By Dr Katherine Christ, Professor Roger Burritt and Dr Kathy Rao

This time last year, Australia began to pay attention to the role business can play in addressing the scourge of modern slavery. A parliamentary inquiry was held and recommendations were made to introduce a Modern Slavery Act. What was only a possibility a year ago is now a certainty, with NSW enacting its own state-based legislation in June 2018 and a Federal Modern Slavery Bill now before Federal Parliament. 

The NSW laws go beyond the federal proposals by providing penalties for non-compliance and establishing an Anti-Slavery Commissioner. Both acts include a reporting requirement with the aim of eradicating modern slavery in the operations and supply chains of businesses. But the main differences between the two regimes include definitions, reporting applicability, and penalties for non-compliance, which present challenges for companies that may be affected (see table). Here’s what this means for business and the chartered accountants who work for, or in, business.  

Who needs to report modern slavery?

The first question practitioners need to consider is whether they are affected by the new legislation. Entities operating in NSW that supply goods and services for profit and have total turnover in a financial year of not less than $50 million must report. As the federal legislation is not yet enacted, its proposed $100 million threshold bringing large entities into the net may still change. 

Entities with annual turnover of more than $100 million in a financial year will need a disclosure strategy on modern slavery in their supply chains. Also, commercial entities with revenue of between $50 million and $100 million in NSW must report, and those in the rest of Australia in this band are on notice that it may be in their best interest to make disclosures as other states consider their position and as federal parliament deliberates over the final threshold. Even smaller entities are encouraged to consider their position. If they trade with larger entities downstream, there may be a trickle-up effect whereby smaller suppliers must demonstrate to larger entities that buy their goods and services that they are modern slavery free. 

Children working inside an aluminium pot factory in Dhaka, Bangladesh. Photography by Zakir Hossain Chowdhury/NurPhoto/Getty Images

According to ILO more than 168 million children are trapped in child labour. More than half of them, 85 million, are in hazardous work. This persistence of child labour is rooted in poverty and lack of decent work for adults, lack of social protection, and a failure to ensure that all children are attending school through to the legal minimum age for admission to employment.

First modern slavery statements

Entities that meet the thresholds must also consider how to prepare and submit their first modern slavery statements as soon as possible. Federal reports may be due for reporting periods starting on or after 1 January 2019 and the first NSW reports may be due as early as after the end of this financial year (2018-19). Chartered Accountants Australia and New Zealand will help through raising general awareness and holding targeted seminars. Other support will be provided by a proposed Business Engagement Unit in the Department of Home Affairs as well as by the NSW Anti-Slavery Commissioner. These will aim to promote training, best practice, raise awareness, and develop a central repository for statements.

Although the details of the reporting requirements are yet to be drafted in NSW or at the federal level, modern slavery statements can be expected to cover the following areas:  

* An overview of the organisation including its structure, and its supply chain.

* Identifying the risks of modern slavery occurring in the organisation’s direct operations or supply chain.

* Action to identify and reduce the risk of modern slavery in the organisation’s supply chain, including due diligence.

* Information concerning modern slavery-related training provided to staff in the organisation.

* Any other information deemed relevant by the reporting organisation.

The statements will also require approval by each entity’s principal governing body before lodgement.

A third consideration for members are incentives being introduced to encourage compliance. At the current time, federally, there are no penalties for non-compliance, with disclosure to take place through a modern slavery statement. Compliance is to be driven by reputational impact only. This is consistent with recommendations in Chartered Accountants ANZ’s submission to the parliamentary inquiry, yet counter to the NSW Act, which imposes a maximum of 10,000 penalty units (or $1.1 million) for non-compliance. While encouraging the government to keep the option of penalties open in the future, Chartered Accountants ANZ strongly recommends the annual publication of a list of non-compliers. This publicity should ensure any reputational costs and benefits associated with compliance are internalised by reporting entities. 

What is modern slavery?

Although there is no universally agreed definition, modern slavery can be characterised as control by powerful people or organisations over vulnerable individuals for personal gain or profit. 

Modern slavery can take many forms, including forced labour, debt-bondage, child labour, wage exploitation, human trafficking, forced marriage and involuntary domestic servitude. From a business perspective, with globalisation leading to longer and more complex supply chains, opportunities for slavery-like activities, including forced labour and human trafficking, have grown. Thus it can be argued that businesses have a moral and ethical obligation to combat slavery in their supply chains.

Best practice guidelines

At present, there is a lack of specific guidance as to how organisations should prepare their staff and ensure that internal management systems can capture the data needed to prepare modern slavery statements. Nevertheless, both the federal and NSW governments recognise the need for best practice guidelines to be made available. Chartered Accountants ANZ supports the need for additional guidance, suggesting that such examples focus on identifying modern slavery risks in business operations and supply chains with a focus on specific sectors and countries. The role for auditing and assurance is also yet to be determined. Chartered Accountants ANZ suggests the assurance process will be crucial to ensuring the reliability of modern slavery statements, but that an initial period of reporting in a “safe” environment is needed to encourage engagement and improve awareness. This is consistent with the existing approach at both federal and state levels. 

Time to take stock now

“Given the progress of modern slavery legislation in Australia, it is a good time for organisations impacted, or likely to be impacted, by the reporting requirements to take stock of their own operations, including how they select and monitor the suppliers they deal with,” says Chartered Accountants Business Reform Leader Karen McWilliams. This may involve an internal audit of existing practice and establishing whether a formal human rights or slavery-related policy exists. If so, entities should identify where the information relevant to the reporting process is located and who is responsible for its collection. If existing policies are absent, organisations should consider what is required as they incorporate the management of modern slavery into their day-to-day operations.  

 

Given the progress of modern slavery legislation in Australia, it is a good time for organisations impacted, or likely to be impacted, by the reporting requirements to take stock of their own operations, including how they select and monitor the suppliers they deal with.

 

As organisations engage with this process, it is important to recognise that addressing and eradicating modern slavery is a process of ongoing and continuous improvement. Organisations should not feel that being slavery-free at the first attempt is the key to success. Rather it is ongoing management and due diligence, accompanied by strategic processes supported at board level that is crucial at this stage. 

Dr Katherine Christ is a Lecturer in Accounting at the University of South Australia.

Professor Roger Burritt is Honorary Professor at the Fenner School of Environment and Society, College of Science, Australian National University, Canberra.

Dr Kathy Rao is a Lecturer in Accounting at the School of Commerce, University of South Australia.