Internal Audit

The Audit Office is under the board of directors. The chief auditor reports audit performance to the supervisor on a regular basis and attends the board of directors meeting to report the situation of internal control in the Corporation. Ensuring correctness of financial statements of the Corporation and its subsidiary companies, assessing and helping improve the internal control systems are responsibilities of The Audit Office, during whose work the system design and operation should be able to cross-audit so as to prevent human negligence.

1. The Organization and Staffing of the Audit Office

1.1	In the Audit Office, There are 1 chief auditor and 1 auditor who is qualified as the FSC requires. The appointment or discharge of the chief auditor is passed by the board of directors.
1.2	The auditor's personal information, including the person's name, age, educational profile, experience, seniority, training received, is reported to the FSC for recordation via the Internet-based information system by the end of January every year.

2. The Auditing Range of the Audit Office

2.1	All units and subsidiary institutions in the Corporation.
2.2	To help the Audit Office understand the audited units' past, current and future businesses and operation, the latter should send a copy of their internal/external business reports to the chief auditor on a periodic basis or anytime when needed. Managers of audited units without periodic reports should provide business-related information to the chief auditor when necessary.

3. Scope of Work of the Audit Office

3.1	To assess and helps improve the internal control systems of the Corporation and its subsidiary companies.
3.2	To assess whether programs, organizations and supervision processes can effectively achieve goals of the Corporation.
3.3	To check whether managers of each level have set standards for efficiency and effectiveness of utilizing human resource, equipment, and materials, and whether inefficient and ineffective usages of human resource, equipment, and materials are analyzed and addressed.
3.4	To check whether financial and operational information are correct and complete, whether information is properly maintained and whether reports of information are timely and valid.
3.5	To check whether managers of each level can take proper measures to assure safety of assets, preventing losses due to assets being destroyed, occupied or misappropriated or records being falsified.
3.6	To check whether inventory-taking procedures are actual and spot check inventories to make sure of existence of assets.
3.7	To assess whether rules and operational procedures are appropriate, i.e., do not violate Acts or laws, and whether managers actually supervise subordinates so as to prevent violations of rules and take proper measures.
3.8	To check whether policies and rules of the Corporation are followed.
3.9	To disclose internal violations of rules.
3.10	To double-check reports of self-assessment.
3.11	To carry out other assignments as appointed by higher-ups.
3.12	Priorities of the items above are decided according to actual labor power available and risk.

4. Responsibilities of Internal Auditors

4.1	Internal auditors implement the annual audit plans passed by the board of directors and prepare audit reports describing their findings and recommendations.
4.2	Internal auditors perform their auditing work according to the assignment of chief auditor and submit their proposals after wholly understand the object of their work.
4.3	Chief auditor should declare the scope of work, key points, and sampling methods of each assignment to internal auditors and keep appropriate supervision of their work.
4.4	When auditing, the auditors should take the following as goal: ● The purpose of auditing work is to provide assistance to managers to accomplish the operation goals and prevent losses caused by any possible incorrect behaviors. The following should be included in the work of internal auditors: ● To evaluate whether the internal control is adequate and effective. ● To point out the situation in which a bias is happening. ● To submit proper reports and recommendations. ● To follow up correcting actions.
4.5	To accomplish the auditing work, internal auditors should do their best to make sure the following items are true or have been done. 4.5.1 They have wholly understood the control procedures and computer systems of the operation which they are going to audit. 4.5.2 All assets are recorded and existing. 4.5.3 All liabilities are recorded and real. 4.5.4 Every account of revenues, expenditures and cost which has exceeded its budget should be audited and analyzed to make sure its accuracy and compliance with the general accounting and cost accounting principles. 4.5.5 All of the accounting records are made legally and in compliance with the general accounting principles. 4.5.6 The operation efficiency, performance of plans, business trends, cost comparisons, execution of budget, and financial conditions have been assessed. 4.5.7 Internal auditors should be familiar with the relevant laws, acts, and the internal control systems, operating regulations, handbooks and especially the special regulations and situation of the audited unit. 4.5.8 Internal auditors should be aware of the history, significant events of the audited unit and the audit reports concerning the audited unit submitted before. 4.5.9 Internal auditors should be aware of the audited articles, auditing methods and the findings and recommendations made by other auditors before. 4.5.10 Internal auditors should make reasonable judgments to their findings. It should be supported by the reliable theories or principles and sufficient evidences gotten by means of checking, stocktaking, observing, doing questionnaires or sending out confirmation letters. 4.5.11 Internal auditors can quote the information or records submitted by auditees after such information or records have been verified to be correct. 4.5.12 Internal auditors should make a note about the documents for the reference of continuous auditing performed by others. 4.5.13 Before making a decision, internal auditors should seek the authoritative interpretations and opinions of the findings when the standards of the current systems are vague.
4.6	When internal auditors discover misdeeds of employees, the internal auditors should notify the employees' manager and immediately
4.7	When auditing, the auditors have the authority to view all documents but have to obtain approval from the board chairman before viewing highly confidential documents. If the audited unit refuses to provide documents or does not cooperate, the internal auditors can
4.8	Audit reports must not be executed without the board chairman's approval.
4.9	When internal auditors discover significant violations of rules or the Corporate is at risk of immense losses, the internal auditors should take immediate action to summit the report and notify the supervisor.

5. The Practice of Audit Work

5.1	The Audit Office formulates annual audit plans based on the results of the risk assessment. The annual audit plans include as audit items, at least, the control activities for major financial or business activities, such as for acquiring or disposing of assets, engaging in derivatives transactions, extending loans to others, granting endorsements or guarantees for others, supervision and management of subsidiaries, information flow security inspection, and major transaction cycles such as the sale and receipt cycle and purchase and payment cycle. Annual audit plans are to be followed once passed by the board of directors.
5.2	Internal auditors exercise the audit work of operation systems according to the annual audit plans to ensure that the established systems are efficient and are being met, information is reliable, operations are effective and timely. Internal auditors should report the result of their audit work and make recommendations.
5.3	The Audit Office prepares the audit plans of next year and reports it to FSC through the designated internets by the end of fiscal year. The results of audit plans are reported to FSC in the same way within two months from the end of each fiscal year in the prescribed format.
5.4	The status of correction of defects and irregularities of internal control systems are reported to FSC through the designated internets within five months from the end of each fiscal year in the prescribed format.
5.5	The Audit Office supervises all internal departments and subsidiaries to conduct self-assessment at least once a year and review the self-assessment reports prepared by them. According to the results of the reviews and the correcting effects of audit findings performed by auditees, As the primary basis for the board of directors and general manager to evaluate the overall efficacy of all internal control systems and to produce Internal Control System Statements. The Internal Control System Statement is publicly announced and reported on the websites designated by the FSC and published in the company's annual report, public offering and issuance prospectus.

6. China Ecotek Whistle-blowing System

6.1 Policy
For preserving and protecting CEC’s reputation and properties, preventing fraud, stealing, occupying or other unethical and unintegrated behavior, CEC builds up reporting channels and processes to optimize corporate governance and ensure the legal right of prosecutors and relevant persons in accordance with the” Codes of Ethics for employees”, “Work Rules for Employees” and “Integrity and Ethics Directions for Employees of China Ecotek Corporation ” etc.
6.2 Principles of Acceptance
Practitioners should get along well in harmony and mutual understanding, however, for protecting the interests of CEC, practitioners also should have their obligation for reporting fraud or misconduct. Based on legitimacy, anonymous accusation will not be accepted and the prosecution of illegal matters should follow a proper way with specific evidence. Intending to make others disciplinary with fictional facts or false accusations is not allowed.
6.3 Designated Receiving Unit
Audit Office is responsible for accepting complaints about improper handling of business, fraud, harm to the interests of CEC and violation of the rules or regulations of CEC.
6.4 Hotline
TEL : 07-3336138 ext 31802
6.5 Procedures for the Receipt of Complaints
(1) PIC of Audit Office shall fill in the “Record of Cases Reported of Audit Office” after complaints received. (2) After investigation and verification, such case will be poperly handled by the relevant units and submitted for their supervisor in charge of approval. (3) The relevant unit shall designate the PIC of the case or form a team to conduct an investigation. The results shall be approved by the vice president of the department and should be review by Audit Office. (4) Audit Office should report directly to the Board of Directors with periodical updates on relevant matters. (5) If the results of the investigation involved in the directors or senior supervisors, it should be reported to the independent directors or Supervisors. (6) The relevant information, such as the original data, written documents, recordings and other forms of information, including all the processes, investigation and reporting, are ensuring handled in a confidential manner by PIC and file for the future reference. (7) Adopting proper measures to prevent a complainant and the relevant persons and strictly prohibits any form of damaging their rights and benefits except defamation, forgery or framed others.
6.6	Audit Office would consider the results of the investigation and submit the petition to the superiors for rewarding or punishing of relevant persons in accordance with CEC’s regulations, and the identity of whistle-blower must be kept as absolute confidentiality.