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New Report Says Factory Auditors Should be Liable

When compliance problems arise, factories shouldn’t be the only ones to blame—the onus should fall on social auditors too.

That’s at least according to a new policy paper on the “Liability of Social Auditors in the Textile Industry,” published by the European Centre for Constitutional and Human Rights.

The outsourcing of production over the years has led to increasingly complex global supply chains, where one retailer could have more than 500 suppliers and where low wages have contributed to environments that aren’t always worker friendly. Those two factors have—at times—led to deadly disasters in the garment sector, and in light of these disasters, retailers have stepped up their compliance commitments and labor rights activists are paying closer attention to companies’ every move.

Now, social audits are called for more than they have ever been, but there are problems with social audits and the resulting effects of those problems should not only be borne by retailers.

“Due to their methodological make-up, social audits have only limited validity as to the real status of working conditions and they are prone to incorrect representation of the reality in factories,” the paper noted. “If a social audit report wrongly fails to signal instances of non-compliance, brands may continue to source from factories even though measures urgently needed to protect workers are not implemented.”

Social audits, the paper argues, did not prevent deaths from the Tazreen factory fire and the Rana Plaza building collapse, both in Bangladesh. And even when audit reports do identify problems, necessary improvements aren’t always made to correct them.

What’s more, according to the paper, social audits have given rise to a “mushrooming” of certificates and a slew of different standards, and working conditions haven’t necessarily been improved.

Unionization remains low in many of the major sourcing countries, and that hasn’t helped conditions either.

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“In addition to the lack of pressure from a unionized workforce, the widespread practice of private audits reduces the pressure on producing country governments to establish a functioning system for labor inspections,” according to the report.

Countries aren’t monitoring their production processes as they should be, and the privatization leads to a negative incentive structure for auditors, which leads to sometimes flawed or fake audit results.

“Contrary to most current models of social auditing, an independent auditor should not be paid either by the buyer or the supplier,” the paper noted. When factory owners pay for audits, it could be an incentive for corruption. “Moreover, the competitive auditing market creates incentives that tend to push towards keeping auditing standards, costs, and efforts low.”

Who should be liable for ills after audits?

For there to be any hope of cleaning up the audit process, according to the paper, the probability of detecting deficient audits has to be higher, and auditing companies should face negative consequences for delivering a deficient audit.

“Changing the incentives for the audit industry could simply and aptly be achieved by increasing the likelihood of liability,” according to the paper. “The current state of affairs, however, is that auditing companies are not held accountable on the basis of their reports, neither by brands or factory owners, nor by workers who supposedly benefit from auditing.”

Transparency will be key to accomplishing any change to this process.

For one, if the public (like trade unions) had access to audit reports, further action could be taken to correct things, call out problems before they become disasters and hold the right people accountable.

Audits should come as contracts between auditing firms and suppliers, where retailers can take action for false claims or sloppy work. Governments should also be able to get involved and hold auditors accountable for negligence, and there should also be a simple legal remedy in place for workers. Since workers won’t be privy to audit reports, the paper suggests including a clause in contracts that would make workers third-party beneficiaries to social improvements, so that a deficient audit would be a breach of the auditing company’s contract.

“Auditor liability should lead to changes in the relationship between retailers, factories, workers and auditors,” according to the paper. “However, this will only be the case if auditor liability is not only a theoretical possibility on paper, but also demanded in practice. This demand should come from retailers, governments and workers.”