Case Study: Above-Market Rent to a Founder's Family Trust in a Senior Citizens' Home

The CSR contribution was allocated to rent for the home (Rs 38.4 lakh), monthly welfare events for residents and community seniors (Rs 8.4 lakh), and part of the food budget (Rs 3.2 lakh). During an internal audit, the funder's CFO noticed that rent of Rs 3.2 lakh a month absorbed 77% of the contribution. A programme where three-quarters of the money pays the landlord deserved a closer look.

Subsection: Residents

Northrop visited unannounced. The two-storey building had 18 rooms: 6 occupied by residents, 2 used as the NGO's office, and the rest empty or used for storage. 18 residents were present, and the manager said 4 more were at hospital: 22 in total.

The register listed 60 names. 22 showed current residence. 15 showed discharge dates months earlier but had never been removed from the count. 12 showed an admission and nothing else: no meals, medical notes or activity records. 11 were written in a different hand and ink, with admission dates clustered in the weeks just before the annual review.

The rent agreement and the registered trust deed showed the property belonged to a family trust whose three trustees were the founder, the founder's mother and the founder's brother. This related-party arrangement had not been disclosed to the funder.

Broker quotes and current listings for comparable buildings in the locality ranged from Rs 80,000 to Rs 1.2 lakh a month. Even at the top of that range (Rs 14.4 lakh a year), the NGO paid about Rs 24 lakh a year above market. Divided across the 22 actual residents, rent alone came to about Rs 1.75 lakh per resident per year, which is more than many commercial homes in the region charge for accommodation, meals and care combined.

For each of the 12 reported events, Northrop requested photographs, attendance registers, vendor invoices, doctor attendance (for health camps) and any media coverage.

• 4 events were fully documented and appeared genuine, at about Rs 70,000 each.
• 3 events had only photographs of 5 to 10 people in a decorated room, indistinguishable from an ordinary day at the home.
• 5 events had no documentation; the NGO said no photographs were taken and the register had been misplaced.

The 8 unsubstantiated events accounted for Rs 5.6 lakh of the Rs 8.4 lakh claimed.

All food came from a catering service run by the founder's nephew. Benchmarked against wholesale rates for 22 residents, its prices were about 25% above market. Most of the food budget came from other donors; on the Rs 3.2 lakh funded by this CSR contribution, the excess was about Rs 0.6 lakh.

The funder ended the grant, noting that nearly half its contribution had effectively paid above-market rent to the founder's own family. Its CSR policy now requires disclosure of property ownership for any rented premises, rent benchmarking for any CSR-funded lease, unannounced independent headcount verification before each renewal, and documentation for every funded event.

Related-party transactions are not automatically wrong. Undisclosed ones, at three times market, paid from CSR funds, are a different matter. Always ask who owns the building.