Financial Reporting – Whose perspective adds up?

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. It is encouraging that our efforts to evangelise IT PAN as a unique ID
and also the use of GSN (GuideStar Number is simpler to remember and less
error prone) seems to have helped. FCRA and NITI Aayog have made PAN mandatory.
Most intermediaries are collecting PAN, many are also asking for GSN. We are
also assigning BRIDGE Numbers to NGOs so that they
can quote their unique global id for correct identification
while participating on global fundraising platforms and programs. PAN is the Aadhar equivalent for NGOs within the country
and BRIDGE Number will play a similar role globally. 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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