Case study: Large UK retailer

Head of internal audit

As a large UK based retailer, the impact on the organisation following the Brexit referendum has been the currency exchange rate fluctuation between Euro and Sterling. Brexit continues to drive higher UK domestic inflation and increased import costs from a weaker Sterling, worsened by new import duties and tariffs, with a consequential wider economic impact. The collapse in the pound has pushed up prices and a possible no deal outcome could lead to higher food prices and major supply chain issues.

The organisation has a deep and rich supply chain across Europe as it imports large quantities of food products into the UK. Most goods require frictionless cross-border access, so it is vital that its products
can be imported without delays and disruption. The immediate consequences of putting in place physical border controls will mean that lorries carrying fresh produce will be forced to undergo lengthy checks at UK ports, which may cause deterioration in the products increasing waste and driving up costs for customers.

Another area of concern has been its supply chain’s large reliance on EU nationals working in the British agri-food sector and which are particularly vulnerable to the prospect of future changes to immigration policy for EU migrants.

The uncertainty around a potential outcome has led the organisation to mitigate and offset the above risks by reviewing its supply chain and by actively looking into alternative sources of supply within the
UK but also outside the EU to source food and drink deliveries to its stores. It has already mapped out alternative sourcing locations for goods that could face the biggest tariffs if the UK leaves the EU without a deal, relying instead on WTO rules.

In addition, it is looking into possibilities to assist its suppliers in recruiting British staff to secure the labour supply. Many UK farmers are highly dependent on thousands of seasonal low-skilled workers, a large majority of them coming from EU countries.

Preparing for Brexit

Like many other organisations, the retailer primarily focussed on a hard Brexit outcome as it would be the most disruptive to the organisation. In this scenario, retailer profits would decline significantly because of higher tariffs, procurement difficulties and a decline in the value of Sterling.

It has spent a minimum amount of resources on a soft Brexit outcome, referring to a scenario where the UK stays either within the EU’s Single Market or in the European Customs Union, or both. It is confident that the business is prepared for a soft Brexit and, as a positive consequence of this, has minimised its workload by only focusing on its worst-case scenario, a hard Brexit.

The uncertainty around Brexit is also considered disruptive but the organisation found the government’s recent technical notices on importing and exporting helpful in preparing for Brexit in the event of a no-deal Brexit.

The risk and oversight of Brexit has been owned by the Executive Committee and not a standalone committee. Brexit was recognised as a principal risk early on and the internal audit and risk function has supported management to identify risks and their potential impacts on the business. The internal audit function supported management in their own work to assess the impact of Brexit.

Content reviewed: 2 November 2018