notional expenses

Dear Subhash ji,

I would like your inputs or maybe inputs from group members.

A common practice followed by various organisations which certain people
call allocations while others call notional expenses are as follows:
1) Charge against use of own buildings
2) Charge against use of infrastructure, convention centre, conference halls
3) Charge against use of own vehicles
4) Charge against use of photocopier, telephone, computers
5) Providing services at a pre-determined rate etc.
6) apportionment of common expenses

In a nutshell many times expenses are charged to the projects either through
a journal entry or sometimes through actual transfer from the project account

While some donors allow it, others object to it saying: if you pay rent to
a conference hall outside it it permitted, while if you use the facility available
with the organisation it is not.

Here again I find that even professionals – surprisingly when they are
engaged by the donor, they start talking in donors language and call them notional
expenses, while when they are engaged by the project holder they start talking
in terms if self reliance and sustainability.

I want to start a discussion on this – whether it is legally permissible to charge
expenses and what is  the common practices followed.

Yours inputs in this regard would be appreciated.
Warm regards
Martin Pinto

This entry was posted in Accountability. Bookmark the permalink.

11 Responses to notional expenses

  1. Sujatha Sunil says:

    Dear SRRF Members,

    The following is my view on notional expenses.

    Amount that are reported as expenditure, but not actually spent are called Notional Expenses. Generally this type of expenditures are happening in the case of project fund. Eg:- Using office conference room for some project meeting and charge the same as expenditure when we reporting to this to Donor Agency. In this case normally Journal entries are passing and there is no cash inflow and out flow is happening.

    Thanks & Regards

    Sujatha Sunil

  2. Dear All,
    Interesting debate & advices to settle betweent The Doner & Recipient. Few pertinant questions to make this more interesting.
    1. Does the recipient have a policy defining the types of notional costs & a way to recover them.
    2. Are this recoveries amounting to incomes for the recipient by simple understanding of excess of recoveries over costs.
    3. Is the NGO registered under the Service Tax Act to be able to provide the services to Donor of the kind discussed above.

    Keaving the ethical issues aside answering the questions above may give insigt.
    Ritesh Koshik
    Controller Finance CARE

  3. Satyadeo Bareth says:

    Dear Friends,
    I think there is nothing wrong (legally & ethically both) if a NGO charges for the facilities of its own used for the activities of a project sanctioned to the NGO for which financial provision is available. The facilities may include conference room,vehicles,telephone/fax, food for conference (in case a cafeteria or mess of the NGO exists) etc. But the office accommodation can not be charged as normally administrative charges up to 15% are sanctioned in the project for this purpose. The NGO requires money for maintenance of various facilities and to sustain itself. However, if these facilities are mentioned in the project as cost share items from the NGO than no such charges are applicable. All the more, in case the NGO doesn\\\’t have any such facility of it\\\’s own then also one has to hire these for the project as per budgetary provisions.

  4. ashwini says:

    These are tricky issues and cut across ethics, legalities etc. Point is there are very few donor agencies who understand administrative expenses and accept the same. Also if any organisations owns building, training facility etc where will the expenses for maintainance and repairs come from?

    One idea is to pool all administrative expenses, in actuals per month and spread them across different projects depending on the capacity of each project. Of course, put this as a policy for each donor and discuss this before the agreement is finalised. And all donors get to see all the vouchers since they have partly taken responsibility of the expenses. So that the entire transaction is open to all.

  5. Om Prakash says:

    Just to add to the below from Mr. Pinto.

    1. These amounts are being charged from FC funds and are being transferred to their own local account.

    How far this is legally correct?

    Om Prakash
    Finance Coordinator,
    Plan India.

  6. Subhash Mittal says:

    Dear Martin,

    Thanks for raising a very important and pertinent issue.

    The issues that you have raised can basically be related to conflict of interest. Answers are not simple and most importantly depend on the policy that donor follow. I would not crticise the auditors who ultimately are there to ensure if the policies as agreed to between the donee and donor are being complied with.

    My suggestion is that the issue needs to be resolved between the donors and donee. Best time would be that the issue should be discussed before signing the agreement. Often implementing partners, for one reason or other, do not examine the issue in detail and sign on the dotted lines. Even if the issue comes up subsequently, the implementing p[artner should discuss it with the partner and what it wishes to follow. At the least it must intimate the donor of the practice that it will follow.

    Hope you find it useful.

    with warm rgds


    • Martin Pinto says:

      If everything has been shared with donors and agreed too,
      I need your opinion whether there is anything wrong legally
      or against any accounting stadard.

  7. B V Soma Sastry says:

    Dear Friends,

    We have to be careful in such issues. If we are seeking a full time salary in the project proposal, we cannot then give the salary to 2 people in 2 projects. This implies that the staff is not needed full time as per the interpretation of the donor. Donors are very strict on these issues.

    Thanks and regards,

    B V Soma Sastry

  8. B V Soma Sastry says:

    Dear All,

    To me booking of notional expenses is more of a ethical issue than an accounting issue. One thing we should remember is that “NGOs should not do business with themselves”. If we are owning the building we are using, it in no way implies that I should be charging rent to all the projects.
    People may have different views on this. This is my view.

    Thanks and regards,
    B V Soma Sastry

  9. Sirish N. Shah says:

    Dear Subhash ji,

    One more point
    Charge of salary engaged for a project
    on full time or part time.


    • s.srinivasan says:

      There is cost involved even to th eNGO for maintaining the facilities. If it is not recovered from thee donors ( it may not be possible for th eNGO to have the funds . The correct position should be that the NGO should clearly inform that these are expenses charged for the services done in house

Comments are closed.