The Rana Plaza factory collapse has sought greater commitment from brands across the world especially with regard to auditing procedures in their supply chains. But what exactly is an auditing process, who are its key players, how did it evolve and how can it be made most effective? Rachelle Jackson, Director of Sustainability and Innovation at Arche Advisors, a corporate social responsibility advisory services firm, takes the time to answer these questions in an interview with Boston Global Forum (BGF).
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BGF: Tell us a little bit about your organization. What kind of factories does Arche Advisors audit, in which countries and how are these processes carried out?
Rachelle: Arche Advisors is an advisory services firm and we look primarily at issues of corporate social responsibility related to supply chains. That includes labor standards, safety standards and other related issues. Most of our team members have been working in this industry for over ten years. I myself have done more than a thousand audits in about 75 countries over the last 16 years. We started auditing apparel 20 years ago. Apparel auditing was initiated by Levi Strauss who was the first company that conducted supply chain monitoring back in 1989, in response to child labor in Bangladesh. After the apparel sector, many other sectors became aware of these issues in their supply chains so now it’s very common to find giant retail stores like Wal-Mart doing monitoring. Everything you find in a Wal-Mart store, like jewelry, shoes, and electronics, is generally audited. But we’re noticing that more and more food and agriculture farms are getting drawn into this scope for food and beverage companies. We’ve also done work in the extraction sector for coal and gold mines as they have an extended scope of impact on their workers. That is our scope of experience.
BGF: What do you mean when you say ‘auditing’? Do you standardize your auditing processes across different sectors? If so, how?
Rachelle: Great question! It (auditing) has really evolved a lot over time. When social auditing began, back in the mid 1990s, there was a lot of garment production in the US at that time, and the US Department of Labor (DOL) found factories for brands like Guess and Gap to be more like sweatshops. They were constantly finding wage and hour violations and they developed a program where they required these firms to sign a contract with the government. When the DOL found a problem in the factory, they would go to the brand who was purchasing clothes from that factory, and force them to sign a contract with the government which mandated monitoring of labor conditions in those factories on a quarterly basis. Monitoring really developed there through the DOL program. When I started monitoring at a firm, many years ago, we had an ex Department of Labor veteran investigator, and he took the US DOL’s auditing protocol and built a training program for the firm. Hence, private sector auditors were created from this government-monitoring program. We’ve adopted techniques from the US DOL’s inspection program, in order to do what we call ‘social auditing’. The process involves announcing the inspection, arriving at the site, speaking with workers about their working conditions, looking at payroll records and time cards and then walking through the premises to do safety checks. When the work began in the mid 1990s, appearing unannounced at a factory was the norm. Today, most visits are semi-announced which means that a window of time is given to the factory within which the inspection is scheduled to take place. But there is no specific date or time. This change came about because going unannounced gave factories an excuse to prevent auditors from entering- they’d claim that their payroll officer was absent and make other such excuses. With notice, they have to have everything available for the audit or they’ll be challenged for not having that information.
As far as checklists go, audit firms use them as a field tool. Initially companies would let firms dictate how audits should be conducted. But over time, as companies learnt more about social auditing, they would come up with their own protocol, or their own preferred way of conducting an audit. Companies also began to put forward their own checklists. When a company uses more than one auditor, for example Wal-Mart who uses 6-7 audit firms, they give their own protocol and checklists to ensure uniformity. But that comes with its own risks as companies are not always willing to receive feedback from auditors or field people on their protocol. As a result, several experts feel like they may not be receiving the best protocol for auditing, or it’s a lot of paperwork that forces the auditors to spend their time filling out forms instead of talking to the workers. I think it’s very important for companies to be very open to hearing that their approach might not be the best.
BGF: Do you find that companies, especially apparel manufacturing factories, are still insisting on their own methods of protocol or are they more open to feedback?
Rachelle: I think different checklists have begun to merge. Even though there are a lot of different forms and approaches, they all tend to cover the same bases. The concerns don’t lie with checklists themselves. There are other issues that are more concerning, like sample size- how much information does a company require versus how much time they give the auditor to find it out. Reporting formats are another concern- is the reporting template flexible enough that auditors can put in information that needs to be there and is it appropriate in scope and in length for the type of visit that was done. Some companies have really extensive forms and they might have five or six different reports that should be completed from each visit. These tend to be very repetitious and filling them out can take a lot of time away from the audit activity. But checklists are just field tools that auditors use to help write their report. Reports contain all the important information- it allows space for conflicting viewpoints- what the auditors saw versus what the employees said versus the information they got from management and from documentation. As an auditor, we’d want flexibility to report what is important. When forms are too prescriptive then auditors may feel like they lack the flexibility to record valuable observations.
BGF: What happens to auditing reports- do they go to the brands/retailers or subcontractors or to another party?
Rachelle: The reports go to whoever paid for them. There are several different ways these audit activities are funded. A lot of companies, in their social responsibility program, have funding for a certain number of audits. They pay directly to get audits done and they receive the reports. It’s up to them what they do with a report. Some of them will send it to the vendor (or subcontractor) and they may ask the vendor to work with the factory to improve whatever was found in the report. If the company has a smaller supply chain footprint, they may send it straight to the factory instead of a middleman. Normally, the report is used to have a dialogue around next steps and what needs to happen. Audit firms don’t always know how that goes. We may or may not hear back from our clients about improvements made in the factory. At times, they may ask us to go back six months later to do a follow-up audit and we can see for ourselves whether or not the recommendations were taken seriously. In other scenarios, if the middleman has a larger supply chain, the brand company may ask the vendor to bear auditing costs to ensure good social practices at the factories that the vendor has sourced. There are a lot of different ways that these relationships play out.
BGF: How do the recent factory disasters affect auditing procedures? What would you like to see changed?
Rachelle: Various people get blamed after a disaster and what that shows is that it’s a multi-faceted issue. When people say that brands need to do more or audits need to be different or the government needs to focus on enforcement or factory owners need to do more to follow worker safety laws – they’re all right to some degree. Not a single one of them can be successful on their own. Even in the US where we have good enforcement of our labor laws, monitoring began here because the Department of Labor said they were tired of finding problems in factories and they wanted the private sector to have a role.
As far as how the auditing process can be changed, I would like to see companies being less prescriptive in the auditing process. Speaking from example, as consumers when we use financial auditors we don’t tell them how they need to do their audits. We hire them because they are qualified auditors and we trust them to carry out the task following the principles they were trained in. That’s not that way social auditing works although I wish that it were. Auditors and audit firms have made big investments in training, getting field experience and having a professional approach to monitoring procedures but then companies dictate how they should be done. A company should be able to state what they’d like to get out of the audit and what data points they’d like to see but, ultimately, I think that auditors should have the ability to approach their pressures of prescribing to certain checklists and forms. They should go out and be auditors and do the work that they need to do.
Read an interview with Greg Gardener, President and CEO of Arche Advisors, who echoes Jackson’s thoughts on lack of flexibility for auditors and also lends first-hand insight on factory conditions in Bangladesh.