Some management Tips

The voluntary or not-for-profit or non-profit sector is a large and important part of Indian
society. Organisations/institutions belonging to this sector mainly include
a) public charitable trusts;
b) societies;
c) section 25 companies;
d) co-operatives;
e) trade unions. For the purpose of this monograph, we shall restrict ourselves to just a), b) and c).

Characteristics common to all registered voluntary or not-for-profit organisations/institutions in India are:

1. they exist independently of the State;
2. they are self-governed by a board of trustees or “managing committee” or “governing council” which comprises individuals who generally serve in a fiduciary capacity;
3. they produce benefits for others, generally outside the membership of the organisation;
4. they are ‘non-profit-making’, in as much as they are prohibited from distributing a monetary residual to their own members.

Duties And Responsibilities Of A Trustee  (Or One Who Is A Member Of The Management Team Of The Non-Profit Organisation)

1. Upon taking up the office, the person should acquaint himself/herself with the nature and, particularly, the aims and objects of the organisation. A thorough study should be made of the charter of the organisation (trust deed or the memorandum and articles of association, as the case may be). The person should know what the charter of the organisation requires him/her to do. If the person fails or neglects to carry out the terms of the charter, it may be considered “breach of trust” or “neglect/dereliction of duty”.
2. As long as the person holds the office of trustee, he/she should not, in any way, make use of the non-profit organisation’s property or of his/her position in the organisation for personal interest or private advantage, nor may the person enter into engagements in which he/she has or can have personal interest which conflicts or possibly may conflict with the interest of those whom he/she is bound to protect.
3. Generally, all trustees on the board of any non-profit organisation are “jointly and severally responsible”.
4. A trustee is expected to take care of the organisation’s property (movable or immovable) just as a person of ordinary prudence does, in respect of his/her personal property.
5. In principle, a trustee cannot delegate any of his/her duties, functions and powers to a co-trustee, or any other person. As a general rule, executive acts may be delegated. However, where a trustee has to exercise a discretion, he/she must exercise the discretion personally and cannot delegate it.
6. In principle, a trustee cannot buy the property of the trust where he/she is a trustee nor can the trustee sell any of his/her properties (immovable or movable) to the trust - the mischief in both the cases being the likelihood of a conflict between the trustee’s personal interest and his/her duties as a trustee. The law does not go into the question whether the transaction is beneficial or not.
7. It is a general rule of equity that a trustee should administer the non-profit organisation gratuitously, and this rule applies even though the completion of the undertaking involves considerable loss of time and much personal inconvenience.

Even a solicitor-trustee should not charge for non-contentious business, except costs out of pocket.

Voluntary service is the foundation underlying all trusteeship and the law generally precludes a trustee from making profit or acquiring a benefit from his/her office as a trustee.

In case a trustee desires to be remunerated for contribution of time, energy, experience or skill, it would be advisable for the person to first resign as a trustee and, if the remaining trustees so desire, the person may be appointed to any paid empowered post of, say, a programme officer or director of projects or chief executive or executive secretary and receive a regular salary or honorarium, with or without other allowances and benefits.

Administrative Care And Supervision

1. Trustees should regularly check the books of account, particularly, the bank and cash books, ledgers, petty cash books, receipt books, voucher files and other registers and records.
2. Separate books of account are required to be maintained under law, if the organisation has any business income or receives foreign aid.
3. Vouchers should be maintained for every single expenditure, and receipts/cash memos should be issued for income like donations, rent, sale of products, etc.
4. Investment of funds should be in accordance with norms prescribed under the relevant Act of the state, read together with the norms prescribed by the federal Income Tax Act. There is often a dichotomy between the two.
5. If the organisation operates in more than one region with regular branch offices, the accounts of all such branches should either be consolidated or separate accounts should be maintained.
6. All major policy decisions should be supported by resolutions passed at board meetings or by circulars.
7. Minutes book should be maintained and trustees should meet as often as required or as directed in the charter of the organisation.
8. In case of a difference of opinion on a policy matter, the majority view must prevail. The dissenting trustees may record their dissent, but accept the majority view with dignity and grace or resign.
9. Good work being carried out by an organisation for humanity in general is no excuse for sloppy internal administration or default in keeping proper accounts and filing them with  the various authorities.
10. A trustee is generally protected from liability of errors of judgement, as long as he/she acts responsibly and in good faith and with the basic interest of the trust as the foremost objective.
11. Trustees should endeavour to keep all administrative costs within reasonable limits.
12. If the organisation wishes to promote its image in the public, it should not indulge in unethical publicity and promotion. In particular, it should not lend itself to exaggerated or misleading claims.

Keeping Proper Accounts And Audit

Every registered non-profit organisation is required by law to keep regular account of all receipts and movable or immovable property and of all encumbrances created on the organisation’s property and of all disbursements and alienations made on behalf of the organisation. Failure to keep regular accounts is a statutory offence punishable with a fine (in the state of Maharashtra, the fine, under the Bombay Public Trusts Act, may extend upto Rs.1,000/-).

The accounts should be closed each year on 31st March and audited by a practising chartered accountant. In the state of Maharashtra, accounts of a trust or society may have its accounts audited by a practising chartered accountant only if its gross annual income for the financial year is more than Rs.15,000/-.

Under the Income Tax Act, which is the federal/central Act applicable uniformly to all non-profit organisations throughout India, the accounts are required to be audited by a practising chartered accountant only if the total income of the organisation exceeds Rs.50,000/- in any financial year.

Non-profit organisations which require their accounts to be audited by a practising chartered accountant should do so annually within six months of the date of closing the accounts.