Current ethical audits of clothing and other manufacturers are not effective and tend to reinforce existing business practices, while also weakening governmental oversight, according to a new study by Sheffield University's Political Economy Research Institute.

The report's authors argue that the audit regime is ‘working’ for corporations, but failing workers and the planet. Labour abuses, poor working conditions and environmental degradation within global supply chains remain widespread and that they are re-orientating global corporate governance towards the interests of private business and away from social goods. This, they point out, is happening despite the involvement of non-governmental organisations (NGOs) which originally developed these auditing regimes to overcome issues identified with the supply chain as more manufacturing shifted from the developed to the developing world - particularly to China.

As offshore manufacturing has grown exponentially, exposés by NGOs and journalists of rampant child and ‘sweatshop’ labour and environmental malpractice in overseas production sites have led to calls for greater corporate transparency and accountability within global supply chains, the report states. This has led major corporations, supported by governments and international to launch corporate social responsibility initiatives so they are seen as part of the solution to globalised production challenges. The adoption of ethical auditing practices that purport to identify, correct and ultimately solve environmental and social problems in supply chains has been a central part of this solution and major companies have hired independent  auditors to monitor factories, develop codes of conduct for their suppliers and publish transparency and ethical reports.

However, the report says this auditing system is flawed. Interviews with manufacturers that are audited found that results can be falsified especially with pre-announced audits enabling "producers to falsify records and rid facilities of unauthorised agency contractors or exploited workers during audits". The authors also found that audits only give a partial picture of the complete supply chain with many companies only inspecting tier 1 suppliers where the final assembly of products takes place citing the example of  the US clothing company REI which stated in 2012 it had audited “a percentage of the Tier 1 factories in our supply chain”, but this only amounted to 27% of its total global supply chain.

The authors also found that the audits often do not detect unauthorised subcontracting arrangements. One interviewee told the authors that  following the collapse of the  Rana Plaza garment factory in Bangladesh in April 2013 , “many of the brands that found themselves in the factory were as surprised as the next person to find their brand in there. And the immediate defence was, ‘We never gave work to that factory and the people who gave them the work were in violation of the contract’.”

The report concludes that companies have gained too much power through the existing auditing regime and that NGOs have provided legitimacy to a flawed governance system. The authors write, "Whilst audits give the impression of active supply-chain monitoring and ‘continuous improvement’, the regime actually reinforces endemic problems in supply chains. It deflects pressure for stricter, state-based regulation and legitimises unsustainable global production models – in particular, a retail economy that promotes consumption and environmental degradation."