Audits and reporting schemes: A business case for human rights due diligence
Jo Ford

Associate Professor Jo Ford of ANU College of Law.

These audit practices do not necessarily reflect or result in changes in corporate approaches to serious human rights problems in business supply chains.

On 1 January 2019, Australia’s Modern Slavery Act 2018 entered into force requiring around 3,000 entities based or operating in Australia to prepare annual statements on potential modern slavery risks in their operations and supply chains, and the steps they have taken to address those risks. The Act is the latest example globally of a legislative scheme intended to foster corporate action on such risks.

ANU Law’s Associate Professor Jo Ford and his colleague, Professor Justine Nolan (UNSW Sydney), have written a cautionary article examining the limits of these reporting schemes and analysing some of the assumptions underlying their design. Published in the Australian Journal of Human Rights, the article highlights what is already known about the practice of ‘social auditing’ (processes to verify corporate social responsibility practices), on which reporting firms are likely to rely to produce their annual reports under the new Act.

Dr Ford, whose research expertise spans regulation, human rights and corporate responsibility, has been critically exploring claims that corporate reporting schemes will generate transformative internal changes inside companies in terms of their awareness of, and action on, human rights risks in their operations and supply.

“Australia’s new Modern Slavery Act is intended to ensure that we are a leading country in addressing the problem of modern-day slavery, which is perpetuated by consumption patterns in the most developed countries in the world economy,” says Dr Ford.

“[However] these audit practices do not necessarily reflect or result in changes in corporate approaches to serious human rights problems in business supply chains.”

By highlighting risks and outcomes evincing from corporate reporting under the UK Modern Slavery Act (2015), the article warns businesses and entities against an over-reliance on the practice of social auditing and third party auditors. “Because it’s expensive and time consuming to do due diligence, there’s the temptation to ‘do an audit’ or get someone to do an audit for you”, suggests Dr Ford.

“There’s an entire industry out there who will do a superficial audit of your business and supply chains to help you ‘tick the box’.” While businesses can technically comply by doing the audit and filing a report, doing so doesn’t necessarily generate accurate information – and auditing that is focused on narrow compliance (ie filing a report) is not necessarily due diligence aimed at finding and resolving human rights risks in the supply chain. Without conducting due diligence, businesses and their supply chains remain at risk of human rights abuses and major reputational damage.

While important for businesses and auditors, the article also tries to bring a range of empirical insights from disciplines such as business, accounting, auditing and insurance to a dialogue about legislative design among legal and law reform scholars. “These audit schemes may look fine to lawyers based on the general information and compliance guidelines,” notes Dr Ford, “but audit and sustainability experts would say otherwise”.

Dr Ford’s interdisciplinary research underpinning the article has included collaborative research activities with partners such as Walk Free/Minderoo Foundation (London) and WikiRate (Berlin) who have been major players in the global fight against modern slavery. These partnerships in particular, have led to internships and work experience for ANU Law students each semester to evaluate corporate reporting under the existing UK Act.

Ford, J & Nolan, J 2020, Regulating transparency on human rights and modern slavery in corporate supply chains: the discrepancy between human rights due diligence and the social audit, Australian Journal of Human Rights, Vol. 26 online.

This article deals directly with topics from a course that Dr Ford convenes at the ANU College of Law: LAWS8254 ‘Business, Human Rights and Corporate Responsibility’.