Conflict Minerals Compliance Brochure

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Conflict Minerals ComplianceMining Benefits With Proactive Disclosure

Crowe Conflict Minerals Tracker™ Solution

Audit | Tax | Advisory | Risk | Performance

From cellphones to toothpaste, vehicle parts to medical devices, manufacturers both large and small are affected by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Securities and Exchange Commission’s (SEC’s) conflict minerals rule. This law requires SEC registrants to disclose the presence of tantalum, tin, tungsten, or gold (3TG) in their manufactured products. The rule is intended to cut off funding to armed rebels responsible for human rights abuses in the Democratic Republic of the Congo (DRC) and adjoining countries where these precious minerals are mined.

Thousands of companies in many industries, including aerospace, automotive, defense, electronics, and jewelry must perform some level of due diligence to determine the use of 3TG in their products, identify the sources of 3TG throughout their supply chain, and proactively report their findings to customers and regulatory agencies. Guidance from regulatory and trade groups is evolving with new mandates from states and countries and adds to the already complex due diligence requirements.

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3www.crowehorwath.com/conflict-minerals

Conflict Minerals Compliance: Mining Benefits With Proactive Disclosure

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Digging Deep Into SEC DisclosureWhile the conflict minerals rule applies to approximately 6,000 registered companies worldwide (according to SEC estimates), it also significantly affects tens of thousands of direct or indirect suppliers of components or raw materials. In most cases, companies are unfamiliar with the extent and origins of conflict minerals present in their products since they may rely on a multitiered supply chain. Organizations with many intermediate steps between extraction of raw materials and completion of a final product can find tracking the origins of minerals extremely difficult.

Getting to the point of disclosure requires an extensive supply chain due diligence effort to identify the source of 3TG minerals in a company’s products. Many companies discover that the lack of available company resources to carry out the due diligence process becomes a hindrance. The process is further complicated by the inevitable roadblocks associated with collecting data from suppliers, tracking supplier response status, and consolidating responses including:

■ Reviewing material content data forms, declaration forms, engineering specifications, bills of materials, product part codes, and other necessary information

■ Determining if conflict minerals are necessary to product functionality

■ Identifying and documenting product-part-supplier linkages

■ Querying every level and type of supplier up and downstream

■ Generating consistent communication about requirements and expectations

■ Addressing intellectual property and privacy concerns



OECD Five-Step Framework for Risk-Based Due Diligence in the Mineral Supply Chain

Step 1. Establish strong company management systems.

Step 2. Identify and assess risk in the supply chain.

Step 3. Design and implement a strategy to respond to the identified risk.

Step 4. Carry out independent third party audits of supply chain due diligence at identified points of the chain.

Step 5. Report on supply chain due diligence.

Source: www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf

Exploring Layers of Compliance RequirementsThe Organisation for Economic Co-Operation and Development’s “Due Diligence Guidance for Responsible Supply Chains of Minerals From Conflict-Affected and High-Risk Areas” (OECD guidance) provides a framework for companies to consider when planning and executing their conflict minerals due diligence process. Currently, the OECD’s “Five-Step Framework for Risk-Based Due Diligence in the Mineral Supply Chain” is the only nationally or internationally recognized framework companies can follow when planning and implementing their due diligence procedures.

Crowe Horwath LLP conflict minerals specialists mapped the OECD guidance to our proven risk management framework to develop a step-by-step, repeatable approach to compliance. The framework includes the following general steps:

1. Use the SEC flowchart in SEC Final Rule, “Conflict Minerals,” Release No. 34-67716, Flowchart Summary of the Final Rule, page 33 (shown on the following page) to determine if the conflict minerals rule applies.

2. Form a team of internal and external specialists to develop a response plan.

3. Conduct a reasonable country-of-origin inquiry (RCOI) to determine materials sourcing.

■ If 3TG is not sourced from the DRC or other covered countries, file Form SD.

■ Otherwise, conduct due diligence to determine the source and chain of custody for use.

4. Prepare and file an independently audited Conflict Minerals Report.

5. Make the appropriate public disclosures.

http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf

http://www.oecd.org/daf/inv/mne/GuidanceEdition2.pdf

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The Conflict Minerals Report must also include an independent private sector audit report, which expresses an opinion or conclusion as to whether the design of the issuer’s due diligence measures is in conformity with the criteria set forth in the due diligence framework and whether the description of the issuer’s due diligence measures is consistent with the process undertaken by the issuer. Also, include a description of the products that have not been found to be DRC Conflict Free, the facilities used to process the necessary conflict minerals in those products, the country of origin of the minerals and the efforts to determine the mine or location of origin of those minerals with the greatest possible specificity.

Y Y

Y

N

Y N

N

Y

N

Y

Y N

Does the issuer manufacture or contract to manufacture products?

Exercise due diligence on the source and chain of custody of its conflict minerals following a nationally or internationally recognized due diligence framework, if such framework is available for a specific conflict mineral.

In exercising this due diligence, does the issuer determine the conflict minerals are not from the covered countries or are from scrap or recycled?

The Conflict Minerals Report must also include a description of products that are “DRC Conflict Undeterminable” and the steps taken or that will be taken, if any, since the end of the period covered in the last Conflict Minerals Report to mitigate the risk that the necessary conflict minerals benefit armed groups, including any steps to improve due diligence. No audit is required.

END

END

Rule does not apply.

END

Based on a reasonable country of origin inquiry (RCOI), does the issuer know or have reason to believe that the conflict minerals may have originated in the DRC or an adjoining country (the covered countries)?

File a Form SD that discloses the issuer’s determination and briefly describes the RCOI and the results of the inquiry.

END

File a Form SD that discloses the issuer’s determination and briefly describes the RCOI and due diligence measures taken and the results thereof.

END

Does the issuer file reports with the SEC under Sections 13(a) or 15(d) of

the Exchange Act?

START

Based on the RCOI, does the issuer know or reasonably believe that the conflict minerals come from scrap or recycled?

Are conflict minerals necessary to the functionality or production of the product manufactured or contracted to be manufactured?

YNIs it less than two years after effectiveness of the rule (four years for Smaller Reporting Companies)?

N

N N

Y

if newly mined if potentially scrap or recycledN

Were the conflict minerals outside the supply chain prior to January 31, 2013?

Source: SEC Final Rule, “Conflict Minerals,” Release No. 34-67716, Flowchart Summary of the Final Rule, page 33

Flowchart Summary of the Final Rule – Conflict Minerals

File a Form SD with a Conflict Minerals Report as an exhibit, which includes a description of the measures the issuer has taken to exercise due diligence.

ln exercising the due diligence, was the issuer able to determine whether the conflict minerals financed or benefitted armed groups?

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Crowe Conflict Minerals Tracker SolutionStreamlining Compliance Through Innovation

Crowe conflict minerals specialists developed the Crowe Conflict Minerals Tracker solution as a tool for assisting companies with RCOI surveys and supplier due diligence. The solution is designed to provide an efficient and thorough method for administering the supplier query, data collection, and reporting processes. Using the Crowe Conflict Minerals Tracker solution as part of a comprehensive approach to conflict minerals compliance simplifies data collection, analysis, and reporting to enhance efficiency and strengthen results. The solution includes:

■ A disciplined and automated approach to centralized data collection – designed to reduce duplicative requests, large spreadsheets, and repetitive tasks

■ Functionality to integrate product-part-supplier relationships

■ A “parts wizard” function to identify products or components requiring an RCOI

■ Peer-group benchmarking to establish a framework to initiate risk analysis

■ User-friendly, straightforward questions to help expedite supplier responses

■ Web-based questionnaire distribution to simplify tracking and communication

■ A risk analysis dashboard to help you easily delegate assignments, track progress, and review progress in real time

■ Export capabilities to facilitate the transfer of data to the Form SD and the Conflict Minerals Report

■ Roll-up reporting to prepare for audit, as needed

The Crowe Conflict Minerals Tracker solution provides:

■ Dynamic survey and review

■ Real-time progress reporting and statistics

■ Selective and expandable questions with multiple formats available

■ Back-end capture and analysis

■ Risk analysis dashboards

■ Easy data export and ad-hoc reporting

■ Built-in training video tutorials to educate users

Crowe Horwath LLP

Advantages of the Crowe Conflict Minerals Tracker SolutionReasonable Country of Origin Inquiry (RCOI) and Supply Chain Due Diligence

Without Crowe

11 Save all supporting documentation in a location that only can be accessed by those associated with the compliance program. Ensure that the data is maintained in a way to preserve its integrity.

1 Determine which employees will devote their time to implementing the process. Consider hiring additional employees.

2 Collect internal data.

3 Determine which products will be affected by issuing internal requests for data.

4 Establish a listing of supplier personnel that should receive CM-related communication.

5 Create supplier questionnaires.

6 Send questionnaires to suppliers that supply parts for the affected product.

7 Suppliers complete questionnaires.

10 Track progress of supplier responses manually. Determine if an in-house software tool can be used to store suppliers’ responses. If so, manually import each questionnaire that is received.

12 Update supplier responses and supporting documentation as new information is provided from suppliers. Track the changes made manually.

13 Decide how you will perform due diligence to validate and assess the risk associated with suppliers’ responses and supporting documentation.

14 Request additional information from sup-pliers based on the due diligence performed.

15 Gather additional internal data and perform additional procedures to answer customers’ requests for CM-related information on supplied products.

17 If an independent audit is required, work with the auditors to provide necessary information for them to conduct the audit.

Project Manager

Where do we start? The SEC’s final rule

is 356 pages!

We don’t have contact information for half of these suppliers!

We need more information.

You already asked us for that

information!

Did you read the guidance I sent you?

What are conflict minerals?

Data overload!

Where do we start?

I wish there was a better

way.

We’ve received responses from half of our suppliers. Of

those, only half of the question-naires were complete.

What’s the status on supplier responses and our

due diligence efforts?

A key customer is asking if our products contain

conflict minerals.

That type of information will

take weeks!

16 Prepare Form SD and Conflict Minerals Report, if applicable, based on the aggregated data.

8 Questionnaires are received. Check for completion.

9 Additional information requests are sent to suppliers.

Where is all of our documentation

saved?

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Adjoining Countries

WTungsten


The Crowe Solution

Roll-up reports. Ability to prepare and export the following reports based on the aggregated supplier responses:

� Form SD � Conflict Minerals Report � EICC-GeSI template (companywide and by product) � Product-specific conflict minerals reports � Progress reports

Parts wizard used to filter on parts that will require a RCOI.

Peer groups established for the subsequent risk analysis.

2 A listing of affected parts, suppliers, and products is developed and uploaded to the platform.

3 Supplier surveys are transmitted electronically.

4 From the platform, suppliers are educated on expectations and complete survey.5 Progress of suppliers’

responses is monitored through the response dashboard.

6 The results of a risk-based assessment of supplier responses are reported in a risk analysis dashboard by risk categories and in scorecards.

7 The Form SD and Conflict Minerals Report, if applicable, are exported from the platform.

8 If applicable, independent auditors are provided with information neccessary to form an opinion.

1 Crowe is provided with requested raw data.

� Dynamic survey � Delegation feature � EICC-GeSI

compatible � Multiple languages

supported � Built-in training

video and resources � User friendly

� Based on the recommended OECD due diligence guidance

� Auditable, scalable and repeatable process

Web-based platform automates manual, time-intensive and non-value-added activities.

� Real-time progress reporting and statistics

� Easy export of data offers flexibility for later use

PartsData

Project Manager

When does Crowe arrive?

Perfect! It’s on track!

That was easy!

Secure Central Data Repository

Parts Data

Supplier Listing

Bills of Materials

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All the documentation

is here!

AuSnTaGoldTinTantalum

Democratic Republic of the Congo

WTungsten

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Gaining Efficiency Through Smarter ApproachesComplying with the conflict minerals rule is not easy, but a structured and risk-based approach can help make the task more efficient and lead to short- and long-term benefits including:

■ Preparing for enforcement and reducing the risk of penalties or damage to reputation

■ Demonstrating social responsibility for customers and investors

■ Leveraging the process to improve supply chain transparency and performance

■ Enhancing your brand and reputation as a conflict-free organization

As one of the largest public accounting and consulting firms in the United States, Crowe Horwath LLP provides services to public and private sector organizations and works with a variety of manufacturers, across multiple industries, to address the compliance requirements created by conflict minerals disclosure requirements. With more than seven decades of delivering credible, independent, and objective audit services, Crowe is experienced in the management of complex and multifaceted assignments, and we understand the time-sensitive and confidential nature of regulatory compliance.

Our skills in forensic investigations provide a foundation for assisting clients with their conflict minerals-related needs – from planning to data collection, due diligence, and reporting. And our industry expertise includes serving more than 1,000 domestic and international manufacturing organizations.

Crowe conflict minerals compliance expertise is enhanced through daily discussions with companies about best practices for responding to due diligence requirements and preparing for an independent private sector audit (IPSA) of compliance programs. Our professionals share their expertise by crafting white papers, publishing articles, and participating in professional organizations such as the IPC – Association Connecting Electronics Industries and International Council on Mining and Metals (ICMM).

For more information about the Crowe Conflict Minerals Tracker solution, conflict minerals thought leadership, and links to regulations, industry insights, and best practices, visit the Crowe Conflict Minerals Resource Center at www.crowehorwath.com/conflict-minerals.

www.crowehorwath.com/conflict-mineralsWhen printed by Crowe Horwath LLP, this piece is printed on Mohawk Color Copy Premium, which is manufactured entirely with Green-e® certified wind-generated electricity.

Crowe Horwath LLP is an independent member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. © 2014 Crowe Horwath LLP

Contact InformationFor guidance on an effective, efficient, and comprehensive solution to the challenges presented by conflict minerals investigations and disclosure, please contact:

Vicky Ludema 800.599.2304 [email protected]

Crowe Horwath LLP, The Unique Alternative®

Crowe Horwath LLP (www.crowehorwath.com) is one of the largest public accounting and consulting firms in the United States. Under its core purpose of “Building Value with Values,®” Crowe uses its deep industry expertise to provide audit services to public and private entities while also helping clients reach their goals with tax, advisory, risk, and performance services. With a total of more than 3,000 personnel, Crowe and its subsidiaries have offices coast to coast. The firm is recognized by many organizations as one of the country’s best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest global accounting networks in the world, consisting of more than 150 independent accounting and advisory services firms in more than 100 countries around the world.

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Conflict Minerals Compliance Brochure

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