Legal & Compliance function that enables your NGOs growth

NGO Finance Series - Part 2 By Parul Agrawal & Ritu Jain Lessons from working with 400+ NGOs at over the last 15 years at Aria CFO Services

Over the past few weeks, many of you told us that our framework for an NGO finance function was a useful “map” for growing teams. We’re turning that map into a series. In our earlier post 'Building a Finance Function That Grows with your NGO', we outlined five core roles that make a finance function work: the Chief Financial Officer (the strategic navigator), the Head of Finance (the process champion), and three operating pillars — Legal & Compliance, Accounts, and Finance Operations. Across this series, we’ll unpack what each role actually entails — where it adds value, what good looks like day-to-day, and the responsibilities you shouldn’t leave to chance. We’ll also share practical checklists and guardrails you can apply immediately.

We’re starting with the Legal & Compliance pillar — not as a box-ticking cost centre, but as a practical guardrail for growth. In this instalment, we cover the essentials that keep your organisation fund-ready and audit-ready: FCRA, Income Tax and GST filings; statutory audits; contracts and legal paperwork; board meeting minutes; and the policy hygiene that underpins donor and stakeholder trust. Key Takeaways

• Think compliance is just an administrative burden? → Discover how it can turn into a driver of credibility and donor confidence.

• Not sure what really falls under “Legal & Compliance”? → Get a clear breakdown of what NGOs must cover — from FCRA to policies to contracts.

• Frustrated with audits or repeat findings? → Spot the common traps NGOs face and learn practical ways out.

• Don’t want theory? → Walk away with practical tools and simple frameworks you can start using right away.

• Wondering if your NGO is truly audit- or donor-ready? → Learn the 5 questions every leadership team should be asking.

1. Why Compliance Needs a Different Conversation For NGOs, credibility isn’t built on programs alone — it rests on governance and compliance. Donors and regulators look beyond impact narratives to see whether the house is in order. Yet in many organisations, Legal & Compliance is managed reactively, often by overstretched teams. Pragmatic compliance keeps funds flowing, programs running, and reputation intact — by demonstrating control and continuous improvement.

   

   Think of it as moving from compliance as an event to compliance as a habit.
   

2. Scope: What the Function Actually Covers

   1. Statutory Compliance - Staying Audit‑Ready

      1. FCRA: registrations/renewals, receipts/utilization reporting, bank account compliance.

      2. Direct & Indirect Taxes: income tax returns and exemptions, TDS/TCS, GST where applicable.

      3. Labour: PF/ESI, gratuity, Shops & Establishments, POSH compliance.

      4. Always‑on hygiene: statutory registers, documentation, and regulatory watch list.
         

   2. Audit & Governance - Strengthening Accountability

      1. Plan and coordinate statutory, internal, and donor audits.

      2. Governance records: Board minutes, resolutions, member registers.

      3. Close‑loop tracking: observations → owner → fix‑by date → evidence.
         

   3. Contracts & Documentation - Minimizing Legal Risk

      1. Review donor agreements, MoUs, and vendor contracts for obligations and hidden exposures.

      2. Standardize templates and clause libraries; maintain a central repository.

      3. Pre‑grant reviews for donor‑specific compliance requirements.
         

   4. Risk & Policy Framework - Guardrails for Growth

      1. Policies: finance, procurement, HR, safeguarding, fraud/whistle‑blower, data protection.

      2. Periodic risk assessments and compliance health checks.

      3. Training: embed “how to comply” into day‑to‑day operations.
         

   5. Donor & Stakeholder Assurance - Earning Trust

      1. Maintain evidence of compliance with grant obligations and statutory requirements.

      2. Respond to compliance queries during donor diligence and audits.

      3. Act as the interface with donors, regulators, and auditors on compliance matters.
         

3. Who Does What (In Practice):

Area	Legal & Compliance owns	Partners with
Statutory & governance	Regulatory filings where delegated, registers, board records, regulatory watch	Finance on interpreting grant conditions; Programs on field execution
Contracts	Clause library, contract review, repository, sign‑off checklist	Procurement/Programs for scope & deliverables
Risk & policy	Risk register, policy drafting, training cadence, investigations coordination	HR and Programs for adoption & enforcement
Audits	Plan/coordinate audits, track observations to closure	Finance & Programs for evidence and remediation

4. Our Perspective: Transparency That Builds Trust If you’re a leadership team, use these questions to measure maturity:

   1. Do we know our top 10 risks? Are accountable persons and timelines clear?

   2. Do we have a materiality policy? (What triggers escalation vs. internal correction?)

   3. Can we evidence compliance today, not just during audits?

   4. When something breaks, how quickly do we log, fix, and communicate?

   5. Are we training people where mistakes actually occur? (front‑line, field, program ops)

What donors notice is control and steady improvement.

5. Common Failure Patterns (And How to Counter Them)
   

   1. Month‑end takes all month → Standardise reconciliations and cut‑offs; automate recurring schedules; publish a close calendar.

   2. Policies exist but live in PDFs → Convert into checklists and short SOPs; train using real scenarios.

   3. Audit findings repeat → Run a quarterly “observations retro”; track repeat‑rate as a KPI; celebrate first‑time‑right wins.

   4. Contracts signed in a hurry → Introduce a 24–48 hour legal/compliance review gate with a red‑amber‑green (RAG) summary.

   5. Compliance diffused across people → Create an owner map; publish responsibilities; back it with org‑level support.
      

6. A Practical Starter Kit (Steal This)

   1. Compliance calendar with reminders, dependencies, and evidence links.

   2. Risk & observation register with materiality and remediation notes.

   3. Board‑ready dashboard: filings status, audits status, key risks, repeat‑finding rate, and regulatory and contractual deliverables due.

   4. Contract checklist before sign‑off: obligations, reporting, IP/data clauses, termination, audit rights, local law.

   5. Training plan: field‑first, role‑based micro‑modules; refreshers post‑audit.
      

7. What NGOs Could Do Differently (From Tomorrow)

   1. Invest in compliance professionals with deep knowledge of NGO laws and governance who can interpret and apply regulatory requirements to ensure transparency, accountability, and credibility or co‑source with specialists.

   2. Move from reactive fixes to proactive governance with dashboards and trackers.

   3. Train program and operations teams where non‑compliance actually happens.

   4. Standardise contracts, policies, and reporting formats.

   5. Build compliance into the organisation’s DNA through short workshops and practical playbooks.
      

8. How Aria Can Help — With Realism

   1. Set up frameworks aligned with FCRA, Income Tax, GST, and donor requirements.

   2. Review contracts and core governance processes to mitigate risk.

   3. Build dashboards, checklists, and owner maps for proactive oversight.

   4. Train program and operations teams so compliance becomes a habit.

   5. Prepare for donor due diligence and audits.
      

   Let’s talk: reach us at ritu [a] ariaadvisory.in or parul [a] ariaadvisory.in. If you’d like, we can run a quick compliance maturity scan and share a prioritised 90‑day plan.

   
   

   Quick Glossary (India context)

   1. FCRA: Law regulating foreign contributions to NGOs — covers registration/renewal and utilisation reporting.

   2. 12A / 80G: Income‑tax registrations providing exemption (12A) and enabling donor deductions (80G).

   3. POSH: Prevention of Sexual Harassment compliance framework (policy, ICC, training, records).

   4. CSR: Corporate Social Responsibility funding under the Companies Act; often involves additional diligence.

      
      

Closing Thought Legal & Compliance is not “non‑program.” It is the shield that protects programs. For leadership teams, the path forward is clarity, ownership, and continuous improvement — because compliance is your licence to operate and thrive.