Top Tips for Ensuring FCRA Compliance in Indian NGOs in 2024

Originally created in 1976 and significantly revised in 2010, the Foreign Contribution (Regulation) Act (FCRA) has created registration requirements and restrictions on spending for Indian NGOs that receive foreign donations. Additional restrictions brought in by the 2020 amendments of FCRA have banned subgranting among FCRA-registered organisations, set a cap on administrative spending, and centralised control for FCRA funding with the State Bank of Delhi and the Ministry of Home Affairs. 

Under the FCRA guidelines, NGOs seeking foreign contributions must obtain registration or prior permission to receive foreign contributions (FC) from the Ministry of Home Affairs. NGOs are dependent on donations and without FCRA registration, no NGO can receive funds or donations from foreign sources. Registration is granted only to organisations that have a proven track record of functioning in the chosen field (cultural, social, economic, educational, or religious) in the last three years. Registration is granted after thorough scrutiny and vetting. Newly established organisations without a proven track record may also be allowed to receive FC for specific activities.

There are certain misconceptions that prevail regarding the provisions of the act. Following are some guidelines NGOs should follow to be FCRA compliant.

FCRA Dos:

• Maintain separate books of accounts for foreign receipts. This is to ensure better monitoring and transparency of records for stakeholders and donors, as well as for reporting to the Ministry of Home Affairs.
• Operate with a single FC designated bank account. FCRA organisations must not hold more than one account to receive foreign contributions, and any change in such account must be intimated to the department within 15 days in Form FC-65.
• File mandatory FCRA Annual Returns. Even if no contribution has been received during the year, an NIL return has to be filed.
• Apply for registration renewal. The FCRA Certificate has a validity of 5 years, after which it should be renewed by filing Form FC-3C at least 6 months prior to the expiry of registration.
• Intimation about changes. FCRA organisations must inform the government regarding changes in bank accounts, in the name/address/aim/objectives of the association, or if there is more than a 50% change in key members of the association, by filing Form FC-6.

FCRA Don’ts:

• Don’t mix foreign and local funds. Foreign contributions must be received in a designated bank account and cash withdrawn from this account must be kept separate from local cash.
• Don’t deviate from the purpose of the grant. The grant may only be used for the purpose for which the donor has agreed to fund the organisation, and as mentioned in the contract letter.
• Don’t transfer to unregistered organisations. FCRA funds must not be transferred to non-FCRA organisations without prior approval from the government.
• No inter-transfer of funds from utilisation accounts. Multiple utilization accounts may be opened but no fund can be deposited in these accounts other than from the main account.
• Don’t indulge in mutual funds or speculative ventures. FCRA funds must be invested in fixed deposits in banks to ensure safety.
• Don’t incur huge administrative expenses. FCRA regulations restrict expenditure on administrative expenses to 50% of the total contributions received.
• Don’t accept FC in utilisation accounts. No FC should be received directly in utilisation accounts other than in a single FC designated bank account.
• Don’t accept FC during suspension or after cancellation. FCRA organisations must not accept FC if their registrations have been cancelled or suspended for violating FCRA norms.
• Don’t indulge in making false statements. FCRA organisations must not knowingly give false intimation or seek permission or registration by means of false representation or concealing information.

In addition to these dos and don’ts, due diligence is also required, for managing risks as well as to understand and strengthen relationships with prospects. Without due diligence, organisations may face financial or reputational damage due to donors. In order to manage risk and compliance, NGOs need to fully ascertain the nature of potential donors or partners. They need to ensure that the persons or associations they acquaint themselves with follow legal and ethical standards of practice, and that the money donated is ethically sourced. Due diligence includes checking the donor’s background for any red flags, especially their affiliations, current and past, in business practices. Adherence to this is imperative to avoid accepting money from a place that may cause damage to their image and undermine their social objectives.

Traditionally, due diligence has been conducted manually, and only to the extent of basic risk screening and online searches. With the technical resources available at present, organisations need to employ an optimised approach and focus on publicly available online data. Following are some practises to aid in conducting due diligence efficiently.

• Expand sources of information. If comprehensive research is not conducted, donors may succeed in hiding misdeeds, and a lack of resources may hinder NGOs from accessing critical information, even if it is freely available. Digitisation has dramatically increased the information available at hand, and NGOs may use automated tools to sift through publicly available online data and multiple sources.
• Check for regulatory infractions. It is necessary to ensure that the donor’s public actions are legal and ethical, or that they do not have pending cases against them.
• Learn about the donor’s network. Information about their social and personal connections may help uncover negative associations as well as prospects for growth.
• Deepen conversations. Building relations beyond financial needs will allow NGOs to establish productive donor connections in the long run, and to gain a better understanding of their background and disposition.
• Monitor negative news. NGOs need to stay up to date with media mentions for potential and existing donors in order to combat negative associations.
• Utilise technology. Automated platforms that use advanced technology and constant upgrades help NGOs keep up and adapt to the times. Using technology to conduct due diligence ensures research that is comprehensive.

It is important for NGOs to keep up-to-date with information regarding the government guidelines they’re subject to, as well as the technological tools available to them. NGOs function through donations and, therefore, it becomes extremely pertinent for them to be thoroughly informed about the donors as well the administrative processes required. Proper knowledge on these matters will aid them in achieving the objectives of social betterment for which they were set up.

Q. Which organisations should register under FCRA?

Any individual, association or company based in India that seeks to receive foreign contributions above a certain limit must register under FCRA.

Q.  Are there any specified banks for the purpose of FCRA?

The FCRA account can be opened only in the main branch of SBI, New Delhi. Utilisation accounts may be opened in any scheduled PFMS integrated bank.

Q. What are the challenges faced in the implementation of due diligence processes by NGOs?

Organisations that are short on resources like time, manpower, or money, have a hard time conducting a formal due diligence. This is so because the tools and documents one has to sort through for due diligence may be cumbersome to deal with. There may be unreliable sources of data or incomplete, even conflicting, accounts of backgrounds.