Oversight in Private Food Safety Auditing: Addressing Auditor Conflict of Interest

47 Pages Posted: 7 Feb 2014 Last revised: 7 May 2014

See all articles by Timothy D. Lytton

Timothy D. Lytton

Georgia State University College of Law

Lesley K. McAllister

University of California, Davis - School of Law

Date Written: April 22, 2014

Abstract

Private auditing is a significant component of food safety regulation. Typically, manufacturers, retail sellers, and food-service operators require their suppliers to obtain food safety certification from a private third-party auditor paid by the supplier. Auditors’ financial interest in acquiring accounts from suppliers who want the cheapest certification that they can obtain gives auditors incentive to reduce the rigor of audits. This constitutes a conflict of interest between the auditor’s private financial interest and its professional obligation to protect the public from food safety risks. Audit industry insiders and outside observers are well aware of this problem, and various institutional actors — both public and private — have developed oversight mechanisms to address it.

We analyze the nature and sources of this conflict of interest in food safety auditing, efforts to prevent it, and responses when it occurs. Our focus is on institutional design — organizational structures, administrative routines, and professional norms. Part I of the Article describes how conflicts of interest lead some auditors to be less probing in their inspection of suppliers’ operations and to skew their risk evaluations in favor of suppliers’ desire for cheap certification. Part II of the Article surveys the different oversight mechanisms currently in place or under development that aim to counteract auditors’ incentive to reduce the rigor of audits.

Conflict of interest is a structural feature of any system of private standards compliance in which the auditor is paid by the entity being audited. Other prominent examples include securities rating and environmental audits. Our analysis of food safety auditing aims to offer general insights into the comparative strengths and weaknesses of different responses to this problem.

Keywords: food safety, standards compliance, private regulation, auditing, certification

JEL Classification: I12, I18, K23, L66, Q18

Suggested Citation

Lytton, Timothy D. and McAllister, Lesley K., Oversight in Private Food Safety Auditing: Addressing Auditor Conflict of Interest (April 22, 2014). 2014 Wisconsin Law Review 289 (2014). Available at SSRN: https://ssrn.com/abstract=2391289

Timothy D. Lytton (Contact Author)

Georgia State University College of Law ( email )

P.O. Box 4037
Atlanta, GA 30302-4037
United States

HOME PAGE: http://law.gsu.edu/profile/timothy-d-lytton/

Lesley K. McAllister

University of California, Davis - School of Law ( email )

400 Mrak Hall Dr
Davis, CA CA 95616-5201

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