Rugged Road To Justice- Social Audit & Professional Scepticism
Many social schemes or CSR projects have seen the days of meeting the fate with corruption. The corruption in Indian society is from top to bottom. In such alarming situation the dream of reaching sustainability is far away. To eradicate this disease and ill practices, new class of “auditors” have appeared in India recently. They are called the “Social Auditors” from the Institute of Social Auditors of India (ISAI). Now, the ISAI is working under the Institute of Chartered Accountants of India at Mumbai. These auditors bring toughest standards in auditing using important skill of “Professional Scepticism”.
Now the “Sustainability Reporting Standards Board” of the ISAI, constituted under The Institute of Chartered Accountants of India is functioning under the ICAI, till ISAI can sustain and stand on its own. The toughest standards, so far 16 in numbers have been published. The SEBI listed companies, the Social Stock Exchange listed companies are all within the ambit and control of “Sustainability Reporting Standards Board”, where only Qualified Social Auditor can now conduct “Social Audit” or audit on the “Social Impact Assessment” of the CSR Projects. The Government of India has endorsed Ministry of Corporate Affairs to enact similar provision to cover other private sector companies in the line of SEBI.
Previously, just to meet the formality of the “Social Impact Assessment”, many unqualified social auditors had conducted audit without any “active standards”. This scenario failed to achieve the sustainability for eradicating corruption.
So far in India, corruption is at such height, that "dead people" has been extended government schemes and benefit. But this is not the "dead people" who received the benefit! This is corrupt loophole and public servants who cheated the state subsidy benefit or manipulated wage payment by fabricating names on the payroll. This disease has affected most social welfare schemes in India including the CSR Projects. The "Social Audit" conducted in the Andhra Pradesh at the grassroot level with 3,200 rounds of social audits, has booked 38,000 disciplinary cases against senior officials from the IAS and provincial officers and employees involved in the jobs scheme. Hundreds have been suspended and punished. In the past three years, the team has detected irregularities of almost a quarter of Rs. 198 Crore.
Public hearing of "Social Audit" at the grassroot level, has been conducted with 3,200 rounds of social audits at Andhra Pradesh. This booked 38,000 disciplinary cases against senior officials from the IAS, provincial officers and employees involved in the jobs scheme. Hundreds have been suspended and punished. In the past three years, the team has detected irregularities of almost a quarter of Rs. 198 Crore.
This was the scenario of villages. The severe and serious plights with quantified irregularities are in worst state in the CSR projects. The magnitude & quantum of irregularities are very higher here. This needs highly skilled expert to detect the irregular portion of the CSR. The social audit process has been endorsed by the public finance watchdog, the Comptroller and Auditor General of India. All over the world, there is a growing perception among the supreme audit institutions to create a highly skilled institution to conduct “Social Audit" to achieve sustainability in eradicating corruption.
The “Professional Scepticism” is needed now as “essential skill” to perform the job in new class of “Social Auditors”. They should have a skill to sense between good and bad practices. An example is given here from true story in next para as simulation to differentiate how “Social Auditor” in new setup is going to adopt the audit process. This is different in many ways to the earlier slow but blind practices.
A company funded CSR project has been documented with clear scope. The CSR benefit has been extended under “the poverty elimination programmes for providing basic need of electricity in villages of Orissa which is below BPL level with zero electricity supply".
The “financial auditor” or say simply Chartered Accountant looks only the “financial invoice and vouchers of supply”. Since, documents are complete. So, CSR compliance is also complete. The annual report submitted by the Company Secretary adds the wisdom of Chartered Accountant that CSR Process is complete. But this is not the full-scale picture. This CSR project has collapsed due to corruption. A Qualified Social Auditor, while conducting the “Social Impact Assessment” of this CSR Project use the skill of “Professional Scepticism”. A simulation again is given here in next para how a Qualified Social Auditor is doing this job.
The “Social Auditor” has perfectly planned the audit work with date schedule in excel sheet. If planning is perfect 75% work is done. As per planning, before audit work, the “Social Auditor” is gathering “intelligence input” from his team. He has a newspaper clip in his possession published in Oriya from a leading newspaper “Samvad”. The news report is about mass corruption in solar lamp distribution in Bhuvneshwar. Based on “authentic intelligence gathering” he conducts on spot examination of delivery of CSR Projects. With these inputs the “Social Auditor” frames “questions for further interrogations” with the company CSR department and the company agency who delivered the project. See the pattern of questions:
1) The solar lamp has been supplied in Bhubaneshwar town in an Engineering College, which is of a known politician. This CSR supply is meant for village but supplied in town. Why?
2) The solar lamp is meant for a poverty ridden village where majority of population is below BPL line. But the beneficiary is from high income zone. Solar lamps mostly received by professors at Engineering College in the campus and college students living in hostel. Why?
3) The Engineering College has regular electricity supply. This is not falling under the parameter zero electricity supply. This is deviation. Why?
4) On spot data test, says 50% solar lamps distributed at the Engineering College. Remaining distribution benefit data of 50% solar lamps are missing. Why?
5) Case study of one beneficiary says hardly solar lamps have been used as Orissa State Government regular power supply is available. The scope of CSR benefit is missing here. Why?
The stakeholders can’t respond well. They will do mistakes if irregularities are there. If the “Social Auditor” is more trained and skilled he shall use modern business practice mostly followed in Toyota School of Business, South Korean or Japanese MNC in India. This is “Why Analysis”. For layman readers a short simulation is again given here in next para to understand the use of “Why Analysis” as best business practices in “Social Audit”. See following simulation.
Oil has spread on shop floor from a leaking molding machine. The oil reached the gangway also. Many people slipped on the floor. The Factory Manager has punished the operator of the machine. But a good manager who adopts best business practice conducts the “Root Cause Analysis”. He is using “Fish Skeleton Bone Analysis” and the “Why Analysis”. His “Why Analysis” tortures data “five times” with “why”. See how it works:
1. Why oil is on the shop floor?
Answer: Oil leaking from machine as gasket is not there.
2. Why gasket is not there?
Answer: Not supplied by the “Material Department”
3. Why Material department failed in supplying gasket? Answer: Heavy load of work and short of manpower to get it purchased from market. The HR is not supplying manpower.
4. Why HR not supplying manpower?
Answer: Not understood the actual need.
5. Why not HR studied and did “Kanban” at the spot? Answer: There is mistake in drawing estimate. Manpower shall be supplied within two days.
One must appreciate that this is not the “operator”, who has been punished. This is the “HR”, which is responsible and the exact “root-cause” of the problem. The “Social Auditor” is also expected to add similar insight in the “Social Impact Assessment” report to hit the corruption at the root cause level in the above CSR Project, using the best business skill. This skill is not taught in IIMs. This is also not practiced in slow but shabby Government offices. This is secretly practiced in South Korean or Japanese companies. Fortunately, I have used this intervention while conducting “social audits” in my previous South Korean MNC company and the related supplier vendor companies.
The “Sustainability Reporting Standards Board” of the ISAI now under the Institute of Chartered Accountants of India, is expecting the finest quality of business skill from the new defined “Social Auditors”. This is one major reason that the existing Chartered Accountants are not qualified to conduct the “Social Audit”, until or unless necessary skill and qualities are acquired by them to become the Registered Member of the Institute of Social Auditors of India.
The skill what has been demonstrated above has nothing to do with the “financial data and transaction”. The major element is here “Professional Scepticism” for looking beyond financial data. If you have adequate HR background experience, handling disciplinary cases against malpractices and indiscipline in organization backed with drafting of charge sheets. You are the right person to execute job as “Social Auditor”, where higher skill of “Professional Scepticism” is required.
This is only one quality and skill demonstrated here. There are several business skills demanded by the “Sustainability Reporting Standards Board” in India. The other SOP what, “Social Auditor” follow in the “Social Impact Assessment” report in the above case is adopting the “SAS Standard 100”. If you deviate the “SAS Standard 100”, without necessary and reasonable cause, then you are accountable for raising wrong “Social Impact Assessment Report”. Most of the “Social Impact Assessment Report”, prepared earlier by “unqualified social auditors”, do not adopt the basic criteria and standards. Like “SAS Standard 100”, other standards are in the pipeline, which hits the real root cause.
The “Social Auditor”, with his expert knowledge and skill suggests many remedial measures that is required to be implemented by the stakeholders to eliminate the root cause of the malpractices. Elimination of corruption though is a very difficult task for “Social Auditor” to perform. But this has started.
Stringent quality parameters is on the way for “Social Audit Firm” also. I have seen many ill drafted “job descriptions” recently circulated by HR of the social audit firm. I look here certain JD where “Social Auditor” is also expected to carry the work of marketing and business development for acquiring CSR business projects. This is the ugly and poor practice of the organization into “Social Impact Assessment Audit”. Such organization compromise on quality. This is like one JD where you are expecting a “Surgeon Doctor” to sell electronic washing machine in the market. The “Sustainability Reporting Standards Board” has taken care of such malaise and bad practices, which struck down the “quality of audit”. The ISAI has an eye now over such firms who practice irregularities and adopt poor quality practice in the name of ‘Social Audit”. Such firms shall be blacklisted or deregistered who play with "audit- quality" or violate the norms set by ICAI.
Remember this is not the “Social Audit” conducted so far by the APASCA people in Bangladesh or Pakistan in supply chain industries. Even APASCA people are working in India. Such unqualified “Social Auditors” have beaten the purpose and image of Social Audit. Now such people are unqualified auditor wherever, new set of Social Auditors are defined. This is very ironic, that in the supply chain of Bangladesh and Pakistan, such auditors have compromised on quality. They have prepared social reports, blindly allowing the plight of “child workers”, who weaved the finest branded clothes. These branded clothes have blood stain of the child workers. This is another form of malpractice more vulgar than corruption.
Impact Assessment Audit Tool " My Experience:
In "Impact Assessment Audit" for more than 10 years I have been using the "Visual Management Tool" to audit a "Before" situation and assess the judgement "After" any activities on the, "Before" problem. "Social Auditors" are not using this tool, because they are not trained in using such tool. The "Visual Management" is the best tools for any "Social Auditor" to record the impact activities of any CSR project. But he should must be trained in using the "Visual Management" tool. He should must have adequate years of experience in using the "Visual Management Tool" correctly. But, such tool is never used in Government departments. Our bureaucrats are also not trained how to use such important tool in development work audit. They believe in "physical paper" of invoice or record of complete financial transactions, as good criteria for audit. This is ugly British culture work of running any project in India, on the paper. We have learnt from the "Japanese" and the "South Koreans" the secret best business practices. Their 90% decisions, which is called "Gemba" decisions are based on the "Visual Management Tool".
We have also learnt from Indian states executing development schemes, where some work is done only on paper. But, the site speaks no work at all. Road built on paper. But road is not available on site. Bridge made on paper, but the same is not available at the site ! This route of corruption is existing in our society, because there is no "Visual Management Tool". This tool, reduce corruption probability by almost 90%. This tool shall be made mandatory for the "Social Auditor" to exercise expert judgmental opinion. This follows the dictum that "picture speaks always truth, what 1000 words in black and white can't tell". "Paper" hides corruption, but "Visual Management" make system transparent. "Social Auditor" should must build a golden line of dictum and put advisory note on the "audit report", how in future a single Rupee of company shall be invested in CSR project. All such investments should must have adequate evidence captured in "Visual Management" in "Before" and "After" format. This shall make task easy and transparent for the next auditor to conduct the work.
Readers shall must appreciate that the "Visual Management" or transparency is not allowed in any culture, where corruption dominates. The "Social Auditor", shall be doing great service to this corruption hit Indian nation to remove and uproot the disease, which has sprung in every corner, where money is involved.
Such bad era is now ending. The “Institute of Social Auditors of India”, now under the Institute of Chartered Accountants of India, has started a new set of standards and quality from India. This is the role model example, what the Institute of Chartered Accountants of India has started. The ICAI is the role model for the entire world, where corruption has crippled the economy and society. Thanks to our Prime Minister of India, who introduced such revolutionary step to end corruption from our Indian system and provided guidance to the Ministry of Finance. Who in turn implemented the "Social Audit" through the Institute of Chartered Accountants of India (ICAI).
The writer is a Qualified Social Auditor, from the Institute of Social Auditors of India, Mumbai. He is qualified from the NISM, Mumbai in "Social Auditors". He brings a vast set of knowledge and expertise in handling the "Social Impact Assessment". Social Audit" & providing expert consultation on the CSR Projects. He may be contacted at mail ID: birendrajha03@yahoo.com
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