Compliance of Corporate Social Responsibility (CSR) Provisions under Companies Act, 2013
CORPORATE SOCIAL
RESPONSIBILITY (CSR) AUDIT
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.
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.
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
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
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;
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.
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.
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.
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.
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.
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.
the company’s CSR activities and implementation of CSR policy.
·
To evaluate internal control and governance framework.
To evaluate internal control and governance framework.
·
To assess the project life cycle.
To assess the project life cycle.
· To conduct a financial review of projects to confirm the utilization
of budgets for achieving desired outcomes.
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.
governance structure, strategy, projects, partner identification and selection
process, monitoring, evaluation and reporting.
2. Interact with beneficiaries, project team,
management and other stakeholders.
management and other stakeholders.
3. Review of beneficiary identification and
selection process, budget allocation, outcomes monitoring and reporting.
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.
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.
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:
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.
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.
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.
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.
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;
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;
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
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;
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.
technology incubators located within academic institutions which are approved
by the central govt.
(x) Rural development projects.
(xi)
Slum area development.
Slum area development.
(xii) disaster management, including relief,
rehabilitation and reconstruction activities.”
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.
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
for Corporate Social Responsibility provisions under Companies Act, 2013
1. Check if the constitution of CSR Committee is
applicable to company.
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.
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.
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.
by the CSR Committee.
4. Whether the CSR committee has recommended
list of CSR projects or programme within the purview of schedule VII.
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.
projects or programme has been established by the company.
6. The composition of CSR committee is disclosed
in the board’s report.
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
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.
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.
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.
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.
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.
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.
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.
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.
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:
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.
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
before undertaking a particular CSR activity
3. How the company has identified the possible
impact of its CSR activities on the lifestyle of communities.
impact of its CSR activities on the lifestyle of communities.
4. How the company
undertakes the Impact assessment of the CSR activities.
undertakes the Impact assessment of the CSR activities.
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