JANUARY 31, 2017

By Naresh Minocha, Consulting Editor

THE Supreme Court has put the Establishment on the mat for its laxity in accounting for thousands of crores of public money it doles out to Non-Government Organizations (NGOs) every year.

Now that the Apex Court is turning the heat on the Centre to audit grants, it is apt to pitch for probity into the larger domain of spoils system operated under the garb of societal change.

The domain comprises 1) governmental dole-outs including tax exemptions to NGOs; 2) corporate donations that go under high-sounding label of corporate social responsibility (CSR); 3) donations collected (at times extorted) from citizens by diverse entities as disaster relief and as aid to conferences, cultural and sports events. Superficial or non-auditing of these funds often facilitates defalcation.

This diffused form of corruption has flourished due to policy paralysis that is handed over seamlessly from regime to another. Yes, right from first Government under leadership of Mr. J.L. Nehru to the present one led by Mr.Modi.

An instance of policy paralysis is the failure to enact a law as recommended by Law Commission in its report titled Regulation of Funds Collected for Calamity Relief' submitted in December 2004. More of this later.

The robust spoils systems nurtured by Neta-Babu combine has transformed India into fertile ground for NGOs, trusts, charities, civil societies, non-profit organizations (NPOs) and voluntary organizations (VOs).

They have prospered amidst squalor, poverty and ignorance that they vouch to eliminate with copious funding from diverse sources including foreign entities since the Independence.

It is here apt to recall an anecdote. Participating in Q&A on cow shelters in Rajya Sabha on 12th March 1958, Bollywood doyen, late Prithviraj Kapoor posed: "May I know whether the Government is aware of the fact that there are allegedly hundreds of Gosadans and Goshalas in the country, which actually do not exist, in whose names people collect money and eat it up? Is anything being done in the matter ?”

The Deputy Minister for Agriculture M.V. Krishnappa quipped: "Since cow is a dumb creature so many people are doing so many things in the name of cow.” Ex-Bihar Chief Minister Lalu Yadav of Chara Ghotala (fodder scam) would perhaps chuckle over this reply. Millions of hungry cows, which rummage wastes to eat plastic bags containing left-over crumbs, would nod. The Nation, however, wants to know from Prime Minister Narendra Modi what action he would take against blackhole budgeting that thrives under the garb of animal & human welfare.

Before elaborating transparency and accountability (T&A) agenda for NGOs, recall recent observations made by the Supreme Court. While hearing six-year old Public Interest Litigation (PIL) seeking audit of NGOs accounts on 10th January 2017, the Court stated: "we expect the Union of India to place before us guidelines/rules, which will be implemented for accreditation of VO's/NGO's, and also contains provisions for the manner in which the VO's/NGO's, which are recipients of grants as afore-mentioned, would maintain their accounts, and also, how the accounts of VO's/NGO's will be audited.”

The apex court continued: "The guidelines/rules will also provide for the procedure to initiate action for recovering of the grants in case of defalcation/misappropriation, including criminal action when called for.”

How fast the Government acts on these orders would be known at the next hearing slated on 5th April 2017.

The Court, in its order, underscored the enormity of grants business as brought by amicus curiae, Rakesh Dwivedi, who quoted a study. The Order says: "According to the study during the FY 2002-03 to 2008-09 the Union Government granted Rs.4756,71,26395/- to the VOs/NGOs while the State Governments/UTs released 1,897,64,61,289/-.On a conservative estimate a total of Rs.6654,35,87,684/- were released during the said period on an average of Rs.950,62,26,812/- per year (figures indicated, tentative as number of States had not provided information).”

Though the Order did not name the study, it is obviously a RTI replies-based report captioned 'India's Funds to NGOs Squandered' released by Asian Centre for Human Rights (ACHR) in January 2013.

As put by ACHR, "If a conservative estimate of 15% is used in 'bribes to process applications' then during the FYs 2002-2003 to 2008-2009 at least Rs 998,15,38,153 or Rs. 142,59,34,022 per year were removed from funds to the poor and given in bribes to different layers of officials approving the projects. This is literally stealing the money of the India's poorest.”

Field studies by ACHR suggest that selection of grantees is often determined not on ability or technical expertise but rather on the applicant's ability to pay a bribe. The NGOs interviewed by the ACHR alleged that to have their application approved required bribes amounting to 15% to 30% of the grant, it adds.

Had Mr. Modi read this report, he might have preferred to clean NGO mess to demonetization as visible means to end corruption and frauds.

Our digital-savvy PM might have visited www.giveindia.org, an entity that screens NGOs as potential receipts of donations by applying exhaustive criteria.

It says: "We have reviewed over 3,000 non-profit organizations from all over India to identify over 200 organizations (/certified-indian-ngos.aspx) that have met with the Give India's Listing Criteria (/t-certified.aspx)”.

It adds: "We tell you exactly where your money went and also give you proof of it through a feedback report. (except in the case of donations through an i Give page.)We ensure that at least 90% of your contribution reaches the organization you support (as against the average of 60% for the NGO sector)”.

What India needs is hundreds of such NGO monitors that would keep a vigil on the working of about three million NGOs in the country. They should report directly to statutory auditors, Comptroller and Auditor General (CAG) and law enforcement agencies.

In September 2015, Central Bureau of Investigation (CBI) told Supreme Court that only 10%of 3 million NGOs file audited financial statements of their operations with the authorities.

Many of the NGOs are fly-by-night operators. Thousands of them have been black-listed by authorities for misuse of funds. Information on this count is available in replies to Parliament questions and other documents available in public domain.

Monitoring would thus help reduce rampant malpractices in the NGO domain. Malpractices include extortion from companies or promoting interest of one section in the corporate rivalries including filing PILs; providing sub-standard meals to school kids under mid-day scheme and diversion of funds for pleasure and purchase of good things of life.

The Government must also enforce rules relating to oversight and audit of grants mentioned in the Finance Ministry's General Financial Rules (GFRs), 2005.

These rules are not enforced by the grants-giving ministries and their appendages as repeatedly brought out by Comptroller and Auditor General (CAG) in their reports over the years.

CAG, for instance, recently exposed laxity of Department of Health and Family Welfare in keeping a tab on grants. In its report on Union Government Accounts of the Union Government (Financial Audit) released on16th December 2016, CAG observed: " eight Sections/Divisions of the Department released Grants-in-aid of Rs 3315.18 crore to the autonomous institutes but had not maintained Register of grants at sectional level. Thus, non-maintenance of the register of grants resulted in violation of codal provision and had adverse impact on monitoring of sanctions/disbursements/utilisation of the grants ”.

It added: "During the period from 2013-14 to 2015-16, the Department released Grants-in-aid aggregating to Rs 11824.18 crore to the 19 Autonomous Bodies/Institutes, but no external or peer review of these ABs/Institutes was ever got conducted by the Department”.

CAG currently undertakes periodic and limited audit of grant recipients during the course of performance audit of schemes or departments. It does not take compliance audit of NGOs, autonomous bodies including special purpose vehicles at the field level that implemented centrally sponsored schemes.

This brings us to the need of the urgency of providing adequate manpower to CAG keeping in view diverse and expanding flow of grants to NGOs and companies that own and operate public private partnership (PPP) projects. Modi Government should also take urgent call on amending laws/procedures to remove the handicaps faced by CAG in timely accessing files relating to grants.

Apart from strict enforcement of GFRs, the Government ought to take swift, legal action against blacklisted NGOs by invoking Section 92 of Code of Civil Procedure, 1908 and relevant provisions of other laws.

Monitoring of NGOs should be accompanied by enactment of a law that mandates full transparency& accountability of all existing NGOs registered under the Indian Trusts Act, 1882, The Charitable and Religious Trusts Act, 1920, The Charitable Endowments Act, 1890, Societies Registration Act, 1860, Section 8 of Companies Act, 2013 (dealing with non-profit companies) or under any applicable State law.

As in the Tanzania's Non-Governmental Organizations Act, 2002, the proposed Indian law should stipulate obligation of all NGOs to seek compliance certificate from registrar or regulator as the case may be.

A notable feature of Tanzanian law is the formation of National Council for NGOs for self-regulation and accountability. The Council also lays down code of conduct for NGOs.

Tanzanian Act specifies offences and penalties. It debars any unregistered NGO from doing its business. Undertaking NGO operation without securing mandatory registration is an offence. The Law provides for financial penalty as well as imprisonment for offences.

Like Tanzania, certain other African countries have enacted laws to regulate NGOs primarily to impart transparency and accountability to their operations and to minimize scope for corruption. Indian Government ought to learn good governance from certain African countries.

To begin with, Modi Government can pick the best features of NGO regulations of different countries and weave them into a law recommended by Law Commission (LC).

In its 191st report submitted in 2004, LC recommended enactment of a law to regulate the collection of funds including contributions and donations in cash and kind, collected orraised for the purposes of providing relief and rehabilitation to the victims of natural and man-made calamity or for welfare and rehabilitation to soldiers or their family members who are killed or have become disabled in war or war like operations.

LC stated: "It is further recommended that contributions received by the private parties referred to above from the Government or any fund set up by the Government, shall be brought into the purview of the enactment”.

LC report cites court cases as well as allegations of misuse of funds collected ostensibly to provide relief to people affected by events such as Gujarat earthquake, Kargil war, etc. It also cites the case of a sugar cooperative that diverted Rs 51.97-lakh donations collected from farmer shareholders for reviving an ailing sugar mill.

We all are familiar with reports of misuse of Tsunami donations collected across the country and from abroad in 2005 & 2006.

Modi Government can also take leaf out of the regulatory framework for NGOs existing in developed countries.

Canadian Treasury Board, for instance, has a 'Policy on Transfer Payments'. It specifies Government's right to order compliance audit of any contribution it makes to any entity. This right ensures that public money has been utilized in keeping with the agreement signed between the official donor and the recipient.

Canada's Department of Justice has published an audit handbook to help NGOs comply with requirements for ensuring proper use of grants.

It says: "NGOs that receive funding from the Department of Justice Canada must have a complete and reliable accounting system in order to keep track of all transactions related to the contribution agreement. The accounting system should be computerized, and should meet the standards used in Canada”.

Similarly, Hong Kong's Corruption Prevention Department (CPD) has published 'Best Practice Checklist for Governance and Internal Control in Non-Governmental Organisations'. It says: "As poor management is a breeding ground for corrupt practices, the CPD sees the need of consolidating these NGOs' good systems and practices into a checklist for use by all NGOs".

One of the best practices reads as: "Make transparent the NGO's operations, performance pledges and major financial information (e.g. financial statements and use of donations) through the NGO's website, annual reports, and pamphlets."

It adds: "Being receivers of Government subventions and public donations, it is important for NGOs to put in place a sound system of financial control to ensure that their funds are properly managed and accounted for".

Transparency and accountability are universal deterrents against malpractices – a truth that largely receives lip-service from authorities across the country.