CSR implementation plagued by corruption, says watchdog

Through corporate social responsibility (CSR) many companies strive to contribute to the welfare of the community. But in recent times, even this noble cause is plagued by corruption. India became the first country in the world to make CSR mandatory for certain category of companies, following an amendment to the Companies Act, 2013 in April 2014.

India CSR, an NGO which monitors the implementing of CSR, says that discussions with several company leaders reveal that certain officials and agencies, tasked with implementing CSR initiatives, often fall prey to malpractices, especially within large corporates and public sector undertakings where substantial CSR funds are deployed.

According to the law, any company that has a net worth of ₹500 crore or more, or a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more in a financial year, has to spend at least 2% of its average net profit of the preceding three years on CSR activities.

Corruption and malpractices in the CSR sector can occur at various stages and levels of CSR implementation.

"Some companies may report higher or lower amounts of CSR expenditure or impact than the actual figures, to evade taxes, avoid penalties, or gain goodwill. For instance, a study by KPMG found that 52% of the top 100 listed companies in India did not spend the mandated 2% on CSR in FY19," says India CSR founder Rusen Kumar.

Some companies may divert or siphon off CSR funds for non-CSR purposes such as personal expenses, political donations, bribes, or illegal activities. For instance, a CBI investigation found that Hindustan Steelworks Construction Ltd (HSCL) had allegedly misused ₹2.9 crore of CSR funds for renovating a bungalow owned by a former minister, Kumar said.

Some companies may collude or favour certain NGOs or intermediaries for CSR projects based on personal or professional relationships, kickbacks, commissions, or other benefits. Some NGOs or intermediaries may manipulate or exploit beneficiaries or communities for CSR projects by coercing them to participate, misinforming them about their rights.

"In May 2019, police uncovered a CSR funding in which the accused promised NGOs over ₹100 crore in the name of IT firm Hexaware Technologies. Turbhe MIDC police began searching for unknown individuals accused of fraudulently posing as Hexaware Technologies. These individuals reportedly forged the company’s documents, offering over ₹100 crore in CSR funds to various charities and NGOs across India," said Kumar.

The scam came to light in November 2018 when an email was received by Gunjan Methi, a secretary at Hexaware, from Kanta Sengal Memorial Charitable Trust in Gurugram, reporting a dubious pledge of CSR funding from ₹100 to ₹240 crore, allegedly from Hexaware Technologies.

"Corporate social responsibility (CSR) is the idea that businesses should not only pursue profits but also contribute to the social and environmental well-being of society. CSR can take various forms, such as investing in education, health, environment, gender equality, poverty alleviation, and other areas of public interest," said Kumar.

CSR law specifies a list of activities that qualify as CSR under Schedule VII of the Act, and requires companies to disclose their CSR policy, projects, expenditure, and impact in annual reports.

The law aims to encourage the corporate sector to play a more active and responsible role in addressing the social and environmental challenges faced by the country.

It also seeks to create a culture of accountability and transparency among the companies and their stakeholders. The law is regulated by the Ministry of Corporate Affairs (MCA), which issues guidelines and clarifications from time to time on various aspects of CSR implementation.

However, the law has also been criticised and challenged by various quarters on effectiveness and implications. One of the major issues and debates surrounding the law is corruption and malpractices in the CSR sector, where some companies, NGOs, and intermediaries misuse or misappropriate CSR funds for personal gains.

"There are many cases identified and action taken for miss utilisation of CSR funds. CSR leaders suggest that corruption can infiltrate CSR Projects, especially in large corporations and public sector entities with extensive funds," said managing trustee of Gandhigram Trust V K Shivakumar, who is also a chartered accountant.