Choosing an NGO partner: due diligence for CSR teams

Due diligence is the checking a company does before it funds an NGO, to answer three questions: is the organisation eligible to implement CSR, is it capable of doing this work well, and is it the right fit for the project and the communities involved? The CSR team does it, or an agency the company appoints, and the decision and the responsibility stay with the company’s board.

This guide is for CSR teams, foundation staff and company secretaries. NGOs getting ready for these checks should read the documents CSR teams will ask for.

Why the law makes due diligence necessary

Neither Section 135 of the Companies Act, 2013 nor the Companies (CSR Policy) Rules, 2014 (the CSR Rules) use the words “due diligence”. But several duties can’t be met without it:

• The agency must be eligible. Rule 4(1) lists the organisations that can implement CSR, and Rule 4(2) requires each to hold a CSR registration number. Money routed through an ineligible organisation may not count towards the company’s obligation.
• The agency is disclosed. Form CSR-2, the company’s annual CSR filing, names implementing agencies and their CSR registration numbers.
• The board must be satisfied about the money.

A CFO can sign that certificate with confidence only if the partner was chosen carefully and reports properly.

Match the depth to the grant

Every grant needs some checks; no grant needs every check. Asking a small community group for the same file as a ₹5 crore programme quietly shuts out organisations communities often trust most, while a light check on a large grant puts people and money at risk. Set three levels in your grant manual; the bands below are a starting point, not a legal requirement.

Eligibility: the legal gate

Start with the questions the law answers yes or no. Ask for documents once, then check each against its public record yourself.

• Tax registrations expire. Regular registration lasts five tax years (ten for some smaller organisations) and provisional registration three; registrations under the Income-tax Act, 1961 continue until they expire. Note each expiry date. The CSR Rules still say “12A and 80G”; read them as shorthand for these registrations.
• The CSR registration number must belong to this organisation. The MCA issues one number against each PAN, so a sister trust’s number doesn’t make this NGO eligible. Many agencies list on the MCA’s National CSR Exchange Portal, but absence alone isn’t a red flag. See Form CSR-1.
• Independent NGOs need three years of similar activities (Rule 4(1)(d)). Age isn’t the test; the record in similar work is. See ways to implement CSR.
• Settle your own company’s FCRA position. Some Indian companies with foreign shareholding count as a foreign source under the Foreign Contribution (Regulation) Act, 2010, so their CSR money can be foreign contribution, which an NGO may accept only with FCRA registration or prior permission. Decide it once with an expert. See who counts as a foreign source.

Money, governance and policies

Read three years of audited accounts side by side, and look at:

• Where the money comes from, and whether income grew steadily or jumped.
• Concentration. If one funder provides more than half the income, ask what happens when it leaves.
• Reserves. Divide unrestricted funds by average monthly spending. A few months is healthy; none means a late tranche could stop the work.
• Administrative costs. Good work needs good administration, and no law caps an NGO’s overheads from domestic money: the 5% cap in Rule 7(1) applies to the company’s own CSR administration. Ask how costs are allocated rather than demanding an unrealistically low figure.
• Related-party transactions, such as rent or contracts with trustees, their relatives or their businesses. Under the Income-tax Act, 2025, income applied for the benefit of a “related person” is taxed at 30%, so these must be disclosed, approved and on fair terms.
• The auditor’s opinion. A qualified opinion isn’t automatically a reason to say no, but you must understand it.

The board. Ask who is on it, how members are related and how often it meets. Family boards are legal and common in small trusts; look for compensating controls, such as an independent treasurer, two signatures on the bank account and a clean audit. Check conflicts on your side too: whether your directors or staff, or their relatives, sit on the NGO’s board or supply it.

Policies. Ask for them, then ask how they work in practice. A policy copied for your application, with another NGO’s name still in it, isn’t a policy.

• Safeguarding or child protection for any work with children or vulnerable adults: a named lead, a code of conduct, safe recruitment, training and a reporting route. Under section 19 of the POCSO Act, 2012, anyone who knows or suspects that a child has been sexually abused must report it to the police or the Special Juvenile Police Unit, and section 21 makes failing to report an offence.
• Registration of children’s homes under section 41 of the Juvenile Justice Act, 2015, for any institution housing children in need of care and protection.
• An Internal Committee under the POSH Act, 2013 where the NGO has 10 or more employees.
• Finance, whistle-blowing, conflicts of interest and data protection, with the main duties of the Digital Personal Data Protection Act, 2023 applying from 13 May 2027. See policies every NGO should have.

The programme, references and site visits

Paperwork shows an NGO can take CSR money; the programme shows whether it will do any good.

• Does the plan make sense? A clear problem, steps that lead to change, named assumptions and community input. See theory of change.
• Has it worked before, and how do they know? Ask for outcomes as well as outputs, how they were measured, and who outside the NGO has seen the results. Ask about a project that went badly and what changed.
• Can it absorb the grant? As a rough guide, a first grant above about half the NGO’s annual spending needs a close look at its people, systems and cash flow, and one larger than its whole budget usually needs a phased start.

References. Ask for a mix, and add one the NGO didn’t nominate, such as a past funder named in its annual report. Ask specific questions: did reports arrive on time, and would you fund them again?

Site visits. Keep the group small, ask the NGO not to stage anything and pay your own way. Meet communities on their terms: explain that talking to you is optional, ask open questions and take no photographs without consent.

Red flags, and the ones that stop the process

No single signal decides. Look for patterns, give the NGO a fair chance to explain, and use conditions where an issue can be fixed; the last two rows can’t be.

Deciding and recording the decision

Separate gates, which must be met, from scores, which help you compare. Legal eligibility, a clear FCRA position and, for work with children, a safeguarding policy in place before work starts are gates. Programme design, track record, finances, governance and capacity can be scored, which also shows where a partner needs support.

Give your CSR committee a short note it can rely on:

1. The recommendation: fund, fund with conditions, defer or decline.
2. The project, its Schedule VII item and whether it is an ongoing project.
3. Eligibility: the Rule 4(1) route, CSR registration number and tax registrations, with the dates you checked them.
4. What you checked, what you found and how each risk will be managed, including any conditions.
5. Any conflicts declared, and how they were handled.

Keep a dated record of where you checked each item, with screenshots, because portals change. For multi-year grants, refresh the key checks each year before the next year’s money. Then turn your findings into the agreement and the monitoring plan.