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Modern Slavery Act – An area worthy of audit attention for many

07 October 2015

Internal auditors will need to assess their readiness to demonstrate transparency in their operations and those of their suppliers.  From October, the Modern Slavery Act requires every commercial organisation that supplies goods and services in the UK, and has a turnover of over £36m, to report on the steps taken to ensure human rights are upheld in all parts of its business and supply chains

The annual statement must be signed by the board and displayed via a prominent link on the organisation’s website, affording it a level of public as well as regulatory scrutiny.  In terms of content, The Act suggests that the statement might include the following details:

  • A description of the firm’s business model and supply chain relationships
  • Policies relating to modern slavery including due diligence and auditing processes
  • Details of training available and provided to staff
  • The principal risks and how they are evaluated and managed
  • Relevant KPIs to show year on year progress.

Alternatively firms are required to publish a statement confirming that no steps were taken to this effect – which, considering reputational risk, is likely to be an unattractive option.  Whilst the level of policing is yet to be fully clear, wording of the legislation implies that non-compliance is a serious matter and duties are enforceable via a potential High Court injunction.

What does this mean for IA?

Internal auditors of eligible firms will need to assess the level of regulatory risk that the Act presents to the business.  This will depend on the nature of the organisation and whether it relies on suppliers or chains of suppliers in its operations.  In an age where investors are moving away from firms with poor ethical standards, reputational risk should also be a significant consideration.  In any case it is important to act now to assess what actions your business is taking to understand the Act’s relevance and to comply with the requirements. Firms without a compliance function will need to be vigilant - as the regulation does not have an obvious ‘landing point’, there is the potential for it to be passed by. 

Even if your firm is not directly caught by the legislation, the business may be a supplier itself and as a result face increased questioning and tighter procurement processes from its clients.  In this event, you will need to anticipate the level of assurance you may need to provide and review this against what you have readily available.

Next steps

Firms should review the statutory guidance which is due to be released by the government alongside the Act coming into force.  This is generally expected to contain sector-specific guidelines on how best to comply.  Our sustainable business team is working with organisations to help them report and address weaknesses and we recommend that you start looking, if not already, at the principal risks in your business model and supply chains with a view to ensuring you are comfortable with the level of due diligence in place.