Companies are supposed to carry forward their remaining or surplus CSR funds from one financial year to the subsequent year’s fund and used accordingly, as per the Company Act. But is it being followed? There is no straight answer on this. In last year’s (2018-19) disclosure, one third of the top companies failed to disclose the usage of their surplus money.
The Company Act mandates that the revenues arising out of CSR projects shall not form part of the companies’ profit and shall be deployed back for CSR activities. However according to a recent report by KPMG states that around 33 per cent companies failed to disclose the details on treatment of their surplus arising from CSR projects in their policy. KPMG, a network of companies engaged in financial audit, tax and advisory published this report in February 2020. The audit firm analysed how companies have performed on different criteria of the ACT over the past five years.
Based on the analysis of 100 largest listed Indian origin companies by market capitalization (N100), the report says, "In 2018-19, 22 % companies spent less than the prescribed two per cent of their total income. Of these 22% companies, only 62% have committed to carry-forward the unspent CSR amount to the next year.
Though, in the past five years, an increasing trend of committing to carry forward the unspent money has been witnessed. See the trend:
No accounting of similar commitments made earlier
The biggest question here is, whether the commitment of adding the unspent money to the next year’s CSR activities fund is being followed or not!
As per the report, a total of 13 companies among top 100, failed to spend the mandated 2% even last year and had committed to carry forward the unspent amount. But there is no clarity on whether they spent the surplus amount as per their claim.
Out of these 13, four companies have shown a higher spend than the prescribed 2% CSR expenditure in 2018-19. The higher expenditure might be because of the carry forward amount from the previous year. However, what happened to the remaining nine companies’ commitment is not clear.
"Currently, there is no uniformity with regards to disclosure on details of admin expenses as well as unspent amount carried forward, and the way in which the unspent amount of previous years is being utilized and spent", concludes the report asking Ministry of Corporate Affairs (MCA) to provide guidance and direction to companies for clearly providing details with regards to admin expenses and how unspent amount is being carried forward from previous years.
