In the case of the audit of a charitable institution, attention should be paid to the following matters :
(1) General
- Studying the constitution under which the charitable institution has been set up. It may be registered as a society under the Societies Registration Act, 1860 as a company limited by guarantee or as a trust. If the charitable institution is a public trust, the provision of the State Legislation, if any, affecting its accounts and audit should be taken into account.
- Verifying whether the institution is being managed in the manner contemplated by the law under which it has been set up.
- Examining the system of internal check, especially as regards accounting of amounts collected.
- Verifying in detail the income and confirming that the amounts received have been deposited in the bank regularly and promptly.
(2) Subscriptions and donations
- Ascertaining, if any, the changes made in amount of annual or life membership subscription during the year.
- Whether official receipts are issued;
- confirming that adequate control is imposed over unused receipt books;
- obtaining all receipt books covering the period under review;
- test checking the counterfoils with the cash book; any cancelled receipts being specially looked into;
- obtaining the printed list of subscriptions and donations and agreeing them with the total collections shown in the accounts;
- examining the system of internal check regarding moneys received from box collections, flag days, etc. and checking the amount received from representatives, with the correspondence and the official receipts issued; paying special attention to the system of control exercised over collections and the steps taken to ensure that all collections made have been accounted for; and
- verifying the total subscriptions and donations received with any figures published in reports, etc. issued by the charity.
(3) Legacies – Verifying the amounts received by reference to correspondence with any figures and other available information.
(4) Grants
- Vouching the amount received with the relevant correspondence, receipts and minute books.
- Obtaining a certificate from a responsible official showing the amount of grants received.
(5) Investments Income
- Vouching the amounts received with the dividend and interest counterfoils.
- Checking the calculations of interest received on securities bearing fixed rates of interest.
- Checking that the appropriate dividend has been received where any investment has been sold ex. div. or purchased cum. div.
- Comparing the amounts of dividend received with schedule of investments making special enquiries into any investments held for which no dividend has been received.
(6) Rents
- Examining the rent roll and inspecting tenancy agreements, noting in each case :
- the amounts of the rents, and
- the due dates.
- Vouching the rents on to the rent roll from the counterfoils of receipt books and checking the totals of the cash book.
(7) Special function, etc. – Vouching gross receipts and outgoings in respect of any special functions, e.g. concerts, dramatic performance, etc., held in aid of the charity with such vouchers and cash statements as are necessary. In particular, verifying that the proceeds of all tickets issued have been accounted for, after making the allowance for returns.
(8) Income Tax Refunds – Where income-tax has been deducted from the Investment income, it should be seen that a refund thereof has been obtained since charitable institutions are exempt from payment of Income-tax. This involves :
- vouching the Income-tax refund with the correspondence with the Income-tax Department; and
- checking the calculation of the repayment of claims.
(9) Expenditure
- Vouching payment of grants, also verifying that the grants have been paid only for a charitable purpose or purposes falling within the purview of the objects for which the charitable institution has been set up and that no trustee, director or member of the Managing Committee has benefited therefrom either directly or indirectly.
- Verifying the schedules of securities held, as well as inventories of properties both movable and immovable by inspecting the securities and title deeds of property and by physical verification of the movable properties on a test-basis.
- Verifying the cash and bank balances.
- Ascertaining that any funds contributed for a special purpose have been utilised for the purpose.
