Basic Policy on Internal Audit System

　At a meeting of the Board of Directors held on August 21, 2020, the Company adopted the following resolution concerning the establishment of a system to ensure that the execution of duties by Directors complies with laws and regulations and the Articles of Incorporation in accordance with Article 399-13 of the Companies Act and Article 110-4 of the Ordinance for Enforcement of the Companies Act, as well as the establishment of a system necessary to ensure the appropriateness of operations of the corporate group consisting of us and our subsidiaries companies (hereinafter collectively referred to as the "NIPPO Group")

1. System for ensuring that the Directors, corporate officers and employees conform to laws, regulations and the articles of incorporation in the execution of duties

The Board of Directors adopted the "Compliance Declaration" and the "Code of Behavior" as basic compliance policies and established the "Compliance Rules" as a code of conduct to be observed during business operations. The Board of Directors, led by directors, decided to put these rules into practice together with corporate officers and employees.
The Board of Directors established the "Rules of the board of directors," supervised the execution of duties by each Director, and established the "Rules of the audit & supervisory committee" for the Audit & Supervisory Committee and audited the execution of duties by the Director.
The Board of Directors has completed the “Labor regulations” and has made corporate officers and employees observe the service disciplines stipulated in the “Labor regulations”
The Board of Directors has completed the operational rules and has made corporate officers and employees comply with the procedures set forth in the operational rules.
The Board of Directors has established a system to ensure thorough compliance with laws and the Articles of Incorporation by directors, executive officers, and employees through the establishment of a compliance promotion system, internal reporting system, and internal auditing.

2. System for the storage and control of information pertaining to the performance of Director duties

The minutes of meetings of shareholders, Board of Directors, and Audit & Supervisory Committees and other important documents shall be stored and managed, and made available for inspection and disclosed by law, in accordance with laws, regulations, and internal regulations.
With respect to trade secret information, the “Rules for the management of trade secrets” shall be established, and a person responsible for management shall be appointed to prevent access to such information from both inside and outside the Company and to completely seal the leakage.
The "Rules for personal information management" and the "Specific personal information management rules" shall be stipulated, and personal information, etc. shall be protected in the same manner.

3. Systems for managing risks of loss including the relevant internal regulations

The Internal Control Headquarters shall be established under the Board of Directors, and a system shall be established to predict the risk of loss at all times, and appropriate and prompt responses shall be made to the risk of loss. The Senior General Manager of Corporate Headquarters shall serve as the Director-General of the Internal Control Headquarters.
In order to manage the risk of loss, the Company has established the “Basic risk management rules” and prepared a management manual for each individual risk to prevent the occurrence of risk, accurately respond to risks that have arisen, and promptly recover from such risks.
The Board of Directors shall develop an internal control system, and supervise, monitor, and verify the status of responses and operations to risk management at each Director.

4. System for ensuring efficient execution of Directors' duties

Deliberations on management policies and other important matters set forth in the “Rules of the board of directors” shall be conducted by the Management Strategy Meeting consisting of a full-time Director and the chairperson of the Audit & Supervisory Committee, and the final decision shall be made by the Board of Directors as a basis for the determination of what has been unofficially determined.
The Company shall clarify the responsibilities of each Director business operation in accordance with the “Rules concerning the execution of duties of officers”, the “Rules on administrative authority”, and the “Rules on the division of duties”, and have each Director faithfully and loyally perform the duties specified for each business operation.
The full-time Director of the Company shall attend Board of Directors, Management Strategy Meeting and Corporate Strategy Meeting; the part-time Director shall attend Board of Directors and Corporate Strategy Meeting; Director shall supervise the execution of duties mutually; and the Audit & Supervisory Committee members shall also audit Director duties.

5. System to ensure the appropriateness of business operations within the corporate group consisting of NIPPO Group

“Subsidiaries companies control regulations”, “Managerial position system regulations”, and other standards for transaction between subsidiaries companies have been established to manage the directors, auditors, and employees of the subsidiaries companies, and to establish a system in which we give direct instructions to subsidiaries companies directors, etc.
The Audit & Supervisory Committee and the Internal Audit Division have established a system to conduct subsidiaries companies audits on a regular basis.

6. With respect to an employee who assists the duties of The Audit and Supervisory Committee, etc.

Where it is necessary for an employee to be assisted by the Audit & Supervisory Committee, etc., such employee shall be established on a case-by-case basis. In selecting such employees, the Audit & Supervisory Committee shall ensure the independence of the operating officer and the effectiveness of instructions to such employees.

7. System for the Directors, corporate officers and employees to report to The Audit and Supervisory Committee and other systems for reporting to The Audit and Supervisory Committee

All members of the Audit & Supervisory Committee attend the Board of Directors, and the Chairman of the Audit & Supervisory Committee attends important meetings such as Management Strategy Meeting. The Director shall report the status of execution of duties to the Audit & Supervisory Committee at these important meetings.
All information reported through the in-house reporting system shall be promptly reported to the Audit & Supervisory Committee.

8. Other systems to ensure that audits by The Audit and Supervisory Committee are conducted effectively.

The Internal Audit Division shall regularly report the internal audit plan and the results of the internal audit to the Audit & Supervisory Committee members and share the same.
In order to ensure the effectiveness of audits conducted by the Audit & Supervisory Committee, the “Rules of the audit & supervisory committee” shall be established, and the directors, executive officers, and employees of the subsidiaries companies, as well as the directors, auditors, and employees of the Company shall report to the Audit & Supervisory Committee without fail.
Directors and employees of subsidiaries companies shall promptly submit appropriate reports when requested by auditors of such subsidiaries companies to submit reports on matters regarding the execution of operations of such subsidiaries companies.
In addition to whistleblowing tips, directors, auditors, and employees of the NIPPO Group who have made a report to the Audit & Supervisory Committee shall not be subjected to unfavorable treatment on the grounds that said report was made.
In cases where the Audit & Supervisory Committee etc. has requested payment of expenses in advance, etc. with respect to the execution of his/her duties, the Company shall promptly pay such expenses. Provided, however, that the necessity and amount of such expenditure may be checked by the Corporate Headquarter at a later date.

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