Assessing your construction supply chain for fraud

28 April 2020

Adam Simms , Partner, Forensic Services |
Mark Griffiths , Partner, Risk Advisory Services |

The construction industry operates within a complex supply chain, relying on resources and materials from across the globe to meet the competitive demands of projects, which are often short-term. It also employs a large section of Australia’s workforce with a varying degree of skills.

The nature of construction means vulnerable citizens, such as migrant workers, students or other-low-skilled workers, are often subject to poor working conditions such as underpayment, non-payment or third-party contractors with fraudulent work practices. On short term projects - typical in construction - these types of activities are less visible and there’s a lack of oversight of monitoring and training. This is not just an off-shore issue but has been found to be occurring within smaller Australian businesses who are contracted by larger construction businesses.

Across the global supply chain, many construction businesses use raw materials and workwear from high-risk countries such as Indonesia, China and North Korea.

It’s these factors that make the construction industry a high-risk sector for the breach of human rights.

It’s also why construction operators must be vigilant in their application of Australia’s recently enacted Modern Slavery Act, as they should the recently passed Whistle-blowing laws. 

With this increase in construction businesses responsibility, it’s important for management to consider its response to the compliance.

The Commonwealth Modern Slavery Act requires entities with annual consolidated revenue of more than AUD$100 million who are based, or operating, in Australia to comply with the Act by providing a statement on their compliance on an annual basis. The NSW Government is awaiting Legislative Council committee recommendations before progressing its response to modern slavery, but something is expected during 2020 - so now is a good time to ready your supply chain.

While entities may assume their practices are legitimate, the new laws put the complete supply chain under the spotlight. For the construction industry, labour-hire and sourcing of raw materials - whether onshore, off-shore or through a third party, must be assessed to ensure compliance.

The BDO Construction Survey 2020 highlights some stark results. Of those surveyed, only 12% of participants consider themselves to be fully compliant with the Commonwealth Modern Slavery Legislation. Although most participants have considered the legislation, they are at varying points of assessing and preparing for compliance with the legislation.  

Reportable entities must take time to assess their risks to comply with Modern Slavery legislation – with reporting dates beginning from December 2020, depending on the entity's annual financial reporting period and disclose their non-financial risk. Construction companies must be assessing their operations and supply chains, taking action to address the risks and set up mechanisms that monitor and assess those risks.

  1. Assessing the potential modern slavery risks in their operations and supply chains with emphasis on high-risk geographical locations and business transactions
  2. Developing and review company policies on modern slavery in operations and supply chains
  3. Developing training for staff in modern slavery requirements
  4. Preparing to conduct due diligence on local and global supply chains and operations
  5. Reviewing supplier contracts to ensure they contain terms that are consistent with the Act
  6. Taking steps to mitigate any potential modern slavery risks identified and
  7. Establishing appropriate mechanisms for external and internal reporting such as a whistleblowing hotline.

A modern slavery response that addresses these key points is critical to prevent harm. Given the significant issues facing business at present, we see this as a critical period, to consider your supply chain, and put in places measures to mitigate against Modern Slavery when your workforce comes back online, which it will.

Access the BDO Construction Survey 2020

If you would like further information on how to comply with the Modern Slavery Act, or if you think fraudulent practices are occurring within your supply chain, contact our team.