Social Audit Mechanism Needed For CSR Activities: House Panel

A social audit mechanism for corporate social responsibility (CSR) activities done under the Companies Act, should be established by the Government - a parliamentary panel has said even as it pulled up the Corporate Affairs Ministry for 'casual' approach towards the social welfare spending provisions. The recommendation was made by the Committee on Public Undertakings, chaired by BJP member Shanta Kumar, in its report tabled in Parliament.

Under the Companies Act, 2013,  Companies with a turnover of at least Rs 1,000 crore, minimum net worth of Rs 500 crore and those having net profit of Rs 5 crore or more in a financial year are required to shell out at least 2 per cent of 3 year annual average net profit towards CSR activities and comply with CSR guidelines. In case of non-spending, the companies have to provide reasons for the same.

According to the report, the government's argument is that entire information relating to companies' CSR activities & expenditure is in the public domain through mandatory disclosures by respective boards which automatically leads to social audit. While appreciating the uploading of more information in the public domain, the panel said social audit is a tool to ensure transparency by providing an interface of the public/users of services with implementing agencies/district level authorities.

"The committee, therefore, reiterates that an appropriate social audit mechanism for CSR assets/ activities be established by the government so that larger public involvement is ensured," the report stated.

The panel also said provisions in the Act concerning annual CSR disclosures by the companies are insufficient for ensuring compliance, rapping the Corporate Affairs Ministry for its approach on CSR provisions. Further, it re-emphasised the need for 'making non-compliance of spending of prescribed allocations on the admissible activities in the prescribed manner a punishable offence and for making suitable provisions in this regard'.

The Parliamentary panel's latest report pertains to action taken by the government on the observations/recommendations contained in this committee's 8th report on CSR in select central public sector undertakings.