Nonprofit Organizations (NPOs) in India play an important role as change agents for social and economic development. As they command substantial resources, their financial performance measurement and reporting is a major concern. In the absence of a single regulatory authority and specific accounting standards for NPOs, the practices of accounting and reporting vary across organizations. Based on an exploratory study, this paper documents the status on requirements of accounting and reporting vis-à-vis the current practices of NPOs, identifies the gaps, and proposes an action plan to bridge the gaps. The paper classifies the gaps in accounting and reporting under conceptual and institutional frameworks. In order to bridge the gaps in the conceptual framework, the paper recommends the need for developing a uniform accounting and reporting system for all NPOs. This should start with conceptualizing the information needs of the stakeholders and end with conceptualizing appropriate financial statements to meet these needs and, in the process, resolve any ambiguity in the accounting treatment of specific transactions. At an institutional level, the paper suggests consultative processes among various stakeholders to develop the proposed system and recommends a need for amendments in various acts to implement it.
Nonprofit Organizations (NPOs) provide important services throughout the world. Their scope covers inter alia, health and welfare, research, education, social organizations, and professional associations. The fundamental features of NPOs are: (1) They exist to fulfil a charitable purpose, (2) they function without the use of coercion, (3) they operate without distributing profits to shareholders, and (4) they exist without simple and clear lines of ownership and accountability (Keating and Frumkin, 2001).
In India, the state played a dominant role in the process of economic and social development after independence in 1947. NPOs also emerged soon after independence as many followers of Mahatma Gandhi established voluntary agencies to work closely with the governmental programs on social and economical issues. They organized handicrafts and village industries, rural development programs, credit cooperatives, educational institutions, etc. The second stage of growth of NPOs in India took place around 1960 when governmental programs were found to be inadequate to deal with the deprived sections. Many individuals formed grass-root organizations and started working at the micro-level with limited resources. They worked on behalf of the poor, the landless, the tribals, the bonded laborers and other social groups that were being discriminated against by the policies of the state and social structure. In 1980, with the Sixth Five-Year Plan (1980-1985), the government identified new areas in which NPOs as new actors could participate in development. The subsequent Five-Year Plans enhanced the role of NPOs to aid in making communities as self-reliant as possible, and as participants in rural appraisal for drawing up development plans at low cost and involving the local communities (ICAI, 2003).
Today, India has a dominant NPO sector and NPOs are increasing in importance as partners in the process of development and as employers. As of March 31, 2001, there were 22,924 NPOs registered with the Ministry of Home Affairs, Government of India under the Foreign Contribution (Regulation) Act (FCRA), 1976. According to the figures from the Ministry of Home Affairs, NPOs in India received Rs. 45,352 mn by way of contributions from abroad during 2000-01 alone (Yesodharan, 2003). The total funds at the disposal of NPOs would be substantial considering the amount mobilized within the country.
NPOs do not have clear ownership and there are no clear lines of accountability. Their external stakeholders include donors, beneficiaries, oversight bodies and society at large, whereas internal stakeholders include the governing members or trustees and the staff. Each one has stake in the organizational performance. Donors want to ensure that the resources are used for charitable and specified purposes. Beneficiaries want to ensure that the quality of services is maintained and the costs do not rise. Oversight bodies are interested in compliances. Community members do not want the government to grant funds for those programs which are not beneficial to a larger population. The governing members, by virtue of their duties, require to ensure the proper utilization of resources for the purposes of the organization. With relatively lower remuneration, the staff has their financial and job security at stake in the performance of their organizations. |
