How Auditor Working Conditions Limit Supply Chain Transparency

Companies are under increasing pressure to improve supply chain transparency, particularly around working conditions in remote factories. Government regulations, the best practices of peers, and attention from outside stakeholders all make it increasingly critical that leaders ensure that partners producing goods for the company operate fair, safe, and equitable workplaces.

A key tactic in fostering such supply chain transparency is to implement on-the-ground, in-person reviews of factories and other workplaces. These social compliance audits are part of a huge global industry, valued at as much as $80 billion and conducted by both international auditing firms and smaller local auditing and certification firms and nongovernmental organizations (NGOs).

Audits, however, are far from perfect and often miss blatant abuses, such as child labor. Identifying poor working conditions in supply chains is difficult for many reasons, including deception by employers. However, our research has identified one surprising way to strengthen the effectiveness of audits: improving the working conditions of the auditors themselves. While this is an obvious benefit to the individual practitioners in the field, it also contributes to more honest, thorough, and effective audits.

The Supply Chain Auditing Business

A comprehensive auditing program involves investigating supply chains that can be several tiers deep, with a complex web of potentially hundreds of suppliers and subcontractors around the world. Tesla, for instance, said in its 2023 impact report that it screened 13,018 suppliers and interviewed 3,645 workers at those companies during that year alone.

The benefits of untangling the supplier web can be substantial. Activist stakeholders and many consumers want to know how products are made. Supply chain transparency is a precursor to improving consumer trust and reducing reputational risk.

Maintaining a clear line of sight through complex supply chains requires constant vigilance. Suppliers and subcontractors can change, sometimes without notice or authorization, and poor working conditions are a dynamic and growing problem. Emerging technological solutions, such as using artificial intelligence or DNA as a “minuscule bar code,” can help identify a product’s origin and whether it’s from a known and approved source. Technology, however, is best thought of as a supplement to, rather than a replacement for, on-the-ground human auditors.

The immense growth in social compliance auditing has translated into increased demand for auditors, who, as we’ll show, face severe challenges in delivering high-quality inspections. Many of these challenges arise from the poor working conditions they face, which threaten the integrity of their findings.

Grueling Working Conditions for Supply Chain Auditors

We conducted over 30 interviews with experts from around the world to explore how the working conditions of auditors can affect their ability to identify forced labor in supply chains. The International Labour Organization defines forced labor as “work that is performed involuntarily and under the menace of any penalty.” The experts we spoke with were drawn from NGOs, companies, and auditing bodies, and almost all of them had direct auditing experience in either their current or previous roles.

We found that the working conditions of the auditors themselves are a frequently overlooked contributor to audit quality. Three key issues stood out:

Auditors are often on their own. Auditors typically travel solo through dangerous areas with little communication with their employers. We heard that simply getting to sites can be a harrowing experience — traveling to remote locations with poor road access, limited internet service, and spotty mobile phone coverage. Upon arrival, auditors are likely to find little to no practical support.

Auditors must manage discomfort and harassment. Once onsite, auditors may be surrounded by appalling working conditions in factories, on farms, or on boats. They can face threats, intimidation, and assault from employees, managers, owners, community members, and even the local police. Isolated locations can make it difficult to escape perceived danger.

Auditors are often set up to fail. Social compliance auditors investigating forced labor in supply chains face vastly different circumstances than, say, financial auditors in New York or Sydney. Poor remuneration was repeatedly cited as an issue, including low base pay, expectations for unpaid overtime, and limited or no compensation for pre- or post-audit activities. These issues were particularly acute for freelance auditors. Our interviews indicated that these underlying conditions can make auditors more susceptible to bribes, which may be offered even in cases where an auditor’s concerns are relatively minor. In cases where auditors raise concerns about working conditions, they can encounter pushback from clients who don’t want to hear bad news, or be pressured to misrepresent their findings. Given the illegal and profitable nature of forced labor, auditors may also be actively deceived.

Implications for Companies

The hazardous conditions, physical and psychological threats, and excessive overtime that auditors may experience ironically parallel the poor working conditions they are reviewing. This can adversely impact audit quality and result in the underreporting of poor working conditions due to auditors’ fear, exhaustion, or incompetence, or meager support. Identifiable problems can be missed, and false confidence in the reported absence of forced labor or other poor working conditions in supply chains may take root.

Businesses can, however, directly influence some of these issues. To best manage the audit process, protect field workers, and safeguard the integrity of the audit itself, there are three key actions companies can take:

1. Develop long-term relationships with trusted auditing partners. Companies often have discretion in choosing their social compliance auditors. Better use of this discretion can drive positive change. This could include requiring that all supplier auditors are trained, as the Association of Professional Social Compliance Auditors recommends, in conflict resolution, as well as how to recognize and deal with potentially dangerous situations. It could also include requiring that no auditor work alone, that technology be employed for auditor protection (such as wearable satellite tags), and that key findings be withheld until the auditor is offsite. Our evidence shows that these changes may raise short-term direct auditing costs but could yield long-term benefits in improved audit quality and reduced reputational risk.

2. Advocate for regulatory change. Legislation focused on forced labor and other poor working conditions in global supply chains is becoming common, including in the United Kingdom, Australia, Canada, and the European Union. This is welcome, but further emphasis on the auditors themselves is needed. Companies can proactively support developing guidelines and regulations to protect auditors, such as by advocating to limit overtime and clarifying the overall remuneration for auditors. We’ve seen that this is critical in reducing sectoral reputational risks created through the actions of unscrupulous actors.

3. Facilitate independent audit oversight. Companies, auditors, and governments are key actors in improving auditor working conditions, but there are others. Companies, for example, could facilitate direct communication channels among auditors, employees at the venues being investigated, industry associations, and themselves. This could include using the feedback resources developed by the Responsible Business Alliance for auditors to report their own poor working conditions, but many of our experts suggest that simple telephone hotlines might also suffice. Similarly, there could be direct communication channels between auditors and arm’s-length parties, such as NGOs. We’ve seen NGOs help build local community support networks, provide onsite auditing support, and facilitate the sharing of auditing experiences. Companies might also work with their industry associations to engage with auditor accreditation bodies and build industry-specific standards for auditor working conditions.

Hundreds of large companies around the world have signaled their desire to eradicate forced labor and other types of poor working conditions in their supply chains, including explicitly prohibiting such practices in their own supplier codes of conduct. Meeting that goal requires that they engage well-trained, independent professionals who are granted the time, access, and resources needed to draw well-grounded conclusions during their inspections. Improving auditor working conditions will not only help protect the auditors themselves but also contribute to improved identification of forced labor and other undesirable working conditions in global supply chains.

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