Tuesday, 24 November 2015

Fiinovation reviews: Misuse of CSR funds in India

On 1st April 2014, India, became the first country in the world to mandate Corporate Social Responsibility (CSR). As per the schedule 7 of section135 of the Company’s Act 2013 a company having a net profit of more than Rs. 5 crore or net worth of Rs. 500 crore or more or a turnover of above Rs. 5,000 crore during a financial year will have to spend 2 percent of its average net profit  of the preceding three years on social welfare activities. The new law opened a basket of funds for the social welfare sector. According to the experts, estimated CSR grants in India should reach Rs. 25,000 crore mark in the first accounting year after the mandating of CSR in India. Companies like Tata, Mahindra & Mahindra, Godrej etc. have done a wonderful job with their CSR projects in India and have supported a number of successful projects in health,education, livelihood and environment sector.
A lot of money is involved in CSR projects in India, that’s why it is important to keep a check on the usage of these funds. Many experts think that the CSR grants given in Indiaare going into the pit of black money. Inefficient laws relating to CSR audit in India are being held responsible for the unethical practice. Companies with the help of public trusts are utilizing the funds for personal gains.
A company gives money to a public trust for the implementation of a project under CSRinitiative. The payment is made through legitimate channels, mostly through cheques or Drafts. Once the fund is encashed by the trust a part of the fund is returned to the company in cash without any legal trace. This is how white money meant for social welfare projects becomes black money. The form AOC-4 in which the company has to submit a report on the funds invested on CSR activities is not subjected to external audit like other statements of the company. This leniency gives an opportunity for the corrupt people to misuse the funds.
Fiinovation believes that such practices should be dealt as soon as possible. The issue should be raised in various CSR conferences in India. The law of  CSR audit in Indiashould be made more strict by the government. Form AOC-4 should also be brought  into the scrutiny of external audit. Along with the government, various business associations in India should issue strict guidelines and ethics for utilising the CSR funds.
Karan Pundir
Media and Communication Team | Fiinovation
Website: www.fiinovation.co.in
Phone: 011-42332200 
Fax: 011-42332205
Email ID: media@fiinovation.co.in


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