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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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