Businesses 'neglecting due diligence in supply chain'

20 February 2013

Posted by Michelle Devonshire

Less than half of businesses in the UK carry out due diligence in their supply chain, according to a new report by Ernst & Young.

The accountancy firm's research found just six per cent of procurement managers and directors have ever been informed of unethical activity in their organization's supply line.

The report, which was complied by Ernst & Young’s Fraud Investigation and Dispute Services team, found that only 48 per cent of companies take steps to ensure the quality of their supply chain. Almost a third of organizations never make any checks at all.

Surprisingly, 14 per cent of the managers and directors surveyed did not even know what third-party due diligence meant.

This lack of awareness is particularly worrying in light of the horsemeat scandal, which has seen the contamination of meat products on sale throughout the UK.

John Smart, Partner and UK Head of Ernst & Young's Fraud Investigation team, said: "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."

UK legislation states that businesses must have measures in place to prevent any wrongdoing by partners operating in their name. The UK Bribery Act stipulates that companies need 'adequate procedures' to deal with third-party risks. If firms do not comply with these regulations they may be faced with legal action.

In relation to the horsemeat scandal, Mr Smart said: "In the case of packaging, when stating the provenance and integrity of products, businesses must be able to stand by their claims, requiring transparent disclosure of the entire supply chain."

He added that organizations have to be able to demonstrate traceability of the information that appears on their packaging.

This means it is crucial for companies to use the same risk procedures for third-party suppliers as they would for internal areas of the business, if they wish to protect themselves and the quality of their products.

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