Making the non-profit sector transparent and accountable

Making the non-profit sector transparent and accountable

Governance issues are common in educational and religious institutions, some of which are several centuries old. The non-profit sector, comprising NGOs, civil society organisations (CSOs) and religious and educational institutions is wealthy and has a powerful and influential presence. These agencies have significant engagement with social and community issues and problems.

The good governance of the non-profit sector is, or must be, a matter of public concern. It is time for public policy to promote fairness, transparency and accountability in their functioning and facilitate them in accomplishing the goals they set for themselves. The element of public interest in the matter is evident. These institutions largely operate with contributions from the public and are also exempt from tax.

At present, the non-profit sector is regulated by myriad legislation at the state and Central levels. These include, for example, the Societies Registration Act in Karnataka, the Public Trusts Act in Maharashtra, and the Hindu Religious and Charitable Endowments Act in Tamil Nadu.

The regulation is mainly archaic and bureaucratic, and its efficacy is unproven. The Companies Act permits the creation of non-profit entities, but the procedure is too cumbersome and outdated. In any case, the skeletal framework provided in the Companies Act cannot be effective in promoting good governance.

At a minimum, non-profit agencies are usually registered under the Income Tax Act and file tax returns to maintain their exempt status. Their financial statements are also subject to audit. The limited exercise of preparation of financial statements for income tax purposes and their scrutiny by tax officials is quite inadequate from a broader governance perspective.

Developing a policy to regulate the non-profit sector is a delicate and sensitive matter. It is important to ensure that regulation is not intrusive and does not place civil society institutions under the thumb of bureaucrats and politicians. Rather, public policy must endeavour to create a healthy framework that can steer NGOs and CSOs towards good governance practices and systems and engender an appropriate environment for them to function. Additionally, regulation must provide correctives, where appropriate.

Major issues
Some major issues to be considered in developing a policy for the non-profit sector are the constitution of their governing boards, the procedures for making decisions on allocation of resources, transparency in administrative overheads, fair standards to govern the remuneration payable to office-bearers and employees, regulation of transactions the institutions may have with related parties, preparation and circulation of periodic financial and operational reports.

The measures outlined here are, as pointed out, equally applicable to religious organisations and temples. Recent discoveries of jewellery at Ananthpadmnanabha Swamy temple in Thiruvananthapuram showed dramatically the wealth many such institutions control. There can be little dispute that their governance ought to be a concern of public policy. At present, religious organisations function under the nominal oversight of state governments, but the methods applied are outdated and are not sufficiently sensitive to emerging notions about transparency, good governance and accountability.

Regulation can consider intervention in the composition of the governing bodies of civil society agencies by requiring them to have the representation of professionals who bring a broad set of skills, such as finance, accounting, law and management and provide guidelines on their credentials and background. This can be in addition to individuals possessing core skill sets, be they in religion, education or social service. Having transparent guidelines on remuneration can enable CSOs to fairly compensate the experts for services, in appropriate cases. These measures can significantly enhance the quality of governance of the institutions in the non-profit sector.

Another useful mechanism is to require the non-profit organisations to publish detailed operational and financial reports. This can promote transparency in their functions and, in turn, encourage better understanding of the CSOs and their activities and operations.

Combined with a vibrant media and increased public engagement with societal issues, the reports are likely to be reviewed by the stakeholders who can then raise any issues they consider appropriate. The resulting environment of openness and debate can help in reforming many of the ills presently seen in the non-profit sector.

With the emergence of the Internet, it is no longer necessary to print or circulate physical copies of the report. Other than the cost, the practice of circulating the reports in physical form necessarily limits access because the reports will only be sent to a predefined group of persons.

The Internet makes it possible to provide open access for everyone to review the reports. Considering our habits as a society, we can expect a degree of over-enthusiasm and overkill by self-styled activists, especially in the initial stages. But this is a downside we may have to live with – in the larger interests of promoting an active, vibrant, and well-run non-profit sector that makes a positive contribution to the society.

(The writer teaches at the Unversity of Ottawa, Canada)