Social Audit
A social audit is a formal verification of a business's social and ethical performance, designed to assess its impact on its workers, the community, and the wider environment. For procurement professionals, it is a critical tool for evaluating a supplier's compliance with labour laws, ethical standards, and a company's own code of conduct. Unlike a financial audit, a social audit focuses on non-financial indicators, providing a detailed snapshot of working conditions and management systems at a specific site of employment.
Why it matters
In modern procurement, managing non-financial risk is as crucial as managing cost. Social audits provide the verifiable data needed to protect your brand, ensure business continuity, and build more resilient supplier relationships. As regulatory and consumer expectations for ethical sourcing grow, a robust social audit programme is no longer a ‘nice-to-have’—it is an essential component of strategic supply chain management.
Integrating social audits into your procurement framework helps you:
- Mitigate reputational and legal risks: Audits uncover issues like poor health and safety, excessive working hours, or inadequate wages before they become public scandals or trigger regulatory penalties. This proactive approach helps protect your brand’s integrity.
- Ensure compliance with labour standards: A credible social audit verifies that a supplier is adhering to local labour laws and international standards, such as those from the International Labour Organization (ILO). This is fundamental for meeting the requirements of legislation like the German Supply Chain Act (LkSG) or the CSDDD.
- Improve working conditions: By identifying areas of non-compliance, audits initiate a process of improvement. This leads to better, safer, and fairer working conditions for people in your supply chain, which can improve worker morale, reduce staff turnover, and increase productivity at supplier sites.
- Enhance supply chain transparency: Social audits provide an objective, third-party assessment of a supplier’s operations. This evidence-based insight moves you beyond supplier self-declarations, offering a credible view of what is happening on the ground and building trust with stakeholders.
How it works / key points
The process begins with careful planning. The auditor reviews existing information about the supplier, such as previous audit reports or data from a Self-Assessment Questionnaire (SAQ). The scope of the audit is defined, covering specific standards (e.g., labour rights, health and safety, environment, business ethics). The audit is then scheduled, often with a period of notice given to the site.
This is the core of the audit. An accredited auditor visits the supplier's factory or workplace to gather evidence. This involves multiple activities:
Site tour: A physical inspection of the premises, including production floors, dormitories, and canteens, to assess health and safety conditions.
Document review: An examination of records such as payroll, timesheets, employee contracts, and licenses to verify compliance with laws and standards.
Management interviews: Discussions with managers to understand the site's policies, procedures, and management systems.
Worker interviews: Confidential interviews with employees, held individually or in groups, to gather first-hand accounts of their working conditions.
After the on-site visit, the auditor analyses all the collected evidence to identify any areas where the site's practices do not meet the required standard. These findings, known as non-compliances, are documented in a detailed audit report. The report provides a summary of good practices as well as a list of issues that require attention.
The audit report is shared with the supplier and the buying organisation. The supplier is then responsible for developing a Corrective Action Plan (CAP) to address each non-compliance. This plan outlines the steps they will take and the timeline for completion. The buying company's role is to track the implementation of this plan, verify that the issues have been resolved, and, if necessary, schedule a follow-up audit to confirm the improvements.
Examples
A procurement manager for a construction materials company commissions a SMETA audit for a new supplier. The audit report reveals that emergency exits are blocked and workers have not been provided with adequate Personal Protective Equipment (PPE). A corrective action plan is created, requiring the supplier to clear all exits immediately and purchase the necessary safety gear. The buyer verifies this through photographic evidence uploaded to the Sedex platform.
An electronics brand uses social audits to check for compliance with its supplier code of conduct on fair wages. An audit at a component factory uncovers that workers are not being paid the correct overtime rates. The auditor documents this by comparing payroll records against time-keeping data. The brand then works with the supplier to ensure all workers receive back pay and that the payroll system is corrected to prevent future errors.
During a risk assessment, a seafood company identifies concerns about unsafe working conditions in its packaging supply chain, such as inadequate protective equipment and emergency preparedness. In compliance with the Act, the procurement team collaborates with the supplier to implement a corrective action plan, including providing safety training, updating safety protocols, and conducting independent audits. Progress is tracked and reported in the company's annual statement.
About Sedex
Sedex is a global technology company that specialises in data, insights and professional services to empower supply chain sustainability. Our platform, tools and services enable businesses to easily manage and improve their environmental, social and governance (ESG) performance to meet their supply chain sustainability goals.
