Oversight and accountability in the social auditing industry: The role of social compliance initiatives

• Published date: 01 June 2019
• Date: 01 June 2019
• DOI: http://doi.org/10.1111/ilr.12143
• Author: Carolijn TERWINDT,Amy ARMSTRONG

International Labour Review, Vol. 158 (2019), No. 2

Copyright © The authors 2019

Journal compilation © International Labour Organization 2019

Oversight and accountability

in the social auditing industry:

The role of social compliance initiatives

Carolijn TERWINDT* and Amy ARMSTRONG**

Abstract. The 2013 Rana Plaza collapse led to increased awareness of abusive

working conditions in the garment industry. Much attention has since been paid

to the role and responsibility of retailing companies. The responsibility of social

auditing companies, however, has often been overlooked. The authors investigate

the systems in place to detect and address substandard auditing that fails to detect

violations of workers’ rights. They nd that, in practice, oversight of social auditors

and sanctions for substandard audits are both limited. In this light, this article ex-

plores how social compliance initiatives can play a role in improving verication

of audit quality and ensuring accountability.

On 24 April 2013, the Rana Plaza building complex in Dhaka (Bangla-

desh) collapsed, killing 1,134 people and injuring around 1,800, in-

cluding children and pregnant women (CPD, 2014, p. 12). Two factories

housed in the building had gone through the audit process of the Business

Social Compliance Initiative (BSCI). This initiative was launched in 20 03 by

the Foreign Trade Association (FTA), in its own words, “in response to the

increasing business demand for transparent and improved working condi-

tionsin the global supply chain”.1 Following the tragedy, the Managing Dir-

ector of BSCI put out the disclaimer: “It’s very important not to expect too

much from the social audit” (Al-Mahmood and Wright, 2013). This raises the

question of what exactly can be expected from third-party social audits and

what the consequences are when such expectations are not met. In particu-

lar, what role should social compliance initiatives play in verifying quality

and ensuring accountability?

* Senior Legal Advisor, European Center for Constitutional and Human Rights, Berlin,

email: info@ecchr.eu (corresponding author); ** Member of the Johannesburg Bar, email:

armstrong@thulamelachambers.co.za.

Responsibility for opinions expressed in signed articles rests solely with their authors,

and publication does not constitute an endorsement by the ILO.

1 See http://www.bsci-intl.org/about-bsci [accessed 10 April 201 5].

International Labour Review246

Notable public failings in the social auditing system had already been

recognized in 2005. At that stage, the Clean Clothes Campaign (CCC), a work-

ers’ rights alliance organization, published an analysis report that identied

certain problematic aspects of audits – including “cheating and sloppy auditing”

– and had warned against excessive reliance on them, highlighting the need

for transparency and accountability (CCC, 20 05). Even though the problems

surrounding audits have been known for a long time, the practice of auditing

is unlikely to be abandoned any time soon. On the contrary, audits remain a

favoured tool of corporate social responsibility (CSR) and sustainable manu-

facturing. According to the BSCI, “[a]udits are the most reliable tool available

to achieve transparency for what happens in factories”.2 They are moreover a

convenient mechanism for retailers to demonstrate to the public that they are

doing something about social compliance in their supply chain.

If we accept that social auditing is here to stay, we should at least be

considering how to address poorly executed or inadequate auditing that

fails to detect violations of workers’ rights. In practice, social auditors do not

incur any liability for their services, as acknowledged by a spokesperson of

the German certication rm TÜV Rheinland (Dohmen, 2016). This is prob-

lematic because brands tend to point to audit reports in order to justify their

purchases from factories that subsequently collapsed or were destroyed by re

(Burckhardt, 2014).While audit reports are commonplace, it is not clear who

takes responsibility for their content or impact. As the reports are not generally

made public, there is no way for interested or independent parties to oversee

the audit process or assess its accuracy. In particular, workers – the assumed

beneciaries of the whole auditing enterprise – have no means of verifying

such reports or holding auditors accountable.

In the summer of 2016, PricewaterhouseCoopers (PwC) was the defend-

ant in the biggest trial against a nancial auditing rm to date in the United

States. The charge was that its auditors had failed to identify a case of fraud,

raising the question of exactly how auditors should full their duties. In its

defence, PwC insisted that, while it had failed to identify the case of fraud, it

had complied with the accounting standards set down by the Public Company

Accounting Oversight Board, or PCAOB (McKenna, 2016). In cases such

as these, a settlement is usually reached (often for an undisclosed sum) before

the court can make any ndings on auditor liability; this case was no excep-

tion (McLannahan, 2016; Fisher, 2017). Nevertheless, such cases serve a pub-

lic accountability function. PwC was obliged to defend itself and account for

how it adhered to the minimum required professional accounting standards.

The case allowed the industry, experts, academics and interest groups to dis-

cuss whether those minimum standards were sufcient, and to advocate for

change. In addition, nancial auditing rms anticipate this kind of legal scru-

tiny and are compelled to act carefully, documenting their processes and nd-

ings to cover themselves against liability. As the OECD notes, the risk of such

2 See http://www.bsci-intl.org/why-are-audits-important [accessed 10 April 2015 ].