Usage of accounting and auditing concepts in evaluation of Non Governmental Organizations

1. EFFECTIVE USAGE OF ACCOUNTING AND AUDITING TO
EVALUATE THE PERFORMANCE OF NGOS
LOYOLA COLLEGE, - DR. T. JOSEPH M.COM., M.PHIL., MBA.,PHD.,
CHENNAI ASSOCIATE PROFESSION, COMMERCE DEPARTMENT
- SUNDAR A. RODRIGUEZ M.COM.,FCA.,DISA.,CFSA(USA).,
RESEARCH SCHOLAR, COMMERCE DEPARTMENT

2. DEFINITION OF NON GOVERNMENTAL
ORGANIZATIONS
• "The diversity of NGOs strains any simple definition. They include many groups and institutions that are
entirely or largely independent of government and that have primarily humanitarian or cooperative
rather than commercial objectives. They are private agencies in industrial countries that support
international development; indigenous groups organized regionally or nationally; and member-groups in
villages. NGOs include charitable and religious associations that mobilize private funds for development,
distribute food and family planning services and promote community organization. They also include
independent cooperatives, community associations, water-user societies, women's groups and pastoral
associations. Citizen Groups that raise awareness and influence policy are also NGOs"
• - World Bank

3. FOREIGN CONTRIBUTION FLOW INTO NGO IN INDIA

4. BASIC DOCUMENTS & ITS MISMATCH
• The two important documents that are very much import to assess the functioning of the NGOs are,
from the financial perspective, its financial statements and from the program perspective, its Activities
Report.
• The activities report are aligned with the budget headings and the milestones are highlighted, with
reasons for achievement or non-achievement.
• The financial reporting usually goes to represent what is actually written as such in the account heading
and following the accounting principles.
• Usually there is a mismatch of these two documents and hence the very basis of corroborative evidence
for the activities carried out as specified in the activities report is missing in the financial statements.

5. ACCOUNTING REASONS FOR MISMATCH ISSUE
• Accounting for contribution in kind
• Assets created and held in fiduciary relationship with Community Based Organizations (CBOs) by NGOs.
• Grant budgets uniqueness

6. EVALUATION OF PERFORMANCE OF NGO
• The performance of NGO can be measured by how well it achieves its own goals, and with what
efficiencies. This can be studied by ensuring the programs are aligned with the objectives for which the
NGO was established and striving for. When it is clear that the programs are aligned with the objectives,
then the assessment of the functions has to be done, to ensure the three “Es” are there – Effectiveness,
Efficiency and Economy.
• Another important aspect of the evaluation of the performance is to not only to look from the financial
angle but also taking into cognizance of the non-financial measures. The non-financial measures are
equally important, and in most cases it is what counts. This comprehensive framework to evaluate both
financial and non-financial measures are evaluated is highly recommended. (Epstein and McFarlan,
2011).

7. AUDIT AS AN EVALUATION TOOL – PRESENT SCENARIO
• The audit of the NGOs are done to comply with the provisions of the statute under which it is
registered, with specific compliance issues addressed. It could be in relation to the act under which it is
formed and managed, or under the Foreign Contribution (Regulation) Act 2010, or under the Income
Tax Act. In some cases as per the requirements imposed by the funding agencies, both national and
international, the audit is carried out with the sole purpose of certification, to certify that the funds
received where utilized for the purpose for which it was granted. This type of audit is generally called as
Statutory Audit or Compliance audit.
• There are other types of audits that are suitable for the NGOs. The important ones are Performance
Audit and Social Audit.

8. PERFORMANCE AUDIT
• Performance audit refers to an independent examination of a program, function, operation or the
management systems and procedures of a governmental or non-profit entity to assess whether the entity is
achieving economy, efficiency and effectiveness in the employment of available resources.
•
• It refers to an independent examination of a program, operation of NGO to assess whether the entity is
achieving economy, efficiency and effectiveness. The examination is objective and systematic, generally using
structured and professionally adopted methodologies.
•
• The International Association of Supreme Audit Institutions (INTOSAI) has published generally accepted
principles of performance auditing in its implementation guidelines. This guidelines, though originally
propounded to be used by its members in evaluating the government programs, could be modified to suit the
requirements of the NGO and used for evaluating its programs and activities.

9. SOCIAL AUDIT
• Social audit refers to a process of reviewing official records and determining whether state reported
expenditures reflect the actual monies spent on the ground. Expanding this to apply for the activities of the
NGOs would help us to have a better understanding of the NGO’s leading to its proper evaluation.
•
• Social audit as a term was used as far back as the 1950s.
•
• Social audit is based on the principle that democratic local governance should be carried out as far as possible
with the consent and understanding of all the stakeholders; thus it is a process and not an event.
•
• Social audit is a way of measuring understanding reporting and ultimately improving NGO’s social and ethical
performance. This helps to narrow gaps between vision and reality, between efficiency and effectiveness. It is
a technique to understand, measure, verify, report on and to improve the social performance of the
organization.

10. RECOMMENDATIONS
• The proper accounting of special transactions which is not reflected in the financial statements, which makes it impossible to
synchronize the activities report with it. This gap makes it impossible to evaluate the programs carried out by the NGO’s
which are stated in the activities report but not in the financial statement.
•
• The audit of the NGO’s are mainly done as “compliance audit” with focus more on the compliance with the applicable
statutes. Thus the compliance audit is not adding value to the NGO’s other than for sending the same to the government and
funding agencies.
•
• The evaluation of the NGO’s should focus more on the performance evaluation; that is to evaluate the various programs
carried out by it, and make sure that the inputs given had resulted in the required outputs and more importantly outcomes.
•
• The appropriate audit type that would facilitate the evaluation of the NGO’s, are both performance audit and social audit
combined together, provided the gaps between the financial statements and the activities report are addressed by
appropriate accounting methodology.

11. QUESTIONS
?

12. THANKS
• Loyola College, - Dr. T. Joseph M.Com., M.Phil., MBA.,Phd.,
• Chennai Associate Profession, Commerce Department
• - Sundar A. Rodriguez M.Com.,FCA.,DISA.,CFSA(USA).,
• Research Scholar, Commerce Department