An audit late last year of Young Sun Lighting Co., a maker of lamps for Home Depot, Sears, and other retailers, highlighted similar inconsistencies. Every employee was on the job five days a week from 8 a.m. to 5:30 p.m., with a lunch break and no overtime hours, according to interviews with managers, as well as time sheets and payroll records provided by the 300-worker factory in Dongguan, an industrial city in Guangdong Province. But other records auditors found at the site and elsewhere — backed up by auditor interviews with workers — revealed that laborers worked an extra three to five hours a day with only one or two days a month off during peak production periods. Workers said they received overtime pay, but the "auditor strongly felt that these workers were coached," the audit report states.

Young Sun denies ever violating the rules set by its Western customers. In written answers to questions, the lighting manufacturer says that it doesn't coach employees on how to respond to auditors and that "at present, there are no" workers who are putting in three to five extra hours a day and getting only one or two days off each month. Young Sun says that it follows all local Chinese overtime rules.

Home Depot doesn't contest the inconsistencies in the audit reports about Young Sun and three other factories in China. "There is no perfect factory, I can guarantee you," a company spokeswoman says. Instead of cutting off wayward suppliers, Home Depot says that it works with factories on corrective actions. If the retailer becomes aware of severe offenses, such as the use of child labor, it terminates the supplier. A Sears spokesman declined to comment.

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Coaching of workers and midlevel managers to mislead auditors is widespread, the auditing reports and BusinessWeek interviews show. A document obtained last year during an inspection at one Chinese fabric export factory in the southern city of Guangzhou instructed administrators to take these actions when faced with a surprise audit: "First notify underage trainees, underage full-time workers, and workers without identification to leave the manufacturing workshop through the back door. Order them not to loiter near the dormitory area. Secondly, immediately order the receptionist to gather all relevant documents and papers." Other pointers include instructing all workers to put on necessary protective equipment such as earplugs and face masks.

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Some U.S. retailers this evidence isn't representative and that their auditing efforts are working. BusinessWeek asked J.C. Penney Co. about audit reports included among those the magazine reviewed that appear to show falsification of records to hide overtime and pay violations at two factories serving the large retailer. Penney spokeswoman Darcie M. Brossart says the company immediately investigated the factories, and its "auditors observed no evidence of any legal compliance issues."

In any case, the two factories are too small to be seen as typical, Penney executives argue. The chain has been consolidating its China supply base and says that 80 percent of its imports now come from factories with several thousand workers apiece, which are managed by large Hong Kong trading companies that employ their own auditors. Quality inspectors for Penney and other buyers are at their supplier sites constantly, so overtime violations are hard to hide, Brossart says.

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Chinese factory officials say, however, that just because infractions are difficult to discern doesn't mean they're not occurring. "It's a challenge for us to meet these codes of conduct," says Ron Chang, the Taiwanese general manager of Nike supplier Shoetown Footwear Co., which employs 15,000 workers in Qingyuan, Guangdong. Given the fierce competition in China for foreign production work, "we can't ask Nike to increase our price," he says, so "how can we afford to pay the higher salary?" By reducing profit margins from 30 percent to 5 percent over the past 18 years, Shoetown has managed to stay in business and obey Nike's rules, he says.

But squeezing margins doesn't solve the larger social issue. Chang says he regularly loses skilled employees to rival factories that break the rules because many workers are eager to put in longer hours than he offers, regardless of whether they get paid overtime rates. Ultimately, the economics of global outsourcing may trump any system of oversight that Western companies attempt. And these harsh economic realities could make it exceedingly difficult to achieve both the low prices and the humane working conditions that U.S. consumers have been promised.

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