Corporate Social Responsibility (CSR) is contributing a portion of the profits of a company for a cause, after April 1, 2014 it seems to be more by force that is mandated in Companies Act 2013 and may no longer be by choice for those companies that are required to spend. The issue is not how much to contribute but the bigger issue is where to put the money, where the heart is OR where the brain is. The Board should take care not to make a mistake in identifying the cause as its effect in wrong deployment of 2 % of the profits of the company in CSR may result in depletion of the 98% of the value of the company and in turn the 100% trust of the shareholders.
The CSR Committee’s Dilemma
The dilemma is where should the CSR Committee of the Board of Directors of a company put the funds of the company in any CSR activity. A classic boardroom scenario can be the instance of a proposal to build a compound wall for the local government school for which there can be three options made available to the CSR committee before taking a decision to choose which one of these is ideal for rendering this CSR activity:
Option 1: The Company can contribute the amount directly to the school, and the management of the school can construct the compound wall
Option 2: The Company can pay a NGO and ask the NGO to construct the compound wall of the school
Option 3: The Company can take on this activity directly and hire a few contractors and construct the compound wall
Technically speaking all the three options of contribution are possible and a compound wall will be constructed in the Government school, but the difference is the accountability of the funds that are deployed to achieve the end result. While the Board of Directors of a company may have approved the CSR spend it should take care to do a diligence on the following issues for these options.
1. If the company remits the amount directly to the school account it will get a tax exemption certificate under section 80G and the onus will be on the school to construct the compound wall, but the company will have to ensure that the wall is being constructed.
2. If the company pays it to a Registered NGO/ Trust the company will get a tax exemption certificate under section 80G, but the onus will be on the company to ensure that the NGO/ Trust has spent the money and requires the NGO/ Trust to submit a periodic report on the same.
3. If the company engages the contractor and spends the money the company will not be entitled to any tax exemption certificate and will be treated as an expense, which is not in the ordinary course of business and may be disallowed.
The Entry in Accounts
The easiest way of contributing to CSR will be to issue a cheque in favour of Prime Minister Relief Fund, there will be no questions asked and no accountability issues and you will get a tax exemption certificate of 100% on your contribution and what after that, you have completed your obligation to payback to the society with just a single cheque which will not require any diligence on the contributory and with one single entry in your books of account and that is accountancy at its best without being accountable.
Entry into Hearts
In case a corporate wants to go beyond accountancy and get into the accountability of payback to the society it can adopt a school and ensure that their mission to implement CSR in education is successful and it brings smiles to the millions of school going children in the country. This requires involvement of a team of likeminded volunteers in an organisation who can work towards identifying the problems or issues and working towards the upliftment of these issues. There can be a school that requires a basketball court, by building it you can bring smiles or a weekend mentoring for students, will take you closer to the world of under privileged. The corporate can build good staff room for teacher in schools that can have good drinking water, fans, a good library this will ensure that the teacher is more than happy to come to school everyday, their attendance can be better than a student. These are some suggestion for inclusive growth of CSR in the schools.
Problem of plenty – Role of NGO
Prior to the mandatory CSR spend, there were lot of NGO’s that were doing good work in a limited scale in the country, with this few millions that the corporates are planning to deploy overnight these NGO’s have suddenly become millionaires and are more engaged in dealing with how to handle this windfall than the regular work of social change or transformation. Imagine a existing NGO that is into providing midday meals gets lot of infusion in the form of donations to do this good work, how many more children will it reach, do we have enough volunteers, where is the accountability of the money that will be received, it means the NGO has to grow into a large organisation, the nuisance of organisation politics to deal with and the overburden of having to save tax so the shift for this NGO is how to run the big organisation than its main objective of how to feed the poor.
Prior to 2014 what was a simple cause to serve the poor has suddenly become a big business. Where is education for these service providers in NGO’s, it is an industry where millions will be invested, this responsibility is being entrusted in the hands of persons who are into social cause without any formal education as they were only trained to do service, but with this infusion of funds it seems to have corrupted the minds of the noble men and women into learning more accountancy in how to handle the money that is received rather than the accountability on how to deploy this money.
NGO is for Charity, not the CEO
As my friend who works for a NGO remarked ‘I work for a NGO that is not for profit, not me I work for profit’ and the NGO has to pay the market salary, to retain him as a CEO of the NGO and in his case maybe millions of rupees as salary to manage the NGO’s billions of money. The accountability stops where accountancy begins.
In conclusion CSR for a company or for a NGO is not about accountancy but is about accountability to the big corpus mandated by the Government which is estimated at Rs. 10,000 crores almost a few billion dollars.
Tags Corporate Law