Less than half of firms carry out due diligence in their supply chain, figures reveal, as food contamination investigations continue

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Research reveals that only 6% of procurement managers and directors have ever been made aware of unethical activity in their supply chain

Less than half of firms in the UK carry out due diligence in their supply chain, a survey by EY has revealed.

The research carried out by EY’s Fraud Investigation & Dispute Services team has found that only 48% of UK firms carry out due diligence in their supply chain, with a further 30% never doing any checks. The survey of procurement managers and directors also reveals only 6% 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% did not know what third-party due diligence meant.

John Smart, Partner and UK head of EY'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 organisation. It is also important to clearly capture information about the sourcing of products and materials to ensure highlighting of potential non-compliant behaviour.”