Monday morning’s session at the FSC General Assembly Can CBs deliver independent audits? raised important issues and described risks associated with FSC auditing; for example, increased price competition leading to undesirable outcomes such as less evaluation effort, softened non-conformity outcomes, and incentives to maintain audit relationships.
Is this a real or a perceived problem? In either case, what can we do collectively to ensure that we continue to work on systems to help deliver the highest quality audits and the benefits that flow from them?
“The structure of third-party audit markets may create a conflict of interest for auditors between providing credible reports and maintaining business with their clients, corrupting information provision and undermining regulatory goals.” [Duflo et al. 2012]
Several solutions were proposed and discussed, many related to reconfiguration of the FSC auditing system to create competition based on quality, not price. One mechanism described as a means to improve outcomes was the ‘decoupling’ of the potential Certificate Holder (CH) from the Conformance Assessment Body (CAB) – although an alternative opinion of this proposal is that decoupling could concentrate risk from many points (with relatively small individual impacts) to one or a very few with potentially ‘terminal’ consequences. Another potentially valuable change would be to spread the costs of certification throughout the supply chain so that the expense is not borne only by the Forest Management Unit.
The point emerged that while the transition from strangers, to co-operators, to collusive partners, to corrupt partners is possible, it’s not common. CABs can and do provide impartial decisions. The FSC system is often described as a three-legged stool, with Standard Owner, the Accreditation Body, and the CABs working in a linked manner that ensures the maintenance of a credible and trustworthy system of standard-setting, conformity assessment, and third-party auditing.
The concept of a ‘fourth party audit’ was raised by one contributor: the observation being that consultant auditors were less susceptible – compared to staff auditors – to persuasion or coercion. It was also proposed that mandatory CAB rotation could be a valuable addition to the FSC system. In 2016 the EU started implementing this important step in their public entity financial audit requirements; with many benefits to be had from requiring that neither a CAB nor an individual auditor stays engaged with a CH past a clearly defined ‘sell-by’ date.
The formal portion of the session finished with a description of Ontario’s Independent Forest Audit Process and Protocol – from which, it was suggested, useful elements could be borrowed.
Studies including those by Duflo et al. (2012) and Short et al. (2015) provide guidance in the context of this important issue. The latter describes the following outcome:
“We find that auditors’ decisions are shaped by factors such as ongoing client relationships, professional experience, gender, and gender diversity.”
Specifically, audits identified fewer non-conformities when conducted by audit teams that:
- include individual auditors who have audited that supplier before
- have less auditing experience and training, and fewer auditing skills
- consist only of male auditors.
It remains to be seen why this happens; we can all benefit, however, from working with new opportunities and thinking about how we can continue the efforts that brought us this far – to deliver high quality audits that continue to add credibility to FSC.
This article was originally published in the newsletter for the FSC General Assembly 2017