This is probably not the kind of publicity that FSC was hoping for around its 3-yearly love-in, the General Assembly. But as the FSC’s members make their way home from Seville, no doubt full of self-congratulation for the ‘progress’ they are making, the reality is becoming increasingly hard to avoid: the FSC system is in deep crisis.
A Linked-in article (reproduced in full below) posted at the end of the General Assembly by Andre de Freitas, Executive Director of the FSC from 2008-2012 and before that its Director of Policy and Standards, is a bombshell, and blasts a massive hole in credibility of the FSC system. He rightly points out that the promise of guaranteed supply chain certification is fraudulent, describing Chain of Custody certification as a “myth”. Whilst de Freitas then uses his article to promote a new CoC assessment system developed by his new employer, the Rainforest Alliance, – whose deeply problematic certifications flourished under his leadership of the FSC – his main point is correct.
He could also have pointed out that, without a reliable CoC scheme, the entire ‘theory of change’ of the FSC disintegrates. FSC is based on turning the public credibility of the system into an meaningful financial incentive – hopefully in the form of a price differential – for improved forest management. But if wood consumers cannot be sure that the product they are buying is actually the wood that has been certified, that credibility will disappear.
The lack of transparency with which CoC certifications are conducted was always going to lead to problems. Some observers, including those who have been involved in CoC certification, have descried the FSC systems as a ‘licence to print money’ on the behalf of the certification companies.
By failing to ensure credible, transparent and reliable CoC, FSC has once again sacrificed the integrity of the FSC for benefit of the certification companies.
The myth of CoC auditing
September 12, 2014
Executive Director Sustainable Agriculture Network
Sustainability certification initiatives often rely on conventional chain of custody (CoC) audits to provide assurance regarding the integrity of their supply chains. The idea that CoC auditing provides much assurance is a myth.
One of the main integrity risks in a certified supply chain is volume fraud. What certification schemes are trying to prevent is that ill-intentioned companies commit fraud by selling more certified products than their purchases would have allowed. The problem is that CoC auditing is very unlikely to catch this type of fraud. And that’s because it was never designed to do so. The idea that volume fraud can be uncovered by a pre-scheduled audit, in which an auditor walks around a factory and checks some procedures and invoices is simply unrealistic.
The only way to deal with such a risk is to use volume reconciliation tools, which verify that the volumes of products bought and sold are compatible. These tools take into account both the many different suppliers and buyers, but also the necessary conversion levels inside an operation. Furthermore, these tools can be tailored to the level of risk of an operation, considering criteria such as the sophistication of internal controls, the company’s position in the supply chain and the setting in which it operates.
We at SAN/Rainforest Alliance have already been using volume reconciliation tools for the main crops we work in, with very good results. And we expect that our use of these tools will continue to expand and improve over the next years.
It is always difficult to recognize that something that you have done and believed in for many years is wrong. It is also possible to argue that CoC auditing as originally designed had its role in the early years of the certification movement, given the level of technology available at the time. However, this is no longer the case and conventional CoC auditing has become a costly exercise, which adds little value to the certification schemes themselves and the companies involved with them. They should be scaled back significantly, with certification schemes focusing their efforts on volume reconciliation tools implemented according to the risk of each operation. This would ensure a much higher level of assurance on the integrity of the certified supply chain, at a lower cost for all involved.
I was involved in both FSC forest management and chain of custody auditing from the mid-1990’s until 2009 and so the the comments made by the ex-Executive Director of the FSC concerning the chain of custody standard came as a surprise to me. He is of course correct when he says there is no longer any confidence in the CoC standard. But the reasons for the ebbing away of confidence over time cannot be blamed on the design of the standard itself, or at least not for the reasons he states.
He was the Executive Director in 2008, the year when the latest CoC standard – Version 2-1 -was introduced. The scope of the standard defines and addresses the basic elements of a CoC management system including production control and the control of quantities. Part 5 of the standard covers volume control under three main headings: conversion factors, material balances and, the determination of FSC claims. For each product group the organisation is required to establish a material accounting record to ensure the quantities produced and/or sold with FSC claims are compatible with the quantities of inputs. These material accounting records must be examined during audits and the results reported.
So it is completely wrong to say that CoC auditing is very unlikely to catch volume fraud and that it was never designed to do so. If FSC Certification Body (CB) auditors are simply “walking around factories checking some procedures and invoices” as the Ex Director claims, then every single CoC certificate should be suspended because auditors have not been auditing to the requirements of the standard.
Improvements to the CoC standard are needed but the main problem lies, as it always has with the performance of the CBs and ASI. If CBs are not auditing a fundamental part of the CoC standard, why has ASI not picked up on this? FSC/ASI now reeks of complacency and incompetence and it seems an incestuous relationship between the FSC and the CBs has been allowed to develop and flourish.
The ex-Executive Director complains conventional CoC auditing has become a costly exercise which adds little value to certification schemes and to the companies implementing CoC systems. He says audits should be scaled back significantly with a new emphasis on volume reconciliation. The truth is that too little time has always been allocated by CBs to CoC audits for fear of frightening off potential and existing certificate holders. The reality is that more time needs to be allocated to most CoC audits, particularly in complex manufacturing processes. This would inevitably lead to higher costs for many new applicants and existing certificate holders.
It seems to me that the main beneficiary of this new approach would be the organisation that is developing volume reconciliation tools. And, I wonder who might that be?