Social Audit

A formal evaluation of a company’s procedures and endeavors with regards to corporate social responsibility and societal impact

What is a Social Audit?

In business, a social audit refers to a formal evaluation (or audit) of a company’s procedures and endeavors with regards to corporate social responsibility (CSR) and societal impact. Many companies formulate goals and objectives with regards to CSR initiatives, and the social audit is used to review to what extent they’ve reached their goals.

 

Social Audit

 

Summary

  • A social audit is a formal evaluation of a company’s procedures and endeavors with regards to corporate social responsibility and societal impact.
  • It assesses how well a company is meeting its CSR objectives and provides an opportunity to identify areas for improvement.
  • Social audits exert a strong influence on impacting the public relations image of companies as businesses strive to maintain a delicate balance between their social initiatives and providing value to its investors and shareholders.

 

Why Social Audits?

With corporate social responsibility becoming increasingly important in today’s business environment, corporations consistently strive to maintain a delicate balance between responsibility to its stakeholders, such as customers, investors, and shareholders, as well as setting certain objectives with regards to making a strong societal and community impact. Often, CSR is integrated into many areas of a company’s service lines and are often interdependent.

Social audits are becoming increasingly common among corporations as a way to evaluate the extent to which they’ve met their CSR initiatives within a specific period. Social audits exert a strong influence on impacting the public relations image of companies and are usually heavily focused on, especially for larger publicly-traded corporations hoping to maintain a good public perception since it ties in with their earnings and share pricing.

 

History of Social Audits

Social audits are considered a relatively new concept in the business world – the first social audit of an organization was carried out in Sweden and published in 1988 after a study of the country’s central bureaucracy.

The three-year study heavily relied on interviews and questionnaires with many of the organization’s employees from all levels. It was focused on analyzing the experiences of the senior management and junior staff compared to the stated objectives for the organization established beforehand.

From the responses, the researchers were able to get a better understanding of the effectiveness of the organization and make recommendations for improvement as a result of the social audit.

 

Items Evaluated by Social Audits

Social audits take a look at many different factors within an organization to measure, report, and ultimately improve an organizations’ social performance. They are a powerful tool for social accountability, with the scrutiny of the actions of officials and management sometimes leading to the discovery of administrative and financial irregularities and corruption.

Some of the items that social audits examine are included below:

  • Records of charitable contributions
  • Volunteer events
  • Transparency within the organization
  • Work environment
  • Salaries and wages of the workforce
  • Community initiatives
  • Diversity in the workplace
  • Accounting and financial transparency

 

It should be noted that there are no specific standards or rules to follow, and organizations typically obtain a lot of flexibility when it comes to implementing social audits. For example, there is no requirement that social audits need to be to the public or stakeholders, so it may only be used internally by management to further improve the organization’s social efforts.

It is also important to understand that a social audit does not exclude an examination of accounting and financial documents, as they are as valuable in the social audit process as some of the other items mentioned above.

 

Advantages of Social Audits

Social audits provide a multitude of advantages, including encouraging democracy and the sharing of opinions by employees and community members, and identifying challenges faced by certain marginalized or disadvantaged groups. In addition, they can also be used to better support the human resources and social capital of the organization and promote collective decision making.

 

Utilization of Social Audit Results

Social audits are not mandatory and are not governed by a specific governing body, which means that organizations can freely decide whether or not to share the findings of social audits with shareholders, investors, customers, and other important stakeholders.

However, the results of social audits are likely extremely beneficial to the organization, as it helps to better understand its strengths and weaknesses and identify areas for further improvement for the next social audit.

Social audits are a good way for businesses to evaluate how their social initiatives are being received by both their internal and external stakeholders. Also, as we learned previously, they strongly influence public relations and the public perception of organizations and companies, making them important to companies that highly value maintaining a positive public image.

 

Related Readings

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

  • Environmental, Social, and Governance (ESG)
  • Socially Responsible Investment (SRI)
  • Stakeholder vs Shareholder
  • Sustainability

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!