The changes in the CSR Amendment Rules 2021 related to reporting requirements and transfer of unspent funds are causing some serious practical challenges on the ground for the implementing NGOs. The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 mandate that at the end of the financial year the unutilized funds of an ongoing project are to be returned back to the funder who needs to transfer them to a separate bank account.
Tighter checks and reporting of the utilization of funds are a welcome step as they improve accountability at all levels. However, the timeline that the implementing agencies need to adhere to implies finishing the implementation and utilization of funds by February or mid-March to give sufficient time for the preparation of the project report and audited utilization certificates as the funder needs to transfer the unspent funds into the designated bank account within 30 days of the end of the financial year. Based on the performance of the year, the CSR Committee analyses the effectiveness of the project and makes decisions on project renewals.
CSR is a Board driven process and most Board meetings happen on a quarterly basis. This year we observed that in most cases the discussions on CSR projects to be taken up/renewed in the financial year are happening in July-August. In Q1 of the financial year, the CSR committee is usually preparing reports on the previous financial year’s projects and calls for proposals. As a result, new project selection for the current financial year ahead, and the release of funds is happening in July-August. The net time that an implementing NGO will get to work on a project is just about 6-7 months (Sep-Feb typically). The same process applies to long-term 3-year projects as well since impact reports and utilization must be submitted annually for these projects too and renewal happens after approval by the Board.
Apart from the short implementation period, this is causing a lot of other challenges on the ground. There are no funds available for 5-6 months into the new FY to pay salaries and rentals, etc, as all funds have been spent by March of the previous FY. There is no assurance that the project would get approved for the next year so keeping the team on the bench for six months is a very risky affair. As all Corporates follow this same cycle, which was not the case till the new amendments came into force, the impact of the uncertainty is on almost all projects at the same time and is not staggered like in earlier years when different projects had different start and end dates.
It is mid-August now and Corporates are still asking us to submit proposals for this year’s implementation, for which the closure must happen by March. How is it possible to do any kind of meaningful intervention in 5-6 months? This would impact the recruitment plans of development organizations as they would not be able to provide employment certainty to the staff beyond the short project duration. The phenomenon being common to most organizations in the development sector, will also significantly impact both the job prospects of the youngsters who wish to work in the sector and the overall talent pool available within the sector.
The kind of projects taken up therefore will be Capex based since only these display impact in a short period of 5-6 months. Long-term, behavioral change-related projects, especially the kind required in our sector of waste management, will not get funded which is a huge loss as that is where the social sector makes maximum impact.
The Corporates and the Ministry of Corporate Affairs will have to take some steps to address this critical issue that social sector organizations are facing, many of which are entirely dependent on CSR funds.
We have the following recommendation to address this problem while also adhering to the reporting requirements:
1. The CSR committees/Boards must be mandated to approve the projects for the next financial year latest by February, based on the performance of 10 months, Apr-Jan.
2. If the committee has approved the extension in February, the unutilized fund at the end of the financial year must be allowed to be carried forward to the next year without mandating fund return at the end of March.
3. For ongoing projects (1+3 years), the Board must have the option to exempt implementing organisations from annual returning of unutilized funds and annual renewal.
4. Another option is that the reporting calendar for CSR projects can be made different from the financial year as Boards of Corporates are too caught up in April-June due to financial closures. The reporting cycle for the CSR funds could be changed to say October to September.
Most development organizations that are dependent on CSR funds have struggled this year because of the changes brought about by the CSR Rules amendment 2021. This must be addressed on priority by the Corporates/MCA so that next year we do not face these debilitating issues.