Fund Mismanagement in NGOs

NGOs are non-governmental organizations, the term NGO brings under their umbrella all such organizations which are non-governmental, quasi or semi-governmental, voluntary or non-voluntary in nature. These organizations are accorded legal status by registering them under Societies Registration Act, 1860. NGOs have been defined by the World Bank as non-profit organizations whose main aim is the protection of the interests of the poor, alleviate them of their suffering, promote environmental protection, and ensure the wellbeing of society as a whole. 

In recent years the NGOs have landed in trouble for their lack of transparency and undemocratic functioning. There is a rise in cases of issues leading to money laundering and fund mismanagement of the NGOs. The government has taken steps to curb the misuse and mismanagement of funds and introduced amendments to the existing laws to regulate the functioning of the NGOs better.

The Foreign Contribution Regulation Act (FCRA):

The government of 1976 led by Indira Gandhi the then Prime Minister of India, enacted this act. All foreign aid including grants, non-Indian gifts, and donations received by the Indian residents are regulated by this act. The main objective behind the implementation of this act was to reduce the role of foreign elements in the functioning of Indian democracy. The FCRA underwent an amendment in 2010, this amendment was added to the existing list and forbade political organizations from accepting any form of contribution from sources outside India. 

Regulations for NGOs:

A number of regulations have been laid down by the FCRA to direct the functioning of NGOs in India. These regulations have also been modified and moulded in the wake of the gross mismanagement of funds.

• To accept foreign contributions, NGOs must register themselves with the Home Ministry and these contributions can only be made through specific banks.
• The registration is only valid for 5 years and it must be renewed subsequently.
• The NGOs must submit a report to the Central government concerning any foreign contribution received by them within  30 days along with a receipt.
• The NGOs can be penalized and their operations can be suspended if they fail to respect and obey the provisions of this act.

FEMA’s Provisions for Regulating NGOs:

FEMA is another important Act governing the regulation of NGOs.

• The FEMA Act (1999) focuses on laws related to foreign exchange, they aim at improving external trade and regulating the foreign exchange market in India.
• In 2016, an important decision was taken and all the NGOs in India were placed under the umbrella of FEMA, the main objective behind this decision was to ease the process of supervision and regulation also ensure transparency in the long run.

Problems associated with the proper functioning of NGOs:

The NGOs in India have been accused of a lot of mismanagement, undemocratic functioning, and misuse of funds. The issues associated with their proper functioning are as follows: 

• Misappropriation of Funds: The NGOs in India have been accused of alleged misutilization of funds, this can be attributed partly to their undemocratic attitudes and partly to their lack of transparency and the inability to maintain coherent legal and financial bodies. To prevent this misutilization of funds, the government in 2015 blacklisted 10 NGOs and issued show-cause notices to another 87 NGOs for misappropriation of funds. 17 NGOs in Andhra Pradesh were served show-cause notices followed by 15 NGOs in Karnataka. Uttar Pradesh was next in line with 9 NGOs, the root cause behind the inefficiency was inappropriate record keeping. An autonomous body functioning under the aegis of the Department of Rural Development the Council for Advancement of People’s Action and Rural Technology (CAPART) blacklisted 833 NGOs for misutilization of funds provided to them by the Government. They opined that existing guidelines for providing government aid to these voluntary organizations should be strengthened further to avoid the non-credible organizations from making their way and receiving government funding. The Supreme Court had ordered the CBI to probe into the misappropriation of funds by the NGOs, after the probe the reports suggested that out of 30 lakh functional NGOs only 10% of them submitted their financial details to the government. A Public Interest Litigation was also filed against an NGO Hind Swaraj Trust in 2011 run by Anna Hazare to probe into the misappropriation of funds.
• The Issues associated with External Funding: Reports stated that around 22,000 crores of foreign funding were provided to 3,068 NGOs between the years 2014-15. CBI received reports against 17 NGOs for alleged embezzlement of funds. 23 NGOs had their accounts frozen, while 20 others were restricted from accepting foreign contributions. 10,343 organizations were served notices by the government for failing to submit annual returns for three consecutive years, while the registration of 10,117 organizations was cancelled in March 2015 after issuing them show-cause notices. In 2020 the licenses of 13 NGOs were cancelled under the FCRA Act and their bank accounts were also frozen. The Union Home Ministry has also recently denied the renewal of the FCRA license of Missionaries of Charity a Catholic organization set up by Mother Teresa, their decision centred around reports of misutilization of funds. In 2017 the Ministry of Home Affairs also suspended the FCRA license of the Public Health Foundation of India on grounds of misusing foreign funds to lobby Members of the Parliament in favour of tobacco control activities. However, after a lot of representation from the organization persuaded the government to put them under the ‘Prior permission category’. The government has also been tracking some international donors and keeping a close watch over them like the US-based Compassion International, Ford Foundation, World Foundation for Democracy, Open Society Foundations, and the National Endowment for democracy. They are placed under the category of ‘watchlist’ and ‘prior permission’ where they cannot send funds to organizations within India without clearance from the Ministry of Home Affairs.
• Money Laundering: Issues of money laundering are spearheaded by dishonest and unscrupulous NGOs. Thousands of crores of money are provided to these organizations by the Central and State governments. An amount equivalent to 9,000 crores were allocated to the NGOs between 2002-2003 to 2008-2009 but no proper reports were submitted regarding the purpose of utilization of these funds, their accounts were also not maintained. The Supreme Court of India asked for the reports of the Comptroller and Auditor General of India to probe into these issues of money laundering and misutilization of funds. After examination of the report of 2008-2009 it was found out there was large-scale misuse of funds given by the Centre and the States to these organizations. It was found out that there was 32 lakh such organizations across the country which were involved in huge financial irregularities. From 2016 to 2020 the Home Ministry has cancelled the licenses of 6,600 NGOs for misutilization of funds. 

A three-member bench headed by Chief Justice JS Khehar also asked the government to file criminal cases against the NGOs for embezzlement of funds. The Bench ruled that there must be regulatory and penal provisions to ensure their proper functioning and also guarantee every rupee is accounted for, they felt just blacklisting organizations was not enough to stop misappropriation of funds.

NGOs are an essential aspect of democracy; they bridge the gap between the government and the governed. The government however must ensure that issues associated with the effective functioning of these organizations must be handled effectively. Proper guidelines should be issued, rules regarding their accreditation and maintenance of accounts should be made more stringent, and strict measures should be taken against bodies refusing to abide by these rules.