Auditing - Audit of Educational Institutions

Maintenance of Accounts of Educational Institutions

A large number of educational institutions are registered under the India Society Registration Act, 1860. The purpose behind the formation of educational institutions is to spread education and not just earn profits. The following table lists out the sources for collection of amount and also the different types of expenses incurred by the educational institutions −

Main Source of Collection

Admission fees, tuition fees, examination fees, fines, etc.
Securities from students.
Donations from public
Grants from Government for building, prizes, maintenance, etc.

Types of Expenses / Payments

Salary, allowances and provident fund contribution for teaching and non-teaching staff.
Examination expenses
Stationery & printing expenses
Distribution of scholarships and stipends
Purchase and repair of furniture & fixture
Prizes
Expenses on sports and games
Festival and function expenses
Library books
Newspaper and magazines
Medical expenses
Audit fees and audit expenses
Electricity expenses
Telephone expenses
Laboratory running & maintenance
Laboratory equipment
Building Repair & maintenance

Preliminary Audit of Educational Institutions

Following points need to be considered by an Auditor while conducting audit of educational institutions −

It is to be confirmed whether the letter of his appointment (the Auditor’s) is in order.
The Auditor should obtain a list of books, documents, register and other records as maintained by the educational institutions.
He should examine the audit report of last year and should note down the observation and qualification, if any.
He should note down the important provisions regarding to accounts and audit from the Trust Deed, Charter of Regulations.
He should examine the Minutes of Meetings of the Board of Trustee or the Governing Body for important decisions regarding the sale or purchase of fixed assets, investments or delegation of finance power.
In case of colleges and university, the Grants Commission provides Grants to them subject to certain conditions. The Auditor should study all the conditions concerning grants.
The Auditor should examine the Code of State regarding grant-in-aid.
He should be aware of all the provisions and rules of related laws concerning books of account and audit.

Internal Control System

The Auditor should independently check the internal control system regarding authorization procedures, record maintenance, safeguarding of assets, rotation and division of staff duty, etc. Following are some of the important aspects that need to be considered by an Auditor to keep a check on the internal control system −

Whether internal control and internal check system is working, if yes, how effectively.
Is there is any system to physically verify the fixed assets, stores and consumables at regular interval.
An Auditor should verify the control system concerning proper authorization, obtaining quotations, proper maintenance of accounts and record regarding purchase of fixed assets, purchase of material, investment, etc.
Whether bank reconciliation statement is prepared at regular intervals and what kind of action is taken for uncleared cheque which were pending since long.
Whether waiver of fees is properly sanctioned by appropriate authorities.
The person who is collecting fees and the cashier should not be the same person.
Class wise fees receivable and the actual fees received reconcile or not.
Whether collected fees is deposited in bank on a daily basis.
Fees collection register should be maintained on a daily basis.
Whether approved list of supplier of sports material, stationery, lab items are readily available.
Whether control system for payment is adequate or not.
The system of letting out conference hall and class rooms, etc. for seminars and conventions.
Whether fees structure is properly authorized along with change in fee structure if any.

Audit of Assets and Liabilities

The following points need to be considered while conducting an audit of Assets and Liabilities −

Verification of Assets register should be done considering grants on purchase of assets, if any received from State Government/ University Grant Commission (UGC).
Verification of depreciation is very important; it should be according to useful life of assets or as per the Companies Act, whichever is applicable.
If educational institution is running under Indian Public Trust Act, it is must for an Auditor to check, where investments have been made, because as per the Indian Public Trust Act, investment can be made in specific securities only.
If donation is received in the form of investment, an Auditor has to check all related correspondence with the donor.
All the applicable requirements of law should be fulfilled for the purchase of investments and fixed assets.
An Auditor should read and note down the state code and provisions relating to the conditions and procedures of Grants. He should also verify the requirements of State/UGC which are to be fulfilled by educational institutions for receiving Grants and also for continuations of Grants.

Audit of Income of Educational Institutions

The following points need to be considered by an Auditor while conducting audit of the Income of Educational Institutions −

Fees and charges received on account of admission fees, tuition fees, sports fees, examination fees etc. should be verified based on the approved fees structure.
Verification of counterfoil copies of fees receipt with fees received register should be done.
Prescribed conditions by the State Government and the University Grants Commission should be verified whether fulfilled or not.
Cash book should be verified with counterfoil of receipt book and fees register.
Fees receivable and actual fees received should be reconciled.
Charges and fees received and receivable should be examined on account of hostel accommodation, mess, housekeeping and clothing, etc.
Cash book should be verified with the donation received register.
Donation received should be accounted for according to the nature of donation means careful distinction should be there for revenue nature donation and capital nature donations; the same procedure is to be followed for Grants received.
The purpose and utilization of grant should be same.
Investment register and cash book should be verified for income received on account of interest on investment and dividends, etc.

Audit of Expenses of Educational Institutions

The following points need to be considered by an Auditor while conducting audit of Expenses of Educational Institutions −

Electricity expenses, telephone expenses, water charges, stationery and printing, purchase of sports items should be properly verified with quotation, purchase bills, inward register and Bills received from service providers, etc. All purchases should be authorized by appropriate person.
In case where hostels purchase food items, provisions, clothing, etc. should be properly verified.
Verification of Tax Deducted at Source, Employee State Insurance and Provident Fund should be checked. It is also very important that all deducted amount should be deposited in appropriate Government accounts well within time without any default. These can be verified from relevant bank challans.
Payment made on account of salary should be verified from terms of appointment and increment policy. Auditor should verify the computation of salary and check whether all required deductions are made out of it or not like advance salary, loan installment, absence from duty, ESI (Employee State Insurance), PF (Provident Fund), etc. The Net Salary Payable amount will be verified from cash book and bank pass book for salary paid.
Terms and conditions, cash book, voucher and receipts should be the basis for the verification of scholarship paid.
Appropriate provision should be made on account of outstanding payments.

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