Corporate Responsibility with a Social Compliance Audit

5 Key Procedures in a Social Compliance Audit

• Are you confident that your suppliers are not abusing its workers?

• Are your suppliers complying with local labor laws?

• Do you know whether your products are being manufactured in a safe environment where human rights are not being violated?

• You can answer these important questions, and more, with a social compliance audit

In this article, we'll explain what a social compliance audit is and the five key procedures that are always included in the audit.

What is Social Compliance Audit?

A social compliance audit, also known as an ethical audit, is an audit of an external production house, factory, farm, or packaging facility to verify whether the operation complies with social and ethical responsibilities, health and safety regulations, and labor laws.

How is a Social Compliance Audit Conducted?

In order to ensure transparency, social compliance audits are usually performed by independent auditors that follow a set of international standards. These standards may vary depending on the location of the facility and the type of audit required.

International standards for social compliance audits include:

• SA 8000 – the leading social certification standard for factories and organizations worldwide

• Sedex Members Ethical Trade Audit (SMETA)

• amfori BSCI – a Business Social Compliance Initiative for social compliance and improvements within the factories and farms

• ILO Ethical Trading Initiative

• Responsible Jewellery Council (RJC)

• Initiative for Compliance and Sustainability (ICS) – French Federation of Commerce and Distribution (FCD)

5 Key Procedures in a Social Compliance Audit

The audits may be scheduled ahead of time or conducted unannounced. The precise workflow of a social audit may differ depending on the standards used, but will always include the following key procedures:

1. Opening Meeting

2. Health & Safety Tour

3. Employee Documentation Review

4. Employee Interviews

5. Closing Meeting

1. Opening Meeting

If the audit is unannounced, auditors will explain the purpose of their visit to the facility’s managers and specify a time when the audit must begin, which should be a short time after their arrival.

The factory manager and human resource personnel should be present at the opening meeting. If that's not possible, the factory representative must be someone with the authority to provide the documents needed and answer the auditor’s questions.

Potential Issues

If the facility’s managers don’t allow the audit to occur within the specified timeframe, the event is recorded as an audit refusal.

2. Health & Safety Tour

This gives auditors insight regarding the physical working conditions as well as any health and safety issues. They inspect the entire facility, including the production area or factory floor, warehouse, and canteen. If employees reside at the facility, which is common practice in Asia, auditors should also inspect the dormitories.

Health & Safety Tour Checklist

Auditors typically check for the following during a walkthrough:

• Sufficient space to move about and work in production areas

• Adequate ventilation

• Easily accessible emergency exits

• Sanitation in cafeterias and restrooms

• Access to potable water

• Exposed or unmarked electrical wiring

• Exposure to chemicals

• Personal protective equipment

• Emergency response plan

• Fire suppression equipment and evacuation plans

Potential Health & Safety Issues

Common issues found during health and safety tours include:

• Lack of proper safety equipment

• Exposed or unmarked electrical wiring

• Chemicals that lack warning and information labels

• Lack of adequate personal protective equipment (PPE)

3. Employee Documentation Review

The social compliance auditors go through employment records and related documents to verify compliance with labor regulations.

A thorough investigation gives auditors an overview of the facility’s official hiring and firing policies and can bring to light any issues regarding minimum wage, working hours, overtime, discrimination, and disciplinary action.

Transparency, or lack of, in the facility’s record-keeping gives auditors an indication of the management's policies, and how those policies might affect employees’ attitude and working conditions.

Employee Documentation Checklist Examples

• Employee attendance records

• Payroll records over the previous 6 to 12 months

• Employment contracts

• Payroll records for peak/off-peak hours, including overtime payments and deductions

• Daily start and stop times for workers

• Social insurance payments

• Production records (are workers paid by production or per piece?)

• Any government waivers or special permissions for work hours outside of the standard legal limits

Potential Employee Documentation Issues

Common issues found during employee documentation reviews include:

• Hand-written attendance records that cannot be verified

• Hours worked are not in compliance with regional labor laws

• Lack of proof of age documentation

• Lack of clarity concerning how workers are paid

4. Employee Interviews

Auditors interview employees that are selected at random to get a better insight into their working conditions, as well as living conditions if the employees reside at the facility.

The interviews should be voluntary and conducted in private, without management or other employees present. This gives employees the chance to speak up about any bad treatment or grievances which could warrant further investigation.

The compliance auditors ask questions regarding hiring and firing policies, working hours and conditions, length of employment, and the employees' understanding of disciplinary policies.

5. Closing Meeting

The compliance auditors conclude the visit by meeting with facility management to go through any potential non-compliance issues and suggest steps for making improvements, with a Corrective Action Plan (CAP) to be signed by the facility’s manager.

What Issues Will Result in a Failed Audit for Social Compliance?

A failed audit means that unacceptable conditions have been discovered at the factory. These can be conditions that are considered illegal in the eyes of the local authorities and/or immoral in the eyes of your consumer market. Here are five major key violations which would unequivocally lead to a failed audit:

Child Labor

As labor laws vary from country to country, it is possible that people employed at the factory are younger than the minimum working age in your own country. However, in some instances, unscrupulous factory operators might completely ignore even the local labor laws and employ children considered underage by any standards.

Forced Labor

Even if the staff work in less than savory conditions, or receive a low wage for their labor, a standard agreement between the employer and the employee means that the employee has freely chosen to work at the factory, and is free to terminate their employment. However, if employees do not have the freedom to quit or the factory operator is holding their ID cards or passports, this is forced labor and would fail a social compliance audit.

Safety Hazards

In Europe and the US, health and safety regulations are strictly enforced, and workers know their rights, but in many countries, workers face high risks of injuries from dangerous machinery, cramped conditions, and the lack of safety precautions and procedures in case of an emergency.

Physical Abuse

Evidence that the manufacturer abuses or physically punishes employees may come to light when auditors interview employees.

Bribery

A supplier that cuts corners and doesn’t follow regulations may have gotten away with bribing local authorities to turn a blind eye and could try paying off social compliance auditors as well. This, of course, should result in the supplier failing the audit. A reliable audit company must have strict anti-bribery procedures in place to ensure auditor integrity and objectivity.

Why do Large Brands Need Social Compliance Audits?

The latest Risk Index Report by the British Standards Institution (BSI) says at-risk countries account for 48% of worldwide apparel production, 53% of the world’s apparel exports, and 26% of total electronics exports.

China, India, Vietnam, Bangladesh, and Myanmar are considered the five highest risk countries for human rights violations, according to Forbes. Other high-risk countries include Syria, Egypt, Libya, Mali, and Guinea-Bissau.

The BSI report also warns that efforts by Asian governments to boost their economies are resulting in a greater prevalence of child labor abuses in supply chains.

As a result, all large British companies now have to disclose what they are doing to stop slavery and human trafficking in their supply chains, as part of their obligations under the Modern Slavery Act.

Corporate Social Responsibility in the Headlines

The ability to demonstrate or prove that your organization is serious about corporate social responsibility (CSR) is essential for large brands that come under the spotlight, especially given the ease with which bad news can spread in today’s world that has easy access to information.

Here's an example of a headline that caused negative long-term effects:

“Textile workers still unsafe years after Bangladesh, Pakistan factory disasters”

Several years after two fatal factory disasters in Bangladesh and Pakistan killed more than 1,300 workers, the European garment brands, whose products were made at the factory, are still facing pressure from human rights campaigners as well as legal action and compensation claims, despite already paying out millions of dollars.

When news like this breaks, the damage to the brand’s reputation can be catastrophic and sales can plummet, resulting in the need for extensive damage control to get back on track.

How QIMA Can Help You

QIMA auditors are professionally certified to conduct social compliance audits according to major internationally recognized social audit standards.

Even if your company already has a social accountability program in place, QIMA can tailor existing ethical audit programs to suit your specific needs for compliance.

Our ethical audit programs cover the following aspects:

• Hygiene, health, and safety

• Waste management

• Child and young labor

• Labor practices, including forced labor, worker representation, disciplinary practices and discrimination

• Working hours and wages

• Client-Specific Ethical Audit Protocols

Learn more about Ethical Audits here.