PUBLIC TRUST

Public trust is a trust which undertakes the charitable work in the way of assistance to the needy,
education facilities, medical relief, and any other work of the general public's benefit. The
motive of the public charitable trust is to serve the general public, and none of the private bodies
or organizations should be personally served. And also, it should benefit all people,
notwithstanding caste, creed, or religion. Public trusts are formed to help a larger number of
people, or are created with wider advantages in mind. The most prevalent public trusts are
charitable trusts, whose holdings are designed to aid religious bodies, to improve education, or
to reduce the effects of poverty and other hardships. Such trusts are appreciated for their
valuable public impact and are given special privileges, such as tax relief. Other trusts which
are not deemed charitable are not privileged. The privileges include holdings for public parties
with a collective interest, such as a political party, a professional organization, or a social or
recreational institution. A trust is created for the benefit of people who need help. It is created
by a trust deed and the trustee looks after the property, collects rent and distributes income to
the beneficiaries according to the terms of the trust deed.

AUDITING OF PUBLIC TRUST

Under the section 11 and 12 of the Income Tax Act, if the sales of the trust are more than 40
lakhs, its accounts are to be audited by a person authorized under section 288 of the Income
Tax Act, 1961.

Why is Auditing needed for public trusts?

• There can be misappropriation of the large sums of the trust money.

• The trustees can be ignorant of the trust laws.
• There can be manipulation of accounts.
Therefore, special provisions are made in the trust deed for the appointment of auditors to check
the accounts of the trusts. In some stated in India, Public Trust Act has been enacted to provide
statutory or compulsory audits of the trust accounts by qualified auditors.

The primary purpose of auditing charitable foundations is to enable the officer to assure himself
concerning the authenticity of the privilege or freedom. It is to examine if the trust has obeyed
the requirements regulated by the law and order. The auditor has to check the ‘balance sheet’
and the ‘profit and loss', expressing a genuine and honest view. He should examine all the
related compliance of the requirements by the institution for maintaining the books of accounts,
data, returns from members and other documents.

When is the audit required?

• Clause (b) of sub-section (1) of section 12A of the Act requires audit if the “total
income” of the institution for the relevant year exceeds the maximum amount which is
not chargeable to income tax. This means if the total income of the institution in any
previous year before giving effect to the provisions of the Act is less than the maximum
amount which is not chargeable to income tax, then audit under the Act is not required.

• In Computation made by the institution, the total income does not appear to exceed the
limit of the maximum amount which is not chargeable to income tax. However,
subsequently it may so transpire that the total income exceeds the maximum amount
which is not chargeable to income tax on account of circumstances which were not
known originally [e.g., accidental misapplication of the earmarked investments under
section 11(2)(b)] = In such cases the report on audit could be submitted with a revised
return.

• When state legislations relating to trusts and charitable institutions provide compulsory
audit irrespective of Income = Audit in terms of statutory provisions of relevant state
act.

• Apart from the requirements as to audit of institutions as contained in section

12A(1)(b), there are other relevant requirements like registration of such institutions.
Section 12A(1)(a) deals with the conditions regarding registration of an institution
under the Act. On being registered, the institution will get the benefit of exemption of
its income under the provisions of section 11 provided it complies with the prescribed
 statutory requirements. The application for registration has to be made in Form No.10A
in duplicate, which is prescribed under Rule 17A of the Rules

Duty of the Auditor of a Public trust:

• He should check the balance sheet and income and expenditure account and forward a
copy of the same to the charity commissioner.
• Auditor shall in his report specify all cases of irregular, illegal, improper expenditure
or failure or omission to recover money or property belonging to the trust.
• Lose or waste of money or other property of the trust or waste caused in consequence
of the breach of trust or misapplication or any misconduct on the part of trustees or any
other person.
• Verify the amount actually applied during that year by culling out the figures from
income and expenditure account and balance sheet and/or receipts and payments
account.
• Verify the donations made to another trust in terms of section 11(3)(d).
• Verify the valuation of services made available to specified category of persons in terms
of section 12(2).
• Verify the anonymous donations. In this connection the particulars are yet to be
prescribed by the Government. Hence, it would be advisable for the accountant to get
appropriate management representation.

Contents of the Auditor Report:

• Whether the accounts are maintained regularly or in accordance with the provisions of
act and rules of the constitution of the trust.
• Whether the receipts are properly shown in the accounts or not.
• Whether the cashbook and vouchers in the custody of the manager or trustees are in
agreement with the books of accounts.