Auditing

INADEQUATE THIRD-PARTY AUDITING PROCEDURES Scheduled audit visits present only a snapshot of conditions at a particular location, at a specific time,1 and allow companies to ‘prepare’ for the audit.2 Pre-announced audit visits give producers time to falsify records and (perhaps temporarily) remove unauthorized agency contractors or exploited workers from facilities.3 Some certification schemes go some way towards addressing these concerns by having unannounced audits in addition to scheduled visits.

ONLY PART OF THE SUPPLY CHAIN IS CHECKED Certification schemes often only specify performance standards for the primary producer or processor.4 Although schemes might have a ‘chain of custody’ standard that is intended to provide some assurance about what happens to certified goods before they reach the brand or retailer, these standards may be significantly less detailed and robust than the standards and oversight processes in place for the initial supplier. This opens the risk of, for example, human rights abuses occurring at other points in the supply chain, such as during processing of products like coffee, wood or palm oil.5 In the case where there are multiple certificates used in the supply chain, they are often audited

1 MSI Integrity (2020) p.134 2 MSI Integrity (2020) pp.131-132 3 LeBaron, G., & Lister, J. (2016) p.3 4 See eg GreenPalm, What is GreenPalm? [Website]. 5 MSI Integrity (2020) p.102 by different CBs. The problem here is that the audits are done separately, and critical information – particularly concerning certified volumes of the commodity concerned – is not passed down the supply chain and shared with the CBs that are auditing the buyers of these products. This creates the opportunity for fraudulent labelling of uncertified material as certified. As discussed in the previous section, at present, no scheme has implemented a system that comprehensively tracks the movement or transformation of commodities all the way through the supply chain (the exception is the ‘identity preserved’ supply chain model, but as noted, because of the high costs associated with this system its use is not yet widely adopted).6 The FSC has developed a transaction verification system, but it is applied only in limited circumstances in relation to risk.7 This lack of full traceability and volume tracking renders claims made about so-called ‘sustainable’ certified sources questionable. LIMITED INDEPENDENCE OF CERTIFICATION BODIES It is common practice for certification bodies to be paid directly by the clients they are auditing, who can always choose another CB if they are dissatisfied with the results of an audit. The CBs’ financial dependence on the clients they are certifying creates an intrinsic conflict of interest, potentially encouraging them to give unduly favourable audit results in order to keep their clients. As well, auditors may become overly

6 Mol, A., & Oosterveer, P. (2015). See also eg RSPO (n.d.-a) p.5. 7 FSC, Transaction verification [Website]

© Ulet Ifansasti / Greenpeace 13 December 2016 - West Kalimantan, Indonesia. Members of the Greenpeace Forest Fire Prevention Team walk during an investigation in a newly cleared peatland area inside PT DAS concession in Muara Kayong village, Nanga Tayap Subdistrict, Ketapang.

familiar with their clients over time, which might cause them to overlook issues that they have become habituated to seeing.8 Contractual obligations between CBs and the companies they certify can also be a complicating factor. Global Witness investigations have revealed that ‘contractual obligations between the FSC’s certifying bodies and the companies they certify leave them with little power to take action against subsidiaries’, because the CB is ‘unable to act as both certifier and complainant’.9 In some cases such a lack of independence may lead to enabling full-blown corruption, as was recently alleged by Earthsight in their reports on illegal logging in Ukraine (see box ‘FSC implementation failure – Alleged greenwashing of illegal timber from Ukraine for IKEA’ on page 46). 10 There is broad acknowledgement of this issue as a threat to certification integrity,11 but with limited examples of alternative approaches, schemes are reluctant to adopt innovations to address this concern. Research suggests that having a ‘firewall’ between CBs and their clients improves the strength of environmental standards auditing. Proposals include rotation of CBs and their auditors, having the certification fee held in an escrow account until the assessment report has been validated, a tender process after which a third party decides on the CB for a client, flat fee audits and free audits funded by levies or other means.12

8 Jennings, S. (2016) pp.8-9. See also Duflo, E., et al. (2012), EIA (2015), EIA (2019) and Hines, A. (2014, 12 September). 9 Hines, A. (2014, 12 September) 10 Earthsight (2018), Earthsight (2020) 11 Mike Read Associates (2020) pp.32-43 12 Eg Duflo, E., et al. (2012).