The mandate of Corporate Social Responsibility rules since 2014 in India, has made it compulsory for certain categories of corporations to spend at least 2% of their (3 years’ averaged) annual profits on corporate social responsibilities and made a provision to partner and support charities/non-profit organisations to fulfil this very legal obligation as “giving back” strategy to generate goodwill in their respective communities. Businesses, therefore, must spend in areas like literacy, women empowerment, environment, water and sanitation, human rights etc.
Many companies, falling under the threshold of CSR, simply do not have the necessary bandwidths (employees, consultants and supervision) to undertake consistent CSR implementation. Therefore, such companies are under pressure to meet not only the compliance of spending of 2% CSR funds but also struggle to train and engage their employees for their project’s sustainability.
CSR mandate led boom in number of NGOs and emergence of CSR Consulting organisations
The mandate of compulsory CSR has widened the opportunities for NGOs that see corporations not only a source of continued funding but also access to strategic resources. With the mandate of compulsory CSR and opportunity to exploit CSR funding from companies, prompted many NGOs to re-align their vision, mission and objectives as per CSR mandate. Further, the boom in CSR funding also led to unprecedented increase in the number of NGOs, non-profit companies and CSR focused consulting firms and conglomerate of such organisations that often self-proclaim to be expert in CSR and sustainability field and use various marketing tools and strategies to pitch to have a streamlined, customised solution to these corporations.
Challenges in selecting the right NGO for CSR partnership and potential risk for companies
With this veritable ocean of NGOs and CSR consulting firms, it is not easy to identify the right one for a company to partner and engage in CSR activities. Although, there are many companies that have been trying to develop effective mechanisms like establishing their own foundation, putting M&E system in place, rating NGOs based on certain parameters e.g. relevant past experiences, compliances to legal due diligences, awards and recognition, reputation of NGOs or CSR consulting firms in the markets etc.
However, many a times, CSR foundations and companies end up partnering with such NGOs and CSR consulting firms that easily mislead companies with their lucrative proposals, attractive presentations, however, on ground they do not perform as they promise and preach.
Working with such NGOs and CSR consulting firms put companies/CSR foundations at great risk of defame, damage company’s brand image and reputation not only in communities they work but also on the canvas of wider stakeholders. Those companies that qualify for CSR, in most cases require to collaborate with NGOs to carry out implementation of CSR interventions and to build capacity of their employees.
There are NGOs that have also registered their own private firms with either similar brand name to provide both consulting and implementation support to companies. However, collaborating with right implementing agencies and CSR consulting organisations remains a big challenge, if not selected carefully the collaboration may put the company’s at greater risks.
Insight based on experience from a Delhi based NGO and CSR consulting organisation
The rubric, modus operandi and governance model of an NGO and consulting firm is very important to understand for a company before making a decision for partnership for CSR implementation.
Understanding the rubric – brand name and logo of a Delhi-based CSR Implementing agency
A CSR implementing agency (name confidential), a Delhi based NGO that has been partnering with reputed private and public sector companies in India for the implementation of their CSR initiatives. This NGO uses the abbreviation of its full name as logo and brand name of this NGO. The primary role of this CSR implementing NGO is building partnerships with other big private and public sector companies and undertaking CSR projects and implementing on ground.
The founder of this CSR implementing NGO also got a company registered with Registrar of Companies (Delhi) as ‘XYZ Financial Services Pvt Ltd’. The role of this company is providing CSR consulting and it works only together with its ‘XYZ CSR Implementing NGO’. The logo/brand name is common both for the NGO and CSR consulting company. In addition, the website and office are also common for both organisations.
CSR partnerships and internal governance by a CSR Implementing organisation
After the CSR implementing NGO signs a CSR project with any company and receives the CSR fund to implement the project. The NGO uses staff from ‘XYZ CSR consulting’ organisation for the entire implementation of the project. There are no separate project staff appointed by the said NGO to do the implementation on behalf of ‘XYZ CSR Implementing NGO’. Since, the NGO does not appoint any staff under the project signed with other company, therefore, the staff that are working under CSR consulting organisation for the CSR project of Implementing NGO, cannot claim that they were staff of Implementing NGO under a particular CSR project in partnership with any specific company. This is where the game of unethical practices starts that not only exploits staff but also affects the project being undertaken.
Staff are forced to meet project activity expenditure from their own pockets: to implement the project activities timely, there is always a need to mobilize some advance money. Once, the project management team sends a requisition to the Senior Management of the CSR consulting organisation, they do not receive the advance money even if their requisition is approved.
The staff are pressurized to meet activity timeline anyway and arrange the expenditure either from their own pocket or elsewhere and claim that later or recover from the approved requisition once money is transferred. This way excluding the major expenditure of the project activities, expenditure of many activities is done by employees itself from their own pockets, even, the society and consulting firm both have the project money that they receive from CSR foundation or Corporate partner.
Staff receive partial or no reimbursement of project expenditure done from their own pocket: once the project activity is completed from the pocket/personal money of staff, the staff asks for reimbursement from the management of the said CSR consulting organisation against the project expenditure done from their own pocket. If the claimant did not take pre-approval in writing (which is not given by the management of CSR consulting organisation).
In most cases the claimant can not get the reimbursement or it receives only partial reimbursement. In addition, the claimant is unable to get reimbursement within three months, they will not receive reimbursement at all. In most cases, the management keeps delaying for reimbursement that accumulates huge amounts and later staff are not paid back.
Staff are pressurized to not spend more than 30% against the budgeted activity cost
The staff are pressurized to keep real project expenditure as below as 30% against the budgeted project activity unit cost. Once the project is done not exceeding 30% of any project activity unit cost, the staff are pressurized to manage false bills/invoices for rest 70% cost, thus, to show 100% expenditure on project activity.
Actual spending up to 30% and raising invoice of 100% expenditure to CSR project funding company
Depending upon the billing cycle under a specific project, the CSR consulting organisation raises invoices to the CSR funding company to approve and either reimburse or settle against received CSR funds received in advance. In this case, the invoice is raised on the letterhead of the CSR Consulting organisation to the CSR funding company and no supporting bills are provided unless it is asked by the company to verify. Though the actual expenditure happens only up to 30% of the budgeted unit cost of project activities, the so called CSR consulting organisation shows 100% expenditure and claims for reimbursement of 100% expenditure as budgeted.
To show 100% expenditures and support it, the organization arranges fall bills. It designs the similar invoice book/letterheads and seals and produces the false bills/invoices. To arrange the false bills, the consulting firm has hired an employee that is expert on working software like photoshops etc. this employee is engaged to scan, design and produce similar bill books/ letterheads that are later used for audit purposes. To determine the authenticity of such bills is quite difficult merely with observation unless or until these are physically verified.
Provident Fund (PF) and TDS deducted but staff do not receive any account/ receipt; at the time of appointment of staff, The CSR consulting organisation get filled the PF forms and takes all the necessary documentation but later on do not provide any account details to staff, similar things happen in case of TDS. The so called CSR consulting organization deducts the TDS from salaries of staff and also from any payment it releases to any vendors/parties but later on does not provide any TDS certificates/receipts or acknowledgement etc. Neither it deposited the TDS to the concerned office and department of Government.
Non-payment of salaries and without notice termination: in addition to non-reimbursement of expenditure done on project activities from the pockets of staff, the staff also are not paid imprest (e.g. travel cost, communication charges etc. under the project) that accumulates a huge amount if sum up for all the employees.
Further critical concern is related to salaries of these staff, apart from practice of delaying salary payments to staff, there are more than 200 staff (actual number not provided by the organisation) who have not received their one to 6 months salaries that are pending since over the last two years. The sum total of pending salaries is estimated to be more than one crore rupees.
Upon asking the salaries by staff, this CSR Consulting organisation keeps assuring that it will provide salaries but it never pays. Further, such victimized staff have been terminated without pre-notification that is a clear violation of the policy of the company and terms of employment which says a minimum one-month notice is required to be given before termination of services. However, this organisation keeps terminating the employees without notice or on short notice. There is also evidence that even without notice termination, the organisation deducted the notice period salary from the full and final settlement prepared by the company.
Account Audit and producing project bill-files
For the financial audit, this CSR Consulting organisation has a strong setting with designated chartered accountants who act as per the guidance of the company director. This has been observed in two kinds of audit reports for this company, the first is where a company is shown with negative profit and the second kind is to show that the company is making profit. This is very critical that no CSR project funding companies carry out independent audits of the project’s financial management and governance aspects.
CSR partnerships and External governance by CSR Implementing or a consulting organisation
Partial payment to vendors in case of any procurement under CSR project; partial payment to vendors who supply goods and services to the CSR consulting organization under any CSR project implementation process, has become a norm. Once, supplies received from any vendor, the CSR consulting organization keep delaying for release of payment to respective vendors and ultimately it reshuffles the management staff (or staff who issue the order of procurement), thus new in-charge/staff do not take any responsibility for releasing payment to vendor.
Thus, there have been numerous vendors who supplied goods and services to this CSR consulting organization but their payment was not released or partially released. This is a very common practice which is not only unethical but also puts a greater risk for CSR funding company’s brand image. Relationship with communities in CSR Project Intervention areas; though the CSR Consulting organisation promises that implementation of CSR project would happen with full-participation of communities and in a transparent manner.
However, in reality the financial and budget aspects are kept totally confidential with the communities. That’s one reason that communities or other stakeholders are not able to determine the quality of interventions against the budget or project cost, further, there it lowers the level of participation of stakeholders and communities in the project.
Spending on luxuries and creating personal assets
The CSR consulting organisation accumulates money from various ways like non-payment of salaries, imprest, project expenditure to staff, spending less than the budgeted under any project, savings from partial payments to vendors, savings from non-deposit of PF and TDS etc. The CSR Consulting organization spends savings on luxuries and buying personal assets like land-plot, bungalow, paying EMI of high-luxury cars etc. and organizing kitty and beer parties.
Due to such practices there is always short of money to spend on projects, causing project activities to delay in many cases. For example; once a reputed company released CSR funds to the CSR implementing NGO, to get implemented its projects, the founder of the CSR implementing NGO or CSR consulting organisation took all money invested in purchasing a bungalow in Goa. Such are the common practices that cause delay and quality delivery of impact of CSR projects.
Facilitating paid -Award Ceremony and certification
The CSR consulting organisation, paid a huge amount to award-giving agencies for the sake of organizing Award ceremony events and awarding to its CSR funding companies. This way, the CSR consulting organization not only arranges several awards for itself but also for the CSR funding partners/companies.
Such modus of operandi and well-organized unethical practices of the CSR implementing NGO or CSR consulting and implementing organisation not only negatively affects the lives of project staffs working for the implementation of CSR projects due to non-payment of salaries, but also affects the delivery of quality outcome and impact of the project. The lack of transparency with communities and less spending on project activities against the CSR budget received, push projects towards failure due to lack of participation of communities.
Also communities start losing trust in such organisations and communities believe that certain practices are being promoted by CSR funding companies. Moreover, the producing false bills, just to full-fill the documentary requirements to show full expenditure poses a great risk for the brand image of CSR funding companies if the truth came to be known to stakeholders, communities or to the government.
Based on the above insights of the practices of Delhi based CSR implementing NGO together with CSR Consulting organization, companies falling under the threshold of CSR, must be rather conscious before carrying out the partnerships with NGOs and CSR consulting organisations. Companies must consider carrying out audits of internal governance and management practices of the potential NGO and CSR consulting organization. In addition, companies should gather feedback not only from the existing employees of NGOs but also previous employees as well.
Companies are recommended to priorities the nature of employment being promoted under the CSR project and funding and ensure that NGOs and CSR Consulting organisations hire a number of project staffs per agreement under the project and should timely pay salaries. Rather than only relying on feedback on social media platforms and from the website of NGOs/CSR consulting organizations, the CSR funding companies must undertake community audit and feedback from previous and current partners. Thus, integrating internal and external governance audits will help companies to determine the right NGO and CSR consulting organisation for nurturing long-term and sustainable partnership as well realizing greater impact of CSR projects with stronger relationships and trust in communities these companies serve.
Disclaimer: The insight is based-on real experience of the author and opinion expressed there in the area of author only.