Audit of Charitable Institutions

Abhishek Kumar | Last updated: 20 February 2023

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Quick Summary

Auditing charitable institutions involves a thorough examination of their setup and adherence to relevant laws. Key procedures include verifying the accounting of collections, ensuring proper utilisation of income with supporting documents, and meticulously checking subscriptions and donations. Special attention is given to the management and accounting of cash, grants, and investments, along with verifying fixed assets and bank balances.

Charitable Institutions refer to those organizations which are constituted and worked for the purpose of public charity. It may be a trust registered under respective act or a company registered under section 8 of the Companies Act, 2013 (or section 25 of the Companies Act, 1956) for the cause of social wellbeing.

Charitable Institutions can be a Public Trust, Society, Section 8 Company, Co-operative Society, Multi State Co-operative Society, Non-Profit Organizations etc.

They can be governed under Companies Act, 2013 (Section 8 Co.), The Maharashtra Public Trusts Act, 1950, The Rajasthan Public Trust Act, 1959, The Societies Registration Act, 1860, The Indian Trust Act, 1982, Income Tax Act 1961 & Foreign Contribution (Regulation) Act, 2010 etc.

Charitable Institution Audit: Key Checks and Procedures

For audit of such institutions following matters should be kept in mind during audit procedure

Constitution of Charitable Institution under which it has been set up and their scope.
Examine the laws which is properly followed or not by the institution.
Verify the Accounting of collections under Internal Check System.
Proper utilization of income and their supporting where they used.
Subscriptions and donations are the important source of Income which must be accounted properly.
Examine the frequency or movement of life membership subscription during the year.
Verification of official receipts.
Control check over unused receipt books.
Verify the sequence of all receipt books.
Give proper attention on counterfoils of Cash book.
Examine the source of subscriptions & donation as well as their list of names.
Check the total subscriptions and donations with the books & tally with figures.
Examine the process of Cash management and their accounting with books.
Examine the available resource and verify them in figures with amounts received.
Grants play a key role in the income of any charitable Institutions because as per Income Tax Act there is a provision to use the grant for their purpose. So, it must be check carefully.
Obtain the certificate of grant received.
Vouch the grant amount with receipts and Minute Books.
Vouch the Bank book and Investment Certificate on which amount received as Interest and Dividend.
Check the computation of Interest received.
Reconcile the Bank Book with appropriate details maintained by Institutions.
If the Institution is registered under Income Tax Act, then check their 26AS and reconcile the TDS deduction with books.
Examine the rent agreement and their applicability along TDS provision if available.
Vouching of receipts and expenditure in respect to any special events organised.
Verify the fixed assets schedule and their physical appearance.
Examine the Income Tax refund and calculation of claim repayment.
Vouch the payment of grants and their utilization as per laws under which the Institute has been set up.
Physical verification of documents of securities.
Verify the Cash & Bank Balance.
Ascertain the documents regarding any funds contributed for a special purpose.
Ascertain & verify the previous Audit Report and all applicable Forms submitted or not.

FAQ :

Charitable Institutions can include Public Trusts, Societies, Section 8 Companies, Co-operative Societies, Multi State Co-operative Societies, and Non-Profit Organizations.

Subscriptions and donations are important sources of income for charitable institutions and must be accounted for properly.

Grants play a key role in the income of charitable institutions, and the Income Tax Act has provisions for their use, so they must be checked carefully.

The fixed assets schedule should be verified, along with their physical appearance.

If the institution is registered under the Income Tax Act, their 26AS should be checked and TDS deductions reconciled with the books. Rent agreements and their applicability with TDS provisions should also be examined.

Documents regarding any funds contributed for a special purpose should be ascertained, along with previous audit reports and applicable submitted forms.