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NGO, Trust & Not-for-Profit

Project Accounting for NGOs & CSR

NGO Project Accounting

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Overview

NGO project accounting is the financial management of the donor-funded projects of a not-for-profit organisation — the project-wise accounting of the grants and the expenditure, the fund accounting that tracks the restricted and the unrestricted funds, the utilisation certificates and the financial reports to the donors, and the compliance with the Income-tax Act 1961 for the trust or the society, including the maintenance of the accounts and the audit under the Act. The project accounting is the discipline that keeps the donor's money accountable.

The NGO's projects are funded by the donors with the conditions — the project budgets, the eligible expenditure, the reporting and the utilisation — and the accounting is the machinery that tracks the money against the conditions. Each project has its own ledger of the receipts and the expenditure, its own utilisation certificate, and its own report to the donor, and the fund accounting keeps the restricted funds separate from the general funds. The audit and the returns under the Income-tax Act test the same records.

The cost of weak project accounting is the donor's loss of trust and the compliance failure: the utilisation that cannot be certified, the funds mixed across the projects, the reports that the donor rejects, the audit findings under the Act. The NGO's continued funding depends on the accountability of its accounts.

This service is for NGOs and the not-for-profits running donor-funded projects. We set up the project-wise accounting and the fund accounting, maintain the project ledgers and the budgets, prepare the utilisation certificates and the donor reports, manage the statutory audit and the returns under the Income-tax Act, and review the project finances so the donor's money is accounted for, project by project.

How It Works

  1. 1

    Project Accounting Setup

    We set up the project-wise and the fund accounting structure.

    Harun Raaj & Associates does this1-2 weeks
  2. 2

    Project Ledgers & Budgets

    We maintain the project ledgers, the budgets and the restricted funds.

    Harun Raaj & Associates does thisMonthly
  3. 3

    Utilisation Certificates

    We prepare the utilisation certificates and the donor reports.

    Harun Raaj & Associates does thisAs required
  4. 4

    Audit & Returns

    We manage the statutory audit and the returns under the Act.

    Harun Raaj & Associates does thisAnnual
  5. 5

    Financial Review

    We review the project finances against the budgets and the conditions.

    Harun Raaj & Associates does thisQuarterly

Frequently Asked Questions

Which accounting standard governs how our NGO should maintain project-wise accounts?
NGOs registered under the Income Tax Act must follow the Guidance Note on Accounting by Not-for-Profit Organisations issued by the ICAI, which recommends fund-based accounting segregated by project. Additionally, entities receiving foreign contributions must maintain project-wise accounts as mandated under Rule 17 of the Foreign Contribution (Regulation) Rules 2011. Each restricted grant must be tracked separately so that unspent balances are correctly disclosed in the Statement of Income and Expenditure. Failure to maintain project-wise records is a common audit qualification and can trigger scrutiny under Section 12AB renewal proceedings.
How should unutilised grant funds be treated at year-end in an NGO's books?
Unutilised restricted grant funds must be carried forward as a liability (Grant Received in Advance) or as a separate fund balance, not recognised as income, in line with the ICAI Guidance Note on Accounting by Not-for-Profit Organisations. If the donor agreement specifies a refund clause for unspent funds, the amount is classified as a current liability under Schedule III of the Companies Act 2013 (for Section 8 companies) or under the applicable format for trusts and societies. For CSR grants specifically, Rule 4(6) of the Companies (Corporate Social Responsibility Policy) Rules 2014 requires unspent amounts under ongoing projects to be transferred to a designated bank account within 30 days of the financial year-end. Correct classification protects the NGO's tax-exempt status under Section 11 of the Income Tax Act 1961.
Can our NGO receive project funding from multiple donors into a single bank account?
Mixing project funds in a single bank account is permissible but creates significant accounting and audit risk; best practice is to open separate bank accounts per major project or donor. For foreign contributions, Rule 9 of the Foreign Contribution (Regulation) Rules 2011 mandates that all FCRA receipts flow exclusively through the designated FCRA bank account at SBI Main Branch New Delhi or the permitted utilisation account, and mixing FCRA and domestic funds in one account is a criminal violation under Section 35 of the Foreign Contribution (Regulation) Act 2010. The statutory auditor will require a bank reconciliation per project to certify the utilisation certificate (UC) demanded by government donors under General Financial Rules 2017, Rule 230. Maintaining project sub-ledgers even within a single account is the minimum compliance requirement.
What documents does the statutory auditor certify for a government-funded NGO project?
For central government grants, the auditor certifies a Statement of Expenditure (SoE) and a Utilisation Certificate in Form GFR 12-A prescribed under General Financial Rules 2017, Rule 230(7). For state government grants, the format varies by state, but the auditor's certificate must confirm that funds were spent for the sanctioned purpose and in accordance with the grant conditions. Where the project involves Ministry of External Affairs or bilateral aid, the auditor may also need to certify compliance with the Development Assistance reporting framework. Under the FCRA, the NGO must file Form FC-4 annually on the FCRA Online portal and the auditor's certificate is a mandatory enclosure per Rule 17(1) of the Foreign Contribution (Regulation) Rules 2011.
How does project accounting affect our NGO's 80G-approved donation receipts?
An NGO's 80G approval under Section 80G of the Income Tax Act 1961 (renewed under Section 80G(5)(vi) read with the provisional and final registration regime introduced by the Finance Act 2020) covers the organisation as a whole, not individual projects. However, during 12AB/80G renewal scrutiny, the Assessing Officer reviews project-wise expenditure to confirm that funds were applied for charitable purposes as defined under Section 2(15) of the Income Tax Act 1961. Donors claiming deduction under Section 80G must receive a certificate quoting the NGO's PAN, 80G registration number, and the applicable deduction limit (50% or 100% with/without qualifying limit). Poor project accounting that cannot substantiate charitable application of funds can lead to cancellation of 80G registration under Section 80G(5)(vii), cutting off donor incentives entirely.

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