Third Party Audit and Certification Under the OSHWC Code: Explained

5
(8)

FacebookTwitterLinkedIn


Audit

Introduction

India is in the midst of an overhaul of existing regulatory compliance norms, aimed at improving its ranking in the World Bank’s ease of doing business index. In the context of labour regulations, this has come in the form of four new Labour Codes that aim to deregulate and simplify wages, social security, industrial relations and occupational health and safety.

Section-37 of the last Code, namely the Occupational Safety Health and Working Conditions Code, 2020, empowers the appropriate Government to formulate a scheme to empanel experts with requisite qualifications and experience to carry out third party audit and certification. Before we delve into the implications of the provision, the technicalities surrounding it and the need for suitable regulations supporting it, we must understand the fundamental difference between audit and certification processes carried out by the Government and private parties.

To this end, we shall use the Third-Party Certification/Audit Scheme (Amendment), 2018 under various Labour Laws issued vide notification No. 11/13/2018-4Lab, by the Haryana Government as a reference document to understand how such a scheme may be implemented. This was enacted as part of a business reform action plan by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

The Issues with Third Party Audit & Certification

The ILO’s background paper on Labour Inspection and Private Compliance Initiatives read with the Labour Inspection Convention 1947, offers insight into how labour inspection is viewed at an international stage and the role that private compliance initiatives have to play in tandem with it. Most notably, Article-6 of the Convention states that inspection staff shall be composed of public officials whose status and conditions of service are such that they are assured of stable employment, are independent of changes in Government and improper external influence.

At the outset it is clear that according to the ILO it is essential that labour inspection remain in the hands of public officials and thus two pertinent questions arise as follows:-

  • Are third-party actors capable of acting independently and without any undue influence or conflict of interest?
  • And if so, what are the regulations that ensure they operate as such?

While the Labour Inspection Convention, 1947 calls for an entirely public scheme of inspection and monitoring, later documents recognize the need for private compliance initiatives. Types of private compliance initiatives include self-assessment systems, auditing (both internal and external), certification and labelling, public reporting and other approaches that involve social partner participation. In this context, the ILO has opened up to the idea of inspections by private actors offering labour inspection services, with public transparency being essential especially if it has been sanctioned by public authorities.

With regards to certification-based private compliance initiatives, publicity and credibility are recognized as essential aspects thereof. This is more so in case of certifications done in case of standards that are in the public domain with known methods of accreditation. This is the case with respect to occupational health and safety standards that are available in the public domain with known methods of accreditation.

Therefore, while third-party audit and certification schemes have certain inherent issues such as conflict of interest, credibility and transparency, they can be addressed by having strong regulatory norms that operate to ensure that the authority to carry out such audits is vested in responsible actors and that they perform their duties in a bona fide manner.

Regulatory Safeguards

Annexure-I to the Rules specifies the qualifications and experience that an applicant seeking to be safety auditor most possess:-

  1. A Degree in Chemical/Mechanical/Electrical or Production Engineering with 5 years’ experience in manufacturing, maintenance, design, project, or safety department in a supervisory or above capacity in factories; or

    A Diploma in Chemical/Mechanical/Electrical or Production Engineering with 8 years’ experience in manufacturing, maintenance, design, project, or safety department in a supervisory or above capacity in factories; or

    A master’s degree in chemical/Mechanical/Electrical or Production Engineering with 10 years’ experience in manufacturing or safety department of any factory

    And

    A one-year full time Diploma in Industrial Safety recognized by the Board of Technical Education or All India Council of Technical Education or a recognized University

  2. Degree or diploma in any branch of engineering and possessing 15 years’ experience in Factory Inspectorate or Directorate of Industrial Safety and Health or Director General Factory Advisory Services and Labour Institute or Regional Labour Institute or National Safety Council or hazardous factories of public sector undertakings of the Government of India

In addition to these requirements an applicant shall have to ensure that they are not directly or indirectly interested in the factory or in any process or business carried on therein or in any patent or machine connected to the factory, whose safety audit has to be conducted. If the applicant is more than 65 years old, they would have to submit a certificate of physical fitness issued by a civil surgeon in addition to the application for recognition as a safety auditor.

The Haryana Government’s Third-Party Audit & Certification Scheme

Under Part-A of The Third-Party Certification/Audit Scheme (Amendment), 2018 facilitates ease of doing business by making compliance under the Factories Act, 1948 and the Rules framed thereunder simpler to reduce the repeated visits of inspecting officers. It is applicable to factories where manufacturing processes involve the use, storage, or processing of explosive/hazardous substances, involving hazardous processes under the First Schedule of the Factories Act, 1948 and those employing more than 250 workers.

A third-party auditor is defined as a person recognized by the Chief Inspector of Factories, Haryana to carry out safety audits in accordance with the Factories Act, 1948 and the rules framed thereunder and includes safety auditors. Safety Audits are to be carried out as per the Act and rules under IS 14489: 1998 in the Indian Standard Code of Practice on Occupational Safety and Health Audit. There is also scope given for any other set of standards that are more relevant and up to date to be employed.

The Chief Inspector of Factories is also empowered to recognize any institution employing at least three persons possessing the requisite qualifications to carry out Safety Audits as Safety Auditors under the Rules. The Director General Factory Advise Services and Labour Institute (DGFASLI), all Regional Labour Institutes (RLI), National Safety Council (NSC) and Haryana Safety Council (HSC) are deemed institutions for carrying out audits. The Chief Inspector is responsible for fixing the total number of such Safety Auditors to be appointed and processing the application for Certificates of Recognition as safety auditors made by individuals and institutions.

The Certificate of Recognition shall be valid for a period of two years and may be subject to conditions given below:-

  • The Safety Auditor shall maintain a log book of all safety audits undertaken by indicating the name and address of the audited factory, name of the person who carried out the audit, contact persons, date of the audit and date of submission of the audit report to the Occupier of the factory and the Chief Inspector of Factories.

  • Safety Auditors shall not conduct audits of any factory where such auditor or person is employed or is an occupier, partner, director or manager of that factory or of any factory owned, operated, managed or conducted by immediate family members, relatives or extended family members or wherein that auditor has any direct or indirect interest. The same applies to factories to which the auditor supplies any machinery, raw material, safety equipment or other materials or equipment.

  • The Safety Auditor shall not disclose, even after cessation of responsibility as a recognized auditor or employee of the institution, any manufacturing or commercial secrets/processes which may come to his knowledge in the course of his duties as an auditor.

The Rules also specify other norms for revocation of certificate of recognition as well as disqualifications to be a safety auditor. The Occupier and the Safety Auditor must both inform the Chief Inspector of Factories in writing, thirty days in advance before the commencement of a safety audit in a factory. The Safety Auditor shall within one week from the date of completion of safety audit, forward the audit report to both the Occupier as well as the Chief Inspector. Particulars of any hazards found that pose imminent threats to the life or safety of workers shall be communicated in writing to the Occupier and the Chief Inspector immediately. Within 30 days from the receipt of Safety Audit Report, the occupier shall implement corrective measures based on the recommendations of the auditor and submit the actions taken in a report along with proof of compliance to the Chief Inspector within 60 days.

Any factory opting for the above scheme shall not be inspected by the Department till it carries out a safety audit yearly. Additionally, no legal action shall be taken against the occupier/manager of the factory for any discrepancies/violations pointed out by the auditor in his safety report. The Chief Inspector is empowered to grant the occupier personal hearings as well and if he is not satisfied with the compliance made by the occupier, he may get it verified within a period of one month.

Conclusion

While competence and potential conflicts of interest have been addressed significantly in the above regulations, there are still certain issues with the framework. For instance, the vesting of extensive powers in the Chief Inspector of Factories grants a lot of statutory power to a single individual. The Chief Inspector is empowered to appoint inspectors, renew their authority, recognize institutions, review audit reports of establishments and issue directions for inspection in case of complaints amongst other powers. It would be more suitable to distribute the purview of these decisions amongst a set of officers headed by the Chief Inspector to reduce the possibility of creating a power center that could be open to external influence.

It is also pertinent to note that the deemed status given to certain institutions could be problematic as establishments would then seek to target individuals who have been part of the same to exert undue influence. Similarly, the complete bar on legal action on the basis of the audit report is unreasonable, there must be scope for punitive action to ensure that establishments operate in good faith.

It is pertinent to note that this article covers only one-half of the Haryana regulations under Part-A relating to factories. Part-B provides for audit and certification of compliance under labour laws such as the Minimum Wages Act, 1948, the Payment of Wages Act, 1936, the Contract Labour (Regulation and Abolition) Act, 1970 and various other acts ranging from Shops & Establishments regulations to prohibition of child labour. This shall be discussed in a later article on the blog, so stay tuned!

Do you think third-party audit and certification is viable in India? How is the Government going to keep corruption and undue influence at bay? What regulations do you believe can strengthen the implementation of third-party audit and certification in India?

Drop your thoughts in the comments below.

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney.
Simpliance makes no representations or warranties in relation to the information on this article.

How useful was this post?

Click on a star to rate it!

 

Madhu Damodaran
Simpliance COE

Biography

Animay Singh
Simpliance COE

Biography

Leave a Reply

Your email address will not be published. Required fields are marked *