As corporate social responsibility (CSR) spends increase during the COVID-19 pandemic, lack of due diligence and weak governance is leading to frauds and lapses in the programmes.
The 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) programmes, states EY Forensic and Integrity Services in a report.
As CSR spends to aid communities in need during the COVID-19 pandemic increases, the integrity, efficacy and success of these programmes may be uncertain due to inadequate controls, governance and monitoring. The report further highlights that 40 per cent of the respondents shared that regular monitoring and evaluation of the CSR projects was a key challenge.
The report highlights that although there is a high dependence on third parties to execute CSR programmes, 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. External specialists can bring precision, discipline and efficiency when running an organisation'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.
On the fraudulent practices during the lifecycle of the CSR implementation process, the report says that financial misrepresentation of CSR funds (33 per cent), fraud in procurement of goods & services (34 per cent) and diversion of funds (30 per cent) were some of the unethical practices demonstrated by implementation partners.
Investigating a CSR fraud was a key challenge for 20 per cent of the respondents. Organisations need to make sure that the process of execution during the entire lifecycle of the CSR programme is conducted with integrity.
There is limited governance and monitoring. About 56 per cent of the respondents said that there was no board involvement and only 22 per cent said their CSR committee included the CEO.
Fifty per cent admitted their organisation did not have a case management workflow or governance structure for reported or identified violations related to the CSR projects. Less than half (46 per cent) admitted to conducting reviews and monitoring the CSR activities.
Limited leadership involvement, absence of monitoring and the impact measurement of projects may lead to adverse repercussions for organisations, augmented exposure to a wide-ranging set of risks, the report said.
Arpinder Singh, Partner and Head - India and Emerging Markets, Forensic & Integrity Services, EY said, "CSR programmes can be a powerful force for organisations 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 crisis which can have far-reaching implications."