{"id":62936,"date":"2025-02-26T11:30:00","date_gmt":"2025-02-26T06:00:00","guid":{"rendered":"https:\/\/idronline.org\/?post_type=article&p=62936"},"modified":"2025-02-26T10:59:27","modified_gmt":"2025-02-26T05:29:27","slug":"do-finance-and-compliance-in-the-social-sector-need-a-makeover","status":"publish","type":"article","link":"https:\/\/idronline.org\/kn-in\/article\/ecosystem-development\/do-finance-and-compliance-in-the-social-sector-need-a-makeover\/","title":{"rendered":"Do finance and compliance in the social sector need a makeover?"},"content":{"rendered":"

In August 2024, Dasra<\/a> convened a workshop for chief financial officers (CFOs) from philanthropic foundations, nonprofits, and various intermediaries for a CFO Community of Practice (CoP) in Guwahati. This initiative was supported by Rohini Nilekani Philanthropies<\/a> (RNP).<\/p>

Recognising that finance and governance are the pillars of organisational resilience, the workshop focused on themes such as compliance, risk management, process excellence, and regulatory adaptation to enhance the sector’s sustainability. The event also offered cross-learning opportunities and expert-led sessions on topics such as social finance, the Social Stock Exchange, and impact bonds.<\/p>

The prevailing consensus at the convening was that financial matters are not solely the responsibility of the finance team, but of the organisation as a whole. This indicated the need for a fundamental shift in how the nonprofit sector views financial management—to recognise it not merely as a support function but also as a strategic driver of organisational sustainability.<\/p>

\"What<\/a><\/div>

While programmatic successes often take centre stage, sound financial management is the backbone of a nonprofit’s credibility and operational resilience. Integrating financial insights into organisational development leads to better use of resources and adaptation to changing conditions. Ultimately, this builds trust and attracts donors and partners.<\/p>

Navigating complex regulations<\/h3>

In the social sector, organisations are driven by the urgency to address critical societal challenges, yet their ability to create impact is often hindered by the weight of financial scrutiny and regulatory demands.<\/p>

Behind every initiative lies a complex web of audits, compliance requirements, and funding regulations.<\/p>

The Centre for Asian Philanthropy and Society’s Doing Good Index 2020<\/a> suggests that 43 percent of nonprofits in India are struggling with fundraising due to new foreign contribution restrictions, which have affected their operations. Moreover, between 2013 and 2023, Schedule VII of the Companies Act<\/a>, 2013—which determines what activities can qualify as Corporate Social Responsibility (CSR) initiatives—was amended several times. These changes have been accompanied by numerous clarifications and FAQs that have often altered the law’s application. Nonprofits incur significant costs in complying with multiple regulations, reporting to various authorities, fulfilling donor requirements, and adhering to social security laws.<\/p>

These financial and regulatory constraints not only put a strain on daily operations but also limits the limits the longevity and growth of nonprofits.<\/p>

\"donate<\/a><\/div>

In this context, it’s time to rethink how financial systems interact with the goals of the social sector. As compliance systems grow more complex, these might often feel disconnected from the sector’s mission.<\/p>

This prompts certain important questions: Can we reimagine finance and compliance as tools for empowerment? What are some practical ways to strengthen financial capacity, build a peer-driven network of practitioners, and reinforce foundational systems that can ensure stability and meaningful impact over time?<\/p>

\"a<\/source><\/source><\/source><\/picture><\/a>
Several nonprofits often face difficulties in staying up to date with their compliance duties. | Picture courtesy: Pexels<\/a><\/figcaption><\/figure>

Our experience shows that even minor lapses in compliance, financial management, or documentation can have significant consequences, often undermining years of work and creating fiduciary challenges in fund disbursement.<\/p>

Registrations under Section 12A<\/a> and 80G<\/a> of the Income Tax Act<\/a> are essential for nonprofits to maintain their charitable and tax-exempt status. Non-compliance with requirements can lead to cancellation of registration, exposing the organisation to taxation at the maximum marginal rate<\/a>, and affecting its financial viability. For Section 80G, which enables tax deductions for donors, stricter compliance rules require nonprofits to file Form 10BD<\/a> by May 31 each year. Failure to do so prevents donors from claiming deductions, risking donor confidence and relationship with the organisation.<\/p>

With respect to nonprofits registered under the Foreign Contribution (Regulation) Act, 2010<\/a>, or FCRA, one of the key reasons<\/a> that could result in cancellation of registration, penalties, or even prosecution is delayed or neglected annual return filings. As of February 2025, more than 20,000 FCRA licenses in India have been cancelled, while approximately 15,000 are deemed expired<\/a>.<\/p>

Several nonprofits often face difficulties in staying up to date with their compliance duties, including the need to continuously update financial policies and to provide timely training to their staff to manage compliance independently. Maintaining proper documentation and ensuring regular internal financial reporting are persistent challenges, leading to gaps in transparency and internal controls. Additionally, issues in expenditure controls, procurement policies, and segregation of financial responsibilities further hinder effective financial management.<\/p>

It is vital that nonprofits undertake periodic and structured desk reviews of their compliance towards governance, finance, and administrative practices. Here’s how organisations, and the sector at large, can assist in better financial management.<\/s><\/strong><\/p>

1. Building capacity at multiple levels<\/h3>

Capacity-building initiatives for finance teams play a pivotal role in strengthening individual capabilities and, by extension, the sector.<\/p>

Last year, RNP partnered with Saathi Development Services<\/a> to conduct a 10-week course on statutory compliance and financial management, benefitting 120 participants from 60 nonprofits within its grantee network. Recently, VANI’s<\/a> regional capacity-building workshop in Bangalore featured a session on accounts and financial management,<\/em> and ISDM’s Dialogues on Development Management<\/a> organised a masterclass on governance and compliance.<\/p>

These examples highlight the increasing prioritisation of finance and compliance themes in sectoral discussions and events. There seems to be growing recognition of the fact that empowering finance teams with the right skills and knowledge is not just an operational necessity but also a strategic investment.<\/p>

Capacity-building programmes have strengthened financial management systems within organisations while simultaneously enhancing individual management skills. Key focus areas in financial capacity building include strategic planning and budgeting; consolidating financial systems and processes; improving fundraising capabilities; ensuring accountability and compliance; and implementing robust monitoring, evaluation, and risk management practices. These initiatives enable finance teams to adopt best practices, identify gaps in existing processes, and implement continuous improvements. Additionally, participation in learning programmes fosters peer networks, facilitating ongoing knowledge exchange and professional support.<\/p>

2. Creating a resilient community of practitioners<\/h3>

Finance roles can often feel isolating, as they focus heavily on regulations, audits, and reporting, with limited opportunities for peer engagement and knowledge exchange. Without dedicated spaces for collaboration, finance professionals may find it difficult to stay updated on latest regulations, address complex issues, and build a strong support network.<\/p>

While programme leads and senior leadership may find opportunities to collaborate and learn from one another through their work or via social forums, this level of interaction and cross-learning is rarely extended to finance teams. Stand-alone webinars, events, or workshops certainly offer value, but they often fall short of addressing the complexities of an evolving finance and compliance landscape. Sustained engagement and credible, practitioner-oriented information in a simple and accessible form are essential.<\/p>

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Many questions raised by community members have resonated with finance professionals across the sector, highlighting shared concerns and information needs.<\/p>\n<\/blockquote>

Based on this need, we imagined a community-driven platform tailored to finance, developed by professionals within the sector. This led to the creation of the <\/a>People’s Alliance for Trust & Transparency in Civil Society Organisations (PATTIC<\/a>)—a collaborative, practitioner-driven platform anchored by Saathi Development Services<\/a> and Aikyam Fellows<\/a> and supported by RNP.<\/p>

PATTIC is envisioned as a resource hub offering a multilingual knowledge base for financial and legal compliance for nonprofits. The platform includes a library, a forum for expert interactions, FAQ and audio repositories, real-time sectoral and compliance-related updates and reminders, and a dedicated WhatsApp channel to cultivate a community of practitioners. The discussion forum also shares resources such as lists of key government portals useful for nonprofits and other organisations.<\/p>

In essence, it serves as a space for professionals to ask questions, seek clarifications, and stay updated on the latest compliance regulations relevant to the social sector. In fact, many of the questions raised by community members have resonated with finance professionals across the sector, highlighting shared concerns and information needs. PATTIC is accessible in 15 Indian languages, ensuring that reach and engagement extend beyond English-speaking audiences.<\/p>

Becoming strategic partners<\/h3>

With strong financial and compliance frameworks becoming increasingly important, how can we ensure that our finance teams move from being compliance enforcers to strategic partners in social impact?<\/p>

For this, nonprofits must prioritise learning and development and allocate funds to strengthen financial capacity. This could include investment in human resources through upskilling initiatives for finance teams to acquire new skills, enabling collaborations at the ecosystem level for sharing best practices, and encouraging periodic reviews of regulations by both finance and non-finance teams through internal meetings and refresher sessions.<\/p>

Funders can facilitate this process by investing in finance and compliance training, just as they do in programme-related initiatives. Finance professionals could also join peer-learning networks like PATTIC to stay updated and have support.<\/p>

Making a conscious shift from working in silos to collective action can help ensure that nonprofits not only navigate regulations but also thrive in their mission.<\/p>

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Know more<\/h3>