Figure 1 shows the DRC’s  provinces and adjoining countries. 2). The act  required that SEC promulgate disclosure and reporting regulations  regarding the use of conflict minerals from the DRC and adjoining  countries (or “Covered Countries”) by April 2011. A higher estimated percentage  of companies in 2015, compared to 2014, disclosed that they knew or had  reason to believe they knew the source of the conflict minerals in their  products as a result of performing an RCOI, which indicates that they  have more information about their supply chains. Companies Reported Performing Due Diligence, but the Majority Were Still Unable to Confirm the Origin of Their Products’ Conflict Minerals or Whether They Benefited Armed Groups

Although a higher percentage of companies reported that they were able  to make a determination about the country of origin based on their RCOI  than in 2014, after conducting due diligence, the majority were unable to  confirm the origin of the conflict minerals in their products or whether the  minerals financed or benefited armed groups in the Covered Countries. An estimated 80 percent of all companies that performed an RCOI in  2015—which is almost all companies that filed a Form SD with SEC— reported that they exercised due diligence. Based on our analysis, an estimated 79 percent of the  companies should have filed a conflict minerals report as an exhibit to the  Form SD (similar to an estimated 71 percent in 2014); almost all—an  estimated 97 percent—of those companies did so. Uncertainty about Source and Chain of Custody of Conflict Minerals at Processing Facilities May Pose Challenges to Companies’ Due Diligence Efforts, but Industry and Others’ Efforts May Reduce Risks

SEC-filing companies face challenges in their due diligence efforts related  to uncertainty about the source and chain of custody of conflict minerals  processed by processing facilities because (1) these facilities generally  rely on documentary evidence from upstream stakeholders that may be  susceptible to fraud, and (2) the complexity of processing operations also  introduces fraud risk and may increase the cost associated with  disclosure efforts. The act requires that Commerce annually  report a listing of all known conflict mineral processing facilities  worldwide, among other things. Commerce Has Not Developed Plans to Assess or Advise Audits of Conflict Minerals Filings

As of July 2016, Commerce had not submitted to Congress a report that  includes an assessment of the accuracy of IPSAs and other due diligence  efforts described by the Dodd-Frank Act conflict minerals provisions as  well as recommendations for improving the accuracy of the IPSAs, as  required by the Dodd-Frank Act—nor had it developed a plan for doing  so. These officials  added that they would conduct a review based on the 19 IPSAs filed in  2016. Until Commerce fulfills these requirements, SEC-filing  companies may face additional challenges. Recommendation for Executive Action

To improve the effectiveness of the SEC’s conflict minerals disclosure  rule, the Secretary of Commerce should take the following action:   Submit to the appropriate congressional committees a plan outlining  steps that Commerce will take, with associated time frames, to assess the accuracy of the independent private sector audits  (IPSA) and other due diligence processes described under section  13(p) of the Securities Exchange Act of 1934; develop recommendations for the process used to carry out such  audits, including ways to improve the accuracy of the audits and  establish standards of best practices for such audits; and acquire the necessary knowledge, skills, and abilities to carry out  these responsibilities. Appendix II: Objectives, Scope, and Methodology

To examine the second annual company disclosures filed with the  Securities and Exchange Commission (SEC) in 2015 in response to the  SEC conflict minerals disclosure rule, we downloaded the Specialized  Disclosure reports (Form SD) and Conflict Minerals Reports (CMR) from  SEC’s publically available Electronic Data Gathering, Analysis, and  Retrieval (EDGAR) database on September 15, 2015. To examine actions that Commerce has taken regarding its conflict  minerals-related requirements under the Dodd-Frank Act, we interviewed  Commerce officials and reviewed relevant documentation and reports. In response to a mandate in the Dodd-Frank Act that GAO submit an  annual report that assesses the rate of sexual violence in war-torn areas  of the Democratic Republic of the Congo (DRC) and adjoining countries,  we identified and assessed any additional published information available  on sexual violence in eastern DRC, as well as three adjoining countries  that border eastern DRC—Rwanda, Uganda, and Burundi—since our  August 2015 report on sexual violence in these areas.
Why GAO Did This Study

Armed groups in eastern DRC continue to profit from the exploitation of minerals, according to the United Nations. Congress included a provision in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that, among other things, required SEC to promulgate regulations regarding the use of conflict minerals from the DRC and adjoining countries. The act also required Commerce to develop a list of worldwide processing facilities and to assess IPSAs filed in conjunction with SEC disclosures, and included provisions for GAO to assess the SEC regulations' effectiveness in promoting peace and security and report on the rate of sexual violence in the DRC and adjoining countries.
This report examines (1) company disclosures filed in 2015 in response to the SEC conflict minerals regulations, (2) challenges to companies' due diligence efforts related to the processing facilities in conflict minerals supply chains and efforts to mitigate those challenges, and (3) Commerce's actions regarding its conflict minerals-related requirements under the Dodd-Frank Act. The report also provides information on sexual violence in the DRC and three adjoining countries. GAO analyzed a generalizable random sample of SEC filings and interviewed relevant officials.

What GAO Found

As a result of country-of-origin inquiries, an estimated 19 percent more companies that filed a specialized disclosure form (Form SD) with the Securities and Exchange Commission (SEC) reported that they knew or had reason to believe they knew the source of the conflict minerals in their products in 2015 than in 2014, based on a generalizable sample of filings GAO reviewed. However, after an estimated 79 percent of the companies that filed a Form SD performed due diligence, an estimated 67 percent of them reported they were unable to confirm the source of the conflict minerals in their products, and about 97 percent of them reported that they could not determine whether the conflict minerals financed or benefited armed groups in the Democratic Republic of the Congo (DRC) and adjoining countries.
Facilities that process conflict minerals pose challenges to the disclosure efforts of companies filing a Form SD because (1) these facilities generally rely on documentary evidence about the origin of conflict minerals, which may be susceptible to fraud; and (2) multiple levels of processing operations introduce fraud risk and may increase the cost associated with disclosures. Industry and other stakeholders have developed or are pursuing efforts to mitigate these risks, such as chemical “fingerprinting” to verify documentary evidence.
As of July 2016, the Department of Commerce (Commerce) had not submitted a report that was required in January 2013, assessing the accuracy of the Independent Private Sector Audits (IPSA) filed by some companies that filed a Form SD, nor had it developed a plan to do so . Ten companies filed the audits between 2014 and 2015 as part of their Conflict Minerals Reports, none of which Commerce has assessed. Commerce officials said they established a team in March 2016, but they noted that they did not have the knowledge, skills, or expertise to conduct IPSA reviews or to establish best practices. As a result, Congress lacks information on the accuracy of the IPSAs and other due diligence processes used by filing companies.

What GAO Recommends

GAO recommends that Commerce establish a plan outlining steps and time frames for assessing the accuracy of due diligence processes such as IPSAs, and developing the necessary expertise to fulfill these requirements. Commerce concurred with GAO's recommendation.