Forevermark Pipeline Integrity The Forevermark

Forevermark & Pipeline Integrity § The Forevermark – DTC Forevermark is a ‘Mark of Trust’ that gives you peace of mind in your diamond § Pipeline Integrity and the Forevermark – – DTC Standard (DTC 001: 2005) “Live” document Sightholders have sole responsibility to ensure its implementation Independently verified by SGS

Forevermark & Pipeline Integrity § Timelines & Costs – Before stones can be delivered for manufacture Sightholder must be certified Pipeline Integrity Compliant – Completion before 31 st March 06 § Target January/ February – Audit at DTC’s cost

What is the Standard?

What is the Standard? § § § Standard developed with British Standards Institute Provides framework for evidence of pipeline integrity Compliance to Standard a pre-requisite for taking part in the scheme § Not a Pass or Fail but an assurance that risks are managed

What is the Standard? § DOES NOT: Detail how to meet the criteria § DOES NOT: Seek to impose procedures or to change ways of working § DOES NOT: Cover methods or procedures for the actual cutting/polishing of the stones § DOES NOT: Confer immediate status for Forevermark

What is the Standard? – Key Component § Separation: – Keeping potential Forevermark stones physically separate from all others at every stage – Separate processing, packaging, storage AND/OR § Traceability: – Ability to track and locate stones at every stage – Ability to track the history of any stone back to Sightbox and identify each activity and outcome

Routes to Compliance

Routes to Compliance - What you need to do? § Appoint assessor (internal or independent external 3 rd party) to review operations against standard § Assessor arranges SGS visit - average 6 weeks compliance process § SGS Visit - Reviews & reports on operations 1. Sightholder compliant 2. Sightholder corrective actions & evidence to SGS a) Submission of documentation or b) SGS revisit operation § Compliance then regular reconciliation & 6 monthly internal review

Retailer Participation Criteria n Mandatory Criteria – – – Willingness to invest in Forevermark project Letter of participation commitment to their Sightholder partner Agreement to best endeavours to DTC Best Practice Principles – Comparative Criteria – Sales of jewellery containing 30+ point stones – Significance of sales of diamond jewellery – Independent source (Television Audience Measurement - TAM) on all above the line media spend

Verification – What is required?

What is required? § Management Processes prove Pipeline Integrity Evidenced by 1. 2. 3. 4. 5. 6. 7. Systems Documentation Control & Tracking Data Integrity Security Pipeline Management Internal Assessment

1. Systems § Need to show § § Sightholder overall responsibility for entire chain Organisation Chart defining responsibilities Procedures for reviewing and improving the system Procedures for corrective and preventative actions

2. Documentation § Procedures controlling each stage – Can be paper or IT-based (simple = flow diagram) § Understood by relevant personnel – Evidence that they have been communicated/ trained in the procedures § Used at each Stage – Evidence that the procedures are available and live

3. Control & Tracking Regular Reviews § Systems MUST be able to evidence that stones can be located and tracked – Both from stone into records – And from records to stone § Must be traceable to original Sightbox § Completeness – – Is every stage covered? Is there sufficient detail? Are there any gaps? What happens if an anomaly is found?

4. Data Integrity § Accuracy – How is accuracy ensured? – Who is checking the data? – What happens if an anomaly is found? § Cross-checking data across systems § Robustness – Can data be changed? – Who is authorised to do this? – Are all changes traceable? § How is data stored to ensure retention periods are met?

5. Security § Data Security (physical and electronic) – – Storage/Retention Ability to change data Back-up/archive procedures Disaster recovery § Physical Security – Secure pipeline – Storage of potential Forevermark diamonds

6. Pipeline Management – Associated entities § Overall responsibility for pipeline compliance remains with Sightholder § Owned entities need to implement equivalent systems – Evidence of internal assessment – Potentially open to verification § Sub-contractors – Choice of implementing systems as above or Sightholder monitoring – Minimum: Key criteria and controls need to be understood and implemented – SGS reserves right to visit sub-contractor

6. Pipeline Management Jewellery & Retail § Jewellery Manufacture – Responsibility for Record Keeping – Availability of records for review if needed § Retail – Potential visits to check on stones being sold

7. Internal Assessment § Assessor - Internal or Third Party – Independent of the Operational Functions – Training and Experience Required § Audit Experience & Understanding of systems – Authority to implement changes and recommend improvements – Ultimate authority to stop production – If Third Party Sightholder still retains responsibility for management of process – Ensure all controls are present and that system is functioning – System tested with real or test data

7. Internal Assessment § Assessment plan to ensure all aspects covered over the 6 -month period – can be 1 -off or staggered § Test the system – Horizontal checks – check a function e. g. record keeping – Vertical Checks – track Sightbox or Single Stone § Communicate Results – information sharing is critical to maintenance and improvement of system § Obtain and share reconciliation records with SGS only

Main Points to Note…… § Criteria apply to every stage from receipt of Sightbox to marking of goods § Particular focus is needed at any stage where physical transfer of diamonds is involved § Assessment should test the system thoroughly § Non-compliances are an opportunity to improve the system – should be seen as positive not negative § Assessment should look for evidence – Documents – Testimony

Assessment Documentation

Assessment Documentation § § § Audit Checklist Audit Supplement for Sub-Contractors Assessment Report Assessment Completion Record Corrective Action Request

Assessment Criteria § Completeness and timeliness of internal assessments § Availability of evidence of compliance § Positive approach – Opportunity to show the facility complies – Not a policing exercise § Evidence that the system is working and is used to drive improvements

Non-Compliances § Three levels of non-compliance recorded § Material – show stopper § Major – must be rectified before letter of compliance can be issued § Minor – needs to be rectified in reasonable period depending on issue. If ignored could lead to escalation to Major

Classification of Breaches § Material – any non-compliance issue where there is a total breakdown of DTC 001: 2005 Management System, with inadequate controls in place to ensure compliance with the requirements of the standard – Show Stopper

Classification of Breaches § Major – a non-compliance issue where there is an absence or a total breakdown of a procedure required as part of DTC 001: 2005 – OR a significant occurrence of minor non-conformities against a particular element or within a single department or activity – OR where Minor Breaches are not addressed within the timeframe agreed in the Corrective Action Plan – Major non-compliances are subject to re-audit/monitoring by SGS – The status can change to “minor” when a corrective action plan is in place and is being implemented

Classification of Breaches § Minor – a single observed nonconformity with respect to the standard or a procedure required as part of the Management System – May be able to be corrected on the day or may require a Corrective Action Plan – Corrective Actions must be followed up or the non-compliance could be upgraded to Major

Typical Assessment Checklist

Group Questions

Certification

Conditions § Certificate of Compliance will be issued where: – Significant entities or a sufficient sample have been subject to verification audits – Sample of entities to be audited to be agreed by SGS in each case – No Material non-compliances – Major Issues with an agreed Corrective Action Plan

On-going Maintenance § Regular assessments to be undertaken and evidence provided § Reports of activity and evidence of completion of corrective actions to be provided § Reconciliation records to be provided § Annual Verification Visit

Reconciliation

Why Reconciliation? § Important aspect of Pipeline Integrity § Supports the assessment process and gives the Sightholder confidence § Additional layer of security to show that Forevermark diamonds are of DTC origin § Applies only to DTC Sightboxes used in the Forevermark § Reconciliation data will be sent to SGS not DTC for validation § Undertaken at regular intervals or on request from SGS

What is Reconciliation? § SGS notifies Sightbox to be reconciled based on a marked stone at six-monthly intervals § Reconcile Eligible & Non-Eligible diamonds to original DTC Sightbox § Reconcile final polished manufactured from Eligible diamonds to the original DTC Sightbox detailing: – DTC Sightbox No; Sight No; Year and description of goods – No. carats identified as being Eligible & No. carats removed as being Non-Eligible – Details of resultant polished from Eligible diamonds by Colour, Clarity and Yield, in terms of carats

SGS and Pipeline Integrity Summary § § § Not pass or fail Key Component - Separation & Traceability Common Gap – Documentation On-going evaluation Reconciliation § SGS does not tell you what to do but advise things to do