Dr D. Mukhopadhyay
Section 135 of the Companies Act, 2013 makes provisions for mandatory discharge of Corporate Social Responsibility (CSR) by the corporates and Schedule VII to the Companies Act, 2013 contains the prescribed CSR activities and initiatives for undertaking and accordingly every company having net worth of Rs. 500 crores or more, or turnover of Rs. 1,000 cores or more or net profit of Rs. 5 crores or more during any of three preceding financial years shall constitute a CSR Committee consisting of three or more directors of the concerned company. The CSR Committee shall formulate and recommend to the Board of Directors a CSR policy prescribing the CSR activities to be undertaken by the companies within the purview of the Schedule VII to the Companies Act, 2013. The Board shall approve the CSR policy and ensure that CSR activities are undertaken and at least two percent of the average net profits made during the immediately preceding three financial years is spent by the company concerned. Here net profit denotes profit before tax. Schedule VII to the Companies Act, 2013 provides broad categories of CSR activities and initiatives relating to eradication of poverty, sanitation and healthcare , education, removal of gender inequality, maintenance of ecological balance , protection and preservation of arts and national heritage, culture, rural development and so on so forth and the amount spent on any of these activities shall qualify to be the expenditure committed for the purposes of CSR activities within the meaning of the Schedule VII to the Companies Act, 2013. It is therefore necessary and imperative to ensure that benefits of such social projects must reach to the beneficiaries and the same should be examined by certain professionally qualified experts and the said relevance comes under the ambit of Social Audit.
Social Audit’s scope covers a broad spectrum as it aims at examining the performance of a programme spelt out within the ambit of CSR. In India, the concept of Social Audit is by and large in vogue in the form of Statutory Cost Audit under Section 148 of the Companies Act, 2013 and it covers the cases of large projects and public works of the Government and the responsibility to conduct Statutory Cost Audit has exclusively been entrusted to CMAs by Government of India . It is imperative to ascertain the gap if any between the need of the people and the actual benefits that are extended by the projects mentioned above. In this context, mention may be made of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005 for which Social Audit is conducted and it is the tool for ascertaining the effectiveness of the MGNREGA. CSR is a philosophy whereby the corporates take into consideration the welfare of the society as well as protection of environment and maintaining ecological balance. Quite a substantial amount of financial resource outgoes for different projects undertaken under the canvas of the CSR initiatives and it is thus rational for adopting social audit as a tool for managing those CSR projects.
The first and foremost responsibility of the corporates is to earn profit from the business as advocated by Milton Friedman , Nobel Laureate in Economics , and besides this, it is the responsibility of the business to take care of the society with which it has a symbiotic association. Corporates draw the necessary resources from the society and in turn the society expects of the corporates something in return i.e. quid pro quo in the form of social projects. It is therefore a time honoured need to ascertain how the CSR activities bring about changes in the way of living of the community at large and specifically speaking it is to see whether the benefits of CSR expenditure reach to the downtrodden, disadvantaged and socially as well as economically deprived masses and Social Audit is the most effective weapon in the hands of the regulators. The World Business Council for Sustainable Development gives a meaningful definition of CSR and according to it,” CSR is the continuing commitment by the business to contribute to economic development while improving the quality of life of the workforce and their families as well as the community and society at large” while Social Audit is a process by which the beneficiaries of any project, schemes, policy are empowered to audit such programmes, projects, schemes etc through some of the experts in the field of Accountancy. Social Audit is an ongoing process by which stakeholders of a project are involved from the planning to the monitoring and evaluation of that project.
It is therefore necessary to take the help of Social Audit in order to ascertain that CSR expenditure is committed for achieving purposive objectives. The functional domain of Social Audit is multi-perspective, comprehensive and multi-directional. Social Audit ensures fairness by examining the degree of the accountability and transparency of the social transactions being the results of commitment of social cost by the corporates. In order to make the CSR effective, Social Audit is an indispensible approach for ensuring check and balance . In simplicity, Social Audit reports how well the concerned firms have performed in fulfilling the needs of the targeted beneficiaries under a given CSR initiative. It also makes out the improvement required if any and increase the effectiveness of the concerned CSR initiative undertaken by the corporate community. In order to make CSR programmes or projects successful, Social Audit is a must since Social Audit is critical examination of an organization’s investment in CSR projects. It authenticates efficient utilization of grants, degree of transparency and fairness , timely completion or cost overrun and accounting thereof besides statutory compliance.
CSR to be efficient and effective needs to be evaluated with reference to effectiveness of implementation of the CSR projects , adequacy of internal control and internal check etc. The Social Auditor must have the expert knowledge about project management and knowledge in accounting and expert knowledge in the domain of Corporate Law, Income Tax Law, Law of Contract, Environmental Laws and various Labour Laws. It is therefore recommended that that Social Auditor should essentially be CAs/CMAs. It may be mentioned that Social Audit enables an organization to assess the degree of efficient utilization of resources. It measures and evaluates to extent to which a corporate lives up to the agreed common social objectives. India is a welfare State and in the relevance and context of Welfare State, Social Audit is of high relevance in order to evaluate the degree of democratic governance and an instrument to curb corruption in the process of commitment of CSR expenditure projects. There is involvement of spending of huge amount on various social activities and Social Audit is a prominent tool for reporting the transparency and progress of a particular project.
Ministry of Corporate Affairs (MCA) has released information on the total committed CSR expenditure during Financial Year 2014-2015 which amounts to Rs. 8,802.90 crores and total number of companies that incurred such expenditure is 7,334. Again according to information released by the MCA, a total of Rs. 6,338 crores were spent by 51 Public Sector Undertakings (PSUs) and 409 private companies. 51 PSUs spent Rs. 2,387 crores while 409 private companies spent Rs. 3,951 crores. In the context of managing the CSR projects under CSR initiatives in India, Social Audit practices should be encouraged in order to ensure better project management. It has been mentioned elsewhere that Cost Audit is of higher degree of social relevance in the form of efficiency or management audit and Social Audit may be given due status in the line of Statutory Cost Audit. Under CSR initiative, Social Audit Report may be used as an effective aid in the process of decision making by the management. The corporates are responsible to the consumers, employees, shareholders and the community at large but Social Audit is practiced in India in a very insignificant way. No company other than TISCO so far has come forward to introduce Social Audit. Social Audit can evaluate and examine the extent to which a corporate entity has fulfilled its social and moral obligations. It is the need of the hour for the regulators and decision makers to legislate necessary legal provisions for Statutory Social Audit in the line of Statutory Financial Audit and Statutory Cost Audit by the Qualified Accountants in order to ensure the accomplishment of the objectives of CSR under Schedule VII to the Companies Act, 2013. India is the only country in the world when CSR is mandatory and thus audit of CSR funded projects in the form of Social Audit is essential in the Post Statutory CSR Era in India.
(The author is Professor of Management, School of Business and Dean Faculty of Management, Shri Mata Vaishno Devi University, Katra, Jammu & Kashmir)
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