Presentation on FCRA Overview

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Accounting for Aid. Aid in Accounting

PRESENTATION ON FCRA OVERVIEW

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FCRA

History Evolution Purpose FCRA in Other Countries Funds Formalities Concerns

For Associations

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FCRA - HISTORY

1956: Niyogi Committee Report 1967: Newsweek and New York Times 1967: Debate in Lok Sabha 1969: Government promises FCRA 1973: FCRA bill introduced 1974: Referred to JPC – Joint

Parliamentary Committee 1976: JPC final report 1976: FCRA Act passed

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FCRA - EVOLUTION

Niyogi Committee: focus on missionaries Lok Sabha debate: focus on politicians 1976 law: Focus on politics 1982-87: Kudal Commission 1984 amendment: extended to NGOs –

concern: involvement in politics 2005: FCMC Bill 2005 2006: FCRA Bill 2006

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PURPOSE

Prevent Foreign influence on: National electoral politics National media National establishments

Restriction of terror funds not an objective

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27 countries have FCRA or look-alikes Most focus on foreign funding of

elections USA, UK, Germany,….

Some extend to regulation of NGOs Bangladesh, Russia, Uzbekistan, Peru,

Brazil Some control NGOs through alternate

means China, Nepal, Pakistan

Perspective difference between givers and takers

7FCRA IN OTHER

COUNTRIES

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FCRA FUNDS

38,374 registered NPOs/associations (30-Oct-2009)

18,796 NGOs filed FC-3 for 07-08 Reported receipt of Rs.9,663 Crore

USA: 30% Funds growing at 12.8% annually since

92-93

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TOP 3 RECEIVERS

World Vision of India, Chennai, TN: Rs.212 Cr.

Rural Development Trust, Ananthapur, Andhra: Rs.125 Cr.

Believers Church India, Pathanamthitta, Kerala: Rs.102 Cr.

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TOP 3 DONORS

World Vision International, USA: Rs.578 Cr.

Gospel for Asia, USA: Rs.365 Cr.

Fundacion Vincent E. Ferrer, Spain: Rs.248 Cr.

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WHAT IS FOREIGN CONTRIBUTION?

Foreign contribution = Funds/ material/ shares received from a foreign source [Sec 2(1)(c)] Manner of delivery / transfer

Any form – donation, delivery or transfer

Any Currency – Indian or foreign

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FOREIGN SOURCE-1

Defined u/s Sec 2(1)(e)

Any source under control of foreigners is a foreign source. Some examples of foreign sources (

AccountAble 41)

Multi-lateral agencies are not a foreign source (AccountAble 40)

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FOREIGN SOURCE-2

Individuals of Foreign nationality (citizenship)

Concept of NRI/ PIO Foreigner living in India

Government of a foreign country International Agencies (except UN Org.) Foreign NPOs Trusts, Foundations, Societies, Clubs,

Corporations, Trade Unions

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FOREIGN SOURCE-3

Business Organizations Foreign company, Subsidiary of a

foreign company, Foreign corporation, Multi-national corporation, Company controlled by foreigners

Concept of foreign company/ MNC Status of Indian organizations registered

abroad Determining shareholding pattern

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SIX TYPES OF RECEIVERS

Categories of Receivers - section 6(1), (1A)1. Political parties

2. Organizations of a political nature

3. Individuals in public life

4. NGOs/ NPOs

5. Private individuals

6. Business organizations

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COVERAGE

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Covers all associations with a definite program – CEERS Association of individuals Registered or un-registered Office in India Includes Society and any other forms of

organisation

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FCRA OPTIONS

Permanent Registration Prior-permission Legal Holder? Scholarship, stipend or any payment

of a like nature (individuals) File FC-5, if fellowship/ stipend >

Rs.36,000 per annum

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FCRA FORMALITIES FOR NGOS-1

Registration (AccountAble 42) Should be > 3 years old

Takes ~6-8 months

Apply in form FC-8 (AccountAble 26) Presentation on online Filing of FC-8

Online application for FCRA Registration http://www.mha.nic.in/fcraweb/fc_login.aspx

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FCRA FORMALITIES FOR

NGOS-2 Prior-permission (AccountAble 33)

Takes 3-4 months

Apply in form FC-1A (AccountAble 19)

Must file on-line application Presentation on online Filing of FC-1A

Online application for FCRA prior-permission http://www.mha.nic.in/fcraweb/fc_login.aspx

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KEY LIMITATIONS UNDER FCRA

All ‘organisations with a definite program’ need FCRA to receive foreign funds.

FCRA funds always remain FC Can be passed on to other FCRA

organisations only FCRA organisations cannot engage

in politics or political activities Publication of newsletters

Electronic Newsletter

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REQUIREMENT FOR NGOS

Funds in designated FCRA bank account Project/Donor-wise Bank account?

AccountAble 22

Maintain separate set of account books

Project/Donor-wise Cash Book? AccountAble 22

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Must maintain Form FC-6 For contribution in kind

AccountAble 58

Must file annual return in Form FC-3 by Dec 31

Whether FC received or Not Option for on-line filing of FC-3

AccountAble 21 Form FC-3

REPORTING BY NGOS

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MULTIPLE FCRA BANK ACCOUNTS

Various practices Show-cause notice issued when discovered May lead to violation of section 6 (

CROSS case) Legal Position:

Not permitted under present FCRA rule 8(1)(b) Permission granted for secondary accounts on a

case-by-case basis, where sufficient reason shown

FCRA Bill 2006 allows multiple secondary bank accounts (section 17)

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CHANGE OF FCRA BANK

Is permitted, if supported by reasons Use an existing account or a new one Need to apply to Ministry for

permission Application to MHA

Fresh letter of registration issued, with new Bank Account Number

Takes 1-3 months Detailed procedure in AccountAble 14

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CHANGE IN NAME & ADDRESS

Need to report in the change of Name and address of Association Within 30 days

Need to apply to Ministry for permission Application to MHA Fresh certificate with changed address

and name

Takes 1-3 months

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SHADOW-LENDING

Not allowed under FCRA

Still in many cases funds passed on

Discovery leads to show-cause notice and nuisance

FCRA rarely cancelled

More common among networks

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SHADOW-LENDING - 2

Methods used: Legal holder

Consultancy agreement

Transacting in cash

Showing CF as employee

Out of innocent error

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SHADOW-LENDING: WEAKNESSES

Legally untenable

Vulnerability: Weak paper-work

Dissatisfied employees

Dissatisfied network members

Ignorance of law

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SHADOW-LENDING: AUDIT

ISSUES Audit of third-party vouchers –

logistical issues Sec. 23 of FCRA: whether CA liable as

advisers

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FCRA BILL 2006

FCRA Bill tabled in Rajya Sabha in December 2006

Bill to replace existing FCRA once passed

Current status: Recommendation/ Report given by Parliamentary Standing Committee

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REFERENCE MATERIAL

AccountAble 22: Mysteries of FCRA AccountAble 19: Form FC-1A; 33: Prior-permission AccountAble 26: Form FC-8; 42: FCRA Registration AccountAble 21: Form FC-3 AccountAble 20: Filling up FC 3 -Basic AccountAble 72, 73: Intricacies of FC-3: Part 1 & 2 AccountAble 84: Foreign Source in FCRA AccountAble 35: Fellowship; 27: Form FC-5 AccountAble 58: Maintaining FC-6; 28: Form FC-6 AccountAble 29: FCRA Penalties AccountAble 116: History of FCRA AccountAble 122-126; 127-128: Analysis on FCRA Bill 2006

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Thank you!

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Presentation on FCRA Overview

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