COMPLIANCE - Stay On The Right Side Of The Law

A vital component of organizational effectiveness is ensuring compliance with the laws that govern their functioning. This involves not only an awareness of all the regulations and legislations that apply to one’s organization and following them stringently, but also the ability to demonstrate compliance by keeping records of checks, implementing policies and procedures that abide by the relevant laws, and evidence that members of the organization are taking responsibility for compliance.

No organization wants to face criminal charges for not adhering to the law. However, there are so many different regulations and laws governing how a non-profit should manage its taxes, raise funds, recruit staff and volunteers, donations received and spent, fiscal compliance, employee salaries, safety rules, and several more issues. Despite this regulatory thicket, and no matter the many constraints,  non-profits must always strive to stay on the right side of the law, while doing effective work in their chosen area.

To get a sense of the awareness among non-profit organizations about the importance of legal and fiscal compliance  and determine what measures they had taken to implement regulatory compliance, CAP spoke to women working with three different NGOs. This is what they shared with us.

Is your organisation aware of all its compliance requirements  under various laws and what steps has it taken to fulfill these compliance needs?

Vaishali Goel is the Assistant Honorary Treasurer of Paramparik Karigar, which promotes traditional Indian arts, crafts and textiles. Its members are craftsmen from most states of India whose work, showcased at various exhibitions in Mumbai and other metros with the help of donations from corporate houses and individuals, has brought them great recognition and a sustainable income too.“Since our organization gives absolute importance to legal compliance, we have attended CAP’s seminars to increase our awareness and we also consult Mr Dadrawala, who is prompt and helpful in reply to our queries”, Vaishali told us. “CAP's quarterly news magazine Philanthropy is also very informative, keeping us updated on the latest rules and regulations we need to follow as an NGO. This has helped us to become and remain legally compliant,” she added.

Gaynor Pais is CEO of International Resources for Fairer Trade(IRFT), a charitable trust with a global presence. Established in 1995, IRFT is a self-sustainable organization and comprises a team of 10 highly qualified professionals from various disciplines and levels of expertise. Gaynor too was happy to report that her organisation considers all areas of compliance as crucial to her organisation. “I would say we are very well versed with all compliances and applicable laws pertaining to our organization, since we are highly rated as Social Compliance experts, Decent Work Global Master Trainers, Social Compliance Auditors and Continuous Improvement Monitors. This forms the profile of IFRT’s key programme area – Ethical Business Solutions (EBS). So, our organization understands and respects compliance needs, both statutory and voluntary,” she asserted.

Zainab Ishak Valikarimwala is the Honorary Treasurer of Royal Society of Bombay and Royal Higher Education Society,  charitable  and educational trusts respectively,  that work for the advancement of underprivileged in Mumbai. The two trusts run the Royal College of Arts, Science & Commerce,  Mira Road; Royal Girls High School (English Medium); Royal Girls High School (Urdu Medium); and the Royal College of Education & Research for Women. While she agreed that compliance was necessary, saying, “We need to be compliant in all aspects”, she conceded that, “we have not made any specific effort in this direction. We are not aware of all compliances but Philanthropy magazine helps us tremendously.”

While non-profits have to comply with the same laws as for-profit enterprises, one major difference is a resource crunch, both of staff and capital, to address their compliance needs in the way that corporations  are able to do. There is a perception that non-profits are scrutinized far more than profit-making entities and that in some respects, the former’s compliance requirements are more arduous.

Is the compliance burden is greater for non-profits than for businesses, which may be better equipped to be legally compliant? Do you think NGOs are held to greater standard of accountability?

Zainab certainly thinks so.“Since our finances come from donors and well-wishers, we are more accountable compared to profit-based companies. Yes, NGO are held more accountable and due to lack of expertise in these matters they face more problems as compared to companies who have different departments and can recruit manpower to deal with compliance,” she stated.

While Gaynor concurred with the necessity of compliance, she also flagged a few concerns. “Compliance is absolutely necessary for both non-profits and for-profit entities. However, both sometimes  overlook this responsibility in the larger interests of business and sustainability. Profit-making enterprises have a formal structure and the staff ensure adherence to all compliances - Legal, HR, Finance, Board Governance etc. The organization’s structure and hierarchy lends clarity to each role and responsibility towards compliance. Yet, very often the intent is clearly towards statutory compliance, and legal policies are more to protect the larger interest of the business.

Elaborating on a practical problem many NGOs face, she said, “In the case of non-profits, the responsibility to be sustainable over and above the ability to uphold the causes that the organization represents becomes critical. With every good intention to represent the cause, the not-for-profits are in a dilemma on compliance. The need to be compliant is genuine, but often challenging, and as the organization grows the need to survive and sustain outweighs the compliance imperative.”

“NGOs are held more accountable due to the free flow of national and international funds to them and their failure to manage the same responsibly may lead to a sceptical attitude about their ethical philosophy and raise doubts about whether the funds reach the intended beneficiaries. Thus, this needs to be recorded and reported regularly. Failure to be transparent and accountable leads to blacklisting and termination of funding sources which is detrimental to the survival of the organization,” she concluded.

Vaishali  had no view on this. “Since we are not attached to any for-profit companies we cannot comment on this.” She did add, however, “On our part, as an NGO we try our best to stay compliant and we have had no difficulty in doing so. Since NGOs have to deal with government rules and regulations on the one hand and the safe keeping of accounts held on the other, it is imperative that we are compliant.”

More and more non-profits are seeing increased value in investing in strong compliance initiatives because these measures not only prevent violation, but may also serve to mitigate fines if an offence has been committed. A compliance review assists in identifying areas of importance and avoiding pitfalls, without imposing additional burdens.

Of course, embedding these compliance policies into a non-profit's culture requires further, practical measures. Having compliance policies but not enforcing them may be almost as harmful as not having them at all. The most effective way of ensuring compliance is to train employees in the basics and stressing how they apply to the organization's well-being. Regular health checks and clear procedures for reporting concerns are also critical to promoting effective compliance.

Compliance can no longer be viewed in isolation from the rest of the organization or as a function to keep it out of trouble; it must become part of the overall business strategy of any operations or organization, big or small. Compliance and related practices should be a non-negotiable practice implemented throughout the organization AND PERFORMED BY ALL. Ultimately, this integrated approach will lead to better and less burdensome compliance.

What internal controls does your organisation have to ensure compliance? Which areas do you give importance to - Legal, Finance, HR, Board Governance, Strategy, Communication, Fundraising, or Volunteer Management?

Gaynor shared these details with us. “Our compliance team (EBS) continuously monitors and mentors the Administration and Finance departments to adhere to ethical social and legal compliances stipulated under the Bombay Trust Act, 1950. Also, we ensure a voluntary transparency mindset and seek opportunities to submit documents to reputed Government Bodies (CII, MHA, CBI) and Private Validation Agencies to build a good credibility profile for IFRT. Other measures we have undertaken are  requests for validation statements/letters of  recommendation from our Project Partners, Project Funders and Global Training Organizations that we represent and the constant updating of our website to provide and promote IRFT as a credible, responsible and transparent organization of repute.

Our Board of Trustees is also well-informed about all developments and compliances, with the intent to seek their guidance regularly and voluntarily, over and above the statutory quarterly board meetings and reviews. Good governance, upholding the ‘Vision and Mission’ and verbally reinforcing the values of the organization to new recruits  are part of our ongoing HR Team Building exercises.”

At the other end of the spectrum, Zainab admitted, “So far, a monthly check is done on the Income/Expenses of the trust but other means of compliance we have yet to formulate.” The areas of compliance her organization considered important were Finance, Strategy, Communication and Fundraising, she said. 

In an illustration of  having made a sound beginning, Vaishali claimed, “Our administrative system is set up to be absolutely transparent and democratic to ensure compliance. And the three areas we give maximum importance to  are Legal, Finance and Fundraising.”

 As CAP turns 30 this year, CAP's new CAPacity Building Programme will help non-profits to address and comply with the law in the following core areas – Legal, Board Governance, Finance, Human Resources, Strategy, Communication and Reporting, Fundraising and Volunteer Management. To know more about how you can obtain your compliance certificate, write to connect@capindia.in