presentation on risk based auditing for ngos

7/27/2019 Presentation on Risk Based Auditing for NGOs

1/26

A c c o u n t a i d T M Accounting for Aid.Aid in Accounting

PRESENTATIONONFINANCIAL

RISKASSESSMENT& MITIGATION


2/26


FINANCIALRISKASSESSMENT& MITIGATION


3/26


FINANCIALRISK&

FRAMEWORK

Financial Risk

In Context of Grant Making

Mismanagement or loss of Funds/Resources entrusted to an NGO

Key Elements of Financial Risk

4


4/26


KEYELEMENTSOF

FINANCIALRISK5


5/26


FINANCIALMISMANAGEMENT

Ineffective Utilization

Improper Budgeting

Delayed Availability of Funds

Misuse of Funds

Erroneous/ Delayed

Reporting

6


6/26


LOSSOFFUNDS

Loss of Funds in Transit

Diversion of Funds/ Assets

Legal Penalties

7

Diversion

Not Allowed


7/26


AUDITAREAS

Budget

Reporting

Utilization of Grant Funds

Control systems

Payroll and HR Recruitment/ Records Legal Compliance

Governance

8


8/26


AUDITOBJECTIVES

Primarily depend on Donors

Perspective

Optimize overall Financial Risk to DonorFunds entrusted to Grantee/ Partner

Strengthen Financial Management

Systems of Grantee/ Partner

Optimizing or Minimizing the Risk?

9


9/26


AUDITMETHODOLOGY

Standard Audit Visit: 2 - 4 days

1. Meeting with the Chief Functionary and

key members of the team2. Courtesy meeting with Board Members

3. Discussion and review of Financial

Systems and Records:a) Identification and assessment of risks

b) Suggested mitigation measures

4. Debriefing with the Grantee/ Partner

10


10/26


AUDITMETHODOLOGY-1

Draft a report identifying all relevant

Risks along with feasible mitigations

Share draft report to Grantee/ Partnerwith copy to the donor agency for their

response and comments

Incorporate response from theGrantee/ Partner in report with

suitable comments and release final

report

11


11/26


ASSESSINGRISK

Identify specific risk in the Existing

Systems and Controls

Assess whether single/ repeated errorsare due to:

A flaw in system design or lapse

List-out , review and assess the risksfor their implications

Gives an idea, whether risk is

significant enough for reporting

12


12/26


REPORTING

Report all significant risks to the

Partner and the Donor

Emphasis on Identifying the Riskand its Implications

Risk Mitigation can be possible by

modifying or introducing a procedureor control

13


13/26


RISKANDSUGGESTED

MITIGATION

Risk Suggested Mitigation

Signing a blank

cheque creates two

risks:1. Possible misuse of

the cheque by the

other signatory;

2. Abdication of hisofficial responsibility

(as an office bearer)

by the Finance

Trustee.

Partner may consider adopting a multitier

signatory approach to deal with the problems

arising due to nonavailability ofofficebearers at the location. Accordingly,

signing authority for operational needs up to

a certain monetary limit, say Rs.10,000 or

Rs.20,000, can be delegated to the accountant

or such other person, along with an office

bearer such as the Managing Trustee.

Cheques above this amount would

compulsorily require the signatures of two

office bearers.

14


14/26


RISKANDSUGGESTED

MITIGATION-1


Expenses may be inflated and

Donor funds diverted through

use of fictitious or altered dutyslips, with or without the

knowledge of owner of the Taxi

Service.

Risk arises at a senior management

level in Partner organisation and

cannot be mitigated by anaccounting procedure.

15


15/26


RISKANDSUGGESTED

MITIGATION-2


This creates a risk that a bill

may be paid or accounted

twice, without the materialhaving been printed.

Proof or sample of the material

printed should be attached with the

bill and voucher. Also the bill shouldindicate clearly the items printed,

and the quantities of each item.

Delivery of the items should be

acknowledged on the bill by a

responsible person at Partner level.

16


16/26


RISKANDSUGGESTED

MITIGATION-3


Classification of salary as

consultancy payments can

lead to wrong deduction oftax and subsequent

imposition of interest and

penalty

Payments made to employees need to

be treated as salary and tax should be

deducted under section 192,irrespective of whether the

relationship is contractual or through

an appointment letter

17


17/26


RISKANDSUGGESTED

MITIGATION-4


Payment of salaries in cash

leaves open the possibility

of the actual payments notbeing recorded in the

register

Partner may pay all the employees,

drawing more than Rs.1500 per month,

through account payee cheques orbank transfer

Lack of a manual cash

record weakens control over

physical cash as cash cannot

be tallied properly

Partner should use a cloth bound cash

book which can be used as rough cash

book and should enter all the inflows

and outflows of cash in this book as

and when they occur

18


18/26


RISKANDSUGGESTED

MITIGATION-5


Risk of loss of

assets over a

period oftime, as

physical

verification

and tally

becomes

difficult.

Partner should maintain the Fixed Assets register

properly giving the following details:

Open one page for each type of asset. For example:one page for computer, one page for TVS, etc.

Details of assets purchased/donated

Give identification marks on each asset and also

copy these in the asset register

Location of asset should be mentioned in asset

register

Mention registration number of vehicles in the

asset register

19


19/26


RISKANDSUGGESTED

MITIGATION-6


Actual food

expenses may

be claimed oraccounted by

accountant at

inflated

figures.

If printed cash memo or rubber stamped slip is not

available for such expenses, then the plain paper

slips should show the place (location, village) andshops name by hand or the shop owners name. The

shop owner himself/ herself should be asked to

prepare and sign these. If the shop owner cannot

write then the slip can be prepared by the customer,

but must still be signed (or thumb impression

marked) by the shopkeeper.

20


20/26


RISKANDSUGGESTED

MITIGATION-7


There is a risk

of booking of

expenseswhich are not

supported by

adequate

operational

documents.

Attendance sheets and photographs should be

attached with the vouchers. Further, all attendance

sheets should carry the following information as aheader on all pages to mitigate the risk of mixing up

of sheets:

1. Title of workshop,

2. Date,3. Location,

4. Supported by,

A serial number should be put against each

participants name.

21


21/26


RISKANDSUGGESTED

MITIGATION-8


This type of improper filing can

lead to wrong assessment of

income which may lead toimposition of income tax and

penalty on Partner.

Partner should file a revised income

tax return after consulting a CA or

tax practitioner familiar with NGOtaxation

22


22/26


BENEFITSFORDONOR&

GRANTEE

Coverage of Risk

Identification of Risk

Reduction of unexpected Risk Strengthened Grantees/ Partners

Systems

Reduced disruption of criticalPartnerships

Improved delivery of funds to donors/

Partners mission and cause

23


23/26


TRAINING

Train Audit Team leaders/ Members

Clarify the Concept of Risk Based Auditing

Involves a shift from locating actual errors toidentifying possibilities of errors

Visit field area to familiar with their

operating realities

Guard against overloading NGOs with

controls and procedures

Different Operating and Control environment


24/26


WORKSHEETS

Invest some time developing

automated worksheet templates

Build up Risk Register with Mitigationtable

Helps in reducing costs with speed up

report writing

25


25/26


SOFTWARE

Computer Assisted Audit Techniques Spreadsheets and SQL database

Audit Software in Western Countries

Auto Audit FOR WINDOWS

Reliant auditor

PAWS - Pentana Audit Work System

ERA - Enterprise Risk Assessor

Planning advisor

Omni Compliance


26/26

A c c o u n t a i d T M

Thank you!

27

presentation on risk based auditing for ngos

Documents