CB BureauHere, we have unearthed some interesting ways in which CSR money has been diverted towards pursuits of happiness by individuals and entities who you wouldn’t exactly qualify as underprivileged or oppressed.
1. One of the more creative methods is to use charitable trusts. Much like Uber, these trusts can be hired to comply with the mandatory CSR spending on paper. While these funds receive a cut of the funds, the money that is supposedly spent on CSR activities is funnelled back into the company. A neat trick to fool the authorities, especially when there’s no mechanism to audit these spends. It helps that the CSR reporting form called AOC-4 isn’t required to be verified by external auditors, which is compulsory for other financial statements. The central government had earlier clarified that without a specific written complaint there was little they were willing to do on misuse of these funds, which ensures malpractice as usual for these companies.
2. While corporates using CSR for tangible returns is not wrong per se, the line where this becomes a business dealing rather than a social responsibility is rather thin and prone to frequent redrawings. Often, CSR funds are directed at ventures that are directly beneficial to the company, either in terms of increased profits (branding exercises, creating false goodwill among the public, etc.) or an exchange of favours – a quid pro quo exercise. There are reports where large Indian companies have given scholarships to children of bureaucrats, who no doubt wield immense power in public policy and law enforcement. Then there are those who simply refuse to engage in CSR projects unless there’s a very clear benefit to the company. Using CSR for crony capitalism and rent seeking negates everything that it stands for.
3. Government officials and senior staff in PSUs have been known to launder CSR money for their own benefits. This practice has been well documented before the ruling came into effect. Justifiably, a lot of people were concerned that with the additional funds this kind of corruption would become even more rife, especially when senior management in these PSUs are beholden to their political bosses and have to resort to all kinds of measures to please them, willingly or otherwise. CSR funds then become an easy prey since there’s little oversight on its spending and projects can be redesigned to make them seem extremely CSR-friendly. A few famous examples are the NALCO case in 2012 wherein crores of money were endowed on a private university, allegations against former Steel Minister Beni Prasad Verma of misusing SAIL’s CSR funds, and the 2011 CAG report on SAIL (again) which stated, amongst others, that most of its CSR money was spent on hiring choppers for ministers and PR activities. A more interesting variation of this is funds from PSUs being used in private sports tournaments that are ostensibly for the players and the development of the sport. In reality, the money serves to fatten the coffers of the governing bodies and their management. Financial disclosures by these organisations are a rare occurrence, much like the Olympic gold medal.
4. A good example of funds being misdirected”rather than misused”are donations to the PM relief fund (and similar such central govt funds) which happen to be considered as part of CSR. While prima facie there is little to object about this, for many companies unwilling to devote the necessary time and investment in taking up actual CSR projects of their own, this is an easy loophole through which they can be on the right side of regulations (no shortage of crisis or disasters in this country) without internalising or exercising the true meaning of CSR.
There have been plenty of discussions regarding the underutilisation of CSR funds by most companies. But with the expected growth in these numbers, misuse of this money is poised to become an even bigger issue for a landmark ruling like the 2013 Companies Act. The government will be well advised to make audits and full financial disclosure mandatory, much like the famous two percent metric. However, one should not discount the ability of these companies to creatively navigate these regulations as well.