Presentation On Risk Based Auditing For NGOs

P RESENTATION ON F INANCIAL R ISK A SSESSMENT & M ITIGATION
A c c o u n t a i d TM
Accounting for Aid. Aid in Accounting
F INANCIAL R ISK A SSESSMENT & M ITIGATION
F INANCIAL R ISK & F RAMEWORK
Financial Risk

In Context of Grant Making Mismanagement or loss of Funds/ Resources entrusted to an NGO
Key Elements of Financial Risk
K EY E LEMENTS OF F INANCIAL RISK
F INANCIAL M ISMANAGEMENT
Ineffective Utilization
Improper Budgeting Delayed Availability of Funds

Misuse of Funds Erroneous/ Delayed Reporting
L OSS
OF
F UNDS
Loss of Funds in Transit

Diversion of Funds/ Assets Legal Penalties
Diversion Not Allowed
A UDIT A REAS
Budget
Reporting Utilization of Grant Funds Control systems Payroll and HR Recruitment/ Records
Legal Compliance
Governance
A UDIT O BJECTIVES
Primarily depend on Donors Perspective

Optimize overall Financial Risk to Donor Funds entrusted to Grantee/ Partner Strengthen Financial Management Systems of Grantee/ Partner
Optimizing or Minimizing the Risk?
10
A UDIT M ETHODOLOGY
Standard Audit Visit: 2 - 4 days

1.
Meeting with the Chief Functionary and key members of the team Courtesy meeting with Board Members Discussion and review of Financial Systems and Records:
a)
b)
2. 3.
Identification and assessment of risks

Suggested mitigation measures
4.
Debriefing with the Grantee/ Partner
11
A UDIT M ETHODOLOGY -1
Draft a report identifying all relevant Risks along with feasible mitigations
Share draft report to Grantee/ Partner with copy to the donor agency for their response and comments Incorporate response from the Grantee/ Partner in report with suitable comments and release final report
12
A SSESSING R ISK

Identify specific risk in the Existing Systems and Controls

Assess whether single/ repeated errors are due to:
A flaw in system design or lapse
List-out , review and assess the risks for their implications
Gives an idea, whether risk is significant enough for reporting
13
R EPORTING
Report all significant risks to the Partner and the Donor

Emphasis on Identifying the Risk and its Implications
Risk Mitigation can be possible by modifying or introducing a procedure or control
14
R ISK AND S UGGESTED M ITIGATION

Suggested Mitigation Partner may consider adopting a multitier signatory approach to deal with the problems arising due to nonavailability of officebearers 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.
Risk Signing a blank cheque creates two risks: 1. Possible misuse of the cheque by the other signatory; 2. Abdication of his official responsibility (as an office bearer) by the Finance Trustee.
15
R ISK AND S UGGESTED M ITIGATION -1

Suggested Mitigation
Risk
Expenses may be inflated and Risk arises at a senior management Donor funds diverted through level in Partner organisation and use of fictitious or altered duty cannot be mitigated by an slips, with or without the accounting procedure. knowledge of owner of the Taxi Service.
16

Suggested Mitigation
Risk
This creates a risk that a bill may be paid or accounted twice, without the material having been printed.
Proof or sample of the material printed should be attached with the bill and voucher. Also the bill should indicate 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.
17

Suggested Mitigation 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
Risk Classification of salary as consultancy payments can lead to wrong deduction of tax and subsequent imposition of interest and penalty
18
Risk Suggested Mitigation Payment of salaries in cash Partner may pay all the employees, leaves open the possibility drawing more than Rs.1500 per month, of the actual payments not through account payee cheques or being recorded in the bank transfer register Lack of a manual cash Partner should use a cloth bound cash record weakens control over book which can be used as rough cash physical cash as cash cannot book and should enter all the inflows be tallied properly and outflows of cash in this book as and when they occur
19

Suggested Mitigation 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
Risk Risk of loss of assets over a period of time, as physical verification and tally becomes difficult.
20

Suggested Mitigation 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) and shops 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.
Risk Actual food expenses may be claimed or accounted by accountant at inflated figures.
21

Suggested Mitigation Attendance sheets and photographs should be attached with the vouchers. Further, all attendance sheets should carry the following information as a header 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.
Risk There is a risk of booking of expenses which are not supported by adequate operational documents.
22

Suggested Mitigation Partner should file a revised income tax return after consulting a CA or tax practitioner familiar with NGO taxation
Risk This type of improper filing can lead to wrong assessment of income which may lead to imposition of income tax and penalty on Partner.
23
B ENEFITS

FOR
D ONOR & G RANTEE
Coverage of Risk Identification of Risk Reduction of unexpected Risk

Strengthened Grantees/ Partners Systems

Reduced disruption of critical Partnerships Improved delivery of funds to donors/ Partners mission and cause
T RAINING

Train Audit Team leaders/ Members Clarify the Concept of Risk Based Auditing Involves a shift from locating actual errors to identifying 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
25
W ORKSHEETS

Invest some time developing automated worksheet templates

Build up Risk Register with Mitigation table Helps in reducing costs with speed up report writing
S OFTWARE
Computer Assisted Audit Techniques
Spreadsheets and SQL database Auto Audit FOR WINDOWS
Audit Software in Western Countries
Reliant auditor
PAWS - Pentana Audit Work System ERA - Enterprise Risk Assessor Planning advisor Omni Compliance
27
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Presentation On Risk Based Auditing For NGOs

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P RESENTATION ON F INANCIAL R ISK A SSESSMENT & M ITIGATION

F INANCIAL R ISK A SSESSMENT & M ITIGATION

F INANCIAL R ISK & F RAMEWORK

In Context of Grant Making Mismanagement or loss of Funds/ Resources entrusted to an NGO

Key Elements of Financial Risk

K EY E LEMENTS OF F INANCIAL RISK

Improper Budgeting Delayed Availability of Funds

Loss of Funds in Transit

Diversion Not Allowed

Primarily depend on Donors Perspective

Optimizing or Minimizing the Risk?

Standard Audit Visit: 2 - 4 days

Identification and assessment of risks

Debriefing with the Grantee/ Partner

Identify specific risk in the Existing Systems and Controls

A flaw in system design or lapse

List-out , review and assess the risks for their implications

Gives an idea, whether risk is significant enough for reporting

Report all significant risks to the Partner and the Donor

Risk Mitigation can be possible by modifying or introducing a procedure or control

R ISK AND S UGGESTED M ITIGATION

R ISK AND S UGGESTED M ITIGATION -1

R ISK AND S UGGESTED M ITIGATION -2

R ISK AND S UGGESTED M ITIGATION -3

R ISK AND S UGGESTED M ITIGATION -4

R ISK AND S UGGESTED M ITIGATION -5

R ISK AND S UGGESTED M ITIGATION -6

R ISK AND S UGGESTED M ITIGATION -7

R ISK AND S UGGESTED M ITIGATION -8

D ONOR & G RANTEE

Coverage of Risk Identification of Risk Reduction of unexpected Risk

Strengthened Grantees/ Partners Systems

Guard against overloading NGOs with controls and procedures

Invest some time developing automated worksheet templates

Computer Assisted Audit Techniques

Spreadsheets and SQL database Auto Audit FOR WINDOWS

Audit Software in Western Countries

Accounting for Aid. Aid in Accounting

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