Preparing Annual Return (FC3) – Your Take ?

Friends,

I would like to initiate a new topic on a dilemma which all the associations (and their financial advisors) face whenever preparing annual return (FC3). What does closing balance in FC3 should represent, should it be funds as per FCRA Bank account or should it be unutilised money as per the Balance sheet. Obviously if there are no advances or liabilities outstanding as at 31st March, then unutilised money as per FCRA balance sheet should be in agreement with the closing bank balance. To illustrate,

Say a new grant received of Rs 10,00,000 against which association has been able to utilise say 9,00,000 with nil liabilities at the yearend. Balance Rs 100,000 will be unutilised as per balance sheet and on the debit side 100,000 will be in the Bank account. Thus two balances are identical and there are no problems. This can be represented as follows:

Grant Unutilised 100,000/- (being 10 lakh – 9 lakh)
FCRA Bank Account 100,000/-

However if say we have not been able to pay Rs 30,000/- of expenses at year-end. The position is as follows

Grant Unutilised 100,000/- (being 10 lakh – 9 lakh)
FCRA Bank Account 130,000/-
Liabilities (30,000/-)

In the above scenario what would be the position should we show unutilised funds in FC3 100,000/- or 130,000/-.

Friends, I am initiating this discussion to understand what treatment most of us are following in this regard.

subhash mittal

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9 Responses to Preparing Annual Return (FC3) – Your Take ?

  1. Uday Chaturvedi says:

    What harm is there in following accrual – accounting in statements for FCRA?
    Another issue
    Some experts have been avoiding showing Grants in the Balance Sheet at all! Only income and expenditure statement cover Grants. That is to avoid attracting tax and ceiling conditions on un-spent grant received. Is it valid!
    Uday

  2. Subhash Mittal says:

    Thank you freinds, for your knowledgeable comments.

    Consensus seems to be that while preparing FC-3, we should follow cash basis of accounting. This ensures that your unutilised grant/s would tally with funds lying under FCRA.

    My concern, and the reason for raising the issue was precisely this. Are we to follow two different accounting policies, one for your consolidated accounts (where generally accrual basis is followd) and cash basis for FCRA accounts. Further if only an advance has been given out, for which no expenditure has yet been reported, how correct it is to show as utilisation. Does it really help Transparency ? (the issue Uday Chaturvedi raises)

    I suggest following alternative, that we prepare FCRA Balance sheet on accrual basis, thus accounting grant utilisation only, once we are satisfied by its utilisation.
    This would mean that there would be a difference between FCRA funds, and funds remaining unutilised as per Balnce sheet. My suggestion is that we use Receipt & Payment for the purposes of reconciliation between FCRA funds and grants unutilised. Thus in the example given FC3 and R&P will be as follows:
    FC3
    Opening Bal. –
    Grant Rec’d 10,00,000
    Less: Grant Utilised 9,30,000
    Unutilised Grant 70,000

    Receipt & Payment
    Grant rec’d 10,00,000
    Payment towards Grant 9,00,000
    Closing FCRA Balance 1,00,000
    Less: Liabilities o/s 30,000
    Balance as per FC3 70,000

    While there is substance in what Sriraman has said that under FC3 we only report utilisation of grant, however I still believe we must innovate to provide more transparent FC3.

    Still looking forward to your further comments.

    subhash mittal

  3. Soma Satry says:

    Dear Friends,

    NPOs generally follow a cash basis of accounting although the FCRA is silent on this. Only NPOs registered under section 25 prepare the accounts on accrual basis since the Companies Act demands so. Â NPOs were and are expected to submit the R&P along with the FC-3, it was understood cash basis of accounting has to be followed. But that is not the case. It can be cash as well as accrual basis.

    In case of cash basis of accounting, the funds utilized for making the payments will be reflected in the FC-3 and the rest will be reflected as closing balance. In case we have any payables during the year, the same should not be reflected as the actual payment has not happened.

    Thanks and regards,

    B V Soma Sastry

  4. Pragya says:

    Dear Sir,

    In our organisation, we prepare FC-3 purely on Receipt & Payment. Therefore, in the scenario given below, FC-3 will be:

    Opening Balance: Nil
    Grant Received: 10 lacs
    Grant Utilized: 8.70 lacs (Total Utilization as per Income & Expenditure Account-Rs.9 lacs less outstanding liabilities of Rs.30K)
    Closing Balance: 1.30 lacs (FCRA Bank Balance)

    Pragya

  5. Valan Caritas says:

    Dear Sir,

    Greetings from Caritas india!

    As per Mail I am understanding the un utilised mbalance is Rs.100000/- because Rs.30000/- is liabilities.Rs.30000/- we shown in the exps but the bank money is not reduced .When ever we are issuing the cheque to the party in the month of march ,that will take some time april or may or with 10 days will clear.

    The example the salary for the month of March given the cheque to employees end of the month and the organisation showing as a expenditure .The employes may deposit immediately or 1 st week ,We cannot consider money is going from the bank only we can book the expenses as utilized.

    As per me Rs. 100000/- is unutilised

    Valan

  6. Ajay Jain says:

    Dear Mr. Subhash Mittal

    In my view, unutilized fund to be Rs. 1,30,000/- in FC3 return.

    Regards
    Ajay Jain
    Ranbaxy Science Foundation

  7. uday chaturvedi says:

    Dear Friends,

    Is not acrual basis of accounting mandatory under the new FCRA dispensation? If, yes, 30000 goes under payables, balance being 100000/-. Still, many NGOs are following cash based accounting system. Worse are those who follow mixed system !

    Uday

  8. Sriraman Pk says:

    Dear All
     
    I have handled FCRA returns of 3 different NGOs, in receipt of grant ranging from just about a crore to one of the top of the list grant recipient in the MHA’s list, in the past 9 years time. The basic principle, which I have been consistently following is to match the ‘closing balance’ to the Cash+Bank+FD balance as per the FC Balance Sheet. I am guided by the principle that FCRA expects you to maintain the accounts on Cash basis. Therefore, unpaid expenses, prepaid expenses, etc., should get treated as utilization in the year they are actually paid for. Even the terminology used is Grants Utilized and not Grant Expended. Making a provision, for payment in the subsequent year is not utilization of grant.
     
    I am keen to know the practice by other organizations.
     
    Best regards,
     
    Sriraman
    Director (Finance, Administration & IT)
    WaterAid in India
    +91-11-46084422
    sriramanpk@wateraid.org

  9. CA. Varun Soni says:

    Dear Friends

    The treatment would depend on the accounting policy adopted by the society, if
    its cash basis then the balance as per bank and the unutilized amount would be
    same. In case of accrual basis the unutlized amount would be the amount after
    taking into consideration the liability which is to be paid in near future.

    Thanks and Regards
    CA. Varun Soni
    Best Wishes
    CA. Varun Soni

    Sent from BSNL with my BlackBerry® smartphone

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