Every organization obtains critical inputs from the environment and converts them into products and services to be used by society at large. As such, it is not a money spinning machine alone; it has to take care of societal interests in all its operation. It is not therefore supposed to pollute the environment, discriminate in employment, make money through illegal means, resort to deceitful advertising offer products of dubious quality etc. Whenever an organization tries to exploit customers through immoral ways, society at large comes out with certain checks and balances. The customers may protest violently seek justice through courts and press the government to put an end to such unlawful operations. The current view is that nature can’t take care of itself; if some organization is abusing (air, water pollution, releasing poisonous wastes into the environment) scarce natural resources, it must be shown the door. If social abuses are not nipped in the bud, they may spell disaster for the entire nation. Business is an integral part of society. It enjoys the benefits and privileges of the state and society in which it operates. Therefore it must behave in a socially responsible way so as to survive and flourish in a highly competitive terrain. Such social responsibilities are generally categorized into four groups. These four categories are not mutually exclusive nor charge they intended to portray a continuum with economic concerns or one social concern or the other.
The term social audit means different things to different people. To some it means revealing a company’s social performance in broad day light, to others it is an internal assessment of how well a company has discharged it social obligations and to some others it is a systematic and comprehensive evaluation of an organization’s social performance as distinguished from its economic performance.
The need for social audit arises because of various reasons (1) business may postpone investments in social areas, while trying to maximize profits, and expect others to take the initiative. This way, it is hoped, the firm would be able to price its products much cheaper and get ahead of competition. Unless there is some moral pressure from the general public, government and social activists, such firms my not pursue socially responsible actions in the larger interest of society (2) Business is part of society. It receives various inputs from society, obtains benefits from the government and survives only when both these external agencies welcome its products positively. While converting the crucial resources into products, it must, therefore behave responsibly without using its power in any unfavourable way.
The real need is for some form of accountability on the part of the management not being limited to shareholders alone. In modern times, the objective of business has to be the proper utilization of resources for the benefit of others. A profit is still a necessary part of the total proper utilization of resources for the benefit of others. A profit is still a necessary part of the total picture but it is not the primary purposes. The company must accept its obligation to be socially responsible and to work for the larger benefit of the community (3) Society expects businesses to share the fruits of progress and growth. A healthy business cannot exist in a sick, impoverished society (4) Socially active and responsible organizations may not be at the receiving end whenever there is an outcry against issues such as inflation, pollution, black marketing, poor quality etc., because of the goodwill and positive image generated over the years.
If the system which we know by the name of private enterprise is to continue some way must be found to embrace many interests which go to make up industry in a common purpose. If the corporation has to function effectively it has to be accountable to the public at large and the private property should be used for common good.
There are various operational approaches to social audit.
Inventory approach: Involves preparation of a list of all the social activities carried out by a company.
Outlay approach: In this approach the amount spent on each social activity is disclosed. It recognizes the costs involved and identifies ways to reduce such costs.
Programme management approach: in this approach in addition to the above steps, a statement is made as to whether or not the company realized its objectives for each social activity.
Cost benefit approach: It tries to quantify the contributions (benefits) made to social life as against the expenses incurred in each social activity and present them in the form of a social balance sheet. The basic purpose of a business corporation should be to maximise the financial return earned on its financial investment plus the amount of social return on its social investment.