GLOBAL FORESTRY SERVICES. Sabah TLAS Compliance Audit Checklist / Report Principles 5 & 6

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1 Organization Contact Person Office Address Mill Address GLOBAL FORESTRY SERVICES Sabah TLAS Compliance Audit Checklist / Report Principles 5 & 6 Makeson Sdn. Bhd. (99395-V) Tenants: 1. Borneo Build & Supply Sdn. Bhd. ( W) 2. Borneo Benar Sdn. Bhd. ( D) 3. MS2 Timber Industries Sdn. Bhd. ( D) Alvin Tham (Manager) Lot 14, Jalan 3 KKIP Timur, Industrial Zone 13, KKIP, Kota Kinabalu, Sabah, Malaysia. Lot 14, Jalan 3 KKIP Timur, Industrial Zone 13, KKIP, Kota Kinabalu, Sabah, Malaysia. Reference # G Audit Date Date close out Telephone 08/03/ , Fax tyh.alvin@gmail.com Approved By Dr. Kevin Grace Statements GFS Audit Statement # GFS 072 WTP Issuance Date 1 April 2016 Expiration Date 31 March 2017 Assessment Details Company Type Scope of Assessment Product Group Source of Material Species GFS Lead Assessor GFS Assessor(s) FDS Staff Moulding mill, Kiln Dry Plant and Wood Preservation Plant Makeson Sdn. Bhd. (Borneo Build & Supply Sdn. Bhd., Borneo Benar Sdn. Bhd. and MS2 Timber Industries Sdn. Bhd.) Sawn timber and mouldings (S4S, E4E, reeded decking, tongue & groove, panelling) Sabah, Malaysia Drybalanops spp. (Kapur), Shorea inappendiculata (Selangan batu), Parashorea spp. (White seraya), Shorea spp. (Red seraya, Yellow seraya) Heritiera simplicifolia (Kembang), Sapotaceae spp. (Nyatoh), Hevea brasiliensis (Getah), Intsia palembanica (Merbau), Agathis borneensis (Mengilan), Artocarpus spp. (Keledang), Acacia spp. (Akasia), Agathis borneensis (Mengilan), Intsia palembanica (Merbau), Tristaniopsis merguensis (Pelawan-pelawan), and other species (OT) Lai Jia Woei Charlene Billy and Wong Bin Heang Arshad Hj. Ismail (FLEGT officer), Rudziah Hj. Abd. Ghani (ADFO PPD Kota Kinabalu), RH Muznah Sabardin (EIS PPD Kota Kinabalu), RH Zaini Abdul Hamid (KPPM Kota Kinabalu), PH Jenet Intohu (PPD Kota Kinabalu)

2 Terms of Assessment The scope of the evaluation is to verify compliance of the Makeson Sdn. Bhd. to the criteria within the Sabah Timber Legality Assurance System (TLAS) Principle 5 - Mill Operations and Principle 6 -Trade and Customs standards. Compliance is defined when the organization demonstrates that there is no noncompliance to any applicable criteria. Non-compliance to the Sabah Legality Standard occurs when the organization does not comply with 1 or more criteria. Non-compliance must be formally addressed prior to certification or within 2 months following a surveillance assessment. Limitations of Assessment The information presented in this report is based on documentation and other information presented by the client and observations made during the field verification under the assessment. GFS reporting of information presented by the client are taken as accurate, unless evaluated differently through the observations made during the assessment. All information presented in the report is accurate and complete to the best of knowledge of GFS. Background Information: Makeson Sdn. Bhd. (Makeson) s mill license and mill contractor license are leased to Borneo Build & Supply Sdn. Bhd. ( W), Borneo Benar Sdn. Bhd. ( D) and MS2 Timber Industries Sdn. Bhd. ( D) to produce mouldings and sawn timber respectively. Production description of each company as follows: Company Production description Appendix Makeson Sdn. Bhd. Moulding, kiln dry and wood 7, 11, C preservation plant Borneo Build & Supply Sdn. Bhd. Moulding 7 Borneo Benar Sdn. Bhd. Moulding 7 MS2 Timber Industries Sdn. Bhd. Rubber wood sawmilling 1 Associated Organizations & Subcontractors: Makeson does not engage other companies as subcontractors to provide or manufacture products. Description of the Supply Chain: In year 2015, Makeson and its tenants purchased raw materials from suppliers as below: Supplier License Raw Material Location Ho Lian Sawmill Sdn. Bhd. JP(N)KG 002/07 (X04) Sawn timber Keningau (PPY Success Sdn. Bhd.) Right Way Furniture Sdn. JP(PT) 009/04 Sawn timber Sandakan Bhd. Mau Seng Timber Sdn. Bhd. JP(K)KK 003/08 (X04) Sawn timber Kota Kinabalu Irama Ramai Sdn. Bhd. JP(N)KG 001/12 (X04) Sawn timber Keningau Sabah Forest Industries JP(K)SG 001/00 (X17)R Sawn timber Sipitang Sdn. Bhd. (ITC) Rakyat Berjaya Sdn. Bhd. JP(T)KA 004/07 (B01) Sawn timber Kalabakan (Ganda Deras Sdn. Bhd.) Kimpal Sawmill Sdn. Bhd. JP(N)SO 002/09 (B01) Sawn timber Sook

3 Samisun Timber Sdn. Bhd. JP(N)SO 001/14 (B01) Sawn timber Sook (Suria Dimaju Sdn. Bhd.) Jayaramai Sdn. Bhd. JP(N)SO 055/00 (B01)R Sawn timber Sook (ML Trading Sabah) Kilang Kayu Lohan Sdn. Bhd. JP(K)RN 005/00 (X04)R Sawn timber Ranau Syt. Datuk J.A Angian JP(N)SO 054/00 (B01)R Sawn timber Sook Andulag Sdn. Bhd. (Wawasan Taat Sdn. Bhd.) Makmuran Sawmill Sdn. JP(N)TM 001/03 (B01) Sawn timber Tenom Bhd. Sri Jomatsu Sdn. Bhd. JP(N)NN 014/07 (B01) Sawn timber Nabawan Bersatu Andal Sdn. Bhd. JP(N)TW 004/06 (X04) Sawn timber Tawau Cargo Timber Sdn. Bhd. JP(N)KG 031/00 (X04)R Sawn timber Keningau Gold Rank Sdn. Bhd. JP(N)TTW 001/10(X04) Sawn timber Tawau Rakyat Berjaya Sdn. Bhd. JP(T)KA 001/12 (X06) Sawn timber Kalabakan (Smart Oracle Sdn. Bhd.) Timberwell Berhad (Syarikat Paitan Enterprise) JP(D)KM 004/12 (B01) Sawn timber Kota Marudu Vamco Timber Company - Sawn timber Sipitang Sdn. Bhd. Seguntor Sdn. Bhd. JP(S)SS 018/00 (B01)R Sawn timber Sandakan Common species used include Drybalanops spp. (Kapur), Shorea inappendiculata (Selangan batu), Parashorea spp. (White seraya), Shorea spp. (Red seraya, Yellow seraya) Heritiera simplicifolia (Kembang), Sapotaceae spp. (Nyatoh), Hevea brasiliensis (Getah), Intsia palembanica (Merbau), Agathis borneensis (Mengilan), Artocarpus spp. (Keledang), Acacia spp. (Akasia), Agathis borneensis (Mengilan), Intsia palembanica (Merbau), Tristaniopsis merguensis (Pelawan-pelawan), and other species (OT). Makeson does not export timber products. Finished goods are sold locally. Borneo Benar is a manufacturer of quality wood products and builder of resorts. The sister company Borneo Build & Supply specializes in the supply of products made exclusively from FSC timber. Borneo Build & Supply utilizes Borneo Benar s export license for exporting activities. No local sales. MS2 exports kiln dried rubber sawn timber to China and Taiwan. No local sales. Scope of audit: Only mill production that operates under Makeson Sdn. Bhd. is included. Exports of finished goods carried out by the tenants were excluded in this audit, as Makeson Sdn. Bhd. does not have an export license. The said export activities are to be included and audited under TLAS P5P6 Pure Exporter.

4 Summary results: (Major gap = 0, Minor gaps = 5, Observation = 1) GAPs: 2016 GAP # Type Checklist # Description 006/2016 Minor 5.3.2, No safety and health training was conducted by MS2 Timber and Borneo Build & Supply for mill workers in year The assessing team observed that most of the MS2 Timber and part of the Borneo Build & Supply workers do not have PPE during work; the band saw and sorting workers were on barefoot or wore slippers while working. 007/2016 Minor No fire training conducted by MS2 Timber and Borneo Build & Supply for mill workers in year *Major = Non-Compliance Status of Outstanding GAPs: 2015 GAP # Type Checklist Status Description Inconsistency of recording monthly sawn timber supply (arrival) into Appendix 7 for the month of August December /2015 Minor Outstanding 002/2015 Minor Outstanding Inconsistency on recording and keeping the data for the arrival of raw materials (specifically for incomplete information on the Removal Pass and for arrival of sawn timber that does not require Removal Pass on case-to-case basis respectively) hence resulting:! MS2 Timber plantation log input volume is more than arrival volume recorded in the arrival book and Removal Pass.! The total sawn timber input volume of Makeson and Borneo Build & Supply is greater than arrival book and Removal Pass. MS2 Timber does not have a license to hire foreign workers. A total of 15 workers were randomly sampled from 3 different companies (5 from Makeson, 5 from MS2 Timber and 5 from Borneo Benar). 5 temporary workers (pajak) from MS2 Timber do not have valid documents. 003/2015 Minor 5.3.4, Closed 8 out of 15 workers (Makeson, Borneo Build & Supply, Borneo Benar and MS2 Timber) observed did not possess COI. Please refer Criterion for details. No submission of JKKP 8 Form (Register of Accident, Dangerous Occurrence, Occupational Poisoning, and Occupational Disease) for year 2014.

5 004/2015 Minor 005/2015 Minor 6.1.1, , Closed Outstanding Makeson had submitted the JKKP 8 Form of year 2015 to DOSH on 28 th January Borneo Build & Supply submitted the JKKP 8 Form for year 2015 to DOSH on 10 th March export consignments sampled, copies of FDS endorsed documents Borang EIS 1/2000, JHP 1, JHP 2 were not made available during the document review. Five sets of MS2 Timber export consignments sampled, copies of RMC and FDS documents K2 chit and Borang EIS 1/2000, JHP 1 and JHP 2 were provided. 2 export consignments sampled, copies of Removal Pass were not made available during the document review. Two out of five sets of year 2015 MS2 Timber export consignments sampled, the copies of Removal Pass were not maintained. Observations: 2016 OBS # Checklist # Description The assessing team observed the removal passes of rubber wood issued by Sipitang district forestry office did not contain the information of total pieces and volume (Removal passes sampled: A662205, A , A662227, A , A662246, A662250). Highlights of close-out visit (if applicable) Not applicable. Date Recommendations Makeson Sdn. Bhd. has demonstrated compliance to the Sabah Standard Principles 5-6 for Chain of Custody and is recommended to receive a GFS Audit Statement and Sabah STCC by SFD. Minor gaps identified in this assessment should be addressed before the next surveillance visit. Actions required to close the gaps include: a. C5.1.2 Makeson shall ensure all information to be submitted to FDS is accurate. It is recommended to document the total volume of monthly raw material arrival that does not require the Removal pass. b. C5.3.1 The licensee and its tenants shall apply COI for workers who are working in the mill as stipulated in the mill license conditions. c. C6.1.4, C6.1.6 MS2 Timber shall maintain the Removal Pass for export consignments for administrative purpose.

6 d. C5.3.2, C5.3.7 MS2 Timber and Borneo Build & Supply shall conduct safety and health training in order to equip workers with first aid knowledge as well as to increase safety awareness among workers during operation. Training conducted is required to be documented and maintained. The company shall also prepare standard operation procedure (SOP) on Work Safe Guidelines for the mill. e. C5.3.8 The purpose to conduct fire prevention training is to increase awareness among workers on handling emergency cases. Records of training shall be documented and maintained. The company shall also prepare standard operation procedure (SOP) on fire prevention and controlling. The next surveillance visit is scheduled in March End of Summary Report