A Comprehensive Guide to Social Audit in India

In the modern era, citizens have become increasingly aware of their rights and more vocal in their expectations from public authorities. With growing demands for openness and responsibility, governments across the globe are embracing innovative methods to evaluate their own performance and ensure they uphold public trust.

Among the most effective tools for achieving this are social audits, public feedback systems, and sustainability reporting. These mechanisms enable governments to gauge the effectiveness of their policies while promoting responsible and transparent governance.

Social audits, in particular, serve as a valuable instrument for enhancing accountability and fostering good governance. They encourage mutual understanding among stakeholders and strengthen the credibility of government initiatives and programs. Furthermore, social audits can uncover inefficiencies and mismanagement, thereby guiding improvements in how public resources are allocated and utilized.

The process involves a systematic assessment of the social, economic, and environmental impacts of governmental actions, relying on inputs from a broad range of stakeholders. By involving citizens, businesses, and community organizations, social audits also help bridge communication gaps and build public trust. Ultimately, they play a crucial role in driving transparency, sustainability, and accountability in public administration. 

Historical Background at the Global Level

The concept of social auditing has evolved gradually over the past century, with its roots embedded in early discussions on corporate transparency and accountability. One of the earliest references to  transparency in business operations came from economist M. Clark, who, in a 1916 article in the Journal of Political Economy, highlighted the importance of openness in corporate affairs.

The idea gained further traction in the 1930s through the work of Professor Theodore Kreps, a pioneer in the domain of corporate social responsibility (CSR), who began to articulate the need for businesses to be accountable not just to shareholders but to society at large.

The formal usage of the term “social audit” began to take shape around the 1950s. It was during this time that non-profit organizations started conducting early forms of social audits to assess their societal impact. In 1953, Howard Bowen, often referred to as the father of CSR, introduced the concept more explicitly in his seminal work Social Responsibilities of the Businessman, where he advocated for ethical and socially conscious business practices.

The 1960s and 1970s marked a significant period of growth for social auditing, as governments and civil society organizations began to adopt it as a method for evaluating the societal effects of public policies. In Europe, especially the United Kingdom, the term gained widespread recognition during the mid-1970s. British activist and reformer Charles Medawar played a crucial role in shaping the concept, promoting its application as a tool for ensuring governmental accountability.

By the 1980s, social audits began to be employed within the public sector, expanding their relevance beyond corporate boundaries. A landmark development occurred in Sweden between 1985 and 1988, where John Fry and Ulla Ressner conducted one of the first formal social audits, setting a precedent for future public-sector evaluations.

The 1990s witnessed further formalization and standardization of social audit practices, with more structured methodologies and frameworks emerging. By the late 1990s, both private and public sector organizations around the world had begun to adopt and refine social auditing as a vital component of responsible governance and sustainable development.

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

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.

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.

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

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.

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.

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.

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 

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

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).

Eligibility Criteria

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).

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

Suitable human resources in the field of social development having experience of usage of relevant methodology of social audit

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.

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.
 Complete the NISM certificate course mentioned above. All social Auditors will have to b empanelled under an SRO (Institute of Social Auditors of India) formed as a separate Sustainability Directorate under the aegis of ICAI