Companies to see frauds in their CSR programs during Covid-19 pandemic: EY report

Mumbai: Companies could see frauds in their Corporate Social Responsibility (CSR) programs as they may not have bandwidth to conduct due diligence or monitor these amidst Covid-19 pandemic, said EY Forensic & Integrity Services’ report.

Many companies that are now looking to allocate their CSR funds towards Covid-19 related programs, but still do not have structures in place that could avoid frauds, the report titled Corporate social responsibility in India: re-engineering compliance and fraud mitigation strategies, said.

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, the report said. There is a high dependence on third parties to execute CSR programs, 65 per cent of the respondents did not have a clear due diligence policy and only 45 per cent admitted to checking the past record of implementation partners, the report said.

The report states that 65 per cent respondents did not have a defined due diligence policy for CSR implementation partners. On the other hand 75 per cent respondents did not have a governance structure or policy to address ethical lapses or fraud in CSR programs. And about 20 per cent respondents said investigating a CSR fraud was a key challenge, the EY report stated.

“CSR programs can be a powerful force for organizations to create 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 crises which can have far-reaching implications,” Arpinder Singh, Partner and Head – India and Emerging Markets, Forensic & Integrity Services, EY said.

Companies are rushing to spend their CSR funds to help Covid-19 situation but there is a lack of transparency around the implementation partner’s background, the report said.

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.”

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 said.

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