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Less than half of UK firms carry out due diligence in their supply chain

Research by Ernst & Young has looked into supply chain risk management practices of UK businesses.

Ernst & Young’s Fraud Investigation & Dispute Services team found that 48 percent of UK firms carry out due diligence in their supply chain, with a further 30 percent never doing any checks. The survey of procurement managers and directors also reveals only 6 percent have ever been made aware of unethical activity in their supply chain. The research, which covers UK companies operating across a range of sectors and countries, also found that 14 percent did not know what third-party due diligence meant.

John Smart, Partner and UK head of Ernst & Young's Fraud Investigation team, said: “The current issues around contamination of products have highlighted the importance of understanding and ensuring the integrity of the supply chain, which is a big part of the DNA of many businesses. Companies are, in most cases, responsible for the actions of third parties acting in their name; however our research reveals that firms, across a range of sectors, are not carrying out basic checks.

“In the case of packaging, when stating the provenance and integrity of products, companies must be able to stand by their claims, requiring transparent disclosure of the entire supply chain. Companies need to be able to defend such statements and to demonstrate traceability of the data and declarations upon which it relies and which form the basis of the trusted relationship it attempts to build with its customers.”

Businesses must understand risks in their supply chain

Under legislation firms must ensure that they have put in place measures to ensure the prevention of potential wrongdoing among business partners acting in their names. In particular, following the introduction of the UK Bribery Act, companies must demonstrate they have ‘adequate procedures’ in place to address third- party risks. If they are not compliant companies can be fined or executives imprisoned.

Smart continues: “Relevant laws and regulations, the approach of enforcers and public expectation mean it is crucial for companies to adopt the same risk procedures for third parties that they would routinely enforce in other parts of their business. Firms need to ensure they have an appropriate procurement policy embedded across the organization. It is also important to clearly capture information about the sourcing of products and materials to ensure highlighting of potential non-compliant behaviour.”

•Date: 19th Feb 2013 • UK •Type: Article • Topic: Operational risk

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