- 65% respondents did not have a defined due diligence policy for CSR implementation partners
- 75% respondentsdid not have a governance structure or policy to address ethical lapses or fraud in CSR programs
- 20% respondents said investigating a CSR fraud was a key challenge
India, Mumbai, 6 May 2020:Lack of due diligence on implementation partners, weak governance and limited management involvement are contributing to ethical lapses and fraud in corporate social responsibility (CSR) programs, states EY Forensic & Integrity Services’ report, Corporate social responsibility in India: re-engineering compliance and fraud mitigation strategies. The report highlightsthat although there is a high dependence on third parties to execute CSR programs, 65% of the respondents did not have a clear due diligence policy and only 45% admitted to checking the past record of implementation partners.
As CSR spends to aid communities in need during the COVID19 pandemic increases, the integrity, efficacy and success of these programs may be uncertain due to inadequate controls, governance and monitoring. The report further highlights that 40% of the respondents shared that regular monitoring and evaluation of CSR projects was a key challenge.
Arpinder Singh, Partner and Head – India and Emerging Markets, Forensic & Integrity Services, EY said, “CSR programs can be a powerful force for organizations tocreate a positive impact on society, transform communities and deliver long term value to stakeholders. Any gaps, inadequacies or compliance lapses in the CSR efforts defeat its true purpose and significance, particularly during times of criseswhich can have far-reaching implications. Organizations and their leaders need to ingrain integrity within CSR programs, strengthen governance and enhance monitoring efforts to impede fraud and unethical practices.”
Saguna Sodhi, Partner, Forensic & Integrity Services, EY said, “The key to success for CSR committees will be maintaining compliance with the law, managing checks and balances,and seeking guidance from senior management. Safeguarding the veracity of CSR programs, the implementation process, partners and procedures to minimize risks would be critical.”
The objective of EY Forensic & Integrity Services’ report was to assess the incidence of fraud and unethical practices in CSR programs, gaps observed and organizations’preparedness to manage these risks through anti-fraud and integrity mechanisms. Key findings of the report include:
Lack of transparency around the implementation partner’s background
Only 45% of the respondents had taken any steps to check the past recordwhile65%did not have a defined third-party due diligence policy that covered execution partners. External specialists can bring precision, discipline and efficiency when running an organization’s CSR project. However, omitting adequate due diligence and an opaque background may lead to ethical or integrity-related concerns, regulatory scrutiny and expose the company to financial and reputational risk.
Fraudulent practices during the lifecycle of the CSRimplementation process
Financial misrepresentation of CSR funds (33%), fraud in procurement of goods & services (34%) and diversion of funds (30%) were some of the unethical practices demonstrated by implementation partners. Investigating a CSR fraud was a key challengefor 20% of the respondents. Organizations need to make sure that the process of execution during the entire lifecycle of the CSR program is conducted with integrity.
Limited governance and monitoring
56% of the respondents said that there was no board involvement and only 22% said their CSR committee included the CEO.50% admitted their organization did not have a case management workflow or governance structure for reported or identified violations related to CSR projects. Less than half (46%) admitted to conducting reviews and monitoring CSR activities. Limited leadership involvement, absence of monitoring and the impact measurement of projects may lead to adverse repercussions for organizations, augmented exposure to a wide-ranging set of risks.