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Social audits of CSR expenditures may become mandatory

By - King Stubb & Kasiva on December 20, 2022

To further tighten the country's CSR regulations, the federal government intends to make it mandatory for businesses to undergo social audits of their company social responsibility (CSR) spending.

Public sector undertakings (PSUs) would be the first to be included in the social audit, according to officials from the Ministry of Corporate Affairs (MCA). According to one of the representatives, the Securities and Exchange Board of India (SEBI), which regulates the financial markets, has already given the Institute of Chartered Accountants of India (ICAI) the go-ahead to develop a social audit standard.

Currently, the Companies Act of 2013 does not require companiesto conduct any social audit of their CSR activities. Although they are used mainly for NGO’s and so on, they can also be used for larger impact assessment under the expenditure incurred by CSR. With the introduction of the CSR-2 form this year, businesses wererequired to submit a CSR report to the registrar with detailed information on the projects they are funding. The new version of form CSR-2 will include a list of the projects they are working on as well as information about where they are located and how much money is being invested in each one.

Earlier in 2021, a monetary penalty had been imposed that made companies accountable for expenditure incurred for CSR and made a provision that if a companyfails to meet its CSR obligations, penalties can range from Rs. 2 lakhs to Rs. 1 crore, and provided that if a company spends more on CSR than the required 2% of its average net profitsforthe preceding three years, it canadjust its future spending commitments.

Another crucial point to be aware of is that companiesare required by the new CSR requirements to provide information on the CSR committees they have formed, their members, and specifics of the welfare activities they have accomplished. Additionally, any remaining unspent amount must be transferredto the appropriate designated accounts.

Although some find it disadvantageous like some companies have started to find defects in it by stating that it’s a burden for compliance but some have looked into it as a mechanism that will make CSR expenditure clear and unequivocal. Recently, the former MoS Jayant Sinha led parliamentary standing committee on finance highlighted concerns about the CSR spending monitoring system. The panel had observed in its findings that “information regarding CSR spending by businesses are limited and difficult for a layperson to access.”

REFERENCES

India Plans mandatory Social Audit of CSR – Corporate Social Responsibility Spending


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