Financial Reporting is important for both donors and NGOs. Donors find it useful to get progress updates and deviations/delays of projects. NGOs are happy to provide data but lack the manpower and expertise. Is Financial Due Diligence important in a sector where the heart rather than the head decides which cause to support? Pradeep Mahtani, financial analyst and our honorary guest editor spoke to 2 NGO representatives and 2 veterans from intermediary organisations to find out.
One common point heard is that reporting data requested is often a burden? Are details asked for commensurate with the funds provided? Ravistan Anthony is Head of Finance at Mission for Vision, a non-profit that works to restore the gift of vision. “I don’t think so. Well the Donor will have same reporting format whether they give 1,000 Dollars or one lakh Dollars.”
Anita Limaye, CEO of Ummeed Child Development Center, an NGO that works with developmental disabilities, shares that their experiences differ from donor to donor “This includes frequency of updates as well as details requested for. In all cases, it helps to build a trusting and transparent relationship with the donor so that the donor is confident that the funds assigned to the cause/project are being used for the best possible outcomes and impact. The data requested for by donors pushes NGOs to objectively validate the impact of what they do – we believe this is a good thing.”
Has the entry of the corporate sector helped build the financial expertise of NGOs. Are corporate donors willing to pay overheads for financial reporting?
Both the NGOs we spoke to agreed that corporate funding had helped NGOs. Ravistan felt – “Yes definitely, the entry of corporate sector has helped NGOs in thinking innovatively, achieving value for money, and very specific target oriented objectives.” Anita agrees – “Yes, the entry of the corporate sector has created an impetus on NGOs to have greater systems and processes, including financial reporting. As the corporate organisation's CSR team gains experience, their expectations become more realistic.”
On the question of overheads, corporates remain less helpful. Anita mentions – “Most corporates look at overhead costs acutely and this can make it challenging for NGOs; these costs often have to be covered through unrestricted funding.” Ravistan concurs – “They prefer to support direct and very specific project costs.”
We asked, are donors willing to help an NGO be sustainable in the long term? Has this situation improved with the entry of CSR money?
Anita points out – “Experienced corporates are interested in sustainability, both of the NGO and of the change it is trying to create. We have also seen a trend towards multi-year project funding which helps the NGO plan longer-term projects. Given that the social issues that the NGO is trying to address may be new to the corporate entity, it may or may not be able to help the NGO think through how to make the impact sustainable, except by asking the right questions – answers to which may need to come from within the NGO.” Ravistan mentions that “most CSR funds are released for very specific and target oriented projects tentatively for 3-4 years. At the same time, donors would like to see that programmes are self-sustainable. So the onus is on the NGOs how to utilise the donor’s funds for sustainability in the long run.”
As an NGO what do you feel you do better than other organisations, to present your financials and impact better?
“Donors need to be convinced that the money they will be investing will impact more number of beneficiaries with less cost and in a stipulated time period. Also we don’t ask for any overhead cost. All the funds directly go to the projects.”, explains Ravistan.
Anita adds, “We have diversified our funding sources to ensure financial sustainability. We have robust systems and processes to track organisation-level and project-level finances and we continually strive to better them – through advice from financial experts and learnings from peers. We build trusting relationships with our funders so that there is a common understanding of expected outcomes and impact and how this will be measured.”
Are Corporate Donors doing enough financial due diligence. Has this picked up with the entry of CSR funds?
Anup Vora, who was formerly at CRY & has recently joined Dasra as CFO states, “The scope and importance of financial due diligence has certainly increased among corporates. Unlike in the past, where only known NGOs and charities were supported, today the corporates receive proposals from several NGOs working for various causes. The Corporate Donor today reviews the compliance of NGOs, fund raising costs, administrative overheads, etc before giving a grant. With the entry of CSR funds this activity has become more focused and professionally managed which is a good for the sector as a whole.”
Pushpa Aman Singh, CEO of GuideStar India adds, “While every donor would like effective and efficient utilisation of funds, corporate donors are additionally concerned about financial due diligence as there is high reputation risk if things were to go wrong due to mis-utilisation or non-compliance. Several corporates use GuideStar India certified NGOs as pre-vetted lists to identify credible partners. Portals such as GoodCSR, mention NGO due diligence levels on respective NGO pages to help corporates choose partners.
Do HNIs and retail donors care enough about financial transparency?
Pushpa shares that they work with intermediaries who serve retail donors and those who advise HNIs. “Most intermediaries do not necessarily require financial transparency in the public domain but are keen that financial statements have been checked and compliance verified. They require a copy of the financial statements, registration documents, 80G, FCRA, and statutory returns to be made available to them. Crowdfunding portals prefer to indicate the level of certification and leave it to their retail donors to decide what is good enough for them.
Anup’s experience has been, “HNIs and retail donors, unlike corporates are not mandated to donate or spend on CSR, they in a way follow their heart and support a cause. However, today there has been a growing awareness among HNIs and retail donors to seek for financial reports or 80G (50% & 100%) tax deductions, etc.”
We were curious to know, what they felt about the NGOs focus on financial sustainability?
Anup is positive, “Unlike a few years ago, nowadays NGOs are being run professionally. There is a tendency to recruit the best talent, create a second line leadership and a healthy reserve backed by good Investments. There is a trend among NGOs to have an organizational budget and work as per the budgets thereby helping them monitor their spends. Some NGOs build enough reserves to earn interest which will help them cover the administrative costs for a year.”
Pushpa adds, “Some grant makers invest in mid-size organisations to help them strengthen their strategy and build sustainable models. Many other NGOs want to, but do not know how. NGOs now have access to a variety of channels to mobilise resources (money, talent, goods) and diversify the risk of dependence on traditional grants. They are eager to get coaching for their fundraising strategy and execution.”
We also invited the perspectives of donors of whom only one responded. We asked if he thought there are gaps in Financial Reporting? Sumit Chauhan CSR Lead Consultant at Macquarie Group Foundation responded, “There are major gaps in reporting standards as such. With CSR rules and corporate involvement, the NGOs are taken by surprise to the level of reporting demanded both at compliance level and in general. NGO sector, need to look at their organisation holistically and bring in some sort of Enterprise Excellence that will bring all aspects like programs, finance, marketing reporting, HR—even IT into the same improvement and management system. They need to invest in this.
As a conclusion we asked if there has been any move by grantmakers to decide on a common format or find ways to help NGOs gain expertise in the financial reporting function?
Anup says, “NGO (Non-Government Organisation) is a broad term. The organisations
operating as NGOs can be registered as: Trusts under Bombay Public Trusts Act, Society & Section 8 Company under the Companies Act, etc. The reporting formats are mandated by the law under which an NGO is registered, hence there is no standardised format. However The Institute of Chartered Accountants of India (ICAI) has issued a technical guide on accounting for Not-for-Profit Organizations which is a step towards standardising reporting formats for NGO sector.”
Pushpa with her vast experience shares, “There have been attempts to standardise grant application forms among intermediaries as NGOs often have to submit similar information to multiple agencies. We worked on two such initiatives in 2009 and 2014 with no success. What seems more practical is the use of common identifiers so that intermediaries can easily exchange NGO information and systems become interoperable using APIs. And, consequently, people will ask for less information from the NGO. The burden on NGOs to keep giving the same information is likely to reduce with the use of these IDs, with better exchange of information among intermediaries and with more and more statutory filings becoming mandatory, as users will find online verification becoming simpler. The Charity Commissioner, Maharashtra, has made online filing of annual returns mandatory from FY 2016-17 onwards. Their portal https://charity.maharashtra.gov.in allows NGOs to provide PAN, FCRA Registration Number and NITI Aayog ID. While reporting formats will not get standardised, technology allows display of information or reports to be generated as desired, on the fly, if information is stored systematically and unique IDs are captured correctly.
As regards standardisation of financial reports, I think first of all we need uniform accounting standards. Currently financial statements are not comparable more because of not following uniform accounting policies, and financial statements of many organisations do not carry Notes to Accounts and Significant Accounting policies.”
Ravistan says, “NGO-donor relations have changed in the last 10 years. Earlier the donors approach was to support the overall growth of the organization and to build the capacity for sustainability. But with the changing environment donors are only interested in projects and targets. So, often it is the NGOs responsibility to build its own capacity.”
Sumit feels, “If you look at carefully the formats by most of grant-makers, you will find common things though they just read different. This is common with MNCs incorporated in India where the standards are made by their global counterparts. The sector needs to learn grantmakers language and apply it accordingly. Grant-makers in India are also migrating their reporting formats online to bring in better synchronisation with their other requirements.”
We conclude with Anita’s optimistic view, “Grantmakers have started connecting amongst themselves so that experiences, expectations, and trends can be shared and learned from. Some corporates are also willing to deploy skilled resources as volunteers to NGOs. We have seen some commonality in reporting formats but aren't aware of a move towards "a" common format.”
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