Social Audit and Its Relevance to Audit of Public Utilities

M. Parthasarathy, Former Additional Deputy
Comptroller and Auditor General, India.

1.    The Nature Of Social Audit

Social audit may be regarded as being at the extreme end of the spectrum of audit functions. Over the centuries, audit functions have grown and evolved starting from the most ancient kind which may be called vigilance audit which was concerned mainly with the detection of frauds. Then 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. As far as State Audit is concerned, in value for money audit and performance audit, it examines areas internal to government agencies. In social audit, it goes beyond these areas and examines the impact of specific governmental activities on certain sections of the society which are in contact with the government agencies.

2.    Social Obligations and Social Welfare Programmes

In a welfare State, the government has a total obligation for the well-being of the people. This is translated in practical terms into a concern for the improvement of the "quality of life" through improving standards of living, health, education, earning capacity etc. for the people. While each individual social welfare programme has its specific goals, it should also ensure that it does not come in the way of the Government's efforts in other areas.

The symptoms of social problems which has to be tackled through a programme and its cause almost always exist at several levelsFor example, at the first level the problem's symptom may be high incidence of illness and its cause may be lack of adequate living space, sanitary facilities etc. At the second level, the symptom to be tackled is precisely the cause at the first level, namely inadequate living space etc. and its cause may be insufficient income level in the families concerned. At the third level, the symptom to be tackled will be insufficient income level and its cause may be a lack of education and training which prevent the head of the family from obtaining and holding a job capable of providing adequate family income. Apart from such vertical symptom-cause relationship, there are parallel linkages such as environmental pollution, quality of water supply, availability of nutritious food etc. No social welfare programmes can thus succeed in isolation but can do so only as a part of a total package of welfare activities undertaken by the government arising from its concern for improving the quality of life of the people.

3.    Social Obligations of Public Utilities

Utilities are set up to meet certain social obligations by offering certain public services such as water, power transport etc. which are essential to meet the totality of social obligations. As going concerns, their responsibilities is to function economically and efficiently and generally along accepted commercial lines. The fact that their activities might be subsidised by the state in order to reach the services to the public at reasonable rates does not in any way mitigate the need to function economically and efficiently within the constraints under which they have to function. Normal commercial audit, built round value for money audit and performance audit deals with these areas.

Public utilities, as well as all public undertakings, have other internal and external social obligations over and above economic and efficient functioning and over and above the need to fit into the states' total concern for improving the quality of life. Consider for example, the effect of a public utility on the community in which it is located. The utility consumes land, water, air, the services of other utilities and has various effects upon the community. Once he is satisfied about the quality of the direct service which he receives from the utility, the citizen of the community would be concerned with the "social performance" of the utility. Specifically he would like to know such things as the long term plans of the utility for expansion and diversification which will have their impact on the local economy. He would like to know something about its effect on the stability of local employment levels; local taxes paid by it; its contribution to local charities; labour relation; hiring, promotion and pay practices; air, water, and noise pollution; power and water consumption; plant appearance; traffic flow; impact on local politics; contribution to research and import substitution, support to local industries etc. These are the various internal and external social obligations which should come under the scrutiny of social audit as distinct from economy and efficiency audits. Social audit of a public utility or a public undertaking is thus one step ahead of effectiveness audit which would be concerned mainly with assessing how effectively the main function of the undertaking is being discharged.

4.    Problems Faced by Social Audit.

The problems faced by the social auditor are partly of his own making and partly beyond his control. It should never be forgotten by him that social welfare programmes are intended to bring about social changes. Mere measurement of inputs or outputs cannot meet the demands of effective social audit. A social auditor should have a very positive approach. For example, he cannot criticise a nutrition programme on the ground that it does not meet the nutritional standard set by the World Health Organization. Often he may even be unable to justify criticism of non-achievement of targets laid down in the programme. He has to look at the positive social changes brought about and in some cases their costs. When scrutinizing short-falls and non-achievements, he has to take into account the efforts of events beyond the boundary of the programme all of which the designers of the programme may not have been in a position to envisage and allow for the implementors to deal with. This in a nut-shell is the reason why it is difficult to prepare a social audit report which will be fair to the society, the implementors of the programme and to its designers.

The social auditor has to face several problems which are beyond his control. Not all social welfare programmes are well designed or based on valid assumptions. Some programmes do not attack the problems at the first level of symptom cause relationship , but at remoter levels and so are destined to achieve only moderate success. Others ignore the need for a package of programmes to simultaneously attack a variety of related unsatisfactory social situations. For instance, a programme for the improvement of rural health must be part of a well designed project containing several individual programmes dealing with the related issues of rural housing, rural water supply, education, nutrition, rural pollution, rural trade and industries for generation of income etc. And when a programme is well designed, it does not make the social auditor's task any easier because, in preparing the social audit report on a programme, he has also to consider how the related programmes are progressing.

Perhaps the most serious difficulty faced by the social auditor is the absence of a well conceived information system as part and parcel of a social welfare programme. Government agencies which design programmes often commit the error of relying on traditional government systems of information such as government accounts and government methods of reporting for conveying a picture of how a programme is progressing. This kind of hazy and incomplete system does not help them to take stock, speed up, slow down or apply corrective measures as and when required. In any case, the system can give no information on the social changes achieved nor on how other related programmes have affected a programme. Thus a fundamental defect in the design of most social welfare programmes is the fact that they' do not provide for the measurement or assessment of the social changes, that is to say, they do not provide for an internal evaluation machinery, in terms of men and methodology, for evaluation of the impact produced by the programmes. Nowhere else as much as in social audit is the fundamental truth more obvious that where an implementing agency does not itself have the means and methodology to assess performance, no worthwhile audit can be done.

Apart from these problems of a general kind, individual programmes pose their own specific problems to the social auditor. To give an example, a programme for immunisation of a section of the people against a disease by vaccination may show measurable effect only several years after it is implemented. Likewise, a programme of adult literacy in rural areas cannot be evaluated fairly unless information is available on the migration of educated villagers to urban areas. Almost every social welfare programme will present some such special feature whose import has to be fully grasped by the social auditor.

Social audit of public utilities and public undertakings faces its own problems the most important of which is again a reliable information system. Utilities maintain detailed records of what they do but hardly any of how their functioning influences society. They have records of services offered but hardly any of services refused. Even where such records are maintained they do not give a complete picture. For instance, a telephone company may maintain records of how many people applied for a telephone connection and how many applications could not be complied with. But they cannot and do not keep any record of how many people who wished to have a telephone did not even take the trouble of giving an application knowing that they were unlikely to get a quick response.

The concept of social accounting, which is briefly explained subsequently, hardly exists- even in technologically advanced countries. In the absence of such an accounting system, social audit can become, unless the auditor plans his work with the greatest care a straight forward economy or efficiency audit.

5.    Social Audit Methodology.

It is better to speak of social audit methodology rather than social audit techniques. Techniques of audit evaluation and analysis are not special to social audit and are the same as employed elsewhere, notably in economy and efficiency audits. But social audit methodology has to be devised keeping in view all the various general problems as well as those which are specific to the programmes audited.

To begin with, the social auditor has to gather background information. What survey was made before the social welfare programme was drawn up? What was the state of affairs when the programme was taken up? What assumptions were made and on what basis? How was the quantum of thrust of inputs determined to achieve the necessary effect? In other words, what was the projected cost to social change ratio? What internal monitoring machinery and methodology was provided? Was any internal evaluation made and if so were any policy changes made? What are the other linked programmes which could affect the effectiveness of the programme to be audited? How are those programmes progressing? On all these questions, social auditor should gather the necessary information and literature before he ever sets out to do his audit. Occasionally some voluntary agencies or academic institutions study the impact of a programme. For their own reasons they do so over areas much smaller than those which the social auditor has to "cover. Nevertheless their findings are of value and the social auditor should obtain access to their findings.

Much has been said and written about the use of social indicators. There are in fact few such indicators and these have been developed by academic institutions doing research in a very narrow area and in highly artificial environmental models. Or else, these have been developed by industrially advanced countries. It is necessary therefore that before any use is made of the so called social indicators, their relevance to the context of the programme audited has to be determined or, if it is at all possible, they should be appropriately modified. Excessive reliance on social indicators can lead to an accountant's measurement of the state of affairs rather than an intelligent auditor's evaluation. It should also be remembered that social welfare programmes are not aimed at achieving absolute standards but'at introducing social changes at predetermined cost and effort. If a programme includes within itself the means for an assessment of such achievement and details the quantum of change expected in relation to the quantum of thrust given, then this in itself will give the frame of reference for social audit.

Constitutional and statutory provisions place a severe restraint in many countries on the social auditor approaching the beneficiaries of a social welfare programme and making his own measurement of the. impact of the programme. But where this direct method is available to him, he should work out in advance a detailed questionnaire and determine the analytical and statistical methods he will adopt to reach necessary conclusions.

Where such access to the beneficiaries is not available, social audit can none the less be performed, at least to some useful extent, by means of comparisons in space and time. Performance comparison of a programme can be made at the same time in several geographical areas, or in a country such as India, in the several states. Likewise, the impact of the programme in the same area from year to year can be made. Such an audit, while not wholly as satisfactory as what can be done if access to beneficiaries is available, will none the less give sufficient indication of the satisfactory or unsatisfactory progress of the programme.

Social audit of Public utilities or public undertakings would be greatly facilitated if the undertaking prepared a social accounting document. Several models of social accounting and reporting have been tried out in a number of countries but efforts at standardising the models have not borne fruit. Even simple reporting systems devised will enable the social auditor of public utilities or undertakings to draw conclusions about the social benefits and social detriments arising from the operation of a public utility over and beyond the quality of service rendered by it for which it is set up. A reading of such reports over a time period of few years can provide the basis for judging whether the net social benefit is growing in acceptable proportion to the encroachments made by the utility on the resources of the society.

Social audit of utilities starts with the construction phase of the utility as it is at that stage that the greatest incursion is made upon the environment of the locality. Land values go up, water hitherto available to the public and agriculture gets diverted for the use of the utility. Landscape is damaged and scarred and debris accumulates. Roads have to carry heavier traffic than they are designed for. Noise and dust pollution reach very high levels. To these social damages must be added the cost of any delay in making the intended service available. A social benefits to detriments analysis at the construction stage will invariably show that the detriments outweigh the benefits. It is the duty of a good management to keep the difference within acceptable and projected limits and the duty of the social auditor to point it out when these limits are transgressed.

Even where there is no established system of social accounting or reporting, the social auditor can himself prepare a social balance sheet or a statement of social benefits and detriments. He should also prepare, especially in the case of social welfare programmes, a statement of social benefit to social cost analysis. A study of marginal social benefit to cost ratio is an important part of the social auditor's work. In some cases, the benefits bear a fixed relation to the costs, that is to say, the relationship is linear. For instance one might say that if the expenditure on certain kind of immunisation programme is doubled, twice the number of people could be covered. The eradication of small pox was a case in point where each quantum of additional input produced additional rewards in proportion. In fact it was more than in proportion with the result that the disease has been eliminated as a health hazard. But there are other programmes where beyond a certain level of achievement, the benefit to cost ratio becomes smaller and smaller clearly indicating the need for a shift in strategy. Often the social auditor, is the first one to realise that while the output to input ratio may remain constant, the benefit to cost ratio may be going down.

Another aspect to look into when conducting social audit of utilities is that of safety standards. The social auditor should discuss with the undertakings safety experts, list out the possible hazards, the measure taken to prevent them, the actual occurrence of accidents and other hazards and determine how the safety measures have performed in relation to the safety standards of other undertakings placed in similar situations.

Contributions to research and import substitution are areas to be looked into by the social auditor at least in the case of larger public utilities. In the former case, it is an investment for the future with which society is concerned. In the latter case, it not only strengthens the economy by saving foreign exchange but also gives a boost to the local industry. Support to local industry activity can take many forms. It can take the form of concessional supply of the principal service offered by the utility or the undertaking. For instance, electricity tariffs for small and medium industries and for commercial activities can be substantially lower than for domestic consumption or for larger industries. In India, agriculturists get power supply at a rate which has facilitated the wide-spread use of electrically operated tube-wells. The support can take the form of financial, consultancy and quality control assistance to set up industries with guarantees to purchase the whole or part of the output. The support can also be in terms of extra price incentives. All these concessions do not directly benefit the utility or the undertaking but contribute towards the well being of the people in the. locality. Like wise a large utility would be expected to play an enlightened part in activities, such as running schools, in cultural activities, in promoting public health etc. In examining such social activities of an undertaking, the social auditor will not only measure the social changes brought about with reference to costs but will also fall back on traditional techniques and verify whether or not these social activities are undertaken in accordance with a well conceived policy based on a proper survey and valid assumptions.

6.    Conclusion: Integrated Social Audit

The concept of integrated social audit does not merely extend horizontally in the sense of extending to peripheral events which impinge on the social welfare activity under evaluation. Ideally, the social auditor should be associated at the time of programme design so that, with his background and field experience, he might recommend the appropriate methodology to evaluate the social changes and the machinery in terms of staff and resources to monitor them. He might be able to point out peripheral factors which might distort the programme or its evaluation. He might help in making a projection of the benefit to cost ratio and give valuable advice on how long to continue the inputs and when to switch strategy. In other words, the ideal social audit will start with a preaudit of the programme document and design.

All this is a far cry from what can be done in practice today. The difficulties which face social audit will appear to be insurmountable and many a State Audit Organization is deterred by them and do not undertake any worthwhile social audit. In fact, however, social audit is an immediately result oriented exercise and even a report prepared tentatively and with a lack of self-assurance will have something to contribute. The principal difficulty, as has been highlighted earlier, is the non-existence of appropriate social accounting and reporting systems or even a rudimentary system of evaluation of the social changes created. Why not then make this the central thrust of the first attempt at social audit by examining a number of programmes from the point of view of a lack of monitoring and evaluation machinery and methodology? This surely is a straight forward way of gaining acceptability for social audit as an important tool in the management of national affairs.