CHAPTER - 3

A Conceptual Framework of
Social Audit
 Chapter - 3
A Conceptual Framework of Social Audit

The concept of auditing, unlike die past, has undergone many changes in the

present day thought of accounting and auditing literature. Now-a-days it is not

restricted up to mere a systematic examination of books of accounts and records

with supported documents and vouchers, but it has attained a stage of

multidimensional approach. One of the areas of multidimensional audit is social

audit. The assessments of ethical behaviour of teachers, principals, non-teaching

staff and the Governing Bodies and overall social impact of the educational

institution are the important issues which have been discussed.

Social audit is the concept of performance yardstick of the fulfillment of social

responsibilities of the institution. Therefore social audit facilitates to assess as to

how an institution is able to discharge its social obligations in the course of its

operations. It is well accepted fact that the educational institutions have some

responsibilities to the society at large. In view of the above it may be stated that

the educational institution is a social and legal entity with multiple interests to

serve the students, teachers, non-teaching staffs, Government etc. The

management philosophy lays emphasis that the institution should fulfils social

commitment since it is the part of the society. The performance of an educational

institution should be evaluated in terms of different types of audit viz. statutory

audit, academic audit, performance audit etc. Statutory audit is being done by the
 22

qualified chartered accountants on the recommendation of the higher education

department, Government of West Bengal. All the books of accounts, financial

statements, Grants in Aid and its utilization, other receipts and payments etc. are

the core area of this type of audit. Again, academic audit is conducted by the

affiliating university with a view to examine the effectiveness of the institution in

terms of providing different services to the different stockholders of that

institution. That is to measure the performance of educational institution. The only

economic activity can not be the reason for the establishment of the educational

institution. In addition to this morality, ethics, honesty and integrity play a vital

role in building the profile of that institution. Thus the social audit aims to focus

on the different measures which are essential to discharge the social obligations of

the institution as well as all those things which concerned with the development

and growth of the society. The population control, safety and security measure of

employees, conservation of resources, protecting environment, appropriate

disposal of wastes, controlling sound, air and water pollution etc. are not only the

issues covered by the social audit, but the literacy and standard of life of the

common people also come under the ambit of social audit. Precisely it can be said

that it includes all untouched areas of the society.

The society is undergoing through a vivid scientific and technological changes

with new innovations. The effect of change in attitude and general motives of

people can be noticed on the society easily. The work tradition of the present
 23

society is also taking a new look. The dimensions of work culture under the given

circumstances are also changing day by day. Thus work culture within an

educational institution can be protected and promoted with the help of social audit

process. Social audit process offers a systematic approach for building

transparency and accountability within the educational institutions. Through the

social audit process the strengths, weaknesses and areas where improvement is

needed can be identified. The NAAC has identified the following criteria to serve

as the basis for assessment of higher educational institutions.1

(1) Curricular aspects,

(2) Teaching-Learning and evaluation,

(3) Research, consultancy and extension,

(4) Infrastructure and learning resources,

(5) Student support and progression,

(6) Organization and Management, and

(7) Healthy practices.

How much cost is being incurred to give the benefit to the society is more

important for the social audit process. The Governments at all levels are also

1. Mishra, Dr. S., Quality Assurance in Higher Education: An Introduction,

NAAC, Bangalore & Commonwealth of Learning, Canada, 2006, p. - 55

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giving the priority to enact new legislation and creating new regulatory agencies

laying down new criteria of performance in many areas of social concern. The

NAAC has been established under section 12 CCC of the University Grants

Commission Act with a view to create a national body for the maintenance and co­

ordination of standards in higher education. The maintenance of the quality of

education is the prime motive of all educational institutions. For this purpose the

institutions of higher education should enable themselves to utilise their resources,

capabilities and opportunities to optimum level. Quality education is the right of

every student, parent, employer and every citizen of our country. It is the duty of

the educational institution to maintain as well as improve the quality of education

in tune with the above rights of different stakeholders of that institution. The

assessment of educational institutions can be made to verify whether the

objectives of different institutions uphold the needs of the society under the

present socio-economic environment or not. The educational institutions are

utilising the scare resources of the nation to produce educated people needed for

the civilized society.

Concept and Origin:

Through new social contact the Government everywhere initiate different kinds of

social actions, which has became an integral part of their normal functions. The

education sector too has accepted it as a system for growth, promotion and

survival pursuit The effects of social action taken by the educational institution
 25

continue to pay back in bigger terms. The traditional business accounting method

does not have the usual tools of focus on intangible social results of their

institutions. This accounting method failed to do justice for educational

institutions linking their main functions. As the accounting system fails to offer

the right place for the social programme a new concept develops and that is the

genesis of the social audit which can be used as a tool to explain the social

phenomena in the right perspective. By process it evaluates the investment on

social cause and effects in terms of long range significance. When an educational

institution acts on social action the social audit process tries to evaluate such

programmes in the light of such goals, objectives and make an assessment on the

managerial efficiency with a view to ascertain how and to what extent the goal has

been achieved, whether the programme has been implemented effectively, how it

could be improved and finally to find out credit worthiness of continuing the

programme following a particular standard.

The concept of auditing is very old. The real operation of audit started either with

the introduction of keeping of accounts or little thereafter. As early as two

thousand years before the Christian, the Babylonian law provided for the taking of

accounts between principal and agent. 2 The word audit has been derived from the

Latin word ‘audire’ which means “to hear”. Basically the application of audit has

2. Basu, Dr. B. K., An Insight into Auditing - a multidimensional approach,

Basusree Book Stall, Kolkata, 2004, p. - 1.1

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spread out and became popular without the support of a well defined theory. In

earlier days community welfare was the idea behind undertaking any audit when

the society relied on auditors to investigate into the financial affairs of public

importance and to report the findings to the public at large. With passage of time

the concept opens its windows to the universe. It spreads its wings to business

corporate, central, state and local Governments, (local bodies), a club, a hospital, a

society, a bank, an insurance and an educational institutions etc. From the late 18th

century the sphere of audit functions were supported with certain theoretical

aspects to maintain a norm of evaluating the objectives. Ultimately the auditing

found a ground of profession. Till the early periods of 20th century the definitions

of audit in widely covered terms were not used. In 1973, American Accounting

Association Committee on basis Auditing concepts tried to consolidate a definition

whereby a broader idea on auditing was clubbed. The association defined that

“Auditing is a systematic process of objectively obtaining and evaluating evidence

regarding assertions about economic actions and events to ascertain the degree of

correspondence between those assertions and established criteria and

communicating the results to interested users.”

The United Kingdom Accounting Association has given another definition for the

Professional Auditing Standards and Guidelines (1980) which is equally broad

where it is stated that, “An audit is the independent examination of, and expression

of an opinion on, the financial statements of an enterprise by an appointed auditor

 27

in pursuance of that appointment and in compliance with any relevant

obligations.”

In fact, it is society which determines the role of an audit based on the needs of

different organisations from time to time since the origin of its use depending on

the primary social and commercial needs of the society auditing practice contained

certain basic postulates — Prof. David Flint of Glasgow University elucidated

them as:

(i) It is related to accountability to concerned parties/society;

(ii) It relates to accountable matters which are too far for ordinary man to

determine;

(iii) While discharging duties auditor must be independent;

(iv) Requirements of audit should be clearly specified;

(v) The subject matter should be specific for verification/evidence purpose by

auditor;

(vi) Auditor’s Report must not be ambiguous but clearly expressed and

communicated;

(vii) The report should provide judgment on efficiency and performance which

emit social and economic benefits.

3. Flint, Prof. David, University of Glasgow, “Philosophy of Principle of Auditing

— An Introduction.” Macmillan Education Ltd, 1988.

 28

The performance of the social audit is very wide. It lacks specifications of

measuring the achievement/performance which renders auditor with a necessaiy

gap. The auditor then moves on imagination based on the problems and formulates

his course of actions.

Reporting is the most important part of the auditing. Here auditor is used to give

his judgment over the audit episode. Generally a standard format is maintained in

the preparation of the report. It contains the terms of examination and finally the

opinions of the auditor up to a specific date. At the last portion of the report he

subscribes his signature and mentions the name of the audit firm.

Social Audit:

Auditing like detective work tries to find out whether or a previously defined

system is functioning as desired. Social Audit, on the other hand, is to audit the

concept of performance yard sticks of the fulfillment of social responsibilities of a

business or any organization say educational, service sector etc.

The concept of auditing unlike the past has under gone many changes in the

present day thought of accounting and auditing literature. It has attained a stage of

multidimensional approach. However, the present work relates to the performance

of the Educational Institutions in the context of social needs as well as the benefits

given to students, teachers, non-teaching staffs etc. It is worth mentioning in this

context that Prof. B. K. Basu, the then Dean faculty council for Post Graduate

studies in commerce, social welfare and Business Management, University of

 29

Calcutta, in his lecture told that “Educational Institutions are meant for the

students, not for the teachers, principal non-teaching staff and the governing body

of the colleges but these persons are required for nursing of students.”4 Therefore,

the object of this research work is to assess the performance of all parties involve

in educational institutions. Auditing is perfectly related to all sphere of social

science; it is not merely systematic examination of books of accounts with

supported documents and vouchers. Hence an enterprise or institution should

assess its performance in the context of social needs.

“A Social Audit is one which is done by an independent person is order to

examine the expenditure incurred by the business enterprise towards social

activities as well as the monetaiy value of the social benefits emerged out of such

activities and also how entities are discharging their social obligations for the

protection of the environment pollution free environment.” 5 In light of the above

definition of social audit given by Prof. Dr. B. K. Basu we can apply the concept

of social audit in Educational Institution by examining the responsiveness of the

expenditure incurred by the educational institution towards the social activities as

well as the other benefits emerged out of such activities. In educational institution

4. Lecture given by Dr. B. K. Basu at the Refresher Course held in the Department

of Business Management, University of Calcutta, June6-25,2005.

5. Basu, Dr. B. K., An Insight into Auditing - a multidimensional approach,

Basusree Book Stall, Kolkata, 2004, Pg. 3.4

 30

the students are the outputs who play a vital role in decision making process for

the betterment of the society. In this context it is important to note that the unit

cost of education, excluding Government grants for payment of salaries is Rs.

1600 per student and Rs. 2,581 per student on including the government grants for

salaries in the Umesh Chandra College.6

The activity involve here is imparting education among the pre-graduate students

enabling them to compete with the regional, national and global competitive

environment. Thus the benefit derived from such activity is much more than the

cost incurred by the institution as well as the state. It is also found that the

educated people play an effective role in protecting the environment and

controlling the pollution. Thus from the social audit point of view educational

activity is indispensable for the control of pollution, protection of environment

making people (citizen) aware of their responsibility towards the society and

improving their standard of living. Thus, Social Auditing is all about keeping an

eye on social performance of an institution. Now-a-days a larger number of people

as well as big institutions have a faith in achieving social goals by fulfilling its

social obligations. What amount of money the institution spent to give the benefit

to the society is more important for the social audit process? The Government at

all levels are also giving the priority to enact new legislatives and creating new

6. Peer Team Report on the Institutional Accreditation of Umes Chandra College,

Surya Sen Street, Kolkata, West Bengal, 2004

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regulatory agencies, lying down new criteria of performance in many areas of

social concern. Regarding Social Audit Raymond a Bauer points out that “the

concept of social audit is a vision that at some future time corporations will assess

their social performance in as systematic manner as they now assess their financial

performance.”

It has been recognised as an important branch of audit. The main objective of

social Audit is to focus on the different measures which are essential to discharge

the social obligations of an institution or organisation.

In the words of Dr. Clark C. Abt of Abt Associates Inc. Cambridge, Mass that

“Social Audit should as far as possible be approximated to an ordinary commercial

audit” and in the social balance sheet credit side will conform ‘input’ and debit

side with ‘output’ or ‘costs’ and ‘benefits’. He went on embarking “the basic

purpose of a business corporation is to maximize the financial return earned on its

financial investment plus the amount of social return on its social investment. To

make rational investment decisions on the social area, it is necessary to know what

are the social returns and of we are to assess them by the same measure as for
7
financial investment, this must be expressed in dollar terms.” He anticipates that

the social balance sheet would be a mandatory part of commercial balance sheet.

The role of social audit will come closer to commercial audit.

7. Abt, Dr. Clark C. of Abt. Associates Inc. in his book ‘The Social audit for

Management.’
 32

g
Mr. M. Parthasarathy defines social audit as “at the extreme end of the spectrum

of audit functions. Over the centuries, audit functions, have grown and evolve

starting from the most ancient kind which may be called vigilance audit which was

concerned mainly with the detection of frauds. They came in more or less

chronological order, regularity audit, propriety audit, value for money audit,

performance audit and lastly social audit. We may regard the last three of these

audit functions as representing economy, efficiency and effectiveness audit.”

9
R. K. Gupta defines “Social Audit is a rational assessment of reporting on some

meaningful definable domain of company’s activities that have social impact and

includes:

(a) Environmental pollution

(b) Working conditions

(c) Consumers’ issues

(d) Community development and social welfare programmes

(e) Employee welfare, and

(f) Social capital investment”

8. Parthasarthy, Mr. M., Former Additional Deputy Comptroller and Auditor

General, India, Social Auditing and its relevance to Audit of Public Utilities

9. Gupta, R. K, ‘Social Audit X rayed’ The Management Accountant, vol. 26,

no. 9, March 1978, p. - 981.

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Social Audit assesses the ethical behaviour and social impact of an organisation in

relation to its aims and those of its stakeholders and it aims to demonstrate an

organization’s commitment to excellence, equality and accountability.

In India, The Tata Iron and Steel Company Ltd. (TISCO) presented publicly in

1980 the report on the Social Audit Committee. This report was basically a

descriptive assessment of the performance of the company towards the society. It

was an analysis of the social performance of the company, which was mentioned

in its Articles of Association about its social and moral responsibilities to the

customers, employees, shareholders, society and the local Community.10

In light of the definition of social audit given by Raymond A Bauer we find that

recently the corporations have taken a notice on the social issues involved with

their activities. The concept of social audit is not limited within the business

enterprises rather it has been widely accepted by the educational institutions also.

The concept of social audit has nicely been presented by Dr. A. K. Chakraborti in

his work A study of Social Audit of Corporate Bodies. He states that “Social Audit

approaches to signify the letters constituting the worlds ‘Social’ ‘Audit’ as not

merely a post mortem analysis but a positive approach towards -

S — supplementing statutoiy audit by scrutinizing the safety (food, ecology,

pollution, etc.) security and services (commodities, corrupt free

10. Basu, Dr. B. K., An Insight into Auditing - a multidimensional approach,

Basusree Book Stall, Kolkata, 2004, Pg. 3.5

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professional skill etc.)

0 — offered to the community and

C — Conserve the resources and

1 — Investigate (Industrial sickness) the

A — Activities and actuating the

L — Limited liable corporate bodies

A — Analyzing the activities with reference to its authenticity and

U — Unearthing the Unfair and Universalizing the

D — Defects and disadvantages and

I — Installing the

T —Truth” 11

In time with the above explanation of social audit the assessment of the

educational institution can be made to verify whether the objective of different

institution uphold the needs of the society under the present socio-economic

environment or not. Educational Institutions are utilising the scare resources of the

nation to produce educated graduates, post graduates or higher educated people

essential for the civilized society. The objective is to effect a transformation in the

life of the community through importing education to its member i.e. students and

11. Chakraboti, Dr. A. K., A Study of Social Audit of Corporate Bodies,

University of Calcutta, Kolkata, 1999, p. - 4

 35

by holding many extensional programme within time to time. Educational

institution can play a notable role in educational training, cultural programmes,

sports, training, social integration, making public aware for pollution free

environment and ecological balance.

Social Audit means the assessment and reporting on the social responsibility of an

institution. It can be defined as a systematic attempt to identify analyze, measure if

possible, evaluate and monitor the effects of an organization’s operations on

society, some specific social groups and the general public well-being.12

In 1953 Howard R. Bower had made a study for the Federal Council of Churches

and presented the fundamental theme of Social Audit and tests and pointed out

that this exercise, if suitably conducted can be said to break down the boarder base

of social responsibility of business into single identifiable components.

Following this, many outstanding authors mainly from USA have given a fruitful

thought on social audit as per the report of William T. Greenwood.

Messrs Raymond A. Baner and Dan H. Fenn Jr. successfully synthesize a variety

of definitions of the concept and properly unfold the essence of the basic theme by

stating the concept of Social Audit. According to them Social Audit, in

12. Raymond A. Bauer and Dan H. Fenn, What is a Corporate Social Audit?

Harvard Business Review, Jan-Feb 1973

13. Greenwood, William T., Issues in Business and Society, 3rd Edition, 1977,

p. - 574
 36

real sense is a systematic commitment to systematic assessment of and reporting

on some meaningful, definable domain of a company’s activities that have social

impact.

Objectives of Social Audit:

14
Prof. Dr. B. K. Basu has enumerated the following main objectives of social

audit:

(i) to assess the social performance of business organisation towards the

society,

(ii) to have a correct picture of the contributions made by a business

organization to the society,

(iii) to provide the exact information about the social accounts to the

management authority of the organization,

(iv) to make an evaluation on social accounts after reviewing Social

Economic Operating Statement (SEOS).

In view of the above the performance of different educational institutions are to be

discussed from different point of view in chapter six. The learners are the main

focus for the educational institution’s accountability. Preparation of annual

accounts, i.e. Receipts and Payment Account, Income and Expenditure Account

14. Basu, Dr. B. K., An Insight into Auditing - a multidimensional approach,

Basusree Book Stall, Kolkata, 2004, Pg. 3.5

 37

and Balance Sheet, Reports by the head of the institution and statutory auditor

must be sent to affiliating University. A critical examination will reveal that the

learners’ right is on the top. The Governing Body (GB) ultimately decides

everything regarding the administrative affairs of that institution. The G.B. or

senates or Executive Councils, whatever may be called by name, is constituted in a

democratic process having representation of students, teachers, non-teaching

staffs, nominee of affiliating University and State Government. Thus democratic

process of constituting G.B. does ensure its commitment to whatever objectives

the institution pursues. Constraints like lack of understanding and bitter feeling

among the responsible members, serving the institution in different capacity, are

there. Praise is a scare commodity where as the blame is in abundant supply.

Accountability to learners and other staff members are not extended to the rest of

the community. The legislations have been established educational institutions so

as to make behaving it responsive but many anomalies and self-contradictions

multiply that institution is not publicly accountable. Although, the number is very

small, but there are few institutions where the main stakeholder i.e. the learners are

ignorant, weak, uninformed, disorganized and indifferent. Again there is no formal

system of accountability with regard to the society at large. If the institution is not

successfully persuading towards achieving its goals then the risk for the loss of

community interest will be greater.

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Analytically, the staff members whether administrative, teaching or non teaching

expect better salary/wages for better standard of living with better facilities.

They also expect better working conditions having welfare measures including,

job security with provision for development (promotion), training courses,

provision for further higher education etc. so that better performance is made

certain.

Government expects high performance with better employment opportunities.

Learners expect better result in due time so that they can go for higher studies. The

quality of education imparted among the learners should be of high and at par with

the national global standard, such that it will enable the students to compete with

the national global competition. A healthy environment is needed for the congenial

relationship among students, teachers, non-teaching staff, administrators etc.

Sometimes these expectations are contradictory.

Again, there is no formal system of accountability of Educational Institution with

regard to the society at large. Analytically, employees of educational institution

expect better salary/wages for better standard of living with better facilities and

working conditions having welfare measures ensuring safety and security with

provision for development, training, education for members of the family so that

better performance is made certain. The Government expects quality graduates

with better income by taxation and regular payment, more employment

opportunities, purposeful spending of different grants-in-aid made available to the

 39

institution. The students expect quality education to meet the challenges of global

competition in the job market. Consumers expect regular supply of efficient and

intelligent graduate at a right salary at right time with right quality. Consumers are

those who consume the graduate of an educational institution by offering them

employment to manage their business affairs. It is true that their employees may

by given in-house education and training to make them environment friendly, in

spite of that, the general education imparted by the educational institution

contributes a lot in building the foundation as well as the character of the

graduates. Society at large expects its overall development,, more employment

opportunities more responsible and educated citizen etc.

The educational institutions are given various grants by the different statutory

bodies for the development of the institution itself, such spending should be

audited. Basically Social responsibility accounting aims at accounting for social

cost incurred by the organisation and benefits created by it and reporting thereof.

The actions and non-actions of educational institutions and their implications in

terms of cost and benefit to the society can be broadly viewed in the context of

their relationship with the environment in which it operates. Their environmental

relationships can be broadly identified as under:

(i) Performance with students

(ii) Performance with faculties

(iii) Performance with non-teaching staffs

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(iv) Performance with other controlling bodies, authority etc.

(v) Performance with public and society.

(vi) Performance with regard to physical environment:

(a) Anti-pollution measures

(b) Maintaining community health through healthy practices

Social Audit Process:

The social audit is an important tool to evaluate social actions or programmes for a

specified period of time. This process is multi-facets and involves dynamic

techniques. It might be possible that the benefit arising from the educational

institutions is difficult to convert into monetary terms. There are benefits like

environment improvement; beautification of nature different healthy practices

adopted by the institution, production of responsible citizen, etc. which is not

directly value oriented.

It is very interesting to note in this context that the market price valuation concept

may not find the suitable ground for evaluation of money items influencing soc ial

costs and benefits. The demand curve cannot be drawn for some products or

services. The social auditors will find every case imaginable separately. Therefore

work culture of different educational institutions can be studied with its reference.