THE government is set to devise a new accounting format for non-government organisations (NGO) across the country, as it looks to remove the veil around flow of funds as well as their utilisation for a sector that is not entirely above suspicion.
For a sector which is largely unregulated, either through laws or in form of strict financial disclosures, the government is pushing ahead for a more structured format of financial reporting for civil society organisations. The ministry of corporate affairs has recently asked the Institute of Chartered Accountants of India (ICAI), the body responsible for regulating the accounting profession in the country, to create a structured format of financial reporting and control for civil society organisations.
The NGO sector, which has for long been shrouded in suspicion over its vulnerability to money laundering and terror funding apart from serving as a breeding ground for large scale corruption for corporates, has suddenly caught attention of the government. This was followed by a spate of allegations of corruption in the Indian Premier League — formed under the commands of Board of Control for Cricket in India (BCCI), and more recently in the Commonwealth Games Organising Committee.
"Unlike companies, NGOs do not follow a structured format of reporting their finances, due to which it gets difficult to track their flow of funds," said a ministry official.
The proposed format will ensure that grants pouring in from within and outside the country is properly accounted for, said the official, requesting anonymity.
The format will specially focus on aspects like utilisation of grants and contributions received by NGOs to see that they strictly comply with provisions of the Foreign Contribution (Regulation) Act (FCRA).
A group, which has been constituted to debate and recommend suggestions to ensure better governance for NGOs will look to enhance transparency over related party disclosures, cash flow and reporting of an NGOs interest in joint ventures as well as of their investments, said an official in the ICAI.
When contacted ICAI president Amarjit Chopra said: "There is a need for lot of improvement in matters of accounting and utilisation of funds by NGOs," adding that a group has already been formed to recommend changes.
While experts have welcomed the move to form a revised format of accounts for NGOs, they feel that the government should lay greater stress on governance principles of the trustee and the governing mechanism for such bodies.
"From the point of the government, it will help them to understand the money flow of the organisations, their assets and liability. It is evident that floating an NGO is a strategy to divert money and also avoid taxes," said Resmi Bhaskaran, fellow at New Delhi-based Think-Tank Institute of Human Development. The government will simultaneously empower the Comptroller and Auditor General of India (CAG) to audit NGOs through the proposed amendments to its governing law, presently being considered by the finance ministry.
The government is particularly concerned about the financial reporting standards of organisations that are receiving funds from abroad. "A standard format on financial reporting for NGOs will ensure greater comparability between firms, as currently there is no clear standard or benchmark in the way these firms report on aspects governing grants received by them," another expert on role of NGOs in the micro-financing domain said.
"The need of the hour is to know the way any charity or donation is used by a NGO. The accounting system should ensure maintaining a continuous review of the receipt and payment related with the specific project for which any grants are remitted," said Santanu Mishra, executive trustee, Smile Foundation, a New Delhi-based NGO, adding that the current system of accounting transactions on grants or donation received by a NGO need to be elaborated.
The new format is likely to draw heavily from the way societies registered under Societies Registration Act report their finances. Following the controversy regarding financial reporting of Indian Premier League, the ministry of corporate affairs is considering legislative steps to bring organisations such as the BCCI under greater regulatory vigil. BCCI is registered and governed by the Tamil Nadu Societies Registration Act.
