Is your Implementing Agency compliant?

The Companies (Corporate Social Responsibility (CSR) Policy) Amendment Rules, 2021 is one more step ahead by the Government towards increased legal scrutiny of CSR activities not only for corporate bodies but equally for the implementation agencies. In last few years, Government cancelled Foreign contribution regulation Act (FCRA) licenses of various NGOs which were non-compliant with the laws related to foreign contribution and also amended the FCRA regulations in order to ensure that the CSR funds are directed to the identified purpose and route was used by NGOs to carry out their operations is in compliance with the law. While executing CSR Program, selection of a Implementing Agency is crucial.

Identification of implementing agency

While Company ensures that it is complying with all regulatory and statutory norms required under corporate laws, it may lose track to ensure whether it’s Implementing Agency is compliant. The identified implementing agency would be able to provide support to corporates to ensure compliance with new CSR rules which mainly include below areas :

• Basic statutory approvals required under the rules
• Monitoring of CSR activity
• Actual utilization of the CSR funds towards identified purpose
• Impact Assessment

There are more than 30 Lakh NGOs in India which provides ample choice to the companies. With the growing importance of corporate governance, stricter monitoring and reporting obligation, it requires companies to be more disciplined and compliant while implementing CSR program.

Due Diligence – a need of an hour?

Assessing the credibility, reputation, and efficacy of an Implementing Agency can be a challenging task. Any violation of local laws by the implementing agency may have negative impact on the Company and its reputation. Another critical part is whether implementing agency is aligned to company’s CSR strategy and philosophy. Comprehensive Due Diligence (DD) of the implementing agency is crucial before the start of any project and should also form part of the CSR Policy. This process has to be sufficiently robust to ensure that the implementing agency has the credibility, competence, and integrity to deliver effective CSR programs. The due diligence may broadly cover below areas:

• Statutory Compliance as required under 4 of the CSR Rules
• Past History and Credibility
• Governance structure and regulatory approvals
• Financial sustainability and accountability
• Management and human resource
• Risk management
• Transparency and ethics

Due Diligence and Risk mitigation

DD procedures are designed to assist in decision-making by assessing the potential risk of conducting business with an associate. While companies cannot guarantee that improper conduct will never occur, we can protect and prevent it by implementing adequate controls by use of appropriate due diligence and effective risk management. For example, the risk of bribery / Conflict of interest can create serious challenges in execution of any project in a compliant way. Another example is implementing agencies having political association / affiliation to public officials. Adequate controls at the time of hiring of third party will mitigate risk to reputation and regulatory violations. Key risks identified in the due diligence process need to be assessed, documented and monitored at regular intervals.

The DD process acts as a risk management tool to assess the ability of the implementing agency to implement the project in line with the Company’s policy and local legal requirements. A well-structured and consistent approach for the identification and assessment of implementing agency strengthens and streamlines sustainability of CSR program.