Corporate Social Responsibility (CSR) refers to the ethical and voluntary initiatives that businesses undertake to improve their social and environmental impact beyond legal and regulatory requirements. A social audit of CSR activities involves assessing and evaluating a company’s CSR initiatives to ensure transparency, accountability, and the fulfilment of social and environmental commitments.
In India, every company earning profits exceeding INR 5 Crores or turnover exceeding INR 1000 Crores or net worth exceeding INR 500 Crores is required to spend atleast 2% of the average net profit of last 3 years for CSR under section 135 of the Companies Act 2013. Thus, undertaking a social audit in India for corporates have twin objectives as follows:-
- Compliance and Impact Assessment: Verify compliance with CSR regulations and assess the actual impact of CSR initiatives on society and the environment.
- Transparency and Accountability: Ensure transparency in reporting CSR activities, including financial disclosures, and hold the company accountable for its commitments.
Typically the impact assessment of the CSR spendings are undertaken internally by the management however, with the passage of time and the setting up of the Institute of Social Auditors of India (ISAI), this role is slowly getting transitioned to the social auditors who holds expertise to undertake the audit. ISAI is an independent organisation promoted by the Institute of Chartered Accountants of India (ICAI) with an object of promoting the education and regulation of social auditors in India.
One of the reason for the advent of norms on impact assessment is due to the fact that the some corporations in India were found involved in the CSR frauds where the funds allocated for CSR is taken back by such corporations or its employees in cash from the NGOs and thus, it is essential now for the corporations to undertake social audit to ensure that the funds allocated are using for its intended impact. Thus, the scope of Social Audit is as follows:-
- Financial Transparency: Verification that the financial resources allocated for CSR activities are utilized appropriately and as per the company’s commitments.
- Program Impact: Assess the effectiveness and impact of CSR programs on targeted social and environmental issues. Social audits of CSR initiatives often involve the participation of various stakeholders, including local communities, NGOs, and employees. This ensures that the perspectives of those affected by or benefiting from CSR activities are considered.
Social audits of CSR initiatives may involve a combination of quantitative and qualitative methods. This could include financial audits, on-site inspections, interviews with stakeholders, and a review of documentation related to CSR projects. Companies are often required to publish annual CSR reports. A social audit ensures that these reports accurately reflect the company’s CSR activities, achievements, and challenges. The findings of a social audit can be used by companies to identify areas for improvement in their CSR strategies and implementation. This fosters a culture of continuous improvement in corporate social responsibility.
A well-conducted social audit of CSR activities can enhance the credibility of a company’s commitment to social and environmental responsibility. It provides a mechanism for companies to demonstrate their positive contributions to society, identify areas for improvement, and build trust with stakeholders.
Thus, with the passage of time, Social Audit of the CSR Initiative is picking up thrust and it is expected that the regulators will slowly make it mandatory for the corporations to obtain a social audit report.
