Supply chains are increasingly under regulatory scrutiny. Legislation such as Germany’s Supply Chain Due Diligence Act and proposed EU-wide directives are requiring companies to take responsibility for risks across their supplier networks. For internal audit, this shift represents both a challenge and an opportunity to enhance assurance in a critical area of organizational exposure.
The first priority for internal audit is to evaluate management’s due diligence processes. This includes assessing how suppliers are vetted, whether risk assessments are conducted, and whether contractual obligations adequately address compliance expectations. Audit teams should test whether supplier codes of conduct are effectively implemented and monitored.
Second, internal audit must examine transparency and reporting obligations. Regulators now expect organizations to publish disclosures on supplier practices, corrective actions, and risk mitigation. Audit functions can verify the accuracy and completeness of these disclosures, ensuring that public statements align with actual practices.
Third-party monitoring is another vital area. Many organizations rely on external audits or certifications of suppliers, but these are not always reliable. Internal audit should evaluate whether reliance on third-party attestations is reasonable, and whether management performs independent checks where risks are high.
Another challenge is data quality. Supply chain information often comes from diverse sources, with varying levels of reliability. Internal audit can review data management processes, ensuring that the organization has consistent, verifiable, and auditable records of supplier compliance.
Training and capacity building across procurement and operations functions are also critical. Internal audit should assess whether employees responsible for supplier engagement understand new regulatory requirements and have the resources to enforce them effectively.
Looking forward, supply chain regulations are expected to tighten further, especially around human rights and environmental impacts. Organizations that take a proactive approach will not only reduce compliance risks but also strengthen their reputations with investors and consumers.
In conclusion, internal audit’s role in supply chain compliance is expanding significantly. By providing assurance over due diligence, reporting, and data quality, audit functions can help organizations navigate a rapidly changing regulatory landscape and build more resilient supply networks.
