Recommendations are likely to be submitted to finance minister Arun Jaitley next week
The projects undertaken by India Inc under the Corporate Social Responsibility (CSR) law are likely to face audit as part of the proposed end-use monitoring of the earmarked funds. The proposal is going to be part of the report which is likely to be submitted to the government by a high-level committee set up to review the current provisions of the CSR law framework, people close to the development told DNA Money.
The recommendations, aimed at improving accountability and transparency in CSR spending, are likely to be submitted to Minister of Finance and Corporate Affairs Arun Jaitley as early as next week.
The companies may be allowed to carry forward unspent CSR funds to next year. Currently, the companies have to spend the prescribed amount within a year.
The eleven-member committee, headed by Ministry of Corporate Affairs (MCA) secretary Injeti Srinivas, is also likely to propose changes in the annual filing to allow more disclosures on CSR work undertaken by companies. Section 135 of the Companies Act, 2013, mandates that all the firms having net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more have to spend 2% of their profit on the social welfare projects as part of the CSR.
Around Rs 14,000-15,000 crore is spent by the companies on social welfare projects under CSR programme every year.
“The end-use monitoring of CSR funds is likely to be on the lines of Securities and Exchange Board of India (Sebi)-mandated monitoring of money raised by companies through initial public offer (IPO),” a senior official said.
A third party could be engaged to monitor the projects. “It would be a kind of random checking. The disclosures would need to be certified by the auditor,” another official said.
Another big change on the cards is that companies will be able to carry the unspent CSR budget over to next year. “The companies would be able to carry forward their unspent CSR funds beyond the current limit of one year. After three years, the unspent amount can come to a national fund dedicated for this purpose,” the first official said.
The committee is likely to suggest a number of changes in the architecture of CSR law, especially in terms of disclosure, audit and accountability. However, the basic architecture of keeping it Board-driven will remain intact.
“The CSR provisions would continue to be Board-driven and largely self-regulated. But there would be a higher level of disclosure and expenditure compliance,” the official said.
The current e-form for CSR compliance will be replaced with a new one to capture more details about the projects. The committee may also modify the term ‘local area.’ As per the current provisions, a company should spend the CSR funds preferably in the local area of its operation.
“There is already a huge mismatch in CSR allocations among different regions. The backward and Naxal-affected areas, which are really crying for assistance, are not getting the money. On the other hand, the areas which are relatively better off get more and more. This anomaly needs to be corrected,” the official explained. The committee is likely to provide guidance in this regard, people close to the development said.
To create an ecosystem for CSR, “a web portal is likely to be created which would act as an exchange platform where the companies that want to contribute towards CSR and the agencies including non-governmental organisations (NGOs) offering projects can interact,” said another official.
After the CSR provisions of the Companies Act were implemented in April 2014, this is the second committee which has been tasked with reviewing the CSR framework.
Earlier, Anil Baijal committee was set up by the MCA to suggest improvement in the implementation of CSR policy.
It had in its report suggested a soft approach towards companies as long as they explained in the annual report the reasons for not spending on welfare activities.
THE SUGGESTIONS
- Recommendations are likely to be submitted to finance minister Arun Jaitley next week
- The companies may be allowed to carry forward unspent CSR funds to the next year
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