The government is set to frame new accounting norms for non-governmental organisations (NGOs), as it looks to remove the veil over the flow and utilisation of funds by the sector that is not entirely above suspicion. The ministry of corporate affairs is working on a more structured financial reporting format for the civil society organisations. It recently asked the (ICAI), the accounting regulator, to overhaul the accounting and disclosure norms for NGOs.

The NGOs, which have for long been shrouded in suspicion due to money laundering, terror funding and corporate corruption, have suddenly caught attention of the government, partly due to the allegations of corruption in the Indian Premier League. And more recently due to allegations of funds mishandling by the the Commonwealth Games Organising Committee.

“Unlike companies, NGOs do not follow a structured format for financial reporting, 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 are properly accounted for, said the official, requesting anonymity.

The format will focus on aspects like utilisation of grants and contributions received by NGOs and strict compliance with provisions of the Foreign Contribution (Regulation) Act (FCRA). A group, which has been constituted to debate and recommend suggestions to ensure better governance of 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.

ICAI president Amarjit Chopra says: “There is a need for improvement in matters of accounting and utilisation of funds by NGOs.” He added, a group has already been formed to recommend changes.

While experts have welcomed the move on framing new norms for NGOs, they feel the government should stress on governance 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. “Of late, have been floated to divert money and 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 NGO s 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, , 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.

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June 2021