As the next major deadline for statements to be produced approaches, we look at the story so far, what to expect, and how accountancy firms can help their clients to comply.
In a turbulent and remarkable 2016, organisations might be forgiven for not noticing the UK’s Modern Slavery Act sweeping into effect. Reports of refugee child labour in Turkey producing clothes for M&S (Panorama) and trafficked workers in nail salons right here in the UK (Reuters), were rightly big news – just perhaps not always big enough to displace the stories from Europe and across the pond in the public consciousness.
The Act is nonetheless big news; and did two main things: First, it consolidated a number of existing criminal offences relating to slavery and human trafficking. Second, and garnering its ‘groundbreaking’ tag, it introduced a new reporting requirement for businesses: an obligation for commercial organisations (with a turnover of £36m or more) doing any business in the UK to publish a statement setting out the steps it has taken to prevent any form of slavery or human trafficking in its business or its supply chain.
Although introduced the year before, 2016 was the year when the Act really started to bite. The time for producing statements is linked to financial year end dates (the requirement being to publish within 6 months of the first year end date on or after 31 March 2016) and the first raft of companies were required to comply by the end of September 2016.
Compliance so far
It is estimated that in all, there are 17,000 organisations across the world that will need to produce a statement. With most companies needing to comply by the end of June 2017, deadlines are fast approaching.
Publication of statements has been slow but progressive. The Business & Human Rights Resource Centre hosts a list of companies that have so far published statements. Whilst not a definitive list, it currently reports that just over 1,800 statements have been published. This is just over 10% of the estimated number of companies required to comply. Other evidence we have seen suggests that the figure may be closer to 30%, but it is clear that there is a long way to go. Indeed recent reports suggest that a number of big brands and familiar high street retailers have missed their deadlines to publish their first statements.
The quality of statements also varies widely. The government guidance suggests that statements should cover certain specific areas (including the structure of the business and supply chain, the implementation of relevant policies and existence due diligence processes in place to assess modern slavery risks). Whilst some statements are comprehensive, the vast majority contain very little of this information, sticking instead to a more general statement of principles. Many also do not comply with the minimum requirements for signature.
Consequences of getting it wrong
The legal consequences of failing to produce a statement are modest: The Secretary of State can seek an injunction requiring a defaulting organisation to comply. The true incentive for most to comply will be reputational; both to reassure consumers about the provenance of the goods/services being provided and to avoid the negative connotations that may flow from failing to comply. With the global trend towards responsible business, this is only going to increase in importance.
What is on the horizon?
30 June 2017 marks the next big deadline for organisations to publish statements. This will apply to organisations with a financial year-end date of 31 December. This is where accountancy firms may be able to help and support clients. In preparation for the publication of financial statements, it will be timely to remind organisations of the potential impact of the Modern Slavery Act and the need to consider whether they will need to publish a statement.
To help with this, we have produced a free tool which organisations can use to find our whether they need to produce a statement. It will also indicate, based on risk level, what type of statement might be needed. Click here to access our interactive online assessment tool.
With many thousands of companies still to comply, 2017 should continue to see a steady flow statements being published. If, as we expect, in reality that is more of a trickle, it is only a matter of time before the first reports of companies failing to comply. That may well prove to be the catalyst for statements to flood in. Whether or not that proves to be the case, expect to hear a lot more about modern slavery in 2017.