A Non-Governmental Organization (NGO) is an entity formed by a group of individuals to serve society without the goal of earning profits. These organizations operate solely to support social causes such as education, healthcare, disaster management, and economic assistance for those in need. NGOs raise funds through donations, contributions from members, and voluntary services provided by individuals who offer their time, skills, or expertise to achieve the organization’s objectives.
NGOs exist primarily to serve communities and contribute to national development. Their primary sources of income are donations, grants from government bodies, and support from other benefactors who wish to contribute to societal welfare. NGOs are legally required to maintain proper financial records for all funds received and spent. To ensure transparency and build trust with donors, many NGOs opt for an audit by an independent external auditor. Additionally, as legal entities, NGOs must file applicable income tax returns. According to a 2015 CBI report, India has over 31 lakh NGOs.
NGOs can be registered under different legal structures:
Trust
Created for philanthropic or religious purposes.
Established via a trust deed, guided by the Charitable Endowment Act 1890 and the Charitable and Religious Trust Act 1920.
Society
A society is a group of individuals who come together to work jointly for mutual objectives.
Registration follows the Societies Registration Act 1860.
Section 8 Company
Governed by the Companies Act 2013.
Established with charitable objectives to promote areas such as education, social welfare, environmental protection, sports, research, and religion.
Auditing is essential for NGOs to ensure transparency in managing public donations and to demonstrate accountability to stakeholders. When a Chartered Accountant audits the financial accounts, it validates the organization’s financial integrity.
Key steps in an NGO audit:
Reviewing all financial books and historical records, including the trial balance.
Examining receipts and payments, income and expenditure accounts, and verifying sources of funds.
Ensuring that expenses are correctly classified as revenue or capital.
Preparing a detailed audit report after verifying all financial statements, including social accounting.
Auditor’s responsibilities include:
Understanding the NGO’s memorandum to know its objectives and operational field.
Verifying legal compliance under acts such as the Income Tax Act, Labour Laws, ESIC, etc.
Ensuring that all funds, including donations and government grants, are legitimate.
Maintaining a separate account for government grants for proper tracking.
Checking fund utilization to guarantee transparency in social initiatives.
Ensuring compliance with Sections 12AA and 80G, confirming that donation receipts are properly documented.
Conducting background checks of NGO executives, officials, and key personnel.
External Audit
Conducted by independent auditors to assess the fairness and credibility of the NGO’s financial statements.
Provides assurance to trustees, stakeholders, and donors.
Internal Audit
Performed by the NGO’s staff or hired professionals.
Focuses on policies, procedures, and compliance with laws, providing updated information to management.
Donor Audit
Carried out either by external auditors or the donors themselves.
Confirms that donations are used legally and according to agreed terms, boosting donor confidence.
Investigative Audit
Conducted when fraud or irregularities are suspected.
Auditors gather primary and secondary evidence to help the NGO decide on corrective actions.
External Audit: Validates the authenticity, accuracy, and fairness of financial statements.
Internal Audit: Examines policies, procedures, and operational compliance.
Donor Audit: Ensures that donor conditions are met.
Investigative Audit: Uncovers evidence related to suspected fraud or mismanagement.
Proof of Credibility
Audits provide assurance to donors, beneficiaries, and the public that the NGO is honest and transparent in its operations.
Professional Advice
Auditors are knowledgeable about the latest government regulations and can advise NGOs on financial management, internal controls, and investigations when needed.
Copyright © 2026 Maheshwari Gupta and Associates. All Rights Reserved
