. In addition, the legal regulations and their specific implications for accounting
and overall financial management have been clearly brought out. Detailed guidelines for
auditor s selection and the audit norms to be adopted by the project’s auditors have been
meaningfully explained, thus strengthening the overall accountability expected of these
agencies.
Shri K.N. Gupta, the principal partner of the firm who was concerned with the preparation of
this Manual, had spent considerable time in visiting the various voluntary organisations in
India and having discussions with them as well as Funding agencies in countries like West
Germany, Holland, U.K. and Switzerland.
We would like to express our grateful thanks to late Professor T.S. Grewal, formerly Director,
Board of Studies, The Institute of Chartered Accountants of India, New Delhi for going
through the first draft and offering valuablcsuggestions.
We would like to express our indebtedness to Dr. Hartmut Bauer and Dr. Badal Sen Gupta of
EZE, West Germany for their dynamic initiative and providing underlying meanings to
concepts and nauances used in the Manual.
We would, however, welcome any suggestions from the partner organisations so as to enable us
to improve the contents of the manual for the next edition.
January. 1986.
New Delhi
THAKUR, VAIDYANATH AIYAR & CO.
♦
Foreword
The voluntary organisations have a fine record of dedicated, committed and selfless service for
the benefit of poor, deprived and needy people. Their proximity to and complete identification
with the people they work with is another attribute of voluntary organisations that makes them
distinctively superior to organisations working in impersonal and routine manner.
However the funds received by voluntary organisations, and the manner in which it is received,
the way it is utilised, the system of account keeping they follow, the reporting they do. the extent
to which they follow the laws of the land and administrative rules enforced by authorities from
time to time, are the weak points of most, if not all of them.
In recent years efforts have been made by various organisations to improve their financial
accountability through training programmes, seminars, conferences, etc., on simple account
ing and book-keeping and through detailed circulars on requirements of Income Tax Act,
Foreign Contribution Regulation Act and other important legal provisions. Through these
attempts, the accountability and transparency of voluntary organisations has improved. The
present publication “Manual of Financial Management and Legal Regulations—For Volun
tary Agencies engaged in Development Programmes in India” prepared by M/s Thakur,
Vaidyanath Aiyar & Co. (TVA), New Delhi, a firm of Chartered Accountants of long standing
is another step forward in this direction.
This publication is the result of a long process of preparation of the text, updating the
information, consultation with major partners and field testing with user organisations scat
tered in remote villages. This process would not have been completed but for the active
participation of Dr. Hartmut Bauer, Director, EZE, West Germany and Shri K.N. Gupta,
partner. TVA. New Delhi.
We hope that voluntary organisations will receive this publication with enthusiasm and use it
for further improvement in their accountability.
January, 1986
New Delhi
Major J.K. Michael
Director
Church’s Auxiliary For Social Action
J.B. Singh
Executive Director
Action For Food Production
CONTENTS
CHAPTER
I
II
III
IV
V
VI
VII
VIII
IX
Page
Introduction
Budget of Project/Programme
Project/Programme Implementation and Transfer of Funds by
Funding Agencies
Book-keeping System
Special Funds
Reporting
Legal Regulations in India
Guidance Note on the Selection of An Auditor
Audit Guidelines
19
26
78
103
112
160
163
ANNEXURES
Information on Funding Agencies:
‘A’ Evangelische Zentralstella Fur Entwicklungshilfe E.V. (EZE)
(i) Agreement Between EZE and Project Partner
(ii) Forms and Explanatory Notes
Abbreviations Used
Index
189
194
212
213
1
4
MANUAL OF FINANCIAL MANAGEMENT
AND
LEGAL REGULATIONS
I
INTRODUCTION
CHAPTER I
Introduction
Page
Accounting is a must
Obligations of Funding Agencies
Need of a Manual
Role of Auditors
1
1
2
3
1.
Introduction
Accounting is a must
1.01
Accounting is a necessary part of economic man. This is true of today as it was in ancient
times. While the sophistication of accounting will change in response to the complexity of
the social and economic systems it serves, some level of accounting appears essential in
every social order.
1.02
Accounting is the discipline which provides financial and other information essential to
the efficient conduct and evaluation of the activities of any organisation.
1.03
Accounting is the tool for a proper financial management. The importance of financial
management cannot be over-emphasised. Sound financial management is essential in all
organisations—profit or non-profit—where funds are involved. It attempts to use the
funds in the most productive manner.
Obligations of Funding Agencies
1.04
International Funding Agencies have been assisting the developing countries in carrying
out projects and programmes which—
— give primary attention to the poorest groups in society
— provide the active participation of the people involved
— help to create and strengthen people’s self-relience
1.05
The funding agencies are collecting funds from the people in their countries and are,
therefore, themselves under public observation and control and owe a. responsibility to
the ultimate provider of funds. On the one side, this encounters difficulties because the
accountability of funds is subject to the strict rules of the Public Budget Regulations. On
the other side, it offers the great possibility that the engagement of the non-governmental
organisations for the poor in the world can be made clear. For this purpose the funding
agencies are to furnish proof to the public concerned of the economical and successful
utilisation of the money given in Trust.
1.06
Broadly the International Funding Agencies are accountable for:
— the careful choice of the partner organisations in the developing countries and to agree
on clear rules of co-operation—the partner organisations being responsible for the
planning and implementation of the projects and programmes;
— funds being used for the purposes for which it is agreed upon and that they are used
efficiently and economically;
— the accounting systems used by the project organisations to be transparent, clearly
showing in which way funds have been spent;
— ensuring that project organisations, in the interest of accountability submit progress
reports and duly audited (by independent auditors) financial statements.
1.07
The Funding Agencies have certain constraints in enic icmg me accountability by the
persons in charge of the management of the projects. The first constraint is one of moral
attitude—instead of policing, an attitude of partnership and self-discipline is adopted.
The funding agencies normally are not allowed, in order to optimise the use of funds for
the developmental needs, a large budget by way of overheads to oversee and administer
the disbursement of funds and supervision of the project that they are proceeding as
planned. This deficiency is easily remedied by properly assisting and guiding the persons
in charge of the project in their task of accountability.
Need of a Manual
1.08
It is in this context that TVA has—jointly with EZE—carried out a workshop in Delhi in
January 1985. 34 experienced representatives from partner organisations and auditors
attended this workshop with the aim of discussing the draft of a manual for “Financial
Management and Legal Regulations for Voluntary Agencies” engaged in the field of
development programmes. This manual is seen as a helping instrument for those
connected with the project management. It would serve as a practical guide on matters
connected with project management such as:
— preparation of the budget for the project/programme,
— procedure for transfer of funds by funding agencies for project/programme
implementation.
— minimum books of account and other related records that are to be maintained.
— a simple accounting system to meet the needs of management information and
establish accountability,
— the meaning and operation of special funds,
— the preparation of financial statements and progress reports,
— the implications of the legal scenario (as it obtains in India) in which the project
organisations are likely to operate, etc..
1.09
In this manual, an attempt has been made to explain in simple, precise and lucid terms
but in sufficient and appropriate details all aspects that a project manager as well as those
in charge of actually executing the project are familiar and thorough with the systems
and procedures.
1.10
It is hoped this manual would serve as a tool for effectively discharging the responsibility
of accountability by the partners of the project organisation to the funding agencies
which in turn would help the latter in complying with their trust duties to the govern
ment and public concerned.
1.11
It is the aim of this manual to improve i^pon the financial accountability oi the project
the Govt, of India and last
partners towards the beneficiaries, their own constituency,
<
but not least the overseas funding agencies.
1.12
This manual is in the first instance meant for EZE partners. It could, however, also be of
assistance to other organisations which work together with other funding agencies since
most of the chapters in this manual are applicable to international relations.
2
Role of Auditors
1.13
The other tool for achieving the objective of ensuring compliai
. mce with accountablity is
the examination of the records by independent auditors and their certificate that the
funds have been utilised properly, efficiently and economically. Such an independent
examination and certification lends credence to the financial statements and enhances
their reliability.
1.14
This independent certificate is provided by the members of the recognised Accounting
Bodies of the country where the projects are executed and whose members by law are the
only competent professionals who could carry out such audits. In the practice of public
accounting, such members bring competence of professional quality, independence and
a strong concern for the usefulness of their report. The professional quality of their service
is based on the requirements for the admission to such membership—the education,
experience, examination, the ethical and technical standards established and enforced
by their professional bodies.
1.15
The examination of the financial statements requires the professional accountants to
review many aspects of an organisation’s activities and procedures. Consequently, they
can advise on needed improvements in internalcontrol and give constructive suggestions
on financial, tax and other operating matters.
1.16 As a support measure to the functions of the indepenucnt auditors, an audit manual
entitled General Guidelines for Audit” has been prepared. This audit manual sets out
in clear detail how the independent auditor could go about the task of conducting the
audit of non-profit public cause serving projects. Here again, an attempt has been made
to lay bare the objective behind each of the examination/enquiry of the auditor which
must necessarily be made before the auditor forms his opinion on several matters on
which he is called upon to report. A perusal of these guidelines even by the project
managers would enlighten them about the rational of the approach by the auditors and
thus remove any misgivings which might otherwise arise.
3
MANUAL OF FINANCIAL MANAGEMENT
AND
LEGAL REGULATIONS
II BUDGET OF PROJECT/PROGRAMME
CHAPTER II
Budget Of Project/Programme
Page
Introduction
Preparation of Budget
Cost Plan
Finance Plan
Use of own Means for Financing Projects/Programmes
Contribution in Cash
Contribution in non-cash inputs
4
4
5
6
7
8
9
Forms
Item Structure of a Building Project
Item Structure of Establishment of Village Industries and Training Centres
Cost Plan—Programme Activities Budget
Administrative Expenses Budget for Programme co-ordination
Details of Staff Salary and Benefits
Finance Plan—Source of Funds
12
13
15
16
17
18
II
Budget Of Project/Programme
Introduction
2.01 A project is understood as an undertaking co serve a middle to long term purpose/objective
in which all the necessary investment is essentially of a capital nature. A programme is
understood as an undertaking which has a limited and specific target, a limited period of
implementation and a limited financial outlay, (please refer also to paragraph 2.16 of this
chapter).
2.02 Budget involves a system of planning, executing the plan and evaluating performance and
financial working of an organisation in which activities are planned in advance.
2.03 The philosophy behind the budget is that nothing would be allowed to occur in a
haphazard manner but there should be an objective towards which the organisation is to
progress in an orderly and pre-planned manner. In order to aid this process of planning, the
mechanism of a plan (which is the picture at a given point of time, the planning process would
lead to) is adopted. Thus the plan is the commitment to a set course of action required to realise
the results that are depicted in the plan. The planning process stipulates thinking at all levels of
management and serves as a measure of performance^
2.04 Hence the organisation should plan its activities in advance, carry out the plan and
institute appropriate techniques of observation and reporting to ensure that the deviations from
plan are properly analysed and handled.
2.05 In this system of control, performances are checked with the pre-planned figures and the
variances are analysed.
2.06 Hence, following are the important characteristics of a budget:
(a) It is a financial and/or quantitative statement;
(b) Prepared well in advance;
(c) For a definite period of time;
(d) For the attainment of objectives and measures agreed upon.
2.07 11 would therefore be advisable for every organisation to prepare a budget since this would
enable it to plan out the activities of the ensuing year/s. This also helps in planning the
commitments and to activate resource mobilisation to meet such commitments.
2.08 Institutions which receive foreign contribution from International Funding Agencies are
usually required to present a budget of programme activities for a specified period.
Preparation of Budget
2.09 The voluntary organisations dealing with funding agencies prepare a
4
—Cost plan
and
— Finance plan
to budget their activities for ensuing year/years in Foreign currency and in National
currency.
2.10 For the purpose of administrative control, the basis of calculation is normally taken as
three years for programmes and in respect of projects it varies according to its nature.
2.11 A ‘Cost Plan’ is a schedule of budgeted costs divided into two major parts, namely:
— ProgrammeActivities Budget
—Administrative Budget for Prqject/Programme Co-ordination.
2.12 A ‘Finance Plan’ is a schedule of budgeted sources of funds.
Cost Plan—Programme Activities Budget
2.13 This woulo include programmes/prqjects undertaken/to be undertaken by the organisa
tion for a specified period. This would include:
— Capital costs
— Programme costs
— Office costs
— Reserves
2.14 Detailed sub-schedules should be prepared for each of the sub-Heads.
2.15 Capital costs would represent expenditure of capital nature. For example:
— Construction of lift irrigation system including pipe systems and land development;
— Construction and equipping of a school building and teacher’s accommodation;
— Setting up a training and demonstration farm, land development, irrigation etc.
(. ..acres);
— Land development and sowing oil seeds;
— Construction of lift irrigation units (including canals/pipe systems).
2.16 A programme is understood as an undertaking which clearly spells out operational
targets, a specific time horizon and limited financial outlay. This could be:
— an adult education programme to make 10,000 Harijan women and men in 50 villages of
Nalgonda distt. in Andhra Pradesh State functionally literate within a time horizon of 3
years; or
— an immunization programme to immunize 10,000 children under 6 years in the same
villages against DPT (Disease) within 3 years.
2.17 A programme may include one specific target and the programme component to achieve it
or several targets and accordingly several programme components to achieve the same.
2.18 Programme costs would include:
5
— Office costs
— Capital costs (with limited utilisation)
— Reserves
2.19 These costs should be clearly related to and necessary for achieving the specified targets
within defined period of time. The overhead expenditure independent of specific programme of
an institution or organisation is not programme costs.
2.20 Office costs would normally include salary of the project staff which is directly involved in
the implementation of the project/programme.
2.21 Cost item “Reserves” is primarily meant to be utilised for:
(a) price increase in thejnain budget items not anticipated earlier (but accounted for under
respective cost items);
(b) Audit fee and expenses;
(c) Bank charges; and
(d) financing unforeseen measures for which prior approval of the funding agencies is to be
obtained.
Cost Plan—Administrative Expenses Budget (for project/pro
gramme Co-ordination)
2.22 This would include administrative expenses incurred for co-ordination of various pro
grammes i.e. staff salary and benefits (excluding project staff which is directly involved in
implementation of the project/programme); travel and conveyance; operating costs of vehicles,
rent, rates & taxes, water and electricity expenses; office up-keep; communications; meetings;
seminars; legal expenses etc..
2.23 Wherever needed, separate sub-schedule for details should be prepared, for example staff
salary and benefits.
2.24 A typical example of item structure of a cost plan (schedule of budgeted costs) in respect of
a building project versus other projects/programmes, say, establishment of village industries,
and village industries oriented training centres is given on page Nos. 12 to 14.
Finance Plan—Schedule of Budgeted Sources of Funds
2.25 A finance plan is a schedule of budgeted sources offunds for financing project/programme
related expenditure. The normal pattern of financing the Programme Activities Budget and
Administrative Budget (for project/programme co-ordination) is as under:
— Contribution by the Funding Agencies; and
— Contribution by the Project-Partner.
2.26 There are good reasons for the project-partner to participate in the expenditure (upto a
certain percentage) to be incurred on a programme/project. For example:
— strengthening of responsibility and decision making, as principles of co-operation;
— motivation of the beneficiaries to contribute to their project/programme;
— better co-operation between beneficiaries and credit institutions in case ofbank financing:
6
— educational effects for the beneficiaries; and
— creating conditions for the continuation of the project after contributions from funding
agencies have been exhausted.
2.27 Funding agencies are contributing a specified % to the actual expenditure but not more
than amount sanctioned in foreign currency. In cases of exchange variations or over-spending
of budget, the responsibility for financing such costs lies primarily with the project-partner.
There is however; a possibility for applying for additional funds which can be considered by the
funding agencies on case to case basis.
2.28 The project-partners are expected to utilise as high a portion of their budgeted financial
contribution as possible in the beginning of each project/programme. If this is not possible,
funding agencies would insist that expenditure is at least financed by the project partner
proportionate to his share in the schedule of budgeted sources of funds. In case of difficulties,
special arrangements can be made between the project partner and the funding agencies.
2.29 It shall however, be ensured that the contribution to be made by the funding agencies and
the project-partners should be finalised and agreed upon at an early date so that there is no
ambiguity at a later date.
2.30 Contribution to be made by the project-partner can be either in cash or in non-cash
inputs.
2.31 It would be advisable if the project-partner is in a position to assess separately the
quantum of its contribution in cash and non-cash inputs in the beginning itself. Further, the
composition of non-cash inputs may be in the form of donations of land, building, capital
equipments, labour, material and other services.
2.32 It would be advisable if non-cash contribution in various identifiable forms are estimated
by the project-partner at the time of working out the source of funds for financing a particular
project/programme so that there is no room for difference of opinion between the funding
agencies and the project-partner at a' later stage.
2.33 A set of budget formats is given on page Nos. 15 to 18.
2.34 The budget estimates prepared initially for a specified period for each programme/project
should be further split into monthly/quarterly/half-yearly targets so that actual results could be
compared with budgeted figures and timely corrective action is taken for achieving the planned
measures and objectives.
Use of “Own Means” for Financing Projects/Programmes
2.35 As explained in paras above, contribution by project-partner which is termed as “Own
Means” can be in cash or in non-cash inputs.
2.36 Cash and non-cash contributions can be ‘within’ and ‘outside’ finance plan. Cash and
non-cash contributions are treated ‘within’ finance plan, if they can be recorded in the books of
account of the partner organisation. Otherwise, they have to be estimated and reported
‘outside’ or separate from the budget and the financial statement e.g. if contribution to the
programme comes from third parties directly to the beneficiaries.
7
2.37 Cash and Non-cash contributions within Finance Plan: These could be as under:
‘Cash’contribution within Finance Plan:
— Own cash contribution by project partner
— Grant from other Funding Agencies
— Subsidy from State/Central Govt.
— Loans from banks (provided re-payment of loan is arranged independently)
Non-cash contribution within Finance Plan:
— If such non-cash inputs relate to the project e.g. it represents one of the items of the
approved budgeted costs—cost plan
— If such inputs can be easily evaluated and recorded in monetary terms in books ofaccount
— Cash and non-cash contributions within “Finance Plan” should be reflected in the
“financial statement” to be submitted to the funding agencies.
2.38 Cash and Non-cash contributions outside Finance Plan. These could be as under:
Cash contribution outside “Finance Plan ”
— Loans granted by banks directly to beneficiaries
Non-cash contribution outside “Finance Plan”
— Other services/materials provided by third parties directly to the beneficiaries (target
group)
2.39 Cash and Non-cash contributions outside finance plan should be reflected as an annexure
to the “financial statement” to be submitted to the funding agencies and explained adquately in
the progress reports.
2.40 The concept of “Own Means” can be clearly understood with the help of a chart given on
page No. 9.
Contribution in Cash
2.41 Contribution in cash can take the form of partner’s cash, donations in cash, membership
and other fees of the beneficiaries, loans from banks, subsidy/grant from Central/State Govt,
and funds for co-financing received from other funding agencies.
2.42 Donations: Donations received in cash (including cheques/money-orders/postal orders
etc.) by project-partner for implementing a project/programme shall be accounted for on the
receipt side of “Cash Book” on the basis of receipts issued to the donors.
2.43 It shall be ensured by the project-partner that all contributions received in cash/by
cheques/money-orders/postal orders etc. are promptly deposited intact into separately de
signated bank account of the project.
2.44 Loans from Bank: As a part of “Own Means” of financing, the pro ject-partner can obtain
8
OWN MEANS
CASH
i
z
X
I
z
NON-CASH
(a) Own cash
contribution by
Project-partner.
(a) Non-cash inputs:
i) Ifsuch rion-cash
inputs relate to
the project.
(b) Other Sources:
— Grant from other
funding agencies.
— Subsidy from Govt
— Loan from Banks.
ii) Such inputs can be
easily evaluated and
recorded in monetary
terms in books of account.
(c) —Cash income from fees
for attending Seminars/
Training Courses.
u:
C
I
Loans granted by Banks
directly to target population
(beneficiaries)
(a) Other services/materials
provided by third parties
directly to target population
group.
loans from bank for implementing the project/programme. It shall, however, be ensured that
the project/its beneficiaries are in a position to repay the bank loan independently.
2.45 It shall however, be ensured by the project-partner that no part of the land, building and
movable assets are pledged/hypothecated or charged with the bank without prior consultation
and consent of the funding agencies if the grant has been involved.
2.46 Subsidy/Grant from Central/State Govt.: If the capital costs forming part of an approved ‘cost
plan’ of a project/programme is eligible for subsidy/grant from Central/State Government, the
amount of subsidy/grant so received can be treated as a part of “Own Means” of financing by
the project-partner.
2.47 1 he amount of subsidy/grant received by means of a cheque/pay order shall be promptly
deposited into the designated bank account opened for the project and entered on the receipt
side of cash book.
Contribution in Non-Cash Inputs:
2.48 As explained earlier, contribution in non-cash inputs can be in the form of donations of
land, building, capital equipments, labour, materials and other services.
2.49 Before making commitment of an expenditure (either of a capital or revenue nature) to be
financed by funding agencies/own means, it shall be ensured by the project-partner that the
proposed expenditure forms part of the approved “Cost Plan”. If not. the ways and means of
financing the same should be explored outside the project. If the project-partner is not able to
arrange outside finance, consent of the funding agency should be taken in advance and in
exceptional cases well before the accounts are submitted for audit.
9
2.50 Particular care should be taken in making out vouchers in support of expenditure
representing the project-partner’s own non-cash contribution to ensure that they explain
adequately and in sufficient detail the nature and make up of such expenditure.
2.51 Donation of Land and/or Building: Donation of land and/or building made to a project/
programme can be accounted for as “Own Means” by the project-partner if the same forms
part of the approved “Cost Plan”. For this purpose, the following criteria should be adopted:
Land
— The acquisition of land should be budgeted in the approved “Cost Plan”;
— Total area of land;
— Prevalent market rate per acre/hectare;
— Cost of registration of land;
— Legal title to the property;
— Physical possession of the property;
— Acknowledgement from the donor; and
— Registration of land in favour of the organisation.
Building
— Construction/acquisition of building should be included in the approaved “Cost Plan ;
— Total covered area;
— Type of construction;
— PWD rate of construction per sq. ft.;
— Prevalent market rate as per certificate of architect/approved Civil Engineer;
— Legal title to the property;
— Acknowledgement from the donor;
— Physical possession of the property; and
— Registration of building in favour of the organisation.
2.52 Donation of Capital Equipments: There may be cases where the Farmers/Inhabitants/beneficiaries of a particular area may donate capital equipments for a project/programme (tractor,
vehicle etc.)
2.53 It shall, however, be ensured that:
. (a) capital equipments financed out of funds provided earlier are not charged to the project
again.
(b) In case of second hand capital equipments, they are not more than two years old.
2.54 The following points shall be taken into account while arriving at the value of the capital
equipments donated to the project:
— Nature of the capital equipment;
— Acquisition of capital equipment should be budgeted in the approved “Cost Plan ;
— Present condition of the equipment;
— Estimated realisable value, if sold in the market;
— Legal title to the property;
— Physical possession of the property;
— Acknowledgement from the donor; and
— Transfer of name in the vehicle registration book.
10
2.55 Donation of Labour: In a Project Implementation Programme, ‘Shramdan’ (Donation of
Labour) given by a group of farmers/beneficiaries/labourers shall be evaluated as “Own
Means” of financing on the basis of the following criteria:
— There should be a provision in the approved “Cost Plan”;
— Actual number of farmers/labourers worked in a project;
— Actual number of days/hours worked;
— Category of farmers/labourers worked i.e. skilled, semi-skilled and unskilled;
— Nature of work done;
— Rate per day/hour keeping in view the provisions of Minimum Wages Act prevalent in the
States;
— Piece rate/volume of work done and payments made for normally such services rendered;
— Certificate from each farmer/Iabourer regarding “Shramdan” given for a project; and
— Estimated and actual measurement of work done before and after the completion of the
assigned job.
2.56 Donation of materials (Like Bricks/Cement/Badarpur/Sand/Stones/Bamboos) , Seeds, Fertilizers
etc..: Donation of materials, seeds, fertilizers etc. can be accounted for as “Own Means” of
financing in the books on the basis of the following guidelines:
— Materials, seeds, fertilizers etc. should form part of the approved “Cost Plan”;
— Nature of materials (seeds, fertilizers etc.) received;
— Actual quantity received and used in the project;
— Standard usage per Sq. feet/cubic feet/acre/hectare as per PWD or other standards;
— Market price of such materials/seeds, fertilizers etc.; and
— Acknowledgement from the donor.
2.57 Free Use of “Capital Equipments”: In case of free use of capital equipments for a specific
purpose/period, the value of the same can be ascertained as “Own Means” on the following
basis:
— Name ofCapital Equipment (e.g. tractor, jeep etc.);
— Number of days/hours used;
— Cost for running and maintenance of capital equipment in the form of:
— Salary
— Repairs and Maintenance
— Other direct expenses, if any
— Depreciation
or
— Equivalent hire charges if the equipment would have been taken on hire.
11
COST PLAN
Item Structure of a Building Project
In Foreign Currency
1
2
Value of Site
.... M2....at (Currency) per M2
Preparation of Site
(Clearing, levelling, demolition, access etc.)
3 Buildings
4
5
6
....M2....at (Currency) per M2
(Cost of each building to be given separately indicating area, type of
construction, rate per M2)
Equipments
(A separate list of equipment and furnishings proposed for the
building is required)
External Works
—Water supply, surface and soil drainage, electricity supply
— Fencing. Landscaping, retaining walls, roads, footpaths, yards.
paved area
Professional Fees
—Architect
—Structural Engineer
—Supervision
—Other consultants
— Local Authorities Charges
— Prints and copying
—Auditor
7
Sub-total Ito 6
8
Contingencies
9
TOTAL 1 to 8
12
In National Currency
COST PLAN
Item Structure of Establishment of Village Industries and Training Centre
Schedules of Budgeted Costs
(Basis of calculation 3 years)
Establishment of Village Industries
4 processing centres (including working capital)
6 raw material depots (including working capital
1.3 3 rural marketing & artisan service centres (including working capital)
1.4 6 sen ice and spare parts workshops (working capital for tools, spare parts,
sundries)
1.5 Starting capital for village industries (margin money/fixed deposit to bank, initial
capital for revolving funds)
1.6 Teechnical information publicity centre
1.7 Mobile industries exhibition
1.8 Managerial help to artisans co-operatives (honoraria to experts, travelling
expenses, other expenses)
In Foreign
Currency
In National
Currency
2.00.000
1.00.000
75.000
8.00.000
4.00.000
3.00.000
60.000
2.40.000
2.00.000
35.000
1.05.000
8.00.000
1.40.000
4.20.000
50.000
2.00.000
8.25.000
33.00.000
1.0
1.1
1.2
Total— 1
13
In Foreign
Currency
In National
Currency
2.0 Training
2.1 Village industries oriented training
2.1.1 Construction and equipment of 5 training centres
of approx. DM 7000 each
35,000
1,40.000
2.1.2 Other training expenses for 600-700 persons (teaching material,
honoraria for teachers/instructors, living expenses for trainees, etc.)
1.05.000
4,20,000
2.2 Industry oriented Training:
2.2.1 Construction and equipment of 3 training centres of approx.
DM 25.000—each
75.000
3.00.000
2.2.2 Other training expenses for 800-900 trainees (teaching material,
living expenses etc.)
46.400
1.85,600
2.2.3 Allowances to 9 trainees/instructors a DM 1.800 p.a.
48.600
1,94.400
3.10.000
12.40.000
1.52.500
6,10,000
Total —2
3.0
Reserve
4.0
Administrative Expenses for Programme Co-ordination
4.1
Administration and office Expenses
40.000
1.60.000
Salaries to 10 staff members of central promotional unit
62.500
2.50.000
1.02.500
4.10.000
13.90.000
55.60.000
4.2
Total — 4
5.
Grand Total (14-24-34-4)
14
Cost Plan
— Programme Activities Budget
Programme
Project:
Description
Year-wise
Total Budget
‘A’ Capital Costs
Total ‘A’
‘B’ Programme Costs
Total ‘B’
‘C’ Office Costs
Total ‘C’
‘D’ Reserves
Total ‘D’
‘E’ Total Cost
(A+B+C+D)
In National
Currency
In
F.C.
Break-up
2nd Year
1st Year
In
F.C.
Budget
Period
In National
Currency
In
F.C.
3rd Year
In National
Currency
In
F.C.
In National
Currency
Cost Plan
— Administrative Expenses Budget for
Programme Co-ordination
Programme
Description
Year-wise Break-up
Total Budget
In
In National
F.C.
Currency
1st
Year
2nd
Year
3rd
Year
In
In National
In
F.C.
In National
In
F.C.
In National
Currency
F.C.
Currency
i) Staff Salary & Benefits
(details attached)
ii) Rent, Rates & Taxes
iii) Water & Electricity Charges
iv) Printing and Stationery
v) Communications
vi) News Papers & Periodicals
vii) Travel & Conveyance
viii) Repairs & Maintenance
ix) Operating cost of vehicles
x) Office up-keep
xi) Office Tea & Tiffin
xii) Conferences. Meeting & Seminars
xiii) Depreciation
xiv) Other Expenses (to specify)
TOTAL
Budget
Period
Currency
Programme
Cost Plan
—Programme Activities Budget
Details of Staff Salary and Benefits
Project
Description
Total Budget
In
Year-wise Break-up
In National
1st
Year
In
F.C.
In National
Currency
F.C.
Sub-Total ‘A’
vii) Contribution to P.F.
viii) Contribution to Gratuity and
Other Funds
ix) Medical Facilities
x) ETC
Sub-Total ‘B?
‘C’ Total
(A+B)
2nd
Year
In
In National
F.C.
Currency
i) Pay
ii) Dearness Allowance
iii) Addl. Dearness Allowance
iv) Housing Allowance
v) Citv Compensatory Allowance
vi) Other Allowances (to specify)
Budget
Period
3rd
Year
In
In National
Currency
F.C.
Currency
Finance Plan
—Source of Funds
Programme
Project:
Description
‘B’ Contribution by ProjectPartner^________________
— In Cash
co
— In non-cash Inputs:
— Donation of land
— Donation of Building
— Donation of Capital Equipments
— Donation of Labour
— Donation of Materials
— Donation of Other Services
TOTAL ‘B’
‘C’ Miscellaneous Income
TOTAL ‘C’
‘D’ TOTAL SOURCES OF FUNDS
(A + B + C)
Year-wise Break-up
Total Budget
In
F.C
‘A’ Contribution by Funding
Agency/Agencies_______
— Remittances
— Debit Notes
— Interests
TOTAL ‘A’
Budget
Period:
In National
Currency
In
F.C.
1st Year
In National
Currency
In
F.C
2nd Year
In National
Currency
In
F.C.
3rd Year
In National
Currency
MANUAL OF FINANCIAL MANAGEMENT
AND
LEGAL REGULATIONS
Ill
PROJECT/PROGRAMME IMPLEMENTATION AND
TRANSFER OF FUNDS BY
FUNDING AGENCIES
CHAPTER III
Programme Implementation And Transfer Of Funds By Funding Agencies
Pages
Introduction
Agreement
The Implementation Plan
The Determination of Demand for Funds
Transfer of Funds
Payment of Subsequent Instalments
Utilisation of Funds
Utilisation of Project Assets
Right of withdrawal and Restrictions
19
19
19
20
20
23
24
24
24
— in para 6. actual cash and bank balances position of project account as on the date of
submission of‘Request for Transfer of Funds’ should be given;
— in para 8, the break-up of estimated payments to be made according to the main budget
items during the period of next three months should be given which in turn should tally
with the figures shown in para 3.3;
3.20 If funds are required for financing cost item shown under the head “Reserves”, the
project-partner should state clearly the nature of expenses and amount involved.
3.21 The information contained in Form No. 1 enables the funding agency to respond to project
partner’s request for transfer of funds as quickly as possible. It is, therefore, suggested that Form
1S?O. 1 should invariably be used by the project partner for requesting transfer of funds. The
funding agency will inform the project-partner in writing when the bank transfer has been
made. If possible, photo copy of bank confirmation of the transfer of funds shall also be sent by
the funding agency directly to the project-partner.
3.22 As and when intimation for the receipt of funds from the funding agency is received by the
project-partner either by means of a letter or bank credit advice through their banker, an entry
for the same should be recorded on the receipt side ofcash book by debit to the respective bank
account and credit to Funding Agency Grant Account. Bank charge, if any. incurred on the
transaction in local currency shall be recorded on the payment side of the cash book by debit to
Reserves Account—Bank Charges and credit to Bank Account.
3.23 ‘Acknowledgement of Receipt’ (in form 2) given on page No. 198
should be signed and
sent to the funding agency by the authorised representative of the project-partner indicating
date of credit of funds in bank account, amount of funds received in National Currency (Bank
advice to be enclosed), amount of funds in foreign currency remitted according to the funding
agency’s advice of payment dated---------------- . The amount received in National Currency
should be included in the next financial statement to be submitted by the project-partner to the
funding agency.
3.24 Request for Transfer of Funds (Form No. 1) and Acknowledgement of Receipt (Form No.
2), during the implementation period of the project, should only be signed by the authorised
representatives of the project-partner for the purpose of dealing with the funding agency. Such
authorisation, including subsequent changes (if any), is generally the responsibility of the
controlling board etc. acting in accordance with the project-partners’ constitution. Prompt
notification of such authorisation including subsequent changes will help the funding agency to
avoid possible delays in payments.
3.25 Bank charges (including cable charges) incurred on the receipt of funds from the funding
agency shall be grouped under cost item “Reserves” in the cost plan and accordingly shown in
the financial statement.
3.26 Interest earned on funds provided by the funding agency and kept in a separate deposit/
savings account with a bank is to be credited to the Funding Agency Account or is to be paid
back. This shall be accounted for on the basis of bank advice received and entered on the
Receipt side of Cash Book. For valid reasons, however, interest may also be utilised for
additional expenditure on the project provided the funding agency has approved it in writing.
3.27 The above, however, does not apply to interest earned on “Revolving funds” which has
been explained in detail separately.
21
3.28 When payment of the approved funds is made by the funding agency and received by the
project-partner, exchange control regulations including Foreign Contribution (Regulations)
Act, 1976 should be observed.
3.29 The funding agency may make direct payments for the purchase of capital items or
supplies etc. supplied under deemed export scheme to third parties on behalf of the project
partner. Such payments shall be made to the suppliers directly by the funding agency after
appraising conformity of ordered goods and cost plan of the project. The funding agency will
notify to the project-partner, the payments made on their behalf, by sending debit notes in the
prescribed form given on page No. 211 to them. The debit note will indicate date of invoice,
name of supplier, details of expenditure, amount in foreign currency, the rate of exchange used,
amount in national currency, allocation in schedule of budgeted costs.
3.30 On the basis of receipt of debit note, the project-partner shall verify the same with the
receipt of capital items/supplies. In case of shortages/damages etc., the project-partner shall
lodge claims with the underwriters/carriers/insurance companies and in addition shall notify
the funding agency of such instances.
3.31 The purchase of capital items shall simultaneously be entered in the Fixed Assets Register
which has been explained in detail separately.
Payment of Subsequent Instalments
3.32 Request for payment of subsequent instalments shall be made by the project-partner to
the funding agency if:
— written confirmation of receipt of all preceding payments has been sent by the project
partner and received by the funding agency;
— all due interim reports (financial as well as narrative) have been received by the funding
agency; and
— project costs are due to be financed from the grant.
3.33 Funds for amounts chargeable against the cost item, “Reserves” of the Schedule of
budgeted costs shall be transferred by the funding agency upon special request by the project
partner stating the amount and nature of such expenses.
3.34 If contrary to expectations, funds received from funding agencies either in full or in part
are not likely to be utilised for due payments within 5 months after receipt, the project-partner
should inform the funding agency accordingly. It can be arranged on mutual understanding to
transfer the corresponding funds to another funding agency assisted project by credit to the
project partner’s account.
3.35 If the project-partner receives contributions from other sources to finance the same project
or programme, he shall inform the funding agency immediately so as to adjust the budget
accordingly on mutual understanding.
3.36 The funding agency may retain 5% of the approved funds on the completion of each
project pending acceptance of the final financial statement and final reports to be submitted by
the project-partner. The intention is to avoid over payments and possible difficulties that may
arise in connection with bank charges, exchange losses, and exchange control in case of
23
refunding over-payments and any interest earned on them. In appropriate cases, exceptions
can be agreed upon by the funding agency and the project-partner.
Utilisation of Funds (As practised by EZE)
3.37The project funds are to be spent only for the purposes specified in the letter of approval and
the budget. Within the scope of the objectives and measures agreed upon, the project-partner is
free to develope the project to achieve the best possible results. To be able to achieve this, the
project partner can exceed the individual budget items by upto 30% to the debit of other items
whereby the budget as a whole remains binding.
3.38 Changes in the project objectives or measures agreed upon, or exceeding the various items
of the estimated expenditure by more than 30% are to be settled between the partner and the
funding agency on mutual understanding. The funding agency will react promptly if any
alterations are proposed.
3.39 Project funds will be utilised efficiently and economically. Orders for larger acquisitions
(i.e. cars, pumps, hospital equipments), buildings and other services will be placed with the
most economic and reliable offerer after having previously compared other tenders.
3.40 If the intended purpose of funding cannot be achieved, the funding agency will be
informed immediately by the project-partner.
Utilisation of Project Assets (As practised by EZE)
3.41 Assets acquired with project funds (e.g. land, buildings, equipments, machinery, furni
ture, vehicles etc.) are the property of the project-partner and will be utilised for the purposes
agreed upon. The same will apply to revolving and disposition funds.
3.42 Funding agency’s prior consent in writing will be secured if the partner feels that assets
cannot be utilised any more for the original purpose. Such prior consent will be required also for
mortgaging or selling the assets or using already created revolving fund for another purpose or
closing it.
3.43 If without funding agency’s prior consent, assets are not utilised any more for the purposes
for which they were originally intended, the project-partner will pay to funding agency
compensation in proportion. The basis for the compensation will be the market value for assets,
and the residual value for funds. Funding agency’s share will be in the same proportion in which
the actual payments have been financed by the funding agencies.
3.44 In the case of an in-voluntary dispossession, for instance expropriation or any other
deprivation of use, a corresponding share of the grant (see para 3.43) will be re-imbursed to the
funding agency, provided that a compensation is received by the project-partner.
Right of Withdrawal and Restrictions
3.45 The project partner can also after the commencement of the project withdraw from the
agreement if circumstances beyond his control hinder a successful accomplishment of the
24
project. A new arrangement will be reached on the use of funds already paid or investments of
funds already made.
3.46 Funds transferred by the funding agency which are
;
not required for funding the project or
programme shall be paid back to the funding agency.
3.47 The funding agency can revoke the funding of the project/programme, stop payments and
reclaim payments already made if:
— the statements or any other information that are the basis for funding are found incomplete
or incorrect;
— the funds are not used according to the terms of the agreement;
— funds transferred by the funding agencies are not matched by the project-partner in the
agreed proportion of funding;
— over-payments have been made;
— the duties of maintaining proper books of account, reporting and other relevant informa
tion to the project are not fulfilled.
3.48 Furthermore, funding agency»may demand payment of interest of 6% per annum from the
date of compensation.
25
MANUAL OF FINANCIAL MANAGEMENT
AND
LEGAL REGULATIONS
IV
BOOK KEEPING SYSTEM
CHAPTER IV
Book-keeping System
Page
A—GENERAL FEATURES OF BOOK-KEEPING SYSTEM
Introduction
Accoounting Concepts
Capital and Revenue
Vouchers
26
27
28
28
B— ESTABLISHING THE BOOK-KEEPING SYSTEM
Bank Account
Books of Account
Subsidiary Records/Registers for Control Purposes
Depreciation
Trial Balance
Bank Reconciliation
Receipt and Payment Account
Income and Expenditure Account
Balance Sheet
Chart of Accounts
Chart of Accounts (Codes)
30
30
34
39
40
40
42
42
42
43
46
Forms
9
A
Cash/Bank Voucher
Journal Voucher
Cash Book
Receipt Book
Cheques/Drafts Receipt Register
Petty Cash Book
Journal Book
Ledger
Attendence Register
Salaries and Wages Register
Muster Roll Form
Agricultural Input Register
Stationery Stock Register
Agricultural Produce Register—Milk
Agricultural Produce Register—Other Products
Fixed Asset Register
Foreign Contribution (Articles) Register
Foreign Contribution (Securities) Register
Telephone and Trunk Call Register
Vehicle’s History Card
Bank Reconciliation Statement
Receipt and Payment Account
Income and Expenditure Account
Balance Sheet
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
70
71
72
73
74
75
76
77
IV Book-Keeping System
A.
General Features of Book-Keeping System
Introduction
4.01 Book-keeping is the system of recording, classifying and summarising all monetary
transactions so that the financial position of an organisation can be ascertained.
4.02 There are two systems of recording transactions namely:
— Single Entry System
— Double Entry System
4.03 Single Entry System: Under this system, the two fold aspect of each transaction as con
sidered in the double entry system is ignored. The essential characteristic of this system is the
keeping of Personal Accounts only; that is, no Real or Nominal Accounts find a place in the
books of account. Such a book-keeping method is incomplete and unsatisfactory because a trial
balance cannot ensue from the books.
4.04 Double Entry System: The system of Book-keeping that “every debit has a credit is known
as the Double Entry System. This system seeks to record every transaction in money or money s
worth in its double aspect—the receipt of a benefit by one account and the surrender of a like
benefit by another account, the former entry being to the account of receiving, the latter to the
credit of the account surrendering.
4.05 The three cardinal principles of double entry book-keeping are:
(a) “Debit what comes in. credit what goes out”—Real Accounts i.e. accounts related to
tangible things—cash, furniture, vehicles etc..
(b) “Debit the receiver and credit the giver”—Personal Accounts.
(c) “Debit all expenses or losses, credit all gains or profits”—Nominal Accounts i.e. salaries,
rent, telephone expenses, grant received, interest earned etc..
4.06 Real Accounts represent transactions which deal with material things such as cash, fixed
assets and stock etc..
4.07 Personal Accounts relate to transactions with persons necessitated by “Credit” transac
tions i.e. where goods are sold and services rendered, payment being made at a subsequent date,
or in the case of “Debit” transactions where payment is made at once for the future delivery of
goods or rendering of services. In Personal Accounts, “Debit Receiver: Credit Supplier .
4.08 Nominal Accounts relate to all account heads relating to expenditure/income connected
with the organisation.
26
e
4.09 The aforesaid principles of double entry are explained with the following illustration:
SI. No.
Accounting Entry
(a)
Receipt of Donation in Cash
Cash Account
Debit
(b)
(c)
(d)
(e)
(0
Principle of Double Entry System
To Donation Account...
Debit what comes in (Real Account)
Credit all gains or profit (Nominal)
(Account)
Deposit of Cash into Bank
Bank Account
Debit
To Cash Account
Debit the receiver (Personal Account)
Credit what goes out (Real Account)
Deposit of Grant-in-aid Cheque into Bank
Bank Account
Debit
To Grant Account
Debit the receiver (Personal Account)
Credit all gains or profit (Nominal Account)
Receipt of Membership Subscription in Cash
Cash Account
Debit
To Membership Subscription Account
Debit what comes in (Real Account)
Credit all gains or profit (Nominal Account)
Payment against Furniture Purchase
bill by Cheque
Furniture & Fixture Account-Debit
To Bank Account
Debit what comes in (Real Account)
Credit the giver (Personal Account)
Payment of Advance to ‘A’ in cash
‘A’ Advance Account
Debit
Debit the receiver (Personal Account)
Credit what goes out (Real Account)
To Cash
Accounting Concepts
4.10 Accounting is the language of affairs of an organisation. To make the language more
meaningful, the following accounting co'ncepts should be understood:
4.11 The “Money Measurement” Concept: Accounting records only those transactions which can
be expressed in monetary terms.
4.12 The “Entity” Concept: The entity of an organisation is different from the individuals who
operate it. Without such distinction, the affairs of the organisation will be mixed up with the
private affairs of the individuals who manage it.
4.13 The “Cost” Concept: Transactions are to be recorded only at the price paid to acquire
it—that is, at its cost—and that this cost is the basis for all subsequent accounting.
4.14 The “Going Concern” Concept: It is assumed that the organisation will exist for a long time.
Transactions are therefore recorded in such a manner that the benefits likely to accrue in future
from money spent now or the future consequences of events occurring now are also taken into
consideration.
4.15 The “Dual Aspect” Concept: Every transaction entered into by an organisation has two
aspects—every debit should have corresponding credit and every credit should have cor
responding debit.
97
Capital = Assets — Liabilities
Assets = Liabilities + Capital
4.16 The “Realisation” Concept: It is a fundamental rule in accounting that profit is not recog
nised to have been earned till it is realised in cash or a third party has legally become liable to
pay the amount.
4.17 The “Accrual” Concept: Known expenditure/liabilities even though not incurred/paid
should be taken into account.
Capital and Revenue
4.18 Revenue expenditure constitutes a charge against surplus and should be debited to
Income and Expenditure Account, whereas capital expenditure is treated as a capital charge
and is shown on the assets side of the Balance Sheet of an organisation. The classification
between Capital and Revenue is significant since the treatment in books of account depends on
the nature of expenditure.
4.19 There is much divergence of opinion and practice in the classification of expenditure
between Capital and Revenue. However, the following indicia have been laid down as
establishing the fact that the expenditure is capital expenditure:
(a) Any expenditure which is undertaken for the purpose of increasing surplus either
positively by way of increasing earning capacity or negatively by decreasing working
expenditure.
(b) If the expenditure, whether increasing the earning capacity or not, produces an asset
comparitively permanent in character, it is capital expenditure.
4.20 Capital expenditure may therefore, be described as an expenditure resulting in the
increase or acquisition of an asset or increase in the earning capacity of a business. Revenue
expenditure, on the other hand, is an expenditure which is incurred for the maintenance of
earning capacity, including the upkeep of the fixed assets and direct and administrative costs of
running an institution.
4.21 A revenue receipt is a receipt which arises from day to day transactions in an organisation
i.e. membership fee, donations, interest on bank account etc.. On the other hand, a capital
receipt is an amount arising because of the disposal of the properties of the institution or specific
capital grants received to form part of the corpus of the institution or life membership fee
received from members.
4.22 The revenue receipt is reflected in the Income and Expenditure Account of an organisa
tion whereas capital receipt is taken on the “liabilities” side of the Balance Sheet.
4.23 Broadly, revenue income minus revenue expenditure pertaining to a stated period will be
the surplus/deficit for that period.
Vouchers
4.24 Every payment made on behalfof an organisation is supported by a voucher. Vouchers are
the office documents which enable the accountant to pass the necessary entries in the books of
28
account. Vouchers should be accompanied by supporting documents such as cash memos, bills,
invoices etc..
4.25 The objectives of vouchers are:
— to have proper evidence of financial transactions
— to establish safe administrative procedures
— to enable proper recording of transactions
4.26 Vouchers give in a summarised manner the serial number and the date of a transaction,
the nature of a transaction, amount in words and figures, analysis within schedule of budgeted
costs i.e. the account head which is debited/credited. the person who has prepared the voucher,
the authority who has passed it for payment/adjustment, the supporting documents such as
bills, invoices, cash memos etc.. Vouchers for payment will also be signed by the recipient in
acknowledgement of receipt of the stated amount in the voucher.
4.27 Vouchers form the basis for passing entries in the original books of account. Vouchers
could be for cash/bank payment, receipts and journal transactions. A proforma of cash/bank
payment voucher and Journal Voucher which are generally used for accounting purposes are
given on page Nos. 53 and 54.
4.28 Vouchers should be prepared and filed separately on day to day basis. Each voucher
should be serially numbered and such number should be mentioned in the respective original
books of account maintained in order to facilitate cross reference. It is advisable to print
vouchers in different colours for the purpose of identification.
4.29 Particular care should be taken in making out vouchers in support of expenditure
representing the project-partner’s own non-cash contribution to ensure that they explain
adequately and iixsuflicient detail the nature and make-up of such expenditure.
4.30 Vouchers whether for cash/bank/journal transactions should be authorised bv a responsi
ble person of the organisation.
4.31 Vouchers should be kept in safe custody of the responsible person in the Accounts
Department.
4.32 Where the book-keeping for the project is kept separate, the relevant vouchers should also
be kept separate.
4.33 Vouchers should normally be kept by the project-partner for 5 years after the funding
agency has approved the last financial statement. However, vouchers are required to be kept for
eight years as per the provisions of Income Tax Act 1961.
29
B.
Establishing The Book-keeping System
Bank Account
4.34 As per agreement between funding agencies and the project-partner, the project-partner
is normally required to open a separate bank account for funds provided by funding agencies.
4.35 Similarly, as per section 13 of the Foreign Contribution (Regulation) Act, 1976 read with
Rule 8 (1) of the Foreign Contribution (Regulation) Rules, 1976 regarding maintenance of
accounts, every association is required to maintain a separate bank account exclusively for
foreign contributions received and utilised.
Books of Account
4.36 Since the project-partner utilises the granted funds self-reliantly, it is necessary to main
tain proper books of account and reporting procedures etc.. The project-partner is required to
keep proper books of account of all receipts and payments of the project or programme in
national currency by following the general principles of book-keeping.
4.37 The books of account should always be maintained in an up-to-date manner.
4.38 The books of account of the project and the corresponding vouchers and other documents
should be kept by the project-partner for 5 years after the funding agency has approved the last
financial statement.
4.39 The following books of account, or equivalent records should normally be kept by the
project-partner:
4.40 Cash Book: It may be recalled that one of the fundamental rules of double entry book
keeping is that all entries must originate from a book oforiginal entry and be posted therefrom to
the ledger. Cash Book is one of the books of original entry. The Cash Book is used for recording
transactions involving the cash/bank receipts and payments in a chronological order. The debit
side (left hand) is used for recording receipts and the credit side (right hand) is for recording
payments.
4.41 The receipt and payment sides normally have cash and bank columns to record cash and
bank transactions. If more than one bank accounts are held by the organisation, either the bank
columns are extended or a separate bank account is opened in the ledger. It may, however, be
kept in mind that bank account which has frequent transactins should be kept in cash book and
the bank account which does not have much transactions should be kept in the ledger.
4.42 The Cash Book should be maintained in the proforma given on page No. 55.
I he
Cash Book should be serially numbered with machine. The project incharge/competent
authority should further certify the page numbers contained in the Cash Book in the beginning
of the Book.
4.43 The Cash Book should be written daily by the Accounts Clerk from the duplicate copies of
receipt book, payment vouchers, cheque book counterfoils etc.. Cash Book should be closed
daily and the closing balance should tally with the actual balance ofcash in safe. Entries in the
Cash Book should also be verified by the project incharge/competent authority at periodical
30
intervals and a note on such verification should be recorded in the Cash Book.
4.44 Entries recorded on the receipt and payment sides of the Cash Book are posted into the
ledger, except “Contra Entries”. “Contra Entries” are adjustments made in the Cash Book
when cash is withdrawn from bank or deposited into the bank. It is denoted by ‘C’ in the Cash
Book.
4.45 Approval of Expenditure: The project-partner will ensure that expenditure is incurred and
payments made only with the approval of the authorised representative(s). This approval will
be evidenced in writing.
4.46 Record of Payments: Every payment made on behalf of the project will be supported by a
voucher indicating reference number, date, amount, description of payment, analysis within
schedule of budgeted costs and signature of the authorised representative(s) together with
relevant external supporting documents.
4.47 All payments whether by cash/cheques/drafts etc. should be “Passed for Payment’ by the
Project Incharge or by a person authorised by him in writing. All payments to outside parties
should preferably be made by cheques. Payments exceeding Rs. 2,500/- should be made by
“crossed cheques only”. In case of payment by cheques, it should be ensured that cheques are
signed by the persons authorised by the Executive Committee/Managing Committee of the
organisation. Before signing the cheques, it should be seen that the relevant details are also
entered in the counter-foils of the cheques. The counter-foils should also be initialled by the
person who has signed the cheques. If a cheque is cancelled, both the foils should be cancelled
and kept in the cheque book.
4.48 Record of Receipts: Receipt of funds from funding agencies should be acknowledged in the
prescribed form, a copy of which will be retained by the project-partner. For all other receipts in
money or money’s worth including cheques/drafts etc., a receipt should be issued. The receipt
book should be kept in the proforma given on page No. 56.
The receipt books should be
printed, serially pre-numbered with machine and prepared in duplicate. The original
perforated receipt should either be handed over to the person from whom the cash/cheque/draft
is received or sent by post. The duplicate copy of receipt should be used as a supporting
document for recording entries in the Cash Book. It should be ensured that receipts are either
signed by the Project Incharge or by a person authorised by him in writing.
4.49 All cheques/drafts/money orders received during a particular day should be entered in
cheques/drafts receipt register and deposited into the bank either on the same day or the next
working day.
4.50 A proforma of cheques/drafts receipt register is given on page No. 57.
Cash receipts
should be entered in the Cash Book on the same day of its receipt whereas cheques/drafts
received should be entered in the Cash Book on the date of deposit into the bank.
4.51 The Project Incharge should also carry out a surprise physical verification of cash at
periodical intervals and a note on such verification should be recorded in Cash Book.
4.52 Petty Cash Book: The Petty Cash Book should be maintained by an organisation where
there are a large number of petty cash transactions of a repetitive nature. In such cases, a Petty
Cash Book in an analytical and columnar fashion is maintained so as not to burden the Cash
31
Book with small and petty cash transactions. A proforma of Petty Cash Book is given on page
No. 58.
4.53 The Petty Cash Book should be serially numbered with machine. The Project Incharge/
Competent Authority should certify the page numbers contained in the Petty Cash Book in the
beginning of the Book. The Petty Cash Book should be written daily by the Accounts Clerk on
the basis of cash payment vouchers.
4.54 Normally, Petty Cash Book is maintained on an “imprest basis” wherein an imprest say
Rs. 500/- is given to the petty cashier for incurring petty expenses on behalf of the organisation.
At regular intervals, the petty cashier submits an account of the expenses incurred alongwith
the supporting documents to the competent authority for verification and sanction for the
reimbursement of the expenses incurred so as to keep the imprest balance at Rs. 500/-.
4.55 The entries recorded in the Petty Cash Book can be taken into the ledger by either of the
following methods:
(a) A petty cash imprest account may be debited with the amounts paid to the petty cashier
in the Cash Book. The total of the petty cash expenses for the month should be debited to
the respective account heads by credit to the petty cash imprest account in the general
ledger by passing a journal entry in the Journal Book. The balance in the petty cash
imprest account in the general ledger would represent petty cash balance in hand.
(b) Alternatively, the payments made from the Cash Book may be shown as receipts in the
Petty Cash Book. At the end of the month, the totals of the various expenditure account
heads shall be posted to the respective account heads maintained in the general ledger.
The difference between the receipt and payments in the petty cash book is treated as
petty cash balance in hand.
4.56 Journal: The journal is one of the books of original entry and each transaction is recorded
therein on the principle of “Double Entry System”. This Book is used for recording all non-cash
transactions, such as transfers between accounts, non-cash contributions, debit notes from
funding agencies, exchange rate ad justments, accruals. Hence Journal Book is generally used
for:
(a) Opening Entries
(b) Closing Entries
(c) Rectification/Correction Entries
(d) Transfer Entries
(e) Adjustment Entries
(0 Non-cash Contributions
(g) Debit Notes received from funding agencies
(h) Exchange Rate Ad justments
(i) Accrual/pre-paid Expenses: and
(i) Transactions of a Special Nature.
4.57 The opening entries are passed to carry over the balances from the previous year accounts
to the current year; the closing entries are passed to close the accounts at the end of the year;
rectification/correction entries are passed to rectify mistakes committed in the books of account
detected at a later stage; transfer entries are passed to transfer amounts from one account head
to another; adjustment entries are passed to effect proper classification and adjustment of
different heads of accounts.
3?.
4.58 It should be borne in mind that every transaction is capable of entry in the journal, but in
order to economise labour, other books like cash book Petty Cash Book etc. are almost
invariablv used in place of the Journal.
4.59 The rule to be employed in writing up the Journal is to enter in the debit column thereof
the amount which is to be entered on the debit side of the ledger, and in the credit column, the
amount which is to be entered on the credit side of the ledger. The title of the appropriate
account (Account head) will be entered against each item. Further, the amount in the debit
column must equal that in the credit column either in items or in aggregate ofdebits and credits.
4.60 At the foot of each entry, a note called the “narration” is appended, showing the nature
and where necessary, the authority for passing the entry. A proforma of Journal Book is given on
page No. 59.
Illustration
■ Year. Month & Date
28.3.19xx
Voucher No.
101
Particulars
Travelling Expenses Account....Debit
To Contribution from Funding Agency
(Debit Notes)
L.F.
Debit
Amount
Rs.
Credit
Amount
Rs.
XX
XX
(Being Debit Note No. 1 dt.
20.3.xx received from funding
agency on account of travelling
expenses ofShri
for visit to Bonn now
accounted for)
30.3.19xx
31.3.19xx
31.3.19xx
31.3.19xx
31.3.19xx
31.3.19xx
102
103
104
105
106
107
Wages Account
Debit
To contribution by project-partner
(non-cash)
(Being “Shramdan” given by community
workers in construction of lift irrigation
project)
XX
Depreciation Account Debit
To Furniture & Fixtures Account
(Being depreciation on Furniture &
Fixtures provided at the rateof.....% p.a.)
XX
Rent Account
Debit
To Rent outstanding...
(Being rent outstanding for 31st March.
19xx provided in the accounts)
XX
Prepaid Expenses Account.
Debit
To Insurance Account
(Being prepaid insurance carried forward
to next year)
XX
Furniture & Fixtures Account
Debit
To Repairs & Maintenance Account
(Being wrong booking of purchase of
furniture to Repairs & Maintenance
Account now rectified)
XX
income and*Expenditure Account....Debit
To Salaries
To Rent Rates & Taxes
XX
33
XX
XX
XX
XX
XX
xx
XX
To Postage & Telegrams
To Printing & Stationery
(Being balances of revenue account
transferred to Income & Expenditure
Account)
4.61 The entries from the “Journal Book” are posted into ledger under the relevant “Account
Heads” and the folio numbers of the ledger where the postings have been made are indicated
against each “Account Head” in the column “L.F.” (ledger folio) number of the Journal Book.
4.62 Ledger: The ledger is one of the most important books of account and is the destination of
the entries made in the books of original entries. Ledger analyses receipt (Income) and payment
(Expenditure) in approved categories as per schedule of budgeted costs/income and maintains
a complete record of all account balances. The ledger is written/posted from the books of
original entry i.e. Cash Book. Petty Cash Book, Journal etc.. A proforma of ledger is given on
page No. 60.
Entries are initially made in the books of original entry i.e. Cash Book. Petty
Cash Book. Journal, etc. and subsequently these entries are entered under the respective heads
of account in the ledger to complete the system of double entry. The ledger is essentially a
collection of the three types of accounts already enumerated—Real. Personal and Nominal.
4.63 The ledger is indexed alphabetically in order to locate a particular account head easily for
posting/writing purposes. Subsidiary ledgers may be kept separately i.e. for Sundry Debtors.
Sundry Creditors etc. if the magnitude of transactions so warrants. The account heads are
arranged according to the approved cost plans of the project/programme.
4.64 Postings from the books of original entry are made either to the “Debit” or “Credit”
column in the ledger depending on whether entries are debit/credit. After posting entries from
the books of original entry to the ledger, the balancing of each account head in the ledger is
made at periodical intervals.
4.65 Balances at anv specified time shall reflect the position of an account as on the date of the
balancing. Balancing is a process of recording the difference on the side which is short to equal
both the debit and credit sides.
4.66 The balance of the account is called a “Debit Balance” when the total of the debit items is
in excess of the credit items and a “Credit Balance” in vice-versa cases.
4.67 The debit balance would be the resultant figure in accounts representing assets, receiv
ables. expenditure, prepaid expenses, advance payment etc..
4.68 A credit balance would be the resultant figure in accounts representing grant-in-Aid
received, capital funds, liabilities, income, outstanding liabilities, income received in advance
etc..
4.69 At the end of the accounting period, every account should be balanced and listed under
‘Debit’ and ‘Credit’ columns.
Subsidiary Records/Registers for Control Purposes
4.70 The project-partner should maintain subsidiary- records/registers for control purposes
34
such as pay-roll records, stock records, inventory of assets etc.. A brief description of such
records/registers is given below:
(a)
Pay Roll Records
4.71 Attendance Register: An attendance register is maintained to record attendance of the staff
working for the Project. A proforma of the attendance register is given on page No. 61.
The
attendance register should be signed by the project-in-charge at the end of rhe month in order to
confirm that entries marked therein are correct.
4.72 Salary and PVages Register: The Salary and Wages Register is maintained for disbursemnent
of salary to the staff. A proforma of salary and wages register is given on page No.-62.
It
could be seen from the proforma that the register is prepared on monthly basis showing name of
the employees, their designation, rate of salary/wages per month/per day, number of days
present, break-up of total emoluments, deductions from salary, net amount payable,
acknowledgement.
4.73 Before disbursement of salary/wages. the net amount payable should be passed for
payment by the competent authority. If the payment exceeds Rs. 20/- to an individual,
acknowledgement on a revenue stamp should be obtained.
4.74 Muster Roll Payments: In addition to regular employees, the project may require additional
hands for emergent and/or extra jobs for short periods. Requisition for the employment of
muster roll staff should be put up to the project-in-charge giving the category of workmen
required, rate of wages per day. number of days for which they are required and the nature of
work. When such requisition is sanctioned by the competent authority, a muster roll form
(given on page No. 63)
should be used. The muster roll form should be filled in on daily
basis. On completion of the job and the period for which the muster roll is sanctioned, the same
after obtaining the approval of the project-in-charge should be sent to the cashier for making
payment to the workers.
4.75 T he cashier/accounts clerk should prepare cash payment voucher and debit ‘Salaries and
Wages’ account (code No. 701) or ‘Wages-Daily rated staff (code No. 702) account and credit
cash account and/or Bank Account depending upon whether the payment has been made in
cash or by cheque or partly in cash and partly by cheque.
(b)
Stock Records
4.76 Agriculture Inputs Stock Register: Stock register for agriculture inputs (like fertilizers, seeds,
insecticides etc.) should be maintained in the proforma given on page No. 64
to keep
control over their receipt, consumption and balance stock. Receipts shall be recorded on the
basis of quantity, rate and amount as recorded in cash memos/invoices obtained against their
purchases. Issues/consumption shall be recorded on the basis of requisition slips indicating the
project/programme/purpose for which stock items are needed. The requisition slips should be
duly approved by the project-in-charge and acknowledged by the field supervisor.
4.77 General Stores and Stationery Stock Registers-. Separate Stock Registers for genera) stores and
stationery stock items should be maintained in the proforma given on page No. 65
4.78 At the time of purchase, stores account/printing and stationery account should be debited
35
and cash/bank account credited depending upon whether the payment has been made in cash
or by cheque. In case, items have been purchased on credit, supplier’s account shall be credited
instead of cash/bank account.
4.79 At the end of the accounting year, physical verification of stock items in hand should be
undertaken and tallied with the balances of various items shown in General Stores and
Stationery Stock Registers. Discrepancies, if any, should be enquired into and approval of the
competent authority obtained for adjustments thereof. The value of general stores and station
ery items remaining in stock at the close of the accounting year should be taken into account by
debit to “General Stores Stock” and “Stationery Stock” Account and credit to stores account
and printing and stationery account.
4.80 Agriculture Produce Stock Register: Stock register for agriculture produce like Milk. Paddy,
Jute, Vegetables, Maize, Pulses etc. should be maintained in proformas given on page
Nos. 66 and 67 to keep proper control over their production, issue for self-consumption, sale and
balance stock.
(c)
Inventory of Assets
4.81 .Fixed Assets Register: The Fixed Assets Register is maintained to record fixed assets and
other properties owned by the project. A proforma of Fixed Assets Register is given on page
Nos. 68 and 69 This register has front side as well as back side. This register on front side
records details of the acquisition of capital items (such as land, building, plant & machinery,
vehicles, equipments, furniture and fixtures, electrical fittings etc.) showing the voucher
number and date, date of purchase, name of the item, specifications, quantity, amount,
location, legal ownership. On back side, details of original cost, depreciation and written down
value are recorded.
4.82 All fixea assets should be given identification reference numbers.
4.83 A complete inventory of all the fixed assets at all the locations should be taken once in a
year in order to reconcile the physical quantities with those recorded in the assets register.
Discrepancies, if any, should be brought to the notice of the prqjec^-in-charge. After obtaining
the approval of the competent authority, the discrepancies should be adjusted in the Fixed
Assets Register as well as in the financial records.
4.84 Investment Register: An investment register is maintained to record full particulars of
investments made by the project in outside securities. The investment register gives details of:
— Name of Investment
— Nature of Investment
— Date oflnvestment
— Face Value of Investment
— Purchase Value oflnvestment
— Matured Value oflnvestment
— Maturity Date
— Rate of Interest
— Interest Due Dates.
4.85 It should be ensured by the project-in-charge that timely action is taken for investment of
idle funds, collection of interest on due dates and realisation of sale proceeds of the investment
on maturity. The project-incharge should further ensure that the provisions of Section 11 (5) of
36
the Income Tax Act, 1961 regarding investment or deposit of unspent funds are complied with.
(d)
Records as per National Regulations
4.86 Foreign Contribution (Articles) Register: This register is maintained to record foreign conmoutions received in the form of any article other than gift for personal use whose market value
in India is less than Rs. 1,000/-. A proforma of foreign contribution (Articles) Register is given
on page No. 70.
4.87 This register gives details of the receipt and utilisation/disposal of articles in terms of both
quantity and value.
4.88 This register facilitates the submission of return to the Government of India in form FC-6
of Foreign Contribution (Regulation) Rules, 1976.
4.89 Foreign Contribution (Securities) Register: The Foreign Contribution (Securities) Register is
maintained to record foreign contributions received in the form of securities such as shares,
debenture stocks, debentures, stocks, bonds. Government securities, certificates, units and
other instruments of credit. A proforma of Foreign Contribution (Securities) Register is given
on page No. 71.
4.90 This register gives details of securities received/sold as well as dividend/interest received
thereon.
4.91 This register facilitates submission of return to the Government of India in Form FC-7 of
Foreign Contribution (Regulation) Rules. 1976.
(e)
Miscellaneous
4.92 Advances: Advance payments may be made to authorised persons for making purchases/
meeting expenses for and on behalf of the project. Similarly, advances to staff (like salary
advance, festival advance, travelling advance, contingency advance etc.) may also be made by
the project incharge. It should, however, be ensured that such advance payments are made with
the specific approval of the Project Incharge/Competent Authority within the norms de
termined by the Managing Committee.
4.93 Separate ledger accounts in the General Ledger should be maintained for various category
of advances. Where there are a large number of transactions, the Project Incharge should
maintain a separate personal advances ledger and open a control account for each category of
advances in the General Ledger. Every time an advance is made, it should be charged to the
respective advance account head in the General Ledger, the credit being to the cash/bank
account maintained in the Cash Book.
4.94 It shall be ensured by the project incharge that advances are adjusted in the books of
account within a specified time limit. For example, advance payments made for making
purchases/meeting expenses for and on behalf of the project should be adjusted within one week
from the date of advance. Advance against travelling expenses should be adjusted within one
week from the date of completion of the journey. Similarly advance against salary should be
adjusted from the salary due for the month and festival advance should be recovered in a
specified number of instalments.
37
4.95 When the recoveries are made or the accounts are rendered, the cash account/bank
account or the relevant expense accounts shall be debited and the advance account shall be
credited.
4.96 Where an advance made is lesser than the expenses incurred, the accounting entry shall
be:
Expenses Account
(To specify)
To Advance Account
To Cash Account
or
To Bank Account
.Debit
....(to the extent of advance made)
(if balance reimbursed in cash)
(if balance reimbursed by cheque).
4.97 Where an advance made is more than the expenses incurred, then the entry shall be:
Expenses Account
(To specify)
Cash Account
Debit (to the extent of expenses incurred)
Debit (if excess advance is refunded in cash)
or
Bank Account
Debit (if excess advance is refunded by cheque)
To Advance Account
4.98 Inward Dak Register: An Inward Dak Register is maintained to record serially and
chronologicallv all incoming mail/correspondence showing particulars of date of receipt,
sender’s name, address, reference to brief nature of correspondence etc..
4.99 Despatch Register: A Despatch Register is maintained wherein particulars of all outgoing
mail/correspondence (i.e. date of despatch, name and address to whom letter has been sent,
postage incurred) are recorded. Provision should be made in the register to indicate the amount
taken as imprest for postage and also the periodical reimbursements. I his register should also
be checked by some responsible person in order to ensure its correctness.
4.100 Telephone and Trunk Call Bills Register: A telephone and Trunk Call Bills Register is
maintained in the proforma given on page No. 72
in which all the telephone and trunk call
bills are entered so as to avoid double payment of any bill. A trunk call register is also
maintained to show particulars of trunk calls made i.e. date of call, nature—private/official,
party called, duration of the call, urgent/ordinary. Trunk call bills received are verified with
reference to entries made in the ‘Trunk Call Register’ before they are sent to the cashier for
making payment. Private call charges should be recovered from the staff members either from
their salary bills or in cash and credited to ‘Miscellaneous Income Account’.
4.101 Vehicle Log Book: For use of office vehicles, a log book is maintained. A separate log book is
kept for each vehicle. Normally, log book has the following columns:
— Year, month and date
— Time (from
to
— Name and designation of the user
— Places visited
— Purpose of Journey (Private/Official)
38
— Meter reading (start, finish)
— Kms. covered
— Signature of the user.
4.102 All the log books should be verified by the project-in-charge once a month for ensuring
that all the required particulars have been filled in the log books. Further, the project-in-charge
should verify the monthly bills of petrol/diesel consumption with the credit slips/cash memos
duly signed by the competent authoritv.
4.103 Whenever office vehicles are used by the staff for personal use. recoveries for the same
should be made at the approved rates, either from their salary bills or in cash and credited to
“Miscellaneous Income Account”
4.104 A “Vehicle History Card” in the proforma given on page No. 73 .is kept for each
vehicle in order to review their cost of maintenance. Further, standard mileage per litre (fixed
after taking into account the working condition of vehicle) should be computed for each vehicle
and compared with actual monthly average per litre and reasons for any major variatons should
be enquired into by the project-in-charge.
Depreciation
4. 105 Depreciation is the permanent and continuing diminution in the quality or value of an
asset. This may arise due to wear and tear, efflux of time, obsolescence, fall in market prices and
physical factors.
4.106 The provision for depreciation does not depend upon what the organisation can afford as
the debit therefor is an essential one. constituting not an appropriation of but a charge against
profits/surplus for the period in question. Hence while determining the surplus of income over
expenditure, depreciaton should be charged as an expenditure to ascertain a true and fair
surplus.
4.107 The distinction between depreciation and maintenance is important. A machinery may
be kept in a high state of efficiency by constant overhauling and prompt replacement of parts,
but the expenditure on upkeep and preservation can never be a substitute for making provision
for the time when the machine is merely a bundle of scrap iron ready to be sold to the
scrap-metal broker.
4.108 \\ hatever method is adopted, the following principles are fundamental:
(a) Assets with certain exceptions such as land suffer depreciation.
(b) The provision for depreciation is a charge
<
against surplus.
(c) Maintenance of an asset in a state of efficiency i:is not a substitute for the depreciation
provision.
(d) The question of the replacement of an asset is incidental to but not a fundamental
question of depreciation.
4.109 The basis and quantum of charging depreciation depends on the nature of the asset,
original cost, estimated useful life and residual scrap value at the end of the working life.
4.110 Depreciation is normally charged either on straight line method or written down value
39
method. Under straight line method, the original cost less the residual value at the end of the life
of the asset is divided by the number of years of useful life and apportioned equally among the
years. Underwritten down method, a fixed percentage is written off on the diminishing balance
of the asset annually.
4.111 Normallv depreciation is charged on all the assets including those purchased during the
year for full year. Similarly, depreciation should not be charged on assets sold/discarded/
written off during the year.
4.112 The Income Tax Rules, 1962. has prescribed the following rates of depreciation on
written down value method:
(a) Buildings
(b) Purely Temporary Structures such as wooden structures
(c) Plant and Machinery
(d) Furniture and Fittings
(e) Accounting machines, airconditioners, calculating machines, typewriters
& other office equipments
(f) Cycles. Motor cars. Motor Cycles, Scooters. Mopeds and Audio visual
equipment
(g) Motor buses, motor lorries. Motor tractors, harvesting combines
5%
100%
15%
10%
15%
20%
30%
4.113 Where the actual cost of any machinery or plant does not exceed Rs. 5.000/-, the actual
cost thereof shall be allowed as a deduction in the year of purchase. However, quantitative
records in respect of such assets should be kept for control purposes.
4.114 Normally in case of trusts/societies/associations/voluntary agencies, no depreciation is
provided in the books of account on fixed assets acquired out of grants/funds provided by the
State Govt./Central Govt./Funding Agencies.
Trial Balance
4.115 As explained earlier, in the double entry system, every debit has its corresponding credit and
vice versa. It follows therefore that at any given time, the postings from the Cash Book, Petty Cash
Book. Journal being completed, the debit balances standing under various account heads in the
ledger (including cash/bank balances in the Cash Book/Petty Cash Book) will equal credit balances
standing in the ledger.
4.116 At the end of the month/quarter/half year/accounting period, these balances are ex
tracted and a schedule prepared to test whether in fact the total debits equal the total credits. Such a
schedule of balances is called a “Trial Balance”
4.117 With the totals duly agreeing, a reasonable and reliable check on the total arithmetical
accuracy of the book-keeping entries is afforded; otherwise it is obvious that some error exists in
the actual execution of the double entry or in the extraction of the balances.
Bank Reconciliation
4.118 As we know, when there are lar^e number of transactions with the bank, it very rarely
happens in practice that the bank balance as shown in the books of account agrees with the
40
balance as shown by the bank pass book dr statement of account. The factors which contribute
to the difference between bank balances and book balances are as under:
4.119 Unpresented Cheques: These are cheques which have been issued to parties in settlement of
their accounts, but have not been presented to the bank for payment upto a particular date.
These represent cheques entered on the credit side of the Cash Book for which corresponding
debit has not been made by the bank since these cheques have not been presented by the
concerned parties for payment. Hence, the bank pass book will show a balance more in the
customer s (organisation) favour than that shown by the Cash Book to the extent of such
unpresented cheques.
4.120 Uncredited Cheques: When cheques/drafts are deposited, the bank account is debited in
Cash Book. But the credit is given by the bank only after the credit of the relevant cheque/draft
is received from the clearing house. In other words, these represent cheques deposited by the
organisation into the bank account but not credited by bank to the account of the organisation.
4.121 In such circumstances, the Cash Book will show a balance more in the organisation’s
favour than the pass book.
4.122 Errors and Omissions. An error on the part of either the banker or the organisation will
create a discrepancy between the balances as per Cash Book and bank statement. Further, the
bank might have credited interest or debited incidental charge at half-yearly intervals for which
necessary entries are yet to be passed in Cash Book. Similarly, bank might have collected
certain dividend/interest warrants for which necessary entries are to be passed in Cash Book.
4.123 Bank Reconciliation Statement: Subject to the above considerations, the balances shown by
the Cash Book and bank pass book/bank statement should agree. It is usual to draw up a
statement which effects the adjustments necessitated by the unpresented and uncredited
cheques. This statement is known as a Bank Reconciliation Statement and is drawn up in the
proforma given on page No. 74.
The reconciliation statement should be drawn up by the
accounts department on the following lines:
(a)
The first step is the date on which the statement is to be drawn up. This should be stated
in a clear manner.
(b) The balance as per bank pass book/bank statement at the close of the aforesaid date
should be extracted and taken as a starting point.
(c) The payment side of the Cash Book representing cheques issued in favour of outside
parties/self cheques for cash withdrawal for office use are checked with the ‘withdrawals’
column of the bank pass book/statement and “unticked” items are noted down sepa
rately and their total is deducted from the bank pass book/statement balance.
(d) The receipt side of the Cash Book representing cheques/drafts deposited into bank
account should be tallied with the “deposit column” of the bank pass book/statement
and “unticked” items are noted down separately and their total is added to the bank pass
book/statement balance.
(e) A review of any other “un ticked items” in the Cash Book—both receipts and payment
side as well as in the bank pass book/statement should be made and after ascertaining
their nature, additions to/deductions from bank pass book/statement balance will be
made to obtain the final balance which should be in agreement with the balance as per
Cash Book.
4.124 The preparation of bank reconciliation statement at periodical intervals helps the
41
3
— Income
— Expenses:
— Programme activities
— Administrative expenses for programme coordination
4 to 7
4.141 The further break-up of the code numbers is as under:
Code Numbers
Funds and Liabilities
— Funds
— Other earmarked funds
— Grants
— Loans
— Current Liabilities
Assets
— Fixed Assets
— Investments
— Cash and Bank Balances
— Loans and Advances
— Other Current Assets
— Losses and Expenditure (to be carried over)
Income
— Membership Fee
— Contribution by Funding Agencies
— Contribution by Project-Partner in cash
— Contribution by Project-Partner in non-cash Inputs
— Interest on Investments
— Miscellaneous Income
Expenditure
— Programme activities
— Administrative Expenses for Programme co-ordination
— Reserves
1
100 to 119
120 to 139
140 to 159
160 to 179
180 to 199
2
200 to 229
230 to 239
240 to 259
260 to 279
280 to 289
290 to 299
3
300 to 309
310 to 329
330 to 349
350 to 369
370 to 389
390 to 399
4 to 7
401 to 699
700 to 749
750 to 799
4.142 The nomenclature of the account heads in the chart of accounts are sen-explanatory;
however.'where additional explanations have been considered necessary, they have been given
in the “Notes on Chart of Accounts.”
Notes on Chart of Accounts
Liabilities
4.143 Funds (Code Nos. 100 to 119): Funds have been classified into major categories like capital
fund, corpus fund, general fund and separate code numbers have been allotted to them.
4.144 Capital fund will accommodate donations of capital assets to the project by the donor.
The accounting entry will be debit to respective Capital Asset Account (Code Nos. 200 to 229)
and credit to capital fund account (Code No. 101).
4.145 Donations received specifically for corpus of the society/institution shall be credited to
corpus fund (Code No. 102).
4.146 Surplus/deficit as shown by the Income and Expenditure Account of the Society/institu
tion for the accounting year shall be credited/debited to General Fund Account (Code No. 103).
44
Similarly. Life Membership Fee received from members shall be credited to general fund (Code
No. 103) by transfer from Code No. 303.
4.147 Other Earmarked Funds (Code Nos. 120 to 139): These funds can be classified in major
categories such as Revolving Fund (Funding Agencies); Revolving Fund (Project-Partner);
Spare Parts Fund; Discretionary Fund etc.. Separate codes have been allotted for each fund.
4.148 Revolving Funds: Revolving fund received from the funding agencies shall be credited to
Code Nos. 121 to 125 (separate code should be used for each funding agency). To the extent
these funds have been utilised by the project-partner in accordance with the letter of approval,
the same shall be credited to Revolving Fund—Project-Partner Account (Code Nos. 126 to
130) by debit to Code Nos. 121 to 125 which will represent unutilised amount of Revolving Fund
of the respective funding agencies. The amount shown in Revolving Fund—Project-partner
Account (Code Nos. 126 to 130) will be represented by loans granted from Revolving Fund
(Code No. 263). Interest earned on balances of revolving fund kept in saving account shall be
credited to Code Nos. 126 to 130 instead of being taken as income in Income & Expenditure
Account. Repayments received out of the loans granted from Revolving Fund and deposited in
earmarked bank account shall be credited to respective Code Nos. 244 to 247 or 248 to 251 as the
case may be.
4.149 Grants (Code Nos. 140 to 159): Grants received from various funding agencies shall initially
be credited to Grants Account (Code Nos. 140 to 159). To the extent Grants have been utilised
for the purposes for which they were sanctioned, the same shall be transferred to contribution
from Funding Agencies Account (Code Nos. 310 to 329) in the Income and Expenditure Account.
The balance in grant accounts will represent unutilised balances of respective grants.
Assets
4.150 Fixed Assets (Code Nos. 200 to 229): Fixed Assets have been classified into major categories
and separate code numbers have been allotted to each of them.
4.151 Investments (Code Nos. 230 to 239): Investments have been classified into two major
categories viz. “Investment of earmarked funds” (Code Nos. 231 to 234) and “Investment of
non-earmarked funds” (Code Nos. 235 to 239). Similarly, interest earned on such investments
has accordingly been shown separately in Income and Expenditure Account (Code Nos. 371 to
374 and 375 to 379 respectively).
4.152 Cash and Bank Balances (Code Nos. 240 to 259): Bank Balances have been classified into two
major categories and separate code numbers have been allotted to them in order to meet the
requirement of funding agencies and Foreign Contributions (Regulation) Act to keep funds in
separate bank accounts. The details are as under:
(a) Balances in current accounts:
— Earmarked funds (Code Nos. 244 to 247)
— Non-earmarked funds (Code Nos. 252 to 255)
(b) Balances in Saving Accounts:
— Earmarked funds (Code Nos. 248 to 251)
— Non-earmarked funds (Code Nos. 256 to 259)
45
4.153 Loans and Advances (Code Nos. 260 to 279): Interest accrued on investments has been
classified separately for earmarked funds (Code No. 261) and non-earmarked funds {Code No.
262).
4.154 Other Current Assets (Code Nos. 280 to 289): Stock of various items such as paper &
stationery, building materials, spares, agricultural inputs at the end of the accounting year of
the society/institution shall be debited to respective Code Nos. 281 to 284 (Assets) by credit to
respective expend!ture/programme codes in the Income and Expenditure Account. Stocks of
Agricultural Produce at the year end shall be credited to Code No. 399 (Income) and debited to
Code No. 285 (Asset).
4.155 Losses and Expenditure to be Carried Over (Code Nos. 290 to 299): Deficit as per Income and
Expenditure Account shall be debited to Excess of Expenditure Over Income Account (Code
No. 291) when there is no balance in General Fund. This deficit will be adjusted against surplus
earned in the subsequent years.
Income
4.156 Contribution by Project-partners (Code Nos. 330 to 369): Contribution by Project-partners in
casn shall be credited to Code Nos. 330 to 349 and contribution received in non-cash inputs
shall be credited to Code Nos. 350 to 369.
4.157 Miscellaneous Income (Code Nos. 390 to 399): This account head has been sub-classified into
sale of dairy/poultry/piggery/agricultural produce for which separate sub-codes have been
provided. Similarly, sale of spare-parts, profit on sale of Assets and Gifts etc. shall be credited to
respective codes under the main account head of Miscellaneous Income.
Expenses
4.158 Expenses have been allotted Control Code Numbers 4 to 7. The expenses have been
classified into three major categories viz.:
(a) Programme activities
(b) Administrative Expenses for Programme Co-ordination
(c) Reserves
4.159 Separate codes have been provided for various programme activities undertaken by the
organisation in order to compile data needed for furnishing information as per Foreign Con
tribution (Regulation) Act and Rules, 1976. For example; Cattle Cross Breeding Programme;
Technical Education, Rural Development, Agricultural Activities; Animal Husbandry; Con
struction of Schools/Hostel/Colleges; Seminars and Conferences; Health Care and Family
Planning etc..
4.160 Sufficient code numbers have been left blank to accommodate further activities which
may be undertaken by the Project-partners.
46
Chart of Accounts
Code
Main Account
Head
Sub
Code
Account Head
1
Liabilities
101
Capital Fund
100 to 119
Funds
102
103
Corpus Fund
General Fund
120 to 139
Other Earmarked
Funds
121
to
125
126
to
130
131
139
Revolving Fund
(Funding Agencies)
141
142
143
144
145
146
147
149
161
162
Grants from EZE
Grant from OXFAM
Grant from Indo German Social Service Society
Grant from Bread for the World
Grant from Lutheran World Federation
Grant from Christian Aid
Grant from ICCO
Grant from Hiefer Project International
Loans from Bank
Loans from Other Institutions
181
182
183
184
185
186
187
188
189
Salaries and Wages Payable
Outstanding Expenses
Sundry Creditors for purchase of Revenue items
Sundry Creditors for purchase of Capital items
Staff Income Tax deduction at source payable
Professional Tax Payable
Provident Fund Payable
Security Deposit
Earnest Money Deposit
201
202
203
204
205
206
207
208
209
210
211
212
213
214
215
216
Leasehold Land
Freehold Land
Demonstration Farms
Project Office Building
Project Workshop Building
Health Care Building
Community Centres Building
Godowns
Staff Quarters
Other Buildings (to specify)
Piggery, Poultry and Dairy Sheds
Tents and Tarpaulins
Plant and Machinery
Electrical Installations
Agricultural Training Equipments
Agro-Eq uipments
Control
140
to
159
Grants
160
to
179
Loans
180
to
199
Current
Liabilities
2
Assets
200 to 229
Fixed Assets
Revolving Fund
(Project-partner)
Spare-parts Fund
Discretionary Fund
47
Control
Code
Main Account
Head
Sub
Code
217
218
219
220
221
222
223
224
225
226
227 to 228
229
230
Account Head
Loose Tools and Tackles
Workshop Equipments
Laboratory Equipments
Medical Equipments
Audio Visual Equipments
Furniture and Fixtures
Air Conditioners, Refrigerators and Fans
Typewriters and Office Equipments
Vehicles
Automotive Equipments
Others (to specify)
Capital Work in Progress
Investments
to
239
231
232
23?
234
235
236
237
239
240 to 259
Investment of
Earmarked Funds
Investment of
Earmarked Funds
Investment of
Earmarked Funds
Investment of
Earmarked Funds
Investment of Non
earmarked Funds
Investment of non
earmarked Funds
Investment of non
earmarked Funds
Investment of nonEarmarked Funds
Cash and Bank
Balances
— Fixed Deposits with Banks
— Fixed Deposits with Post Office
— Fixed Deposits with Public Sector Undertakings
— Fixed Deposits with others (to specify)
— Fixed Deposits'with Banks
—Fixed Deposits with Post Offices
—Fixed Deposits with Public Sector Undertakings
—Fixed Deposits with others (to specify)
241
Cash in hand
Stamps in Hand/Franking
Machine Imprest
Cheques/Drafts in hand
Balance in Current Accounts
(earmarked funds) with
Banks (to specify)
Balance in Saving Accounts
(Earmarked Funds) with
Banks (to specify)
Balance in Current Accounts
(non-earmarked funds) with
Banks (to specify)
Balances in Saving Accounts
(non-earmarked funds) with
Banks (to specify)
Interest accrued on
Investments (earmarked funds)
Interest accrued on Investments
(non-earmarked funds)
Loans granted from Revolving Fund
Advances to staff
242
243
244
to
260 to 279
Loans and
Advances
247
248
to
251
252
to
255
256
to
259
261
262
263
264
48
Control
Code
Main Account
Head
Sub
Code
Account Head
265
Loans to staff
266
267
Advance against Programmes/Projects
Advance to Suppliers for Purchases of
Revenue items
Advance to suppliers for purchase of
Capital Assets
Advance to Contractors
Deposit with Electricity Board
Deposit with Municipal Corporation/
Local Authority
Deposit with Petrol Pump/Service Station
Deposit for Gas Cylinders
Rent Deposit
Deposit under O.Y.T. Scheme
Prepaid Expenses
Others (to specify)
268
269
270
271
280
to
289
Other Current
Assets
290
to
299
Losses and Expenditure
(to be Carried over)
3
300
to
309
310
to
329
272
273
274
275
276
277 to
279
281
282
283
284
285
291
Paper and Stationery Stock
Stock of Building Materials
Stock of General Stores
Stock of Agricultural Inputs (to specify)
Stock of Agricultural Produce (to specify)
Excess of Expenditure Over Income
292
293
Preliminary Expenses
Advance Expenditure on Programmes/projects
301
302
303
311
312
313
Associate Membership Fee
Corporate Membership Fee
Life Membership Fee
Income
Membership Fee
Contribution from
Funding Agencies
314
315
316
317
319
Contribution from EZE
Contribution from OXFAM
Contribution from Indo-German
Social Service Society
Contribution from Bread for the World
Contribution from Lutheran World Federation
Contribution from Christian Aid
Contribution from ICCO
Contribution from Heifer Project
International
330
to
349
Contribution by
Project-Partners
in cash
331
350
Contribution by
Project-Partners
in Non-cash Inputs
351
to
369
Contribution by Project-Partners
in non-cash Inputs (to specify)
Interest
371
Interest earned on Earmarked
Fund Investments
to
369
370
to
389
to
Contribution by Project-Partners
in cash (to specify)
349
to
374
375
to
379
49
Interest earned on Nou-earmarked
Fund Investments
Control
Code
Main Account
Head
Sub
Code
Account Head
to
Interest earned on Saving Balances
(Earmarked Funds)
384
385
to
388
391
392
393
394
395
396
397
399
Interest earned on Saving Balances
(Non-Earmarked Funds)
Sale of Dairy' Products
Sale of Poultry Products
Sale of Piggery Products
Sale of Agricultural Produce
Profit on Sale of Assets
Sale of spare-parts
Gifts
Stocks of Agricultural Produce (to specify)
381
390
to
399
Miscellaneous
Income
4 to 7
Expenses
400
to
699
400
to
429
Programme
Activities
400
to
409
Capital Costs (NonRecurring
Expenditure)
410
to
419
Programme Costs
(Recurring
Expenditure)
Cattle Cross
Breeding Programme
Land Development
Tractor with Accessories
Agricultural Implements
Diesel Engine for Pump Set
Construction of Sheds
Furniture and Fixtures
Other Expenses
(to specify)
401
402
403
404
405
406
407
to
409
411
412
413
414
Cost of Seeds/Fertilizers
Hire Charges of Tractor
Repairs and Maintenance of Tractor
Repairs and Maintenance of
Agricultural Implements
Other Expenses (to specify)
415
to
420
to
429
Office Costs
430
459
Geo-Hydrological
Investigation
Programme
430
to
439
Capital Costs
(Non-Recurring
Expenditure)
440
to
449
Programme Costs
(Recurring
Expenditure
to
419
421
to
429
Expenses (to specify)
Survey Equipments
Vehicles
Other Expenses
(to specify)
431
432
433
to
439
441
442
443
Travelling and Conveyance
Operating cost of vehicles
Repairs and Maintenance of Equipments
50
Control
Code
Main Account
Head
Sub
Code
444
445
446
to
449
1-50
to
459
460
to
479
Office Costs
Technical
Education
Expenses (to specify)
461
Artificial Insemination and
veterinary first aid
Dairy Husbandry and Management
Poultry Husbandry and Management
Swine Husbandry and Management
Goat Husbandry and Management
Water Management and Maintenance of
Agricultural Equipments
Expenses on other training
courses (to specify)
467
to
479
Construction works.
Irrigation and
drainage
Infrastructure
480
to
489
Capital Costs
(Non-Recurring
Expenditure)
500
to
529
Rural Development
530
to
559
560
to
589
Agricultural
Activities
Casual Labour and other purchased
services
Office LTpkeep
Other Expenses (to specify)
451
to
459
462
463
464
465
466
480
to
499
Account Head
481
482
483
484
to
489
501
to
529
531
to
559
Pump Sets
Equipments
Roads
Other Expenses (to specify)
Expenses (to specify)
Expenses (to specify)
Animal
Husbandary
Expenses (to specify)
590 to
619
Construction and
Maintenance of
Hostels
561
to
589
591
to
619
620 to
649
Construction and
Maintenance of
School/ Colleges
621
to
649
Expenses (to specify)
650 to
659
Seminars and
Conferences
651
to
659
Expenses (to specify)
Expenses (to specify)
51
M/j rN8
'TN'-'crO ns 6
Control
Code
Main Account
Head
Sub
Code
660
to
669
Stipend and
Scholarships
661
to
669
Expenses (to specify)
$70 to
689
Health Care and
Family Planning
Expenses (to specify)
690 to
699
Other Programmes/
Activities
(to specify)
671
to
689
691
to
699
700
to
749
Administrative
Expenses /for
Programme
Co-ordination)
701
702
Salary and Wages (Regular Staff)
Wages (Daily Rated Staff)
705
to
709
711
712
Other Allowances
(to specify)
Explenses (to specify)
Employer’s Contribution to P.F.
Employer’s Contribution to Gratuity
and Other Funds
Medical Expenses
Other staff amenities
713
714
to
719
720
721
722
723
724
725
726
727
728
729
730
731
750
to
759
Reserves
Account Head
(to specify)
Rent. Rates and Taxes
Water and Electricity Charges
Consumption of General Stores
Printing and Stationery
Communications
News Papers and Periodicals
Travelling and Conveyance
Repairs and Maintenance
Operating Cost of Vehicles
Office up-keep
Office tea and tiffin Expenses
Conference. Meetings and Seminar
Expenses
Legal Charges
Depreciation
732
740
741
to
749
751
752
753
Other expenses (to specify)
Audit Fee
Auditor’s Travelling Expenses
Fees paid to Auditors for other
Services
Bank Charges
Unforeseen Expenses
(to specify)
754
755
to
759
52
CASH/BANK PAYMENT VOUCHER
No.-
DateAmount
Rs.
Debit
(Head of Account)
Cash Account
Credit
Bank Account
(to specify)
(Prepared by)
(Approved by)
53
(Received by)
P.
JOURNAL VOUCHER
No.-
DateDebit
Amount
Rs.
P.
(Head of Account)
Credit
(Head of Account)
Prepared by
Approved by
54
Page No.CASH BOOK
RECEIPT SIDE
Date
VoucherNo.
AMOUNT
Ledger
Folio
Particulars
Total
Rs.
P.
Cash
Rs.
P.
Bank
Rs.
P.
Page No.-
CASH BOOK
PAYMENT SIDE
Date
Voucher
No.
AMOUNT
Ledger
Folio
Particulars
Total
Rs.
P.
55
Cash
Rs.
P.
Bank
Rs.
P.
RECEIPT
Serial No.-
Date^
Received with thanks from
a sum of Rupees------------
Dated
by cash/cheque/D.D./No.drawn on--------------------(Name of Bank)
on account of-
Rs.Received by
56
Approved by
CHEQUES/DRAFTS RECEIPT REGISTER
SI.
No.
Date of
Receipt
Cheque/
Draft No.
& Date
Particulars
57
Amount Date of
Rs.
P. Deposit
Date of
Credit by
Bank
Remarks
Page No.-
PETTY CASH BOOK
FOR THE MONTH-
Amount Received
Date
Date
Voucher
No.
TOTAL
Amount
Rs.
PETTY CASH PAYMENTS
(Classification Account Headwise)
Particulars
P.
Ledger Posting
Folio Number
Written by
Checked by
58
Page No.-
JOURNAI BOOK
Date
Voucher
Number
Particulars
59
Ledger
Folio
Debit
Amount
Rs.
P.
Credit
Amount
Rs.
P.
Page No.LEDGER
Account Code
Name of Account Head-
Date
Folio
Particulars
60
Debit
Amount
Credit
Amount
Rs.
Rs.
P.
P.
Balance
Amount
Dr./Cr.
Rs.
P.
Page No.ATTENDANCE REGISTER
MONTH
SI.
No.
Desig
Name
nation
Approved by
Attendance Details (Days)
Remarks
— of Project
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Incharge
Checked by
SALARIES AND WAGES REGISTER
For the Month of-
SI. Name of the
No. Employee
Desig
nation
No. of Rate
per
days
present month
GROSS EARNINGS
Basic
Pay
Other
Allowances
DEDUCTIONS
Total
Contri
bution
to PF
Others
CD
bO
Prepared by
Approved by
Net
Amount
payable
Acknow
ledge
ment
MUSTER ROLL FORM
Nature of
Work
SI.
No.
Duration of
Work
Name of Worker
Prepared by
Category Rate per
day
For the
period from:
Attendance Particulars
Total No. of Total
days
Amount
worked
Payable
Approved by
Acknow
ledge
ment
Page No.AGRICULTURE INPUTS STOCK REGISTER
Unit-
Name of ItemMonth
&
Date
Balance
Issue/Consnmption
Receipts
Particulars
Qty.
Rate
Amount
Rs.
P.
Month
&
Date
Name
of
Farmer
Crop
Plot
No.
Otv.
Rate
Amount
Rs.
P.
Otv.
Rate
Amount
Rs.
P.
/
/
GENERAL STORES STOCK REGISTER
STATIONERY STOCK REGISTER
Name of Item
Reeeipts
Date
Issues
Balanee
Particulars
Qty.
Unit
Cost
Amt.
Rs.
Qty.
P.
Unit
Cost
Amt.
Rs.
Qty.
P.
Unit
Cost
Amt.
Rs.
P.
J
65
AGRICULTURE PRODUCE STOCK REGISTER—MILK
SI.
No.
Date
Balance
Disposal of Milk
Milk
Produced
(in litres)
Sale of
Milk
Q'y.
O')
1
Value
Total
Self
Consumption
Qty.
Value
Qty-
Value
Qty-
Value
AGRICULTURE PRODUCE STOCK REGISTER—OTHER PRODUCTS
Name of ProduceMonth
&
Date
Particulars
Opening
Stock
Disposal
Sale
Qty-
CT)
Production
Value
Qty
Value
Qty-
Value
Self
consumption
Qty
Value
Closing
Balance
Total
Qty.
Value
Qty.
Value
y.
*
E
w
1
CkJ
&
Q-
— IE
J cI
o
•EC 'C§ c.
-Si u Z
•u
I
5
Q
15
PC
o
hM
o
w
(X
czj
a
OC
Q
PC
35
I C
1
L-
M
a:
c/:
<
Q
«
b
1
g
£
O'
u
JS
3
C3
Q-
O £
O £
d E
Q n3
Ci
t
<
<y.
fc
E
§ # □
>^ Z
E
£
Z
Q
68
Original Cost
As
At
Additions
during the year
Sale/
Transfers
during
the year
Depreciation
Total
As At
Upto
For
the year
(BACK SIDE)
Adjustments
during the
year
Upto
Written
down value
as at
Remarks
Page No.FOREIGN CONTRIBUTION (ARTICLES) REGISTER
Name of ArticleRECEIPTS
Date
o
Name &
Address of
person from
whom
received
Mode of Purpose
Receipt
UTILISATION/DISPOSAL QUANTITY
Qty-
Approxi Date of
mate
intima
tion to
Value
Central
Govt.
Name &
Date address of
person to
whom
issued/sold
transferred
purpose
Utilised
by the
organi
sation
Sold
Balance
in
Remarks
Stock
•Page No.-
FOREIGN CONTRIBUTION (SECURITIES) REGISTER
Nature ofSecurity-
Nominal Value of
Security------------
RECEIPTS
Date
Name & Address
of person from
whom
received
Distingui
shing
Number of
Security
PARTICULARS OF
Total of
Securities
Total
Nominal
value of
Securities
Permission
of R.B.I. to
hold/acquire
securities
Intimation
sent to
Cnetral
Govt.
DIVIDENDS
Date
Dividend/
Interest
received
Date upto
which
dividend/
interest
received
Ref. to credit
entry in
Foreign
Contribution
currency A/C
Sale /Transfers
Date
Name & Address
of person to whom
sold/transferred
Total No. of
security sold/
transferred
Distin,gushing
No. of security
sold/transferred
Total Amount for
which sold/
transferred
Permission of RBI
to Sell/Tr.
securities
Intimation sent
to Central
Govt.
Reference to entry
in Foreign
Contribution
(Currency) A/c
TELEPHONE AND TRUNK CALLS BILL REGISTER
Telephone No.-
Bill No.
&
Date
bO
Period
Details of
Amount
Personal
Rs.
P. Calls, if any
Payment Particulars
Remarks
Cheque No. &
Date
Vr. No. &
Date
Amount
Rs.
P.
VEHICLES HISTORY CARD
Vehicle Make
For the
Month of:
Regd. No.
Date of
Purchase
Vr.'No.
& Date
Particulars
milage
in Kms.
Fuel & Lubricants
Qty. in
Ltrs.
Cost per
Ltr.
Repairs
& Mainte
Amount nance
Rs.
P.
Rs.
P.
Spare
parts
Rs.
Total
P.
Rs.
P.
Reconciliation Statement of(NameofBank)
As AtAmount
Rs.
P.
Particulars
Balance as per Bank Pass Book/Bank Statement
Less: Cheques issued but not presented for payment:
Cheque No.
Date.
Amount
Add: Cheques deposited but not yet credited by bank
Cheque No.
Date
Amount
Add: Bank charges yet to be accounted for in Cash Book
Wrong debits by bank
____ CL
Less: Wrong credits by Bank
Balance as per Cash Book
Approved by
Prepared by
74
RECEIPTS AND PAYMENT ACCOUNT
FOR THE YEAR ENDED 31ST DEC.: 19xx
RECEIPTS
Previous
Year
Rs.
P.
5
PAYMENTS
Amount
Particulars
Schedule
Rs.
Opening cash and
Bank Balances
1
Contribution by
Funding Agencies
2
— Remittances
— Debit Notes
— Interest
Contribution by
Project-Partner
In Cash
In Non-Cash Inputs
Miscellaneous Income
P.
Previous
Year
Rs.
P.
Amount
Particulars
Schedule
Rs.
Progratnme
Activities
4
— Capital Costs
— Programme Costs
— Office Costs
Reserves
Administrative
---Expenses for
Programme co-ordination
5
Closing Cash and
Bank Balances
6
P.
INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED
31STDECEMBER 19xx
PAYMENTS
Previous
Year
Rs.
P.
RECEIPTS
Amount
Particulars
Schedule
Rs.
Programme
Expenses
1
Capital Costs
Programme Costs
Office Costs
Reserves
P.
Previous
Year
Rs.
P.
Amount
Particulars
Rs.
Contribution by
Funding Agencies
— Remittances
— Debit Notes
— Interest
Contribution by
Project Partner
Administrative
Expenses for
Programme Co-ordination
•Surplus for the
year carried to
general fund
*Which is applicable
Schedule
2
In Cash
In Non-cash Inputs
Miscellaneous Income
•Deficit for the year
carried to General Fund
3
P.
BALANCE— SHEET OF
AS AT
AS AT
LIABILITIES
Rs.
Amount
Schedule Rs.
P.
P.
AS AT
ASSETS
Rs.
Amount
Schedule Rs.
P.
P.
FUNDS
A
FIXED ASSETS
F
OTHER EARMARKED FUNDS
GRANTS
B
C
INVESTMENTS
CASH AND BANK BALANCES
G
H
LOANS
D
LOANS AND ADVANCES
I
CURRENT LIABILITIES
E
OTHER CURRENT ASSETS
LOSSES & EXPENDITURE
TO BE CARRIED OVER
J
MANUAL OF FINANCIAL MANAGEMENT
AND
LEGAL REGULATIONS
V
SPECIAL FUNDS
CHAPTER V
Special Funds
Page
Introduction
Financial Assistance in the form of Loans to Beneficiaries
Financial Assistance in kind to Beneficiaries on credit Basis
Financial Assistance in cash or in kind to Beneficiaries through
Village Level Organisations
Financial Assistance in the form of Incentive Deposits/Margin
Money to Village Level Organisations/Beneficiaries to obtain Bank Finance
Flow Chart
General Instructions
Reporting
Case Studies with Solutions
78
78
78
79
79
80
81
81
82
Forms
Statistical Report on Direct Loans to Beneficiaries
— Alternative I
—Alternative II
Statistical Report on Bank Deposits and Loans to Beneficiaries
98
99
101
V
Special Funds
Introduction
5.01 Special funds such as revolving fund, credit fund, disposition fund or any other specified
fund may be provided by the funding agencies to the project partners for supporting various
individual programmes/projects amongest the marginal/small farmers (beneficiaries) con
nected with rural development. For example, the funding agencies may provide financial
assistance to the project partners in the form of special funds for supply of fertilizers, seeds,
sprayers etc. on credit basis to small/marginal farmers to carry out an agriculture programme:
supply of tools or other equipments on credit basis to artisans within small scale industries
programme: loans for purchase of live stocks, looms, yarn or other raw materials, loans for
establishment of raw material depots and small businesses: providing incentive deposits as
margin money in the form of fixed deposits in favour of bank for providing 100% finance to
small/marginal farmers etc.
5.02 Since special funds are provided in cases where measures are fixed only in general, the
number and kind of measures are therefore to be decided by the project partner in consultation
with the beneficiaries. Hence, clear decision criteria for utilisation of such funds have to be
agreed before hand. In addition, a more specific reporting on utilisation of these funds is also
necessary.
5.03 Special funds may be provided by funding agencies to project partners for giving financial
assistance to beneficiaries in the following manner:
Financial Assistance in the form of Loans to Beneficiaries
5.04 Funding agencies may provide special funds to project partners for giving financial
assistance to beneficiaries in the form of:
(i) Loans for purchase of live stocks:
(ii) Loans for purchase of looms, yarn and other raw materials:
(iii) Loans for purchase of agricultural inputs (fertilizers, seeds, sprayers etc.):
(iv) Chelaty (Rice Husking) loans:
(v) Bidi making loans;
(vi) Loans for the establishment of raw material depots, small scale village industries:
(vii) Loans for establishment of small businesses in villages such as grocery shops, meat
shops, tailoring shops, stationery shops etc..
(viii) Agricultural loans for a second harvest.
Financial Assistance in kind to Beneficiaries on Credit Basis
5.05 Funding Agencies may provide special funds to project partners for granting financial
assistance in kind to beneficiaries on credit basis, for example, in the form of:
78
(i) supply of agricultural inputs such as fertilizers, seeds, sprayers etc. on credit basis to
small/marginal farmers within an agricultural programme;
(ii) supply of tools and other equipments on credit basis to artisans within small scale
industries programme;
(iii) supply of raw materials, capital equipments etc. nn credit basis for generation of
employment:
(iv) supply of live stocks on credit basis to small/marginal farmers.
Financial Assistance in Cash or in Kind to Beneficiaries through
Village Level Organisations
5.06 Funding Agencies may provide special funds to project partners for giving financial
asistance either in cash or in kind to beneficiaries through village level organisations. The
objectives and measures for which financial assistance is to be provided will be the same as
described in paras 5.04 and 5.05 above.
5.07 The beneficiaries will be selected by the village level organisations in consultation with the
partner organisation. The main criteria should be to ensure that small/marginal farmers at
grass root level are given priority.
Financial Assistance in the form of Incentive Deposits/Margin
Money to Village Level Organisations/Beneficiaries to obtain Bank
Finance
5.08 Funding Agencies may provide special funds to project partners for giving financial
assistance in the form of incentive deposits/margin money in favour of bank so that village level
organisations/beneficiaries are in a position to obtain 100% bank finance for purchase of live
stocks, looms, yarn and raw materials, for acquisition of capital assets, for improvement in land,
for purchase of agricultural inputs etc..
5.09 This financial assistance may be in the form of:
(i) providing margin money (a specified % of the total bank finance to be made available to
village level organisations/beneficiaries as negotiated with the bank) in the form of fixed
deposits to the bank so that it can grant 100% finance to the beneficiaries in the form of
loans;
(ii) providing incentive deposits in favour of bank so that the village level organisations/
beneficiaries can obtain 100% finance in the form of loans from the bank.
5.10 While negotiating bank finance for beneficiaries, the project partners should carefully
analyse the implications with regard to:
Rate of Interest (it should be ensured that bank has charged the minimum rate of interest
applicable to marginal farmers/small farmers etc.).
(normally, no security other than margin money in the form of Fixed
— Securities
Deposits should be offered to the bank).
—Grace period
— Period of repayment of loans
— Re-scheduling of repayment programme
— Insurance
79
5.11 It should, as far as possible, be ensured by the project partner that no lien is marked by
banks on fixed deposits and they are free from all encumbrances.
5.12 However, in the case of non-refund of loans by the beneficiaries either partly or fully to the
bank, the project partner/village level organisations will be liable upto the extent of margin
monev onlv.
5.13 The project partner/village level organisations should also keep itself in constant touch
with the banks in order to ensure that they (bank) maintain a particular level of loans granted to
beneficiaries i.e. the bank should grant fresh loans to another set of beneficiaries on the
recommendation of the project partner/village level organisations out of repayment of loans
made by earlier set of beneficiaries.
5.14 The project partner should educate beneficiaries, on continuous basis, regarding timely
repayment of loans availed by them so that the fruits of prosperity can be shared by other
beneficiaries as well.
5.15 The project partner/village level organisations should also keep a memoranda record of
Ioans granted by the bank to beneficiaries, loans repaid by beneficiaries, fresh loans granted by
bank (out of repayment of loans) to another set of beneficiaries so that they are in a position to
report on the utilisation of revolving funds to the funding agency adequately.
Flow Chart
5.16 For better understanding the concept of revolving funds, a flow chart is given below:
FLOW
CHART
REPORTING
ACCOUNTING
I
N
F
L
O
W
(R)
Bank Account
HO.
(P)
Funding Agency
Revolving Fund Account
(R)
o
(P)
F
R
E
V
O
L
y
()
Project
Partner
(R)
(?)
Village
Level
Organisation
I
(R)
(P)
Receipt
Foreign
Contri
bution
U
T
F
O
W
Funding Agency
Revolving Fund utilised
Account
Bank Account
Payment
Revolving Fund
O
F
Bank Account
General Revolving Fund
Account
General Revolving Fund
Utilised Account
Receipt
Revolving Fund
Payment
Agricultural/
Piscicultural
Cottage and
small scale
Loans to benefi
ciaries
Bank Account
N
G
F
R = on Receipt
U P = on Payment
N
D
S
80
Village Level Organisationwise and
programmewisc reporting to funding
agency on:
—utilisation of funds
— meassures achieved
R
E
P
O Programmewise and beneficiarywise
R
T reporting to project partner on:
S — utilisation of funds
T
O
F
U
N
D
I
N
G
A
G
E
N
C
Y
General Instructions
5.17 Where special funds are provided by the funding agencies as a part of a project/programme, the project partner should refer to the letter of approval.
5.18 The project partner should ensure that the transfer of special funds from funding agencies
are requested only when they are needed and to the extent they are needed. In no case, such
funds should remain idle with the project partner.
5.19 The project partner/village level organisations should further ensure that:
— supply of live stocks/agricultural inputs/raw materials/capital equipments on credit
basis/loans granted to the beneficiaries out of the special funds are in accordance with laid
down procedures;
— repayment of loans/credit facilities are made by the beneficiaries in accordance with such
laid down procedures; and
— repayments and other realisations out of special fund operations by the project partner/
village level organisations are subsequently utilised for approved purposes only.
5.20 It is to be further ensured by the project partner that the repayment of loans/credit
facilities by the beneficiaries and their subsequent utilisation by the project partner for
approved purposes should be kept separately from the project funds.
5.21 Further, interest earned on special funds should be credited to special fund account either
to be utilised for the same purposes or specified purposes agreed upon. Hence, interest should
be kept separate from the project funds and it should not form part of grant of the funding
agencies. Therefore, it should not be included in the financial statements to be submitted to the
funding agencies.
5.22 The project partner shall, however, report upon the repayment of loans by the be
neficiaries and their subsequent utilisation together with interest earned on revolving funds for
approved purposes in a manner to be suggested by the funding agencies to each project partner
separately.
5.23 With regard to interest earned on special funds, the project partner shall ensure that local
tax laws are being complied with.
5.24 In order to make the concept of‘Special Funds’ clear, three case studies with solutions are
given on page Nos. 83 to 97.
Reporting
5.25 As the number and kind of measures for the utilisation of special funds can be fixed only in
general, a more specific reporting on utilisation of these funds is necessary.
5.26 Reports can be classified into two major categories viz:
— financial report
— progress report
81
5.27 Financial Report: This report will be prepared at two stages:
I for the use of project partner for control purposes in the form of Receipts and Payment
Account as per 30th June, and 31st December of each year or on half yearly basis.
II for the use of funding agencies in the form ofa financial statement (for example, form No. 3
of EZE) as per 30th June and 31st December of each year.
5.28 For reference purposes, please refer to the solutions of case studies A, B and C.
5.29 Progress Report: Each financial statement to be submitted to the funding agency should
be accompanied by a progress report describing the implementation of the measures in the form
of statistical data in such a way that it is possible to highlight the achievements made during the
period under reporting.
5.30 The progress report should consist of statistical reporting on:
(i) Direct loans given to beneficiaries;
(ii) Incentive Deposits/Margin money given in the form of fixed deposits with bank for
granting loans to beneficiaries.
5.31 A set of statistical reports is given on page numbers 98 to 102
5.32 The progress report should, if possible, be supported by meaningful photographs.
82
Case Study ‘A’
A.01 A funding agency has remitted a sum of Rs. 50,000/- on 1.7.19xx in the form of revolving
funds as one of the items of budgeted costs—“cost plan” to XYZ, a partner organisation in
India, for granting interest free loans to small farmers (beneficiaries) for the purchase of live
stocks by them for promotion of dairy farming in an area.
A.02 The partner organisation opened a separate Savings Bank Account for revolving funds. It
disbursed a sum of Rs. 5.000/- each to nine farmers (Rs. 45.000/-) as an interest free loan during
the period 1.7.19xx to 31.12.19xx repayable in 20 quarterly equal instalments of Rs. 250/- each.
A.03 The small farmers (beneficiaries) repaid a sum of Rs. 2.250/- during the period 1.7.19xx to
31.12.19xx which was. in turn, deposited into the aforesaid savings bank account.
A.04 The bank credited a sum of Rs. 250/- as interest for the half year ended 31.12.19xx.
The aforesaid transactions shall be reflected in the Receipts and Payment Account. Balance
Sheet of the partner organisation and in the financial statement to be submitted to the
funding agency as per solution given on page numbers 85 to 88.
Case Study B
B.01 A funding agenev has remitted a sum of Rs. 1.00.000 on 1.7.19xx to XYZ. a partner
organisation in India, under its approved cost Plan “Revolving Fund” for granting crop loans
to beneficiaries through village level organisations.
B.02 The partner organisation remitted a sum of Rs. 1.00.000 on 1.8.19xxto A village level
organisation for making disbursement in the form of crop loans to beneficiaiies in that \illage.
The details arc as under:
Rs. 90.000
Rs. 7.500
Agriculture crop Loans
Pineapple Plantation Loans
Rs. 97.500
B.03 ‘A’ village level organisation disbursed agriculture crop loans of Rs. 6.000/- each to 15
beneficiaries and pineapple plantation loans of Rs. 1.500/- each to 5 beneficiaries during the
period 1.8.19xx to 31.8.19xx repayable in 15 quarterly equal instalments of Rs. 400/- each and
Rs. 100/- each respectively.
B.04 12 beneficiaries repaid a total sum of Rs. 4.800/- (Rs. 400/- each) towards agriculture crop
loans and 3 beneficiaries repaid a total sum of Rs. 300 (Rs. 100/- each) towards pineapple
plantation loans. The aforesaid transactions shall be reflected in the Receipt and Payment
..J in the financial statement to be
Account. Balance Sheet of the partner organisation and
numbers 89 to 93.
submitted to the funding agency as per solution given on page
]
83
Case Study C
C.01 A Funding Agency has remitted a sum of Rs. 60.000/- on 1.7.19xx to XYZ. a partnei
organisation in India, as a revolving fund for providing margin money (10% of the total bank
finance to be made available to beneficiaries by the bank) in the form of Fixed Deposit to the
bank so that it can provide 100% finance in the form of agriculture loans to the beneficiaries.
C02 XYZ. the partner organisation in India, took a Fixed Deposit of Rs. 60.000/- on 1.8.19xx
with the bank for a period of two years at 10% interest p.a.
C.03 The bank provided agricultural loans of Rs. 6.00.000 (Rs. 6.000/- each to 100 be
neficiaries) during the period 1.8.19xx to 30.9.19xx at a concessional interest rate of 8% per
annum repayable in 20 quarterly instalments of Rs. 300/- each together with interest thereon.
C.04 50 beneficiaries repaid a total sum ofRs. 15.000 (being the first quarterly instalment of Rs.
300/- each) to the bank together with interest during the period 1.10.19xx to 31.12.19xx.
C.05 The bank further provided agricultural loans of Rs. 12.000 (Rs. 3000 each) out of the
repayments made by beneficiaries to four beneficiaries during the period 1.12.19xx to
31.12.19xx repayable in 20 quarterly instalments of Rs. 150/- each together with interest
(hereon.
C.06 A sum of Rs. 2.500/- accrued as interest on fixed deposits as at 31.12.19xx.
The aforesaid transactions shall be reflected in the Receipt and Payment Account. Balance
Sheet of the Partner Organisation and in the financial statement to be submitted to the funding
agency as per solution given on page numbers 94 to 97.
84
Solution to case Study A
XYZ (A PARTNER ORGANISATION IN INDIA)
RECEIPTS AND PAYMENT ACCOUNT OF
---------- (Name of the Project)
FOR THE HALF YEAR ENDED 31ST DECEMBER, 19xx
RECEIPTS
Amount
Rs.
Funding Agency
Revolving Fund
Account
Grant Amount Received
during the period
PAYMENTS
50.000
General Revolving
Fund Account
Amount
Rs.
Funding Agency
Revolving Fund
Utilised Account
Grant Amount utilised
during the period
(Interest free loan
disbursed to farmers)
45,000
Balance in Savings
Account with Bank
Repayment of Loan
by Farmers
2.250
Interest earned on
Savings Bank Account
250
Total Rs.
2.500
Funding Agency Revolving
Fund Account
5,000
General Revolving
Fund Account
2.500
52.500
Total Rs.
7.500
52,500
XYZ (A PARTNER ORGANISATION IN INDIA)
BALANCE SHEET AS AT 31ST DECEMBER, 19xx
LI AB ILITIES
Amount
ASSETS
Amount
Rs.
Rs.
Funding Agency
Revolving Fund Account
Interest Free Loans
to Farmers
Amount received during
the period
50.000
Less: Amount
LTtilised
45.000
Loans disbursed
during the period
45.000
Less: Repavment
of Loans
5.000
General Revolving
Fund Account
2.250
-----L
42.750
Cash and Bank Balances
Repayment of Loans
bv Farmers
Balance in Savings
Account with Bank:
2.250
Add: Interest earned
on Savings Bank
Account
250
Funding Agency Revolving
Fund Account
General Revolving Fund
Account
2.500
5.000
2.500
7.500
Interest Free Loan
to Farmers
(As per Contra)
Loans disbursed
during the period
45.000
Less: Repayment of Loans
2.250
Total Rs.
42.750
50.250
Total Rs.
85
50.250
form 3/Page 1
FINANCIAL STATEMENT
FOR THE PERIOD FROM I.7.19xx TO 31.12.19xx
Project No./Title
Project Partner
I—Receipts
SI.
No.
TOTAL
In
N.C.
In
F.C
1.
2.
3.
BUDGETED
ACTUAL
RECEIPTS
ITEMS
Previously
reported
In N.C.
During period
under Review
In N.C.
Total to
Date
In N.C.
Funding Agency
Revolving Fund Account
25.000
1.00.000
50.000
50.000
Total
Cash Receipts
25.000
1.00.000
50.000
50.000
Total
Non-Cash Receipts
Nil
Nil
Nil
Nil
Grand Total
25.000
1.00.000
50.000
50.000
86
Nil
FINANCIAL STATEMENT
FOR THE PERIOD FROM 1.7.19xx TO 31.12.19xx
form 3/Page 2
II—PAYMENTS
SL
No.
TOTAL
BUDGETED
ACTUAL
PAYMENTS
Previously
Reported
In N.C.
During period
under Review
InN.C.
ITEMS
In
Total to
date
InN.C.
EC.
In
N.C.
25.000
1.00.000
45.000
45.000
25.000
1.00.000
45.000
45.000
Nil
Nil
Nil
Nil
Nil
25.000
1.00.000
Nil
45.000
45.000
1.
2.
3.
Funding Agency
Revolving Fund
Utilised Account
Disbursement of
interest free loan to
farmers for purchase of
live stocks
Total
Cash Payments
Total
Non Cash Payments
Grand Total
87
Form 3/Page 3
III.
CASH STATUS
1.
2.
Balance of cash at Bank and in Hand at start of period
Add: Total cash receipts during the period (page 1)
Nil
50,000
3.
Less: Total cash payments during the period (page 2)
50,000
45,000
4.
Balance at the end of the period
4.1
4.2
5,000
Cash at Bank
Cash in Hand
5.000
Nil
5.000
5.
(A)
(B)
Details of Ma jor Prepayments and Liabilities
Nil
It is hereby confirmed that the receipts of the project have been used exclusively and directly for the agreed
budget.
Place.
Date
(Authorised Representative)
88
Solution to case Study B
XYZ (A PARTNER ORGANISATION IN INDIA)
RECEIPTS AND PAYMENT ACCOUNT OF
---(NAME OF THE PROJECT)
FOR THE HALF YEAR ENDED 31ST DECEMBER, 19xx
RECEIPTS
Amount
Rs.
PAYMENTS
Amount
Rs.
Funding Agency Revolving
Fund Utilised Account
Funding Agency
Revolving Fund Account
Grant amount received
during the period
Total Rs.
1,00,000
Grant amount disbursed to ‘A’
Village Level Organisation
during the period
1,00,000
1,00,000
Total Rs.
1,00,000
‘A’ VILLAGE LEVEL ORGANISATION
RECEIPTS AND PAYMENT ACCOUNT FOR THE HALF YEAR
ENDED 31ST DECEMBER, 19xx
RECEIPTS
XYZ Revolving Fund
Utilised Account
XYZ Revolving Fund
Account
Grant amount received
during the period
1,00.000
Grant amount utilised during
the period:
(Loans disbursed to beneficiaries)
General Revolving
Fund Account
Repayment of Loans
by beneficiaries
Amount
Rs.
PAYMENTS
Amount
Rs.
5,100
Agriculture Crop Loans
Pineapple Plantation Loans
90.000
7.500
97,500
Balance in Savings Account
with Bank
Total Rs.
XYZ Revolving Fund Account
2.500
General Revolving Fund Account
5,100
Total Rs.
1.05.100
89
7,600
1,05,100
‘A’ VILLAGE LEVEL ORGANISATION
BALANCE SHEET AS AT 31ST DECEMBER. 19xx
Interest Free Loans to
Beneficiaries
(As per Contra)
XYZ Revolving
Fund Account
Amount received during
the period
1.00.000
Less: Amount utilised
97.500
2.500
Loans disbursed during
the period
97.500
Less: Repayment of Loans
5.100
92.400
Cash and Bank Balances
General Revolving
Fund Account
Repayment ofloans
bv Farmers
5.100
Interest Free Loans to
Beneficiaries
(As per Contra)
Loans disbursed during
the period
97.500
Less: Repayment of Loans
5.100
Total Rs.
Amount
Rs.
ASS ETS
Amount
Rs.
L I A B 1 I. I T I ES
Balance in Savings
Account with Bank:
XYZ Revolving Fund
Account
2.500
General Revolving Fund
Account
5.100
7.600
92.400
1.00.000
90
Total Rs.
1.00.000
FINANCIAL STATEMENT
FOR THE PERIOD FROM L7.19xxTO31.12.19xx
form 3/Page 1
TOTAL BUDGETED
Total
to-date
In N.C.
Project No./Title:
Project Partner
I—RECEIPTS
SI.
No.
1.
2.
3
ACTUAL RECEIPTS
ITEMS
In
In
F.C.
N.C.
Previously
Reported
In N.C.
During period
under Review
In N.C.
Funding Agency
Revolving Fund Account
25.000
1.00,000
1,00,000
1,00,000
Total
Cash Receipts
25,000
1.00,000
1.00,000
1,00,000
Total
Non-cash Receipts
Nil
Nil
Nil
Nil
Grand Total
25,000
1,00,000
1,00,000
1,00,000
91
Nil
form 3/Page 2
FINANCIAL STATEMENT
FOR THE PERIOD FROM 1.7.19xx TO 31.12.19xx
II.
PAYMENTS
TOTAL
SI.
No.
BUDGETED
In
F.C.
1.
2.
3.
ACTUAL
PAYMENTS
ITEMS
Funding Agency
Revolving Fund
Utilised Account
Amount remitted to
‘A’ Village Level
Organisation for
disbursement of crop
loans to beneficiaries
Total
Cash Payments
Total
Non-cash Payments
Grand Total
Ii»
N.C.
Previously
reported
InN.C.
During period
under Review
InN.C.
Total
to-date
In N.C.
25.000
1.00.000
1,00.000
1,00,000
25,000
1,00,000
1,00,000
1,00,000
Nil
Nil
Nil
Nil
Nil
25,000
1,00,000
Nil
1,00.000
1,00,000
92
Form 3/Page 3
III.
CASH STATUS
1.
Balance of cash at Bank and in Hand at start of period
Nil
2.
Add: Total cash receipts during the period (Page 1)
1,00,000
3.
Less: Total cash payments during the period (Page 2)
1,00,000
4.
Balance at the end of the period
Nil (A)
1,00,000
5.
4.1
Cash at Bank
Nil
4.2
Cash in Hand
Nil
Details of major pre-payments and liabilities
Nil
Nil (B)
It is hereby confirmed that the receipts of the project have been used exclusively and directly for the agreed
budget.
Place:
Dated:
(Authorised Representative)
93
Solution to case Study ‘C’
XYZ (A PARTNER ORGANISATION IN INDIA)
RECEIPTS AND PAYMENT ACCOUNT OF
---(NAME OF THE PROJECT)
FOR THE HALF YEAR ENDED 31ST DECEMBER, 19xx
PA Y M ENTS
Amount
Rs.
RECEIPTS
.Amount
Rs.
Funding Agency Revolving
Fund Utilised Account
Funding Agency Revolving
Fund Account
Grand amount received
during the period
60.000
Amount kept as fixed, deposit
with bank as margin money against
agricultural loans granted by bank
to beneficiaries
60.000
Total Rs.
60.000
Total Rs.
60.000
XYZ, (A PARTNER ORGANISATION IN INDIA)
BALANCE SHEET AS AT 31ST DECEMBER, 19xx
Amount
Rs.
LIABILITIES
Interest accrued on
Fixed Deposits
General Revolving
Fund Account
Fixed Deposit with bank
(As per Contra)
Add: Interest accrued on
Fixed Deposits
ASSETS
Cash and Bank Balances
Fixed Deposit with Bank
(As per Contra)
60.000
Amount
Rs.
2.500
60,000
2.500
62.500
Total Rs
62.500
Total Rs.
62.500
Note: The partner organisation should keep a memoranda record of loans granted by the bank to
beneficiaries, loans repaid by beneficiaries, fresh loans granted by bank (out of repayment of
loans) to another set of beneficiaries so that the partner organisation is in a position to report o»*
the utilisation of revolving funds to the funding agency.
94
FINANCIAL STATEMENT
FOR THE PERIOD FROM 1.7.19xx TO 31.12.19xx
form 3/Page 1
Project No./Title:
Project Partner
I—RECEIPTS
SI.
No.
TOTAL BUDGETED
In
EC.
1.
2.
3.
ACTUAL
RECEIPTS
ITEMS
Funding Agency
Revolving Fund Account
In
N.C.
Previously
reported
In N.C.
During period
under review
In N.C.
Total
to-date
In N C.
25.000
1.00.000
60.000
60.000
25.000
1.00.000
60.000
60.000
Total Non-Cash Receipts
Nil
Nil
Nil
Nil
Grand Total
25.000
1.00.000
60.000
60.000
Total Cash Receipts
95
Nil
form 3/Page 2
FINANCIAL STATEMENT
FOR THE PERIOD FROM 1.7.19xx TO Sl.12.19xx
II—PAYMENTS
TOTAL BUDGETED
SI.
No.
ACTUAL RECEIPTS
ITEMS
In
N.C.
In
EC.
Previously
reported
In N.C.
During period
under Review
In N.C.
Total
to-date
In N.C.
1.
2.
3.
Funding Agency
Revolving Fund
Utilised Account
Amount kept as Fixed
Deposit with bank as
margin money for
providing agricultural
loans to beneficiaries
25,000
1,00,000
60,000
60,000
25,000
1,00,000
60,000
60.000
Total Non-cash Payments
Nil
Nil
Nil
Nil
Grand Total
25.000
1.00,000
60.000
60,000
Total cash Payments
96
Nil
form 3/Page 3
III.
CASH STATUS
1.
Balance of cash at Bank and in Hand at start of period
2.
Add: Total cash receipts during the period (Page 1)
Nil
60,00Q
3.
Less: Total cash payments during the period (Page 2)
60,000
60.000
4.
Balance at the end of the period
Nil
5.
4.1
Cash at Bank
4.2
Cash in Hand
(A)
Nil
Nil
Details of ma jor pre-payments and liabilities
Nil
Nil
(B)
iudgehrby COnfirmed thal ,he reCeiPtS °f ,he Project hW bK" used —-'y “<*
for the a^ed
Place:
Dated:
(Authorised Representative)
97
UPTO LAST HALF YEAR
Number of
Beneficiaries
Amount
In N.C.
xx
XX
Number of
Beneficiaries
Amount
In N.C.
CUMULATIVE UPTO THIS
HALF YEAR
Number of
Beneficiaries
Amount
In N.C.
IV. Interest Earned/Other Income
— (to specify)
XX
XX
TOTAL—IV
XX
XX
XX
V. Loans to Beneficiaries
(Out of Repayments)
—(to specify nature of Loans)
XX
TOTAL— V
XX
XX
XX
XX
XX
xx
xx
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
o
o
I
DURING THIS HALF YEAR
XX
XX
XX
PARTICULARS
VI Outstanding Loans from Beneficiaries
— (to specify nature of Loans)
— TOTAL—VI
PROJECT NO./TITLE
STATISTICAL REPORT ON BANK DEPOSITS
AND LOANS TO BENEFICIARIES
FOR THE HALF
YEAR ENDED
PROJECT PARTNER
SPECIAL FUNDS BUDGETED
Name of
Funding Agency
PURPOSE OF
SPECIAL FUND . .
Amount
In F.C.
Amount
In N.C.
UPTO LAST HALF YEAR
Number of
Beneficiaries
Amount
In N.C.
xx
XX
o
wo
xx*
XX
Do
XX
XX
XX
XX
XX
XX
TARGET
Beneficiaries
(Category)
PARTICULARS
I. Special Funds Received
— EZE
— Christian Aid
— Bfw
TOTAL— I
CUMULATIVE UPTO THIS
HALF YEAR
Number of
Beneficiaries
Number of
Beneficiaries
Amount
In N.C.
Amount
In N.C.
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
TOTAL—II
TOTAL—III
Amount
In N.C.
DURING THIS HALF YEAR
II. Special Fund Utilised
(Bank Deposits)
— (to specify nature of Bank Deposits)
III. Loans to Beneficiaries by Bank
— (to specify nature of Loans)
Number
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
UPTO LAST HALF YEAR
Number of
Beneficiaries
PARTICULARS
DURING THIS HALF YEAR
Number of
Beneficiaries
Amount
In N.C.
Amount
In N.C.
CUMULATIVE UPTO THIS
HALF YEAR
Number of
Beneficiaries
Amount
In N.C.
IV. Interest Earned on Bank Deposits
XX
xx
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
O
NO
— (to specify)
TOTAL— IV
\‘. Repayment of Loans to Bank
by Beneficiaries
— (to specify nature of Loans)
XX
XX
TOTAL—V
VI. Loans to other Beneficiaries by Bank
— (Out of Repayments')
— (to specify)
TOTAL— VI
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
VI I. Outstanding Loans from Beneficiaries
— (to specify nature of Loans)
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
TOTAL—VII
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
XX
MANUAL OF FINANCIAL MANAGEMENT
AND
LEGAL REGULATIONS
9
VI
OP
REPORTING
CHAPTER VI
Reporting
Page
introduction
Need of Reporting
Reports to Project In charge
Reports to Funding Agencies
Reports to Govt, as per National Regulations
Forms
Financial Position Statement
Project Status Report
Project Progress Report
Narrative Report
103
103
104
105
107
108
109
110
111
VI
Reporting
Introduction
6.01 Accounting is the discipline which provides financial and other information essential for
the efficient conduct and evaluation of the activities of any organisation.
6.02 Accounting is the tool for a proper financial management. Sound financial management is
essential for all organisations—profit-making or non-profit-making where funds are in
volved. It attempts to use the funds in the most productive manner.
6.03 Therefore, a well designed accounting system has in it an in-built information system by
which matters are brought to the notice of the concerned authorities who are charged with the
responsibility of taking long and short term decisions.
6.04 The purpose of management reporting system is to provide the information to assist the
management in making decisions for controlling current and planning future results.
6.05 The pre-requisite of management information system is ‘Management by Exception’ .
The principle of‘Management by Exception’ provides a system of communication that shall
indicate the areas of problem to which the attention of the project partner is to be drawn. Thus,
the reports should be ‘Action Oriented’ meaning thereby that these reports would call for
corrective action or would indicate a state of satisfactory performance.
6.06 Insistence on timely submission of reports shall have the added advantage of in-built
controls leading to timelv action wherever needed. Just as timely submission of various reports
is insisted upon, it shall also be necessary that there should be a quick flowing back of the
decisions of management to the staff, without this, the very purpose of reporting would be
defeated.
Need of Reporting
6.07 The project incharge needs a set of reports—both financial and non-financial in order to
keep a close watch over the activities for the attainment of objectives and measures agreed upon.
This will also help him in planning the commitments and to activate resource mobilisation to
meet such commitments.
6.08 In the interest of accountability, the partner organisation is also obliged to report
regularly to the funding agencies in the form of financial statements and progress reports about
the utilisation of funds. These reports in turn, help the funding agencies to furnish proof to their
Government of the economical and successful utilisation of funds given to them in Trust.
6.09 The partner organisations in India are also required to submit reports to the central Govt,
with regard to foreign contributions received and utilised at prescribed intervals.
103
6.10 In order to fulfil the needs of reporting, the partner organisations are required to prepare
the following type of reports:
— Reports to Project Incharge;
— Reports to Funding Agencies; and
— Reports to Govt, as per National Regulations.
Reports to Project Incharge
6.11 Reports to project incharge for control purposes can be classified into two major categories
viz.:
I.
II.
Financial Reports
Financial Position Statement
Project Status Report
Project Progress Report
Non-financial Reports
Activities Report
Code No.
MR 1.01
MR 1.02
MR 1.03
Frequency
Monthly
Quarterly
Quarterly
MR 2.01
Monthly
Financial Reports
6.12 Financial Position Statement: (MR 1.01) This report gives in a summarised manner the
financial position of the organisation on monthly basis. This report gives comparative data of
budgeted and actual figures of the receipts and payments. This report further gives deficit/
surplus for the current month and year to date in comparison with budgeted figures.
6.13 Project Status Report: (MR 1.02) This report gives the progress of expenditure made during
the current quarter against the planned expenditure and enables comparison of the progressive
expenditure against the total project estimates and the budget allocation for the period.
Columns have been provided to indicate any over runs or savings that are likely to happen in
respect of major items of work on its completion.
6.14 Project Progress Report: (MR 1.03) This report is to be prepared specially for Building
Projects. This report will enable the project-partner to compare physical progress of various
components of work done with the planned targets. Columns have been provided to indicate %
of progress made as compared to targets fixed upto last quarter and for the current quarter.
Non-financial Reports
6.15 Activities Report: (MR 2.01) This report gives the summary of the overall activities underta
ken during a particular month in implementing the project and in particular covers the
following points:
'4
— Achievements of the plans and measures of the project compared with agreed plans and
deviations therefrom.
— Results and/or difficulties in implementing the project.
— The effect of the project on target Groups.
— Changes in personnel.
104
6.16 This report, if possible should be supported by meaningful photographs including photos
of building under construction so as to depict the stages of construction.
Reports to Funding Agencies (As practised by EZE)
6.17 As per the agreement between the funding agency for example, (EZE of West Germany)
and partner organisation, the project-partner is required to submit financial statements and
progress reports as per 30th June and 31st December of each year.
6.18 Financial Statement: The first financial statement is to be prepared for the period from the
date of the commencement of the approved project upto 30th June/31st December, and
thereafter the statements shall be prepared fora period of six months, as per 30th June and 31st
December of each year.
6.19 In respect of EZE of West Germany, the financial statement is to be prepared in Form No.
3 given on page Nos.199 to 201. The purpose of the preparation of the financial statement is to
give the position of actual receipts and payment as compared with the budget for a stated
half-yearly period and status of cash and bank balances.
6.20 The total budgeted figures of receipts and payment for the programme/project as a whole
shall be given both in foreign Currency and in National Currency whereas figures of actual
receipts and payment shall be reported separately upto last financial stastement. during period
under review and total to date in National Currency only.
6.21 The actual figures of receipts and payment in the financial statement should be structured
corresponding to the individual items of th? budget.
6.22 Major payments (i.e. single payment of more than 5% of the budgeted items are under
stood as major payments) should be listed in an appendix to the financial statement with the
following information:
— reference to the budget item;
— brief description of payment;
— date of payment;
— amount of payment: and
— Name of payee.
6.23 Non-cash items forming part of the budget are to be shown separately on the receipts and
payment side of the financial statement.
6.24 Debit Notes sent by the funding agency in respect of payments made directly to third
parties or expenses incurred on behalf of the partner organisation are to be shown separately on
the receipts and payment side of the statement. The project-partner should indicate the Debit
Note No., respective expenditure item of the budget, amount (in national currency) on the
payment side of the financial statement so that it tallies with the amount of debit notes shown on
the receipt side of the statement.
6.25 Interest earned on unutilised balances of funding agencies kept in a separate bank account
are to be shown separately on the receipt side of the financial statement.
105
6.26 If there is any difference between ‘A’ and ‘B’ of item No. 4 of Part III ‘cash status’ of the
financial statement, the same is to be explained. If the difference is, however, on account of
normal items in the bank reconciliation, it need riot be reported.
6.27 The project-partner is to further confirm that the receipts of the project have been used
exclusively and directly for the agreed budget.
6.28 The financial statement is required to be submitted to the funding agency within a period
of three months of the end of the reporting period (i.e. by 30th September and 31st March) at
the latest.
6.29 If the financial statement cannot be submitted within three months, the funding agency
will be informed by the project-partner.
6.30 Progress Report: Each financial statement (as per 30th June and 31st December) is to be
accompanied by a progress report describing the implementatin of the measures in such a way
that it is possible to compare the actual achievements of the project/programme with the
planned measures and objectives. Therefore, the report should be structured according to the
items of the budget and in particular should cover information on the following points:
6.31 Summary of Activities: These should be structured according to the items of the budget from
the commencement of the project/programme to the end of the reporting period, emphasizing
the measures during the previous six months. These should include:
— Statistical data, as far as they concern physical targets, (cumulative)
— Meaningful photographs of the progress made in the implementation of the project/
programme.
6.32 Major Deviations’. Major deviations in the implementation of the envisaged measures and
various items of the expenditure exceeding by more than 30% of the budget items should be
described and explained in detail so that the funding agency may react promptly if any
alterations are proposed.
6.33 Assessment: An assessment of the achievements in comparison to the objectives and
measures of the pro ject/programme and the impact on the beneficiaries of the region and other
developmental efforts should be incorporated in the progress report.
6.34 Information: Information on changes in personnel and management situation within the
project/programme and on any other relevant project-events which the project-partner may
consider important to comment upon should be given.
6.35 Progress reports should, if possible, be supported by meaningful photographs including
photos of buildings being constructed.
6.36 Progress reports relating to building projects should refer to the stages of construction
reached and allow for comparison with what was planned (i.e. comments on preparation of the
plot, foundations, structural work, finishing work, plumbing etc.).
6.37 Form and content of the progress report should be agreed upon separately on mutual
106
understanding between the funding agency and the project-partner. It would be better if a
common pattern of reporting to be submitted to funding agency is developed for all project
partners.
modified suggested format of narrative reporting is given on page No. 111.
Thus, the half-yearly narrative reports can be presented under the following eight major
headings:
(a) Planned measures of the project:
(b) Achievements made upto the previous period of reporting:
(c) Activities envisaged during the reporting period and amount budgeted;
(d) Actual achievements and expenditure during period of reporting’
(e) Actual deviations in implementation from the envisaged activities if any and explanation
thereof:
(f) Assessment of the achievements in relation to the objectives of the programme, target
area, target population as envisaged in the programme description:
(g) Support and guidance received from other institutions and organisations: and
(h) Any other event relevant to the project/programme which the project-partner may wish
to comment upon.
6.38 As in case of financial statements, the Progress Reports are also to be sent to the funding
agency within a period of three months after the end of the reporting period.
6.39 Final Reports’. The project-partners are also required to submit a final report to the funding
agency within a period of three months after completion of the project/programme consisting
of:
— The last financial statement;
— The last Progress Report.
6.40 If the final financial statements and the final progress report cannot be produced within a
period of three months, funding agency should be informed by the project-partner in due time.
6.41 Fudning agency will acknowledge the receipt of the financial statements and progress
reports and will comment on them, if necessary.
Reports to Govt, as per National Regulations
6.42 In order to regulate the acceptance and utilisation of foreign contributions, every associa
tion having a definite cultural, economic, educational, religious or social programme is required
to intimate to the Indian Govt, as to the amount of foreign contribution received by it. the
source from which and the manner in which such foreign contribution was received and the
purpose for which and the manner in which such foreign contribution was utilised by it.
6.43 This intimation is to be given in prescribed form FC-3, within thirty days after the receipt
of such contribution.
6.44 Further, every association as referred to in para 6.42 above is also required to
furnish to Indian Govt, a yearly account as per 31st December of foreign contributions
received and utilised, duly certified by a Chartered Accountant in prescribed form FC-9
within sixty days of the close of the year.
107
Programme/
Project
Financial Position
Statement
Previous Month
Particulars
Budgeted Actuals
‘A’ Receipts
i) Contribution from funding agencies
(to specify)
ii) Contribution from Project-Partners
— In cash
— In Non-cash Inputs
iii) Others
— Interest on Fixed Deposits
— Interest on Saving Accounts
— Misc. Income
Total ‘A’
‘B’ Payments
i) Programme Activities
— Capital Costs
— Programme Costs
— Office Costs
— Reserves
ii) Administrative Expenses (for prog
ramme co-ordination)
(Details as per Annexure)
Total ‘B’
‘C’ Surplus (A—B)
‘D’ Add opening cash and Bank Balances
‘E’ Closing cash and Bank Balances (C+D)
108
MR
1.01
For the Month:
Current Month
Year to Date
Budgeted Actuals
Budgeted Actuals
Programme
Project Status Report
MR 1.02
Project
For the Quarter Ended:
Original date of
Completion
Current targetd
date
:
Cost Components
Budgeted Costs
Original
‘A’ Capital Costs
O
o
‘B’ Programme Costs
‘C’ Office Costs
‘D’ Reserves
TOTAL
Likely Date of
Completion
Amount Spent
Revised
Upto last
Quarter
Current
Quarter
Upto
Current
Quarter
Expenditure
Committed
Under/Over
Run
Upto Current
Quarter
Upto Current
Quarter
MR 1.03
Project Progress Report
Programme
For the Quarter Ended:
Project
SI.
No.
Description
of Work
Cumulative Progress
Unix
upto Current Quarter
of
Measure
ment
%of
Total
Total
Qty
Executed
o
Qtyto be
Executed
Progress
Progress Trend
Target
Upto
last
Quarter
Progress
Current
Current Upto
last
Quarter Quarter Quarter
Upto
last quarter
Target
% of Progress
to Current
Quarter
target
Narrative Report for the Period From-
To
Name of Project-Partner:
1. Planned Measures of the Project: (please outline the measures given in the programme
description under the headings “Planned Measures” and “Cost Plan”).
2. Achievements made upto the Previous Period of Reporting: (Briefly describe the achieve
ments of the programme in relation to the planned measures by summarizing the earlier
reports. Please include also some statistical data as far as they concern physical targets).
3. Activities Envisaged during the Reporting Period and Amount Budgeted: (Please give here
the activities outlined in the action plan for the corresponding period with the amount budgeted
for each programme component/item of the cost plan).
4. Actual Achievements and Expenditure incurred During Period ofReporting: (Describe the
achievements in relation to the activities envisaged above and total amount spent on the
activities).
5. Actual Deviations in Implementation from the Envisaged Activities if anv and Explanation
Thereof: (Please describe the deviations in achievements in relation to the planned measures
and budgeted costs as specified in the programme description under the headings “planned
measures” and “Cost Plan”)
6. Assessment of the Achievements in Relation to the Objectives of the Programme, Target
Area, Target Population as Envisaged in the Programme Description: (Please refer to the
physical targets as well as to the general goals of the programme).
7. Support and Guidance Received from Other Institutions and Organisations: (Outline the
support received by you from other institutions and organisations during the reporting period,
e.g. assistance in surveys, training of personnel, guidance in book-keeping/accounting/
administration, etc.
8. Any other Project related event you wish to Comment upon:
111
MANUAL OF FINANCIAL MANAGEMENT
AND
LEGAL REGULATIONS
f
VII
LEGAL REGULATIONS IN INDIA
CHAPTER VII
Legal Regulations In India
Page
VII. 1
THE INCOME TAX ACT, 1961
Law Applicable to Charitable Organisations
Application of Income
Accumulation of Income
Investment or Deposit of unspent funds of Charitable Organisations
Audit of Accounts
,
Filing of Return of Income
Forfeiture of Exemption
Deductions in respect of donations to certain funds, Institutions
Expenditure on Rural Development Programmes
Expenditure by way of payment to Associations and Institutions for
carrying rural development programmes
Income which do not form part of total income
Forms
Form No. 10A
Form No. 10
Application for recognition as an Institution under Section 80G
112
113
114
114
115
115
115
116
117
118
119
121
122
123
VII. 2 THE INDIAN TRUST ACT, 1882
124
124
124
124
125
VII. 3
Introduction
Definition ofTrust
Purpose and Validity ofTrust
Creation of Trust
Exemptions in respect of Income Tax Liability
THE SOCIETIES REGISTRATION ACT, 1860
126
126
127
127
VII. 4
Introduction
Types of Societies to be Registered
Exemptions in respect of tax liability
Statutory requirement for filing of documents with Registrar of Societies
FOREIGN EXCHANGE REGULATION ACT, 1973
Applicability
Restrictions on Payments
Other Restrictions
Restrictions on business outside India
Restrictions on place of business in India
Employment in India
Holding oflmmovable property in India
Penalty and Prosecutions
128
128
128
129
129
129
129
129
VII. 5
THE FOREIGN CONTRIBUTION REGULATION ACT 1976
AND THE FOREIGN CONTRIBUTION (REGULATION)
RULES 1976
The Purpose
Territorial Jurisdiction and Applicability
Definitons
Regulation of Foreign Contribution and Foreign Hospitality
Receipt of Scholarships, Stipends or other Subsidies for Education from
any foreign source
Restriction on Acceptance of Foreign Hospitality
Maintenance of Accounts
Inspection of Accounts
Audit of Accounts
Punishment
Offence by Companies
130
130
130
131
133
133
133
134
134
134
135
Forms
FORM FC — 1
FORM FC — 1A
FORM FC — 2
FORM FC — 3
FORM FC — 5
FORM FC — 6
FORM FC — 7
FORM FC — 8
FORM FC — 9
VII. 6
VII. 7
VII. 8
VII. 9
PROVISION OF OTHER APPLICABLE ACTS
The Employees Provident Funds and Miscellaneous Provisions Act, 1952
The Payment of Bonus Act, 1965
. The Payment of Gratuity Act, 1972
The Bombay Public Trust Act, 1950
136
137
138
140
144
145
146
- 147
149
151
154
157
158
VII
Legal Regulations In India
1. The Income Tax Act, 1961
Law Applicable to Charitable Organisations
7.1.01 It is necessary for the Indian partners of funding agencies to comply with the provisions
of “The Income Tax Act. 1961” as applicable to charitable organisations, otherwise the funds
received bv them may be liable to heavy Income Tax.
7.1.02 Form of Charitable Organisation: The charitable organisation has to have a definite form. It
could be a public charitable trust under “The Indian Trust Act, 1882” or a society registered
under “The Societies Registration Act, 1860” or under any other law corresponding to that Act
in force in any part of India or a company registered under Section 25 of “The Companies Act,
1956” or an institution formed under a specific Act of the legislature for promotion of one or
more charitable purposes.
7.1.03 Aims and Objects of Charitable Organisation: The aims and objects of charitable organisa
tion have to be charitable within the meaning of Section 2(15) of the Income-Tax, Act, 1961. It
is defined to include relief of the poor,, education, medical relief and the advancement of any
other object of general public utility.
7.1.04 Income from Property heldfor charitable or religious purposes: The following main conditions
have to be satisfied for claiming exemption Under Section 11 of the Income Tax, 1961:
(a) The property from which income is derived should be held under a trust or other legal
obligation:
(b) The property should be held for charitable or religious purposes;
(c) The trust should not be created for the benefit of any particular religious community or
caste: and
(d) No part of the income should ensure directly or indirectly the benefit to the settler or
other specified persons.
7.1.05 The exemption is confined to only such portion of the trust’s income:
(a) which is applied to charitable or religious purposes in India or where the trust is created
on or after 1.4.1952 for a charitable purpose which tends to promote international welfare
in which India is interested, the income is applied for such purposes outside India; or
(b) is accumulated for applying to such purposes within the limits of accumulation permit
ted Under Section 11 (l)and (2) of the Income Tax Act, 1961.
7.1.06 Such organisations should not carry on any business except:
(a) wholly for public religious purposes and the business consists of printing and publication
of books or publication of books or is of a kind notified by the Central Govt, in this behalf
112
in the official gazette; or
(b) the business is carried on by an institution wholly for charitable purposes and the work in
connection with the business is mainly carried on by the beneficiaries of the institution.
7.1.07 It is also stipulated that separate books of account will be maintained by the trust or
institution in respect of such business.
7.1.08 Registration under the respective Acts not sufficient: It is necessary to emphasize that Societies
or Associations and Companies registered under the Societies Registration Act 1860 and the
Companices Act, 1956 as the case may be. will also have to be registered U/S 12A (a) of the Income
Tax Act, 1961 for getting the entitled benefits of tax exemption etc.. The registration under the
former Acts would be in terms of and for the purposes of those Acts and such registration would not
effect or govern either their registration U/S 12A (a) or scrutiny by an Income Tax Officer in
the context of the provisions of Sections 2 (15) and/or 11 of the Income Tax Act, 1961.
7.1.09 Like-wise, the Trust even though registered under the State Govt.’s Trust Acts, where
ver necessary, (e.g. Bombay Public Trust Act etc.) would need their registration U/S 12A(a) of
I ncome-tax Act, 1961 and de-novo scrutiny by the Income Tax Authorities with reference to the
statutory provisions in the Income-tax Art, 1961.
7.1.10 Registration of the Charitable Organisation under Income Tax Act, 1961: The charitable
organisation should be registered with the concerned commissioner of Income Tax under
Section 12A (a) of the Income-tax Act. 1961 within one year from the date of the creation of the
trust or the establishment of the institution. The application for this purpose is to be filed (in
duplicate) in Form No. 10A (copy enclosed on page No. 121 prescribed under Rule 17Aof
the Income Tax Rules, 1962.
7.1.11 The charitable organisation should also be recognised by the Commissioner of Income
Tax for the purpose of Section 80 G of the said Act. Such recognition is granted for a limited
period and is required to be renewed before the expiry of the period of existing recognition.
Application of Income [Sec. 11 (1)]
7.1.12 In order to be eligible for tax exemption, a charitable trust or institution is required to
apply at least 75 per cent of its income for charitable or religious purposes. (In computing 75 per
cent of income so applied, repayment of loan(s) originally taken to fulfil one of the objects of
trust is treated as an applicaton of income for charitable purposes). Voluntary contributions
(other than contribution made with a specific direction that they shall form part of the corpus of
the trust or institution) received by a charitable trust or institution (Section 12) will be deemed
to be a part of its income derived from property held under trust wholly for charitable or
religious purposes.
7.1.13 Option to Spend Income in year of Receipt/'Next Year: If the income applied to charitable or
religious purposes, during the previous year, falls short of 75 per cent of the income derived
during the year, either (a) the income has not been received in the relevant previous year, or (b)
because of any other reason, the charitable trust or institution has been allowed to exercise the
option to spend such income for charitable or religious purposes in the following manner:
(i) In the case of (a) either during the previous year in which the income is so received or
during the previous year immediately following such year; and
113
(ii) In the case of (b), during the previous year immediately following the previous year in
which the income was derived.
7.1.14 The charitable trust or institution has to exercise the option in writing before the expiry
of the time for filing the return under Section 139 (1) or 139 (2). In case the time for furnishing
the return has been extended, the time for the submission of the option would also be deemed to
be extended. In case such an option is delayed in justifiable circumstances, a trust/institution
may apply to the Commissioner of Income-tax for condonation of the delay under Section 119
(2) (b). of the Income Tax Act, 1961.
7.1.15 The income applied to such purposes during the extended time will be deemed to have
been applied to such purposes during the previous year in which it was derived. Where,
however, anv income, in respect of which the aforesaid option is exercised is not applied for
charitable or religious purposes in India during the extended time, such income is liable to be
taxed as the income:
(i) in the case of (a) under Para 7.1.13 supra of the previous year immediately following the
previous year in which the income was received (where the income was not received in
the previous year in which it was derived): or
(ii) in the case of (b) under Para 7.1.13 of the previous year immediately following the
previous year in which the income was derived.
Accumulation of Income [Section 11 (2)]
7.1.16 Where 75 per cent of the income is not applied to charitable or religious purposes in the
manner discussed in the preceding paras, the charitable trust or institution may accumulate or
set apart either the whole or part of its income for future application for such purposes. Such
income so accumulated or set apart, will not be included in the total income of the trust in the
vear of receipt of income, provided the following conditions are complied with:
(a) Such trust or institution has informed the concerned Income-tax Officer in prescribed
form No. 10 (copy enclosed on page
No. 122
under Rule 17 of the Income Tax
Rules, 1962 stating therein the purpose and period (which in no case can exceed 10
years) for which the income is so accumulated or set apart; and
(b) The money so accumulated or set apart is invested or deposited in
i the forms or modes
specified in Section 11 (5) (vide para 7.1.18)
7.1.17 The money should be invested or deposited within six months commencing from the end
of the relevant previous year. Where, however, the income so accumulated or set apart is either
applied to purposes other than charitable or religious purposes for which it was accumulated or
set apart, or ceases to be so accumulated or set apart or the trust does not make the aforesaid
prescribed investments, it will be deemed to be the income of the charitable trust or institution
of the previous year in which it is so applied/ceases to be accumulated or to remain invested or of
the previous year immediately following the expiry of accumulation period.
Investment or Deposit of Unspent Funds of Charitable Organisation
[Section 11 (5)]
7.1.18 The unspent funds of the charitable organisation should be invested or deposited in any
114
one or more of the following modes or forms mentioned in Section 11 (5) of the Income Fax Act,
1961:
(i) investment in Government Savings Certificates;
(ii) deposit in any Post Office Savings Bank Account;
(hi) deposit in any account with any schedule bank or a Co-operative Society engaged in
carrying on the banking business (including a land mortgage bank or a Co-operative
land development bank);
(iv) investment in units of the Unit Trust of India;
(v) investment in any security for money created or issued by the Central Govt, or a State
Govt.;
(vi) investment in debentures of any corporate body, the principal whereof and the interest
whereon are guaranteed by the Central or a State Government;
(vii) investment or deposit in any Government Company as defined iin Section 617 of the
companies Act, 1956;
(viii) deposit with or investment in
i any bonds issued by a financial corporation engaged in
providing long-term finance for industrial development in India, if the Corporation is
approved by the Central Government for the purposes of Section 36 (1) (viii);
(ix) deposits with or investment in any bonds issued by any public Company formed and
registered in India with the main object of carrying on the business of providing
long-term finance for construction or purchase of houses in India for residential
purposes, if the company is approved by the Central Government for the purposes of
Section 36 (1) (viii); and
(x) investment in immovable property;
(xi) deposits with the Industrial Development Bank of India established under the Indust
rial Development Bank of India Act. 1964 (IB of 1914).
Audit of Accounts [Section 12 A (b)]
7.1.19 Where the total income of the charitable organisation exceeds Rs. 25.000/- in any
accounting year, its accounts are required to be audited by a Chartered Accountant or a firm of
Chartered Accountants and the audit report is to be furnished by the auditor in form No. 10B
prescribed under Rule 17B of Income Tax Rules, 1962.
Filing of a Return of Income
7.1.20 Every charitable organisation is required to file a return of income in the prescribed form
No. 3 A before 30th June of every year if its total income for the year exceeds the exemption limit.
If for reasons bevond the control of an organisation, return could not be filed in time, the
organisation should seek extension of time for filing the return of income in form No. 6.
Forfeiture of Exemption (Section 13)
7.1.21 The following income of a charitable/religious trusts/institutions do not qualify for
exemption under Section 11:
(i) Income from property held under a trust for private religious purposes which does not
ensure for the benefit of the public [Sec. 13(1) (a)].
(ii) Income of a charitable trust/institution (established on or after 1.4.1962) created for the
benefit of any particular religious community or caste [Sec. 13(1) (b)].
115
(iii) Income of religious/charitable trust/institution (created or established after 31.3.1962)
which, under the rules governing the trust, ensures directly or indirectly the benefit to
any person specified in Section 13 (3) (i.e., author/founder/or substantial contributor of
the trust, any trustee of the trust or manager of the institution, the member of the HUF
who is author/founder. any relative of such author, founder, substantial contributor or
any concern in which such person has a substantial interest [Sec. 13 (1) (c) (i)].
Note: “Vide Taxation Laws (Amendment) Act, 1984 (with effect from 1.4.1985) the
substantial contributor to the trust will be a person whose total contribution upto
the end of the relevant previous year exceeds Rs. 25.000/- (as against Rs. 5,000/prior to 1.4.1985)”.
(iv) Income of a religious/charitable trust/institution created/established after 31.3.1962 if
income/property is used/applied, during the relevant year, for the direct/indirect
benefit of the author of the trust, and other persons mentioned in Section 13 (3) as
enumerated in preceding item fiii) Sec. 13(1) (c) (ii):
(a) However, in a case of trust/institution created/established prior to April 1. 1962.
exemption is not forfeited if such use or application of the trust income/property is
by way of compliance with a mandatory term of the trust or a mandatory rule
governing the instituion.
(b) \\ here the aggregate of funds of the trusts/institutions invested in a concern, in
which any person specified in Section 13 (3) has a substantial interest, does not
exceed 5 per cent of the capital of that concern, the exemption under Sections 11 or
12 will not be denied in relation to any income other than the income arising from
such investmentfSec. 13 (4)].
(v) (a) Income of a Charitable or religious trust/institution (for the assessment year
1983-84 onwards) if its funds are invested or deposited, after 28.2.1983, other than
in any one or more of the modes specified in Section 11 (5).
(b) Income ol such trusts and institutions from any funds invested before 1.3.1983.
other than in any one or more of the forms or modes specified above, continues to
remain so invested or deposited after November 30, 1983.
(c) Income of such trusts or institutions from any shares in a company (other than a
Government Company or a statutory Corporation) held by them after 30.11.1983.
These are. however, subject to certain exceptions stipulated in proviso to Sec. 13(1)
(d).
Note: Wnere a charitable or religious trust forfeits tax exemption in the circumstances
mentioned above, the trust shall be charged to tax at the maximum marginal
rate (including surcharge) applicable to the highest slab of income in the case of
individuals, association of persons etc. (vide proviso to Section 164 (2) vide
Finance Act. 1984 with effect from 1.4. 1985).
Deductions in respect of Donations to certain funds, Charitable
Institutions etc. (Section 80G)
7.1.22 Deduction is allowable to donors under Section 80-G of the Income Tax Act, 1961 in
respect of donations made to certain funds, charitable institutions etc. subject to the following
limits/conditions:
116
(i)
(a) Donations to charitable trusts institutions etc.
Upto 50% of the qualifying
deductions.
(b) Donation to institution or association as may
be approved by the Central Govt, to be utilised for
the purpose of promoting family planning.
Upto 100% of the qualifying
deductions.
(ii) The aggregate amount of donations in one previous year is not less than Rs. 250/-.
7.1.23 Sec. 80 G (5). stipulates inter alia, that such deductions will be available for donations to
any institution or fund only if it is established in India for a Charitable purpose and if it fulfils
certain specified conditions. One of such condition is that the institution or a fund is either
constituted as a Public Charitable Trust or is registered under the Societies Registration Act,
1860 or under any law corresponding to that Act in force in any part of India or under Section 25
of the Companies Act. 1956 or is an institution approved by the Central Govt, for the purposes
of clause (23) of Section 10 or is an institution financed wholly or in part by the Govt, or a local
authoritv.
7.1.24 Such institutions are required to apply to the Commissioner of Income Tax for recogni
tion under Sec. 80-G for getting the benefit of tax exemptions in respect of donations. There is no
prescribed form for making such an application but this can be made as per proforma (given on
page No. 123
The application is to be accompanied by two copies each of the Trust Deed,
Memorandum and Rules. Annual Accounts for the last three years, a list of the trustees or of the
members of the Executive Committee and certificates to the effect that:
(a) there has been no change in the aims and objects of the institution since its registration;
and
(b) that the provisions of Sections 11 and 13 have not been infringed.
Expenditure on Rural Development Programmes: (Section 35 CC)
7.1.25 This section stipulates that the assessee. being a company or a Co-operative Society is
entitled to deduction in respect of any expenditure incurred by them during the previous year
on Rural Development Programmes. This deduction is available only if the following conditions
are satisfied:
(a) When the rural development programme has been approved by the prescribed authority
before 17th March. 1985 under rule 6 AAA of the Income Tax Rules. 1962.
(b) When the assessee furnishes, alongwith the return of Income for the relevant assessment
year, a statement of such expenditure in Form No. 3AA (as prescribed under Rule
6AAB) of the Income Tax Rules, 1962 duly signed and verified by a Chartered Ac
countant or any other qualified accountant in terms of explanation to Sec. 288 (2) of
Income Tax Act. 1961.
7.1.26 It should be noted that the prescribed authority will not approve any programme unless
such programme falls within such class or category of programmes of rural development as may
be specified by the Central Government. Where such deduction is claimed and allowed, no
deduction in respect of such expenditure will be allowed under any other provision of the Act for
the same or any other assessment year.
7.1.27 For the above purposes:
(a) “Programme of rural development” includes any programme for promoting the social
117
and economic welfare of. or the uplift of the public in any rural area.
(b) “Rural Area” means any area other than—
(i) an area which is comprised within the jurisdiction of a municipality (whether known
as a municipality, municipal corporation, notified area committee, town area com
mittee. town committee or by any other name) or a cantonment board and which
has a population of not less than ten thousand according to the last preceding census
of which the relevant figures have been published before the first day of the previous
year: or
(ii) an area within such distance, not being more than fifteen kilometres, from the loca
limits of any municipality or cantonment board referred to in sub-clause (i). as the
Central Government may. having regard to the stage of development of such area
(including the extent of. and scope for. urbanisation of such area) and other relevant
considerations, specify in this behalf by notification in the Official Gazette.
7.1.28 It may be pointed out that, in this connection the Central Govt, has notified the specified
areas in its notification No. SO691(E). dated 29.9.1977. Further the Central Board of Direct
Taxes have also issued relevant guidelines [vide Circular No. 231. dated 14.11.1977 printed in
1978-111 ITR (Statute) 57 to 61] .giving illustrative list of categories of projects for
rural development to be considered for approval by the prescribed authority, important points
to be kept in view for formulating programmes of rural development and the basic information
to be furnished in the application for approval.
Expenditure by way of Payment to Associations and Institutions
for carrying Rural Development Programmes (Sec. 35 CCA).
7.1.29 This section provides that any sum paid during the relevant previous year by an assessee
to anv association or institution, having the object of undertaking programmes ol rural
development, will be allowed as deduction.
7.1.30 This deduction is. however, admissible subject to the satisfaction of the following
conditions:
(a) The association or institution has used such amount for carryingout programme of rural
development:
(b) The assessee furnishes a certificate from such association or institution to the effect that.
(i) the programme of rural development for which the sums are paid, has been ap
proved by the prescribed authority before 1.3.1983.
(ii) Where such payment is made after 28.2.1983. such programme involves work by
way of construction of any building or other structure (whether for use as a
dispensary, school, training or welfare centre, workshop or for any other purpose) or
the laying of anv road or the construction or boring of a well or tube-well or the
installation of anv plant or machinery, and such work has commenced before
1.3.1983.
7.1.31 Like-wise deduction will also be admissible where an assessee incurs any expenditure by
wav of payment of any sum:
(a) to an association or institution, which has as its object the training of persons for
implementing programmes of rural.development
(b) to a rural development fund set up and notified by the central government in this behalf.
118
7.1.32 This deduction is allowable subject to the condition that the assessee furnishes a
certificate from such association or institution to the effect that:
(a) the prescribed authority had approved the association or institution before 1.3.1983; and
(b) the training of persons for implementing any programme of rural development had been
started by the association or institution before 1.3.1983.
7.1.33 It may be noted that the aforesaid certificates will not be issued by any association or
institution unless it has obtained from the prescribed authority a written authorisation to issue
certificates of such nature.
7.1.34 It may be pointed out that where such deduction under the preceding paras is claimed
and allowed, no deduction in respect of such expenditure under any other provision of this Act
for the same or any other assessment year will be allowed.
7.1.35 “Programme of Rural Development” shall have the same meaning as explained under
the head “Rural Development Allowance”.
7.1.36 It may be noted that while Sec. 35 CC allows the benefit only to a “Company” and
“Co-operative Society”, Sec. 35 CCA widens its ambit to include an assessee which is defined
U/S 2 (7), read with Sec. 2 (32). as an individual. Hindu Undivided Family, a company, a firm,
an association of persons or a body of individuals, whether incorporated or not, a local authority
and every artificial juridical person.
7.1.37 “Co-operative Society” is defined U/S 2 (19) of the Income Tax Act. 1961 Act as a
Co-operative Society Registered under the Co-operative Societies Act. 1912. or under any other
law for the time being in force in any state for the registration of Co-operative Societies.
Income which do not form part of Total Income
7.1.38 Income of an Educational Institution: Section 10 (22): Any income of a University or other
Educational Institution, existing solely for educational purposes and not for purposes of profit.
7.1.39 Income of a Hospital or Medical Institution: Section 10 (22A): Any income of a hospital or
other institution for the reception and treatment of persons suffering from illness or mental
defects or for the reception and treatment of persons during convalescence or of persons
requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not
for purposes of profit.
7.1.40 Income of Public Charitable Trust or Society for Development ofKhadi or Village Industries: Section
10 (23B): Any income of an institution constituted as a Public charitable trust or registered
under the Societies Registration Act, 1860 or under any corresponding law, existing solely for
the development of Khadi or Village Industries or both, and not for profit, to the extent such
income is attributable to the business of production, sale, or marketing of Khadi or products of
village industries provided the following conditions are satisfied:
(a) The institution applies its income or accumulates it for application, solely for the
development of Khadi or Village Industries or both; and
(b) The institution is approved by the Khadi and Village Industries commission.
119
7.1.41 In the case of members of a Scheduled Tribe (as defined in clause (25) of article 366 of
the constitution) residing in the States of Nagaland, Manipur and Tripura or in the Union
Territories ofArunachal Pradesh and Mizoram, any income which accrues or arises to him.:—
a) from any source in the aforesaid areas: or
b) by way of dividend or interest on securities. [Section 10 (26)]
7.1.42 Income to any person in the district of Ladakh [Section 10 (26A) ]: Any income accruing
or arising to any person from any source in the district of Ladakh in the previous year relevant to
any assessment year commencing before 1.4.89 where such person is resident in the said district
in that previous year.
7.1.43 Income of institution or association established or formed for promoting the interests of
the members of Scheduled Castes or the Scheduled Tribes or of both. [Section 10 (26B) ]
120
Form No. 10A
(See rule 17A)
Application for registration of charitable or religious trust or institution under section 12A(a) of the
Income-tax Act, 1961.
To
The Commissioner of Income-tax.
Sir.
I
on behalf of
(name of the trust or institution) hereby
apply for the registration of the said trust/institution under Section 12A of the Income-tax Act, 1961. The following
particulars are furnished herewith:
1.
2.
3.
4.
5.
1.
2.
Name of the *trust/institution in full (in Block letters)
Address
Name(s) and address(es) ofauthor(s)/founder(s)
Date of creation of the trust or establishment of the institution
Name(s) and address(es) of trustee(s)/manager(s)
I also enclose the following documents:
(a) *Original/Certified copy of the instrument under which the trust/institution was created/established,
together with a copy thereof.
(b) *Original/Certified copy of document evidencing the creation of the trust or the establishment of the
institution, together with a copy thereof. (The originals, if enclosed, will be returned).
Two copies of the accounts of the *trust/institution for the latest *one/two/three years.
I undertake to communicate forthwith any alteration in the terms of the trust, or in the rules governing the
institution, made at any time hereafter.
Date
Signature
Designation
Address
*Strike out whichever is not applicable.
121
t
Form No. 10
(See rule 17)
Notice to the Income-tax Officer under Section 11(2) of the Income-tax Act, 1961
To
The Income-tax Officer,
I
onbehalfof
(name ofthe trust), hereby bring to your notice that it
has been decided by a resolution passed by the trustees on
(date) (copy enclosed) that, out of the
income of the trust for the previous year(s), relevant to the assessment year 19
—19
and subsequent
previous year(s), an amount of Rs
per cent of the
income of the trust/such sum as is available at the end of the previous years(s) should be accumulated or set apart till
the previous year(s) ending
in order to enable the trustees to accumulate sufficient funds for carrying
out the following purposes of the trust
(1)
(2)
2.
etc.
Before the expiry of six months commencing from the end of each previous year*, the amount so accumulated or
set apart has been/will be—
(i) invested in any Government security as defined in clause (2) of Section 2 of the Public Debt Act, 1944, or in
any otner security which may be approved by the Central Government in this behalf;
(ii) deposited in any account with the Post Office Savings Bank including deposits made under the Post Office
(Time Deposits) Rules, 1970 or a banking company to which the Banking Regulation Act. 1949, applies
(including any bank or banking institution referred to in Section 51 of the Act) or a co-operative society
engaged in carrying on the business of banking (including a co-operative land mortagage bank or a
co-operative land development bank); or
(iii) deposited in an account with a financial corporation which is engaged in providing long-term finance for
industrial development in India and which is approved by the Central Government for the purposes of
clause (viii) of sub-section (1) ofSection 36.
3.
Copies of the annual accounts of the trust alongwith details of investments (including deposits) and utilisation, if
any. of the money so accumulated or set apart will be furnished to you before the expiry of six months
commencing from the end of each relevant previous year* or before the 30th day ofJune immediately following
such previous year*, whichever is later.
4.
It is requested that in view of our complying with the conditions laid down in Section 11 (2) of the Income-tax
Act, 1961. the benefit of that section may be given in the assessments of the trust in respect of the incomes
accumulated or set apart as mentioned above.
Date
4- Signature
Designation
Address
Notes:
1.
2.
3.
+ This notice should be signed by a trustee.
Delete the inappropriate words.
*Where there are different previous years for different sources of income, reference here is to the previous year
which expires last.
122
The Commissioner of Income-Tax
Range------------- ---------------------Address---------------------------------
Dear Sir,
Sub: Application for recognition as an Institution, donation to which are exempted U/S 80G of the
Income-Tax Act, 1961 on behalf of
On behalf of the above-mentioned Trust, I/We have to state as under:
1.
(Name of the institution) has been constituted as an irrevocable charitable Trust/Society/Company registered
under the Indian Trust Act, 1882/Societies Registration Act, 1860/the Companies Act, 1956 respectively.
2.
Its main objects as stated in its constitution (a certified copy of which is being attached'herewith) are as
under:*
(Here state the main objects in brief)
3.
The registred office of the Institution is located at
4.
The institution shall maintain regular accounts ofits income and expenditure which shall be audited by a firm
of Chartered Accountants.
5.
The constitution of the Institution does not contain any provision for the transfer or application of the whole or
any part of its income or assets for any purposes other than those specified therein.
The institution has not been created for the benefit of any particular religion, caste or community.
6.
It is prayed that our Institution may please be recognised as an Institution fulfilling requirements of Section
80G of the Income-tax Act. so that donations received by it may enjoy exemption in the hands ofdonors to the
extent provided by law.
Thanking you.
Yours faithfully,
123
VII
Legal Regulations In India
VII. 2
The Indian Trusts Act, 1882
Introduction
7.2.01 An organisation registered under the Indian Trust Act, 1882 is entitled to certain
exemptions from tax liabilities in respect ofits income. Donations to charitable trusts qualify for
deduction under Section 80 G of the Income Tax Act, 1961 from the income of the donor. Such
exemptions/deductions would be available subject to fulfilment of specified statutory
conditions.
7.2.02 The salient features of the provisions of the Act are given below:
Definition of ‘Trust’
7.2.03 A trust is defined as an obligation annexed to the ownership of property, and arising out
of a confidence reposed in. and accepted by the owner, or declared and accepted by him, for the
benefit of another, or of another and the owner.
7.2.04 A public charitable trust is usually irrevocable. Once a valid dedication of the funds or
properties are made for charitable purposes, the donor shall have no power to revoke it.
7.2.05 Purpose and Validity of Trust: Income of a charitable trust is exempt under the provisions
of Sections 11. 12 and 13 of the Income Tax Act, 1961. The trust should be established in
accordance with law and its objects should fall within the definition of the term “Charitable
Purpose”
7.2.06 A trust may be created for any lawful purpose. Such purpose is lawful unless it is (a)
forbidden by law or (b) is of such a nature that if permitted, it would defeat the provisions of any
law or (c) is fraudulent or (d) involves or implies injury to the person or property of another or
(e) the court regards it as immoral or opposed to public policy. Every trust of which the purpose
is unlawful is void.
7 2.07 Fhe validity criteria for immovable and movable property is different. No trust is valid:
(a) in relation to immovable property unless declared by a non-testamentary instrument in
writing signed by the author of the trust or the trustee and registered, or by the Will of the
author of the trust or the trustee;
(b) in relation to movable property unless declared as aforesaid or unless the ownership of
the property is transferred to the trustee.
7.2.08 Charitable Purpose: The Income Tax Act, 1961 has defined charitable purpose to include
relief of poor, education, medical relief and advancement of any other object of general public
utility.
7.2.09 Creation of Trust: Even though a trust may be created orally, it is advisable to declare a
trust by a non-testamentary instrument in writing signed by the founder of the trust and the
trustees and be registered in order to clgim exemptions/deductions under Income Tax Act,
1961.
124
7.2.10 A Trust Deed should contain the following:
(a) an intention to create a trust;
(b) the purpose of the trust;
(c) the beneficiary;
(d) the name of the trustees;
(e) the trust property; and
(f) unless the author is himself the trustee, the transfer of the legal ownership of the property
to the trust.
7.2.11 Section 18 of The Transfer of Property Act exempts transfer of properties from the
restrictions imposed by Sections 14 to 17 made for the benefit of public in the advancement of
religion, knowledge, commerce, health, safety or any other object beneficial to the mankind.
Sections 14 to 17 which restrict transfers in perpetuity does not apply to charitable institutions
and therefore such institutions can take properties in perpetuity.
Exemptions in respect of Income Tax Liability
7.2.12 Exemptions in respect of Income Tax Liability available to a public trust are as under:
Sections of the Income
Tax Act, 1961
Exemption
(a)
(b)
Income of a public charitable trust wholly for public Section 10 (23C)
religious or charitable purposes.
Income of a public charitable trust existing solely for Section 10 (23B)
the development of Khadi and/or village industries and
not for profit.
125
VII
Legal Regulations In India
VII.3
The Societies Registration Act, 1860
Introduction
7.3.01 A society registered under The Societies Registration Act. 1860 is entitled to certain
exemptions from tax liabilities in respect of its income. Donations to such Societies would also
qualify for deduction from the income of the donor. Such exemptions/deductions would be
admissible subject to fulfilment of specified statutory conditions. For better appreciation, the
salient features of the Societies Registration Act, 1860 are discussed hereafter.
7.3.02 Who can form Societies: “Any seven or more persons associated for any literary, scientific
or charitable purpose or for any such purpose as is described in Section 20 of this Act, may, by
subscribing their names to a memorandum of association and filing the same with the Registrar
of Societies form themselves into a society under this Act”. (Section 1 of Societies Registration
Act).
7.3.03 Contents of Memorandum of Association: The memorandum of association of a society shall
normally contain the following particulars:
— The name of the Society:
— Registered office of the Society:
— The objects of the Society;
— The names, addresses, occupations and signatures of the members, governors, directors
office bearers of the committee, council or other governing body to which by the rules of the
society, the management of its affairs is entrusted.
7.3.04 A copv of the rules and regulations of the society, certified to be a correct copy by not less
than three of the members of the governing body, is required to be filed alongwith the
memorandum of association with the Registrar of Societies (Section 2 of the Societies Registra
tion Act).
Type of Societies to be Registered
7.3.05 An association of persons with any of the following purposes may be registered under the
Act:
— Charitable Societies.
— The military orphan funds or societies established at the several presidencies of India;
— Societies established for the promotion of science, literature or the fine arts;
— Societies established for instruction, (education and training);
— For diffusion of useful knowledge;
— For diffusion of political education
— Foundation or maintenance of libraries or reading-rooms for general use among the
members or open to the public;
— Public museums and galleries of paintings and other works of art,
— Collections of natural history, mechanical and philosophical inventions, instruments or
designs (Sec. 20 of the Societies Registration Act).
126
Exemptions in respect of Income Tax Liability
7.3.06 Exemptions in respect of Income Tax Liability available to a society are as under:
Exemption
(a)
(b)
Sections of the Income
Tax, 1961
Income of an institution constituted as a public
charitable trust or registered under the
Societies Registration Act, 1860 existing solely for the
development of Khadi and/or Village Industries and
not for profit.
Sec. 10 (23B)
Income of an institution registered as a public
charitable trust or a society under the Societies
Registration Act, 1860 wholly for Public religious
and charitable purposes which may be notified by
the Central Govt, and supervised in a manner so as
to ensure that its income is properly applied for
its purposes.
Sec. 10 (23C)
Statutory Requirements for filing of Documents with Registrar of
Societies
7.3.07 Regarding filing of Annual List of Managing Body: Section 4 stipulates that the society must
file annually with the Registrar, vvithin fourteen days from its Annual General Body Meeting,
and where such Annual General Body Meeting is not fixed by the Rules & Regulations, then in
the month of January, the list of its Governing Body Members giving their names, addresses
and occupations.
7.3.08 Inspection of Documents: “Section 19 lays down that any person may inspect all documents
filed with the Registrar and is also entitled to seek a certified copy of extract of any document or
part of any document to be certified by the Registrar, on payment of a fee as levied by different
states. Such certified copy shall be prima facie evidence on the matters contained therein in any
legal proceedings.
127
VII
Legal Regulations In India
VII.4
Foreign Exchange Regulation Act, 1973
Applies to all Citizens
7.4.01 This Act extends to the whole of India and applies to all citizens of India, outside India
and to branches and agencies outside India of companies or bodies corporate, registered or
incorporated in India.
Restrictions on Payments
7.4.02 Under Section 9. no person in. or resident in. India is allowed to make any payment to or
for the credit of any person resident outside India and similarly he cannot receive, otherwise
than through an authorised foreign exchange dealer, any payment by order or on behalf of any
person resident outside India. Exemptions to this general restriction will be granted condition
ally or unconditionally by the Reserve Bank of India only.
Other Restrictions
7.4.03 Further no person except with permission of Reserve Bank of India will bring or send to
India anv gold or silver or any foreign exchange or any Indian Currency and no person will take
or send out of India any gold, jewellery or precious stones or Indian Currency or foreign
exchange.
7.4.04 The Central Govt, is entitled U/S 18 to arrange for proper declaration of full export
value of the goods and sale of the same and receipt of the sale proceeds in India.
7.4.05 Under Section 25 no person resident in India shall without the permission of Reserve
Bank of India acquire or hold or transfer or dispose of by sale, mortgage, lease, gift, settlement
or otherwise any immovable property situate outside India. This restriction does not apply to a
national of a foreign state.
Restrictions on Business outside India
7.4.06 Under Section 27 no person resident in India without previous permission of Central
Government, associate himself with or participate in. whether as promoter or otherwise, any
Concern out side India, engaged in, or intending to engage in any activity of a trading,
commercial or industrial nature.
Restrictions on place of Business in India
7.4.07 No person resident outside India (whether a citizen of India or not) or no person who is
not Indian citizen but is resident in India or no foreign company shall except with general or
special permission of Reserve Bank of India:-
(a) Carry on in India, or establish in India a branch office or other place of business for
carrying on any activity of a trading, commercial or industrial nature.
(b) Acquire the whole or any part of any undertaking in India of any person or company
128
carrying on any trade, commerce or industry or purchase the shares of any such
company.
Employment in India
7.4.08 No national ofa foreign state shall without the prior permission of Reserve Bank of India
take up any employment in India or practise any profession or carry on any occupation, trade or
business in India.
Holding of Immovable Property in India
7.4.09 No non citizen and no foreign company shall without permission of Reserve Bank of
India acquire or hold or transfer or dispose of by sale, mortgage, lease, gift, settlement or
otherwise any immovable property situate in India.
Penalty and Prosecutions
7.4.10 For contravention of any of provisions of this Act (other than Section 13, 18(1) (a), 19(1)
(a), a person shall be liable to such penalty not exceeding five times the amount of value
involved or five thousand rupees whichever is more.
7.4.11 In case of an offence where amount involved exceeds Rupees One Lakh, on conviction
by court, the person may be convicted and sentenced to imprisonment for a term which shall not
be less than six months but which may extend to seven years and with fine.
7.4.12 In other cases, imprisonment may extend to three years or with fine or with both.
129
VII
Legal Regulations In India
VII. 5 The Foreign Contribution (Regulation) Act, 1976 and The
Foreign Contribution (Regulation) Rules, 1976
The Purpose
7.5.01 The purpose of the Act is to regulate, inter alia, the acceptance and utilisation of
specified foreign contribution, foreign hospitality or scholarship/stipend etc. from foreign
source so as to ensure that, amongst others, voluntary organisations and individuals working in
the important areas of national life may function in a manner consistent with the values of a
Sovereign Democratic Republic.
7.5.02 Effective Date: The Foreign Contribution (Regulation) Act, while passed on 31st March,
1976. came into force with effect from 5.8.1976 when the Foreign Contribution (Regulation)
Rules. 1976 were made effective.
Territorial Jurisdiction and Applicability:
7.5.03 This Act extends to the whole country (including the States ofJammu & Kashmir and
Sikkim) and is applicable to:
(a) In India
(i) Indian Citizens;
(ii) Citizens of Foreign Countries residing in India;
(iii) All associations of individuals, whether registered or not, having office in India,
including a society, whether registered under the Societies Registration Act, 1860 or
not; and
(iv) Any other organisation which may be a firm or body corporate.
(b) Outside India
(i) Citizens of India residing abroad;
(ii) All associates, branches or subsidiaries, outside India, of companies, and all bodies
corporate which are registered or incorporated in India.
Definitions
7.5.04“Foreign Contribution” means the donation, delivery or transfer made by any foreign
source of:
(a) any article, other than an article given to a person as a gift for personal use if its market
value in India on the date of such gift does not exceed Rs. 1,000/-.
(b) any currency, whether Indian or Foreign, irrespective of the value. It includes all coins,
postal notes/orders, money orders, bank notes, cheques, bank drafts, letters of credit,
bills of exchange and promisory notes (as defined in Sec. 2 (f) of the Foreign Exchange
Regulation Act, 1973 (hereafter referred to as FERA 1973).
(c) any foreign security such as debentures, debenture stock, bonds, shares, stocks, Govt.
130
securities/certificates/units and other instruments of credit etc. (as defined in clause (i) of
Section 2 of FERA, 1973). Such securities are covered under this Act irrespective of the
value.
7.5.05 A donation, delivery or transfer of any article, currency or foreign security by any person
who has received it from any foreign source, either directly or through one “or more persons”
shall also be deemed to be “Foreign Contribution”
7.5.06 “Foreign Hospitality” means any offer, not being a purely casual one, made by a foreign
source for providing a person (individual) with the costs of travel to any foreign country or
territory or with free boarding, lodging, transport or medical treatment.
7.5.07 “Foreign Source” includes:
(a) the Govt, of any Foreign Country or territory and any agency of such Govt.;
(b) any international agency except the United Nations or any of its specialised agencies, the
World Bank. International Monetary Fund or other agencies notified by the Central
Govt.;
(c) a Foreign Company, including its subsidiary and multi-national Corporation:
(d) a corporation, not being a foreign company, incorporated in a foreign country or
territory:
(e) any company whose more than one-half of the nominal value of its share capital is held,
either singly or in the aggregate by any Foreign Govt.; foreign citizens: foreign corpora
tions or trusts; societies or other associations of individuals (whether incorporated or
not), formed or registered in a foreign country:
(f) a trade union in any foreign country or territory;
(g) Foreign trusts, or foreign foundations (in the nature of a Trust) mainly financed by a
foreign country or territory:
(h) a society, club or other association of individuals formed or registered outside India;
(i) a citizen of a foreign country.
7.5.08 It. however, excludes any foreign Institution permitted by the Central Govt, by notifica
tion in the Official Gazette, to carry on its activities in India.
Regulation of Foreign Contribution and Foreign Hospitality
7.5.09 Persons/ Organisations Prohibited from Accepting Foreign Contribution (Section 4): Following are
the prohibited/debarred category of persons and organisations who cannot accept any foreign
contribution:
(a) candidates for election:
(b) journalists or Printer/Publisher of registered newspaper:
(c) Judges;
(d) employees of the Government or any Corporation (owned or controlled by a Govt.,
including a Govt. Company);
(e) member of any legislature; and
(f) political parties or office bearers of any political party.
7.5.10 The definition of “Political Party” inter alia, means an association or body ofindividual
citizens of India which has set up candidates for election to any Legislature, but is not so
131
registered or deemed to be registered under the Election Symbols (Reservation and Allotment;
order. 1968.
7.5.11 The said section also prohibits acceptance of foreign contributions, acquisition of
currency from a foreign source and/or delivery of currency accepted from foreign source by a
person who is resident in India and/or an Indian Citizen resident outside India on behalf of the
aforesaid category of persons. This also extends to the delivery of such currency to any
organisa tion of a political nature not being a Political Party and an association or organisation
other than the one for which it was received.
7.5.12 Acceptance of Foreign Contribution/Foreign Currency by or on behalfofa Political Organisation with
Prior Permission of the Central Government (Section 5): With the prior permission of the Central
Government, foreign contributions can be accepted by an organisation of a political nature, not
being a political party. Since the foreign source does not cover an Indian citizen resident
abroad, foreign contribution can be accepted from him without obtaining permission of the
Central Govt. Section 5(1).
7.5.13 Similarly with prior permission of the Central Govt., foreign currency can be accepted
on behalf of an organisation of a political nature, not being a political party, by a person resident
in India and citizen of India residing abroad Section 5 (2) (a).
7.5.14 Rule 3 (a) of the Foreign Contribution (Regulation) Rules, 1976 stipulates that an
application for prior permission of the Central Government shall be made in Form FC-1. If the
application so made is not disposed off within 90 days from the date of receipt by the Central
Govt., the permission prayed for in such application shall, on the expiry of ninety days, be
deemed to have been granted by the Central Govt., unless it is extended for a further period of
30 days by the Central Government due to some special difficulties (Section 11).
7.5.15 Registration of all other Associations with the Central Government before Acceptance of Foreign
Contribution: All other Associations, other than an organisation of a political nature, not being a
political party, who have a definite cultural, economic, educational or social programmes
(Section 6) are required to make an application in form FC-8 (see Rule 3A) for registration with
the Central Government before accepting any foreign contribution. In the aforesaid applica
tion. apart from other details, the following particulars are required to be furnished by the Chief
Functionary of the Association. They are also obliged to intimate to the Central Govt, the
following particulars within the prescribed time:
(a) Main object(s) for which the foreign contribution is accepted;
(b) The name of the branch of the bank together with address through which the Association
shall receive/accept foreign contribution;
(c) Separate bank account number of the Association in the said branch of the bank.
7.5.16 If such association obtains any foreign contribution through any branch, other than the
specified branch of the bank, or fails to give such intimation, within the prescribed time or in the
prescribed manner, or gives any intimation which is false, it can be debarred by the Central
Govt, from accepting any foreign contribution from a notified date without its prior permission.
7.5.17 If any such associaton does not register itself in the aforesaid manner with the Central
Govt., it can accept foreign contribution only after obtaining prior permission of the Central
Govt, in Form FC 1A (See Rule 3 (aa)).
132
7.5.18 Every Association is required to intimate the receipt, source, manner of receipt, purpose
and manner of utilisation of foreign contribution to the Secretary to the Govt, of India, Ministry
of Home Affairs, New Delhi by Regd. Post for every half-year ending 30th June and 31st
December. Such intimation is to be furnished before 30th July and 30th January of every year in
duplicate in Form FG-3.
Receipt of Scholarships, Stipend or other Subsidies for Education
from any Foreign Source (Section 7).
7.5.19 Indian citizens receiving scholarships, stipend or other subsidies foreducation from any
foreign source are required to furnish information to the Central Govt, about—
(a) the source of receipt:
(b) the nature and amount of such receipt:
(c) the mode/channel of receipt: and
(d) the purpose of receipt.
7.5.20 This intimation is to be sent in Form FC-5 within thirty days of its receipt. However,
where the person receiving such scholarship, stipend or any other payment of a like nature is
residing outside India, the intimation shall be given within 60 days of their receipt.
7.5.21 The aforesaid obligations are in relation to scholarships, stipends or other subsidies for
education received in excess of Rs. 36.000/- during an academic year. For computing such
value, the cost of air-travel by economy class and expenses towards tution and other fees spent
by the foreign source shall be excluded but shall include the value of such funds received for
purchase of books, clothing and equipment as well as expenses of sight seeing etc. (Rule 5).
Restrictions on Acceptance of Foreign Hospitality (Section 9)
7.5.22 The following persons are required to obtain prior permission of the Central Govt, for
accepting any foreign hospitality while visiting any foreign country or territorv bv filing an
application in Form FC-2 Vide Rule 3 (b):
(a) Members of legislature:
(b) Office bearers of a Political Party:
(c) Judge:
(d) Govt, servants or employees of any Corporation.
7.5.23 However, in the case of emergent medical-aid received on account of sudden illness,
during a visit outside India, no prior permission is required. However, the person shall intimate
the Central Govt, within one month from the date of such acceptance, the source and the
manner in which such hospitality was received.
7.5.24 Application for obtaining prior approval shall be made or given to the Secretary to the
Govt, of India. Ministry of Home Affairs, New Delhi by Registered Post (Rule 6).
Maintenance of Accounts—Section 13 [See Rule 8 (1)]
7.5.25 Every association referred to in Section 6 is required to maintain separate set of accounts
133
and records, exclusively for foreign contribution received and utilised as under:
fa) Record of foreign contribution received in the form of articles in form No. FC-6.
fb) Record of foreign contribution received in the form of securities in form No. FC-7.
fc) Record of foreign contribution received and utilised in currency in the form ofcash book
and ledger on double entry basis.
fd) Separate bank account of foreign contribution received and utilised.
7.5.26 The aforesaid accounts are required to be maintained on a half-yearly basis, one for the
period commencing on the 1st day of July and ending on the 31st day of December, and the
other for the period commencingon the 1st day ofjanuary and ending on the 30th day of June.
7.5.27 The yearly accounts are also required to be certified by a Chartered Accountant in form
FC-9 [See Rule 8 (2)]. Two copies of such accounts duly audited shall be furnished to the
Secretarv to the Govt, of India in the Ministry of Home-Affairs. New Delhi within sixty days of
the close of the vear.
7.5.28 It mav be noted that separate accounts of foreign contribution are required to be
maintained on the basis of calendar year. The association is. however, free to adopt any
accounting year for the closing of its own accounts.
Inspection of Accounts or Records (Sections 14 & 15)
7.5.29 The Central Govt. has. for anv reason to he reeorded in writing, any ground to suspect
the contravention of any provisions of this Act bv any Political Party, or any person or any
organisation or anv association, power to authorise a gazetted officer (holding a class I post) to
inspect anv account or records maintained by any such political party, person, organisation or
association.
7.5.30 The authorised officer has wherever necessary, also a right to seize such account or
record and produce the same before the court in which any proceeding is brought for such
contravention. However, if no proceedings are brought within six months from such seizure,
then the accounts and records will have to be returned.
Audit of Accounts (Section 15 A)
7.5.31 The Central Govt, has a right to appoint a “Group-A” Gazetted officer to audit the
accounts of an organisation or association in case the required statutory returns have either not
been filed bv it or are not in accordance with law. The information obtained from such audit
shall however be kept confidential and shall not be disclosed.
Punishment (Section 23)
7.5.32 Contravention of any provisions of this act or rules made thereunder by a person who
accepts or assists any person, political party or organisation in accepting any foreign contribu
tion or anv currency from a foreign source is punishable with imprisonment upto 5 years or with
fine or with both.
7.5.33 Further, it has been enacted that ifa man who has been convicted of any offence relating
to the acceptance or utilisation of foreign contribution is again convicted of such offence, he
shall be debarred from receiving any foreign contribution for a period of three years from the
date of subsequent convicton.
134
Offence by Companies
7.5.34 When offences are committed by a Company (which for the purposes of this act also
includes firm, society, trade union or any other associaton of individuals), the liability for
proceedings and consequent punishment shall extend to every person who, at the time the
offence was committed, was in charge of o: was responsible to the said entities for the conduct of
their business and also a director, manager, secretary or other officer if it is proved that the
offence was committed with his consent or connivance or is attributable to his neglect.
Forms
7.5.35 Some of the important forms prescribed under the foreign contribution (Regulation)
Rules. 1976 are as under:
(a) Form FC-1
— Application for seeking prior permission of the Central Government for accepting
foreign contribution by or on behalf of an organisation of political nature not being a
political party.
(b) Form FC-1A
Application for seeking prior permission of the Central Government for accepting
foreign contribution by or on behalf of an associaton.
(c) .Form FC-2
— Application for seeking prior permission of the Central Government to accept foreign
hospitality.
(ci) Form FC-3
Half yearly return of foreign contribution received and utilised by an association to be
submitted to the Secretary. Ministry of Home Affairs, Government of India.
(e) Form FC-5
— Intimation to the Central Government of receipt of scholarship, stipend or any
payment of a like nature from a foreign source.
(f) Form FC-6
— Record of foreign contribution received in the form of articles
(g) Form FC-7
— Record of foreign contribution received in the form of securities
(h) Form FC-8
— Application for registration to receive Foreign Contribution.
(i) Form FC-9
—Certificate to be given by a C
Chartered Accountant regarding foreign contribution
received and utilised by an association.
135
Form FC 1
[See Rule 3 (a)]
Application for seeking prior permission of Central Government for accepting foreign contribution by or
on behalf of an organisation of political nature not being a political party.
[(Sections 5(1) and 5 (2) (a) of the Foreiirn Contribution (Regulation) Act. 1976)]
1.
(a) Particulars of the Organization:
(full name in block letters and address).
(b) Address of the Principal/Head Office of the Organization:
2.
Full particulars of the person applying on behalf of the Organization:
(a) Name in full (in block letters).
(b) Name of father
(c) Occupation
(d) Residential address
(e) If an office bearer, the office held in the Organization.
3.
Reference of the order published by the Central Government in the official Gazette the specifying Organiza
tion as an “Organization of Political Nature, not being a political party
4.
Nature and full details of contribution including value, to be received.
5.
The mode/channel of receipt.
6.
Purpose for which foreign contribution is proposed to be received.
7.
Particulars of the foreign source from which contribution to be received.
fa) If an individual, his personal particulars including name, present address, permanent address, nationality. profession.
(b) If an Organization/Institution/Association/Trust/Foundation/Trade Union, etc. full particulars thereof
including:
(i) Full name and complete address.
(ii) Address of Head Office/Principal Office.
(iii) Aims and objects.
(iv) Particulars of important office bearers.
8.
Nature of connection/dealings with the foreign source.
9.
Any other information of significance which the applicant may like to furnish.
Declaration
I hereby declare that the above particulars furnished by me are true and correct.
Signature of the applicant.
Place and Date:
Note: In case of application by an Organization, it should be signed by the chief functionary.
136
Form FC-1A
[See rule 3 (aa)]
Application for seeking prior permission of the Central Government for accepting foreign contribution by
or on behalf of an association.
[Proviso to Section 6(1)
. Section 6 (1A) and section 10 (b) of the Foreign Contribution (Regulation) Act. 1976].
(a) Particulars of the Association:
(Full name in BLOCK LE FI ERS. and address)
1.
(b) Address of the Principal/Head Office of the Association:
2.
Full particulars of the person applying on behalf of the Association:
(a) Name (in full in BLOCK LETTERS)
(b) Name of father
(c) Occupation
(d) \ Residential address
(e) If an office bearer, the office held in the Association.
3.
Reference of the notification published by the Central Government in Official Gazette directing the
Association to seek prior permission for acceptance of Foreign Contribution.
4.
Nature and full details of contribution including value to be received.
5.
6.
The mode/channel of receipt.
Name of Bank and address of its Branch through which foreign contribution is proposed to be received.
7.
Purpose for which foreign contribution is proposed to be received.
8.
Particulars of the foreign source from which contribution is proposed to be received
(a) If an individual, his personal particulars, including name, present address, permanent address, national
ity. profession.
(b) If an organization/Institution/Association/Trust/Foundation/Trade Union, etc., full particulars
thereof including:(i) Full name and complete address.
(ii) Address of Head Office/Principal Office.
(iii) -Aims and objects.
(iv) Particulars of important office bearers.
9.
Nature of connection/dealings with the foreign source.
10.
Any other information of significance which the applicant may like to furnish.
Declaration
I herebv declare that the above particulars furnished by me are true and correct.
Signature of Applicant
Place:
Date:
Note : The application should be signed by the chief functionary of the Association.
137
Form FC-2
[See Rule 3 (b)]
Application for seeking prior permission of the Central Government to accept foreign hospitality.
[(Section 9 read with Sections 10 (d) and 11(1) of the Foreign Contribution (Regulation) Act, 1976)],
1.
Name in full (in block letters)
2.
Date of birth.
3.
Name of father/husband.
4.
Present address
5.
Permanent address
6.
Passport particulars (if already in possession)
7.
Status:
(a) Member of Legislature
(b) Office bearer of a political party
(c) Judge ofSupreme CourtjHigh Court
(d) Government Servant
(e) Employee ofa Company/Corporation
(f) Any person or class of persons not specified in section 9.
8.
Names ofcountries/places to be visited with duration of stay.
9.
The countries and places where foreign hospitality is to be accepted.
10.
Duration and purpose of visit to the country(ies)/places
11.
Particulars of host(s)
mentioned in column 9 with specific dates.
(a) Ifan individual, his pei■rsonal particulars including name, present address, permanent address, nationality, profession.
fb) MnT^
etc. full particulars
(i) Full name and complete address
(ii) Address of Head Office/Principal Office
(iii) Aims and objects
(iv) Particulars of important office bearers.
12.
*Full particulars, as Hacount'rtmh
i
3!
the aCtUa‘ S°UrCe
hospitality is located in
-n a country other than actually proposed to be visited.
the
Sis" a"d dUratiOn Of *fOreign '-'“Pitalitv proposed to be accepted with specific dates and with specific
14.
Nature of connection/dealings with the host and/or foreign source extending the hospitality.
15.
Approximate expenditure to be incurred on hospitality.
16.
Any other information of significance which the applicant may like to furnish.
138
Declaration
I hereby declare that the above particulars furnished by me are true and correct.
Signature of the Applicant
Place:
Date:
*Delete if not applicable.
♦“Foreign hospitality” means any offer, not being a purely casual one, made by a foreign source for providing
a person with the cost of travel to any foreign country or territory or with free boarding, lodging, transport or
medical treatment”.
139
Form FC-3
[(See rule 4 (a)]
For use in the Ministry
1.
Card Code
2.
Year of First Return to FCRA
3.
Recipient Code
1
2-3
4
4.
Tvpe of Organisation (Tick the proper item)
(i) Individual (2) Organisation (3) Institution (4) Association (5) Foundation (6) Trade Union
(7) Others.
_________________
5.
State Code/Country Code
6.
Serial Number of organisation
5
6-8
9-13
Part-1
(To be filled in by the reporting association)
7.
Name of the Association along with address
I
8.
T
I
14
1
]
I
46
74
Whether Registered Trust or Society, if so
(a) Registration Number:
(b) Place of Registration:
(c) Date of Registration:
9.
• \\ hether required to take Prior Permission from Ministry of Home Affairs, if so,
(a) Number and date of order/communication giving specific permission for receipt of foreign contribution
(b) Nature of contribution:
(i) Voluntary Contribution
(ii) Donation on Request.
75
10.
Nature of the Association (Tick the Proper item)
(a) (i) Religious (ii) Cultural (iii) Economic (iv) Educational (v) Social
76
(b) If a Religious.Association, State whether:
(i) Hindu (ii) Sikh (iii) Muslim (iv) Christian (v) Buddhist (vi) Others
11.
Name and Addresses of Important Office Bearers:
12.
Aims and Objects of Association:
13.
Any other Information of Significance:
140
77
Declaration
I hereby declare that the above particulars furnished by me are true and correct.
Place:
Date....
14.
SI.
No.
Signature of the Cheif Functionary of the Association
Part-11
Details of Foreign Contributions Exceeding Rs. 10.000 for the Period
Value
of
Dona
tion
a
Type of
Currency
Product
b
Mode/
Channel
of
Receipt
Month
& Year
of
Receipt
Purpose
of
Donaation
Donor’s
Name &
Address
d
e
f
£
Donor’s
Name &
Address
c
Nature of
Connection
with
Receipient
h
1.
2.
3.
4.
5.
6.
Total:
15.
Details of Foreign Contributions upto Rs. 10.000 For the Period-
SI.
No.
Value
of
Dona
tion
Type of
Currency
Product
Mode/
Channel
of
Receipt
Month
& Year
of
Receipt
■ urpose
of
Donation
a
b
c
d
e
f
1.
2.
3.
4.
5.
6.
7.
Total:
16.
Grand Total (Total of Column Hand 15 above):
b
b
141
Nature of
Connection
with
Receipient
h
Declarat; .
I hereby solemnly declare and affirm that the contribution(s) shdwn above is/are only amounts(s) received
and the purposes(s) have been correctly stated.
Signature of the Chief Functionary of the Association
Place:
Date:
Part-Ill
17.
Name and Address of the Organisation
18.
Brought Forward Amount of foreign contribution, if any. from Previous Half Year.
19.
Total Foreign Contribution Received during the half year (As per Part-II Col. 16).
20.
Purpose-wise Utilisation of Foreign Contribution.
Total Available
Previous
Balance
Rs.
P.
(i) Care of Orphans
(ii) Maintenance and Repair of: (a) Churches
(b) Gurudwaras (c) Fire Temples (d) Mosques
(e) Temples (f) Buddhist Monastries
(g) Others (Tick the Appropriate Item).
(iii) Fublicationof Religious Books. Pamphlets and
other Religious Literature
(iv) Publication of Books. Pamphlets and
Literature other than Religious
(v) Construction/Extension of: (a) Churches
(b) Gurudwaras (c) Fire Temples (d) Mosques
(e) Temples (f) Buddhist Monastries (g) Others
(Tick the Appropriate Item).
(vi) Help for the Poor. Aged a.id Destitutes
(vii) Seminars and Conferences
(viii) Religious Education of Preachers/Priests
(ix) Religious Functions
(x) Functions other than Religious
(xi) Construction and Maintenance of Hostels
(xii) Construction and Maintenance of Schools/
Colleges
(xiii) Agricultural Activities
(xiv) Animal Husbandry
(xv) Rural Development
(xvi) Technical Education(xvii) Research
(xviii) Stipends and Scholarships
(xix) Vocational Training
(xx) Health Care and Family Planning
142
Current
Receipts
Rs.
p.
Utilised
Rs.
P.
Balance
Rs.
P.
(xxi) Relief for Natural Calamities
(xxii) Relief for Riot Victims
(xxiii) Any other purpose other than above with details
21.
Total
Certified that the above mentioned entries are correct.
Instructions for Filing the Form:
Signature of the Cheif Functionary
1.
Serial Nos. 1 to 6 are for the use of the Ministry.
2.
One letter/figure should be written in each box for serial numbers 7 and 9.
3.
Abbreviations should be used wherever boxes are inadequate.
4.
Wherever space is inadequate, information should be given in a separate annexure.
143
Form FC-5
[(See rule 4 (c)]
Intimation to the Central Government of receipt of Scholarship, stipend or any payment of a like n^^ire
from a foreign source.
[Sections 7(1) and (2) of the Foreign Contribution (Regulation) Act, 1976].
I.
Name in full (in block letters)
2.
Date of birth
3.
Name of father
4.
Present address
5.
Permanent address
6.
Passport particulars
7.
Specific details of occupation/profession
8.
Particulars of the foreign source from whom scholarship, stipend or payment of a like nature was received:(a) If an individual, his personal particulars including name, present address, permanent address, national
ity. profession.
(b) If an Organization/Institution/Association/Trust/Foundation/Trade Union etc., full particulars
thereof including—
(i) Full name and complete address.
(ii) Address of Head Office/Principal Office.
(iii) Aims and objects.
(iv) Particulars of important office bearers.
9.
Nature and full details of scholarship, stipend or any payment of a like nature received from foreign source,
indicating (a) total amount and its break-up under various heads like cost of journey, equipment, clothing,
maintenance, tution fees, residence fees, books, etc. and (b) mode/channel of receipt.
10.
Purpose of the scholarship, stipend or any payment ofa like nature with specific details of courses attended or
to be attended.
11.
Duration of stay abroad with dates.
12.
Any other information of significance, which the applicant may like to furnish.
Declaration
I hereby declare that the above particulars furnished by me are true and correct.
Da ter
Place
Signature of Applicant
144
Form FC-6
[See rule 8 (a)]
Foreign Contribution (Articles) Account—Description of the Article
Receipt
Date
Name &
Mode
Address
of
of the person Receipt
from whom
received
1
2
Purpose
of
Receipt
Quantity
received
Approx,
value of
articles
received
4
5
6
3
Date of Intimation
sent to the
Central
Government
7
Utilization/Disposal Quantity
Date
8
Name &
Address
of the
Person to
whom
issued, sold
or otherwise
transferred
9
Purpose
for which
issued or
Otherwise
transferrred
10
Utilised
by the
Organiza
tion
11
Sold
12
Otherwise If sold, the
transferred amount
for which
sold
13
14
Reference Balance in
stock
to entry
in the
Foreign
Contri
bution
(Currency)
Account
15
16
Declaration
I hereby declare that the above particulars furnished by me are true and correct.
DatePlace-
Signature
145
Form FC-7
[(See rule 8 (c)]
Foreign Contribution (Securities) Account
1.
Nature of Securities.
2.
Nominal value of each security.
Name &
address
of the
person
from whom
received
Date
1
2
Particulars
of intimation
sent to the
Central Govt.
Date
Disting
uishing
number of
each
security
Name & Address
of the person
to whom sold/
transferred
Date
13
12
Total
nominal
value of
securities
4
5
6
Date upto
which dividend
or interest has
been received
Reference to the
credit entry in
the Foreign
Contribution
(Currency) Account
3
8
7
Dividend or
interest
received
11
10
9
Distinguishing
number of each
security
transferred
Total No.
of Secu
rities sold/
transferred
Total amount
for which sold/
transferred
16
15
14
Particulars of permission of the
Particulars of intimation sent
Reserve Bank of India to sell/transfer to the Central Government
securities
17
Particulars of permission of
the Reserve Bank of
India to acquire or to hold
foreign securities
Total
of
Securities
Reference to the entry in the Foreign
Contribution (Currency) Account
18
19
Declaration
1 hereby declare that the above particulars furnished by me are true and correct.
Signature
DatePlace-
146
Form FC-8
(See rule 3A)
Form of application for registration to receive Foreign Contribution
No.
Dated
To
The Secretary to the Government of India.
Ministry of Home Affairs.
New Delhi
Subject: Application for registration under the Foreign Contribution (Regulation). Act. 1976.
Sir.
I. on behalfof the Applicant named hereafter, hereby apply for registration of the Association.
(i) Name of the Association and its complete postal address (please write in capital letters)
Name:
Address:
Town/city:
District
State
(ii) If the Applicant is a registered Trust or Society, its—
(1) Registration No.
(2) Place of Registration
(3) Date of Registration
(iii) Nature of the Association:
A. (a) Religious
(b) Cultural
(c) Economic
(d) Educational
(e) Social
B. If a religious Association, state whether
(a) Hindu
(b) Sikh
(c) .Muslim
(d) Christian
(e) Buddhist
(f) Others
(iv) Detailed aims and objects of the Association (please enclose a copy of Memorandum of Association
and/or Article of Association, if applicable)
(v) Main object(s) for which foreign contribution is to be accepted.
(vi) Names and address of important office-bearers
(1)
(2)
(3)
(4)
(5)
147
(vii) Name and address of the Chief Functionary of the Association
2.
The Association shall receive/accept foreign contribution only through the branch of the
■ • • • /narn^
of the bank) located at
only. The separate bank account number of the Association in the said
branch of the bank is
3.
The Association undertakes to inform you if any change takes place in regard to the name of the Association, its
address, its registration No., its nature, its aims and object and the names and addresses of its office-bearers
including that of the Chief Functionary. Further, a fresh Application for registration will be made if the
Association closes its account with the bank mentioned in para 2 above and opens account with another an
or branch of the bank mentioned in para 2 above.
Yours faithfully.
Chief Functionary
for and on behalf of Association
(Name of Association)
148
Form FC-9
(See rule 8)
Certificate to be given by Chartered Accountant
I/We have audited the accounts of------------------- ---- (name of Association and its full address including State
and Pincode, if registered society, its registration no.«. and State of registration), for the calendar year ending
31.12.198x and examined all relevant books and vouchers and certify that according to the auditedI accounts:
(i) the brought forward foreign contribution at the beginning of the year 198 was Rs.-
(ii) Foreign contributions of worth Rs.-
P.------ .
-were received by the Association during the calendar year 198x
(iii) The balance of unutilised foreign contribution with the Association at the end of the year 198x was
Rs.--------- .
(iv) Foreign contribution amounting to worth Rs.P.----- have been utilised for the following purposes
during the vear:—
SI.
No. -
Purpose for w hich foreign
contribution utilised
Total Available
Previous
Current
Balance
Receipts
Rs.
P.
Rs.
P.
Care of Orphans
Maintenance and Repair of (a) Churches (b) Gurudwaras
(c) Fire Temples (d) Mosques (e) Temples (f) Buddhist
Monastries (g) Others (Tick the Appropriate Item)
(iii) Publication of Religious Books. Pamphlets & other
Religious Literature.
(iv) Publication of Books, Pamphlets and Literature
other than Religious
(v) Construction/Extension of: (a) Churches (b) Gurudwaras
(c) Fire Temples (d) Mosques (e) Temples (f) Buddhist
Monastries (g) Others. (Tick the Appropriate Item)
(vi) Help for the Poor, Aged and Destitutes
(vii) Seminars and Conferences
(viii) Religious Education of Preachers/Priests
(ix) Religious Functions
(x) Functions other than Religious
(xi) Construction and maintenance of hostels
(xii) Construction and Maintenance of Schools/Colleges
(xiii) Agricultural Activities
(xiv) Animal Husbandry
(xv) Rural Development
(xvi) Technical Education
(xvii) Research
(xviii)
Stipends and Scholarships
(xix) Vocational Training
(xx) Health care and Family Planning
(xxi) Relief for Natural Calamities
(xxii) Relief for Riot Victims
(xxiii)
Any other purpose other than above with Details
(i)
(ii)
Total:
149
Utilised
Balance
Rs.
Rs.
P.
P.
2.
Certified that the Association has maintained the accounts of foreign contributions and records relating
thereto in the manner specified in Section 13 ofthe Foreign Contribution (Regulation) Act, 1976 read with rule
8(1) of Foreign Contribution (Regulation) Rules, 1976.
3.
The information furnished above is correct as checked by me/us.
DatePlace-
Signataure of Chartered Accountant
150
VII Legal Regulations In India
VII.6 The Employee’s Provident Funds and Miscellaneous Provi
sions Act, 1952
Applicability
7.6.01 This Act extends to whole of India except the State ofJammu and Kashmir and applies
to a factory or an establishment in which twenty or more persons are employed.
7.6.02 Once an establishment or a factory is covered under this Act, it remains covered even
though the employment strength reduces below 20. For counting the number, all the employees
including part-time, casual, temporary, posted at different offices and employees employed
through contractors are also included.
7.6.03 If an employer and majority of the employees give their consent in writing, the provi
sions of this Act can be made applicable to a concern which does not find itself covered
otherwise under this Act.
Exemption
7.6.04 The Act will not apply to a new establishment employing fifty or more persons for the
first three years and establishments employing more than 20 but less than 50 persons for first
five years.
7.6.05 It will also not apply to any establishment registered under the Co-operative Societies
Act if it employs less than fifty persons and works without the aid of power.
Eligibility
7.6.06 After completion of 3 months of continuous service or after actually serving for not less
than 60 days within a period of 3 months or less, the employee becomes eligible to participate in
the fund.
7.6.07 Employees drawing upto Rs. 2,500/- per month (Basic plus D.A.) only are eligible for
participation in the fund.
7.6.08 Apprentices are not eligible for membership of the fund.
Fund Recognised
7.6.09 The fund will be recognised Provident Fund under Chapter IXA of Income-tax Act,
1961.
Rate of Contribution
7.6.10 The ordinary rates of employee’s contribution are 6% to 8% of employees salary or
wages (depending upon the employment strength, the nature of industry, class of establishment
in which the factory/establishment is engaged) with an equal amount of contribution by the
employer.
151
I 1^8
7.6.11 Administrative charges at the rate of 0.37% on total salary or wages of the employees are
also to be deposited by the employer. These charges are to be rounded off to the nearest 5 paisa.
Nomination
7.6.12 Each employee has to nominate in form No. 2 (in duplicate) the person who will receive
his share in the funds in the event of his death, while he is in service.
7.6.13 An employee can change his nominee by submitting form No. 8 (in duplicate). These
nominations should be in favour of family members only.
Withdrawals
7.6.14 An employee on leaving a job and joining another factory or establishment can apply in
Form 13 for transfer of his Provident Fund Account to the new establishment. If, however, he
does not join another factory or establishment for six months or more, he can withdraw his
contribution in full, but is allowed to withdraw the employer’s contribution as under:
% of repayment of employer’s
Contribution
Period
25%
50%
75%
85%
Less than 3 years
3 to 5 years
5 to 10 years
10 to 15 years
Administration
7.6.15 The funds will be administered by a Central Board of Trustees appointed by the Central
Government consisting of a nominated Chairman and also persons representing State Govern
ments. employers and employees. The Chief Executive Officer of the Central Board will be a
Central Provident Fund Commissioner. Similarly there will be State Board of Trustees for
administering the schemes in each state.
Following Statements are to be submitted by an Employer for Provi
dent Fund:
7.6.16 Monthly
1. Return of member leaving his job. (Form No. 10)
2. Declaration of joining. (Form No. 11)
3. Consolidated contribution figures. (Form No. 12)
4. Consolidated contribution worker wise. (Form No. 12).
7.6.17 Yearly
5. Membership contribution cards. (Form No. 6 )
152
6. Return of contribution cards. (Form No. 6AA)
7. Consolidated annual statement. (Form No. 6AA).
7.6.18 Fortnightly
8. Declaration and nomination. (Form No. 2)
9. Employee become eligible for membership. (Form No. 5).
Family Pension and Insurance Fund Scheme
7.6.19 This scheme is restricted to employees drawing salary inclusive of dearness allowance
upto 2.500/- p.m.. The Central Govt, may also notify the employees deposit linked insurance
scheme for providing life insurance benefits to the employees. The employer will pay to the
family pension fund contribution not exceeding one fourth of the contribution to Provident
Fund and to the Insurance Fund, he will contribute an amount not more than one per cent of
the employee’s salary or wages. The employees will make a matching equal contribution to the
family pension fund while the Central Government will contribute to the Insurance Fund an
amount representing one half of the contribution of the employer. Expenses of the Insurance
Fund will be met by the employer and the Central Govt, but contribution will not exceed one
fourth of contribution.
153
VII
Legal Regulations In India
VII.7
The Payment of Bonus Act, 1965
Introduction
7.7.01 This Act was enforced from 29.5.1965.
(i) Coverage
(a) Every factory registered under the Factories Act, 1948
(b) Every establishment employing 20 or more persons on any day during an
accounting year
(c) Central Govt, may notify the application of this Act to an establishment employing 10 or more persons.
(i i) Classes of employees not covered
(a) employees employed by:i) The Indian Red Cross Society or any other institution of a like nature
(including its branches);
ii) Universities and other educational institutions;
iii) institutions (including hospitals, chambers of commerce and social welfare
institutions) established not for purposes of profit;
(b) employees employed through contractors on building operations;
(c) employees employed by the Reserve Bank of India;
(d) employees employed by financial institutions other than a banking company
being an establishment in public sector;
(e) employees employed by the Life Insurance Corporation of India;
(f) employees employed by an establishment engaged in any industry carried on by
or under the authority of any department of the Central Government or a State
Government or a local authority;
(g) employees emplolyed by any establishment in public sector except those which
compete with an establishment in private sector and the income from sale or
services rendered is more than 20% of the gross income of the establishment;
Eligibility and Rate of Bonus
7.7.02 Bonus is payable to every employee who—
(a) is employed on a salary not exceeding Rs. 2,500/- p.m.
(b) has worked in an establishment for not less than 30 working days in an accounting
year
7.7.03 Where an employee has not worked for all the working days in an accounting year, the
minimum bonus of Rs. 100. if such bonus is higher than 8.33% of his salary or wages for the days
he has worked in that accounting year, shall be proportionately reduced.
154
7.7.04 Salary includes basic pay and Dearness Allowance, but does not include payment of
over-time. House rent allowance, other Perquisites, Incentives. Bonus, Provident Fund etc..
7.7.05 (a) From 1979. minimum bonus payable to an employee is 8.33% of the salary or wages
earned during an accounting year or Rs. 100 whichever is higher.
(b) The maximum bonus payable to an employee is 20% of the salary or wages earned
during an accounting year.
Time Limit for Payment
7.7.06 All amounts payable to an employee by way of bonus shall be paid in cash within eight
months from the close of the accounting year or if there is a dispute regarding payment of bonus,
within one month from the date on which the award becomes enforceable. In cases of sufficient
reasons, the period can be extended upto 2 years by the concerned govt..
Determination of Bonus Payable
7.7.07 For pavment of bonus, surplus is arrived at in accordance with first and second
schedules given in the Act and is worked out as under:
fa) Gross Profit:
fi) Net Profit as per Profit & Loss A/c.
fb) Add-back Provisions for:
fi) Bonus to employees (ii) Depreciation (iii) Development rebate and/or invest
ment allowance Reserve (iv) Direct taxes (v) Bonus in respect of previous account
ing years (vi) Losses relating to business outside India.
(c) Deduct:
fi) Profits relating to business outside India.
(ii) Depreciation as admissible under Income-tax Act.
fiii) Direct taxes payable.
(iv) Development Allowance and/or investment allowance as allowable under
Income Tax Act.
(v) Dividend on preference Shares of Companies.
(vi) 8.5% on equity capital of companies in the beginning of year but 7.5% for
Banking Companies.
(vii) 6% on reserves for non-Banking Company but 5% for Banking company as
in the beginning of the year.
(viii) 25% of gross profit after deducting depreciation but with a maximum of Rs.
48.000/- per partner as remuneration to partners in a firm.
fix) 25% of gross profit after deducting depreciation for every individual or HUF
sub ject to maximum of Rs. 48.000/-.
60% of the above surplus is available for distribution as a bonus.
If this surplus is less than the minimum bonus, the deficit will be carried forward to
be set off in the next year. If however, surplus exceeds the bonus payable, then
excess will be carried forward to next year. This excess however, will be limited to
20% of salaries in the year.
155
Concessions for New Establishments
7.7.08 An establishment which is newly set up is not liable to pav bonus for first five vears. It
shall, however, pay bonus from the accounting year in which it makes profit even before
completion of 5 years. The establishment shall, however, pay minimum bonus from 6th year
and onwards.
Agreement
7.7.09 If there is an agreement or settlement with the prior approval of the appropriate Govt,
between the employer and the employee for payment of bonus linked with production or
productivity in lieu of bonus on profits, this agreement will be followed but no emplovee will be
deprived of this minimum bonus and also will not be paid more than the maximum bonus of
20% of salary or wages earned by them during the relevant accounting vear.
Miscellaneous
7.7.10 This covers:
(a) Proper registers (as prescribed in clause 4 of The Payment of Bonus Rules. 1975)
will be kept by the employer for the payment of bonus.
(b) Puja bonus, customary bonus or interim bonus paid to an employee will be adjusted
to the final bonus.
(c) Any person violating the provisions of this Act will be punished with imprisonment
or fine or both.
Disqualification for Bonus
7.7.11 An em pioyee shall be disqualified for receiving bonus, if he is dismissed from services for:
(a) fraud: or
(b) riotous or violent behaviour while on the premises of the establishment: or
(c) theft, misappropriation or sabotage of any property of the establishment.
156
VII
Legal Regulations In India
VII.8
The Payment of Gratuity Act, 1972
Applicability
7.8.01 This act extends to the whole of India and applies to every factory, mine, oilfield,
plantation, port, railway company and every shop or other establishment in which ten or more
persons are employed on any day of the preceding 12 months.
Eligibility
7.8.02 An employee dra-yving a salary of more than Rs. 2.500/- p.m. is not to be considered for
the purpose of this Act. Salary or wage includes dearness allowance but does not include any
bonus, commission, house rent allowance, over-time wages and other allowances.
7.8.03 An employee is entitled to gratuity after completion of a continuous service of five years.
However, this condition of minimum five years of continuous service will not apply in case of
death or disablement.
7.8.04 An employee shall be said to be in continuous service for a period if he has, for that
period, been in uninterrupted service, including service which may be interrupted on account of
sickness, accident, leave, absence fropi duty without leave (except where an order imposing a
penalty or punishment or treating the absence as break in service has been passed as per rules
and regulations of the establishment) lay off, strike or a lock-out or cessation of work not due to
fault of the employee.
Rate of Gratuity
7.8.05 An employee is entitled to gratuity at the rate of fifteen days salary/wages for every
completed year of service or part thereof calculated on the basis of the rate of salary/wages last
drawn by him.
7.8.06 As per the decision of Supreme Court, salary/wages are to be worked out bv dividing the
last drawn monthly salary or wages by 26 days.
7.8.07 The maximum limit of gratuity which can be paid under this Act is Rs. 50,000 or 20
months’ salary/wages whichever is lower.
Forfeiture of Gratuity
7.8.08 The gratuity due to an employee cannot be attached. However, under the following
circumstances, the gratuity can be wholly or partially forfeited:
(a) Where the termination of service takes place due to wilful omission or negligence of
the employee, causing any damage or loss to or destruction of property belonging to
the employer—to the extent of damage or loss so caused.
(b) Where the,service of an employee has been terminated for riotous or disorderly
conduct or violence on his part or offence involving moral turpitude in the course of
his employment.
157
VII
Legal Regulations In India
VII.9
The Bombay Public Trust Act, 1950
Introduction
7.9.01 This Act providing for the administration of public, religious and charitable trusts in the
state of Maharashtra came into force in 1950 and has arranged for an organisation known as
Charity Commissioner to exercise all the powers, duties and functions under this Act to regulate
the functioning of public trusts. This organisation besides having necessary officers and staff
will have also Director of Accounts and Inspection etc. to help the Charity Commissioners.
Charitable Purpose
7.9.02 Section 9 defines Charitable purpose as including—
(i) relief in poverty or distress;
(ii) education;
(iii) medical relief;
(iv) provision for recreation facilities in the interest of social welfare and public benefit,
(v) the advancement of any other object of general public utility but not including a
purpose which relates exclusively to religious teaching or worship.
Registration of Public Trust
7.9.03 Every Public trust has to be registered with the Public Trust Registration Office under
the Charity Commissioners within three months of the creation of the Trust. For this purpose,
full prescribed data have to be furnished by the trustees. Similarly Trustees will also apply for
registration of the property of the Public trust especially of the immovable property. Under
Section 31. no suit to enforce a right on behalf of a public trust will be heard by a court if the
public trust has not been registered.
Duties of Trustees
7.9.04 The trustees have to submit a budget showing the probable receipts and disbursements
during the following year to Charity Commissioner. This will provide for maintenance of trust
property and for carrying out objects of the trust. Accounts have to be properly kept and audited
annually by a Chartered Accountant.
7.9.05 The moneys belonging to the Trust will be deposited with Banks or only in securities
approved by the Charity Commissioner or in first mortgage of immovable property. The trustee
will not be allowed to sell, exchange or gift any immovable property without the previous
sanction of the Charity Commissioner.
Power of Charity Commissioners
7.9.06 The Charity Commissioners shall have power to inspect any property of the trust and
books of accounts. He will also have power to issue directions to trustees for proper administra-
158
tion of the Trust funds. They can suspend, remove or dismiss any trustee in case of defaults and
also appoint fit persons to discharge the duties of the trustees.
7.9.07 The Commissioners have also the power to prevent any misuse of property by granting
temporary injunction or stay orders etc.
7.9.08 The Commissioners have the power to fill in vacancies of the Trustees and to vest
property to new trustees.
Dharmada
7.9.09 The customary Dharmada collected by any person will be intimated to the Charity
Commissioner within three months from the expirty of the year.
159
MANUAL OF FINANCIAL MANAGEMENT
AND
LEGAL REGULATIONS
VIII
GUIDANCE NOTE ON SELECTION
OF AN AUDITOR
CHAPTER VIII
Guidance Note on Selection of an Auditor
Page
The necessity for Accountability and the Role of Auditors
Selection of an Auditor
Criteria for Selection
Scope of Audit
Competent Authority for Appointment
Letter of Engagement
Fees and out of Pocket Expenses
Assistance from Reference Auditor of Funding Agencies
160
160
160
161
161
162
162
162
VIII
Guidance Note on the Selection of an Auditor
The necessity for Accountability and the Role of Auditors
8.01 Most of the development funds that are given by the funding agencies are subject to
certain provisions of the laws of their respective countries. The main object of the association of
the funding agencies (for example EZE of West Germany) is to help their Government in the
processing of applications submitted and to ensure that the assistance that is given is used for
the specified purposes. Similarly, the recipients of such grants will be accountable to the local
authorities, be it the community or the State.
8.02 The objective of a well defined account keeping and the audit thereof is to serve the above
twin purposes. Auditor is an independent agency to watch and report on the compliance of the
objectives. In fact many a times, he is also a friend, philosopher and guide on certain matters
like systems, financial propriety etc.. Hence, the role of an auditor should be well understood
and the auditor should also understand this particular role. This guidance note is an attempt to
serve this purpose.
8.03 In this suidance note, the term ‘project-partner’ has been used genetically to represent the
organisation in India responsible for execution of the projects.
Selection of an Auditor
8.04 If the project-partner’s accounts before seeking assistance from the funding agencies are
not audited by a Chartered Accountant, it would be necessary to look for a Chartered
Accountant who could take up the audit assignment. If however, the project-partner is already
availing the services of a chartered accountant for the purpose of having his accounts audited,
the same chartered accountant may conduct the audit of the project also that is being assisted
by the funding agencies so long as the criteria for selection of an auditor are satisfied.
8.05 The project-partner should select an auditor after taking into consideration any sugges
tion for the appointment of auditor made by the funding agencies.
Criteria for Selection
8.06 Manner of Making Enquiries: In case of fresh engagement, care should be taken to see that no
circular letter is addressed to a number of Chartered Accountants calling for quotation of fees to
be charged for carrying out the audit. This however, does not debar negotiations being
conducted with more than one auditor. The sole aim is to choose right type of auditor to meet
the needs of the pro ject-partner. Other things being equal, the quotation of fee may be a factor
to reckon with.
8.07 Significance of Independence: The auditor i.e. the Chartered Accountant or the firm of
Chartered Accountants should be independent. Near relatives of the principal officers of the
160
project-partners or their employees should not be favoured for appointment as auditors. If the
auditors are a firm, none of the partners of the firm should be related to any of the principal
officers of the Project-partner.
8.08 Work Experience: If the auditor is an individual, he should have at least five years
professional experience or if a firm at least one of its partner should possess such professional
experience. In exceptional cases, on account of other factors like distance and cost of the auditor
from distant places, this criteria may be relaxed.
8.09 Discreet enquiries should be made about the standing and reputation of the firm from
known friends of the project-partner. It would be desirable if the auditor has some previous
experience of conducting the audit of the accounts of institutions engaged in social work with
the assistance of funds received from funding agencies and issuing utilisation certificates for the
monies spent by the institutions to such funding agencies.
8.10 The capabilities of the auditor should be such that his expertise is available to oversee and
if necessary to introduce the necessary systems and procedures for both financial and normal
administrative matters like compliance with Income Tax Act, Foreign Exchange Regulations
Act, Foreign Contribution (Regulations) Act, Provident Fund Act, etc.
8.11 Nearness of the Location of the Auditor: The office of the auditor should be located as near as
possible to the location of the project site so that the auditor may physically visit the project site
to acquaint himself with the progress of work as well as conduct the audit in the office of the
pro ject-partner instead of the necessity of the project-partner’s staff and records reaching the
auditor’s office.
8.12 Timeliness of Audit The auditor should be informed of the requirement of the funding
agency with regard to the frequency and timely submission of reports and hence the need to
conduct the audit at periodical intervals.
8.13 Audit Standard: The standard of audit that the auditor contemplates to employ as well as
the standard of performance of his work that is expected of him should be well understood by
both the project-partner and the auditor respectively.
Scope of Audit
8.14 The auditor should be furnished with the following documents so that he may properly
comprehend scope of work and reporting responsibilities attached-to the assignment:
(a) agreement between the funding agency and the project-partner;
(b) model letter of Engagement of an Auditor together with annexure setting out mutual
obligations of the project-partner and the auditor.
This would enable the auditor to quote the fees appropriate to the scope and volume of
work.
Competent Authority for Appointment
8.15 The selection and appointment of the auditor should be made by the members of the
General Body/Highest Executive Authority in the project partner’s organisation.
161
8.16 If enquiries are made from more than one intended auditors, the management should
inform the General Body/the Highest Executive Authority of the result of the negotiations and
their recommendation.
Letter of Engagement
8.17 The letter of engagement should be sent to the auditor by the project-partner after
obtaining consent of the funding agency in writing.
Fees and Out of Pocket Expenses
8.18 Since the project partner’s organisation is engaged in social work, the auditor should be
requested to consider this factor while charging fees.
8.19 The audit fee may either be fixed for the entire project period or per half yearly certifica
tion of interim financial statements.
8.20 Travelling and other out of pocket expenses for visiting the project site or office of the
Project-partner should be reimbursed on actual basis to the auditor.
8.21 Auditor’s fee and out of pocket expenses shall be financed out of “Reserves” which forms
part of the approved “Cost Plan”.
8.22 The project-partner is free to engage the services of an auditor for other services like tax
representation, systems design, compliance with legal regulations or for certification of returns
to be submitted to National Govt./other funding agencies and mutually agree for fees and other
expenses. These payments should not be met out of project funds unless otherwise agreed upon
with the concerned funding agencies in writing.
Assistance from ^Reference Auditors’ of Funding Agencies
8.23 The project-partner could also seek the assistance of the ‘Reference auditors’ of the
funding agencies in India for suggesting a suitable panel of auditors to choose one amongst
them, advice on matters of financial accountability, legal regulations and audit of financial
statements.
8.24 EZE and its partner organisations in India have agreed for the appointment of M/s
Thakur. Vaidyanath Aiyar & Co., (TVA) Chartered Accountants. 212, Deen Dayal Marg,
New Delhi-1 10002 as their ‘Reference Auditor.’ Partner organisations and their auditors can
contact Shri K.N. Gupta, partner of TVA directly for seeking advice on matters of financial
accountability, legal regulations and audit of financial statements.
162
MANUAL OF FINANCIAL MANAGEMENT
AND
LEGAL REGULATIONS
IX AUDIT GUIDELINES
CHAPTER IX
Audit Guidelines
Page
Introduction
Proced u re/Guidance
Initial Review of the Book-keeping System
Scope of Audit Work
General Audit Standards
Audit of Expenditure
Audit against Rules and Orders (Audit against Regularity)
Audit against Sanctions
Audit against Propriety
Efficiency Audit
Audit of Classification
Audit of Con tracts in General
General Procedure of Audit of Cash Book
General Procedure of Audit of Accounts of Stores and Stock
Audit Practice in Connection with various Expense Items
Audit Practice in Connection with various Asset Items
Audit of Construction Works Expenditure
Order for Larger Acquisitions
Building Contracts
Projects Involving Training Programmes
Special Funds
Model Letter of Engagement of an Auditor
Annexxure to the letter of Engagement of an Auditor
163
163
164
164
165
165
166
167
168
169
169
170
172
174
175
178
180
182
182
'182
182
183
184
IX
Audit Guidelines
Introduction
9.01 These guidelines are meant for use by the auditors of the projects assisted by Funding
Agencies particularly when the financial assistance is being provided in foreign currencies and
subsequent sources arising out of the initial assistance.
9.02 In order to broadly understand the scope of the audit work, the auditor is advised to go
through the following documents:
(a) Agreement between the Project-Partner and the Funding Agencies concerning the
support of the project/programme;
(b) Terms of engagement of an Auditor by the project-partner.
9.03 The probable stipulations that are likely to be contained in the terms of engagement of an
auditor are given in Annexure ‘Al’ on Nos. 184 to 188.
9.04 On completion of the audit, the auditor is required to furnish to the concerned Funding
Agency an audit report in the form suggested in letter of engagement of an auditor given in
Annexure‘Al’.
9.05 The guidelines given in this chapter are by no means exhaustive nor is it the intention that
these should be taken as limiting the scope of audit rigidly to the lines indicated therein. It is of
considerable importance that the audit checks suggested should be observed in spirit and not in
the letter only.
9.06 The objective is to conduct an audit in depth with special reference to utilisation of funds
related to the project efficiently and economically. The guidance note suggests check list for
each of the major activities that are normally associated with the project execution work.
Procedure/Guidance
9.07 The senior audit staff in-charge of the audit party will call on the Management to apprise
them of their arrival and after such general discussions as may be necessary, commence the
audit. He will draw up the detailed programme for the conduct of the audit in such a way that
the work is completed within the scheduled number of days.
9.08 Audit Note Book: With a view to keep (i) a consolidated record of the organisation and i.xc
functions of each of such organisation which are audited and (ii) recording details as to which
member of the party checked a particular document, an Audit Note Book should be maintained
for each organisation showing broadly the essential particulars relating to the audit thereof such
as its objects and functions, organisational set-up, system of financial control, the accounting
system, etc.
163
/
9.09 During the course of the audit, if it is necessary to elicit some particulars or facts from the
Management, suitably worded queries may be issued to them in writing. It should be noted that
the audit queries should be brief and to the point and should not at this stage contain any
opinion of Audit, however tentative.
9.10 The audit staff should try to get all the facts and explanations on the spot. Wherever
satisfactory explanation is not forth-coming and the audit staff feels that the points raised by
him are so important that they may ultimately find place in the Audit Report, he should take
particular care to clinch all the issues involved, to collect all relevant information and also to
take attested copies of those documents which are likely to be useful in pursuing the matter with
higher authorities.
9.11 During the closing stages of audit, the audit staff should discuss their tentative findings
with the Head of the Organisation or such other officers deputed by him. The result of their
discussions and the preliminary replies should be taken into account in framing the Final Audit
Report.
9.12 These guidelines deal with the general principles and rules of Audit to be observed in
regard to audit of expenditure, receipts, classification of transactions, and the audit practices
concerning specific items of revenue nature and assets and liabilities.
9.13 It is to be verified by the auditor that financial rules and orders framed by management
satisfy the principles of good management and are otherwise free from doubt, ambiguity etc.
and that these rules and orders are properly applied. Though the management is primarily
responsible for enforcing economy in the expenditure, it is, however, the duty of the auditor to
bring to notice of management instances of wasteful and infructuous expenditure.
9.14 In the course of scrutiny of accounts and transactions, the auditor is entitled to make such
queries and observations and to call for such vouchers, satatements, returns and explanations
in relation to them as it may consider necessary in the interest of proper discharge of its duties.
All queries and observations shall be couched in language which is courteous and impersonal.
Initial Review of the Book-keeping System
9.15 Before the project starts, the auditor will carry out an initial review of the book-keeping
system established by the project-partner to ensure that the system complies with the general
principles of book-keeping of the country and special requirements, if any, of the funding
agencies. In carrying out this review, the auditor will examine the following with a view to find
out their adequacy in the context of the size of the organisation and project:
— the constitutional documents of the project-partner;
— the appointment of the project representatives and other personnel involved in the project
implementation;
— procedures relating to the placement of tenders and orders (for larger acquisitions,
building contracts and other services);
— authorisation procedures and other control measures.
Scope of Audit Work
9.16 The auditor is normally required to audit the half-yearly and the last financial statement
164
in the form of Receipt and Payment Account and report on them in the prescribed manner.
9.17 The scope of examination of the financial statements should include the following:
(a) With reference to the total receipts and payments, verification of the balance of cash at
bank and in hand.
(b) Verification of rates of exchange applied to remittances received from the funding
agencies with relevant official rates. This includes the examination of the conversion of
funds temporarily held in hard currency/external accounts.
(c) Verification of the Cash Book maintained in National Currency for recording remitt
ances received from Overseas.
(d) Test check of vouchers for payments to ensure that they have been properly authorised,
that within the local context, the expenditure is reasonable and that such expenditure is
within the purpose and scope determined in the letter of approval and the budget.
(e) Confirmation that the agreed book-keeping system has been followed.
(f) Confirmation that debit notes received from funding agencies have been correctly
accounted for in the bopks of account.
9.18 The auditor’s review of the implementation of the agreement between the Funding
Agency and the project-partner will include:
(a) Compliance with the budget and authorisation of any Over-spending against the indi
vidual budget items;
(b) authorisation of the funding agency to use “Reserves44 against approved items of the
budget for the successful completion of the programme/project or to cover unbudgeted
items;
(c) compliance with exchange control regulations;
(d) insurance cover for buildings, larger acquisitions, and construction projects;
(e) main tenance of inventories of fixed assets;
(f) compliance with approved building plans;
(g) authorisation of the funding agency for any sale or disposal of assets; and
(h) change in the project partner’s constitution or senior staff.
9.19 Where these items are adequately covered in correspondence with the funding agency or
in the progress report, the auditor is not required to report specifically on such items.
General Audit Standards
9.20 The auditor will take into account the generally accepted auditing standards prevalent in
his country and any relevant local statutory requirements covering such audits. If considered
necessary for the purpose of the audit, the auditor shall visit the project and inspect the
progress. Some of the generally accepted auditing standards and specific audit techniques and
check lists are discussed in the subsequent paragraphs.
Audit of Expenditure
9.21 It is the duty of the auditor to see that the expenditure in a jproject oriented social
organisation is governed inter alia by the following essential general conditions:
(a) that there should be provision of funds authorised by the competent authority fixing the
165
limits within which expenditure can be incurred;
(b) that the expenditure incurred should conform to the conditions attached to the source of
finance, if any, and should also be in accordance with the financial rules and regulations
framed by competent authority: and
(c) that there should exist sanction, either special or general accorded by competent
authority, authorising expenditure.
9.22 The expenditure should be incurred with due regard to broad and general principles of
financial propriety. Anv cases involving breach of these principles and thus resulting in
improper expenditure or waste should be brought to notice in the same manner as cases of
irregular or unauthorised expenditure. Irregularity in expenditure should be deemed to include
expenditure incurred on an object without achieving the result expected from it. In other words,
it should be ascertained that the expenditure has been incurred efficiently. Since the very
purpose of expenditure by social organisations is welfare and development, ‘Efficiency Audit of
expenditure, with a view to ascertain whether the various schemes are being run economically
and are actually yielding the results expected of them, has assumed great importance.
9.23 Audit against provision of funds should be directed primarily to ascertaining that the
money expended has been applied to the purpose or purposes for which they were intended to
provide and that the amount of expenditure against each item of the estimate does not exceed
the amount included therein.
9.24 Though the Grant/Contribution/Assistance is a single total sum appropriated to the
purposes set out. it is based on certain detailed estimates which amount to that total. I he
distribution in these estimates among the various sub-heads and items thus gives broadly the
purposes for which the Grant is made and the expenditure should be recorded against the Grant
and the sub-head of the Grant under which provision is made for the service.
9.25 Auditor has to satisfy himself that the expenditure which is being audited falls within the
scope of a Grant/Estimate and that it is within the amount of the Grant. Expenditure in excess
of the amount of a Grant as well as expenditure not falling within the scope or intention of any
Grant should be treated as unauthorised expenditure unless regularised.
9.26 Auditor should, however, render all legitimate assistance to the management in this
matter and should see that suitable and adequate arrangements exist for the control of
expenditure.
Audit against Rules and Orders (Audit against Regularity)
9.27 Audit against regularity consists in verifying that the expenditure conforms to the relevant
provisions and rules governing such expenditure and is also in accordance with the financial
rules, regulations and orders issued by a competent authority.
9.28 It is. however, the duty of the auditor to bring to the notice of the competent authority any
expenditure which does not seem to be covered by the terms of the rule or order quoted as
justifying it. and which has been incurred by relying upon the rule or order an interpretation
which may seem to it not to be a natural,'plain, or reasonable interpretation. In the case of the
regulations framed by an authority, the auditor can accept what that authority considers to be
the correct interpretation of its own regulations, provided that such interpretation is not
opposed to the ruling of any superior authority, or contrary to any established financial
166
principle or rule. Such discretionary power of interpretation does not. however, give an
authoritv a free hand to interpret its rules to suit particular cases in other than a natural or
reasonable manner.
9.29 Scrutiny of Rules and Order: In relation to audit of expenditure against regularity, it is the
duty of the auditor to examine that all financial rules and orders affecting expenditure and other
transactions issued by the Executive Authorities subjected to audit are themselves not intra vires
and that the audit of transactions which they govern may be effectively conducted against them.
9.30 In the scrutiny of financial rules and orders, it should be seen:
(a) that they are not inconsistent with any provisions of other rules and orders already in
vogue;
(b) that they are consistent with the essential requirements of audit and accounts as
generally understood;
(c) that they do not conflict with the orders of, or rules made by, any higher authority; and
(d) that, in case they have not been separately approved by competent authority, the issuing
authority possesses the necessary rule-making power.
9.31 Further, if undue advantage is taken of the provision of any orders under which the rule is
issued, the auditor may bring the case to the notice of the proper Superior Authority.
9.32 All orders of delegaton of financial Authority should be scrutinised carefully as, once they
have been accepted, audit of sanctions as well as of expenditure or other transactions may be
conducted against them for any indefinite length of time.
Audit against Sanctions
9.33 One of the important functions of Audit in relation to the audit of expenditure is to see that
each item of expenditure is covered by the sanction of the authority competent to sanction it.
Here the auditor has not only to see that the expenditure is covered by a sanction, either general
or special, but he has also to satisfy himself (1) that the authority sanctioning it is competent to
do so by virtue of the powers vested in him by the rules of delegation of financial authority made
by a competent authority, and (2) that the sanciton is definite and thus needs no reference either
to the sanctioning authority iteself or to any higher authority.
9.34 Besides the question of competency of the authority sanctioning the expenditure, the
scrutiny of sanctions would include the following points:
(a) Whether the expenditure is a legitimate charge on the provision from which it is
proposed to be met;
(b) Whether the expenditure conforms to the statutory provisions as well as the relevant
financial rules, regulations and orders;
(c) Whether in the case of sanctions to new schemes of expenditure, a satisfactory accounting
procedure has been evolved and the detailed cost and time schedules, physical targets
and other objects of the expenditure are duly laid down.
9.35 It is imperative that the utmost care and attention should be paid to the work connected
with the audit of sanctions to expenditure, as once a sanction has been accepted in audit,
expenditure may have to be passed against it for a length of time.
167
Audit against Propriety
9.36 It is an essential and inherent function of an auditor to bring to light not only cases of clear
irregularity but also every matter which in his judgement appears to involve improper expendi
ture or waste of public money or stores even though the accounts themselves may be in order
and no obvious irregularity has occurred. Such audit, often called Propriety Audit, “extends
beyond the formality of the expenditure to its wisdom, faithfulness and economy”. It is thus not
sufficient to see that rules or orders of competent authority have been observed, it is also of equal
importance to see that the broad principles of orthodox finance are borne in mind not only by
persons responsible for payment but also by sanctioning authorities.
9.37 No precise rules can however be laid down for regulating the course of audit against
propriety. Its object is to support a reasonably high standard of public financial morality, of
sound financial administration and devotion to the financial interests of the organisation. Audit
staff in the performance of their duties should, in any case, apply the following general
principles which have for long been recognised as standards of financial propriety:
fa) The expenditure should not be prima facie more than the occasion demands. Every
person of trust is expected to exercise the same vigilance in respect of expenditure
incurred from institutional funds as a person of ordinary prudence would exercise in
respect of expenditure of his own money.
(b) No authority should exercise its powers of sanctioning expenditure to pass an order
which will be directly or indirectly to its own advantage.
(c) Institutional moneys should not be utilised for the benefit of a particular person or
section of the community unless:
(i) the amount of expenditure involved is insignificant: or
(ii) a claim for the amount could be enforced in a court of law; or
(iii) the expenditure is in pursuance of a recognised policy or custom.
(d) The amount of allowances, such as travelling allowances, granted to meet expenditure of
a particular type, should be so regulated that the allowances are not on the whole a
source of profit to the recipients.
The proper discharge of duties by an audit staffin this field is a very delicate matter and
requires much discretion and tact.
9.38 Briefly, the spirit which should animate propriety audit is explained in the following
terms:
In place of the formal examination of authorities and rules, the work should be conducted
with greater regard to the broad principles to legitimate public finance. The auditor will not
onlv see whether there is quoted authority for expenditure, but will also investigate the necessity
for it. He will ask whether individual items were in furtherance of the scheme for which the
budget provided; whether the same results could have been obtained otherwise with greater
economv. whether the rate and scale of expenditure were justified in circumstances. In fact, he
will ask every question that might be expected from an intelligent citizen bent on getting the
best value for his money.
168
Efficiency Audit
9.39 Besides the scrutiny of individual transactions with a view to detect cases of improper,
extravagant, wasteful or uneconomical expenditure, an important function of the auditor is to
examine how far the agency or authority whose transactions are under audit is adequately
discharging its financial responsibilities in regard to the various schemes undertaken by it. It is
essential that expenditure incurred on different schemes should be examined in audit to
ascertain whether:
(i) such schemes are being executed and their operations conducted economically and
(ii) they are producing the results expected of them.
9.40 In regard to (i) above, some of the broad lines of examination would be to ascertain:
(i) whether technical estimates or detailed programmes and cost schedules are being
framed and that the same are adhered to; if not, whether there are adequate reasons for
excesses, delays etc. or whether these are occasioned by inefficient handling, waste etc.
or due to indifferent preparation of original estimates;
(ii) whether there have been any serious avoidable delays (due to inefficient handling,
planning and coordination of the work) in the progress of works or schemes resulting in
increase in the total cost of the scheme or any loss of revenue due to delayed execution or
of holding up of other connected schemes;
(iii) whether there has been any wasteful expenditure including that resulting from lack of
co-ordination amongst several wings of the scheme, such as, staff having been engaged a
long time before the procurement of machinery required for running a Centre, or vice
versa;
(iv) whether there has been any waste due to some of the facilities (e.g., building, equipment,
staff etc.) on which expenditure has been incurred under the scheme proving unneces
sary or going unutilised;
(v) whether the performance/cost compares with the result obtained in respect of similar
schemes.
9.41 In order to examine in audit as to how far a particular activity is producing results
expected of it, it would be necessary inter alia to ascertain:
(i) how far the physical targets (e.g. completion of certain construction works, setting up of
organisations, centres etc.) have been achieved within the estimated time:
(ii) how far any retuns, where these were anticipated are actually accruing; and
(iii) how far the final purpose or objects of the expenditure have been achieved, e.g., in the
case of irrigation projects it should be ascertained if the estimated supply of water for
irrigation purposes has actually become available as a result of the completion of the
Project and whether their actual utilisation is to the extent anticipated. Similarly,
whether the anticipated number of persons are being trained up every year in a technical
centre and getting absorbed in the trade concerned to the extent anticipated.
Audit of Classification
9.42 The first duty of auditor in examining an account is to verify that all financial transactions
are properly recorded in the account under examination and that they are allocated to the
proper heads of account.
169
9.43 It should be verified in audit that (a) sums due are regularly recovered and checked
against demand, and (b) sums received are duly brought to credit in the accounts.
9.44 The most important functon of audit is to see (1) that adequate regulations and procedure
have been framed to secure an effective check on billing and collection and (2) to satisfy itself by
adequate test check that such regulations and procedure are actually being carried out. Auditor
should also make such examination as it thinks fit with respect to the correctness of the sums
brought to account.
9.45 In the audit of receipts, it would be necessary to ascertain what checks are imposed to
ensure the prompt detection and investigation of irregularities, double refunds, fraudulent or
forged refund vouchers or other loss of revenue through fraud, error or wilful commission or
negligence.
9.46 Where any financial rule or order applicable to the case prescribes the scale or periodicity
of recoveries, it will be the duty of the auditor to see as far as possible that there is no deviation
without proper authority from such scale or periodicity.
9.47 Ordinarily, the auditor will see that the internal procedure adequately secures correct and
regular accounting of demands, collections and refunds, that no amounts due to organisations
are left outstanding on its books without sufficient reason and that the claims are pursued with
due diligence and are not abandoned or reduced except with adequate justification and proper
authority.
Audit of Contracts in General
9.48 The tollowing fundamental principles are involved in entering into contracts or agree
ments involving expenditure. These are financial rules but they state audit principles as well—
(a) The terms of a contract must be precise and definite and there must be no room for
ambiguity or misconstruction therein.
(b) As far as possible, legal and financial advice should be taken wherever necessary in the
drafting of contracts of special nature and before they are finally entered into.
(c) Standard forms of contracts should be adopted and wherever possible the terms should
be subject to adequate prior scrutiny.
(d) The terms of a contract once entered into should not be materially varied without
previous consent of the competent financial authority.
(e) No contract involving an uncertain or indefinite liability or any condition of an unusual
character should be entered into without the previous consent of the competent financial
authority.
(0 Whenever practicable and advantageous, contracts should be placed only after tenders
have been openly invited, and in cases where the lowest tender is not accepted, reasons
should be recorded.
(g) In selecting the tender to be accepted, the financial status of the individuals and firms
tendering must be taken into consideration in addition to all other relevant factors.
(h) Even in cases where a formal written contract is not made, no order for supplies, etc.,
should be placed without atleast a written agreement as to price etc..
(i) Provision must be made in contracts for safeguarding the institution’s property entrusted
to a contractor.
170
9.49 Deviations from contracts requrie authority not inferior to that required for the original
contract. The auditor should also see that any payments outside the strict terms of the contract
or in excess of contact rates are not made without the consent of the competent financial
authority.
9.50 Cases in which there is evidence that an officer of the organisation has an undue interest in
the other contracting party, should be brought to the notice of the competent higher authority
for such action as it may deem necessary.
9.51 Standing contract should be reviewed occasionally and if the auditor has reason to believe
that the rates accepted in those contracts are considerably higher than the rates prevailing at
the time of review, such variations should be brought to the notice of competent authority.
9.52 Other checks involved in the audit of contracts and contractors’ bills are detailed below:
(a) 'In scrutinising an acceptance of Tender it should be seen:
(i) that the particulars regarding quantity and rates are furnished and the prices
stipulated are firm. Particulars of the contracts providing price variation clause or
provisional rates, should be sent to local audit for further examination;
(ii) that there is no omission of any important clause e.g. inspection of stores, date and
place of delivery, despatch instructions, name of consignee, etc.;
(iii) that it is signed by an authority which is competent to enter into the contract;
(iv) whether purchase has been effected by single tender or negotiation, if so, whether
sanction of the competent authority has been obtained and reasons recorded for
resorting to this method of purchase;
(v) (a) whether all the tenders were opened on the due date, and numbered and
initialled with date by the officer opening them;
(b) whether the comparative statement is on record and has been checked with
original tenders.
(vi) Whether any delayed/late tender has been incorporated in Comparative State
ment and considered, and whether orders of the competent authority have been
obtained for the consideration and acceptance of these tenders.
(vii) (a) Whether the lowest offer has been accepted in each cases; if not, the difference
between the lowest offer and the offer accepted and the reasons recorded for
rejecting the lower offers should be examined. It should also be seen whether
the reasons are adequate. When favourable quotations are rejected on the
ground that the firms are untried, it should be seen if the matter regarding
placing of a trial order with the firms with a view to secure economy in future
purchases has been considered and appropriate action taken.
(b) Whether the successful tenderer has not indirectly derived an advantage over
the other tenders by the insertion of special conditions which have the effect of
raising the rate quoted by him.
(viii) (a) Whether the rates accepted have changed in any case after the conclusion of
the contract and, if so, whether the change in price has been effected with the
approval of the competent authority, and whether the reasons justifying such
changes are adequate.
(b) Purchase orders have not been split up so as to avoid the necessity for
obtaining the sanction Of higher authority.
(c) The provision for the payment of sales tax, excise duty, etc. should be checked.
Vague provisions, such as, “sales tax will be paid, if legally leviable” should be
avoided and the contracting officers should state in definite terms whether
171
sales tax, excise duty. etc. are payable and if so at what rate and on what
amount.
(d) Orders placed in the latter part of a financial year should be specially
scrutinised and any tendency to rush of expenditure should be brought to
notice.
9.53 Cases of the type mentioned below, may, if necessary, be scrutinised carefully:
(a) Inclusion of any new item of expenditure not originally contemplated in a contract.
(b) Extension in the date of delivery in contract where higher prices have been allowed on
account of early delivery of stores.
(c) Compensation allowed to firms in respect of contracts.
(d) Any extraordinary stipulation in a contract.
(e) Any special and apparently objectionable procedure of purchase, inspection and
payment
(f) All sanctions to ex-gratia payments.
9.54 It should be seen in auditing bills for contractors for suply of stores that:
(a) the purchase of the stores has been sanctioned by the competent authority;
(b) all purchases of stores are made in accordance with the procedures if any laid down with
special reference to the Rule that no purchase which require the sancton of a superior
financial authority is sanctioned by lower authority in instalments;
(c) the rates charged for in the bills agree with those in the Agreements;
(d) that when the contract stipulates inspection in stages, e.g., at the time of manufacture or
after erection at site, the necessary Inspection Certificates are furnished with the bills;
(e) that a claim for railway freight, insurance charges, etc., when the order is F.O.R. place of
despatch, is duly supported by respective vouchers, irrespective of their amounts:
(f) that when a contract is placed on the basis of rates prevailing in the market on the date of
receipt of the order by the firm, or on the day of supply, such rates are verified with the
intimation of market rates received from the suppliers. These rates should be confirmed
by the Purchasing Officers.
General Procedure of Audit of Cash Book
9.55 The following audit procedure is common to all audits.
The audit of receipts should ordinarily commence with the Cash Book and the credit entries
should be traced from any other primary record if any. The chief aim while conducting the
audit of receipts should be to ascertain that an adequate procedure has been prescribed and
regulations haye been framed to secure an effective check on the pricing of the products or
cost of services and allocation of revenue. The procedure and checks imposed to guard
against the commission of irregularities at the various stages of collection and accounting
should also be ascertained.
9.56 The following points should be seen in the audit of receipts:
(a) verify the receipts for sales with sales book and the duplicate cash memos;
(b) see that all receipt books issued are accounted for and the printed number on the
counterfoils in the used books runs consecutively;
172
(c) vouch income from investments with the help of the concerned advices;
(d) vouch the receipts for rents with the counterfoils of the receipts issued;
(e) see whether interest on loans has been received when due and also interest on bank
deposits. Vouch the Bank interest received with the Bank Pass Book/Statements/Advice
and verify the correctness of the amounts;
(f) the analysis of the miscellaneous receipts should be seen. Examine the evidence in
support of such receipts.
9.57 The audit of expenditure should similarly commence with the Cash Book and all payment
vouchers hould be traced into it. Each voucher should then be audited and when necessary
should be traced into the various subsidiary registers. The objects of audit of expenditure are to
ensure:
(a) that the claims are made in accordance with the rules;
(b) that all prescribed preliminaries such as proper estimates being framed and the expendi
ture being approved by the competent authority have been observed before incurring of
an expenditure;
(c) that the expenditure is in accordance with the sanction properly accorded and incurred
by the competent authority;
(d) that the payment has been made to the proper person and that it has been so
acknowledged;
(e) that the charges are correctly classified and posted to the prop<►er head of accounts; and
have been correctly brought to the account in the books of original
(T
the payments
]
entry.
9.58 In dealing with the payment vouchers, it should be seen that:
(a) the charge is admissible;
(b) the expenditure is covered by the requisite sanction, where necessary:
(c) the sanctioning authority possesses the necessary power to accord the sanction;
(d) there is provision in the budget estimate to meet the charge;
(e) every payment is supported by a voucher in proper form and checked by the Accountant;
(f) the vouchers are consecutivelv numbered, artithmetically correct and supported by
proper receipts;
(g) the vouchers are correctly classified and entered in the several registers;
(h) the expenditure is for legitimate objects as provided for in the estimates/budgets;
in
(i) all vouchers are properly passed for payment and that the payment order is expressed i**
words as well as in figures;
(j) there are no erasures and overwritings and that all corrections are attested in ink;
(k) cheques are drawn in favour of ultimate payees, except for:
(i) salaries of establishment.
(ii) recouping permanent advances.
(iii) purchasing money orders;
(l) payment vouchers are stamped “paid”;
(m) stamps are affixed to all vouchers for sums over Rs. 20 and that they are cancelled; and
(n) the details work upto the totals and the totals are entered in words as well as in figures.
9.59 Payment by Cheques: In dealing with payments by cheques it should be seen that:
(a) the counterfoils of cheques issued bear the initials of the drawing officer;
173
(b) the amounts as shown in the counterfoils of cheques issued agree with the entries on the
payment side of the Cash Book;
(c) the difference between the amount of cheques issued as recorded on the payment side of
the Cash Book and the amount of cheques shown as paid in the Bank Statement/Pass
Book, represents the amount of cheques remaining uncashed at the end of each month;
(d) all cancelled cheques are stamped “cancelled” under initials of the signing officer;
(e) the instructions regarding cheques not cashed within six months are properly observed;
(f) the cheque books are kept in the personal custody of the signing officer and that each of
them bears an endorsement that it contains the correct number of forms over the
signature of the officer.
9.60 The various receipts and charges having been traced into the Cash Book and cash entries
(or as many as are requried to be test checked) having been completely audited, the Cash Book
should be proved. The opening balance should be checked with the closing balance of the
previous month, the entries on both sides should be examined from the tick marks of check, the
totals of both sides of the accounts should be arithmetically checked and the closing balance
proved and compared with the bank statements and any difference between the two due to
uncredited cheques or unpaid cheques should be traced.
9.61 It should be generally seen that
(a) the system of receipt and payment of cash, cheques and bills, banking and custody of
cash, verification of cash balances and recording of cash transactions is adequate and
satisfactory and whether there is any waste, nugatory expenditure or loss of cash due to
inadequate safeguards;
(b) all the receipts and payments are posted to the proper accounts in the ledger;
(c) the totals and carry forward balances are correct;
(d) the balances of the bank accounts are periodically reconciled with the balances shown in
Pass Books;
(e) the details of the various subsidiary books are periodically reconciled with the total
balances in the General Ledger;
(f) the general rules of recording the transactions in the chronological order, dailv balancing
and periodical verification of the cash balances and certificate of verification are strictly
followed;
(g) the cashier does not handle the account books other than the cash book;
(h) the custody and issue of receipt books, cheque books etc. should also be generally
examined.
Audit Guidelines of Specific Records/Items
General Procedure of Audit of Accounts of Stores and Stock.
9.62 The audit of store accounts should be directed to ascertaining that the departmental
regulations governing purchase, receipt and issue, custody, condemnation, sale and stock
taking of stores are well devised and properly carried into effect, and bringing to the notice of the
management any important deficiencies in quantities of stores held, or any grave defects in the
svstem of control.
9.63 Audit should ascertain that the accounts of receipts of stores whether purchase or
otherwise obtained and their issues and balances are correctly maintained. Where a scale has
174
been prescribed by organisation or other authority for issue of stores of any particular kind, n
should be seen that the scale is not exceeded.
9.64 Stores, in many cases, represent a locking up of capital which is not justifiable unless
essential. In order to effect economy in this direction auditor will see that the balance in hand
does not exceed the maximum limit prescribed by competent authority and is not in excess of
requirement for a reasonable period.
9.65 Audit should scrutinise sanctions to write off stores accorded by competent authority and bring
to the notice of the managing committee any defect in the system which appears to require attention.
9.66 The accounting for and maintenance of unserviceable stores which cannot be utilised by
the department/section in whose, custody they are kept involve waste of labour and space. The
retention of stores in excess of the probable requirements of the department/section in the near
future may result in loss through deterioration. The auditor will, therefore, see that measures
are taken to survey, segregate and consider the disposal of unserviceable surplus and obsolete
stores in accordance with the procedure prescribed.
9.67 It is an important fucntion of the auditor to ascertain that the articles are counted
periodically and otherwise examined to verify the accuracy of the quantity balances in the
books. The auditor shall not. except when specially authorised to do so, assume responsibility
for the physical verification of stores, but he has the right to investigate balances of stores, if any
and discrepancies in the store accounts suggest that such action is necessary. The auditor has.
however, to see that a certificate of verification of stores is recorded periodically by a responsible
authority, that the system of verification adopted is adequate and proper, that discrepancies
found on stock-taking are properly investigated and adjusted and that wherever possible the
staff responsible for the verification is independent of the staff which is responsible for the
physical custody of the stock or keeping accounts of it.
9.68 Where a priced account is maintained, the auditor will see that:
fa) the stores are priced with reasonable accuracy and the issue rates initially fixed are
reviewed from time to time and are corelated with market rates and revised where
necessary where the issue is to the contractor;
(b) that the total of the valued account tallies with the outstanding amount in the general
accounts and that the numerical balance of stock materials is reconcilable with the total
of value balances in the accounts at the rates applicable to the various classes of stores:
and
(c) steps are taken for the ad justment of profits or losses due to stock-taking or other causes
and that these are not indicative of any serious disregard of rules.
Audit Practice in Connection with various Expenses Items
9.69 Some of the important points for the audit of various items are enumerated below:
9.70 Establishment Bills: The calculations should be checked generally. The auditors should
also see that:
fa) an absentee statement is furnished when necessary:
175
(b) a last pay certificate is attached when a staff is transferred from another office;
(c) income-tax and provident fund deductions are made when necessary, and properly
accounted for;
(d) temporary establishments are billed for separately, the claims being supported by
sanctions;
(e) pay and acting allowances are separately shown and the names of all persons on leave, on
other duty or under suspension are shown in the absentee statement;
ff) the leave allowances drawn are according to the rules in force:
(g) acquittance rolls have been checked for the months concerned and the thumb impres
sions if any have been duly attested by the disbursing officer.
9.71 Wages: The auditor should:
(a) Ascertain the system in force for the recording and payment of wages in order to get an
idea of the scope for errors or fraud.
(b) Check the cash disbursements with certified copies of wage sheets.
(c) Check the wage sheets with primary record like attendance, production, over time sheets
etc..
(d) Check the over-time wages, with special reference to the need, sanction of the competent
authority and the periodicity.
(e) Examine the system of authorising overtime. If overtime is a recurring feature the need
for the same should be examined vis-a-vis temporary/casual recruitment of staff
(f) Check the unpaid and prepaid wages account.
fg) Check leave payment and holiday wage payment sheets.
(h) Compare the weekly, fortnightly or monthly total of the wage sheets with each other and
obtain satisfactory reasons for any large fluctuations.
(i) Glance through the wage sheets in order to see whether any large sums appear to have
been paid to any one man. Examine those items fully.
(j) Examine the system of wage payment with special reference to the adequacy of control
over dummv workers, idle time etc..
9.72 Salaries
(a) Ascertain the authority competent to create posts and see that the existing strength is
always within the s^ncitoned limit. Examine the documents in support of the fixation of
pav of the employees and see that the pay has been fixed in accordance with the rules
made for regulating pay.
(b) If the employees give receipts for their salaries, the receipts should be checked with the
salaries register or if they are paid by cheque, the same should be done by means of
crossed account payee cheque.
(c) The additions of the salaries register should be checked and the totals agreed with the
payments in the cash book.
9.73 Rent, Rates and Taxes:
(a) Examine each cash payment with the receipt given in the prescribed form and see that
the period covered by the payment is continuous and does not overlap.
(b) At the end of the financial year scrutinise the various ledger accounts relating to the
above items and see that the payments have been made when due and the discounts, if
any. have been availed.
(c) . Compare the total charges shown in each ledger account with the corresponding charges
176
in the previous year and account satisfactorily for any difference.
(d) In the case of new rent payable, obtain particulars thereof from lease or agreements.
9.74 Travelling Expenses: The main point to be considered is whether the travelling expenses
incurred are in the interest of the organisation and whether the person incurring them is entitled
to charge them. Apart from examining whether the claims are in accordance with the rules
prescribed, the following points should also be borne in mind:
(a) the allowance is admissible and is in accordance with the rules in forte:
(b) the distance for which milage is charged is correct as far as can be ascertained and the
railway fare is properly calculated;
(c) the amount of travelling allowance drawn does not exceed the admissible one except
where special rates have been sanctioned.
(d) the travelling expenses of the Official are not chargeable to the organisation.
(e) the details of the travelling allowance and the approval of the competent authority
should be seen together with the adjustment of advances already taken and the time-lag
between performing the journey and submission of the bill.
9.75 Bank Charges/Interest:
(a) Bank charges as shown in the cash book/bank book should be vouched with bank advices
or the bank pass book. It may not be necessary to check small charges.
(b) As regards interest on borrowings, ascertain the rate of interest payable and except
where numerous accounts of transactions are involved test check the calculations
involved and see that on an average the overall interest paid/provided is in order.
9.76 Petty Cash:
(a) Ascertain the system under which petty cash disbursements are made and recorded and
whether the records and vouchers are examined by any independent official.
fb) Vouch the receipts shown in the petty cash book with the cheques drawn on account of
petty cash as shown by the cash book.
(c) Check the totals and cross-totals of the analvsis column, if any. of the petty cash book
(d) Vouch the payments with receipts, particular attention should be paid to large amounts
in the petty cash book.
(e) Vouch the payments for postage stamps with the postage account and despatch register
and check the additions in the latter book, comparing the total payments as between one
period and another and obtain satisfactory explanations for wide variatons.
(f) Examine whether periodical physical verification of stamps on hand is carried out.
Where franking machines are in use. the readings in the bill should be checked with the
expense in the despatch register.
(g) The classification of petty cash expenses should be examined in a general wav.
(h) Where petty cash balances are considerable, the need for such a balance should be
examined and reduction suggested, if necessary. Withdrawal of reimbursement of pettv
cash when the balance is sufficient should be carefullv scrutinised.
9.77 Telephone and Trunk Calls:
It should be seen whether separate registers are maintained for these charges. Private calls
should be noted in the register for recovering th? charges. The system of authorising trunk calls
177
should be examined and the method of accounting and verification of the official and private
calls should also be reviewed.
Vehicle Maintenance
9.78 While examining the log book of vehicles the following points should be seen:
(a) That proper log books are maintained in respect of each motor vehicle.
(b) That all necessary' particulars e.g. time out. time in. name and designation of the official
travelling, purpose and details of journey, meter readings, kilometres run etc. are
properlv recorded in respect of each journey in the log books.
(c) That the entries in log books are signed by the travelling officer or by another responsi
ble person on his behalf.
(d) That the journeys are undertaken for authorised purposes only and that recoveries are
made for all journeys other than those for the bona fide purposes of the undertaking.
(e) That the ‘kilometre run’ shown at the rates sanctioned by the competent authority is not
prima facie excessive in any case. See that the ‘kilometres run’ in respect of journeys
between the same points on different occasions are more or less the same. If there are
major variations, the reasons for the same should be examined.
(f) That the rates of recovery for such agreeable journeys have been fixed by the competent
authority and are not unreasonably low.
(g) Compare the K.M.P.L. done and examine in detail the cases of abnormally low milages.
(h) Whether log books are periodically reviewed by a responsible officer and whether a
certificate to that effect is recorded by him.
(i) Whether the vehicles have been insured and whether the cost of repairs etc. as a result of
accident has been recovered from the insurers.
(j) In cases in which vehicles have been lying unused for a long time, investigate the reasons
of the same and also examine whether the refund of road tax. insurance premium etc.
which mav be admissible in such cases has been obtained.
(k) That all repairs (except minor repairs) to the vehicles together with the particulars and
cost of spare-parts replaced are recorded in the history sheet with reference to vouchers.
(l) That the total expenditure for repairs on each vehicle is normal. Examine critically
abnormal expenditure and uneconomic repairs.
(m) In the case of major repairs, see that the work has been got done at competitive rates.
Audit Practice in Connection with Various Asset Items
Some of the important points for the audit of various items are
enumerated below:
9.79 Land:
(a) To confirm the ownership of the free-hold property, examine the actual title deeds and
the convevance will state the purchase consideration. As regards lease hold, property the
lease deed should be inspected. If the property is mortgaged, the mortgage deed will be in
a position to state the amount of mortgage and also that the title deeds are in his
possession.
(b) Legal expenses and conveyance charges in connection with the purchase of property can
be propertv considered as part of the cost of acquisition and charged to the asset account.
These can be verified.
178
(c) Tn case of lease hold land, premium paid if any, should be written off over the period of
the lease.
(d) The auditor should ensure that any changes in the building plans have been approved by
the funding agency.
9.80 Plant, Machinery and Equipment:
(a) Purchases of plant and machinery should be verified from the invoices duly supported by
receipts given for payments. Sanction from the competent authority must be taken for all
purchases.
(b) It should be ascertained that the expenses for erection of machinery only are cap’talised
and that revenue expenses are not added to the value of the asset. Particular care should
be taken to verify the disposal of the administrative expenses of construction period.
(c) The adjustment of the value of the assets in respect of plant and machinery received
under deferred payment scheme should be examined to see that full value of the asset is
brought into account.
(d) The asset Card/Register for Plant and Equipment should be examined every year to see
that the record is made uptodate with regard to addition, disposals etc.. Examine
whether the individual balances in the Register agree with the total in the General
Ledger.
9.81 Motor Cars and Trucks: The register maintained for vehicles should be examined. This
should be linked with the road tax charges and insurance premium paid.
9.82 Investment: The nature of the investments and the classification should be examined. The
existence of these should be physically verified, if considered necessary. The dividend or interest
due on these should also be verified with reference to the dividend warrants/advices.
9.83 Loose Tools: When purchased from outside, the invoices, and when manufactured in own
workshop, the estimates and job cards should be examined. The list of loose tools must also be
seen at the close of the financial year. The method of depreciating or adjusting for unserviceable
tools should be seen.
9.84 Stock-in-Trade, Stores Etc.
(a) Inquire into the system for ensuring that all goods which were included in stock had been
duly charged up as purchases and that no goods which were issued during a financial
period were also included in the stock at the end of such period.
(b) The details shown by the stock books or sheets may be test checked.
(c) The basis of valuation of the inventories from year to year must also be carefully noted
and deviations, if any. should be reported, if considered necessary.
(d) The value of stock of finished goods, stores, etc. are generally taken from the General
Ledger with suitable adjustments necessiated by physical verification. In such cases
examine the difference between the General Ledgerand the detailed accounts.
(e) Where old stocks exist, examine the cost and the inventory value thereof.
9.85 Loans and Advances: Examine the period for which the loans are outstanding and enquire
into the reasons therefor. Where the loans are given against security, examine the adequacy of
the security. Examine the system of adjusting the advances against suppliers. Advances and
liabilities for supplies from the same party should be adjusted.
179
9.86 Imprest or Permanent Advance Accounts: In checking this account, it should be seen that:
(a) an acknowledgement is obtained from the officer concerned when he first received the
amount.
(b) the advance is recouped at periodical intervals on submission of proper expenditure
vouchers dulv passed for payment by the competent authority:
(c) no unnecessarv pavments are made out of the Advance: and
(d) the permanent advances are not multiplied unnecessarily and the amount of permanent
advance is kept as low ar possible.
9.87 Advances: It should be further seen that:
(a) every advance has been sanctioned by the competent authority and a separate entry has
been made in each case: and
(b) the ledger is balanced at periodical intervals.
9.88 Cash and Bank Balances:
(a) Examine the system of depositing and withdrawing cash generally. The certificates
recorded bv responsible officials periodically for having verified the cash must be seen.
(b) W here the cash balance is large the need for that must be examined. The ways and
means position should also be seen to find out whether the surplus money was properly
vested in short-term deposits.
(c) The statement reconciling the bank balance as shown by the Cash Book with that
appearing in the Pass Book/Statement should be checked. The certificates received from
the Bank should also be verified. The fixed deposit receipts and the call deposit receipts
should also be verified. Wzhere the verification is not done on the last day of the financial
vear. the account should be thoroughly examined and the balance as on date should be
arrived at and then verified.
(d) the entries in this Securities Register should be checked with the original documents in
safe custorv.
9.89 Suspense Account: The checks to be exercised are:
fa) that no amount is credited or debited to a suspense account without proper authority:
(b) that no credit is taken by debit to a suspense head:
(c) that items noted in the account are cleared promptly by recovery, payment or adjust
ment: and
fd) that no item is kept outstanding for an unduly long time without being cleared.
Audit of Construction Works Expenditure
9.90 Examine whether the construction work of the organisation is proceeding according to the
time schedule and the expenditure during construction is being booked systematically, so that
the cost of a particular unit of construction can be readily ascertained. Some of the other
important and special points for audit of expenditure on construction work are detailed below:
9.91 The following points should be seen with regard to estimates:
f 1) That the estimates are prepared and sanctioned by the competent authorities according
to the rules laid down bv the Management of the concern.
180
(2) That proper technical advice has been obtained, wherever necessary while framing the
estimates so that the contingency of shortages or excesses over the sanctioned estimates
in normal circumstances, when the work is actually executed, is avoided.
(3) That there is no undue delay in closing the accounts of any particular construction work
when the physical work has been completed and that excesses over the sanctioned
estimates are investigated and regularised by the sanction of the competent authority.
(4) That any anticipated or actual savings on a sanctioned estimate for a definite project are
not. without special orders of the competent authority, utilised to carry out additional
work not contemplated in the original estimates or towards an unauthorised object.
(5) Check the expenditure on each sub-head or sub-work with the estimated quantity of
work to be done, the sanctioned date and the total sanctioned cost and bring to notice all
deviations from the sanctioned estimates.
9.92 The following checks should be applied while checking the tenders for works expenditure:
(1) That the rates quoted for various items of works in the accepted tender are reasonable
with reference to any published data for such items or work in that particular area.
(2) Where materials are to be supplied by the concern, see that proper clause exists for the
return of the empty bags/container.
(3) Where water, electricity etc., are to be supplied by the concern at the works site, see that
the necessary clause exists for the recovery in respect thereof at proper rates.
(4) Where any plant or machinery of the concern is to be utilised by the contractor at works
site, see that proper clause exists for the recovery of the cost thereof.
(5) See that necessary penalty clause exists for the non-completion of the work within the
stipulated time.
(6) See that the tenders are examined and contract awarded to the tenderer within the
validity period of the offer.
9.93 The concern should make use of measurement books for recording the progress of work for
which payments are to be made on actual measurement of the works carried out.
The following points should be borne in mind while examining the Measurement Books:
(1) That the measurement books are generally reviewed to see that the entries are made in
accordance with the instructions for the use of measurement books and that no entries
are made by officers other than those empowered to do so.
(2) That in the case of cancelled measurements, the cancellation is supported by the dated
initials of the officer ordering the cancellation and also full reason for the same.
(3) That measurement is conducted with discretion and that the items of work easily
susceptible to fraud or those which would most seriously affect the total amount of the
bills, if in-accurate, are selected for check-measurement i.e. second test checking of
measurement is initially taken.
9.94 Materials at site represent the materials issued to works carried out departmentally but
not yet consumed on the works. These should be examined to see that:
(a) in cases where materials have remained unused for over long periods adequate reasons
exist for obtaining them in advance of requirements.
(b) materials are not transferred from one work to another without proper authority.
(c) surprise physical verification of material-at-site is conducted by some responsible officer.
181
Also see that any surplus or shortages found as a result of such verifications are not
ad justed in the accounts without proper investigation of the causes.
(d) materials are not issued to works in excess of their requirements as per thedataavailable.
9.95 The auditor shall ensure that:
(a) Orders for larger acquisitions and other services have been placed with the most
economic and reliable supplier after having previously compared other tenders.
(b) If order has not been placed with the lowest tenderer, the reasons for not doing so have
been recorded in writing by the competent authority and the same are justifiable.
(c) Preference is given to equivalent tenderers in the respective country of the project
partner. Equally, equivalent offers from developing countries have preference over those
from industrialised countries.
(d) Payment in advance to suppliers prior to delivery of the ordered goods/services should be
made onlv in exceptional cases if and when justified.
Building Contracts
9.96 Where architects or quantity surveyors are involved, the auditors’ duty with regard to
verifying expenditure need not go beyond the relevant certificates on which payments to the
contractor are based. However, the auditor should ensure that any changes in the building
plans have been approved by the funding agency.
Projects Involving Training Programmes
9.97 Particular care is required while verifying expenditure incurred on training programmes
since internally produced vouchers rather than vouchers from external sources are mainly in
use. Expenditure on salaries and related staff costs, allowances payable to participants,
travelling and accommodation costs etc. pre-dominate over this type of project.
Special Funds
9.98 Where special funds are part of a project, the auditor should make test checks with
reference to the letter of approval, separate notes on'special funds and the project partner’s
regulations to ensure that:
— loans are being disbursed correctly.
— repayments are being recovered in due time and are applied for the approved purposes.
— the special fund is being used and reported upon as agreed.
182
Annexure—A
Model Letter of Engagement of An Auditor
To
M/s A B C
Chartered Accountants
Dated:
Dear Sirs.
We have pleasure in appointing you/your firm as auditors of-------------------------------(name of the organisation)
in respect of the project
(Project title)
a project assisted by
(Name of Funding Agency)
The above appointment has been done in consultation with the Funding Agency and is valid
for the entire project period.
The mutual obligations between us arising out of the appointment is set out in the
Annexure—Ai enclosed.
In token of your having accepted the above appointment, kindly return the duplicate copv of
this letter signed by you.
Yours faithfully.
Thanking you.
183
Annexure— A1
Annexure to the Letter of Engagement of an Auditor
Dated----------------------------------
1. Purpose for the Engagement of an Auditor
1.1 The purpose for the engagement of your firm as auditor is to—
state the rights and duties of the partner and the auditor with regard to the audit of the
funds of the project;
— ensure that such funds are used efficiently and as planned: and
— to enable the partners to prove to interested third parties the proper use of the approved
grant.
This letter of engagement is to be considered in conjunction with the agreement dated
between the project partner and the Funding Agency covering the support of the same
project and the letter of approval.
2.
Task of the Project Partner
2.1 Project-partner, in accordance with agreement referred to above, undertakes:
Bank Account
2.2 To maintain a separate bank account for the project.
Book-keeping
2.3 To maintain separate books for the project and keep them upto-date at all times.
(For fixed assets other than land and buildings, inventories in the form of a register or a
statement will be maintained).
2.4 Financial Statement and Progress Reports consisting of:
— financial statement in the form of Receipt and Payment Account as per 30th June and 31st
December:
— detailed schedule of major payments: and
— progress report as per 30th June and 31st December.
2.5 These reports will be prepared by the project-partner within three weeks from the end of the
half year under review. Within one month after the date of maturity, the project-partner will
handover to the auditor, a copy of the financial statement together with all documents necessary
for the audit.
184
Final Report
2.6 The procedure described in paragraph 2.4 shall also be used for the last financial statement
and the last progress report except that the last financial statement will be submitted to the
auditor within six weeks of the completion of the project.
3
Rights and Duties of the Auditor
Initial Review of the Book-keeping System
3.1 The auditor shall carry out an initial review of the book-keeping system established by the
project-partner to ensure that the system complies with the book-keeping guidelines issued by
the funding agency as well as the general principles of book-keeping of the country. In carrying
out this review, the auditor shall examine:
— the constitutional documents of the partner;
— the written record of the book-keeping system;
— procedures relating to the placement of tenders and orders (for larger acquisitions,
building contracts and other services);
— authorisation procedures and other control measures.
General Audit Standards
3.2 In order to audit the financial statements, the auditor may carry out such work as he
considers necessary to report to the project-partner and the funding agency. He will take into
account any relevant local statutory requirements covering audits and generally accepted
auditing standards prevalent in his country. If considered necessary for the audit, the auditor
may physically inspect the project..
4
Scope of Audit Work
4.1 Examinatin of the interim and last financial statements and the underlying books and
vouchers should include the following:
(i) With reference to the total receipts and payments—verification of the balance of cash at
bank and in hand.
(ii) Verification of rates of exchange applied to remittances received from the funding
agency with relevant official rates. This includes the examination of the conversion of
funds temporarily held in hard currency/external accounts.
(iii) Verification of the cash book maintained in national currency for recording remittances
received from overseas.
(iv) Test check of vouchers for payments to ensure that they have been properly authorised,
that within the local context the expenditure is reasonable and within the scope as
determined in the letter of approval and the budget.
(v) Agreement of the financial statements with the books maintained for the project.
(vi) Confirmation that the agreed book-keeping system has been followed.
(vii) Confirmation that debit notes received from the funding agency have been correctly
accounted for in the books of account.
In order to facilitate the audit, access to the narrative report of the project-partner by
the auditor is considered helpful.
185
5
Special Considerations applicable to certain Projects
5.1 In respect of orders for larger acquisitions, it should be ensured that the contract was
awarded to the lowest tenderer, and if not. the reasons for not doing so are justifiable. With
major orders, procedure for obtaining offers and the actual placing of such orders should be
examined.
Building Projects
5.2 Where architects or quantity surveyors are involved, the auditor’s duty with regard to
verifying expenditure need not go beyond the relevant certificates on which payments to the
contractor are based. However, the auditor should ensure that any change in the building
plans have been approved by the funding agency.
Projects Involving Training Programmes
5.3 Expenditure on salaries and related staff costs, allowances payable to participants, costs of
travelling and accommodation predominate with this type of project where internally produced
vouchers are mainly in use rather than vouchers from external sources. Particular care is
required in verifying expenditure covered by such vouchers. Where travelling expenses are
reimbursable to course participants, it is advisable, where appropriate, to list out such particip
ants and to request each of them to sign opposite the amount of expenses reimbursed to them. If
courses are held elsewhere, external vouchers should be available from third parties covering
food and accommodation charges for participants. If courses are held at the premises of the
project-partner, vouchers for food and accommodation should be supported by lists showing
the names of participants involved.
Special Funds
5.4 Where special funds are parf of a project, the auditor should make test checks with
reference to the letter of approval, separate notes on special funds and internal regulations of the
project-partner, whether:
— loans have been granted in accordance with laid down procedures;
— repavments to the project-partner were made in accordance with such procedures, and
— repayments were subsequently used for approved purposes.
Repayments and their subsequent use should be kept separate from the project funds and
reported upon in a manner to be suggested by the funding agency individually to each
project-partner and not to be included in the financial statements to be submitted to the
funding agency.
Assistance from and Advisory functions of the auditor.
5.5 Where necessary, the auditor should be involved as early as possible in setting up a system
of book-keeping.
5.6 On request of the project-partner, the auditor should help in installing an effective system
of internal auditing and control.
186
6
Form of the Auditor’s Report
6.1 The short form of auditor’s report to be submitted to the funding agencies would be as
under:
“W'e have audited the interim/fmal stastement of Receipt and Payment Account of Messrs
in respect of their project
for the period from
We have conducted a test audit of the.said accounts and report that—
(a) Separate and proper books of account as considered necessary for the purpose of audit.
have been maintained.
(b) Separate bank account for the programme/prqject assisted by the funding agency has
been maintained.
(c) The statement of account refrred to above is in agreement with the books of account.
(d) According to the information and explanations given, the expenditure has been ade
quately authorised and is reasonable within the local context and schedule of budget
costs as approved by the funding agency for the project.
(e) In so far as the contribution of the project-partner in non-cash form is concerned, they
have been verified with reference to reasonable source of evidence.
(f) The agreement between the funding agency and the project-partner has been adhered to.
(g) The said Accounts according to the information and explanations given, reflect a true and
fair view of the transactions for the project.
Note: The auditor is free to express his reservations giving reasons therefore, if any. on any of
the matters on which he is to express an opinion.
6.2 The first short form report of the auditor will be supplemented with the information on the
following matters:
i) proper appointment of the project representatives and other personnel involved in the
project implementation;
ii) adequacy of the book-keeping system and its compliance with the guidelines of the
funding agencies:
iii) adequacy of procedures relating to the ordering of supplies and services; and
iv) adequacy of authorisation procedures and other measures relating to internal control.
6.3 The long form report, if any. should be addressed to the partner organisation only and
should contain such matters of routine nature, not affecting the certification in the short form,
which requires attention for rectification in the hands of the partner organisation. This report
may also contain suggestions for improvement in the internal control precedures and other
areas so that the assets of the organisation are better secured and economies effected.
7
Duration of Appointment
7.1 The appointment of the auditor shall commence from the date the letter of engagement has
been signed by the auditor in token of his acceptance and shall terminate once the final report
has been submitted to the funding agency and accepted by them.
8
Audit Fees and Expenses
8.1 The auditor’s fees and expenses would amount to Rs187
(in words-
■*
-----------------) and shall form part of the budgeted project expenditure. After submission of each
audited interim financial statements, the auditor shall receive a payment of Rs-------------. After
the final audited financial statement has been accepted by the funding agency, the auditor shall
receive a final payment of Rs.------------------ . The alidit fee and expenses shall be paid from
project funds.
9 Interpretation of Agreements and Duties of the ‘Reference
Auditor’
9.1 Audit queries arising out of the implementation of the agreement and the agreement
covering the audit of the project receipts and payments shall in the first instance be discussed
between the project-partner and the auditor. If they cannot be resolved, the project-partner
and the auditor shall jointly refer such queries to the Reference Auditor. Tn such a situation: tfie
Reference Auditor shall endeavour to resolve such problems in a manner acceptable to both the
parties.
10
Alterations to the Letter of Engagement of an Auditor
10.1 The terms of engagement as set out in this letter can be altered only with the written
consent of the project-partner and the auditor.
188
‘A’
EVANGELISCHE ZENTRALSTELLE
FUR ENTWICKLUNGSHILFE E.V.
(EZE)
INFORMATION ON FUNDING AGENCIES
ANNEXURE
Informaton on Funding Agencies
Page
4A’ EVANGELISCHE ZENTRALSTELLE FUR ENTWICKLUNGSHILFE E.V.
(EZE)
(i) Agreement between EZE and Project Partner
(ii) Forms and Explanatory Notes
Appendix 1 Request for Transfer of EZE funds
2 Acknowledgement of Receipt
3 Financial Statement
4 Explanatory notes to the Progress Report
5 Book-keeping Guidelines
6 Audit Requirements
189
195
198
199
203
204
207
Agreement
between
the Evangelische Zentralstelle fur Entwicklungshilfe e. V (EZE)
and
(in the following called the Partner)
concerning the support of the following project or programme
Project number and designation:
Both Partners agree on the following procedures of funding. The agreement should be read
together with
— the letter of approval which contains the purpose for the funding, and if necessary special
arrangements,
— the budget (estimate of receipts and payments).
1
Utilization of Funds
1.1 EZE funds are only spent for the purposes specified in the letter of approval and the budget.
Within the scope of the objectives and measures agreed upon, the Partner is free in developing
the project or programme to achieve the best possible result. To be able to achieve this, the
Partner can exceed the individual budget items by upto 30% to the debit of other items whereby
the budget as a whole remains binding.
1.2 Changes in the project objectives or measures agreed upon, or exceeding the various items
of the estimated expenditure by more than 30% will be settled between the Partner and EZE by
mutual agreement. EZE will react promptly if any alterations are proposed.
1.3 Funds will be utilized efficiently and economically. Orders for larger acquisitions (e.g. cars,
pumps, hospital equipments), buildings, and other services will be placed with the most
economic and reliable supplier after having previously compared other tenders.
1.4 The Partner will inform EZE as soon as he receives further contributions from other sources
to finance the same project or programme so as to adjust the budget accordingly by mutual
agreement.
1.5 If the intended purpose of funding cannot be achieved, EZE will be informed immediately.
2 Transfer of EZE Funds
2.1 The Partner will open a separate bank account for EZE funds.
2.2 Upon written request of the Partner, EZE will transfer funds promptly in instalments to
meet the requirement for the next 3 months. At the request of the Partner, EZE can make
payments to third parties. In case of delay in releasing the instalments, EZE will inform the
Partner accordingly.
189
2.3 The Partner will send EZE an acknowledgement of receipt of the transferred amount
stating the equivalent amount in national currency.
2.4 If, contrary to expectations, EZE funds cannot be utilized for payments within 5 months
after receipt, EZE will be informed accordingly. By mutual agreement, EZE may request that
the corresponding funds are transferred to another EZE—funded project or organisation, and
the Partner’s account with EZE will be credited.
2.5 To avoid overpayments, 5% of the EZE funds can be withheld until the final financial
statement and final report are received.
2.6 Interest arising from the EZE funds is credited to the EZE grant or is paid back. For valid
reasons, however, interest may also be utilized for additional expenditure on the project
provided that EZE has given approval in writing.
3
Books of Account
3.1 The Partner will keep proper books of account of all receipts and payments of the project or
programme budget in national currency in accordance with the book-keeping guidelines.
3.2 In the case of payments to third parties. EZE will immediately send debit notes so that they
can be recorded in the Partner’s books of account.
3.3 The books of account and the corresponding vouchers and other documents will be kept by
the Partner for 5 years after EZE has approved the last financial statement.
4
Financial Statements and Progress Reports
4.1 After the start of the project or programme, the Partner will send to EZE financial
statements and progress reports as per 30th June and 31st December of each year.
4.2 The financial statement will show the receipts and payments corresponding to the indi
vidual items of the budget. Where applicable, major payments should be listed in an appendix
with the following information:
— reference to the budget item,
— brief description of payment,
— date of payment.
— amount of payment.
— payee.
4.3 The progress report should describe the implementation of the measures in such a way that
it is possible to compare the actual achievements of the project with the planned measures and
objectives. Therefore, the report should be structured according to the items of the budget. If
possible, meaningful photographs will be provided. Special progress reports will be agreed
upon separately, where appropriate.
4.4 The financial statements and progress reports will be sent to EZE within 3 months of the
end of the reporting period.
190
I
4.5 The final financial statement and the final progress report will be sent to EZE within 3
months after completion of the project or programme.
4.6 If the financial statements and the progress reports cannot be produced within 3 months,
EZE will be informed by the Partner.
4.7 EZE will acknowledge receipt of the financial statements and progress reports and will
comment on them, if necessary.
5 Audit
5.1 The Partner will engage an independent auditor (Chartered Accountant or equivalent)
who will be chosen mutually to audit the accounts and the utilization of funds.
5.2 The Partner will enter into a written agreement with the auditor (in the form of Letter of
Engagement of an auditor) about the standard and performance of his work on the basis of
EZE’s audit requirements.
5.3 The auditor’s fees will be financed from the project funds.
5.4 The auditor’s report will be attached to the Partner’s financial statements and sent to
EZE.
5.5 If the auditor fails to comply with the agreement referred to in para 5.2, EZE will be
informed by the Partner. If it is necessary to apoint another auditor this will be done jointly.
5.6 EZE representatives may visit the project to see the progress of the project or programme
and the project-related books of account after consulting the Partner.
6
Utilization of Project Assets
6.1 Assets acquired with project funds (e.g. land, buildings, equipment, machinery, furniture,
vehicles) will be the property of the Partner and will be utilized for the purposes agreed upon.
The same will apply to revolving and disposition funds.
6.2 EZE’s prior consent in writing is required if the Partner feels that assets cannot be utilized
any more for the original purpose, or if he intends to mortgage or sell them, or if a revolving fund
already created will be used for another purpose, or will have to be closed.
6.3 If without EZE’s prior consent assets are no longer utilized for the agreed purposes, the
Partner will pay to EZE compensation in proportion. The basis for the compensation will be the
market value for assets and the residual value for funds. EZE’s share will be in the same
proportion in which the actual payments have been financed by EZE.
6.4 In the case of an involuntary dispossession, for instance expropriation or any other
deprivation of use. a corresponding share of the grant (see 6.3) will be reimbursed to EZE.
provided that compensation is received by the Partner.
191
7
Right of withdrawal and Restrictions
7.1 If circumstances beyond the Partner’s control prevent a successful accomplishment of the
project, the Partner can even after the start of the project withdraw from the agreement. A new
arrangement will be reached on the use of funds already transferred by EZE.
7.2 EZE funds which are not required for funding the project or programme shall be paid back
to EZE.
7.3 EZE can revoke the funding of the project or programme, stop payments, and reclaim
payments already made if:
— the statements or any other information that are the basis for funding are incomplete or
incorrect,
— the funds are not used according to the terms of the agreement,
— EZE funds are not matched by the Partner in the agreed proportion of funding,
— the duties of maintaining proper books of account, reporting and other relevant informa
tion to the project are not fulfilled.
Furthermore, EZE may demand payment of interest of 6% per annum from the date of the
right of compensation.
8
Remarks
8.1 To facilitate communication, EZE proposes that Partners take into consideration the
following explanatory notes and use the forms supplied:
App.
1
App. 2
App. 3
App. ’ 4
App. 5
App. 6
App. 7
Request for transfer of EZE funds (Form 1)
Acknowledgement of receipt (Form 2)
Financial statement (Form 3)
Progress Report
Book-keeping guidelines
Audit requirements
Larger acquisitions, buildings, and other services.
In case of difficulties with the procedures of funding, EZE will support the Partner.
8.2 This agreement becomes effective when signed by both Partners.
8.3 The Partner? will immediately inform each other if the agreement cannot be implemented
as a whole or in part.
8.4 In case the by-laws of the Partner or of EZE change, or alterations in the office bearers take
place, the respective Partners will inform each other.
8.5 This agreement can only be changed in writing and by mutual consent.
192
For EZE
For the Project Organization
Bonn 2,
Place
Date
Place
Date
193
Appendix
Forms and Explanatory Notes
1
2
3
4
5
6
7
Request for transfer of EZE funds (Form 1)
Acknowledgement of receipt (Form 2)
Financial statement (Form 3)
Progress report
Book-keeping guidelines
Audit requirements
Larger acquisitions, buildings and other services.
194
App. 1/form 1/P. 1
Request for transfer of EZE funds No.----------for period:
(see point 3.3)
1
General Information
1.1 Project No./Project Title:
1.2 Partner—name and address:
1.3 Authorised representative(s):
2 Bank Account
2.1 Bank—name and address:
2.2 Route of transfer to be used:
2.3 Account number and/or name:
2.4 Account holder—name and address:
3 Calculation of request for Transfer (in National Currency) of
EZE Funds.
3.1
3.2
3.3
Total payments reported in last statement of EZE for the
period ending
Payments made after period under 3.1 upto the beginning
of the period under 3.3
Estimated payments for the period from
(please give details on page 2/point 8)
3.4
Total (3.1,3.2. 3.3)
3.5
Less actual and estimated own cash contribution upto the
end of the period shown under 3.3
3.6
Share of EZE funds (3.4 — 3.5)
3.7
Less actual EZE transfer of funds
(including debit notes)
3.8
Requested EZE contribution
195
+
+
App. 1/Form 1/page 2
4
4.1
4.2
4.3
5
Present Request
Actual request (in national currency)—if there is a difference
to 3.8. please give reasons on page 2/point 7
Rate of exchange used
Amount requested in DM
Status of EZE Funds
(in DM)
5.1
5.2
5.3
Total grant
Less actual EZE transfer of funds (including debit notes)
Less amount presently requested
5.4
Amount still available
6
7
Actual cash and bank balance of Project
Account on
(latest available date)
Remarks
8
Breakup of estimated payments
for the period as shown under 3.3 according to the main
budget items—if necessary please use separate sheet—
1.
2.
3.
4.
5.
6.
7.
etc.
Total:
(place, date)
(Authorized representative)
196
(in national
currency)
Explanatory notes to form 1
Request for transfer of EZE funds
1
General remarks
1.1 The purpose of form 1, which is based on cash flow only, is to give a clear picture of the
financial status of the project and the basis for our transfer of funds.
1.2 This information will enable us to respond to your request as quickly as possible. Therefore,
we kindly ask you to use this form when requesting for transfer of EZE funds in future. EZE will
inform you in writing when the bank transfer has been made.
1.3 The EZE grant will be released in instalments, normally for a period of 3 months in advance
with respect to the progress of the project. In order to avoid liquidity problems, you should send
your request in time (about 6 weeks before you expect EZE’s instalment in your bank account).
1.4 According to our understanding, we ask you to use your own funds or funds from other
sources first and, if this is not possible, at least in the agreed proportion to the EZE grant. If you
have unexpected difficulties during the implementation of the project in contributing your own
funds or those from other sources as planned, please inform us immediately.
1.5 In case you ask for funds under cost item “Reserve”, please state amount and nature of
these expenses.
1.6 Should, contrary to your financial preview, EZE funds or part of them can not be spent
within 5 months after receipt, you are asked to inform EZE accordingly.
1.7 Finally, please make sure that an authorized person has signed the request before mailing it
to us.
2
Some specific explanations to form 1
2.1 In para 2.1, you are asked to give the total figure of all payments indicated in your last
financial statement sent to EZE disregarding the non-cash expenses.
2.2 From the date of your last statement to EZE up to today’s request, you have spent further
money for pro ject activities. The sum of these payments should be stated under para 3.2
2.3 Tn para 3.1 state the total estimated payments, including payments which you will meet
with matching funds or own cash for the period as indicated (3 months maximum in advance).
2.4 If you request us to pay for project expenses directly to third parties (e.g. purchase of
equipment in Europe), we will send you a debit note. Please include these debit notes as well in
para 3.7 so that the figure under 3.7 reflects the total EZE payments including debit notes.
197
App. 2/form 2
Acknowledgement of receipt
Project No:
Project title:
Project:
Partner:
Ref.:
Our request for transfer of EZE funds dated:
Our account was credited
on
with (national currency)*
(bank advice enclosed)
against remittance of
according to EZE’s advice of
payment dated
DM
* This amount will be included in our next financial statement.
(place, date)
(Authorized representative)
Encl.
Bank advice
198
App. 3/form 3/Page 1
Financial statement
Period from........................... to...................
19.
Project no./title:
Project partner:.
I. Receipts
Total Budgeted
DM
Items
'sO
1
NC (national
currency)
2
1.
2.
3. EZE
— remittances
— debit notes*
— interest
Total cash Receipts
Total non-cash Receipts
Grand total
*) Debit notes taken into account (number and amount)
Actual Receipts
Previously reported
Total to date
NC
During period
under review
NC
3
4
5
NC
App. 3/Form 3/Page 2
II. Payments
TOTAL BUDGETED
Iteins
DM
NO
2
1
Previously
reported
NC
ACTUAL PAYMENTS
During Period
under review
NC
3
4
Total to date
NG
5
1.
Total cash
Payments
io
o
o
Total non-cash
Payments
Grand total
Breakup of Debit Notes
taken into account
Debit note
Number
Expenditure items
Amount (in
National Gurrency)
App. 3/form 3/P. 3
III. Cash Status
NC
1. Balance of cash at bank and in hand at start of period
2. Add: total cash receipts during the period (page 1)
+
3. Less: total cash payments during the period (page 2)
4. Balance at the end of period
4.1 cash at hand
4.2 cash at bank
(A)
(B)
Explain difference between A and B. if any:
5. Details of major prepayments and liabilities:
It is hereby confirmed that the receipts of the project have been used exclusively and directly for the agreed budget.
(Authorised representative)
(Place, date)
Note: In case contributions received are outside ‘finance plan’, please furnish details of the same as an annexure to
this statement.
201
Explanatory notes to form 3 ‘‘Financial Statement”
1
Purpose
The purpose of the financial statement is to give the status of the actual receipts and payments
as compared with the budget for a stated half-yearly period and cash and bank balances
position.
2
Structure
The actual figures of receipts and payments will be structured corresponding to the individual
items of the budget.
3
Cash and non-cash Items
Non-cash items forming part of the budget will be shown separately on the receipt and payment
side of the statement.
4
Debit Notes
Debit notes sent bv EZE in respect of payments made directly to third parties on behalf of the
Partner are to be shown separately on the receipt and payment side of the statement. The
Partner will indicate the debit note number, respective item of the budget and amount on the
payment side of the statement so that it tallies with the amount shown on the receipt side of the
statement.
5
Interest
Interests earned on EZE funds kept in a separate bank account are to be shown separately on
the receipt side of the statement.
6
Unpaid Liabilities and Prepayments
Unpaid liabilities and prepayments are to be indicated by the Partner for information of EZE
only.
7
Major payments
Payments of more than 5% of the budgeted items are understood as major payments. Please list
them up in an appendix to the financial statement according to para 4.2 of the agreement.
8
Difference in cash status
If the difference in cash status items ‘A’ and ‘B’ is on account of normal items in the bank
reconciliation, it need'not be reported.
202
Appendix 4
Explanatory Notes to the Progress Report
In accordance with para 4.1 and 4.3 of the agreement, progress reports should include
information on the following points:
1. Summary of activities should be structured according to the items of the budget from the start
of the programme/project to the end of the reporting period, emphasizing the measures during
the previous six months.
— Please include also statistical data as far as they concern physical targets (cumulative).
— If possible, kindly include meaningful photographs of the progress made.
2. Major deviations in the implementation of the envisaged measures, and where various items of
the expenditure exceed bv more than 30% of the budget items (see para 1.2 of the agreement),
the same should be described and explained.
3. Assessment of the aehievements in comparison to the objectives and measures of the project
and the impact on the beneficiaries of the region and other development efforts.
4. Information on the personnel and management situation within the project and on any other
relevant project events you may consider important to comment on.
The progress reports summarize the actual objectives and measures and should in general not
exceed more than 3—5 pages; but more detailed reports may always be attached and are
welcome in addition to the summary.
203
Book-keeping Guidelines
App. 5/page 1
These guidelines set out general principles of book-keeping according to para 3.1 of the
agreement.
1
Establishing the Book-keeping System
1. 1 Before the project starts, the book-keeping system should be put down in writing by the
Partner. The written records of the system should normally cover:
a) bank account.
b) books of account. '
c) record of receipts.
d) record and approval of payments.
e) inventory of assets.
f) record of non-cash contributions, if applicable.
g) record of special funds.
2 Bank Account
2.1 EZE funds will be held in a separate bank account
3
Books of Account
3.1 The foliowins: books of account, or equivalent records will be kept:
a) cash book(s) recording all receipts and all payments in chronological order.
b) journal recording all non-cash transactions such as transfers between accounts, non-cash
contributions. EZE debit notes, exchange rate adjustments, accruals,
c) ledger or summary analysing receipts and payments of individual budget items, and
maintaining a complete record of all account balances,
d) subsidiary’ records/registers for control purposes such as pay-roll records, stock records.
inventory of assets, etc..
e) other records or registers required as per national regulations.
3.2 Where the project maintains records of unpaid liabilities, receivables and amounts due to
the project, appropriate day books and personal ledgers will be kept.
3.3 Books of account will be maintained on a current basis at all times.
4
Approval of Expenditure
4.1 The book-keeping system will provide that expenditure is incurred and payments made
only with the approval of the authorised representative(s). This approval will be evidenced in
writing.
5
Record of Receipts
5.1 Receipt of funds from EZE will be acknowledged in form 2 copy of which will be retained by
the Partner.
204
App. 5/page 2
5.2 Procedures will be established by the Partner to ensure that all other receipts are controlled
and accounted for as soon as they are received (for example by use of prenumbered receipts).
6
Record of Payments
6.1 Every payment made on behalf of the project will be supported by a voucher indicating
reference number, date, amount, description of payment, analysis within scehdule of budgeted
costs and signature of the authorised representative(s) together with relevant external supporting
vouchers.
6.2 Vouchers for cash payments will be signed by the recipient as well as the authorised
representative.
7
Inventory of Assets
7.1 For fixed assets other than land and buildings, an inventory in the form of a register or a
statement indicating the following details shall be kept: asset description, date of acquisition,
purchase document reference number, cost, identification number and location.
8
Initial Review of the Book-keeping System
8.1 Before the project starts, the project auditor will carry out an initial review of the book-keeping
system to confirm its compliance with these guidelines and to recommend improvements where
considered appropriate.
9
Financial Statement and Progress Reports
9.1 The financial statement will be prepared in Form No. 3 in conformity with para 4.2 of the
agreement. It will be sent to the project auditor according to the audit requirements.
9.2 Copies of the progress reports listed in para 4.3 of the agreement shall be made available to
the auditor within one month after the end of the reporting period.
9.3 The audited financial statements will be sent to EZE within three months after the end of
the reporting period.
10
Projects Involving Training Programmes
10.1 Where travelling expenses are reimbursable to participants, it is advisable that the names of
such participants are listed and they acknowledge the amount of the expenses reimbursed to
each one of them. If training programmes are held at the Partner’s premises, vouchers for food
and other expenses should be supported by lists showing the names of the participants involved.
11
Special Funds
.1 Where special funds (such as revolving fund, credit fund) are part of a project, separate
notes on the regulations relating to these funds shall be prepared covering:
205
I
App. 5/page 3
— regulations for disbursement of loans.
— regulations for repayment of loans.
— notes on approved use of repayments.
— reporting procedures.
11.2 Repayments and their subsequent use together with interest earned on special funds shall
be kept separate from the project funds and shall not be included in the financial statements to
be submitted to EZE. These shall be reported in a manner suggested by EZE to each Partner.
11.3 With regard to interest earned on revolving funds, the Partner should ensure that local tax
laws are being complied with.
206
Audit Requirements
App. 6/page 1
These guidelines set out EZE’s audit requirements according to para 5.2 of the agreement.
1
Selection of an Auditor
1.1 The Partner should select an auditor, taking into consideration any suggestion for the
appointment of auditor made by EZE.
1.2 The Partner will negotiate with the auditor the standard and performance of his work in
conformity with these notes as well as the level of audit costs (fees and expenses) for the whole
period of implementation of the project as well as for each interim audit. The Partner should
inform EZE of the auditor’s name and address as well as the results of his negotiations. EZE will
react promptly.
1.3 The letter of engagement will be sent t© the auditor by the Partner after EZE’s consent is
received in writing. A model letter of engagement can be sent by EZE upon request.
2
Initial review of the Book-keeping System
2.1 Before the project starts, the auditor will carry out an initial reView of the book-keeping
system established by the Partner to ensure that the system complies with the EZE’s book
keeping guidelines as well as the general principles of book-keeping of the country. In carrying
out this review, the auditor will examine:
— the constitutional documents of the Partner,
— the written record of the book-keeping system,
— procedures relating to the placement of tenders and orders (for larger acquisitions,
building contracts and other services),
— authorisation procedures and other control measures.
2.2 The auditor will specifically report to EZE in his first report on the following matters:
(1) the proper appointment of the project representatives and other personnel involved in
the project implementation,
(2) the adequacy of the book-keeping system and its compliance with the EZE guidelines,
(3) the adequacy of procedures relating to the ordering of supplies and services,
(4) the adequacy of authorisation procedures and other measures relating to internal
control.
2.3 Where necessary, the auditor will make recommendations for the improvement of the
Partner’s book-keeping system.
3
Audit of Financial Statements
3.1 The auditor will audit the half-yearly and the final financial statement and report on the
adherence to the agreement.
3.2 Statements of Receipts and Payments: Examination of the financial statement and related books
and vouchers should include the following:
'
207
App. 6/page 2
(1) With reference to the total receipts and payments, verification of the balance of cash at
bank and in hand.
(2) Verification of rates of exchange applied to remittances received from EZE with relevant
official rates. This includes the examination of the conversion of funds temporarily held
in hard currency/external accounts.
(3) Verification of the cash book maintained in national currency for remittances from
overseas.
(4) Test check of vouchers for payments to ensure that they have been properly authorised,
that within the local context the expenditure is reasonable and that such expenditure is
within the purpose and scope determined in the letter of approval and the budget.
(5) Confirmation that the agreed book-keeping system has been followed.
(6) Confirmation that EZE debit notes have been correctly accounted for in the books of
account.
3.3 Adherence to the Agreement
The auditor’s review of the implementation of the agreement will include the following:
(1) compliance with the budget and authorisation of any over-spending against the indi
vidual budget items,
(2) authorisation of EZE to use “Reserve” against approved items of the budget or to cover
unbudgeted items.
(3) compliance with exchange control regulations,
(4) insurance cover on buildings, larger acquisitions and construction projects,
(5) maintenance of inventories of fixed assets,
(6) compliance with approved building plans,
(7) authorisation of EZE for any sale or disposal of assets,
(8) change in the Partner’s constitution or senior staff.
Where these items are adequately covered in correspondence with EZE or in the progress
reports, the auditor is not required to report specifically on them.
3.4
General Audit Standards
In addition to the matters covered in paragraph 3.2 and 3.3, the auditor will carry out such
additional work as he considers necessary to report to the Partner and EZE. He will take into
account any relevant local statutory requirements covering audits and generally accepted
auditing standards prevalent in his country. If considered necessary for the purpose of the
audit, the auditor shall visit the project.
3.5
Form of Auditor’s Report
3.5.1 The short form of the auditor’s report would be as under:
We have audited the interim/final statement of Receipt and Payment Account of
Messrs
in respect of their project
for the period from
We have conducted a test audi
to
that:
208
App. 6/page 3
(1) Separate and proper books of account as considered necessary for the purpose of audit.
have been maintained.
(2) Separate bank account for the programme/project assisted by EZE has been maintained.
(3) The statement of account referred to above is in agreement with the books of account.
(4) According to the information and explanations given, the expenditure has been ade
quately authorised and is reasonable within the local context and schedule of budget
costs as approved by EZE for the project.
(5) In so far as the contribution of the project-partner in non-cash form is concerned, they
have been verified with reference to reasonable source of evidence.
(6) The agreement between EZE and the project-partner has been adhered to.
(7) The said accounts according to the information and explanations given, reflect a true and
fair view of the transactions for the project.
Note: The editor is free to expi•ress his reservations giving reasons therefore, if any, on any of the
matters on which he is to express an opinion.
3.5.2 The first short form report of the auditor to EZE will be supplemented with information
asked for in para 2.2.
3.5.3 The long form report, if any, should be addressed to the partner organisation and should
contain such matters of routine nature, not affecting the certification in the short form which
requires attention for rectification in the hands of the partner organisation. This report may also
contain suggestions for improvement in the internal control procedures and other areas so that
the assets of the organisation are better secured and economies effected.
3.6
Special considerations applicable to certain Projects
Particular attention should be paid to the following:
3.6.1 Building contracts and orders for larger acquisitions: With building projects, ensuring that the
contract was awarded to the lowest tenderer, and if not, examining whether the reasons for not
doing so are justifiable. With major orders, examining the procedure for obtaining offers and the
actual placing of such orders.
3.6.2 Building projects: Where architects or quantity surveyors are involved, the auditor’s duties
with regard to verifying expenditure need not go beyond the relevant certificates on which
payments to the contractor are based. However, the auditor should ensure that any changes in
the building plans have been approved by EZE.
3.6.3 Projects involving training programmes-. Particular care is required while verifying expenditure
incurred on training programmes since internally produced vouchers rather than vouchers from
external sources are mainly in use. Payment of salaries and related staff costs, allowances payable to
participants, travelling and accommodation predominate with this type of project.
3.6.4 Special funds: When the project includes special funds, the auditor should make test checks
with reference to the Partner’s regulations to ensure that:
(1) loans are being disbursed correctly,
(2) repayments are being recovered in due time and are applied for the approved purpose,
(3) the special fund is being used and reported on as agreed.
209
App-7
Explanatory notes for larger acquisitions,
Buildings, and other services.
(see para 1.3 of the agreement)
1.
Orders for larger acquisitions (e.g. furniture, machinery, vehicles, pumps, equipment),
buildings and other services will be placed with the most economic and reliable supplier
after having previously compared other tenders. If this is not possible in your special
situation, please explain in the progress report.
2.
Preference is given to equivalent offers made in the respective country of the partner.
Normally, equivalent offers from developing countries have preference over those from
industrialized countries.
3.
The Partner is responsible for placing the orders and for ensuring that they are carried
out. The Partner and the supplier have to take care of the necessary import/export
documents and formalities, insurance, guarantee, etc.. On authorization by thePartner,
EZE can make payments directly to the supplier. In that case EZE will send debit notes
to the Partner.
4.
Payments in advance to suppliers prior to delivery of the order should be made only in
exceptional cases if and when justified.
5.
EZE recommends that offers are invited among togethers from the following organiza
tion which has a long record of experience in assisting Partners in obtaining a wide
variety of supplies from industrialized as well as developing countries at competitive
prices:
Wirtschaftsstelle Evangelischer
Missionsgesellschaften mbH (WEM)
Mittelweg 143
D-2000 Hamburg 13
Telephone: 040/41581
Telex: 02/14504 ewemi
Telegrams: wirstem
Partners can contact this organization directly. Direct payment by EZE on behalf of the
Partners can be arranged. EZE has an arrangement with WEM concerning the above
procedure.
210
Debit Note No.:
Re.: Project No
Project title:....
Name of organisation and address:
Your account was debited by us today with DM
used was:
The rate of exchange
................................
Date of
Invoice
Name of
supplier/
details of
Expenditure
Amount in
National
Currency
Allocation in
schedule of
budgeted costs
In due course, please confirm receipt of the relevant suppliesand in addition to lodging claims as
necessary with the appropriate parties, notify the EZE of complaints, shortages etc..
Bonn-Bad Godesberg,
Date
Evangelische Zentralstelle
Fur Entwi cklungshilfe e. V.
211
ABBREVIATIONS USED
A/C
Addl. Amt.
BFW
Cr.
DA
DD
DM
Dr.
EZE
FA
FC
FCRA
FERA
Govt.
HO.
H.U.F.
H.Y.
ICCO
Kms.
KMPL
LF
LTC
Ltrs.
MR
N.C.
No.
OYT
PF
PWD
QtyRBI
Regd.
TVA
u/s
Vr.
Account
Additional Amount
Bread for the World
Credit
Dearness Allowance
Demand Draft
Deutsche Mark
Debit
Evangelische Zentralstelle Fur Entwicklungshilfe E.V.
Funding Agency
Foreign Currency, Foreign Contribution
Foreign Contribution Regulation Act
Foreign Exchange Regulation Act
Government
Head Office
Hindu Undivided Family
HalfYear
Inter Church Co-ordination Organisation
Kilometers
Kilo Meter Per Litre
Ledger Folio
Leave Travel Concession
Litres
Management Report
National Currency
Number
Own Your Telephone
Provident Fund
Public Works Department
Quantity
Reserve Bank of India
Registered
Thakur, Vaidyanath Aiyar & Co.
Under Section
Voucher
212
INDEX
A.
Accounting 1, 103
Accounting Concepts 27
Accounting System 1, 2
Accrual Concept 28
Accrual/prepaid expenses 32
Accumulation of Income 114, 122
Acknowledgement of Receipt 22, 190. 198
Activities Report 104
Administrative Expenses Budget 5, 6, 16
Advances 37
Agreement with Funding Agencies 19, 189
Agriculture Inputs Stock Register 35. 64
Agriculture Produce Registers 36, 66, 67
Annual Accounts 117, 122
Application of Income 113
Application for Recognition Under
Section 80 G 117, 123
Application for Registration of
Charitable Institution
Under Income Tax Act 113, 121
Approval of Expenditure 203
Assets 45,47
Attendance Register 34, 61
Audit of Accounts 115, 134, 191
Audit Fee 6, 52, 187, 191
Audit Guidelines:
Audit Against Propriety 168
Audit Against Regularity 166
Audit Against Sanctions 167
Audit of Building Contracts 182, 209
Audit of Cash Book 172
Audit of Classification 169
Audit of Construction Works
Expenditure 180
Audit of Contracts in General 170
Audit of Expenditure 165
Audit of Financial Statements 207
Audit of Stores and Stock 174
Audit Practice in connection with
Asset Items 1 78
Audit Practice in connection with
Expense Items 175
Efficiency Audit 169
General Audit Standards 165, 185, 208
Model Letter of Engagement
of an Auditor 207
Procedure/Guidance 163
Projects Involving Training
Programmes 182, 209
Review of Book-keeping
System 164, 205, 207
Scope of Audit Work 164
Special Funds 182, 209
Audit Manual 3
Audit Practices:
Bank Charges 177
Cash and Bank Balances 180
Construction Works Expenditure 180
Establishment Bills 175
Investments 179
Land 178
Loans and Advances 179
Loose Tools 179
Motor Cars and Trucks 179
Petty Cash 177
Plant. Machinery and
Equipments 1 79
Rent. Rates and Taxes 176
Salaries 176
Stock-in Trade, Stores 179
Suspense Account 180
Telephone and Trunk Calls 177
Travelling Expenses 177
Vehicle Maintenance 178
Wages 176
Audit Reports 115, 187, 208
Audit Standards 161, 165, 185, 208
Auditor:
Accountability of 160
Assistance from ‘Reference Auditor’ 162
Competent Authority for
Appointment 161
Criteria for Selection 160
Fees and out of Pocket Expenses 162
Letter of Engagement 162, 183, 184, 191
Review of Book-keeping System 185, 207
B.
213
Role of 3, 160
Scope of Audit 161, 164, 185
Balance-Sheet 42, 77
Bank Account 30, 184, 189, 204
Bank Charges 41, 52
Bank Pass Book/Statement 41
Fees and out of Pocket Expenses 162
Filing of Return of Income 115
Finance Plan 6
Financial Assistance:
In Cash or in kind to Beneficiaries
through Village Level
Organisations 79
I n form of Incentive Deposits/
Margin Money 79
In kind to Beneficiaries on Credit Basis 78
Loans to Beneficiaries 78
Financial Position Statement 104, 108
Financial Reports 82, 104
Financial Statements 190, 198, 204
Fixed Assets 36, 47
Fixed Assets Register 36, 68, 69
Fixed Deposits 79
Fixed Deposit Receipt 79
Flow Chart 80
Foreign Contribution 130
Foreign Contribution
Regulation Act 130 to 150
Foreign Contribution (Articles)
Register 36, 70
Foreign Contribution (Securities)
Register 37, 71
Foreign Contribution (Regulation)
Act and Reules, 1976: 130 to 150
Applicability 130
Audit of Accounts 134
Definitions 130
Forms 136 to 150
Inspection of Accounts or Records 134
Maintenance of Accounts 133
Offence by Companies 135
Punishment 134
Purpose 130
Receipt of Scholarships, stipends or
Subsidies for Education 133
Registration of Associations 132
Regulation of Foreign Contribution
and Foreign Hospitality 131
Restrictions on Acceptance of
Foreign Hospitality 133
Foreign Exchange Regulation
Act: 128 to 129
Applicability 128
Employment in India 129
Holding of Immovable Property
in India 129
Other Restrictions 128
Penalty and Prosecutions 129
Restrictions on Business
outside India 129
Restrictions on Payments 128
F.
Bank Reconciliation 40
Bank Reconciliation Statement 41, 74
Bombay Public Trust Act 158
Books of Account 30, 190, 204
Book-keeping System 30, 184
Budget 4
Budget Formats 12 to 18
Building Contracts 182, 209
Building Projects 186, 209
C. Capital and Revenue 28
Capital Expenditure 28
Capital Receipt 28
Case Studies with Solutions (Special
Funds) 83 to 97
Cash/Bank Balances 48
Cash/Bank Payment Voucher 29, 53
Cash Book 30, 55
Cash Memos 29
Cash Receipts 31
Cash Status 201, 202
Charitable Organisations 112
Charitable Purpose 112
Charitable Trust 112
Chart of Accounts 43
Chart of Accounts (Codes) 47
Cheques/Drafts Receipt Register 31, 57
Competent Authority for Appointment
of an Auditor 161
Contribution in Cash 8, 49
Contribution in Non-Cash Inputs 8, 9, 49
Corpus Fund 44
Cost Concept 27
Cost Plan:
Administrative Expenses Budget 6
Programme Activities Budget 5
Staff Salary and Benefits 6
Criteria for Selection of an Auditor 160
D. Debit 26, 27
Debit Notes 23,202,211
Deduction in respect of Donations to
Charitable Organisations 116
Depreciation 39
Depreciaton Rates 40
Despatch Register 38
Determination of Demand for Funds 20
Donations 44
Double Entry System 26
Dual Aspect Concept 28
E. Efficiency Audit 169
Employees Provident Funds and
Miscellaneous Provisions Act 151 to 153
Entity Concept 27
Expenses 46, 50
Expenditure on Rural Development
Programmes 117, 118
214
Non-financial Reports 104
Notes on Chart of Accounts 44
O. Obligations of Funding Agencies 1
Order for Larger Acquisitions 182, 208
Own Means 7, 9
P. Payment of Bonus Act 154 to 156
Payment of Gratuity Act 157
Payment of Subsequent Instalments 23
Pay-roll Records 34
Personal Accounts 26
Petty Cash Book 31, 58
Preparation of Budget 4
Programme Activities Budget 5
Progress Reports 82, 106, 190, 203, 205
Projects Involving Training
Programme 182, 186, 205, 209
Project Progress Report 104, 110
Project Status Report 104, 109
R. Real Accounts 26
Realisation Concept 28
Receipt and Payment Account 42, 75
Receipt Book 31, 56
Records as per National Regulations 36
Record of Payments 205
Record of Receipts 206
Rectification/Correction Entries 32
Registration of a Charitable
Organisation 113
Reporting 81, 103
Reports to Funding Agencies 105
Reports to Govt, as per National
Regulations 107
Reports to Project Incharge 104
Request for Transfer of Funds 20, 195, 197
Revenue Expenditure 28
Revolving Funds 44
Revenue Receipt 28
Rights of withdrawal and
Restrictions 24, 192
S.
Salary and Wages 35
Salary and Wages Register 35, 62
Scope of Audit 161, 164, 185
Selection of an Auditor 160, 207
Single Entry System 26
Societies Registration Act 126 to 127
Source of Funds 6
Special Funds 78, 182, 186, 205, 209
Stationery Stock Register 35, 65
Statistical Report on Bank Deposits
and Loans to Beneficiaries 101 to 102
Statistical Reports on Direct Loans
to Beneficiaries 98 to 100
Stock Records 35
Subsidiary Records for Control
Purposes 34
Restrictions on Place of
Business in India 129
Foreign Hospitality 131
Foreign Source 131
Forfeiture of Exemptions 115
Funds47
Funding Agency/Agencies 80
G. General Ledger 60
General Stores 35
General Stores Stock Register 65
Going Concern Concept 27
Grant-in-aid 47
Guidance Note on Selection of
an Auditor 160
Implementation Plan 19
I.
Income 45
Income and Expenditure Account 42, 76
Income Tax Act, 1961 112 to 123
Income which do not form part of
Total Income 119
Indian Trust Act 124 to 125
Initial Review of Book-keeping
System 164, 205, 207
Interest 50, 202
Inventory 36
Inventory of Assets 36, 205
Investment of Earmarked Funds 48
Investment of Non-Earmarked Funds 48
Investment of Unspent Funds 114
Investment Register 36
Inward Dak Register 38
Item Structure of Building Project 12
Item Structure of Establishment of Village
Industries and Training Centres 13 to 14
J- Journal 32
Journal Book 33, 59
Journal Entry 32
Journal Voucher 54
L. Law Applicable to Charitable
Organisations 112
Leasehold Land 47
Ledger 34, 60
Letter of Engagement of an Auditor 162, 183
Liabilities 44, 47
Loans and Advances 48
Losses and Expenditure 49
M. Major Payments 202
Miscellaneous Income 50
Money Measurement Concept 27
Muster Roll Form 35, 63
Muster Roll Payments 35
N. Narrative Report 111
Need of a Manual 2
Need of Reporting 103
Nominal Accounts 26
215
T.
Telephone and Trunk Call Bills
Register 38, 72
Transfer of Funds 20, 189
Trial Balance 40
Trust
Creation of 124
Definition of 124
Exemption in Respect of Tax
Liability 125
U.
V.
-
216
Purpose and Validity 124
Utilisation of Funds24, 189
Utilisation of Project Assets 24, 191
Vehicle History Card 39, 73
Vehicle Log Book 38
Vouchers 29
- Media
- 11628.pdf
Position: 721 (5 views)