How accountants can help uncover modern slavery
From an article on accountingweb
Accountants and auditors have a role in ensuring that appropriate disclosures are made by companies and are often in a position to make sure the board of directors pays sufficient attention to the risks of modern slavery. Anti-money laundering procedures also can help identify suspicions. And now, the Financial Reporting Council (FRC) has commissioned a review of Modern Slavery Reporting Practices in the UK.
Modern slavery is estimated to globally generate US$150bn annually. There were 8,730 offences recorded by police in 2020 in England and Wales, an increase of 5% on the previous year. The unfortunate reality is that modern slavery has been found in all major sectors of the economy. While it is criminals who drive this activity, businesses with poor governance practices can make it easy for them to succeed in the perpetration of this awful crime.
Businesses with a turnover of over £36m must write an annual statement setting out the steps they take to address the risk of slavery, both in their own operations and in their supply chains. As you might imagine, it may be relatively easy to ensure there is no modern slavery in your own business, but the supply chain is potentially a much trickier thing to deal with.
The FRC has found that both modern slavery statements and annual reports lacked the information for shareholders and other stakeholders to make informed decisions. One in ten companies did not provide a modern slavery statement at all and only a third of the statements that were provided were clear and easy to read. In particular, the vast majority of reports were solely backward-looking, with only a few identifying emerging issues or long-term strategy. This is especially a worry at a time when the upheavals produced by the war in Ukraine could easily provide an opportunity for criminal gangs engaged in modern slavery to exploit individuals wishing to escape the conflict.
The reason for the reporting responsibility is to focus boards’ attention on the risks of modern slavery. While our natural reaction to any slavery is shock and horror, companies will also bear the brunt if they are found to have been negligent in dealing with this risk. Accountants have a duty to undertake due diligence on clients and report any suspicions of money laundering activity, with criminal, as well as regulatory penalties if they fail to do so. Modern slavery will always generate proceeds of crime as the businesses or individuals involved will be making savings on wages.
The National Crime Agency has a list of indicators under headings including business patterns, high-risk sectors, unusual business activity, unusual payment systems or financial flows and workforce profiles. The items listed are extensive, but some key points to watch for might be:
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Sectors at risk, such as agriculture, personal service (nail bars and the like), cleaning, construction, maintenance, and transport and freight companies
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Low staff or National Insurance costs
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Round-sum salaries, or everyone getting paid the same for different work
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Extended family involvement
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Business output not proportionate to staffing levels
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Businesses on the brink of insolvency (as they are vulnerable to manipulation by criminals)
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Abuse of client accounts.
The things to watch out for from a human perspective include (according to the Chartered Institute of Environment Health):
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Evidence of a workplace being used for accommodation
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Workers are distrustful of authorities
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Workers look uneasy, unkempt or malnourished
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Signs of psychological trauma
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Untreated injuries
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Evidence of control over movement, such as arriving and leaving in groups
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Signs of substance misuse
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Workers cannot give a home address.
Accountants can help to stop modern slavery. Regardless of the size of the business, asking the right questions and ensuring the right procedures might end up helping a trafficked person to freedom or preventing slavery in the first place.
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From an article on accountingweb, 02/08/2022