Social Audit Of Business

Social Audit of Business

Audit definition Audit is an evaluation of a person,

organization, system, process, project or product. Audits are performed to ascertain the validity

and reliability of information .

Introduction Business organizations operates in a broader

context than immediate marketplace even if its public, private or co-operate. Business policies and practices have significant social consequences has been recognized since the industrial revolution. For example, employment practices, safety in the work environment, job enrichment, disposal of industrial waste, management of natural resources, and consumer protection. So constant monitoring is required to achieve and maintain responsible corporate behaviour.

What is Social Audit? Process of assessing and reporting a business’s

performance in fulfilling its economic, legal, ethical and philanthropic responsibilities. Tools that companies can use to measure the progress in corporate social responsibility. An on-going process, often done in 12-month cycles .

History In the United States and Europe during the

60s, public renunciation of the war in Vietnam triggered a movement to boycott the goods and shares of some companies that were associated with the conflict. Society demanded a new ethical attitude and some companies began to provide accounts for their social actions and objectives. Drawing up and publishing annual reports containing information of a social nature led to what we now know as "the social audit".

Purpose Should provide for regular verification by

stakeholders. Disclosure and transparency is the key. Measures for progress need to be communicated to all in the organization.

Auditing Process Get commitment from top managers Establish committee Define scope (i.e., what will be dealt with) –

Ex: discrimination, diversity, privacy etc. Review mission, policies, goals etc Define social priorities as they relate to stakeholders Identify tools/methods how to assess and measure progress

Continued….. Collect information

Internal and external sources Summarize information according to stakeholders Have information verified by independent agency Report findings

Social Auditing Standards Competence Need to be undertaken by competent individuals Independence No conflict of interest Due care Planning Control structure Evidence Reporting

Benefits Regular audits allows to see if progress is

being achieved. Independent audits allows companies to build trust. Improved relationship with stakeholders. Permits stakeholders to influence strategic planning Helps stakeholders in making corporate governance decisions

Continued………. Helps identify potential risks and address

problems before they occur Ex: Company may be better prepared to deal with potential problems with stakeholders Audit will hopefully show compliance with relevant laws Allows companies to coordinate corporate social responsibility at all levels Help quantify social concerns related to the

Crisis Management Social audits helps to prepare facing

future disasters that can result in substantial legal and financial costs Such disasters also result in compromised reputation and erode stakeholder confidence Ex: Enron, Arthur Andersen

Enron Scandal The Enron scandal was a corporate scandal

involving the American energy company Enron corporation based in Houston, Texas and the accounting ,auditing and consultancy firm Arthur Anderson that was revealed in October 2001. Enron’s stock price which hit a high of $90 per share in mid-2000, plummeted to $0.10 in October 2001. The drop in Enron’s stock price is estimated to have caused its stock holders to lose $11 billion On December 2, 2001, Enron filed for bankruptcy and with assets of $63.4 billion. it was the largest corporate bankruptcy in U.S. history.

Continued: Enron became the biggest audit failure. The scandal caused the dissolution of Arthur

Anderson, which at the time was one of the five largest accounting firms in the world.

Continued…….. Need efficient plan to Anticipate disasters including mistakes  Risk assessments associated with problems  Plan for what to do  Provides ready tools to respond to such crisis 

Risks Audit may uncover serious problem

May not want to disclose until problem is resolved May foster employee dissatisfaction/ discontent Ex: Asking employees about discrimination or unethical conduct Is costly for the organization Imposes burden with regard to record keeping No agreed upon set standards Some auditing companies may not disclose negative information

Conclusion Benefits can evolve from social audits Assessment shows that organization is

serious about its social responsibility Social audits can also help identify potential problem areas and be proactive Social audits can also help divert resources to social causes that can be beneficial to the company

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