Assessment of an organization does not depend on finance alone. There are so many other factors involved. However, here I look at the subject mostly from the finance point-of-view to help us prepare a general “medical report” for an organization. Depending on the nature and gravity of the matter and its immediate or future consequences, we can forecast the financial non-sustainability of an organization as “critical,” “serious” or “cautionary” in nature, wherein “critical” would mean the “patient” is in ICU and hence needs immediate emergency attention, “serious” would mean the “patient” is serious and needs immediate attention and “cautionary” would mean the “patient” has to be attended to sooner or later.
A.CRITICAL
Here we study an organization from the statutory point-of-view. Laxity in any of the statutory or legal related points would mean the organization is critical, resulting in dangerous consequences, unless immediate attention is given to it on a priority basis and the issue is attended to. The financial sustainability or the very survival of the organization can be ascertained by asking the following finance related questions:
- Does the organization comply with all norms and statutory compliances related to income tax, FCRA, TDS, GST, PF, PT? Here it would mean following the norms of the IT-related provisions, such as the limit in cash transactions, accumulation u/s 11(2), filing the income tax returns, renewal of the 12A(B), 80G and FCRA, norms regarding TDS deductions and filing of returns, norms of FCRA and filing of returns, norms of GST and filing of returns where applicable, etc. It may be good to remember that any laxity in any of these statutory compliances will result in paying a heavy penalty or withdrawal of the tax exemption provisions. Thousands of organizations previously registered under FCRA have lost their registration due to sheer non-compliance of the statutory obligations.
- Is the organization paying its property taxes regularly, or are there pending bills? Not paying the required property tax is a serious matter. If not paid regularly, the dues with fine get accumulated. If, even after the “recovery notice” or “red notice,” the arrears are not paid, then the civic body could “seize” the property of the defaulter. The same is true of the utility bills like the electricity bill, which, if not paid on time, will result in termination of the electrical connection. Such a situation will certainly have a bad effect on the reputation of the organization.
- Is cashflow adequate to support operations? Some organizations are faced with a severe cash crunch so much they are not able to pay for their normal operations/activities, such as vendor payments, salaries, taxes, etc. Any sign of inability to pay for the expenses would mean that the organization is facing a serious financial crisis. Unless the expenses are kept under control (within the level of income), the organization may be heading towards bankruptcy.
- Are the funds going down gradually? Is the level of corpus coming down? A periodic check on the status of the existing funds is another parameter to check the financial sustainability of the organization. The gradual decrease in the level of the existing funds or the corpus is a sign that, unless checked, will result in a serious consequence, threatening the very existence of the organization.
Fr Alex G., SJ
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