NGO Due Diligence Before CSR Funding: A Compliance Checklist

A company finds an NGO doing good work, feels satisfied after one meeting, and releases funds. Six months later, questions came. Was the NGO registered to receive CSR funds? Were the tax approvals valid? Did the money go where it was supposed to go?

Writing a CSR cheque is the easy part. Making sure that cheque goes to a credible, compliant NGO is where the real work lies. It is the foundation of defensible CSR compliance under the Companies Act, 2013. Here is the checklist to follow before any funding decision is made.

Check the NGO’s constitutional document, whether it is a trust deed, a society registration certificate, or a Section 8 company incorporation certificate. Confirm the registration is still active with the relevant Registrar or Charity Commissioner. Match the registered address and the names of trustees or directors against official records. Some NGOs look credible on paper but stopped functioning years ago.

1. Confirm Legal Existence and Registration

Check the NGO’s constitutional document, whether it is a trust deed, a society registration certificate, or a Section 8 company incorporation certificate. Confirm the registration is still active with the relevant Registrar or Charity Commissioner. Match the registered address and the names of trustees or directors against official records. Some NGOs look credible on paper but stopped functioning years ago.

2. Mandatory CSR-1 Registration

From April 2021, every NGO receiving CSR funds must be registered with the Ministry of Corporate Affairs through Form CSR-1 and hold a valid CSR Registration Number. This is not optional. If an NGO cannot show a valid CSR-1 acknowledgment, funding should not move forward. Verify the number directly on the MCA portal rather than trusting a copy the NGO shares.

3. Check 12A/12AB and 80G Status

Confirm the NGO holds a valid registration under Section 12A or 12AB of the Income Tax Act, which proves its tax-exempt status. Check for a valid 80G certificate, which allows donors to claim tax deductions. These registrations need periodic renewal, so check the current validity dates rather than relying on a certificate from a previous year.

4. FCRA Compliance, If Relevant

If the NGO also receives foreign funding, check its FCRA registration or prior permission status on the Ministry of Home Affairs portal. Domestic CSR funds do not need FCRA clearance, but many NGOs run mixed funding models. Irregularities on the foreign funding side usually point to weaker governance overall.

5. Review Financial Health

Ask for at least three years of audited financial statements, income and expenditure accounts, and balance sheets. Check how much goes to administrative costs versus programme delivery. Check whether the NGO is sitting on large reserves without growing its programmes. Compare the income tax returns filed with what the NGO shares directly. The numbers should match.

6. Look at Past Performance

An NGO’s track record matters more than its presentation. Ask for impact reports, past evaluations, and references from earlier funders. Where possible, do a site visit or get an independent field check done, especially for first-time partners or work in sensitive areas like child welfare, healthcare, or environment, where results are harder to measure from a distance.

7. Examine the Governance Structure

Look at who sits on the governing board. A board made up of one family or controlled entirely by the founder, with no checks in place, is a warning sign. A diverse board with defined terms and documented meeting minutes is a good sign. Check whether the NGO has a conflict of interest policy, a whistleblower mechanism, and a documented procurement process.

8. Check Compliance and Legal History

Search for any past regulatory action against the NGO, including cancelled registrations, show-cause notices, blacklisting by government bodies, or pending litigation. The Income Tax Department, MCA records, and the NGO Darpan portal are good places to start. A clean history does not guarantee good governance, but a troubled one should raise immediate concern.

9. Match the Project With Schedule VII and Your CSR Policy

Check that the proposed project fits within the activities listed in Schedule VII of the Companies Act and matches your company’s board-approved CSR policy. A mismatch here means the spend may not count as valid CSR expenditure, even with a credible partner.

10. Set Up a Monitoring Process

Due diligence does not end once funds are released. Build a monitoring plan before signing anything: quarterly utilisation certificates, fund release tied to project milestones, third party monitoring for larger grants, and a reporting format that lines up with your Annual Report on CSR Activities. This protects the NGO’s accountability and your company’s compliance position at the same time.

Making This Part of Your Regular Process

Companies that manage CSR risk well do not treat due diligence as a one-time check before releasing funds. They build it into a repeatable process: standard documentation requirements, a scoring method to compare implementing partners, regular re-checks for multi-year grants, and a clear plan for what happens when something looks wrong midway through a project.

For teams managing several NGO partners across sectors and states, this becomes a lot of manual work. A structured, advisory-led due diligence process earns its value here, not just in staying compliant, but in getting better results from the money spent.

Getting NGO due diligence right protects three things at once: compliance under the Companies Act, the company’s reputation, and the people the CSR programme is meant to help. Treat it with the same care as any other financial due diligence, because that is exactly what it is.