A Comprehensive Guide to Social Audit in India

Table of Contents

1. Introduction
2. Historical Background at the Global Level
3. Historical Background in India
4. Need of Social Audit
5. Scope of Social Audit
6. Principles of Social Audit
7. Features of Social Audit
8. Objectives of Social Audit
9. Issue of Social Audit
10. Challenges of Social Audit
11. Limitations of Social Audit
12. Advantages of Social Audit
13. Advantages of Social Auditing for Government Departments
14. Disadvantages of Social Audit
15. Who can perform Social Audits
16. Social Audit Standards and frameworks at the Global Level
17. Social Audit Standards in India

1. Introduction

• Indeed, in today’s world, the expectations from the government are higher than ever The public is more aware and informed about their rights, and they demand transparency and accountability from their elected officials. To meet these expectations, governments worldwide are adopting new strategies and tools to assess their performance and become more socially responsible.
• Social audits, citizen feedback mechanisms, and sustainability reporting are some of the approaches being used by governments to evaluate their performance and ensure that they are meeting the needs of their citizens.
• It is a powerful tool that helps government bodies and civil society organisations to promote accountability, transparency, and good governance.
• mutual understanding, and enhance the legitimacy of government policies and programs.
• Moreover, Social Audit can help to identify areas of inefficiency and waste, and to promote best practices in resource allocation and management.
• It is a process of evaluating and assessing the impact of social and economic policies and programs on the It involves collecting and analysing information from various stakeholders to understand the social, environmental, and economic effects of policies and programs.
• By involving stakeholders in the process, social auditing can also help to build trust and improve communication between the government, businesses, and communities.
• It is an important tool for promoting transparency, accountability, and sustainability in the development process.

2. Historical Background at Global level

• M. Clark, an academician from the early 20th century, was one of the first to discuss the importance of transparency in business dealings. In a 1916 article published in the Journal of Political Economy.
• Professor Theodore Kreps was a pioneer in the field of corporate social responsibility and social auditing. In the early 1930s.
• The earliest systematic attempt to use the term “Social Audit” dates back to
• In the early 20th century, social audits were conducted by non-profit organizations In the 1950s.
• Howard Bowen proposed the term “social audit” in his 1953 book “Social Responsibilities of the Businessman.
• In the 1960s and 1970s, social audits gained prominence as a tool for assessing the impact of government policies on society.
• In the United Kingdom and Europe, the term “social audit” emerged in the mid-1970s.
• Charles Medawar was a British social reformer and activist who is credited with pioneering the concept of social audit in the early 1970s.
• In the 1980s, the concept of social audit expanded beyond the private sector to include the public sector.
• The first social audit was carried out in Sweden between 1985 and 1988 by John Fry and Ulla Ressner.
• In the 1990s, social audit practices became more formalized and standardized.
• In the late 1990s, many organizations continued to develop and practice social audit.

3. Historical Background in India

• Tata Iron and Steel Company (TISCO) is a large steel manufacturing company based in Jamshedpur, The company implemented Social Audit in 1979.
• The Mazdoor Kisan Shakti Sangathan (MKSS) is a grassroots organization in Rajasthan, India, that pioneered the concept of social audits in the mid-1990s.
• The concept of social audit has been recognized in India by the 73rd and 74th Constitutional Amendments of 1992.
• The Supreme Court of India, in its direction on May 8, 2002, established specific lines of accountability.
• Social Accounting and Audit (SAA) was first used in India in 2003 by a social enterprise called Sambhav.
• The Right to Information Act, 2005 has played a significant role in supporting the Social Audit system in India.
• The social audit process gained momentum with the implementation of the National Rural Employment Guarantee Act (NREGA) in 2005, which was later renamed as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
• Centre for Social Initiative and Management (CSIM) started promoting the concept of Social Audit in India in 2008.
• In 2014, the Government of India launched the National Rural Livelihoods Mission (NRLM), Social audits were made mandatory under the NRLM.

4. Need of Social Audit

Social audit plays a critical role in ensuring that businesses act in a socially responsible and sustainable manner. By holding companies accountable for their actions, social audit can help to prevent them from engaging in harmful practices such as exploitation of workers, environmental degradation, or violation of human rights.

• Collective Platform
• Curbs Corruption
• Generates Demand
• Professionalism
• Accountability and Transparency
• Strengthens Gram Sabha
• Monitoring and Feedback
• Participative & Democratic

5. Scope of Social Audit

• Social audits are conducted on a range of areas, including policies, laws, and the functioning of public agencies.
• The scope is to assess the effectiveness and impact of the activities undertaken and to identify areas for improvement.
• This involves examining whether the project/program/project-based activity is aligned with its stated goals and objectives.
• It should also provide recommendations and suggestions for improvement based on the findings and analysis.
• The scope of a social audit should cover all relevant physical and virtual locations.

6. Principles of Social Audit

Integrity: The foundation of professionalism Auditors and those managing an audit program should maintain high standards of integrity. This includes:

• Ethical Behaviour
• Competence
• Impartiality
• Fair presentation
• Due professional care
• Confidentiality
• Independence
• Evidence-based approach
• Risk-based approach

7. Features of Social Audit

• Approach to assess the impact
• Study of social impact
• Participation
• Representative participation
• Accountability
• A comprehensive report
• Regular-based
• Comparative
• Verified
• Multi-Perspective/Polyvocal
• Multidirectional
• Disclosed
• Social Audits are led by the Community

8. Objectives of Social Audit

• A social audit is a process of evaluating an organization’s social and environmental impact.
• It can be used to raise awareness among the beneficiaries.
• The objective of estimating the opportunity cost for stakeholders of not getting timely access to public services through social audit is to determine the economic cost to the community of delayed or inadequate delivery of public services.
• Help organizations to identify areas where they can improve their social performance.
• Aims to increase the effectiveness and efficiency of development programs by assessing their impact, identifying gaps, and improving financial management in accordance with the budget.
• Meant to promote ethical behaviour and accountability, but sometimes unethical practices can still occur.
• Companies should ensure that their policies and practices do not perpetuate discrimination.
• Quality of Work Life is an important social issue.
• Consumerism is an important social issue that falls under social audit.
• Environmental protection is a crucial social issue that comes under social audit.
• The objective of social audit is to identify and put a stop to irregular activities.
• This is another objective of social audit. Companies need to ensure that they are taking steps to grow their business in a responsible and sustainable manner.
• Influencing policies with grassroots realities and evidence is another important objective of social audit.

9. Issue of Social Audit

• The lack of a transparent process
• The lack of adequate staff
• The lack of stringent penalties
• The lack of awareness and knowledge

10. Challenges of Social Audit

• Auditors may face challenges in accessing relevant data and information.
• Ensure objectivity and prevent bias in social audits.
• In some cases, rules and regulations related to social audit may not be followed.
• The lack of an intelligent information system can be a challenge for social audit.
• Monitoring is informal and unprocessed because social audits are often community-driven and led by non-experts.
• Social audit findings are specific to the area and the community being audited. They cannot be generalised to the entire population because different communities may have different issues and concerns.
• Each program or project has its own unique set of challenges that may require specific approaches to address them.
• Gathering data on migration can be a challenge for social audits of programs for adults.
• One of the challenges in social audit is the lack of action on audit reports and findings.
• It can face opposition from individuals or groups with vested interests who may try to stall or obstruct the process.
• Capturing social and economic impact can be a difficult task.
• Over claiming of impact is a common challenge in social audit.
• One of the challenge of social audit is the lack of qualified trainers.

11. Limitations of Social Audit

• Setting up social accounting systems requires time and organizational effort.
• Conducting social audits does require resources like interviewers and social auditors.
• The process should be implemented on a regular basis.
• Identifying and obtaining views and opinions of non-stakeholders who could be potential stakeholders is a difficult task in social audit.
• Social audit is the perception that the organization being audited may manipulate or hijack stakeholder views.
• It can be complex and time-consuming for those involved in the process.
• The scope of a social audit can sometimes be difficult to define, especially in complex organizations.

12. Advantages of Social Audit

• It helps the local community in planning.
• It supports the democratic function in the community.
• It helps in enhancing the image of an organization in the eyes of the internal as well as the external public.
• It assists in the growth and development of human resources.
• Social audits provide a way for companies to measure and evaluate their level of corporate social responsibility (CSR) and identify areas where they can improve.
• It provides an opportunity for management to evaluate and assess their organization’s performance.
• By conducting a social audit, companies can identify gaps between their current performance and their corporate social responsibility (CSR) objectives.
• Implementing the recommendations of social auditors can demonstrate a company’s commitment to social responsibility and stakeholder engagement.
• When a company publishes its social audit reports, It demonstrates that the company is willing to be open and honest about its social and environmental impact.
• Improved transparency and accountability towards social responsibility can attract more business customers and consumers.
• Social audit results can help companies to identify areas where they need to prioritize social responsibility.
• In social audit, the process involves engaging with local communities and individuals to understand their needs.
• Through social audit, people can voice their concerns and grievances about the implementation of programs and projects in their area.
• In summary, social audit creates awareness among common people.
• It empower citizens to participate in governance.
• It can increase the effectiveness of a program.
• It provides a feedback mechanism for the program/project team.
• It helps to identify the best practices used in a program/project. Thereby increasing the effectiveness of the program/project.
• It can create a sense of belonging among the participants as they are actively involved in the process.
• It promotes good local governance by providing a platform for local communities to hold their elected officials and government bodies accountable for their actions.
• This creates a system for grievance redressal, ensuring that the concerns of the community.

13. Advantages of Social Auditing for Government Departments

• Enhances reputation
• Provides increased confidence in social areas
• Social Audit through the action of Gram Sabha
• Alerts policymakers to stakeholder trends
• Assists in reorienting and refocusing priorities

14. Disadvantages of Social Audit

• Complex and time consuming
• Transparency
• Lack of Broad scope
• May be Subjective
• Specific context and objectives
• Cost of outside resources
• Achieving
• Exclusion of potential participants
• Lack of standards
• Organization manipulating views

15. Who can Perform Social Audit

“Social Auditor” means an individual registered with a self-regulatory organization under the Institute of Chartered Accountants of India or such other agency, as may be specified by the Board, who has qualified a certification program conducted by National Institute of Securities Market and holds a valid certificate; (as per Gazette Notification of SEBI dated 25th July, 2022).

15.1 Eligibility Criteria

1. Any Individual or Entity of firm having a track record of minimum three years of conducting social impact assessment of a social enterprise indulged in any of the areas notified by SEBI under Regulation 292E of (SEBI Issue of Capital and Disclosure Requirements) Regulations 2022 (as per Gazette Notification of SEBI dated 25th July, 2022).
2. Average annual grants or expenditure of social enterprise for which impact assessment has been carried out for the last three financial years should be at least Rs.50
3. Suitable human resources in the field of social development having experience of usage of relevant methodology of social audit.

15.2 Disqualification

• Any individual or any of the partner/Director of an entity convicted for an offence involving moral turpitude by any court of competent jurisdiction.
• The individual or any of the partner/Director of an entity has been declared as undischarged insolvent/bankrupt by the court of competent jurisdiction or any other authority empowered by law.
• Any individual or any of the partner/Director of an entity has been debarred by SEBI.

Please note that this is the initial empanelment of Social Auditor carried out by the Institute of Social Auditors. Regular empanelment will be as per the Gazette Notification of SEBI dated 25th July, 2022 and the norms for the same will be notified separately.

15.3 Requirement of Certification for Social Auditors

Financial auditors can qualify to be social auditors after they have successfully completed a course at the National Institute of Securities Markets (NISM) and received a certificate of completion.

Other individuals desirous of being Social auditors need to have at least 1 eligibility criterion listed below:

• Post-graduates from universities recognised by the University Grants Commission (UGC) with a minimum of 3 years of experience in the development sector, or
• Graduates from universities recognised by the UGC with  a minimum  of  6  years of experience in the development sector, or
• Cost and management accountants, or any other persons with suitable accreditations with a minimum of 6 years of experience in the development sector.
  AND
• Complete the NISM certificate course mentioned above. All social Auditors will have to be empanelled under an SRO (Institute of Social Auditors of India) formed as a separate Sustainability Directorate under the aegis of ICAI

16. Social Audit Standards and Frameworks at the Global Level

• South Africa:
  In South Africa, social audit standards are set by the Department of Social Development (DSD).
• Mexico:
  Mexico has not established specific social audit standards at the national level.
• Indonesia:
  In Indonesia, social audit standards have been established through the Ministry of National Development Planning’s Regulation No. 6/2016 on Guidelines for Social Audit implementation.
• Philippines:
  The Commission on Audit (COA) of the Philippines has developed social audit guidelines to promote accountability, transparency, and citizen participation in the audit process
• Nepal:
  In Nepal, the Social Audit Guidelines were formulated by the Ministry of Federal Affairs and Local Development in 2009.

17. Social Audit Standards in India

Under the Social Stock exchange audit framework, the Institute of Chartered Accountants of India (ICAI) has been entrusted with the responsibility of being self-regulatory organisation (SRO) for regulating the profession of Social Auditors

• Sustainability Reporting Standard Board (SRSB) of ICAI has issued the following Social Audit Standards (SAS) as under:
  

  SAS	Description
  SAS 100	Eradicating hunger, poverty, malnutrition and inequality
  SAS 200	Promoting health care including mental healthcare, sanitation and making available safe drinking water
  SAS 300	Promoting Education, Employability, and Livelihoods
  SAS 400	Promoting Gender Equality, Empowerment of Women and LGBTQIA+ communities
  SAS 500	Ensuring environmental sustainability, addressing climate change including mitigation and adaptation, forest and wildlife conservation
  SAS 600	Protection of national heritage, art and culture
  SAS 700	Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports
  SAS 800	Supporting incubators of social enterprises

  SAS 900	Supporting other platforms that strengthen the non-profit ecosystem in fundraising and capacity building
  SAS 1000	Promoting Livelihoods for rural and urban poor including enhancing income of Small and Marginal Farmers and workers in the non-farm sector
  SAS 1100	Slum area development, affordable housing and other interventions to build sustainable and resilient cities
  SAS 1200	Disaster Management, including Relief, Rehabilitation and Reconstruction Activities
  SAS 1300	Promotion of financial inclusion
  SAS 1400	Facilitating Access to Land and Property Assets for disadvantaged Communities
  SAS 1500	Bridging the digital divide in internet and mobile phone access, addressing issues of misinformation and data protection
  SAS 1600	Promoting welfare of migrants and displaced persons

• Standard on  Sustainability Assurance Engagements (SSAE) 3000: Assurance Engagements on Sustainability Information
•  Standard on Assurance Engagements (SAE) 3410:  Assurance Engagements on Greenhouse Gas Statements
•  Sustainability Reporting Maturity Model (SRMM)- version 1.0