How accountants can support their clients to end modern slavery

The review, led by Professor John McMillan AO, found that while “there has been a major cultural change and a strengthening commitment to work and collaborate harder to combat modern slavery” little has changed in practice.

“A widely endorsed view in the consultations for this review is that there is no hard evidence that the Modern Slavery Act in its early years has yet caused meaningful change for people living in conditions of modern slavery,” the report says. “There are occasional scattered instances of modern slavery incidents and victims being identified, but no strong storyline that the drivers of modern slavery are being turned around.”

So, what should be a universally acknowledged truth – that slavery is intolerable – has developed into a commitment to end slavery. We are still missing the action that would dismantle the economic drivers of slavery.

The review included 30 recommendations to strengthen the Act. These recommendations are expected to affect both SMEs and larger businesses.

These include introducing penalties for non-compliance, statutory reporting requirements, lowering the reporting threshold from $100 million to $50 million, incident reporting requirements, risk management system requirements, and appointing an Anti-Slavery Commissioner to oversee enforcement.

The current Act does not penalise companies for non-compliance nor mandate companies to undertake due diligence, risk assessment, or risk mitigation. It only requires companies to describe their efforts, says Control Risks Director, Ethics and Compliance Consulting Iona Cheng.

Globally, multiple jurisdictions are taking action against modern slavery and human right abuses. Legislation is increasing corporate accountability for abuses throughout local and offshore supply chains.

The United States and European Union have introduced restrictions on imports that are aimed at stamping out the use of forced labour from offshore production, including the Uyghur Forced Labor Prevention Act and the Tariff Act in the US, and the proposed Forced Labour Regulation in the EU.

Within the EU, individual countries have also regulated mandatory human rights due diligence. Closer to home, New Zealand’s draft Modern Slavery Act proposes mandatory due diligence.

If McMillan’s review’s recommendations are implemented, they will give the Australian Act teeth, making good on the Labor government’s election commitment to anti-slavery action. They will also address some of the shortcomings of the existing Act highlighted in reports such as Broken Promises: Two years of corporate reporting under Australia’s Modern Slavery Act by the Human Rights Law Centre.

This second annual report on the Modern Slavery Act from the HRLC found a continuation of ‘paper promises’ in corporate approaches to anti-slavery. Much like McMillan’s statutory review, it cites a plethora of policy but little action in areas that would be most likely to address the human cost of modern slavery.

Less than 60% of the companies it reviewed identified obvious modern slavery risks in their supply chain, while only 9% demonstrated meaningful engagement on addressing modern slavery risks and improvements over time.

Penalties for non-compliance are important but preventing slavery isn’t just about legislation, says Katherine Christ, a Senior Lecturer in Accounting at UniSA Business and founder of the South Australian Modern Slavery Research and Practitioner Network.

“Business has a moral and ethical obligation to combat slavery in all supply chains,” Christ says. “If you wouldn’t buy a human being or allow your business to do so, you should not be doing it through your supply chain.”

How accountants can help drive change

Accountants working for both larger businesses and SMEs have the financial expertise that equips them to scrutinise transactions and detect irregularities that might indicate unethical practices, says Meg Brodie, Partner in Charge, KPMG Banarra, Human Rights and Social Impact Services at KPMG Australia.

“But they need to be trained to do so. Depending on the size of your organisation, you are not necessarily going to have the resources to stand up a training programme. But what we have at the moment is a huge number of people stepping into this space to provide those educational resources.”

Christ says while many businesses are struggling to get across anti-slavery legislation, there is certainly an opportunity for accountants to upskill.

Understanding the issue itself, then the compliance regulations, means accountants can start to analyse risks – where people can be harmed as a result of actions of a business.

In compiling its own Modern Slavery Statement, KPMG Australia uses four risk factors to identify where the risk of modern slavery is higher:

• Vulnerable populations: Migrant workers, base skill workers
• High-risk business models: Labour hire and outsourcing, third party contracting arrangements
• High-risk categories: Services, goods not for resale, raw materials, high levels of seasonality
• High-risk geographies: Conflict, weak rule of law, corruption, displacement and state failure to protect human rights

The same risk factors can be used by accountants to look for modern slavery risk.

While Australia and New Zealand have a low modern slavery prevalence, high-risk labour practices exist in industries including agriculture, construction and textiles. Local companies also often buy from and sell into international supply chains where the issue is rife.

Clear financial and transaction records are crucial in assessing both labour and supply chain risks, suggests Brodie.

“These allow an SME and/or their accountant to ask the next set of risk management questions that help them get greater visibility in their supply chain and over the labour relationship,” she says.

“There is also a role for accountants to support data being cleaner and more robust, so that it is significantly easier for a subject matter specialist to analyse.”

This may include categorising suppliers, or products and services, in a way that makes it significantly easier to identify risks.

“In working with SMEs, an accountant may see an opportunity to use a risk matrix as they go through the books,” Brodie says

Integrated reporting that increases visibility of how an organisation uses different capitals such as financial, human or natural visible is also valuable. It may help map previously unmonitored resources and detect modern slavery risk – which single-capital financial reporting is unlikely to do.

“Some businesses don’t even know who their suppliers are,” Christ says.

Digital data that increases business transparency

Digital technologies create opportunities to build tools that empower businesses to better understand and share information about their supply chains.

“Small businesses wishing to indicate their business values to consumers can use technology to credibly signal their market position,” says Elvira Sojli, Associate Professor of Finance and Scientia Fellow Alumni in the School of Banking and Finance at the University of New South Wales.

Three positive ways include:

• Maintaining a well organised digital record of each product from raw materials to the finished product
• Attaching QR code tags to products that would share some of that information
• Using blockchain technology to provide a trustworthy source of information on the product itself or its inputs

“Blockchain offers an immutable and transparent ledger that can record every step in the supply chain,” says Sojli.

“While some of these actions may be difficult for small businesses to take, there are many companies in Australia trying to help in creating these records.”

Agricultural businesses, for example, can use the Lumachain supply chain platform to track and trace in real-time the origin, location and condition of individual food items, from farm to fork.

Towards a more equal world

According to the Global Slavery Index, an estimated 50 million people worldwide are living in modern slavery conditions, the majority situated in the Asia Pacific region, with up to 15,000 victims in Australia.

The major cultural change that McMillan’s statutory review flagged means companies and finance professionals must consider and combat modern slavery. According to Brodie, increased global sentiment around human rights means companies should also be applying the same lens to other potential human rights abuses in supply chains now.

“One of the favourite parts of my role is seeing how people with different professional backgrounds recognise as a result of this legislation that they can reconceptualise their role and think of themselves as a human rights defender,” Brodie says.

“It’s a really positive evolution, asking questions that are not just about price, quality and surety of supply but questions about broader ESG concerns.”

Christ warns of a real challenge to a business’s viability if supply chain and labour risks are not identified and addressed – naming and shaming.

“We need to name and fame the good ones,” she says. “If you can find human rights abuses in a supply chain or labour relationship and help prevent them, that is something to celebrate.”