7 Ways to Prevent Factory Auditing Fraud

Factory auditing can be a confusing and challenging task, but it’s also incredibly important. As the auditor, you’re responsible for ensuring that the manufacturing plant has been following your company’s standards and protocols. It’s important to keep in mind, however, that you should never turn a blind eye to any issues or suspicious activity you see—factory auditing fraud can occur, resulting in big losses for both your company and the factory. Here are seven ways to prevent factory auditing fraud from happening at your business.

1) Proactive Steps

To prevent quality third party inspection fraud, do your research. Look for factories that are insured by an international group like ISO, SEDEX or BSCI. You should also make sure they offer contract guarantees or indemnities in case of problems. This type of insurance gives you recourse in case something goes wrong with your product. It’s also a good idea to hire an independent auditor—and visit your supplier at least once per year. Don’t let substandard products hit stores—or reach end customers—by taking these proactive steps.

2) Realistic Expectations

Set realistic expectations for yourself and your factory. Ask yourself questions like: What are my goals? What do I want from my supplier? How often will I visit them? Will I be auditing or training on-site? How many factories will I use? It may seem obvious, but knowing what you want and how you plan to get it can help ensure your business runs smoothly. Factory audits are a great way to measure and improve production quality and worker satisfaction at your suppliers’ facilities. While they’re mostly used by large companies, they can also help new startups prioritize their needs at each stage of growth.

3) Educate Employees on Factory Rules

To prevent factory auditing fraud, perform spot checks at regular intervals to validate employee time sheets. Spot checks are meant for small businesses that don’t employ an internal auditing team, but it’s also possible to use them in conjunction with existing auditors. While it might seem like overkill, performing spot checks at random times helps ensure your company isn’t overlooking anything. For example, your company could decide on a standard monthly schedule and occasionally deviate from it—say by checking three or four days early—to maintain some level of unpredictability.

4) Perform Spot Checks

Spot checks are a great way to reduce your risk. While you should always rely on your auditors, it’s worth visiting factories personally every few months or so. Sometimes, you’ll uncover problems that require immediate action—if nothing else, it will give you an opportunity to build relationships with factory management. Additionally, there are ways of performing spot checks that won’t cost any extra money. For example, if your factory uses outside packaging suppliers or embroidery firms for branding services, try sending samples of finished products directly from your factory for testing before ordering large quantities of final products.

5) Trained Staff

One of the simplest and best ways to prevent factory auditing fraud is by hiring trained staff. An untrained auditor can be easy to fool and may overlook key details, such as placing false labels on boxes. The surest way to prevent factory auditing fraud is by keeping a trained, dedicated staff that will refuse bribes and won’t let their personal biases cloud their judgment. Even if you only conduct audits every once in a while, it’s worth it to invest in professional training that will ensure you’re always getting accurate information from your suppliers.

6) Video Cameras

When you make a large purchase, such as a television or piece of furniture, record your visit. Take pictures and video if possible. If it is damaged or tampered with during delivery, factory audits can verify what happened. There are cameras for smartphones that you can use in these instances without being obvious about it. This will go a long way towards proving that a factory worker damaged your product before shipping it out to you. It may not prevent problems from happening but at least you’ll have evidence if something does happen after delivery.

7) Other Solutions

In most cases, it is better for manufacturing companies to try and come up with a different solution. One way is by dealing directly with your suppliers, giving them more incentives for they will be able to maintain their business with you. In some situations, it may be necessary for you to hire a factory audit company. They can help ensure that they can prevent auditing fraud from occurring at your factory’s location. Another way is by outsourcing your manufacturers overseas where they have stricter rules regarding corruption. If you decide on going through an audit company, make sure that they are a well-respected business that has been operating in China for many years so that they will not open you up to any unnecessary risks or problems when dealing with an auditor who has been negligent in their job.