This week we concluded our presentation giving an overview of Conflict Minerals Traceability auditing under US Securities and Exchange Commission (SEC) regulations on “Conflict Minerals” originating from the Democratic Republic of Congo (DRC). Lawrence Heim, Director at ELM, presented on Elm’s experiences as part of a panel on sustainability at The Auditing Roundtable Winter Meeting January 25.
The key points made were:
- Planning is critical. Because the legal requirements apply to the supply chain rather than a single site, a successful auditing program needs to start as close to the mine as practical then move forward toward the consumer. Working backwards creates complexities, confusion and increases costs.
- SEC sees different audit types, but the market doesn’t. SEC’s proposed regulations establish two traceability activities: “reviews” (a less formal, internally-driven screening process) and “Conflict Minerals Reports” (requiring formal third party audits). However, buyers of affected products/materials are already demanding third party credibility and independence for any material origin statements. These buyers are increasingly unwilling to rely on statements or declarations of “DRC free” based on the “reviews”.
- Audits are SEC-based, not EHS. As stated in SEC’s proposal, AICPA-based attestations are a critical component of viable traceability programs. Requirements for auditor independence, attestation engagements and “audits of the auditors” far exceed similar elements found in traditional EHS auditor standards, certifications and practices.
- Additional sources of audit information are necessary. Increased stakeholder and regulator concern over information veracity reflecting ore provenance is driving the need for new data resources and verification tools well beyond information available/provided by the audited site.
Heim concludes, “Media coverage has painted an unnecessarily pessimistic picture of the practicality and cost of these conflict minerals audits. Our experience demonstrates that such pessimism is generally unwarranted, provided the right plan and resources are in place.”