Compliance of Corporate Social Responsibility (CSR) Provisions under Companies Act, 2013

Compliance of Corporate Social Responsibility (CSR) Provisions under Companies Act, 2013

June 29, 2020
     
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Compliance of Corporate Social Responsibility (CSR) Provisions under Companies Act, 2013

CORPORATE SOCIAL RESPONSIBILITY (CSR) AUDIT
Corporate Social Responsibility (CSR) includes various social and environmentally responsible guidelines, essential for companies that want to maintain a strong connection to the marketplace. Corporate Social responsibility includes the way a company treats and proactively contributes to its community, promotes fair working conditions and a non-discriminatory environment, conveys transparent and honest accounting reports, and generally earns a reputation of trust and integrity in the society where it serves.
CSR has become a mandatory part of many Companies vide introduction in Companies Act, 2013 and has changed the dynamics of CSR. An increased emphasis on governance, stricter monitoring and reporting obligations require companies to be more accountable, disciplined and strategic in their CSR approach.
CSR under Companies Act, 2013
Section 135 of the Companies Act, 2013 provides that every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of Rs. five crore or more during the immediately preceding financial year shall
i.       constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director;
─ In case, where a company is not required to appoint an independent director under sub-section (4) of section 149, the company shall have in its Corporate Social Responsibility Committee two or more directors.
ii.    adopt a CSR Policy in order to develop a sustainable CSR road map to help determine both compliance and social relevance with the Act.
iii.   spend, in every financial year, at least 2% of its average net profits made during the three immediately preceding financial years, in pursuance of its CSR policy.
Objective of CSR Audit
Corporate Social Responsibility (CSR) audit help in measuring the actual social performance against the social objectives set by the Company. It also provides that at what level the decision making, mission statement, guiding principles, and business conduct are aligned with social responsibilities. The audit helps meeting the expectations of stakeholder groups relating to social and environmental responsibilities of the company.
Purpose of CSR Audit
·    To ensure compliance with the provisions of Companies Act, 2013 with respect to constitution of the Committee, adoption of policy and appropriate spending towards CSR activities.
·    To facilitate a transparent monitoring mechanism and a mentor for the company’s CSR activities and implementation of CSR policy.
·        To evaluate internal control and governance framework.
·        To assess the project life cycle.
·   To conduct a financial review of projects to confirm the utilization of budgets for achieving desired outcomes.
Methodology for CSR Audit
1. Review of CSR policy, CSR committee, governance structure, strategy, projects, partner identification and selection process, monitoring, evaluation and reporting.
2. Interact with beneficiaries, project team, management and other stakeholders.
3. Review of beneficiary identification and selection process, budget allocation, outcomes monitoring and reporting.
4. Review of CSR expenditure, project’s direct expenditure, overheads and administrative expenses, traceability and genuineness of expenditure, per beneficiary cost, reasons for inability to spend 2% of profits.
Conducting CSR Audit
The CSR audit may be conducted internally by the company or engage external agencies having expertise in CSR projects. However the companies publish a periodical report on their social initiatives and through the Website. However, according to provisions of the Companies Act, 2013, Companies are required to annex a report on the corporate social responsibilities with the board report of the company.
Coverage of CSR Audit
The CSR audit cover the CSR activities relating to human rights, fundamental human rights, freedom of association and collective bargaining, non-discrimination, forced labor, child labor, health and safety, career development and training, environmental issues and issues relating to community development and social wellbeing. However the Schedule VII of the Companies Act, 2013 provides the list of activities which could be taken by the company as their CSR Activities. These activated cover the following activities:
(i)  Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.
(ii)   Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
(iii) Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
(iv)  Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
(v)   Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;
(vi)   Measures for the benefit of armed forces veterans, war widows and their dependents;
(vii) Training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports
(viii) Contribution to the prime minister’s national relief fund or any other fund set up by the central govt. for socio-economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
(ix)  Contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt.
(x)    Rural development projects.
(xi)   Slum area development.
(xii)  disaster management, including relief, rehabilitation and reconstruction activities.”
Explanation.- For the purposes of this item, the term `slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.
Checklist for Corporate Social Responsibility provisions under Companies Act, 2013
1.    Check if the constitution of CSR Committee is applicable to company.
2.   If yes, whether the company has constituted CSR committee of the board consisting of three or more directors, out of which at least one director is an independent director.
In case where a company is not required to appoint an independent director under sub-section (4) of 149, it shall have in its CSR Committee two or more directors.
3.   Whether the company has CSR policy approved by the CSR Committee.
4.  Whether the CSR committee has recommended list of CSR projects or programme within the purview of schedule VII.
5.   Whether the monitoring process of such projects or programme has been established by the company.
6.    The composition of CSR committee is disclosed in the board’s report.
7.  Check whether the CSR activities were under taken as per CSR policy and projects, programs or activities excludes activities undertaken in pursuance of its normal course of business
8.   Corporate social responsibility committee has recommended the amount of expenditure to be incurred on the activities referred in the Corporate Social Responsibility policy.
9.   The company has instituted a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.
10. The company has disclosed the contents of the policy in board’s report and at its website, if any.
11. The board’s report includes an annual report on CSR containing prescribed particulars.
12. In case the company does not spend the specified amount (i.e. at least two percent of the average net profits made during the three immediately preceding financial years), Board’s report specifies the reason for not spending the amount.
13. Check if the net profits of the company are in accordance with the provisions section 198 of the Companies Act, 2013 or not.
14. In case the company has built CSR capacities of their own personnel, check whether the expenditure including expenditure on administrative overheads shall not exceed five percent of total CSR expenditure of the company in one financial year.
15. The company has complied with all other requirement of the CSR Rules.
As the CSR audit cover the various direction of the CSR policy of the company which include the planning, execution and the reviews of the CSR activities. This will help to get a clear picture of Corporate Social Responsibility practices adopted by the company. The CSR audit provide an understating of company is position in CSR and also provides an independent assurance on CSR commitment to stakeholders. The different measures of the CSR Audit Includes:
1. How the Company has identified the major socio-economic changes in the key communities caused by its presence/ operations/ major expansion programs.
2.  How the company has conducted social surveys before undertaking a particular CSR activity
3.  How the company has identified the possible impact of its CSR activities on the lifestyle of communities.
4.    How the company undertakes the Impact assessment of the CSR activities.

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