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Preparation underway for Dodd-Frank conflict mineral disclosures

After a U.S. Federal Court denied a legal challenge filed by several high-profile business groups, new conflict mineral reporting provisions are now law under the Dodd-Frank Wall Street Reform and Consumer Protection Act. In March, the U.S. Chamber of Commerce, the Business Roundtable and National Association of Manufacturing were among those that filed a preliminary brief with the U.S. Appellate court

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outlining a complaint regarding Dodd-Frank Section 1502's "conflict minerals" provisions. After several legal challenges, the court ruled in July that the "claims lacked merit" based on congressional approval to create and pass the law.

The new Dodd-Frank conflict mineral reporting requirements will have an impact on several types of industries, most notably the automotive and high tech segments.

Section 1502 was tacked on to the Dodd-Frank Act's financial regulation measures in an effort to cut funding to African militia groups. Beginning in 2014, Dodd-Frank Section 1502 requires publicly traded companies whose products use certain minerals to report to shareholders and the Securities and Exchange Commission (SEC) whether the mineral supply comes from war torn areas of Central Africa.

Dodd-Frank conflict mineral reporting compliance processes are now underway across publicly traded organizations both in the United States and abroad. The new and legally substantiated Dodd-Frank conflict mineral reporting requirements will have an impact on several types of industries, most notably the automotive and high tech segments. With months left before the first annual reporting and filing deadline, best practices and lessons learned are still emerging in terms of how to include Dodd-Frank Section 1502 requirements in business operations.

Not just what you do, but how you do it

Perhaps one of the most compelling elements of Section 1502 requirements is the vast amount of information organizations need to collect throughout their value chains to determine the origin of so-called "3TG" elements. These elements -- tin, tantalum, tungsten and gold -- are pervasive in modern day electronics, from advanced navigation and avionics systems to circuitry found in automotive instrument panels and smartphones. In order to facilitate some consistency, the Electronic Industry Citizenship Coalition (EICC) and Global e-Sustainability Initiative (GeSI) partnered to create a reporting template that emerged as the de facto cross-industry reporting standard. The template contains a questionnaire that allows companies to present their conflict minerals status to customers.

The EICC-GeSI framework provides some standardization of data collection and reporting, but there is typically tens of thousands of documents required for filing Form SD. Publicly-traded entities (referred to as "issuers" under SEC guidelines) are required to submit Form SDs with their filings under Dodd-Frank Section 1502. A Form SD is a disclosure document used for financial and nonfinancial reporting under various provisions of the Dodd-Frank Act. In the case of conflict minerals, the form asks whether 3TGs are present in the product's composition and, if they are, if the 3TGs are from known safe or "conflict free" origins. The form may also simply state that Section 1502 does not apply to that company's operations.

How much the Dodd-Frank conflict mineral requirement affects operations heavily depends on exactly what the company produces. All companies must closely examine their products and services, including their source materials, to determine the scope of their Dodd-Frank conflict mineral reporting/disclosure requirements. Companies that use 3TGs must conduct due diligence to determine their source. If no conflict minerals are included or if they believe their product is conflict free, then less is required to meet the new requirements.

Approaches for reporting assurance, accuracy

Some organizations have gone so far as to hire offshore teams to manually complete EICC-GeSI forms for supporting materials on annual filings. Other organizations, however, have adopted standardized, automated data collection solutions. Each option has benefits and drawbacks, depending on intellectual property concerns and whether product information can be safely managed by outside parties when completing necessary data collection.

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Accounting groups such as the American Institute of Certified Public Accountants (AICPA) have published guidelines to vet external providers and determine whether they adequately meet the Dodd-Frank 1502 reporting requirements. Under the AICPA guidelines, an advisory firm can provide what is referred to as an "independent private sector audit," but such service providers are precluded from providing basic advisory, coaching and training to those firms. The AICPA guidelines' intent is to ensure Dodd-Frank 1502 disclosures -- including those required in Form SD -- remain independent from other audit activities during the 2013 fiscal year.

Regardless of the approach companies take or the segments in which they operate, one thing is certain: The Dodd-Frank Section 1502 Conflict Minerals requirements must be disclosed in 2013 filings. Companies are still learning best practices to reduce reporting cycles and over time will develop more accurate and efficient means of disclosure.

About the author: 
William Newman is managing principal of Newport Consulting Group LLC, an independent management and technology consulting firm based in Clarkston, Mich. Contact him via email at wnewman@newportconsgroup.com or follow him on Twitter (@william_newman).

This was first published in November 2013

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