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The problem with auditing factories in China

by Andrew Reich

Here you go, straight from a China Social Accountability Expert with 12 years experience (in China):

The main problem with the auditing system here is that retailers, brands and importers are more concerned with CYA (covering their asses) than in making real improvements and protecting workers.  This is the ROOT of the problem, and we all know if your root is rotten you ain’t going to grow a very nice tree.

The US based buyers want nice reports on file that say “PASS” or “ACCEPTABLE”. That is what they want. It is not that they do not want the workers to have good conditions or rights, it is just that they do not really care about this. They want to keep their job and they do not want shit to hit the fan and it to be discovered that they selected a factory that has blatant Child Labor or harsh conditions.

So, what we get from this very superficial intent is a system based around masking the actual situation in the factory, and factories that often lead inspectors to other factories on the day of the audit, that are more likely to pass an audit, than the one that actually produces the merchandise.

But let me make one point clear here. This is NOT the fault of the Chinese factories. They are just playing along in the game that has been created by the degenerate intentions of the US buyers.

Let me lay out for you how this all goes down:

1.  A big retailer in the USA, let us say “Ballmart” wants to protect itself and insure that its not importing products from factories that are going to be shown one day on the front page of the New York Times with children workers wearing no shoes.

2.  Ballmart contracts with a large auditing and inspection company in China, let us call them GSG, to audit its factories in China and provide reporting and corrective action plans for the factories.

NOTE: One piece of background information you should know is that virtually every factory in China does not actually comply with the legal regulations for overtime work and pay. In most cases, since the factories are generally inefficient and do not know how to run LEAN manufacturing operations, if one were to comply with normal overtime wage requirements they would immediately not be competitive in the market.

3.  GSG audits the thousands of factories producing for Ballmart in China. In any such factory the auditor is presented by the factory with a situation that masks many of the existing deficiencies:

- They may not be allowed or shown areas of the factory that clearly do not comply with certain standards.

- They are often presented a 2nd set of working hours records which mask any issue with overtime records/pay.

- They interview workers from the production line to get the “real” story, but often those workers have already been “tutored” by factory management as to how to respond to auditor questions.

4.  Let us remember here that this is not the auditors first time to the rodeo. He knows exactly what he is looking at, and is fully aware of the real situation. But let us also remember that this is the situation in 95% of the factories which he is auditing, and if GSG were to come back with a report each time, for 95% of Ballmart’s factories, stating that the factory, stating that the factory blatantly does not comply, Ballmart’s store’s shelves would be empty, Ballmart would not be very happy with GSG and so…

5.  The auditor produces a report that shows that the factory has some deficiencies, but that does not expose the true depth of the issue. For example, it is easy to “catch” a factory who has prepared a 2nd set of working hour records, since there is documentation used for production and quality in other areas of the factory that generally display the true working situation (such as warehouse records, production records, etc.).

The auditor may point out that a record “here or there” does not seem to comply” and will also note some generally correctable health and safety issues, which can be “conveniently” fixed by their next audit.

By producing the report in this manner, it sets up all parties for the following:

- GSG and its auditors show that they have found some kind of issue there, so in the eyes of Ballmart they are “getting their money’s worth” and GSG appears to be doing its job.

- By noting some issues which can relatively easily be corrected by the next audit, the next audit report can show “progress” which makes it appear as if the factory is making real improvements (good in the eyes of Ballmart and the story it wants to tell its customers).

- Since auditors do actually know the real situation in the factory, they can often collect a little money “on the side” to look the other way.

6.  In the end, Ballmart gets reports showing that the factory is making improvements and is happy. GSG and the factories keep their contracts with Ballmart, and the workers keep on working more hours than is truly allowed by local law, or dealing with other conditions which have not been fully disclosed on the audit reports.

Although audits like these generally do help prevent the most serious working condition related issues (its hard to hide blatantly terrible working conditions no matter what), they do not make progress towards serious improvement of most issues.

I would like to point out that a recent article in the New York Times, Fast and Flawed Inspections of Factories Abroad, mentions that “…even when inspectors are tough, factory managers find ways to trick them and hide serious violations, like child labor or locked exit doors”. From my perspective this statement is not true, as generally auditors know exactly what they are looking at. They may claim that they were “tricked”, but all too often they were actually paid off to look the other way.

What is the solution? If brands and importers want to work with their factories on making real improvements, and improving efficiencies so that they do not have issues such as unpaid overtime and unhappy workers, there are companies out there that can help them do so. Those companies include those focused on Efficiency and Quality Improvement, like China Manufacturing Consultants, and also those focused on Social Accountability Improvements such as INFACT Global Partners.

Some of the more responsible retailers and brands have already started working with such companies, and implementing such solutions.

Andrew Reich is the CEO of InTouch Manufacturing Services, a QC firm that performs product inspections and factory audits in China for US and EU clients. Andrew also maintains a QC-related blog, Quality Wars.

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