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
community
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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