Getting Smarter at Auditing

Tackling the growing crisis in ethical trade auditing

Report from ETI members’ meeting, 16 November 2006.

Summary

On 16 November 2006, members of the Ethical Trading Initiative (ETI) – including Debenhams, Marks and Spencer, Asda, Tesco and Next – met to discuss what could be done about the growing crisis in ethical trade auditing.

The meeting drew attention to the limited effectiveness of most ethical trade audits commissioned and/or undertaken by UK high street companies, highlighting the particularly questionable quality of the majority of audits conducted by third party commercial auditing companies. Members argued that audits tend to: be ineffective at identifying many of the most serious labour problems; be poor value for money; and generate multiple audits of the same supplier, leading to inconsistent corrective action plans that confuse the supplier. Perhaps most worryingly, members’ experience shows an alarming rise in “audit fraud”: suppliers in key sourcing countries are increasingly adopting a raft of fraudulent practices that are designed to hide the truth about labour practices from auditors’ eyes. Many corporate ethical trade teams recognise the problems, but face serious constraints to addressing them.

The meeting highlighted the urgent need to improve auditing practices, and identified actions that could be taken both by individual companies, as well as longer-term actions that required collaborative action. Participants called on individual companies to: employ in-house auditing teams – including local staff based in key sourcing countries; review purchasing practices (eg, short lead times) that conflict with good labour standards – and therefore encourage audit fraud; and share audit reports and corrective action plans with other retailers and brands. Participants also urged ETI and other multi-stakeholder initiatives to engage more proactively with the commercial auditing companies to try and bring about systematic improvements in third party auditing, and in the longer term, to work together to develop common standards and protocols for auditing practice – and an effective system to enforce them.

The full report (download below) provides a more detailed account of the key issues presented and discussed at this event, including what goes wrong in auditing, an analysis of why it goes wrong, and short and long term recommendations for improving auditing practice. It includes many corporate good practice case studies, as well as real-life examples of how auditing goes wrong.

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Getting smarter at auditing: Tackling the growing crisis in ethical trade auditing [PDF, 184kb]