Integrated Compliance Manual for Vendors and Factories

Transcription

1 Integrated Compliance Manual for Vendors and Factories Version 4.0 August 2017 Catherines Stores Corporation Lane Bryant Purchasing Corp Maurices Incorporated The Dress Barn, Inc. Tween Brands Service Co. 1

2 Table of Contents 1. Introduction Compliance Audit Overview Factory Approval Process Flowchart Vendor/Factory Responsibility Audit Visit Results Code of Conduct and Social Compliance Overview Code of Conduct and Social Compliance Guidelines Supply Chain Security Overview Supply Chain Security Guidelines Brand Protection Overview Brand Protection Guidelines Where to get more information rd Party Audit Firms Where to send factory information AGS Contact Information Fee Schedule Code of Conduct Code of Conduct Confirmation CUSTOMS - TRADE PARTNERSHIP AGAINST TERRORISM (C-TPAT)

3 1. Introduction The primary purpose of this Compliance Manual is to establish and outline the policies and procedures of Ascena's brands, Dressbarn, Catherines, Lane Bryant, Maurices and Justice (each, a Brand ) related to Labor Standards, Supply Chain Security, and Brand Protection. This manual is intended to be the primary reference document for managing vendor/factory compliance from the initial engagement to the ongoing monitoring of factories that produce merchandise for the Brands. The Brands are committed to conducting business consistent with the highest standards. The program requires on-site compliance audits performed by third party auditors to ensure factories are meeting requirements and manufacturing under conditions consistent with this Compliance Manual. Through the policies and procedures outlined in this Compliance Manual, the Brands demonstrate their commitment to providing the highest quality product manufactured under conditions they and all of Ascena can be proud of. Ascena Global Sourcing (AGS), is part of the Shared Services Group under Ascena Retail Group, Inc. AGS is an important Ascena strategy created as an organization that collaborates with the Brands. The AGS group provides support to the Brands for activities such as Sourcing, Compliance, Product Integrity, and Trade Compliance. The AGS Compliance team ensures products are placed in compliant factories through an auditing and remediation program described in this manual. This program ensures that the Brands and their business partners provide only the best products to their customers. 3

4 2. Compliance Audit Overview 2.1. Every factory is subject to one annual compliance visit at the vendor s expense. The annual compliance visit includes: Labor Compliance Every vendor/factory is required to comply with the Brands Code of Conduct in terms of labor standards and workplace conditions Supply Chain Security Compliance Every Vendor/Factory is required to observe and adopt best practices in terms of cargo security Brand Protection Every vendor/factory is required to have necessary controls to ensure the integrity of our Brands and to protect intellectual property rights Program monitoring activities may be performed by Elevate, BSI, or other third party auditors approved by the AGS compliance team No orders will be placed with any new factory prior to an acceptable compliance visit or a specific exemption granted by AGS AGS may adjust the frequency of factory visits and program activities based on country/factory risk assessment Vendors that demonstrate they have an effective compliance program, with similar standards and tools, will be considered a lower compliance risk and will be subject to less frequent auditing by AGS subject to periodic reporting of the results of the related auditing program AGS may choose to accept a verifiable third party audit from other reputable audit firms that has been conducted within the past six months. These audits must include labor compliance and supply chain security assessments. Audits should be submitted along with the Factory Profile and Code of Conduct to factoryprofiles@ascenaglobalsourcing.com for review AGS will conduct unannounced, semi-announced or announced visits. A third party auditor will contact the vendor/factory listed on the Factory Profile to schedule factory visits. Some audits may require prepayment The third party auditor will conduct the factory visit in accordance with the scope specified by AGS. 4

5 3. Factory Approval Process Flowchart Vendor submits completed Factory Profile, COC, signed C- TPAT Letterto: Does factory have recent verifiable 3 rd party audit? Yes Submit Audit to AGS AGS reviews/verifi es audit w /3 rd party No AGS Orders 3 rd party Audit Full audit report issued Audit Conducteddraft copy left with factory AGS reviews audit and Factory ID # is issued Were there any issues of noncompliance found? Yes Recap of recommendations issued to vendor/factory Vendor reviews recap with factory and implements necessary corrective measures A desktop review or Follow-Up visit conducted Vendor submits CAP to within 14 days No Factory entered into the AGS annual audit program 5

6 4. Vendor/Factory Responsibility 4.1. Identification of Factories All factories used for the production of any Brand s merchandise must be reported to AGS. A Factory Profile must be submitted for each manufacturing location. This may include cutting, sewing, knitting, linking, assembling, packaging, filling, printing, etc. facilities (i.e. any other facility that manufactures or assembles any part of the product) When a change in the place of production takes place, the change must also be reported to AGS. In the case of a new factory being added, a Factory Profile and all related documents must be submitted to factoryprofiles@ascenaglobalsourcing.com The use of unauthorized/unreported factories or sub-contractors or other places of manufacture is prohibited Unauthorized Sub-contracting and other critical issues policy: If unreported factories involved in the manufacture of any Ascena Brands merchandise are identified or any critical issue is found, the following procedures will apply: 1 st Incident- Monetary penalty of USD $25,000 issued to vendor and all factories are subject to production monitoring at the vendor s expense 2 nd Incident- Monetary penalty of USD $250,000 issued to vendor and reduction or loss of business enforced. 3 rd Incident-Termination Issues and penalties are applied by Vendor-not by Factory In order to avoid any penalties or loss of business simply report all factories to AGS. 6

7 4.2. Code of Conduct A copy of this Compliance Manual must be given to and reviewed with the vendor and factory. An understanding of the manual is confirmed by signing and returning the Code of Conduct to factoryprofiles@ascenaglobalsourcing.com The purpose of the acknowledgement is to obtain written assurance that the factory complies with the Code of Conduct. If the Code of Conduct Confirmation is not signed, production is not allowed at the factory Each factory will designate on the Code of Conduct Confirmation an official who will be responsible for supervising the vendor s efforts to ensure factories utilized by the vendor are in compliance with the Code of Conduct All factories involved in the production of any Brand s merchandise are expected to sign and return the Code of Conduct All factories are expected to have a copy of the Code of Conduct translated into the local language and communicated to workers. The Code of Conduct should not be posted in the factory In addition, in order to fully understand the Brand s requirements as outlined in the Code of Conduct, factories are expected to have access to applicable local laws and regulations related to age, wage, hours of work and health and safety Vendors must provide an updated listing of the factories being used to produce each Brand s products and immediately notify AGS of any dropped factories. All factories must be reported to AGS 2 months before order placement Complete and send a Factory Profile to factoryprofiles@ascenaglobalsourcing.com for any new factory, change of address or name change of existing factory Vendors are responsible for ensuring the factories utilized in the production of the Brands merchandise have received and understand the Code of Conduct and the related requirements as specified in this program Place order only after an acceptable visit or exemption is granted by AGS compliance team. Allow a minimum of 2 months for factory approval Ensure factory awareness of the possibility for unannounced or semi-announced visits by AGS associates or third party auditors. The factory should be prepared to accept a semi-announced audit within a 2 week date range which will be communicated at the time of scheduling Vendors will require the management at the factory to permit AGS and its representatives to conduct the compliance audit including interviews of employees without the presence of other employees or management. Factory management will permit our representatives to interview employees without the presence of other employees or management, and will not disturb the confidentiality of any employee interview. 7

8 4.8. Provide logistics support and help to AGS or appointed third party auditors for visits Follow up with factory/subcontractor on improvement areas identified Accept the request for Annual Factory Visit to active factory Vendors and factories are not to interfere with or discourage communication with our representatives. Factories must be allowed to freely respond to auditors without any interference Any active factory experiencing any extraordinary business circumstance must notify the AGS Compliance Department, within 24 hours. Any extraordinary business circumstance includes but is not limited to: natural disaster, earthquake, hurricane, fire, strike, any situation that is unsafe for workers, any work stoppage that is unsafe for workers or stops production, any disruption in production due to an extraordinary business circumstance or factory closure Information and Training All vendors are encouraged to seek any needed guidance from the AGS Compliance Team on how to ensure their factories and the related individual compliance efforts meet our expectations We may request the attendance of vendor management at seminars or webinars conducted by AGS or outside parties. The primary purpose of the training program is to educate and communicate to the factories and vendors the Compliance Manual standards. The training and/or communication will cover differences between applicable local laws and the Code of Conduct and how to recognize serious compliance concerns. On-going training will include periodic updates to the AGS Compliance Program Employee Awareness and Education Each factory is responsible for the communication to its employees regarding the factory s obligation to them, and in accordance with the Code of Conduct As part of its responsibility to promote employee awareness, each factory will take necessary steps to ensure the terms of the Code of Conduct are presented to employees in languages understood by all employees. This can be accomplished through meetings and presentations on the requirements Transparency: Falsified records will not be tolerated and factories that provide falsified information to our third party auditors may face termination. 8

9 5. Audit Visit Results 5.1. Upon completion of the audit visit, the results will be communicated to AGS in the form of an audit report. AGS will then review the full report and send a Corrective Action Plan Template to the vendor, if applicable The following audit rating applies: Rating A B C Transparent C Not Transparent D - Transparent D Not Transparent F Definition Authorized for production. Next audit months. Authorized for production. Next audit months. Conditionally authorized for production.follow-up audit may take place within 6 months. Conditionally authorized for production with concerns; may be terminated. Follow-up audit will take place within 3 months. Marginally authorized for production with major concerns. Follow-up audit will take place within 3 months Not authorized for production; no new orders. Remediation required. Follow-up audit required. Not authorized for production. AGS will advise next steps Remediation and Corrective Action Ascena, the Brands and AGS expect vendors and factories to provide transparency into their operations, policies, procedures and records. Vendors and factories must allow inspection of their records and facilities by AGS associates and appointed audit partners to verify compliance to these standards. Falsified records will not be tolerated Ascena, the Brands and AGS are committed to working with factories to address non-compliance issues. We fully support Remediation Not Termination. If the results of a Compliance Audit are below standards, but the factory is willing and committed to making improvements, we may allow the factory to make corrections. In this regard, factories are expected to develop Corrective Action Plans (CAP) with realistic dates, demonstrate improvements and be transparent in addressing identified non-compliance in a timely manner Factories are expected to correct all non-compliance as a condition of continued business. All CAP s are due back to AGS or the appointed auditing firm 14 days after receipt of corrective action plan template. Complete evidence in the form of photos or documents must be submitted with the CAP and clearly labeled in English AGS may engage the 3rd party audit firm to assist with CAP management. All vendors and factory must cooperate with all requests made by the 3rd 9

10 5.2. Follow-up Factory Audits party auditor including adherence to deadlines. Since we are investing in these services we expect vendors and factories to cooperate with the CAP management process. Vendors and factories that fail to cooperate may be subject to a $5,000 USD penalty Follow-up factory audits are necessary to ensure corrective actions are taken. AGS will authorize follow-up visits anywhere from 3-6 months after an initial visit. Either a third party auditor or a vendor representative authorized by AGS will perform follow-up visits Serious or Repeated Noncompliance findings AGS will determine the appropriate sanctions for any serious or repeated violation. If necessary, we may terminate our relationship with a factory. In addition, where applicable, we will consider sanctions for the vendor associated with a factory found to have serious or repeated violations Critical Issues No Brand will tolerate any retribution or retaliation taken against any individual who has, in good faith, sought advice or reported questionable behavior or a possible violation of the Brand s Code of Conduct. No Brand will tolerate any party consciously engaging in practices that violate the Code of Conduct. Any vendor that is found in serious violation of the Code of Conduct may face penalties ranging from $25K USD up to $250K USD and may face termination. Critical issues include but are not limited to the following: Child labor Denied access partial or full Bribery Harassment and/or abuse Forced labor/prison labor/human trafficking (in all its forms) Discrimination Unauthorized subcontracting/production Health and Safety conditions posing immediate risk to life or limb Any critical issues identified by any 3 rd party auditor, vendor or factory must be reported to AGS within 24 hours. Compliance Manual ver

11 5.3. Factory Approval Process Issuance of the factory ID# will be done upon completion or verification of the compliance audit if required by the Brand AGS approves new factory for order placement based on an acceptable factory visit or a specific exemption If the result of a factory visit is not acceptable but the factory is willing and committed to making improvements, the vendor may request a second visit. The second visit is at the expense of vendor If the factory does not demonstrate or is not willing to commit to improvements, AGS will not authorize production in the factory consecutive non-transparent audit results will lead to factory termination and AGS production is strictly prohibited in the factory AGS reserves the right to restrict the use of factories in certain countries based on social, political, security or other risks. Since this may change from time to time, please contact AGS to discuss AGS is engaged with the FJATA program Some vendor and factories may be asked to participate in this program in lieu of the AGS Integrated Compliance Program. 11 Compliance Manual ver 4.0

12 6. Code of Conduct and Social Compliance Overview 6.1. We only work with factories that manufacture under safe, lawful, and humane conditions in accordance with applicable local laws. It is critical that all interested parties our consumers, licensing partners, vendors and factories that manufacture our products understand that the intention of this effort and our standards is not to require factories to meet US or Western standards. Our requirement consistent with other leading brands is that vendor and factories are working under conditions which meet minimum standards generally consistent with the local laws in the territories in which our products are manufactured The Compliance Manual provides information on the auditing process and the policies and procedures factories must consider ensuring the expectations in the Code of Conduct are met and the audit visit results will be acceptable AGS is dedicated to monitoring and enforcing adherence to the Code of Conduct by vendors and their factories. All credible information regarding potential noncompliance with the Code of Conduct and related standards will be reviewed and the appropriate sanction for any serious violation by a factory will be determined by AGS. 7. Code of Conduct and Social Compliance Guidelines The following compliance guidelines provide an effective framework for factories in the development of policies, procedures, practices and records to accomplish and effectively demonstrate compliance with the Code of Conduct Transparency: Each Brand expects vendors and factories to provide transparency into their operations, policies, procedures and records. Vendors and factories must allow inspection of their records and facilities by the Brand s associates and appointed audit partners to verify compliance to these standards. Factories producing goods for a Brand are expected to be honest and transparent with all records. No Brand will tolerate any factory that submits falsified records. Each Brand engages in a continuous improvement model for all factories willing to be transparent. Vendors must disclose the identity and location of all factories that will produce goods for a Brand, including the use of subcontractors Laws and Regulations: Vendors and factories must operate in full compliance with all applicable national and local laws and regulations of the countries in which they operate. Vendors and factories also must comply with all applicable United States and foreign laws and regulations on the importation of its products into those countries, including: customs regulations; country of origin labeling; product and fabric testing and product labeling. The following list of documents must be available for review during the 3 rd party factory visit: Proof of age a photocopy of official government documentation Proof of citizenship or work permit (where necessary by law) Medical records (where necessary by law) Compliance Manual ver

13 Executed employment contract/terms & conditions (where necessary by law) Termination letter (where necessary by law) Record of disciplinary action Deduction authorization such as social security (where necessary by law) The facility must maintain personnel files for all current and former employees. Records of former employees must be retained for a period of two years The facility must have a set of rules and regulations certified by the department of labor (where applicable); The factory must communicate rules, regulations and any disciplinary procedures to employees (e.g. bulletin boards); The terms of any probationary period must be outlined in the employee s employment contract and personnel file; A copy of the factory s business license, any other government license, certificates of operation etc. must be made available; All necessary documentation to assess compliance with the Code of Conduct must be maintained on site at the facility including payroll, time and piece rate records for at least a 2 year period Sub-contracting: Vendors and factories must not use subcontractors in the manufacture of product or product components for any Brand, unless the Brand provides written approval, and after the subcontractor agrees in writing to comply with this Code of Conduct No unauthorized outside contract factories can be used for any Brand No outside contract sewing in people s homes (homework) can be used All subcontractors must be listed on the Factory Profile Form Bribery and Corruption: A bribe is the payment of anything (money, gifts, or services) to influence a business or governmental decision. Vendors and factories must not offer or receive bribes to employees or agents of a Brand, its auditors, or any government institution. Vendors and factories must comply with all applicable laws related to bribery and corruption Child Labor: Vendors and factories must not employ workers younger than the age of 15 years or the minimum age established by law in the country of the manufacture, whichever age is greater. In addition, vendors and factories must comply with all legal requirements for the work of authorized young workers, particularly those pertaining to hours of work, wages and working conditions. Factories must maintain official documents for every worker that verifies date of birth. 13 Compliance Manual ver 4.0

14 No person under the mandatory school age may work in the facility Documentation is required to prove age when hiring workers and must be verified All age documentation must be maintained on file in the facility Children must not be present in the facility, unless in a nursery located away from the production areas Employees hired as part of an apprenticeship program may not be under 15 years old or the legal minimum age Minor age employees are not allowed to work in hazardous job positions If required by national or local law, minor age employees must work restricted hours Forced Labor, Slave Labor, Human Trafficking: Vendors and factories must not use involuntary or forced labor, whether indentured, bonded, prison or otherwise. Vendors and factories must not confiscate or withhold worker identity documents or other valuable items, including passports, work permits and travel documentation. Vendors and factories must not keep workers personal documents as a means to bind them to employment or to restrict their freedom of movement All workers in the facility must be voluntarily employed No prisoners may be working at the facility Contract Labor: Factories that employ or recruit foreign workers must ensure workers are treated fairly and on equal basis with the local workers Wages and Benefits: Vendors and factories must pay workers at least the minimum compensation required by local law and must provide all legally mandated benefits. In addition to their compensation for regular hours of work, workers must be compensated for overtime hours at such premium rate as is legally required or, in those countries where such laws do not exist, at least equal to their regular hourly compensation rate. All factories must provide auditors accurate and complete payroll and timecard records Payroll record information including government waiver, payroll register, production records, time sheets, overtime wages register, and piece rate tickets must be made available to the auditors Time records must show daily start and stop times and include regular and overtime work Employees must be paid at least the minimum wage specified by national and local laws, not including attendance, production, or other bonuses Piece rate workers must be guaranteed at least the minimum wage specified by national and local laws, not including attendance, production or other bonuses. Production records must be made available to the auditors. 14 Compliance Manual ver. 3.0

15 The company must provide workers with an understandable wage statement at each pay period which includes: Time worked during the pay period Wage or piece rate earned Bonuses earned during the pay period Hours of overtime at specified rate during the pay period Total overtime during the pay period Allowances and legal deductions Workers must be paid in a regular and timely manner Earned wages must not be withheld for any reason The company must have procedures in place for employees to question wages paid and possible adjustment to their pay The company must provide paid holidays and vacation as required by law The company must provide all benefits required by national and local laws Records of issuance of employee benefits (i.e. annual leave, maternity leave, etc.) must be made available to the auditors Payment receipts for mandatory social insurance payments must be made available to the auditors The company must have documentation to support employees consent to make voluntary deductions from their pay Hours of Work: Vendors and factories must ensure that except in extraordinary business circumstances, on a regularly scheduled basis, workers shall (1) not be required to work more than the lesser of (a) sixty (60) hours per week, including overtime; or (b) the limits on regular and overtime hours allowed by the law of the country of manufacture. In addition, except in extraordinary business circumstances, all workers shall be entitled to at least one day off in every consecutive seven-day period. Workers may refuse overtime without any threat of penalty, punishment or dismissal The scheduled work hours must be posted for the week and day The number of regular hours in a week is determined by national and local laws The scheduled overtime hours must be posted for the week & day Overtime hours must not exceed the hours specified by national and local laws, unless the factory has government permission for hours in excess of the standard. 15

16 Employees must have the right to refuse overtime Employees must have at least one day off in every consecutive seven-day period Work hours must be properly recorded, listing in and out times for every day worked Employees must record their work hours themselves or sign their time cards/slips to verify accuracy Health and Safety: Vendors and factories must provide their workers with a clean, safe and healthy work environment in compliance with all applicable, legally mandated standards for workplace health and safety in the countries in which they operate including standards for electrical, mechanical, structural and fire safety. This includes residential facilities, if applicable If required by national or local law, medical care must be available on-site A first-aid kit with proper medical supplies must be available to employees Employees must be provided all necessary safety equipment (e.g., masks, metal mesh gloves for cutters) free of charge and properly trained on how to properly use the equipment Records must be kept of injuries and accidents Employees must have unrestricted access to restrooms during the workday The number of restrooms must be appropriate for the number of employees The restrooms must be sanitary and stocked with necessary supplies and must be separated by sex A potable water source must be available to employees Rest breaks must be provided to employees as required by law If the factory has a canteen/cafeteria, it must be sanitary and food must be stored properly The factory must be able to provide a valid certificate for the canteen/cafeteria There must be adequate lighting and proper ventilation in the facility The aisles must be marked and free from obstruction The electrical equipment and wiring must be safe All machines must have machine guards, where appropriate. 16

17 Gas cylinders must be properly marked, used, inspected, stored and secured Metal detection devices are required to be used (applicable to apparel, accessory and other sewing facilities) Complete broken needle records must be kept Proper ventilation, temperature and humidity must be maintained Generators and other heavy vibrating equipment such as boilers are not allowed beyond the ground floor and must be isolated from any production area No Smoking signs must be posted in non-designated smoking areas including sensitive areas such as chemical storage areas Valid operator/equipment certificates must be available All chemicals must be properly labeled, stored and safely use The location of dorms must not violate any laws Any dormitories are subject to the above requirements Dormitories, rest rooms and showers must be separated by gender Sufficient dormitory space and storage areas must be provided to workers These standards must be communicated to all management and employees at the facility Fire and Emergency Preparedness All factories must have centralized fire alarms that can be heard by all workers and is visible in noisy areas. The system must be regularly inspected, clearly marked, easily accessible and tested in coordination with fire drills A centralized PA (Public Address) system reaches all individuals and floors and is tested in conjunction with the fire alarm system There must be an adequate number of fire extinguishers located around the facility The fire extinguishers must be mounted on the walls at the proper height Firefighting equipment, including fire extinguishers and hoses, must be easily accessible, clearly marked and routinely inspected to ensure they remain operational and have adequate pressure Fire engines and other emergency vehicles must be able to access the facility without difficulty and with sufficient space to maneuver. The factory may be asked to provide approval from the local fire department. 17

18 Employees must be sufficiently trained to use the fire extinguishers, and how to administer fire prevention procedures and emergency evacuation plans The factory must have a sufficient number of emergency exits The emergency exits cannot be locked and access to emergency exits cannot be blocked in any way The emergency exits must be clearly marked by emergency exit signs All factories must have emergency lighting, with back-up power, for all stairways and where needed on exit routes. The lighting must be inspected periodically and is of industry grade Emergency and other hazardous signage must be appropriate, clearly visible, and compliant with the local legal requirements Evacuation maps/plans must be posted throughout the facility Evacuation drills must be conducted in the facility regularly at least twice per year Emergency assembly points must be designated and adequate, i.e., away from roads, buildings and flammable or combustible objects/materials Building Safety The structure of the factory, including residential facilities provided by the factory must be stable and safe and does not put anyone in jeopardy No room in any factory shall be overcrowded as defined by the building permit, which should indicate the maximum number of people the building is approved to hold Building inspections must be conducted on a regular basis as per standard of practice or country law. Where no law exists, building inspections should be completed at least yearly The factory must be aligned with the approved building plan, with no additional floors or external retrofit structures A valid fire license must be available for the factory Environment: Vendors and factories must comply with all local environmental laws applicable to the workplace. Factories must conduct business so as to minimize the impact on the environment, including properly managing waste and maximizing recycling initiatives. The following list of documents must be available for review during the 3 rd party factory visit: Air emission permits and monitoring records 18

19 Reports of analysis of drinking water Wastewater discharge monitoring reports Wastewater discharge permits Hazardous waste manifests or shipping papers Waste profiles/test results/waste analyses Nondiscrimination: While each Brand recognizes and respects cultural differences, vendors and factories must ensure employment including hiring, remuneration, benefits, advancement, termination and retirement is based on ability and not on belief or any other personal characteristics Policies on anti-discrimination must be provided if applicable (e.g. in employee handbook) Humane Treatment: Vendors and factories must treat all workers with respect and dignity. No worker shall be subject to corporal punishment, physical, sexual, psychological or verbal harassment or abuse. In addition, vendors and factories will not use monetary fines as a disciplinary practice Employees cannot incur disciplinary pay deductions Supervisors cannot use corporal punishment or other abusive behavior Women s Rights: Vendors and factories will ensure women workers receive equal treatment in all aspects of the employment. Pregnancy tests will not be a condition of employment and pregnancy testing to the extent provided will be voluntary and the option of the worker. In addition, workers will not be forced to use contraception Pregnancy testing must not be conducted as a condition of employment Contraceptives may be made available to employees, but the employees must never be required to use them Freedom of Association: Vendors and factories must recognize and respect the right of workers to exercise lawful right of free association, including joining or not joining any association. The decision of the worker to join any such organization must be made solely by the worker Collective Bargaining Agreement and other union documents (e.g. meeting records) must be provided to the 3 rd party auditor for review, if applicable Communication: Vendors and factories must communicate this Code of Conduct and the provisions to workers and supervisors and undertake annual, documented training efforts to educate current and new employees about these Code of Conduct requirements. 19

20 7.19. Auditing and Compliance: Each Brand will undertake affirmative measures, such as announced and unannounced on-site audits of production facilities, to monitor compliance with the Code of Conduct. Vendors and factories must maintain on site all documentation necessary to demonstrate compliance with the Code of Conduct, and vendors and factories must allow Brand representatives full access to production facilities, worker records and workers for confidential interviews in connection with auditing visits No Retaliation: No Brand will tolerate any retribution or retaliation taken against any individual who has, in good faith, sought advice or reported questionable behavior or a possible violation of this Code of Conduct Factory Security: All factories producing goods for a Brand must implement minimum security criteria to help secure our supply chain. The minimum security criteria are based on recommendations developed as a result of the C-TPAT initiative with US Importers. See also specific Security discussion and requirements in section 9 of this manual Brand Protection: All factories producing goods for a Brand must protect the reputation of the Brand and reduce the possibility of illegal activities such as counterfeiting, diversion, trademark infringement and other infringements of intellectual property rights. Factories must not sell or otherwise dispose of goods that bear or incorporate the Brand s trademarks, copyrights or other intellectual property except as specifically directed in writing by the Brand. See also specific Brand Protection discussion and requirements in section 10 of this manual. For full Code of Conduct, please see Appendix 1. 20

21 8. Supply Chain Security Overview Customs Trade-Partnership Against Terrorism (C-TPAT) In response to the events on September 11, 2001, Bureau of Customs and Border Protection (CBP) introduced a new anti-terrorism initiative called Customs-Trade Partnership Against Terrorism (C-TPAT), which engages the trade community in a cooperative relationship with Customs in the war against terrorism. Under the C-TPAT initiative, Customs will work with foreign manufacturers, exporters, carriers, importers and other industry sectors emphasizing a seamless security conscious environment throughout the entire commercial process from manufacturer through transportation and importation to ultimate distribution. Participation in the C-TPAT Program Customs and willing members of the trade community collaborate to better secure the international supply chain to the United States. To better secure and facilitate the flow of goods into the United States, CBP will ensure that existing and new C-TPAT partners fulfill their commitments by verifying that agreed security measures have been implemented. CBP will also work with its C-TPAT partners to further finalize minimum, applicable supply chain security criteria and security best practices. CBP will send teams of supply chain specialists around the globe, to visit members, their vendors, and vendors factories to validate that supply chain security meets C-TPAT minimum security criteria and best practices and that procedures used are reliable, accurate, effective and meet the agreed upon security standards. CBP will continue providing tools and creating incentives for the private sector to join C-TPAT, which is a prerequisite for the Free and Secure Trade (FAST) program and other CBP expedited processing programs. Benefits of Participation in C-TPAT Benefits to the importer for fully participating in this new initiative with Customs will include expedited processing, priority levels of service and Customs notification of compliance and/or enforcement exams. Dedicated commercial lanes for approved and active participants, along with the deployment of Non-Intrusive Inspection (NII) technology at the selected ports along the borders will provide for faster screening and expedited clearance. Trade Actions For its part, the business community must review their entire logistics chain and incorporate sound security principles to reduce their exposure to product and conveyance tampering. Failure to do so will necessitate Customs to classify the importer into an unknown category resulting in higher scrutiny of cargo and conveyance, increased reviews and audits, added examinations, requests for more information and therefore no guarantee of processing times. 21

22 9. Supply Chain Security Guidelines Foreign manufacturers must develop and implement a comprehensive plan to enhance security procedures throughout their operations. Each vendor and factory agrees to develop and maintain, within a framework consistent with the listed recommendations and guidelines of C-TPAT described on the US Customs website; as the same may be amended from time to time, a verifiable, documented program to enhance security procedures throughout production and delivery of Goods must be in place. The facility is reviewed by our third party auditor to evaluate the level of security and the risk associated with any gaps in the security process. Focus is on points of loading and sealing sea containers. Vendors and factories that demonstrate that they have an effective security program, with similar standards and tools, will be considered to present a lower compliance risk. These are general recommendations that must be followed on a case-by-case basis depending on the company's size and structure and may not be applicable to all. Each supplier is required to sign and return the CTPAT Annual Notice to Suppliers. Each factory must have written security procedures in place that addresses the following: 9.1. Business Partner Requirement: Foreign manufacturers must have written and verifiable processes for the selection of business partners including, carriers, other manufacturers, product suppliers and vendors (parts and raw material suppliers, etc.) For those business partners eligible for C-TPAT certification (carriers, importers, ports, terminals, brokers, consolidators, etc.) the foreign manufacturer must have documentation (e.g. C-TPAT certificate, SVI number, etc.) indicating whether these business partners are or are not C-TPAT certified For those business partners not eligible for C-TPAT certification, the foreign manufacturer must require that their business partners demonstrate that they are meeting C-TPAT security criteria via written/electronic confirmation. Based upon a documented risk assessment process, non-c-tpat eligible business partners must be subject to verification of compliance with C-TPAT security criteria by the foreign manufacturer Foreign manufacturers must ensure that business partners develop security processes and procedures consistent with the C-TPAT security criteria to enhance the integrity of the shipment at point of origin, assembly or manufacturing. Periodic reviews of business partners processes and facilities should be conducted based on risk, and should maintain the security standards required by the foreign manufacturer Current or prospective business partners who have obtained a certification in a supply chain security program being administered by foreign Customs 22

23 Administration should be required to indicate their status of participation to the foreign manufacturer On U.S. bound shipments, foreign manufacturers should monitor those C-TPAT carriers that subcontract transportation services to other carriers, use other C- TPAT approved carriers or non-c-tpat carriers that are meeting the C-TPAT security criteria as outlined in the business partner requirements As the foreign manufacturer is responsible for loading trailers and containers, they should work with the carrier to provide reassurance that there are effective security procedures and controls implemented at the point-of-stuffing All business partners should have a specific employee or department responsible for supply chain security Seal and Container /Trailer Security: Seal and container/ trailer integrity must be maintained to protect against the introduction of unauthorized material and/or persons Procedures must be in place to properly seal and maintain the integrity of the shipping containers and trailers at the point-of-stuffing; including the witness by another person to ensure seals have been properly affixed and by using CBP s View, Verify, Twist and Tug (VVTT) method to ensure the seal is the correct seal number, uncompromised and properly affixed to the loaded container A high security seal must be affixed to all loaded containers and trailers bound for the U.S All seals must meet or exceed the current PAS ISO standard for high security seals A seal log must be maintained and updated regularly and seals must be stored in a secured storage container Documentation regarding the seal standard must be maintained on file for verification Seals must be assigned to a designated employee/department that has received seal security training Procedures must be in place to verify the physical integrity of the container structure prior to stuffing, to include the reliability of the locking mechanisms of the doors. A seven-point inspection process is recommended for all containers: 1. Ceiling Roof 2. Front Wall 3. Left Side 4. Floor 5. Outside/Undercarriage 6. Inside/Outside Doors 7. Right Side 23

24 Procedures must be in place to verify the physical integrity of the trailer structure prior to stuffing, to include the reliability of the locking mechanisms of the doors. The following ten-point inspection process is recommended for all trailers: Fifth Wheel Area - check natural compartment/skid plate Exterior - front/sides Rear - bumper/doors Front Wall Left Side Right Side Floor Ceiling/Roof Inside/Outside Doors Outside/Undercarriage The sealing of trailers and containers to include continuous seal integrity, are crucial elements of a secure supply chain, and remains a critical part of a foreign manufacturers commitment to C-TPAT Written procedures must stipulate how seals are to be issued, controlled and affixed to loaded containers and trailers, to include procedures for recognizing and reporting compromised seals and/or containers/trailers to U.S. Customs and Border Protection or the appropriate foreign authority Containers and trailers under foreign manufacturer control or located in a facility of the foreign manufacturer must be stored in a secure area to prevent unauthorized access and/or manipulation Procedures must be in place for reporting and neutralizing unauthorized entry into containers/trailers or container/trailer storage areas Physical Access Controls: Access controls prevent unauthorized entry to facilities, maintain control of employees and visitors and protect company assets. Access controls must include the positive identification of all employees, visitors and vendors at all points of entry An employee identification system must be in place for positive identification and access control purposes. Employees should only be given access to those secure areas needed for the performance of their duties Company management or security personnel must adequately control and record the issuance and removal of employee, visitor and vendor identification badges Procedures for the issuance, removal and changing of access devices (e.g. keys, key cards, etc.) must be documented Visitors and vendors must present photo identification for documentation purposes upon arrival All visitors should be escorted and should visibly display temporary identification. 24 Compliance Manual ver. 4.0

25 Arriving packages and mail should be periodically screened before being disseminated Procedures must be in place to identify, challenge and address unauthorized/unidentified persons Packing, loading and shipping areas must be separated from the production area and access should be restricted to authorized personnel only Personnel Security: Processes must be in place to screen prospective employees and to periodically check current employees Application information, such as employment history and references, must be verified prior to employment Consistent with foreign regulations, background checks and investigations should be conducted for prospective employees. Once employed, periodic checks and reinvestigations should be performed based on cause and/or the sensitivity of the employee s position Companies must have procedures in place to remove identification, facility, and system access for terminated employees Procedural Security: Security measures must be in place to ensure the integrity and security of processes relevant to the transportation, handling and storage of cargo in the supply chain Procedures must be in place to ensure that all information used in the clearing of merchandise/cargo is legible, complete and accurate, and protected against the exchange, loss or introduction of erroneous information Documentation control must include safeguarding computer access and information To help ensure the integrity of cargo, procedures must be in place to ensure that information received from business partners is reported accurately and timely Departing cargo being shipped should be reconciled against information on the cargo manifest The cargo should be accurately described, and the weights, labels, marks and piece count indicated and verified Departing cargo should be verified against purchase or delivery orders Drivers delivering or receiving cargo must be positively identified before cargo is received or released Procedures should also be established to track the timely movement of incoming and outgoing goods. 25

26 All shortages, overages and other significant discrepancies or anomalies must be resolved and/or investigated appropriately Customs and/or other appropriate law enforcement agencies must be notified if anomalies, illegal or suspicious activities are detected - as appropriate A security officer or other authorized staff should be designated to supervise the loading and unloading of cargo Physical Security: Cargo handling and storage facilities in international locations must have physical barriers and deterrents that guard against unauthorized access. Foreign manufacturer should incorporate the following C-TPAT physical security criteria throughout their supply chains as applicable Perimeter fencing should enclose the areas around cargo handling and storage facilities. Interior fencing within a cargo handling structure should be used to segregate domestic, international, high value and hazardous cargo All fencing must be regularly inspected for integrity and damage Gates through which vehicles and/or personnel enter or exit must be manned and/or monitored The number of gates should be kept to the minimum necessary for proper access and safety Private passenger vehicles should be prohibited from parking in or adjacent to cargo handling and storage areas Buildings must be constructed of materials that resist unlawful entry. The integrity of structures must be maintained by periodic inspection and repair All external and internal windows, gates and fences must be secured with locking devices Management or security personnel must control the issuance of all locks and keys Adequate lighting must be provided inside and outside the facility including the following areas: entrances and exits, cargo handling and storage areas, fence lines and parking areas Alarm systems and video surveillance cameras (CCTV) should be utilized to monitor premises and prevent unauthorized access to cargo handling and storage areas. Factories must be able to demonstrate system functionality and provide access to equipment and records to any auditors representing the Brands CCTV camera records must be kept for a minimum of 3 months in sensitive areas and at least 1 months in other areas 26