GAO just released its latest annual report to Congress on the effectiveness of the conflict minerals regulation. We’ll save you some effort and boil it down this way:
Essentially, the reporting year 2015 conflict minerals disclosures filed by May 31, 2016 were the same as those filed for reporting year 2014. I doubt this is much of a surprise.
But what caught our attention is this little twist: GAO is critical of the fact that “an estimated 55 percent of the companies in 2016 reported that they could not definitively confirm the source of the conflict minerals in their products.” Yet nowhere in the report is there mention that the SEC, under the May 2014 Statement from then-Director of Corporate Finance Keith Higgins, allows companies to file without including a product determination statement. Due to the legal uncertainty surrounding the rule at the time of the filings reviewed in the report (which was not resolved until earlier this month), many filers chose to submit disclosures without the definitive language GAO is seeking.
But GAO does acknowledge that companies “had taken actions to improve their data collection processes, such as gathering missing information about their supply chains and implementing new technologies to facilitate the data collection process” and that “the process for collecting data on conflict mineral supply chains had become more routine and standardized.”
GAO’s report may be accurate insofar as the literal text of the CMRs, but statements about filers’ inability to determine necessary sourcing information are not so accurate. While filers may have chosen not to provide specific product determination language in their CMRs, Conflict Minerals Reporting Templates (CMRTs) both from suppliers and provided to customers paint a more accurate picture of a company’s status.
It wasn’t in GAO’s scope to review CMRTs, although the statutory mandate for the annual study doesn’t appear to limit the GAO to SEC filings. Perhaps next year – assuming there will be a next year for the SEC conflict minerals disclosures – GAO could expand their efforts for a more accurate picture.