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. (715981W) 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 22/04/ , Fax tyh.alvin@gmail.com Approved By Dr. Kevin Grace Statements GFS Audit Statement # GFS 072 WTP Issuance Date 1 May 2015 Expiration Date 30 April 2016 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), Dipterocarp spp. (Keruing), Shorea inappendiculata (Selangan batu), Tristaniopsis merguensis (Pelawanpelawan), Parashorea spp. (White seraya), Shorea spp. (Red seraya, Yellow seraya, Melapi), Sapotaceae spp. (Nyatoh), Shorea pauciflora (Oba suluk), Intsia palembanica (Merbau), Hevea brasiliensis (Getah), Agathis Lai Jia Woei Masrin Gilam and Charlene Billy Narbert Nasly (FLEGT officer), Isgau Abdullah (EIS officer HQ), Roslan Abdillah (DFO PPD Kota Kinabalu), Zaini Abdul Hamid (KPPM Kota Kinabalu), PH Japri Brahim (PPD Kota Kinabalu) Terms of Assessment

2 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. Rubberwood 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 2014, Makeson purchased raw materials from suppliers as below: Supplier License Raw Material Location Syt. Datuk J.A Angian JP(N) SO 054/00/B01(R) Sawn Timber Sook Andulag Sdn. Bhd. Sangkil Makmur Sdn. Bhd. JP(T) TW 001/10(X15) Sawn Timber PPD Tawau Borneo Moulding Sdn. Bhd. JP(T) TW 011/00(X22) R Sawn Timber Tawau Ho Lian Sawmill Sdn. Bhd. JP(N) KG 002/07 (X04) Sawn Timber Keningau Rightway Furniture Sdn. JP(PT) 009/04 Sawn Timber Sandakan Bhd. Mau Seng Timber Sdn. Bhd. JP(PT) 005/05 Sawn Timber Kota Kinabalu Irama Ramai Sdn. Bhd. JP(N) KG001/12(X04) Sawn Timber Keningau Sabah Forest Industries JP(KSG) 107/96(10) Sawn Timber Sipitang Sdn. Bhd. (ITC) Rakyat Berjaya Sdn. Bhd. (Ganda Deras Sdn. Bhd.) JP(T) KA004/07(B01) Sawn Timber Kalabakan

3 Hap Seng Property JP(T) TW 002/05(B01) Sawn timber Tawau Investment Sdn. Bhd. Apeca Sdn. Bhd. JP(N) KG 019/00(K04)R Sawn Timber Keningau Kimpal Sawmill Sdn. Bhd. JP(N) SO 002/09(B01) Sawn Timber Sook Lusera Sdn. Bhd. - Sawn Timber Kota kinabalu FIIA: JPHTN/TNM: 700- Rubber wood Tenom Syarikat Chong Vun Kiong 2/5/1/(152)-bth. 27/02/2014 FIIA: JPHTN/TNM: 700- Rubber wood Tenom 2/5/1/(23)-bth. 24/12/2014 FIIA: JPHTN/SO: 700- Rubberwood Sook Pemborong Gemilang 2/5/2/(44)-bth. 21/07/2014 Bersatu FIIA: JPHTN/PP: 700- Rubberwood Tenom 2/5/KLT. 22/31 bth. 21/07/2014 Anjin Edwin B. Inggong & 10 FIIA: JPHTN/TB: 700- Rubberwood Tambunan Peserta 2/5/2/(48)- bth. 27/05/2014 Chang Chee Chiun FIIA: JPHTN/TB: 700- Rubberwood Keningau 3/5/0/JLD- bth. 8/11-1/12/4 Muringkat Gunonong FIIA: JPHTN/PTS: 700- Rubberwood Pitas 2/5/KLT. 2/13 Frianbeht Marcus Podtung NT Rubberwood Sook FIIA: JPHTN/TB: 700- Rubberwood Tambunan Vincent & 2 Peserta 2/5/JLD.2/183 - bth. 09/10/13 FIIA: JPHTN/PP: 700- Rubberwood Tenom Pemborong Seri Mewabena 2/5/KLT. 21/54 bth. 26/04/2013 Jamin B. Abdullah 2/5/0/KLT.4/39 2/5/0/KLT.4/48 Maisah Bidin 2/5/0/KLT.4/56 bth. 20/12/13 Paul bin Ajinron NT Rubberwood Sook Jamilin bin Lumbat 2/5/0/JLD.7/47 Petrus Hundricus 2/5/0/JLD.7/14 FIIA: JPHTN/PP: 700- Rubberwood Sook LIGS Tulid 2/5/KLT. 23/45 bth. 29/11/2013 Pemborong Fee Dee Ent. FIIA: JPHTN/PP: 700- Rubberwood Sook S/B 2/5/KLT. 23/45 bth. 29/11/2013 Lultub bin Bangun 2/5/0/JLD.6/39 Lidin Laikim & Laijih bin FIIA: JPHTN/TNM: 700- Rubberwood Tenom Laikim 2/5/1/klt.8(85) bth. 22/07/2014 Rahimin B. Jamar

4 2/5/0/JLD. 7/22 Manchang Kumalu FIIA: JPHTN/KGU: 700-2/5/0/JLD. 7/16 Ronald Chong Chern Chun FIIA: JPHTN/KGU: 700-2/5/0/JLD. 7/51 Rubberwood Rubberwood Keningau Keningau Common species used include Drybalanops spp. (Kapur), Dipterocarp spp. (Keruing), Shorea inappendiculata (Selangan batu), Tristaniopsis merguensis (Pelawan-pelawan), Parashorea spp. (White seraya), Shorea spp. (Red seraya, Yellow seraya, Melapi), Sapotaceae spp. (Nyatoh), Shorea pauciflora (Oba suluk), Intsia palembanica (Merbau), Hevea brasiliensis (Getah), Agathis. Makeson do 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. MS2 exports rubber sawn timber to China. Scope of audit: Only mill production that operates under Makeson Sdn. Bhd. is included. Exports of finished goods carry out by the tenants were excluded in this audit, as Makeson Sdn. Bhd. do not have export license. The said export activities are to be included and audited under TLAS P5P6 Pure Exporter. Summary results: (Major gap = 0; Minor gaps = 3 Observations = 4) GAPs: 2015 GAP # Type Checklist # Description 001/2015 Minor Inconsistency of recording monthly sawn timber supply (arrival) into Appendix 7 for the month of August December /2015 Minor 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, No submission of JKKP 8 Form (Register of Accident, Dangerous Occurrence, Occupational Poisoning, and Occupational Disease) for year /2015 Minor 6.1.1, export consignments sampled, copies of FDS endorsed documents Borang EIS 1/2000, JHP 1, JHP 2 were not made available during the document review. 005/2015 Minor 6.1.4, export consignments sampled, copies of Removal Pass were not made available during the document review. *Major = Non-Compliance Status of Outstanding GAPs: GAP # Type Checklist Status Description Inconsistency of recording monthly sawn timber supply 001/2015 Minor New (arrival) into Appendix 7 for the month of August December /2015 Minor New MS2 Timber does not have a license to hire foreign

5 003/2015 Minor 004/2015 Minor 005/2015 Minor 5.3.4, New 6.1.1, , New New 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. No submission of JKKP 8 Form (Register of Accident, Dangerous Occurrence, Occupational Poisoning, and Occupational Disease) for year export consignments sampled, copies of FDS endorsed documents Borang EIS 1/2000, JHP 1, JHP 2 were not made available during the document review. 2 export consignments sampled, copies of Removal Pass were not made available during the document review. 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 are accurate. b. C5.3.1 Makeson (MS2 Timber) shall apply a valid license to hire foreign workers should the company employ foreign workers. FDS shall determine the definition of temporary workers (workers on contract basis or pajak workers) and requirements to be adhered by. c. C5.3.4, C5.3.6 JKKP 8 is to be submitted annually (before 31 st January) as required by DOSH. d. C6.1.1, C6.1.5 Makeson (MS2 Timber) shall maintain copies of FDS documents Borang EIS 1/2000, JHP 1, JHP 2 for administrative purpose. e. C6.1.4, C6.1.6 Makeson (MS2 Timber) shall maintain a copy Removal Pass for export consignments for administrative purpose. The next surveillance visit is scheduled in April End of Summary Report