Conflict Minerals EDGE: Compliance and Auditing Strategy

Compliance audits will undoubtedly form a critical component of overall compliance strategies for companies that most document traceability and compliance in their supply chain for conflict minerals compliance. But how far should compliance audits go?

Earlier today, Lawrence Heim (Director of The Elm Consulting Group International) suggested that audits should consider traceability and attest down to the mine-site level. This includes chain of custody, refiners/smelters and manufacturing suppliers in the supply chain (e.g., tier 3 semi-finished material supplier; tier 2 parts suppliers; tier 1 component suppliers) as well as at the OEM manufacturing level itself.

For auditing, SEC regulations clearly impact issues hitting manufacturers and their immediate tier one suppliers. Lawrence suggests that SEC regulation is open to interpretation at the tier 2 level and below. OECD, industry initiatives, local laws, and related guidance for auditing differs for different conflict minerals (e.g., for gold versus tin, tantalum, and tungsten – the 3Ts). Lawrence notes that customers may conduct supplier audits (other than tin, tantalum, tungsten smelters and gold refiners) themselves.

In comparison, conflict minerals report (CMR) audit for SEC filers may be different. One of the challenges is that “the stated audit objectives [are] deceptively ambiguous” and “not necessarily aligned with GAO/AICPA audit standards.” To resolve this discrepancy, “AICPA and the Auditing Roundtable” are working on auditor guidance.

A larger question around auditing involves pooling industry resources and consortia efforts as well. Spend Matters Lead Analyst Thomas Kase speculatively suggested this morning that “companies may join forces via industry groups like automotive or electrical to pool their product data in registries that in turn are certified and audited.” Archetypes exist for this, including “the global IMDS (International Material Data System) data repository for product content used by the automotive industry – in a one-to-many verification model.”

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