Discover the origin, benefits, and legal aspects of Social Audit. Learn about its history in India, objectives, and its significance in various sectors, including MGNREGA and corporate responsibility. Stay informed on the evolving landscape of social accountability and how organizations can contribute positively to society.
Background of Social Audit
Social Audit is not a new concept for the Indians, the concept of social audit was carried out in the year 1985 in Sweden. It was a 3 year study of Sweden’s central bureaucracy – The National Labour Market Board (Arbetsförmedlingen) published by John Fry and Ulla Ressner in Sweden in 1988 under the title “Social Revision av ett Ämbetsverk”, they carried out a social audit in the form of social revision of their work.
Their study was based on interviews and questionnaires with oer 1,000 employees at all levels of the organisation throughout the country, focusing on assessment of the institutionalisation of a Democratic Rationality. Further, Social Audit was used for citizen participation that focuses on government performance and accountability. The main purpose is to express citizen’s voice and promote a more inclusive government.
The central objective of a social audit is to monitor, track, analyze, and evaluate government performance, thus making public officials accountable for their actions and decisions. As an evaluation of government performance, a social audit exercise can be considered a mechanism of social oversight, i.e. the control that citizens can exert on their government officials to ensure that they act transparently, responsibly and effectively.
History of Social Audit in India
In India, Tata Iron and Steel Company Ltd (TISCO), Jamshedpur, was the 1st to take the initiative to perform social audits in 1979.
- An organization’s social responsibility can be measured with the use of a social It gained relevance after the constitution’s 73rdamendment, which dealt with Panchayat Raj institutions.
- The 9th FYP (2000-2007) approach document placed a strong focus on social audit in order for efficient operation of PancSocial ayat Raj institutions to take place.
- This gives Gram Sabha the authority to perform social audits in addition to their other duties.
- To ensure transparency, the national rural employment guarantee act 2005 provided for frequent social audits.
Social Audit
Social Audit is a mean which can be used for evaluating, understanding, measuring, reporting, and enhancing the overall performance of an organization in ethical manner, for conducting social audit, the participation of stakeholders (clients, employees, customers, creditors, suppliers, vendors, shareholders, and society) is very important in any organization. A social audit is an internal examination of how an Organisation is affecting society.
Benefits of Social Audit
A social audit is an important social accountability tool, Social Audit plays an important role in strengthening governance of any organization.
- An effective technique for encouraging openness, responsibility, and people’s involvement in the schemes intended for them.
- Helps in the measurement of an organization’s performance, evaluating and improving it.
- Holds the organization socially An organization’s efficiency can be increased with the aid of social audits.
- It promotes good governance and increases oversight and With the aid of social audit. It promotes good governance and increases oversight and accountability.
- Helps companies to evaluate that if they are meeting their objectives, which may include policies, measurable goals and
Objectives of Social Audit
- To determine to which extent the management of an enterprise is aware about its social responsibility.
- Creating awareness among stakeholders, to which extant companies discharging their social responsibility.
- Increasing efficiency and effectiveness of established policies, short term goals programmes of the companies.
- Scrutiny of various policy decisions of the company, keeping in view stakeholder interests and priorities of the society.
- Estimation of the opportunity cost for stakeholders of not getting timely access to public services.
Need for Social Audit
In today’s world, where every businessman faces difficulties, hurdles and neck-to-neck competition in the market. Every organisation is not connected with the internal stakeholders but is primarily connected to the external public too. Established companies are supposedly more persuasive and make use of enormous resources. Companies can sometimes misuse these powers, and the result of these activities can significantly impact the local community or society and the environment at large.
In today’s generation, Companies, senior management has to maintain a connection with their stakeholders, which can impact the society. Companies have to follow the social responsibilities also towards the society from which they are earning, to maintain sustainability.
Accordingly, to monitor and regulate the activities of the companies from time to time, and motivate the companies to act in the best interest of society and the environment.
Legal aspects of Social Audit
❖ Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MGNREGA)
The Government of India passed the Mahatma Gandhi National Rural Employment legal guarantee of 100 days of wage employment in a financial year to adult members of a rural household who demand employment and are willing to do unskilled manual work.
Under section 17 of Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MGNREGA) social audits were made mandatory for the first time. The Gram
Sabha shall conduct regular social Social audit of all the projects under the Scheme taken up within the Gram Panchayat. Further, The Ministry has prepared training manual in year 2017 to facilitate social audit at the Gram Panchayat level.
Ministry has introduced Auditing Standards for Social Audit, based on recommendations of the C&AG and Joint Task Force for Social Audits, in order to strengthen the process of social audits and to ensure compliance of Audit of Scheme Rules, 2011.
Government of India has introduced many schemes in India, to monitor and control the workings of the schemes and for better implementation, the government has instituted a robust accountability framework including Social Audit, Internal Audit, Geo- tagging, Direct Benefit Transfer, transparent Management Information System and Common Review Missions.
❖ MGNREGA: Social Audit current MIS
There are total 2,70,004 GPs in India (States and Union Territories) where MGNREGA is being implemented. As per MGNREGA MIS, the coverage of the total GPs audited in the last 3 years is represented as follows:
Graph 1 – Coverage of GPs audited
Trend of the Coverage of GPs audited in Last 3 Years Source: R.9.1.3 Social audit completed (https://nrega.nic.in/)
Further, the Social Audit Resource Persons classify issues into four types – Grievance, Process Violation, Financial Deviation and Financial Misappropriation. The issues reported are given in the report ‘9.2.3 Social Audit issues reported (by category)’ of nrega.nic.in.
Graph 2 – Category wise issues reported
Source: R.9.2.3 Issues reported (by category) https://nrega.nic.in/
A total no. of issues reported for the last 3 years for FY 2020-21, 2021-22 and 2022-
23 were 16,74,934. In which, 17% related to financial misappropriation, 24% related to financial deviation, 47% related to process violation and 12% related to grievances. Based on the above figures, SAUs have to focus on the collection of grievances and reduce the process violations by providing awareness to the implementing agency.
❖ MGNREGA: Audit of Scheme Rules, 2011
Government in consultation with the Comptroller and Auditor General (CAG) of India introduced the MGNREGA Audit of Schemes Rules, 2011. These rules states the process of social audit and responsibilities of the Social Audit Unit (SAU). The State Government shall identify an independent organisation as a Social Audit Unit to facilitate the conduct of social audit.
❖ MGNREGA: Concurrent Social Audit
The Ministry of Rural Development issued Annual Master Circular for the year 2021-22, which provides for Concurrent social audit, says that Concurrent social audit shall be done for all works every month. For this purpose, self-help groups, village social auditors, Village Monitoring Committees (VC) and other village level organizations (VO) will have the right to inspect all records of works done and expenditure made in the Gram Panchayat on a fixed day of the week. The VC shall monitor whether due norms are being complied with at the worksite in terms of processes, and records to be maintained. They will also monitor whether worker entitlements are being provided as per the Act. The VC shall sign its report and submit the same to the Programme Officer.
❖ Companies Act 2013: Social Audit & CSR
There is provision related to corporate social responsibility (CSR), company’s responsibility towards the society. However, as of now there is no requirement for companies to conduct any CSR audit/Social audit of their social responsibilities under these provisions. Earlier, the provisions for undertaking the CSR activities are not mandatory for the corporates even after reaching the threshold limit, the approach towards the law was “comply or explain” basis. Further, under Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, the approach towards the social responsibility changed to “comply or penalty” basis, under the new rules, Government introduced an e-form CSR-2 through which the companies are required to give a detailed report on CSR activities undertaken by the companies to Registrar of Companies (ROC), Government strengthen the provisions to undertake the CSR activities. Further, for some specified companies, it is mandatory to carry out impact assessment also through the independent agencies.
❖ SEBI: Social Stock Exchange
Stock Exchange Board of India (SEBI) vide its letter dated July 25, 2022 has amended the following regulations to insert the new concept namely Social Stock Exchange (SSE),
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”), inserted a new Chapter–X consisting regulations from 292A to Under this new chapter, “Social Stock Exchange” means this is a separate segment of a recognized stock exchange having nationwide trading terminals permitted to
1. Register the Not for Profit Organizations (NPOs).
2. List the securities issued by Not for Profit Organizations (NPOs).
The term NPO or a FPE (“For Profit Social Enterprise”) that meets the eligibility criteria specified in the said Chapter X-A in the ICDR Regulations is identified as “Social Enterprise”.
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) inserted a new Chapter IX-A Consisting Regulations from 91A to
- SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) also stand amended arising out of the amendments to the ICDR
SSE acts as a common platform for bringing together Social Enterprises, Donors and Investors to facilitate funding and growth of Social Enterprises. The report requires every organisation registered with SSE to get their Social Audits conducted in order to assess social impact.
Conclusion
Social audits offer a valuable way for businesses, governments, and non-profit organizations to measure their social and environmental impact, identify areas for improvement, and build public trust. By focusing on responsible business practices and sustainability initiatives, social audits can help organizations ensure that they are contributing positively to society, the environment, and the economy.
Social Audit should be consider as the important aspect for any organization, Further, accountability and transparency mechanism have not been commensurate with the increasing responsibilities and funds and the social audit can deal with this difficult situation. As of now, Social Audits are optional, which means that companies can choose whether to release the results publicly or only use them internally.
For the professionals like company secretaries, as social audit includes compliance also as a component of the audit. Further, as SEBI recently introduced a new concept of SSE, this can also be a good opportunity for Company Secretaries professionals, as there are also certain provisions under the new regulations, which shall be complied by NPOs.
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