CARE India is a registered Section 8 company in India and a member of CARE confederation present in 100 countries, which works with the most marginalised women and girls to alleviate poverty and reduce social injustice through comprehensive programmes in health, education, livelihoods and humanitarian assistance and rehabilitation.
How different is a nonprofit organisation’s CFO from a regular one?
18Dec 2019
National News

How different is a nonprofit organisation’s CFO from a regular one?

In an exclusive interaction with ETCFO, Rohit Nayyar, CFO, CARE India, talks about his role in a not-for-profit company. CARE is an NGO which has worked in India for over 68 years, focusing on alleviating poverty and social exclusion. It manages projects worth Rs 1,000 crore.

A not-for-profit company is an entity for charitable purposes. It, depending on the scale and the size of its operations, may or may not have a dedicated finance executive. At one such organisation, CARE India (not to be confused with the credit ratings firm CARE Ratings) the company’s Chief Financial Officer Rohit Nayyar got candid about his challenges and steps being taken to overcome them. Below are edited excerpts:

Q: What is a not-for-profit company? How is it defined under the Companies Law?

Rohit Nayyar: A not-for-profit company is an organisation set up for the welfare for the society and unlike other firms isn’t engaged in making profits. It is a Section 8 Company. The concept of Section 8 companies was introduced in Companies Act 1913 that permitted companies with charitable objects etc. to be registered without the words ‘Limited’ or ‘Private Limited’.

The restriction was that the companies were permitted to use the profits only for the purpose for which the company was promoted and there was a prohibition on distribution of dividend.

The Companies Act, 2013 elaborates on the objects for such companies and specifies objects like sports, education, research, social welfare and protection of the environment for which the companies can be formed under this section

Section 8 companies are mandated to follow all requirements under the Companies Act, 2013 except few relaxations like exemption from the requirement of appointment of independent director, at least one Board meeting to be held within every six calendar month etc.

Q: What is the role of a CFO in a NFP company?

Rohit Nayyar: There’s a misconception that the role of a not-for-profit (NFP) CFO is somehow less intense than the equivalent in the corporate world. In- fact NFP CFOs have the unique challenge of ensuring financial wellbeing, while simultaneously making sure the organisation is advancing its mission.

Fund-based accounting is an essential requirement for us. Most funding is accompanied by restrictions and onerous reporting requirements from the donors/funders. Every funder has their own requirements for reports. That means the accounting system must be designed to present information from a variety of dimensions, such as geography, project, timeframe, and funding source.

Q: What are the challenges?

Rohit Nayyar: There are special requirements to be complied with under the Foreign Contribution and Regulation Act (FCRA), 2010 before a section 8 company can receive any contributions or donations from overseas/outside India.

The provisions of the FCRA Act are in addition to the provisions under the Companies Act. It mandates companies to have separate Books of Accounts, quarterly disclosure of all foreign funds received. Separate bank account also needs to be maintained for all foreign funds received and utilised. Further, the annual FCRA return needs to be filed including the amount/source/purpose of funding and its utilisation.

Also, changes in compliance and regulatory requirements are often unfunded mandates, which require organisations to update policies and procedures, consult with outside experts, communicate new regulations to staff, set up monitoring processes, and undergo compliance audits.

Further, most of the section 8 companies are having independent Board comprising of leaders from major corporations, experts across industries and passionate philanthropists. CFO needs to report to the Board and answerable for financial discipline just like in any “for profit” companies.

Over and above, we are also subject to the usual Statutory, Internal Audit and ICFR (Internal Controls over Financial reporting) as applicable to “for-profit” companies.

Q: How does a CFO deal with these challenges?

Rohit Nayyar: Transparency is a non-negotiable best practice for leading NFPs today. When you can quickly and accurately ‘know and show’ what funders want to see, you instil a sense of confidence that their discretionary investments are well-managed, you have an edge over other agencies competing for those same funds.

Also, I never tire of reminding people that each action, process, or procedure has a direct correlation to efficiency and effectiveness.

CFOs must likewise deliver customised slices of results and reports tailored to each funder’s unique requirements. Accordingly, we maintain cost-centre wise records, i.e. separate income & expenditure record for each donor/project which are also subject to donor/funder audits.
-ROHIT NAYYAR, CFO, CARE INDIA