The Audit Process


The Audit Process

Preaudit visits are usually the most productive (and often the most time consuming) part of the audit process, and as with monitoring visits, can be used to help explain to the supplier s management team the importance of compliance. During these introductory visits, audit teams should explain the code or standard against which the supplier is being audited , the approach, who will need to participate, how long it will take, how employee confidentiality will be maintained , and how concerns and noncompliance findings will be dealt with.

It is also important at this early stage to explain the key performance indicators that the audit team will be using to judge compliance ( indicators which, if best practice techniques were used, the supplier may have helped to develop), and to modify these as necessary to reflect legitimate operational differences between suppliers (there is no point, for example, assessing them on their success at managing pesticides if they are only involved in packaging, rather than growing, etc.). The relevance of these performance indicators will become obvious if the audit team uses the preaudit visit as an opportunity to collaboratively complete the supplier description document with supplier management and employees .

At this point the audit team can develop a timetable for the actual audit,-making certain that the scheduling of interviews and walk-arounds disrupts the supplier s activities as little as possible. Demonstrating sensitivity to the supplier s production process ” break times, work shifts, avoiding peak hours ” can make the audit more effective and will go a long way toward building support for the process.

The audit itself usually involves a quick meeting with the supplier s management team before the audit begins, where audit activities are reviewed, and timetables and interviews are confirmed. Most audits will involve a combination of at least four elements:

  • Collecting and verifying data and objective, quantifiable records.

  • A tour of the factory or farm during which the audit team sees for themselves the working conditions, waste disposal methods , hygiene and safety standards of the site.

  • Key individual employee (and often trade union representative) interviews.

  • Group discussions with employees without management being present.

Obviously, each verification method has its merits and drawbacks: activitiescan be staged during visual inspections, records may not reflect reality, and workers may be afraid to divulge exploitation or abuse for fear of reprisal. By combining these four methods, however, the audit team has a much greater likelihood of making a balanced and well-informed appraisal of the supplier s practices. [1 ]

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NRET Audit Structure Based on Ghana Pilot Audits

The following list is directly quoted with permission from Integrated Social and Environmental Auditing. See source below.

  • Interview with farm manager(s), accountants , or code manager, combined with document checks

  • Group discussion with non-permanent workers

  • Group discussion with permanent workers

  • Key informant interviews with pesticide sprayer, farm manager, supervisor

  • Farm tour/transect walk: with farm manager, ad hoc chats with workers along the way

  • In-promptu chats with individuals or groups during dead time e.g. when waiting for farm manager to turn up for interview

    Source: Integrated Social and Environmental Auditing, NRET Theme Papers on Codes of Practice in the Fresh Produce Sector, National Resources Institute, Number 7, at www.nri.org/NRET/TP7.pdf.

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Audit Management Review Meeting

Once the initial audit (or in some cases the preaudit) is complete, the team will need to summarize their findings, listing any areas of concern or noncompliance. These issues should be discussed with the supplier s management as soon as possible, and agreement should be reached on how and when improvements will be made. Any areas that were not audited should also be noted and a follow-up visit should be scheduled.

H&M, the European clothes retailers, provides a good example of the sequence and activities of this audit process.

Case Study: H&M s Supplier Compliance and Inspection Procedures

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PRIOR TO INSPECTION

Compliance Commitment ”Supplier has to sign the Code of Conduct commitment before the first inspection. This commitment includes all subcontractors who are also inspected.

THE INSPECTION

The following text is directly quoted from H&M s Social Responsibility Report. See source note below.

  • Management Interview ”The management is interviewed about relevant management practices, about salaries, working hours, freedom of association etc. according to a fixed list of questions.

  • Factory Inspection ”The factory is inspected to evaluate working environment, safety, child labour, etc. in accordance with a questionnaire.

  • Interviews with Workers ”Information sometimes needs to be validated through interviews to ensure that the suppliers are observing our requirements.

  • Inspection of Residential Area ”The residential facilities are inspected for cleanliness and safety according to a fixed list of items to check.

  • Document Review ”Documentation to verify working hours, wages and overtime compensation is checked. Staff records and age certificates are checked.

  • Closing Meeting ”The inspection results are discussed with the supplier, as well as realistic time limits for improvements.

  • Pre-Inspection Questionnaire ”If an inspection cannot be made immediately due to geographical distance, the supplier should fill in a pre-inspection self-assessment questionnaire.

AFTER THE INSPECTION

  • Corrective Action Plan ”The supplier signs the corrective action plan.

We also, due to other severe violations such as minimum wage not paid, unsafe premises, denied access to premises etc., grade the suppliers or their subcontractors as Unacceptable. If a supplier s production unit is graded Unacceptable, our purchase order system obstructs the buyer from placing an order with that particular supplier. This obstruction will not be taken away until the supplier s production unit has made the necessary improvements.

Source: H&M s Social Responsibility Report, pp. 8 ” 9 at www.hm.com/ corporate/pdf/social/csr_report_social.pdf.

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The Pros and Cons of Third-Party Audits

A debate concerning the relative benefits of third-party versus company (sometimes known as first-party ) auditing continues to rage among the several interested groups. Obviously, if the entire process is conducted as part of a company-to-supplier exercise, it can be much more nuanced, flexible, and certainly less expensive, both for companies and their suppliers. This type of company-to-supplier approach tends to be focused more on correction than on testing, and many would argue that improvement is the ultimate goal (i.e., not certification), and therefore these types of activities should be limited to the supplier monitoring process.

Yet, companies have so often been found guilty of ignoring or underreporting infractions today, that, as we have seen, company-run audits ( especially if done in a perfunctory way), carry little credibility with NGOs and investment analysts.

Moreover, there are ways to focus on improvement while still maintaining third-party independence. In this regard it is important, again, to remember that the two processes ” monitoring and auditing ” are not the same thing and should be treated as separate initiatives. Supplier monitoring should be seen as an ongoing initiative that helps suppliers improve their social and environmental policies. The auditing process is a formal verification of those policies used to assure the board, senior executives, investors, and consumers that the suppliers that the company is dealing with meet those agreed standards.

There seems to be a growing acceptance among those experienced in this area, however, that setting requirements and monitoring suppliers requires a closer and more ongoing approach ” something better suited to the type of close and long- term relationships that companies often need with suppliers in an age of greater dependency and collaboration.

Auditing, on the other hand, favors autonomy, if only because the policing and whistle blowing aspect of inspections is hardly conducive to a close and trusting business relationship.

That is not to say that the audit process cannot also contribute to the improvement process. Again, as with most health- or safety- related enterprise audits, the suppliers are almost always given a period of time, even after failing the audit, to make improvements. This time period, depending on the severity and the complexity of the failure, can be from six months to a year. And, as we saw with Apparel Avenue in Thailand and its attempts to cut overtime in order to comply with SA 8000 requirements, the certification process itself can often provide the necessary impetus for a supplier to rethink long outdated and unproductive processes and policies.

Moreover, company employees with audit training, language skills, and a knowledge of the local culture can be difficult to find and expensive to employ on a full-time basis. Leading practice indicates that an audit team should be composed of two to three auditors with the following skills and experience:

  • Training or certification in the company code of conduct or international standard

  • Specialist training in either social or environmental issues, including local and national legislation

  • Knowledge of local languages and culture

  • Experience in audit interviewing and building rapport with both management and employees at all levels

In addition to all of these skills, team members will need to be able to put in long, often strenuous days, viewing factories, walking through fields, talking with and cajoling employees and management. It is also often sensible to ensure that teams include both men and women, particularly if there is a likelihood of sexual harassment or intimidation of women workers or if the culture is one where female workers would be hesitant to talk openly of these types of issues with a male auditor . [2 ]

[1 ] Integrated Social and Environmental Auditing, NRET Theme Papers on Codes of Practice in the Fresh Produce Sector, National Resources Institute, No. 7 at www.nri.org/NRET.TP7.pdf.

[2 ] Ibid.