Finance

Finance

OUR INSTITUTIONS AND THE POOR

NOV 03

This article shows how service of the poor should be at the heart of any organization that claims to be a charitable trust. If not, we should have another look at the very purpose of these institutions.

The mere word ‘charitable’ denotes service of the poor and the mere fact that we have chosen to form a charitable society or trust shows that we have opted to serve the poor through such a charitable society or trust.  If we have opted to serve the poor, then all the properties and funds that we hold  are also meant for the same purpose.  Thus service of the poor becomes the reason and purpose of the very existence of any charitable society or trust. Understood thus, the statement that all that the Church owns is the property of our Lord Jesus Christ and the patrimony of His poor makes sense.

Need of Radical Questioning

Our charitable societies and trusts are involved in very many activities, like running parishes, schools, colleges, hospitals, social service centres, youth animation centres, community centres, research centres, rural training programmes, etc. All the institutions that run such activities also hold properties and funds meant to support these activities.  If all these institutions with their properties, funds and various activities are meant for the poor, then definitely they should have made some impact on the lives of the poor. By impact, we mean effecting a positive change in their lives. Thus, we can say that all our institutions exist to bring about a positive change in the lives of the poor around us.  If not, we should relook at the purpose of the existence of these entities.

Any positive change in the lives of the poor is possible to the extent that the poor  have access to our institutions and their programmes.  Giving such an access would mean having a preferential option for the poor.  Here are some of the ways in which we can concretely show our preferential option for the poor:

Twelve Steps that Benefit the Poor

  1. When our charitable trust was begun, it was begun with the specific purpose of serving the poor. But over the years it is possible that the trust has lost this original purpose due to the pressure of maintaining a standard in order to compete with the fast-changing environment.  Hence, we can now re-examine the priorities and activities of our institutions and re-focus our attention in providing sufficient opportunities for the poor to get the benefit of our charitable activities.
  2. One of the concrete ways in which we can show our commitment to the poor is to choose those activities that would directly benefit the poor. Thus the choice of the activity matters a lot, but that is not enough. Even the choice of the place for such activities matters.  Thus a school of a medium standard near the rural or slum dwellers will benefit them a lot more than a high-fi school well established in a posh area of the city.
  3. Having decided on the choice and place of the activities the next important step would be to allocate a budget, for, if there are no funds, nothing much can be done for the benefit of the poor. There may be many willing to serve the poor, but due to lack of funds they are not able to do anything in this regard.  Here is where the allotment of funds matters.
  4. Serving the poor does not mean much if we try to look for the poor in some far away location. We have heard the saying that charity begins at home. Hence, it would make much sense if we first attend to the poor within the campus, namely our own employees, students of the school or patients of the hospital.  This makes it an obligation for us to pay decent salaries to our employees, salaries that would be reasonably sufficient to take care of the members of their families and their basic needs, such as, education, health, food, shelter, etc.  Concern for the poor can also be concretely expressed through our concern for the employees in times of need for some salary advance, loan, etc.
  5. Similarly it makes us to be on the lookout for the poor in our institutions and help them with scholarships or fee concessions in their school, college or hospital fees.
  6. Option for the poor would also mean having preferential option for the poor in admissions, in employment and in the choice of the beneficiaries of all our activities. It would mean giving job opportunities to the poor on a priority basis. Here we should seriously consider the jobless and the poor for the contract works, like maintenance, gardening, other labour work, etc.
  7. The other area through which we can express our option for the poor, unlike the rest of the world, is to narrow the gap between the rich and poor of our institutions. This can be shown by raising the salary of those attached to the lower grades of the pay scale, which can be done by paying them all uniform allowances across the grades of the pay scale system.
  8. Having a reservation policy for the poor can be another concrete way of showing our preferential option for the poor so that they also become beneficiaries of our charitable activities.
  9. The other area of concern for the poor can be in our marketing. Every institution has to do a lot of marketing for its daily provisions and other needs. If the poor are our concern, then we would certainly do the purchases from shops run by the poor, be it vegetables, groceries, stationery, clothing, construction materials,
  • Our option for the poor should also mean that we lead a life of the poor, both in our personal and community life. It would also mean opting for simplicity that will have an apostolic witness value in our institutions.
  • Our option for the poor would also mean making the facilities of our institutions, like the playground, hall, classroom, etc., available to the poor and the underprivileged. It would also mean organizing some programmes for them like games, sports, cultural programmes, camps, seminars, etc., which would be educative and motivating.
  • Another concrete way of reaching out the poor is by adoption for a long term. It can be adopting a village or a school in a remote area or a backward village that may need our intervention or at least some poor families which may need our support for education or health. The institution as a whole may opt to reach out to the selected group through their periodic visits, regular activities like coaching, financial support for the education of the children, financial help to repair the houses or the community centre, school building, etc.

The last can be a very important and concrete way of getting our institution and all its people like the staff, students, management, etc., involved on a regular basis. This is a direct approach and it will certainly bring about a positive change in the lives of those people.  Such an institutional approach will have not only a long term impact on the beneficiaries but also on the donors, i.e., the institution as a whole.  Here, our Lord’s saying “whatever you do unto the least, you do unto me” will become very real, concrete and perceptible.

 

To read the entire article, click  Subscribe


Fr Alex Gnanapragasam SJ

read more
Finance

Income Tax: What About Tax-Exempt Trusts?

no thumb

This article explains the special situation of charitable entities with the “12A” tag. What is this exemption? What are its requirements?

As charitable entities with 12A, all our societies, trusts and companies enjoy the exemption from income tax.  However, this exemption is available only on the fulfilment of certain requirements as mentioned here:

Requirements for income tax exemption:

Here are the basic requirements to make a trust eligible for exemption from income tax.

The trust:

(1) should have been registered under 12A;

(2) should have all its income coming from the property owned by the trust or from donations raised by the trust;

(3) should have spent in India at least 85% of its annual income on the objects of the trust;

(4) keep its services open to all people, irrespective of caste, creed, religion, etc.;

(5) should have got its accounts audited;

(6) should have filed its income tax returns in time (by 30th September);

(7) should comply with section 11(2) in case of accumulation (Remember that the purpose for which accumulation is done has to be submitted and it cannot be changed later and no donation can be given out of the accumulated amount);

(8) should have invested all its funds as per section 11(5) [(a) Investment in Government Saving Certificates, (b) Deposits with Post Offices Saving Banks, (c) Deposits with scheduled banks or Co-operative Banks, (d) Investments in units of the Unit Trust of India, (e) Investments in Central or State Government Securities & others, (f) Investments in units issued under any scheme of mutual fund referred to in sec 10 (23D);

(9) should not have allowed the benefits of the trusts activities to any of its members directly or indirectly, and

(10) should not have more than 20% of its annual income from its business-like activities.

Recent changes in the income tax:

Here are some of the serious recent changes which will affect the trusts with 12A and which have come in to effect:

(1) No cash transaction beyond Rs 10,000 is allowed.

(2) Corpus donations from trust to trust are banned. Any amount donated by one trust to another as corpus cannot be claimed as application of its income.  This means: We cannot claim that amount as part of the 85% required to be utilized.  Still, if a trust wants, it can give a corpus donation to another trust from its own funds or corpus, without claiming any utilization for that amount.

(3) No 80G benefit  can be claimed by the donor for a cash donation of more than Rs 2000 to a charitable trust.  This means that for any amount beyond Rs 2000, only donations through bank transactions can be allowed this benefit.

(4) If TDS not deducted, 30% of the bill (30% of the amount of expenditure on which TDS is not deducted) will be disallowed u/s 40(a)(i).

(5) Every trust should apply for Tax deduction Account Number (TAN) within one month from the end of the month in which tax is deducted. A trust having various branches and maintaining individual accounting should obtain a separate TAN other than that of the main trust.  Not having a TAN will attract a penalty of Rs 10,000/-

(6) Failure to file income tax returns before 30th September will attract a fine or other penalties, including withdrawal of 12A.

(7) As per section 115BBC, anonymous donations shall be taxed at 30%, if it exceeds 5% of the total donations received, or Rs 1 lakh, whichever is higher.  However, this clause is not applicable to religious trusts.

(8) Any trust with the object of advancement of general public utility and having business activities that are incidental to the attainment of the objectives of the trust should maintain separate books of account related to such business and from AY 2016-17 onwards, the benefit of tax exemption may be lost if such income exceeds 20% of the total receipts (earlier it was Rs 2,50,000).  However, this restriction does not apply to a trust having object other than the object of advancement of general public utility.

Cancellation of 12A: Registration of a trust under 12A may be withdrawn if: (a) the activities of the trust or institution are not  genuine; (b) the activities are not being carried out in accordance with the objects of the trust; (c) investment of the trust’s funds are in contravention of section 11(5); (d) fresh registration u/s 12A for modification in the objects of trusts within a period of 30 days from the date of such modifications of objects in prescribed form and manner.

Other regulations to be noted by charitable trusts:

Please note the following well-known practices:

(1) For any donation between trusts, both the donor and the recipient should be registered under 12A and there has to be similarity of objects in both the trusts.

(2) There should be no mutual donations between the donor and recipient trusts.

(3) All FC regulations are to be followed.

(4) TDS has to be deducted wherever applicable and returns of the same have to be filed as per requirements

(5) GST registration has be done and its norms have to be followed, wherever applicable

(6) All donations should be accompanied with a donation letter, in which the name, address and pan number of the donor is mentioned.

(7) No cash donations of more than Rs 10,000 may be received by a trust.

(8) Any corpus donation should be accompanied with a corpus donation letter, in which the word “corpus” has to be mentioned by the donor.

(9) All funds have to be utilized for the purpose for which they were generated.  Attention has to be given that the object (purpose) of any donation cannot be changed without the explicit written consent of the donor.

(10) It is also important that we observe everything related to legal matters such as the filing the required documents regularly before the Registrar/Charity Commissioner and all applicable taxes are paid to the appropriate legal bodies.

Some Tips:

Besides the required regulations mentioned above, it is important that we pay attention to the following:

(1) We must use secular terms in our books of accounts and annual returns, because it is important that the income tax officials are able to understand our terms.

(2) All our charitable activities have to be highlighted in the returns so that the income tax officials can easily take note of them and recognize the fact that we are charitable organizations.

(3) Sufficient care must be taken for any big donations with regard to getting the required request letter or project, verifying if the objects of the donor and recipient are similar and if the recipient trust also has 12A, passing the necessary resolution by the donor trust in its board, etc.

(4) The trust should not get into any activity which is not in line with its objects as given in its constitution.

(5) All major decisions should be taken following the procedures, preceded by the required resolutions from the board (decisions such as buying or selling properties, starting or closing down something, making a new policy decision, any expense involving a big amount of money, major administrative acts like construction, legal action on employees, etc.).

(6) FC funds, FC bank accounts and their accounts have to be kept separately and not mixed up with the local funds.

(7) It is better to keep the business account separately.

(8) Similarly attention may be given that we keep the TDS records, IT returns, FC returns, GST returns, PF and PT records in their respective files

(9) We should periodically monitor the expenses against the income to ensure 85% utilization by the end of the financial year.

As we know from experience, it is a great blessing to have 12A. We have to take all steps necessary to preserve it, for, if we do not have or lose the 12A exemption, we will end up paying income tax like any business entity on all the income of the trust.  That would be a huge loss, indeed.

 

To read the entire article, click  Subscribe


read more
Finance

BALANCE SHEETS OF CHARITABLE TRUSTS

Sep 05

What is specific to the balance sheet of a charitable trust with 12A?

In the previous issue we discussed the different kinds of financial statements and the various components of the balance sheet.  Now let’s see what is specific to a charitable trust with 12A.

A business company exists to make profit, but a charitable trust exists for charitable activities. Hence, what we call as “Profit and Loss Account” in the balance sheet of a business company, we call it “Income and Expenditure Account” in a charitable trust. What we call as “Profit” and “Loss” there, we call it “Surplus” or “Deficit” here. Thus, it is clear that charity, not profit,  is the focus of a charitable trust.  The balance sheet of a charitable trust is to be studied from this point of view.

What to Look For

What should we look for in such a balance sheet?

  1. Find out the current year’s surplus or deficit. This can be found at the end of the Income and Expenditure Account as “excess of income over expenditure” or “excess of expenditure over income.”  The former is surplus and the latter, deficit.  Let’s remember that this is the surplus or deficit for the current year alone, after taking into consideration the annual income and expenditure. But what about the past years?  Hence, surplus or deficit of the current year alone does not mean much.
  1. Find out the accumulated or net surplus or deficit until the present. The figure shown at the end of the Balance Sheet as “Income and Expenditure Account” is the accumulated or net surplus or deficit until the present.  This is the net of the balances carried forward over the years from the start of the balance sheet of the trust.  If the figure appears on the liabilities side, it is net surplus; if it appears on the assets side, it is net deficit. A net deficit here should open our eyes to examine the past years and learn the necessary lessons.
  1. Find out the rate of interest on the investments of the trust. To get this data, we have to find out the total interest income of the trust for the year. This can be found on the “Income and Expenditure Account” page.  Then let us turn to the “Balance Sheet” and find out the total volume of the investments under the “Assets” side. Now calculate the rate of interest using the formula “interest/total investments*100.”  If the result is at par with or better than the prevailing bank interest, then it is good. If less, then we have to understand that something has gone wrong somewhere.   A lesser rate of interest would mean that we have large funds lying in the savings account, or one or more matured fixed deposits are not renewed or the interest cheques have not been received or what was received has not been deposited in the bank, etc. Thus we try to spot the mistakes and take corrective measures.
  1. Check the total volume of the funds of the trust. Here we have to compare the present volume of the funds with that of the past and see if the total volume has increased or decreased. If it has decreased, why? While doing this, sufficient focus has to be given to check the volume of the corpus fund too. The corpus fund is the backbone of a trust and hence it is strongly recommended that every trust has its own corpus. Having sufficient corpus ensures the longevity of the trust and its activities. It is worth recalling here that all corpus donations (e.g., the endowment fund)  form part of the capital of the trust and they are fully tax exempt too!
  1. Are the investments well diversified? The next point one has to consider is if the funds of the trust are spread out reasonably well. It is common sense that we do not invest the whole amount of money in the same bank or company or bond or mutual fund, lest we lose the entire capital due to some misfortune of the bank or company.
  1. How is the cash flow of the trust? It is possible that a trust has a large volume of funds, but the whole lot is locked up in the fixed deposits or other illiquid investments. Once again, it is common sense that knowing the on-going needs of the trust, we have to set aside sufficient money in the savings account. But care is to be taken that we do not park more than what is needed in the savings account as it would lead to loss of a sizeable amount of interest.
  1. Are the loans to be repaid and the recoverable loan within reasonable limits? Here we have to see if the loans to be repaid, which can be found under the liability side of the balance sheet and the loans to be recovered, which can be found under the asset side of the balance sheet, are within reasonable limits. A trust cannot overburden itself with a loan beyond its repaying capacity or with too many loans given out to its employees.  Since going overboard on either of these will affect the activities of the trust, we have to monitor both these elements regularly.
  1. Proper attention to the above factors will mean that there is some financial planning in the trust. But is that all? The most important factor is to monitor regularly the obligation of the trust under section 11(2) of the income tax act, which stipulates that at least a total of 85% of the annual  income has to be utilized for the objectives of the trust. It is possible that in some years there is a shortfall to this target.  The shortfall can be due to factors such as a big donation is received towards the end of the year or  the trust got a large income in during the year or expenses are controlled and funds are saved for the purpose of a new building or property. Whatever be the reason, the income tax act gives a special provision for charitable trusts.  It gives a provision to set aside such excess or shortfall of the 85% to be used within the next five years. This is done with the resolution of the Body of Trustees (Board or Governing Body), giving the particular purpose(s) for which the funds are accumulated.

Attention may be needed here to see that no donation can be given out of the funds accumulated under section 11(2).   The beauty here is that with such an accumulation done, it is deemed that the trust has fulfilled its obligation of having to spend 85% of its annual income!   Here it is also to be noted that when this shortfall which is set aside under section 11(2) is utilized within the next five years, the trust cannot claim utilization again!

 

To read the entire article, click  Subscribe


read more
Finance

Financial Statements

AUGUST 3

There are three kinds of financial statements: 1) Income and Expenditure Account, 2) Receipt and Payment Account and 3) Balance Sheet proper.  All the three put together make up the audited statement of accounts called the “Balance Sheet.”

  1. Income and Expenditure Account:

We earn for our living and spend for our needs.  This is what money is meant for.  In the process, the money that comes in is known as “income” and the money that goes out, “expense.”

Income and expenses are to do  with the revenue items only and not capital.  Revenue items are those that deal with the daily operations and have  only a short term effect, whereas capital items are those that deal with upgrading or acquiring fixed assets that will have lasting effect on the life of the organization. The total of the income and the total of the expenses will affect the net result, ending up with surplus or deficit.  Salary received, rent received, fees received, interest received, etc., are examples of revenue income, while salary paid, rent paid, fees paid, travel expense, telephone expense, etc. are examples of revenue expenditure.

The Income and Expenditure account gives the total of all income received and expenses incurred during the term of the whole financial year (like a running video from the beginning to the end of the year), listed according to the account heads…

 

To read the entire article, click  Subscribe


read more
Finance

BUDGET

JULY 05

The word “budget” often creates an unpleasant feeling, especially in religious circles.  Why so?  Because it is understood in a negative sense—as an external control over us. This is totally wrong. We need to understand it properly.

Two Kinds of Budget

A budget can be of two kinds—an activity-oriented budget and a goal-oriented budget. Many institutions make an activity-oriented budget. It is nothing but a budget for the normal running of the institution, taking into account the salaries, maintenance, office cost, etc. So, normally people prepare a budget by adding 5 or 10% to the current expenses. Some of them do not even consider the income side.  Any budget has to start with the income. Based on the resources available on hand, a budget is made for various expenses. This is the minimum one can do. In this sense, a budget can be understood as a plan to allocate the available resources for all the expenses involved in the normal running of the institution. There is no place for any financial planning at all here.

The other kind, which I am trying to deal with here, is the goal-oriented budget. All of us have our goals in life, be it in the area of our family life, profession, business, sports or even in our personal life. Experience shows us that our goals become the purpose of our life. Similarly, in the area of finance, too. We have many financial goals, such as, saving money to buy a motor vehicle or a new house.  These financial goals become the catalyst for our financial planning. If the goals are clearly spelt out, then the budget becomes a good means to achieve these goals. Thus, a budget becomes meaningful only in the context of a financial goal. There can be no budget without a financial goal—and vice versa.

Goals must be “SMART”

Any financial goal has to be “SMART”—which is an acronym for “specific, measurable, achievable, realistic and time-bound.” It is not enough to have a goal, but it should have all the above five elements. If our goal is vague, then it will only remain a dream. For an institution, it is not enough to say, “We want to increase our savings.” We have to clearly spell it out as: “We want to save twenty lakhs…

 

To read the entire article, click  Subscribe


\

read more
Finance

Financial Accountability

JUNE 18

Personal Accountability

Accountability comes in when we work for someone else or when something is entrusted to us.  In our religious context, all priests and religious are working for the Church, through our dioceses or religious congregations.  In secular terms, we work for a registered charitable trust or society.  Thus, in both cases, we are working for someone else. Whatever we administer, we administer it on behalf of the Church and the registered trust or society.   This calls for accountability for whatever we do or/and spend, either on ourselves or on the apostolic works. In our religious context, we are accountable to our superiors; in secular terms, we are accountable to the Trust/Income Tax official, who has allowed us the “income tax exemption” status.  Therefore, according to Canon 1284 §1,  all administrators are to “perform their duties with the diligence of a good householder.”

Usually we take a sum of money as advance, from the Minister/Treasurer, for our expenditure.  Going by the understanding spelt out above, it is only natural that we are accountable for it.  This would mean submitting the financial account for the sum of money we have received and spent, whether on personal needs or on the needs of the apostolic works.  It does not stop there.  We are also accountable for the amount of money we receive personally as a gift, donation or remuneration. Thus, it is clear that we are held accountable for the sum of money received for our use from our friends and relatives, the sum of money we received as remuneration for our services, as well as the amount we take from the Minister/Treasurer for our needs or the needs of the apostolic works.

Some of us still do not know how to prepare the accounts.   Normally it is done as shown below:

                                                                Date: __________
Account for personal expenses:
Particulars Expenditure (Rs) Income (Rs)
Amount received from the Minister/Treasurer 5000
Received as remuneration/gift 500
Travel with food and auto/taxi fare 2250
Clothes 850
Medicine 1200
Stationery 300
Toiletries 450
Total Expenditure 5050  
Balance returned 450
Grand Total 5500 5500
____________
Signature

The account shown here is the master account for personal expenses, prepared and signed, with date, by the person concerned.   Similarly, if the account is for an apostolic purpose, it is mentioned on the top as “school office account,” “staff welfare programme account,” “farm account,” etc.   Below this master account, all supporting bills and vouchers are grouped and attached in the same order as given in the master account so that auditing becomes easier.

From the income tax point of view, it is necessary that we submit the original (pacca) tax paid bills, as much as possible, at least for amounts exceeding Rs 300.  It is always preferable that we pay a little extra and get a tax paid bill than buying from the roadside without any bill, just because it is cheaper.   For travel, we are expected to submit the train or bus ticket and, if it is a flight ticket, the boarding pass as well, all in original. For food during journey and auto or taxi fare, we can write a separate voucher, sign with date and attach the same.  It is much better that we submit our account with all supports immediately after we have spent the money, so that we/our trust does not get in to unnecessary problems with the income tax officials later. As registered public charitable trusts, we have to be accountable for all the income and expenditure we incur on ourselves or on the apostolic works.

Accountability of a Society/Trust

In the case of a Society or Trust, too, we are held accountable. Normally, the Treasurer of the Society or Trust, on behalf of the Governing Body, presents the financial report of the Society to the members of the General Body.  This is how it has to be.  But in many Trusts or Societies, this practice is either not there or even if it is there, it is done as a routine procedure without much seriousness.   As members of the Governing Body, each one has to realize that they are all entrusted with the responsibility of running the Society/Trust and thus take his/her role seriously and be involved in the process of financial accountability.

Normally, the financial report contains the following information: the annual income and expenditure, liabilities and recoverables, new assets purchased, extra-ordinary income (e.g., donations), extraordinary expenditure (e.g., major renovation or construction works), volume of increase in the funds of the Society or Trust, investment income earned and the final surplus or deficit data.  On presenting these data, the members are free to ask for any clarification or give suggestions.

Accountability of an Institution

When an institution raises funds for a particular purpose, we are accountable to all those who contributed for the cause. Normally a thanksgiving function is organized in their honour and their contributions are acknowledged in public.  A report of the activity and its financial report are presented to them in common or are sent to them all by post.  Here too it is clearly shown whether the whole amount is utilized or there is any balance left.

Accountability in a Parish

Accountability plays a vital role in a parish too.  The Parish Priest, together with his Parish Council, is accountable to the parishioners. Be it the Sunday collections or any other collections, the parishioners are informed of all the total collections, expenses incurred and the balance in the account.

Project Accountability

Project Liability is another area in which we all have to be accountable.  Here we are accountable to the donor agency. The accounts are given in the way the agency desires. Some may ask for the financial and activity report together, others may ask for all accounts and at least the copy of all bills and supports. A few others may ask for the audit report or utilization certificate from a chartered accountant.  It is better that we present the financial report against the budget we had proposed to the donor when we submitted the project, so that they can easily follow the report against the budget they had approved.  The future support of the donors depends on the way we are accountable to them now.

The next issue will deal with the budget.


To subscribe to the magazine     Contact Us

read more
Finance

Financial Procedures and Banking

April 15

Many of us, especially priests and religious, mix up with the concept of bill and receipt, often using the wrong term.  Simply put, when we make a payment, we pay against a bill. After making the payment, we get a receipt for the payment we made.  But there is a need to explain this further.

Bill, Invoice and Receipt

When we buy something or avail of a service, we get either a “bill” (also called cash memo) or an “invoice.”   A “bill” is a written official document which shows the amount paid for the items bought or services availed, whereas an “invoice” is a written official document with tax (earlier sales/service  tax, now GST) that shows the amount due for the items bought or services availed.   Normally “bill” is for a small amount and we pay it by cash and “invoice” is a big amount and we pay it by cheque.  After introduction of GST, “bill” has become “bill of supply.”  “Bill of supply” is issued when the items bought or services availed are GST-exempt or, if the shop keeper cannot collect GST because he is under the composition scheme of GST.  “Invoice” is an official GST-paid document authenticating the goods bought or services availed.  It is to be noted that both the “bill of supply” as well as the “invoice” must have the GST identification number (GSTIN) clearly printed on it.  Other details, like the name and address of the supplier,  name and address of the purchaser, date,  serial number of the bill or invoice,  items purchased or services availed, their quantity, amount paid in figure, as well as words and the issuer’s signature, are found on the bill or invoice.

When we pay money against a payment due or pay as donation, we receive a “receipt” from the payee.  Thus, “receipt” is an official document authenticating any payment made, by cash or cheque or demand draft or NEFT.  The receipt will have the payee’s 80G number (tax exemption for the donor), if it has one.   Details, such as the name and address of the receiver/payee, date, serial number, payer’s name, amount in figure as well as words, purpose for which the amount is paid, the mode of payment (cash or cheque/DD—with the cheque/DD number—or NEFT),  and the signature of the receiver are found on the receipt.

Thus, the bill of supply or invoice and the receipt become important documents for us in our accounts.  When we, as priests and religious, submit accounts for the money spent by us, we attach in our accounts these important documents as proof of having spent the money on those items.

Cheque, DD, NEFT, RTGS

Any payment or receipt can be done either by cash or through a bank.  Bank transaction can be made by cheque or demand draft (DD) or national electronic funds transfer (NEFT) or real time gross settlement (RTGS).  The latter two can be done directly online by oneself through net banking or through the bank.  RTGS is done instantly and it involves more than Rupees two lakhs (Rs 2,00,000); NEFT is done in batches, and it is less than Rupees two lakhs.  Nowadays, through mobile banking, we also have the facility for immediate payment services (IMPS), where funds are transferred electronically.  Earlier, banks were using an eleven-digit number called the magnetic ink character recognition (MICR), but now they use the eleven digit alpha-numeric code called the Indian financial system code (IFSC) for electronic transfers.  The former is printed at the bottom of the cheque and the latter on the top.  If receipt or payment is done at the international level, then we use the alpha-numeric SWIFT code, which is used to identify the bank and the branch.

Cheque payments can be made in two ways: by bearer cheque or by crossed cheque. A bearer cheque is as good as cash. Hence it is for amounts less than Rupees ten thousand and handled with extra care.  A crossed cheque is for more than Rupees ten thousand and it can be encashed only by having the amount credited to the payee’s bank account.  The government insists on the latter so that transactions can be tracked easily.  Any cheque is valid for three months only.  Hence, if not encashed within three months from the date of issue, it becomes invalid and a fresh cheque is required once the old cheque becomes outdated.

There is a difference between a cheque and a demand draft.  A cheque is issued by the account holder. The payee branch may or may not honour it for different reasons, such as insufficient balance in the drawer’s bank account, variation in the signature(s), cheque outdated or overwritten, etc.  A demand draft (DD) or banker’s cheque is  issued by the drawer’s bank, which already realizes the amount for which the DD is issued, either by cash or from the account holder and hence carries a bank guarantee for the amount mentioned in the DD.  It is as good as cash.  The only difference is that the payee can collect the amount of the DD only after getting it credited to his bank account. Thus a DD becomes a much safer way of transaction.

These days all banks offer the facility of online banking/net banking/mobile banking. This is also a safe way of doing transactions, provided the password and transaction passwords are kept a closely guarded secret by the account holder.

 

Bank Accounts

Any bank account can be operated either “singly” or “jointly” by two or three or “either or,” depending on the choice of the account holder(s).  It is highly recommended that all personal bank accounts have a nominee registered with the bank and all bank accounts of the registered charitable trusts/societies have two or three authorized signatories, operating the account singly or jointly.

We have many banks across the country. They can be broadly divided into public sector undertaking (PSU) banks, private (pvt Ltd) banks and co-operative banks.  Unlike the private banks, PSU banks have the guarantee of the central government and hence they are much safer and preferred by many.  Co-operative banks are for the co-operative societies and not the subject of our discussion here.

Any individual adult with proper identity proof, address proof and pan number can open a bank account in his or her name.  So also any legal entity, like a registered charitable trust or society with proper identity proof (trust deed or memorandum) and address proof, such as telephone bill or electricity bill, PAN number, a resolution to open an account and the list of authorized signatories with their specimen signatures, can open a bank account in the name of the legal entity.  These days, the bank asks for the identity proof, address proof (“Aadhar”) and PAN of the authorized signatories, too, to operate the bank account of the legal entity.  PAN (permanent account number) is obtained from the income tax department on application in the proper format. Once the account is opened, it is important to keep it active and operational with transactions from time to time, failing which the account will be deactivated.  Bank transactions are always traceable, while cash transactions are not. Hence, the present government stresses the need to have financial transactions through a bank instead of by cash.

The next issue will deal with “financial accountability.”


To subscribe to the magazine     Contact Us

read more
Finance

FINANCE-8

17

Procedures to take disciplinary action

I am of the opinion that a good administrator will not give an opportunity for a disciplinary action to be taken against his employee. I don’t mean he will ignore the unacceptable behaviour of his employee. What I mean is he will make sure that corrective measures are taken at the appropriate time before the problem can escalate. Not only that; he will also create an ambience for the employee to take the necessary correction and fall in line with the rest. Thus, the administrator takes recourse to disciplinary action only as a last resort.

Any disciplinary action is taken based on the service conditions, which enumerate what will constitute indiscipline. Hence, every institution has to communicate the service conditions (discipline and other matters) to all its employees, in writing, with a copy received from them.  This is done so that the employees know what they can and should do and what they cannot and should not do.  A periodic feedback or performance appraisal, and in writing, if something is serious, is given to each employee at least once in a year and a copy of the same is kept in the files of the respective employees.

Minor and Major Misconduct:

Any breach of the normal, expected way of behavior of an employee is known as indiscipline or misconduct. An indisciplinary behavior or misconduct is of two types: minor and major.  Minor offences are those that may not be harmful to anyone, but if uncorrected may become serious.  Major offences are serious in nature.  They are those that are harmful to the authority, fellow workers or to the institution or its smooth functioning.  Normally the service conditions mention what is minor and what is major.

Actions such as reporting late for work, leave without permission, negligence, failure to be present when needed, carelessness, gossip on duty, dozing off on duty, quarrel with fellow workers, dishonesty or cheating in small matters, stealing small things, minor violation of the rules, spreading rumours, etc., are acts of minor indiscipline. The employer may have to communicate a verbal warning and give an oral  counselling, if need be. A written warning is given if the same mistake is done the second time (memo).   The employer may proceed with the disciplinary action if the same mistake is done the third time.

But actions such as dereliction of duty, willful insubordination or disobedience  to the authorities or their directives, false allegation against the authorities or fellow workers that brings disrepute to the concerned person, coming drunk to duty, unauthorized absence from duty for more than a week at a stretch, causing willful harm to fellow workers, authorities or properties of the employer, indecent behavior and sexual abuse, extortion of money or bribery or corruption, theft, fraud or dishonesty in a big way, repeated willful violation of the rules that affect the smooth functioning of the institution, inciting the fellow workers, refusal to accept a charge sheet or other communication served, etc., are acts of major indiscipline.

Awarding punishment for acts of minor misconduct: 

Where allegations of the misconduct against the employee are of a minor nature, he is called for clarification. The administrator or his authorized representative, after hearing the concerned employee, will decide if the employee deserves any punishment and if so pass orders accordingly. It is not necessary to hold enquiry in such cases. Penalties for minor misconduct can be warning, fine, passing adverse entry in service records, recovery of loss of goods, etc.

Disciplinary action for a major misconduct:

Before taking any disciplinary action, especially for major offences,  against an employee, the administrator has to make sure that he has a full understanding of the issue with accurate and impartial data supporting the allegation.  If the issue is related to alleged wrongdoing in the workplace, the administrator has a responsibility to conduct a prompt, thorough, and impartial investigation into the allegations. No action can be taken based on biased perceptions (prejudices), allegations or rumors. The disciplinary action procedure involves the following steps:

a) Preliminary Investigation: First of all, a preliminary inquiry should be held to find out whether a prima facie case of misconduct exists. Information may be collected from the employee himself, fellow-employees, witnesses, the aggrieved party, etc.

b) Issue of a Charge-sheet: Once the prima facie case of misconduct is established, a charge sheet is issued to the employee. A charge sheet is a notice of the charges levelled against the employee. It gives the employee an opportunity to explain his conduct. Therefore, a charge sheet is generally known as a show cause notice, given in writing and the employee too will give an explanation in writing. In the charge sheet, each charge should be clearly specified. There should be a separate charge for each allegation and charge should not relate to any matter which has already been decided upon.

c) Suspension Pending Enquiry: Depending on the gravity of charges, an employee may be suspended along with serving him the charge sheet. The various circumstances which may warrant suspension of an individual are:

When disciplinary proceeding is pending or contemplated, when engaged in the activities prejudicial to the interest or security of the institution,  where a case in respect of any criminal offence is under investigation, inquiry or trial, where continuance in office will prejudice investigation/ inquiry/trial, when the presence of the employee in office is likely to affect discipline,  when his continuous presence in office is against the wider interest of the institution, where a prima face case has been established as a result of criminal or departmental proceedings leading to the conviction, revival, dismissal, etc.

According to the Industrial Employment (Standing Orders) Act, 1946, the suspended worker is to be paid subsistence allowance equal to one-half of his wages for the first ninety days of suspension and three-fourths of the wages for the remaining period of suspensions, if the delay in the completion of disciplinary proceedings is not due to the worker’s own conduct.

d) Notice of Enquiry: In case the worker admits the charge, in his reply to the charge sheet, without any qualification, the employer can go ahead in awarding punishment without further inquiry. But if the worker does not admit the charge and the charge merits major penalty, the employer must hold an enquiry to investigate into the charges. Proper and sufficient advance notice should be given to the employee indicating the date, time and venue of the enquiry so that the worker may prepare his case.

e) Conduct of Enquiry: The enquiry should be conducted by an impartial and responsible officer. He should proceed in a proper manner and examine witnesses. Fair opportunity should be given to the worker to cross-examine the management witnesses.

f) Recording the Findings: On the conclusion of the enquiry, the enquiry officer must record his findings and the reasons thereof.Normally, he refrains from recommending punishment and leaves it to the decision of the appropriate authority.

g) Awarding Punishment: The management should decide the punishment purely on the basis of findings of the enquiry, past record of the worker and gravity of the misconduct.

h) Communicating Punishment: The punishment awarded to the worker should be communicated to him in written at the earliest available opportunity. The letter of communication should contain reference to the charge sheet, the enquiry and the findings. The date from which the punishment is to be effective should also be mentioned.The following penalties may be imposed if the employee is found guilty of major misconduct: serious warning or censure (severe disapproval of the act), withholding increment, fine, stopping promotion, demotion, suspension without pay, discharge, dismissal, vacation of staff quarter, etc., but all given in writing and the received copy to be kept in the concerned employee’s file.

Thus, in summary, we practice Jesus’ words – “Judge not and you will not be judged.”  However serious the case may be, we have to give sufficient opportunity for the employee to be heard and to defend himself.  Here we follow the principle that one is innocent until proved guilty.

In the next issue we shall discuss “the qualities needed in an administrator”.


To subscribe to the magazine     Contact Us

read more
Finance

HOW TO DEAL WITH EMPLOYEES

13

In a number of our institutions we have quite many employees working as daily wage labourers or temporary or contract workers for years together, sometimes even for decades.????? Such an inhuman and unjust practice is not only against the normal human desire for an upward mobility in life, but also against God’s plan of self-actualization of each human person. There can be no indefinite period of probation or trial period in the life of an employee. If a person is found fit, he or she is employed on a permanent basis or at the most one more chance of extension of the probation can be given, before the end of which term, the employer has to decide one way or the other about the concerned employee.   Hence, we can say that for a work of a permanent nature, we cannot have a temporary or contract employee.  This is the view taken by the labour court too.

Human dignity: Employees, in several cases, are USED AS A COMMODITY by the employers for their personal benefit or for the benefit of their organization.  This attitude is evident in the employer’s statement that the employees are paid for their work.  This is nothing but ‘use and throw’ attitude.  What matters to the employer is the work and nothing more. The employer is not concerned about the personhood of the employee.

There is something much more important than payment here. This is where the golden rule of Jesus comes.  Do unto others what you want others do unto you (Mt 7:12).   I am not sure if this golden rule is applicable anywhere else in a greater way than in our dealing with our employees.  Employees have a human value and not a utility value.  They too have been created in the image of God, like anyone else. They too are co-creators like others.  Hence, they work with us as our collaborators, not as our servants/slaves, in the traditional sense.  Every person has his/her human dignity and every labour gets dignified because of the human person who does it.

Indispensability of the employees: If success of an organization depends on the quality of its employees, then there is no need to mention their indispensability.  We, priests and religious, may come and go, but the employees carry on and give the necessary link with the past. Every head of the institution would have realized by now that whether he/she is there or not, the usual work continues because of the dedication and experience of the old hands.   Hence, the need to take them into confidence before making any change, rather than straightaway bulldozing through them with our own ideas, however great they may be.

Some guiding principles:

  1. Find God in your employees and treat them with respect.
  2. Treat all employees equally without any favouritism or partiality to anyone.
  3. Give a hearing to them and their ideas and be open to learn from them.
  4. Be available to them if they want to meet you.
  5. Treat them as you would like to be treated by others.
  6. Treat them as you would like you or your own family member treated (had you/he/she been in the place of the particular employee).
  7. Accompany them in their works and set an example to them instead of lording over them.
  8. Trust them; don’t go after them or spy on them.
  9. Ignore, at times, their mistakes (but let them know that you know them) and forgive them.
  10. Meet them as individuals and as a group.
  11. Include them in the planning of the works relevant to them.
  12. Listen to them and don’t hesitate to say “sorry” to them when you make a mistake
  13. Give them periodic appraisal/feedback on their performance against your expectations of them.
  14. Praise them in public and correct in private.
  15. Treat them as adults and train them to be responsible for their works.
  16. Be kind to them, yet firm, but not a terror, for by being a terror, you simply reveal your own insecurity and need to dominate over others.
  17. Love them, be concerned about them and their wellbeing by home visits, friendly queries about their children’s studies, spouse’s health, etc.
  18. Pray for them and their families, especially the poor, sick and suffering

Employees’ performance: Reflection of the administration

The quality of the employees and their work depends very much on the type of administrator you are.  If you are good to them, they will repay you hundredfold. If you are bad to them or lose their goodwill, then they will show their reaction to you in their work.  Many a time, the quality of their performance depends on how you, as in-charge, deal with them.  We can simply say that if the employees are good then the administration is good, and if they are not good, then the administration too is not good.  Thus, it can be said that the employees’ performance reflects the face of the administration.

How to deal with difficult employees:

Wherever we go, difficult people are bound to be there.  Much depends on the employer’s ability to deal with them and get the work done from them.  Some employers may not do anything to correct the employees for the fear of losing their popularity or of getting into problematic situations; some may be too lenient and some others too strict; some may be submissive and some others dominating; some may easily give in to pressure and some others may be  uncompromising; some too kind and some others too cruel.

Difficult employees can be of various types: The unmotivated, the unproductive, the under-performing, the non-performing, the dishonest, the quarrelsome, the aggressive, the ‘kamchor’ (shirker/dodger/sponger), etc.

We need to adopt different strategies: Giving a time-bound job and asking them to report after completing that work; putting them under your nose so that they are supervised properly;  breaking the company of fellow workers if one is a gossiper; trying to understand them and their problems from their point of view;  meeting them for a personal chat;  trusting them to win over their confidence; isolating them in their work place; warning them when it is called for; ignoring them so that they feel left out and join the main stream; avoiding them, which itself may become a punishment for them; exposing them at the appropriate time and in an appropriate manner; circumventing them, which will show that you are interested in them and their work; being kind to them; confronting and challenging them when needed; putting a peer pressure on them, offering them a specific responsibility that can bring out the best in them, rehabilitating them depending on their current status; encouraging them when they are downcast, etc. There is no uniform way of dealing with everyone. One mould will not suit all. We have to try different methods with different people. Identifying the kind of problem an employee has and choosing the appropriate means to tackle the issue is a skill the employer has to learn, just as a doctor does in diagnosing the illness and prescribing the right medicine.

The important factor is that we should not react emotionally to the difficult situations by getting unnecessarily angry or upset  with the employees, but respond to them as mature, responsible and caring adults.  The key lies in our ability not to get provoked by externals, but to deal with the difficult situations calmly, firmly and yet with a certain amount of flexibility as the situation may warrant. This calls for a balanced approach, which we have to learn as we learn many other things in life. Above all, we have to develop a positive attitude towards difficult people and situations.  We have to be thankful for the difficult employees, for they teach us to grow as a real human being!  Difficult situations such as these become an opportunity for us to prove our mettle!

In the next issue, we shall discuss the procedures to be followed in taking a disciplinary action.


To subscribe to the magazine     Contact Us

read more
Finance

Employees: Recruitment and Salary

07

Employees play a vital role in the life of an institution or trust.  Success or failure depends, to a large extent, on the quality of the employees.

Recruitment Procedure

Normally, the applicants for a job have to submit, along with the application,  also other relevant documents, such as qualification certificates, birth certificate, experience certificate, etc.  Then they are all interviewed on a given date by a board of selectors, after which a suitable candidate is selected.    Once selected, the employee receives an appointment letter, which shows clearly the job for which the person is selected (e.g., office secretary), the nature (temporary, probation, contract, etc.) and tenure of the appointment (e.g. probation for six months, after which, if found suitable, will be made permanent) and the salary (consolidated in the case of a contract employee and pay scale in the case of others) and Provident Fund (PF) he would be paid.   PF is applicable from the 1st day onwards, even on a probationary job.  Besides, the appointment letter also contains information regarding the duties and responsibilities (job description) as well as rights and privileges (terms and conditions such as duty hours, holidays, leave, etc.) the employee is eligible for.  Normally a person works for eight hours a day. If s/he is asked to work beyond that, s/ he is paid over time (OT). The employee gets at least one day weekly off, 10 days of casual leave, 11 days of medical leave and about 21-30 days earned leave (paid holiday) in a year.

Pay Scale and Calculation of Salary

Let’s take for example 3,000-300-4,500-500-7,000.  Here Rs 3,000 is the basic and Rs 300 is the annual increment.   Normally the dearness allowance (DA) is a fixed percentage of the basic and it is left to the discretion of the trust. For our understanding here, let’s take 50% as the DA, with an increase of 5% once in a year.  There can be other allowances like house rent allowance (HRA), conveyance allowance (CA), education allowance (EA), city compensatory allowance (CCA), medical allowance (MA), etc.  These allowances can be either a fixed percentage of the basic or a fixed sum for all. A fixed percentage will maintain the gap between the topline and bottom-line employees, whereas a fixed amount will narrow the gap between them.  Here for our understanding, let’s take a fixed amount of allowances for all classes of employees, i.e., HRA – Rs 2,000, Rs CA – Rs 2,000, EA – Rs 1,000, CCA – Rs 1,000 and MA – Rs 1,000 and DA is 50%.  Then, the salary will consist of Rs 3,000 basic, Rs 1,500 (50% of basic) DA, Rs 2,000 HRA, Rs 2,000 CA, Rs 1,000 EA, RS 1,000 CCA and Rs 1,000 MA, thus making a total of Rs 11,500.  This is known as gross salary.  After all the deductions, including the employee’s contribution for PF, the amount paid to the employee is the net salary.

PF or EPF and Gratuity  

Both PF and gratuity are considered future social security for the employee.  Hence, it is to be taken seriously.  PF is 12% of the salary as contribution from the employer as well as the employee. For PF and gratuity purpose, salary means the total of basic and DA only.  Thus, according to the above example, salary for PF calculation will be Rs 4,500 (3,000 basic + 1,500 DA). 12% of 4,500 is 540. Thus both the employer and employee will contribute Rs 540 each towards the PF of the employee.  If the salary for PF calculation (basic+DA) is Rs 15,000 and above, then the employer may stop his share of PF at Rs 1,800 (12% of 15,000) and the employee may continue paying 12% even beyond Rs 15,000.  If the employer has started paying more than Rs 1,800 per month as his share for the employee’s PF, then he cannot bring it back to Rs 1,800 per month.  However, for saving income tax under section 80C, a maximum of Rs 1,50,000 is the upper limit.  Withdrawal from PF before the completion of 5 continuous years in service will have income tax liability. An employee can avail advances (not loans) from one’s PF account for specific purposes, such as buying a house, repaying a housing loan, medical needs, education or marriage of children, etc.  EPF (Employee’s Provident Fund) enjoys the status of EEE (income tax exempt during contribution, when interest is earned and when withdrawal is done).

Any trust with over 20 employees has to register itself under the government EPF scheme and the 12% contribution from the employer and the employee is pooled together and managed by the  Employees’ Provident Fund Organization (EPFO) of the govt.  In such as case, 8.33% of the employer’s contribution goes for the employees’ pension scheme (EPS), which will be used for the future pension of the employee.

Gratuity is applicable to any trust having 10 or more employees. It is calculated from the 6th year of employment, including the probation period too.  It is calculated on the basis 15 days salary for every year completed in service.  If the basic and DA together is Rs 10,000 per month and the employee has completed 20 years at a stretch in service, then the formula is: 10000/26*15*20.  Gratuity amount up to Rs 10 lakhs is exempt from income tax.

Employees’ Savings 

Besides the mandatory EPF and gratuity (the latter may not be applicable in some cases), we should encourage our employees to do some regular savings for their future.  A scheme like a recurring deposit (RD) in a post office or bank or a systematic investment plan (SIP) in a mutual fund every month will go a long way in making a provision for their future needs. If possible, even a housing scheme can be provided for them, whereby an interest-free loan is given to the homeless employees, and they repay the loan in monthly instalments.

Just Wages

According to Canon Law (1286.2) we ought “to pay a just and decent wage to (our) employees so that they are able to provide fittingly for their own needs and those of their dependents.”  What is a “just and decent wage” for our situation? I am taking the example of a middle class family with 5 members (two parents, two children and one parent of the parents) living in a city.  The following may be their needs:  Food (for 5 persons @ Rs 50/day for 30 days) Rs 7,500, house rent Rs 3,000, travel to school/work place (for 2 persons @ Rs 40/day for 30 days) Rs 1200, medical needs (Rs 6,000 for the entire family for one year divided for 12 months) Rs 500, clothes (Rs 6,000 for the entire family for one year divided for 12 months) Rs 500, education (for 2 children @ Rs 300/child/month) Rs 600, study materials/uniform, etc. for 2 children @ Rs 100/child/month) Rs 200, electricity bill Rs 500, household needs (Rs 3,600 for the year to buy a cycle, fan, piece of furniture, etc., divided for 12 months) Rs 300, social needs for the family (birthday gift, wedding gift, etc.) 300/month, all put together making a total of Rs 14,600/month.

With this breakup in mind, I believe that anything less than this amount in a city would be an unjust wage.

Just Wages: Our Responsibility

We cannot argue or give a lower salary, saying, “Where do we get the money from?” or “By working here they are able to earn at least something,” “Even we do not get so much salary,”  “What if there are two earning members in the family?” or “What if they live in their own house?” In fact, for many of us, priests and religious, our expenses per head will be much more than this! Any unwanted justification of our unjust wages is sheer exploitation of the poverty of our employees. It is the unjust wages that lead to more and more debt, lack of education of the children, unhygienic living conditions, sickness, drinking, fights within the family, greater poverty and misery, etc., in our employees’ families. And we will be held responsible for their misery on the Last Judgement Day.

In the next article, we shall discuss the topic “How to deal with our employees.”


To subscribe to the magazine     Contact Us

read more