NGOs, Like Ceasar’s Wife, Should Be Above Suspicion: Why Indian Nonprofits Need To Take Transparency More Seriously

Soon after India’s new government assumed power in May 2014 under the leadership of Prime Minister Narendra Modi, the Central Bureau of Investigation (CBI) sought permission for arrest and custodial interrogation of journalist and human rights activist Teesta Setalvad for alleged mismanagement of $576,000 by her organization. In October 2014, the Ministry of Home Affairs (MHA) issued show-cause notices to 10,343 non-profits for not furnishing annual returns, and subsequently cancelled FCRA registrations for around 9,000 of these non-profits, citing “non-response within the stipulated time period.” India’s Foreign Contribution Regulation Act (FCRA) regulates the inflow of foreign contributions to charitable organizations and is expanding its tentacles and grip under each successive government (see here and here). In April 2015, Ford Foundation, the philanthropic organization whose work in India dates back to 1952, was put on a national security watch list and removed from the prior-permission list in January 2016, constraining its funding capacity. Ford is being targeted primarily for channeling funds to Ms. Setalvad’s NGO that was apparently ineligible to receive funds under FCRA.

As many in the Indian media have pointed out, the government’s aggressive actions against non-profits seems selective—more like a political vendetta than a principled stand against misappropriation of funds. It’s hard to ignore the fact that Ms. Setalvad had sought the conviction of Narendra Modi for alleged human rights abuses during his tenure as the Chief Minister of Gujarat, or that the case against Ford is linked to its funding for her non-profit. Moreover, in the same month that MHA canceled the FCRA licenses of 9,000 non-profits, an access-to-information query revealed that 401 of the 545 Members of the Parliament’s Upper House had not declared their assets and liabilities – including the Minister of Home Affairs himself. And the government’s tenacious pursuit of non-profits contrasts awkwardly with the practical impunity of those accused of perpetrating India’s three biggest scams (the $27.8 billion coal scam of 2012, the $26.3 billion 2G spectrum scam of 2013, and multi-million Vyapam scam of 2015).

So, when nonprofits, activists, and their supporters accuse the government of applying a double standard, they have a point. Yet, even as we rightly protest the government’s politically motivated vendetta against civil society, it is equally important for India’s non-profits to take a good hard look in the mirror. India has witnessed an unprecedented civil society mobilization against corruption in 2011 and non-profits have spearheaded numerous successful anticorruption initiatives, such as social audits, citizen report cards, and crowdsourcing platforms like I-Paid-a-Bribe.com. Yet the members of India’s vibrant non-profit sector must be sure that they are applying to themselves the same high standards of transparency and accountability that they advocate in the public sphere. Too often, they fall short. Indeed, the accountability practices within India’s non-profits are alarmingly sketchy.

India has around 3.3 million registered NGOs, which cumulatively receive around $8-$16 billion in funding annually. According to non-profit watchdogs, almost half of that money is misused. Disclosure standards are poor, annual reports sketchy, and balance sheets non-existent in most cases. Many non-profits scoff at these details as bureaucratic hurdles that distract them from ”real” work, or even view accountability requirements as government interference that hampers their efficiency in holding the governments and corporations to account.

Sadly, the allegations against Ms. Setalvad illustrate some of the transparency, accountability, and financial management problems at otherwise laudable Indian non-profits. First, according to reports, Ms. Setalvad did not keep her NGO’s funds strictly separate from her personal funds, and often used her personal credit card for making payments on behalf of her NGO, later seeking reimbursement. This has given rise to allegations by the government that she used NGO funds for her personal shopping expenses. Her failure to keep good records means that there is little financial proof to counter the allegations. Second, the NGO’s records include $269,000 in expenses categorized as “petty cash” whose supporting records are untraceable, obscuring the true purpose of underlying transactions (see here). Third, there seem to be no exclusive book of accounts for foreign contributions received and utilized by Ms. Setalvad’s non-profit under the contracts entered between it and the Ford Foundation.

Ms. Setalvad has rebutted these and other allegations against her, condemning the deliberate political vendetta behind the cases (see here and here). Indeed, based on what I know, I do not believe that Ms. Setalvad broke any law. Nor does these allegations detract from her redoubtable work, particularly on behalf of human rights victims in Gujarat. Yet the reports are troubling, suggesting at best sloppy record-keeping, and at worst some serious ethical lapses. Activists like her, who fight pitched battles against powerful governments, cannot afford to forget that they need to remain above suspicion in their activities.

Moreover, while Ms. Setalvad’s work is nationally recognized and unquestionably legitimate, there are millions of less well-known non-profits that use lax accountability standards as a cover for shady or non-existent operations. The lack of transparency and accountability in non-profits has been raised consistently by a newly emerging group of non-profit watchdogs, including Credibility Alliance, iCongo, and GiveIndia. They seek to increase NGO accountability through annual reviews, accreditation, and call for a non-profit code of conduct. However, the fact that Credibility Alliance has so far enlisted only 600 non-profits speaks volumes about the lack of interest in calls for accountability. (And this is not a uniquely Indian problem: international NGO watchdogs like the Humanitarian Accountability Partnership have barely registered around 70 international non-profits in their lists.)

Further, Indian non-profits were the primary drivers behind the legislation and implementation of the Right to Information (RTI) Act 2005 that offers the citizens timely access to information from public authorities and mandate public authorities to proactively disclose all information of public interest. While non-profits receiving substantial government funding are automatically covered by the RTI, most others have shied away from voluntary adherence to RTI, calling into question their legitimacy to constantly call the government to account.

There are those who argue that stringent accountability requirements for NGOs are a ruse, intended to impose bureaucratic requirements on NGOs that constrain their agility and efficiency in addressing social issues. And, even putting that concern aside, it is true that many non-profits operate on shoestring budgets and would therefore find it difficult to employ trained accountants and lawyers to keep track of their finances—in contrast to the richer corporations and governments they fight against.

These points are well-taken. And, as noted above, there are reasonable grounds for suspecting that the current Indian government is using anticorruption as a convenient tool to suppress civil society dissent. However, the civil society community should resist the temptation to use those suspicions as an excuse to ignore their own failings, or to use their sense of rightness (or, less charitably, self- righteousness) to ignore their own accountability lapses. Such a course of action is not only inconsistent with these organizations’ core values, but it is tactically unwise, as it makes the NGO community more vulnerable not only to government harassment, but also to a potential loss of citizen trust. To avoid ending up perpetually playing defense on these issues, it is time that civil society organizations take voluntary measures to clean up their house.

Some possible measures of sector-wide internal accountability could include:

  • A code of ethics: Adoption of code of ethics could help strengthen the non-profit governance structures, increase transparency and in turn build stakeholder trust in non-profit operations. A ready-made code of ethics is available with the world Association of International NGOs that has developed a set of fundamental principles and practices for the non-profits in 2002 based on inputs from non-profit leaders of 42 countries. Adoption of self-regulation through a voluntary code of ethics is especially suitable in a country like India where the non-profits share a distrustful relation with the State and would be loathe to be placed under its regulation.
  • Smart and effective records management: Non-profits face a vicious cycle of limited funds preventing major investments in infrastructure and human resources including computers and qualified employees to handle specialized tasks like record keeping and this in turn limiting their accountability to strict but generous donors and making them vulnerable to government hawks. However, organization’s dealing with public money (domestic or international) cannot wish away their accountability trappings. Some possible options include soliciting the support of non-profit certification agencies such as the Humanitarian Accountability or their domestic counterparts in helping streamline internal processes. At the very minimum, separation of personal and professional credit cards if the first step that can be taken to preempt avoidable but serious financial allegations.
  • Weeding out toxic players: Any number of steps toward accountability will be ineffectual without a concerted movement within the non-profit community to call out millions of non-existent and shady operations whose presence continues cast shadow on even credible non-profits. Determination to eliminate unscrupulous players through whistleblowing, peer pressure for accountability and legal actions will prove valuable in sending a strong message about the sector’s commitment to accountability. 

Steps by the non-profits to usher in for internal accountability should be matched by an effort by the Government to be fair and equal in its treatment of corruption in the Government, Corporate or non-profit on an equal footing. Even within non-profits, call for accountability should not stop at the non-profits fighting the government in the political, human rights, welfare space but also include religious organizations, trade and professional associations, political parties, standard-setting bodies and educational organizations. Another good starting point is the review and implementation of the National Policy on Voluntary Sector 2007 from India’s erstwhile Planning Commission that suggested simplifying FCRA regulations, time-bound procedures for registration, income tax clearances and financial assistance for non-profits and adopting a trusting and respectful relationship between the Government and the non-profits. The current toxic environment may be the farthest possible from the above-stated vision, but it’s never too late to start.

18 thoughts on “NGOs, Like Ceasar’s Wife, Should Be Above Suspicion: Why Indian Nonprofits Need To Take Transparency More Seriously

  1. Pingback:  Why Indian Nonprofits Need To Take Transparency More Seriously | Anti Corruption Digest

  2. Pingback: Why Indian Nonprofits Need To Take Transparency More Seriously | Anti Corruption Digest

  3. Well-argued overview of the arguments for NGO sector internal measures to improve financial accountability! Post like yours are a breath of fresh air to someone like me working in and for the (development) NGO sector. I would be really interested to get your views on how to improve sector-wide accountability. Your list of possible measures is more a wish-list of goals than a list of actionable measures. Working on these issues within the Cambodian context has convinced me that positive change is going to remain an illusion as long as other links in the value chain of aid are not taken into consideration. The Sabrang Communications example that you describe to highlight the issues is quite illustrative of what I am after: what role has the Ford Foundation to play in funding an organization with such unsmart and ineffective recordsmanagement? That checks & balances require both internal and external enforcement is hardly rocket science. What intrigues me is why all analyses of NGO accountability problems that I have come across so far ignore the very common occurrence of negligent due diligence (in a broad sense of the term) by the funding agencies involved.

    The only aspect of your contribution that I am not enthusiastic about is the use of questionable numbers to strengthen your argument. Two stand out: the 3.3 million registered NGOs may very well be an officially sanctioned figure, but your source article also mentions a registered figure of 34.803 for the sub-category of foreign funded NGOs (i.e. 1%). I doubt that the source’s argument that local sponsors hold their NGO recipients to account while foreign donors, far away from the action, are neither able nor interested in accountability, holds much water, but the implied consequence that it is mostly the foreign funded NGOs that are unaccountable suggests that the 34.803 figure is the relevant one, and the 3.3 million an unwarranted attention gadget. Furthermore, the same article is also the source of the ‘almost half of the money being misused’. Quite a figure but based on nothing more than unspecified NGO watchdogs. I do believe that one needs to have some credible estimates to argue one’s case for the seriousness/urgency of an issue, but agree with the general take on the use of spectacular numbers without a transparent evidence-base that Matthew and Rick have already devoted several posts to, most recently this one: https://globalanticorruptionblog.com/2016/01/26/more-phony-numbers-this-time-on-the-anticorruption-impact-of-open-data/

    • Dear Roger, Thanks for sharing your views on the post. Like you, I do not fully agree with the source article’s argument that local donors hold the NGOs to better account than foreign donors. There are large variations regarding accountability in both categories. When I used the 3.3 million figure, I was trying to send a message that accountability lapses were equally serious for both foreign funded and local NGOs. Probably I could have been clearer about this message.

      Coming to ‘almost half of the money being misused’, I would have loved to have a more specific number to put instead of the vague term. However, I decided to go with my trust in the publication (TIME Magazine) that has an international reputation for quality work. But I do agree that this does not absolve us from the responsibility to demand for more rigorous databases at national and international level on these type of issues.

  4. Great ideas. I think you are right that, despite a sense of double standards and unfair targeting, there are still plenty of opportunities to think about improving management and accountability. One question I would have–whose responsibility would the first moves be? There might be several possibilities: major donors like the Ford Foundation could demand transparency before agreeing to fund; NGO presidents or founders could, as you suggest, come together to agree to a voluntary code of ethics; if the government provides funding for nonprofits, they could automatically be held to a higher standard of transparency; or NGOs could create conferences (sort of trade associations for nonprofits, if you will) of members and keep one another accountable. In reality, none seem to offer a full solution, particularly for a self-motivated bad actor, although there could be combinations of such measures to increase pressure on multiple fronts. Even so, it seems likely that if there is a “politically motivated vendetta,” the investigating body could probably always find something or other to challenge an organization’s reputation. Put another way, the investigations of NGOs (and avoiding such investigations oneself) probably couldn’t be the main motivating factor. It seems like some sort of joint peer mechanism, like the code of ethics, would offer some chance to increase standards even without promised results.

    • Kaitlin, can’t agree with you more on the bewilderment of where to start. In my opinion, I would say start from your own home, meaning voluntary accountability measures by NGOs. If an organization build its reputation for integrity in every aspect of its work, it becomes easier for them to withstand government nitpicking as political vendetta. Instead, if there are ethical lapses on your side, it makes it difficult for others to join your cause against the government even if you have reputation for exemplary work.

      Yes, it is unfair to the NGOs that they are held to much higher accountability standards than the Government or the business. However, by the very nature of their work of holding Governments and Business to account, the citizens do not expect them to have skeletons in their closet. But this does not mean that we should stop the conversation on Government’s political vendetta. The extent of duplicity in their approach is shocking to the point of being ludicrous. But I would argue that discussions on this issue would have more credibility among citizens if they acknowledge the need for reforms on both ends.

      • I couldn’t agree with your point more, Nayana, and Kait’s compelling questions. While I think we are far too over run with “ranking” systems today, I wonder what you think of another non-profit forming to assess whether NGOs are using their funds wisely and acting transparently. I know things like this exist in the U.S., and their information could help citizens know best how to allocate their charitable dollars, which could do incredible good. It could encourage non-profits to behave well and better ensure money goes where it is used most efficiently.

        • rankings are very hard to pull off, because you have to compare very different institutions to each other. However, ratings (to what extent does a certain practice measure up to an external standard) are much easier, more robust, and replicable — and thus themselves transparent.

          We think income transparency is a good place to start, since you then are also more in need to explain what you have done with that money. We’d be happy to share our experience, since the system we used for Transparify indeed is simple to replicate.

  5. Good article Nayana. I agree that all public money should be subject to scrutiny. As an Executive Director of an NGO in India, I recognise the problems in the sector and encourage more transparency. However, some arguments in your article are divorced from ground realities too. Firstly, you mentioned the case of Teesta and how she used her credit card to make payments. I am not here to argue the nature of expenditure in her case but just making a larger point. It is sometimes inevitable as many vendors only accept credit card payments and NGOs are not eligible for debit/ credit cards. The only way will be to use a personal card and ensure the invoice and narration is in line with the reimbursement. Secondly, NGOs and NGO heads are scrutinised more closely and I subscribe to that. However, what is the level of accountability? Is it more paperwork? Regardless of the intentions, I would say top management spends almost 30% to 40% of their time in just accounts/ finances. The ‘real work’ is anyway done by the staff of the organisation. So how much more? Lastly, there are many existing mechanisms that are already established by the Indian Government. This includes tax filing, annual declarations, FCRA regulations of compulsory reporting etc. All NGOs have to undertake this to be able to continue their work. Systems have to be tightened up further instead of creating more work. Maybe something to think about.

    • Anusha, thanks for bringing up these important points: 1. On credit cards: a) It would have been good to know about this restriction on NGOs regarding credit cards while I was writing this. However, even if the founders are forced to use their personal cards, shouldn’t it be possible to use two separate credit cards to keep separate track of personal and professional expenses? I have seen that practice being adopted by several organizations including small private start-ups which do not face scrutiny like the NGOs to do. b) I am not sure about Government’s logic for preventing NGOs from using credit cards. But assuming that these are aimed at better tracking, probably it’s time to lobby for a change on this aspect with the Government. 2. I do agree that the accountability trappings seem onerous especially when operating with limited staff and resources. However, at a time where the battle between Government and civil society is shifting into ever more difficult grounds, I do not see an ease up in accountability requirements. So as I suggested in point 2 of the conclusion, exploring innovative ways and effective use of technology or even a collaboration among NGOs to share these accountability tools such as auditors might be an option. 3. Improving systems: Totally agree that removing artificial constraints on NGOs is equally important and is an ongoing work. This would have much more legitimacy when credible NGOs can come together and work on this.

  6. An additional measure, for all NGOs, would be to be transparent about their own funding. Our organization, Transparify, developed simple and replicable standards that could be used to assess the current state of transparency among NGOs in India. Right now, for example, some think tanks in India are already very transparent about who funds them. Others remain largely opaque. This should change. An increase in funding transparency could be a meaningful contribution to the debate. If anyone wants to work on that, please let us know, we would be happy to help.

    http://www.transparify.org

    • Thank you for bringing this point up, Hans. As I commented when Till Bruckner posted about this effort last fall, I think it has a lot of merit. My concern then applies equally to the context Nayana’s post captures so well: should transparency rules be a bright-line, or might we accept that sometimes there are legitimate reasons to not disclose things such as who is funding a particular project?

      I provided some extreme examples to illustrate my point in a comment to Till’s post (see here: https://globalanticorruptionblog.com/2015/09/24/guest-post-pro-transparency-organizations-fail-to-practice-what-they-preach/#more-4049), and I agree with Till’s rebuttal that the situation I described probably moves across the line from advocacy to lobbying. Still, I can envision situations where full transparency (either on sources of funding or with respect to expense reports) puts important work at risk, work that the anticorruption community would consider valuable.

      I certainly respect your argument, and see its value and merits, but I am not convinced that it is worth the risk of curtailing important work or necessary funding on the margin in order to achieve 100% compliance with transparency and disclosure initiatives.

      • Nathan,

        thanks for that point. I agree that there may be sensitive contexts. I headed up work in Azerbaijan for many years, where ultimately our office was taken down by the government. So it’s a context that is (sadly) familiar.

        Our argument is for transparency as the default, while allowing organizations to explain why they may not want to be transparent. We think that is the right nudge. Currenty, opacity is the default, and transparency is the exception.

        That is changing, fortunately, and so we welcome anyone who does the right thing — and the support for the nuanced position we are trying to put forward.

        Thanks for nudging me to add that nuance.

        Hans

  7. Corruption numbers are difficult and controversial. But a tally on NGO funded corruption would be worth pursuing. I am not convinced that developed world donors have a grip on the field expenditure.

    • Further to this point, last night, I was speaking to a former employee of an international NGO. He lost his job in a shake up initiated by the donor. The local management were spending at 60 per cent in admin and 40 per cent on development. He said his office had three people employed for what was really one job. The shake up occurred when the donor enforced a 20/80 split of expenditure. Not corruption, maybe not.

  8. Pingback: Corruption Among Development NGOs, Part 1–Getting the Facts | Anti Corruption Digest

  9. Pingback: corruption among development NGOs, Part 1–Getting the Facts | roger henke's fancies

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