Guidebook on Requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines by Nanie Gonzales

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines Produced in draft jointly by: Food and Agriculture Organization of the United Nations, – Department of Trade and Industry – Export Marketing Bureau, Department of Environment and Natural Resources – Forest Management Bureau, Chamber of Furniture Industries of the Philippines and Philippine Wood Producers Association

Draft

Extended Version March 2015

Guidebook on Requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines This document is in draft form. As with anything relating to legal requirements it is a living document that is subject to change depending on any changes or modification to legislation in the Philippines. The authors have tried to capture the critical information required to demonstrate the legality of timber in the Philippines. The objective is to create a guidebook that is a functional tool that can support operators throughout the timber sector. There are two versions of the Guidebook, the short version contains the bare essentials, what are the key questions and the key documents that determine legality in the Philippines. The extended version is more comprehensive, it provides some context and background to legal verification and the requirements of international markets. It also includes an appendix that has a comprehensive list of laws and regulations and a set of specimen documents to help buyers identify what information they should be requesting to check legality and perform their due diligence. In the long version there are also details of a monitoring framework that will provide the means for consistent and transparent verification. The extended version also makes recommendations on how the verification system can be administered by the industry associations to provide accessible sources of information to those wanting to carry out due diligence. These guidebooks are still in draft form and any feedback that will improve and strengthen future versions will be gratefully received. Feedback on content, layout, ease of use, recommendations on additional specimen documents or anything else could be added or taken out that can improve the guidebook as a tool for the industry and the timber trade would be very helpful. Please send your comments to: cfip.info@gmail.com Disclaimer : The Guidebook is designed to support a formal procedural system for Chain of Custody and compliance monitoring for the Philippine timber industry and does not guarantee legality of any specific wood products. Funding partner: Trade Related Technical Assistance Project 3

Contents Preface. ............................................................................................................................................................................ ii Acronyms. .................................................................................................................................................................... iv Section A: Background & Structure of the Guidebook & Due Diligence System........................................................................................................1 A-1.0 Background..........................................................................................................................................1 A-2.0 Structure of the Due Diligence Monitoring System..............................................4 A-3.0 Timber Flow Diagram. .................................................................................................................5 Section B: Procedures for Purchasing Domestic Timber. ......................................................6 Section C: Procedures for Purchasing Imported Material.................................................. 10 Section D: Procedures for Process Control of Manufacturing........................................ 10 Section E: Procedures for Sales & Exports of Wood Products.......................................11 Section F: Procedures for Due Diligence Monitoring.............................................................. 12 F-1.0 Background & Purpose........................................................................................................... 12 F-2.0 Scope.................................................................................................................................................... 12 F-3.0 Responsibilities. ............................................................................................................................ 12 F-4.0 Definitions.......................................................................................................................................... 13 F-5.0 Audit Planning................................................................................................................................ 14 F-6.0 Audit Scheduling.......................................................................................................................... 14 F-7.0 Audit Team......................................................................................................................................... 15 F-8.0 Audit Documents & Equipment. ...................................................................................... 15 F-9.0 Conducting the Audit .............................................................................................................. 15 F-10.0 Audit Report Preparation.................................................................................................... 16 F-11.0 Corrective Actions (Gaps) & Follow up. ................................................................... 16 Associated Documents & Revisions..................................................................................................... 17 Records............................................................................................................................................................. 17 Revision History. ......................................................................................................................................... 17 Appendices............................................................................................................................................................... 18 Appendix A..................................................................................................................................................... 18 Appendix B..................................................................................................................................................... 19 Appendix C..................................................................................................................................................... 24 Appendix D..................................................................................................................................................... 28 Appendix E. .................................................................................................................................................... 30 Appendix F...................................................................................................................................................... 34

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Preface

hroughout the supply chain, buyers want a simple way to check the provenance and legal status of the timber they are purchasing as international market demands one question, “Is it possible to source timber products from the Philippines that are documented to comply with legal requirements?” By following the steps within this guidebook it should be perfectly possible to demonstrate that the answer is “Yes.” This verification process is known as Due Diligence and refers to the buyer taking reasonable steps to mitigate the risk of any illegal timber entering their supply chain. For operators importing to the European Union, the USA, Australia and increasingly more international markets this is a legal obligation. The legal standard is that of the country of origin, so the rules and regulations are those that already apply in the Philippines. There is a comprehensive regulatory system already in existence with the DENR and DTI having statutory responsibility for monitoring compliance throughout the sector. These agencies do monitor the sector and regulate activities but the control systems are designed for compliance with Philippine regulations. The Philippines is looking to ensure that its timber sector is able to meet the immediate international market requirements for timber legality verification in the absence of a FLEGT VPA and TLAS. The Department of Trade and Industry’s (DTI) sectoral plan and the Furniture Industry’s roadmap aims at improving the position of the industry in the global arena through capacity building of individual companies and compliance with requirements of global buyers. Members of CFIP and PWPA need interim guidance based on formal Guidebook on a chain of custody system that documents legal origin of material and defines a due diligence system to verify implementation by members. Members of CFIP and PWPA need interim guidance based on formal Guidebook on a chain of custody system that documents legal origin of material and defines a due diligence system to verify implementation by members

How to Use this Procedural Guidebook: The Guidebook provides a methodology to assist the timber industry to establish a Chain of Custody coupled with a due diligence system for the market, as buyers want a single source of information that is consistent and reliable. The guidebook in itself does not guarantee legality or compliance with EUTR requirements, however it does provide a formal documented procedural system for tracing material through the supply chain and monitoring compliance to those procedures. The Guidebook sets out both a framework for the Philippine Industry & Trade to follow in regards to Chain of Custody system in the form of procedures that is integrated with ii

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

a formal monitoring procedure that can be managed by the timber associations to check implementation by it’s members. Monitoring of implementation by members must happen regularly to ensure the due diligence system is robust and credible. The Guidebook is divided into 3 main parts: • Section A provides the background and structure of the proposed chain of custody and due diligence systems; • Sections B-E identifies in brief detail the critical controls and procedures for Chain of Custody based on Philippine regulations; and • Section F sets out the monitoring procedures used by independent assessors to verify the documentation and implementation by Association Members to support due diligence. The Guidebook identify 4 elements within the trade chain that form the basis for Chain of Custody: Purchasing raw material from domestic sources (Section B), Importing timber that includes a system to evaluate Risk (Section C) , System for process control of manufacturing and trade (Section D) and Sales and Exports of wood products (Section E). The user should identify the areas that are relevant to their activities and refer to the critical controls identified in that section. Included in Appendix A; is a comprehensive list that references the Philippine regulatory system that controls the legality of timber. The Guidebook is designed to provide a formal procedural system to document and verify complaince to legal requirements of the Philippines as well as chain of custody procedures to trace material from legal sources through production, sale and export of finished goods. The Guidebook and monitoring system can support the due diligence requirements needed by buyers in the EU, USA and Australian markets.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

iii

Acronyms BOC CBFM CDA CFIP CITES COC CSC CTO / CLO DAO DENR DMC DR DTI ECC EMB EUTR FAO/UN FLEGT FMB IFMA MAO NF PD PLTP PTPOC PWPA RA SEC SIFMA SI SIFMA SMF SPLTP TLAS TPO WIN WPP VL iv

Bureau of Customs Community Based Forest Management Agreement Cooperative Development Authority Chamber of Furniture Industries of the Philippines Convention on International Trade in Endangered Species of Wild Fauna and Flora Chain of Custody Certificate of Stewardship Contract Certificate of Timber / Lumber Origin DENR Department Administrative Order Department of Environment and Natural Resources Department of Memorandum Circular Delivery Receipt Department of Trade and Industry Environmental Clearance Certificate Export Marketing Bureau EU Timber Regulations Food and Agriculture Organization of the United Nations Forest Law Enforcement Governance & Trade Forest Management Bureau Integrated Forest Management Agreement Ministry Administrative Order Natural Forest Presidential Decree Private Land Timber Permit Private Tree Plantation Ownership Certificate Philippine Wood Producers Association Republic Act Securities and Exchange Commission Socialized Integrated Forest Management Agreement Sales Invoice Socialized Industrial Forest Management Agreement Self Monitoring Form Special Private Land Timber Permit Timber Legality Assurance System Tree Plantation Owner Wood Industry Network Wood Processing Plant Verified Legal

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

sECTION a

Background & Structure of the Guidebook & Due Diligence System

A-1.0 Background The forests of the world have been declining at an exponential rate for several decades. Most of the forests have been logged without regard for sustainability of the timber resource and associated values the forest provides to society. As such, large areas of forest are either being lost to conversion for agriculture or degraded by poor logging practices and uncontrolled illegal felling activities. Timber is readily traded without proper documentation to trace the raw material to the original forest and even possibly country of origin. Currently a significant proportion of the world trade of timber originates from areas where the trees are perceived to be felled illegally. Estimates of illegal logging were reported to reach well over 50% of the documented production volume in many developing countries. The market is now beginning to demand that timber come from a verified source that is: â&#x20AC;˘ Legally harvested or â&#x20AC;˘ Certified as well managed. Governments of EU, USA and Australia have also taken a major step in requiring that imported timber products must be legal. The concerned governments have put legislation in place that makes the importer liable. Under the European Timber Regulation (EUTR), The US Lacey Act and the Australian Illegal Logging Prohibition Act, due diligence or due care have become a legal requirement. The objective is to decrease the risk of having illegal wood based material entering these markets.

A-1.1 EU Timber Regulations (EUTR) EU Timber Regulations (EUTR) came into effect 3 March 2013. The EUTR prohibits operators in Europe from placing illegally harvested timber and products derived from illegal timber on the EU market. The importer is required in undertake due diligence to ensure there is a negligible risk of the wood products being imported is illegal. Most forms of due diligence include requested documentation or based on certification such as FSC or PEFC or through 3 party independent verification programs. Since the EU buyer is liable and needs to demonstrate due diligence; it is natural that the buyer requires the supplier to demonstrate that the products being sold are legal.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

A-1.2 USA Lacey Act The Lacey Act combats trafficking in ‘‘illegal’’ wildlife, fish, and plants. The Lacey Act, first enacted in 1900 was amended in 1981, and again in May 2008 to include plants and plant products. As of Dec 2008 there is a requirement of an import declaration for all wood products into USA. The Lacey Act prohibits importation of illegal wood and wood products and requires importer to take due care in evaluating the legality of products to be imported. Violations of the Lacey Act provisions may be prosecuted in three basic ways: (1) Civil—monetary penalties; (2) criminal—fines and penalties and potential incarceration; or (3) forfeiture—dispossession of the plant, fish, or wildlife in question.

A-1.3 Australian Illegal Logging Prohibition Act The Australian Illegal Logging Prohibition Act (2012) was designed to promote the trade of legal timber into Australia and to deny the Australian market to illegally produced wood products. The Act is similar to legislation of the EU and U.S.A. in that it makes it a criminal offense to import illegal timber or wood products containing illegally sourced timber; or to process Australian raw logs that have been illegally logged. Thus importers need to have a due diligence system to ensure that wood products imported into Australia are not illegal. Enforcement started in Nov 2014 thus again buyers from Australia are requiring their suppliers to prove legality of the wood products being purchased.

A-1.4 Objectives: This guidebook is designed to help companies to purchase legal raw material from inside and outside the Philippines and to trace the material used in production to finished goods that can be traded and exported as legal timber products. A critical aspect is to ensure the procedural guidebook is simple and concise to enable companies to actually use and implement the system. A second key element of the guidebook is to define how timber sector associations monitor compliance of members to the systems prescribed in the guidebook.

A-1.5 Scope of the Guidebook: The scope of the Guidebook is to define the key legal requirements for the Philippine Wood Industry for purchasing; production; sale & export of wood products that makes up the Chain of Custody (CoC) system as detailed by procedures within Sections B-E. The Timber Associations can monitor that members comply with these CoC requirements, as defined in Section F, to support due diligence requirements of buyers to facilitate international trade. The Timber Associations will need to develop a policy on membership and administrative procedural system that includes compliance monitoring and membership requirements that can be adopted by all members. Compliance monitoring related to timber processing and trade can be verified

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

through specific documents at key control points within the supply chain that include licensed forest areas and transport permits for domestic raw material supplies as well as regulations regarding company and manufacturing operations. Documents and regulations that are not specifically referred to within the guidebook are referenced in Appendices A-E that form supporting documentation by DENR that are auxiliary to the requirements for tracking raw material to a legal forest or plantation source. The guidebook are divided into 6 main sections: Section A: Background on legality in the Philippines in regards to the timber industry, structure of the due diligence & timber flow system. Section B: Procedures for purchasing raw material from domestic sources based on legal regulations within the Philippines Section C: Procedures for importing timber that complies with Philippine import regulations and can be considered low risk to the international market Section D: Procedures for process control of manufacturing and trade Section E: Procedures for sales and exports of wood products Section F: Procedures for monitoring member compliance to the Guidebook that forms the due diligence by the Timber Associations in the Philippines.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

A-2.0 Structure of the Due Diligence Monitoring System The main objective of the Guidebook is to improve supply chain management by providing a formal procedural system to document and verify legality of supplies of Philippineâ&#x20AC;&#x2122;s timber industry to facilitate trade from markets that require wood products and material to undergo a process of due diligence for ensuring a low risk that products originate from illegal raw material. Thus the focal point of creating a due diligence system would be the timber associations in the Philippines to support their members to have a formalized systematic approach that documents legality of raw material obtained from domestic supply or through imports through production and trade of finished wood products. Thus it is imperative that the guidelines are clear and simplistic for members to understand and implement as well as sufficiently robust to provide credibility to the international market. Timber Associations PWPA/CFIP/Wood Industry Network

Adoption of procedural guidelines by Timber Associations as a standard for Philippine chain of custody & due diligence & monitoring of members

Membership Policy includes compliance to procedural guidelines

Timber Associations Conduct Annual Monitoring of Member Compliance to Philippine Due Diligence Procedural Guide

Members do not demonstrate compliance must be re-evaluated

Member failed to mitigate issues after re-evaluation

Member subject to fines or suspension. Suspension must be posted on website for transparency of the system

Members demonstrate compliance with requirements

Member addresses issues on re-evaluation

Members are registered on the Association Website as verified compliant to the Philippine Due Diligence Procedural Guide

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

A-3.0 Timber Flow Diagram The executive order 23 has instituted a logging ban for natural forest areas in Philippines since Feb 2011 which has resulted in all factories switching to planted species that is dominated by: Gmelina arborea, Acacia mangium, Abizia falcata, and Swietenia macrophylla. The following is a simplistic description of the key legal requirements for domestic supply of the wood industry.

Licensed Forest Areas: regulated by DENR (FMB) IFMA / CBFM / CSC / SIFMA / Private Lands

Harvest Permits IFMA – Integrated Annual Operations Plan CBFM – Resource Use Permit CSC – Permit to Harvest SIFMA – Permit to Harvest Private lands – PTPOC

Transport Permits IFMA – Certificate of Timber Origin (CTO) CBFM – Certificate of Timber Origin (CTO) CSC – Certificate of Origin (CO) SIFMA – Certificate of Origin (CO) PTPOC – Self-Monitoring Form (SMF)

Due Diligence System of the Guidebook Timber Associations (PWPA / CFIP / Wood Industry Network) Members adopt policy and Guidebook CoC requirements (sections B-E) and are subject to compliance monitoring by the associations.

Legal Requirements Wood Processing & Trading Companies Wood Processing Plant Permit Mayor’s Permit Policy on legal compliance Import / Export Permits (as applicable)

Chain of Custody Purchasing raw material Domestic - SMF / CO / CTO Import (risk assessment) Receiving & recording raw material in stock Batch / Production Unit processing system Records of material input into a Batch # Records of products produced by Batch # Identification of production & products by Batch #

Sales, Trade & Export Local sale of products Domestic - CLO Sales of products traceable to Batch # DENR Certificate CENRO Clearance Certificate Export - License

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

A-3.1 Forest / Plantation – Legal Requirements DENR issues concession rights for forests on public lands for commercial harvesting that includes private companies (IFMA) communities (CBFMA) and other social development projects. • Integrated Forest Management Agreement (IFMA) • Community Based Forest Management Agreement (CBFMA) • Certificate of Stewardship Contract (CSC) • Socialized Industrial Forest Management Agreement (SIFMA) DENR recognizes plantations on private land that is usually registered when the owner want to harvest their trees. • Private Tree Plantation Ownership Certificate (PTPOC)

A-3.2 Management Plans & Harvest Rights Harvest rights are based on approved management plans and inventories that differ based on the types of management licenses. Management plans are required and registered with DENR & FMB for forests on public lands but not for planted lands. Licensed area

Management plan type

IFMA

Comprehensive Development Management Plan (CDMP)

CBFM

Community Resource Management Framework (CRMF)

CSC

Annual Plan

SIFMA

Annual Plan

Private land

No management plan required only registration as PTPOC

Harvest plans and permits are required by DENR & FMB for all forest and planted areas on public lands.

Licensed area

Harvest plan & permit type

IFMA

Integrated Annual Operations Plan that includes 100% inventory of trees for harvest

CBFM

Resource Use Permit that includes 100% inventory of trees for harvest

CSC

Permit to Harvest that includes 100% inventory of trees for harvest

SIFMA

Permit to Harvest that includes 100% inventory of trees for harvest

Private land

No harvest plan required. PTPOC includes 100% inventory of trees for harvest

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

A-3.3 Transport Permit The transport of logs and processed timber required transport permits from the DENR that come in different forms based on origin of material. Licensed area

Transport permit type – Logs

IFMA

Certificate of Timber Origin (CTO) & Transport Agreement with owner of Conveyance

CBFM

Certificate of Timber Origin (CTO) & Transport Agreement with owner of Conveyance

CSC

Certificate of Timber Origin (CTO) & Transport Agreement with owner of Conveyance

SIFMA

Certificate of Timber Origin (CTO) & Transport Agreement with owner of Conveyance

Private land

Self-Monitoring Form – PTPOC & Transport Agreement with owner of Conveyance

A-3.4 Wood Processing & Trade – legal requirements DENR & FMB requires wood processing and trading companies to be registered with government agencies and acquire permits to operate the company to purchase and import raw material and manufacture finished goods for local sale or export. Permits listed here may not be complete to all businesses. Government agency

Permit type

Securities & Exchange Certificate of Registration Commission

Function Company registration for Philippines

DENR

Wood Processing Plant Permit Mill registration & permit

Office of City Mayor

Mayor’s Business Permit

Local Company registration

DENR

Certificate of registration

Registration of business activities

DENR

Permit to operate

Separate permit to operate mill

Production

No specific legal requirement

Customs

Certificate of registration

Registration as importer/exporter

DENR

Certificate of verification clearance

Foreign consulate for imported material

Authentication of supply contract

See Appendix A - Reference on associated regulations Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

sECTION B

Procedures for Purchasing Domestic Timber

B-1.0 The organization shall have a formalized system for purchasing and receiving and recording of raw material and products that are verified as legal based documented compliance with Philippine regulations. B-1.1 The organisation shall have a formalized system to ensure that all raw material or products purchased are traceable to legal sources that includes documentation required by the DENR. B-1.2 Organization has purchase order defining purchase of raw material or products. B-1.3 Purchase orders and associated documents shall contain adequate information clearly describing the quantities of material, species of timber and reference to legal or certified status. B-1.4 Relevant documents (Transport permits (CTO, Self Monitoring Form; CLO, DR, Transport Agreement, etc) are available to confirm material or products purchased and received. B-1.5 Tally sheets should contain detailed information on logs (log numbers, dimensions) or finished goods that match the associated transport permit (CTO / CLO, SMF). B-1.6 Delivery Receipts issued by lumber yards or timber traders need to be referenced back to the original SMF, CTO, CLO provided by the mill of origin (as appropriate). B-1.7 Receipt of timber shall be referenced to the Purchase Order with clear labelling of species dimensions quantity and legal status. B-1.8 Records of timber received shall be allocated to stock, production or sales and shall contain reference between the Purchase Order, Production Batch Unit #, or Sales Order # as appropriate. B-1.9 Records for purchasing, receiving, warehousing, etc shall be maintained for at least 5 years. See Appendix B - Reference on associated regulations

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

sECTION C

Procedures for Purchasing Imported Material

C-1.0 The Organization shall have a formalized system for legally importing timber and wood products that are evaluated as low risk based on information obtained against General Risk Categories. C-1.1 The Organization needs to obtain an import license from DENR & Customs. C-1.2 The Organization shall implement a risk evaluation system for importing timber products that includes methods for defining low risk based on: 1) country of timber origin, 2) timber species and 3) operational risk for monitoring legal compliance and tracking through the supply chain. C-1.3 The Organization shall evaluate risk of each supplier and timber product using the Risk Matrix and maintain records of approval. C-1.4 Suppliers that are not considered low risk following evaluation, must not be used in manufacturing or trade of verified legal products and would need to undergo independent verification to mitigate risk of material to be supplied C-1.5 Organisation shall have a valid import permit from DENR and Customs for the consignment along with phytosanitary inspections and fees paid as applicable. C-1.6 Organisation shall demonstrate the import documents correspond to the material imported: – Import approval from appropriate government organization (DENR & Customs) – Customs Declaration Forms – Purchase Agreement / Contract – Physical Inspection report by appropriate government organization (Customs; DENR). – Records of Import data – Packing list (log list) – Transport Permits: (CO; CTO; CLO, Packing List; etc.) C-1.7 The organisation shall provide for adequate documentation, physical identification / segregation of raw material or goods received based on certification & legal status based on bonded warehousing requirements. C-1.8 Stock of material on site match records of raw material or products received & stored in the log yard or bonded warehouse. C-1.9 Records of raw material or products purchased/ received by month are available and maintained for 5 years. See Appendix C - Risk Assessment system and evaluation Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

sECTION D

Procedures for Process Control of Manufacturing

D1.0 The organization shall maintain a clear system for control of production, identification and recording of verified legal material through processing and handling of finished goods. D-1.1 Manufacturing companies shall have procedures and planning to ensure raw materials are correctly issued into a defined production batch (such as work order WO#) that clearly defines the units for production, status (certified; verified legal; other) along with the production period. D1.1.1.) Company demonstrates adequate production planning and procedures that define unique production units (Work Order / batch #, etc.). D1.1.2) Company has system to allocate raw material that is traceable to its origin (Local supplier, Imported) and quantity into the production batch (Work Order / batch #, etc.). D1.1.3) Company adequately implements planning and production controls to segregate production of Verified Legal products from Other or Certified material or products. D-1.2 Manufacturing companies shall maintain adequate documentation of raw material used in each production unit to allow calculation of recovery based on volume of raw material input and volume of products produced. D-1.2.1) Company has adequate records of raw material stock and issuing of material into each planned and defined production batch (Work Order, batch, etc.) that is traceable back to a CTO / CLO / CVO as appropriate. D-1.2.2) Company maintains records of input volume of raw material and output volume of products for production units (Work Orders) for calculation of recovery. D-1.2.3) Summary records of raw material allocated to production and products produced for each production batch unit are maintained by month. D-1.3 All work in progress, components and finished goods shall be clearly identifiable to its environmental status and appropriate production batch (work order #; batch #, etc.) to maintain traceability from raw material issued through finished products, warehousing and sales. D-1.3.1) Work in progress is consistently identified to a specific unit of production (Work Order # batch #) and legal status. D-1.3.2) Stock material on the production floor, rework material, etc, are clearly identified as to legal status and production or purchase order. D-1.3.3) Finished goods are consistently identified to a specific unit of production (Work Order #) and environmental status. D-1.4 The company shall maintain detailed production records of finished goods that should be entered into a warehouse and allocated to a sales order based on both legal & certification status and production batch # (work order #). D-1.5 Records associated with production shall be maintained for 5 years See Appendix D - References for manufacturing

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

sECTION E

Procedures for Sales & Exports of Wood Products

E-1.0 The organization shall maintain a clear system for identification, and traceability of legal products manufactured and purchased for sale and export. E-1.1 The Organisation shall have procedures to ensure that all products sold under a sales order are clearly identifiable according to the legal or certification status and traceable to the production batch and/or purchase order as appropriate. E-1.2 The company shall comply with export regulations and ensure payments of exports fees and taxes are current. E1.2.1) The Organisation shall possess a valid Export License from DENR & Customs E1.2.2) The Organisation shall ensure that each consignment for export has been approved and inspected by DENR & Customs as applicable. E-1.3 The Organisation shall maintain adequate sales records that can be summarized to verify quantity of material and finished goods sold by environmental status and production batch as appropriate. E-1.3.1) Sales records clearly identify legal products sold that can be traced to defined production batch and or purchase orders. E-1.3.2) Quantity of legal material sold to various buyers is clearly defined. E-1.4 Records of sales and exports shall be maintained for 5 years.

See Appendix E - References for sales & exports Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

sECTION F

Procedures for Compliance Monitoring

F-1.0 Background & Purpose The Guidebook was developed to establish procedural guidelines to support the required documentation and system of verification to facilitate compliance with Due Diligence requirements of the EUTR, the US Lacey Act and the Australian Illegal Logging Prohibition Act. These guidelines are designed for use as a manual for companies to purchase legal raw material and provide a system to trace the material used in production to finished goods that can be traded and exported as legal timber products. A critical aspect is to ensure the procedural guidelines are simple and concise to enable companies to actually use and implement the system as part of membership requirements for the timber associations. The purpose of this procedure is to define the process for monitoring of compliance of members to Philippine regulations based on the procedural guidelines on due diligence.

F-2.0 Scope The scope of this procedure is limited to monitoring of the members by the timber associations. The procedure shall ensure work will be completed in a controlled, consistent and effective manner.

F-3.0 Responsibilities F-3.1 The Head of the timber association and/or appointed staff are responsible for: • Identify and schedule wood processing mills, trading and export companies to be included in the audit; • Examine audit outcomes and monitor the performance of companies; • Ensure implementation of this procedure; • Conduct reviews on the standard checklist, reporting formats, etc. F-3.2 The audit team is responsible for: • Implementation of audit activities; • Reporting on audit findings; • Close out of non-compliance within 2 months of reporting audit findings F-3.3 The Company representative is responsible for: • Rectify and address Gaps accordingly; • Training of staffs, supervisors and workers; 12

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

F-4.0 Definitions This procedure contains definitions of common terms used for auditing: Audit

Systematic, independent and documented processes for obtaining audit evidence and evaluating it objectively to determine the extent to which the audit criteria are fulfilled.

Audit evidence Records, observations, statements or other information provided by the concessionaire, FDS staff or local stakeholders, which are relevant to the audit criteria and verifiable. Audit evidence may be qualitative or quantitative. Auditor

A person with the competence to conduct an audit.

Auditee

An organization being audited

AWP

Annual Work Plan

Criteria

A set of requirements that define elements of legality in respect to Philippine forest regulations, licensed agreement, codes of practice, etc.

European Union

FLEGT

Forest Law Enforcement, Governance & Trade, an initiative by EU to combat illegal logging and trade products enter into EU countries

FMP

Forest Management Plan (Integrated Annual Operations Plan; CBFM; Permit to Harvest) approved by DENR

FMU

Forest Management Unit, a clear defined forest area with mapped boundaries, managed by a single managerial body to a set of explicit objectives which are expressed in a selfcontained multi-year management plan

Gap

Defined discrepancy between current performance and activities and the requirements of a specific indicator,

RIL

Reduced Impact Logging

TLAS

Timber Legality Assurance System incorporated a definition of legal timber based on an agreed set of Principles and Criteria that refer to Philippine laws, regulations and operating procedures; control procedures for verifying compliance with the definition of legal timber covering forest harvesting, transportation, processing, import and export and independent monitoring

Verified Legal - based on risk assessment or 3rd party verification in accordance to the Procedural Guidebook.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

F-5.0 Audit Planning: F5.1 Audit preparation should include arrangements of logistics such as air and ground travel, accommodation, to companies to be audited, etc. F5.2 The number of man-days for each audit shall be determined based on size and extent the company. Generally, there should be 1-2 audit staff on each audit. F5.3 The audit period should be adequate to include both document review and site observations for all key activities including subcontractors, which typically takes 1-2 days, depending on the operation, use of subcontractors and travelling time.

F-6.0 Audit Scheduling: F-6.1 The Association shall develop a monthly audit schedule based on logistics, activities, public holidays that may occur over the scheduling period. F-6.2 The audit schedule shall reflect, at minimum, annual audits of all manufacturing trade and export companies to verify compliance to requirements defined in the Guidebook. The audit schedule shall also include assessments within 60 days for companies that have received a major non-compliance during the assessment process to verify continual compliance. The schedule shall define the proposed dates for conducting each company audit within the monthly schedule. F-6.3 Audit team must plan auditing activities in the factory and subcontractors that includes legal documentation; management system; operating procedures, production records etc. The audit team must also schedule site audits to subcontractors, as needed.

F-7.0 Audit Team F-7.1 The lead auditor shall be responsible for directing the assessment and the team members. F-7.2 The lead auditor / auditor team shall have auditing qualification, experience and understanding of the auditing checklist and understanding the overall â&#x20AC;&#x201C; implementation of the auditing system. F-7.3 The audit team shall record objective evidence of compliance against all applicable indicators and criteria and be in agreement with all findings.

F-8.0 Audit Documents & Equipment F-8.1 The audit team shall use the current Assessment Checklist & Report (SF-001 v01 March 2015). F-8.2 Surveillance visits shall take into account outstanding GAPs reported in the previous audit to ensure actions have been taken to improve the system and address any partial or non-compliance. F-8.3 The audit team shall bring equipment as needed to evaluate and record compliance. 14

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

F-9.0 Conducting the Audit F-9.1 Opening meeting shall be conducted by the lead auditor that should include the following: • Introduce audit team; • Confirm the full scope of the audit; • Explain the audit process and output of the audit; • Invite auditee to provide information on the company & operations; • Discuss objective evidence: gaps & non-conformance; • Confirm of confidentially of audit activities; • Arrange for use of office area; • Invite questions; • Arrange for closing meeting. F-9.2 The lead auditor shall ensure the team is working in line with the developed schedule, auditing the areas identified and is communicating with auditor(s) if any problems arise. F-9.3 The audit team should work to obtain objective evidence of conformance to the standard checklist. F-9.4 The auditor(s) shall obtain objective evidence through: • Reviewing – Review of planning and operational documents such as policy, procedures, production records, sales and export data, etc.; • Interviews & discussion - Interviews with administration and company staff as appropriate; • Inspection – Observation of company activities and factory conditions; • Measuring – measurements taken by the team and field staff; • Evaluation – compiling of data and observations of compliance to each criterion. F-9.5 The progress of the audit and any concerns to the company shall be communicated, as appropriate. F-9.6 All observations of compliance and non-compliance shall be supported by audit evidence and recorded in the audit report. F-9.7 The grading of level of compliance for activities observed by auditors are based on the estimation of the audit team as follows: • A criterion is compliant when no major gap is identified within any of the indicators that define the criterion. Indicators: • Minor Gap: is issued against an indicator for partial compliance whereby the criterion is still considered compliant. • Major Gap / Non Compliance: The auditee does not demonstrate adequate compliance to an indicator and subsequent criterion F-9.8 The lead auditor shall conduct closing meeting with the presence of company representatives. The audit findings and conclusion shall be presented to the company representative and to agree a timeframe and appropriate actions to address any non-compliance identified during the assessment.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

F-10.0 Audit Report Preparation F-10.1 The lead auditor shall use the current report form (SF-001 Assessment Checklist & Report v01 March 2015) to document audit findings. F-10.2 The audit report should provide a complete, concise and clear record of the audit. It should include or refer to the following details: • Summary & background information. • Audit Highlights. • List of Gaps (current, and closed). • Findings for each indicator and criterion including objective evidence and evaluation of compliance. • Attendance lists at opening and closing meeting. • Assessment Itinerary. F-10.3 The audit report shall clearly define all gaps and the status of gaps identified in the previous audit. The report shall clearly define recommendations and schedule for addressing major gaps identified during the assessment. F-10.4 The audit report shall be maintained by the association for at least 5 years. F-11.0 Corrective Actions (Gaps) & Follow-up F-11.1 The Association staff shall monitor that the company addresses all noncompliance (Major gaps) identified in the audit report. The Company should agree on the schedule for addressing identified major Gap / non-conformance that should be within 2 months. F-11.2 A close–out audit needs to be conducted for all companies that do not demonstrate compliance. F-11.3 Minor gaps should be addressed within the next scheduled surveillance or else the gap may be raised to a major indicating non-compliance. F-11.4 Surveillance audits shall be carried out at least annually to monitor continual compliance of the company to legal requirements. F-11.5 Companies that do not demonstrate compliance following a close out visit are eligible for suspension, fines, etc that is also identified in the Timber Association website.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

ASSOCIATED DOCUMENTS & REVISIONS The following documents are necessary for reference or use in implementation of this procedure:

RECORDS The following records shall be maintained as a result of this procedure: Documents / Reports

Document #

Audit Checklist & Report

SF-001 v01 1 March 2015

Please see Appendix F for Audit Checklist and Report

REVISION HISTORY Version 01

Details

Approved

Date

Guidebook on requirements or Chain of Custody & Monitoring Compliance by the Philippines Timber Associations

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Appendices Appendix A. Legal Regulations Forests & Harvesting & Processing Legality is a function of meeting legal requirements is to comply with current regulations in respect to forestry activities, processing of timber products; trade & export of finished goods. The key organization in regulating forestry and wood processing activities is the Department of Environment and Natural Resources (DENR) along with the Forest Management Bureau (FMB). The following is a list of government regulations in relation to the timber industry of the Philippines.

1. Origin of Timber and Timber Products • Forest Lands Land Tenure Agreement

DENR Regulations

Guidebook Reference

IFMA – Integrated Forest Management Agreement

DAO 2003-21 and DAO 1999-53

A-3.1

CBFMA – Community Based Forest Management Agreement

DAO 2003-21 and DAO 1999-53

A-3.1

SIFMA – Socialized Industrial Forest Management Agreement

DAO 2004-30

A-3.1

CSC – Certificate of Stewardship Contract

DAO 1998-45

A-3.1

DENR Regulations

Guidebook Reference

DAO 2004-52

A-3.1

• Private Lands Land Tenure Agreement PTFOC - Private Tree Plantation Ownership Certificate

2. Harvesting of Timber Land Tenure

Harvesting Permit

DENR Regulations Guidebook Reference

IFMA

Approved CDMP Annual Operations Plan

DAO 1999-53 DAO 1999-53

A-3.2

CBFMA

Resource Use Permit

DAO 2000-29

A-3.2

SIFMA

Cutting Permit

DAO 2004-30

A-3.2

CSC

Resource Use Permit

DAO 2000-29

A-3.2

PTFOC

Private Land Timber Permit

DAO 2004-04

A-3.2

Chain Saw Permit

DAO 2003-24

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Appendix B. Purchasing Domestic Timber 1. Transporting Timber/Products Forest Product

Transport Document

DENR Regulations

Guidebook Reference

Logs – IFMA / CBFMA / SIFMA / CSC

CTO* Tally Sheet – Logs

DAO 2007-31 DAO 1994-07

A-3.3 / B-1.4 - B-1.6

Logs - PTFOC

Self Monitoring Form / Tally Sheet – Logs

DAO 1994-07

B-1.4 B-1.6

Lumber / Veneer - IFMA / CBFMA / SIFMA / CSC

CLO / CVO Sales Invoice Tally Sheet -

DAO 2007-31 DAO 1994-07

B-1.6; B-1.7

Finished, semi-finished and knock-down forest products

Delivery Receipt or Sales Invoice Tally Sheet

DAO 1994-07 DAO 1994-07

B-1.5

* - No Certificate of Timber Origin shall be required in the following: • Logs / Timber being transported from the licensee’s / permittee’s cutting area to its wood processing plant or main log storage area, provided such facilities are located within the province of source; • In cases where the wood processing plant is located outside the province, subject to prior approval of the RED (s) concerned; • Forest products transhipped from the point of initial loading to its final point of destination, provided accompanied by a Certificate of Transhipment (COT) issued by the CENRO concerned indicating therein the kind, number, volume and consignee of the shipment as well as the serial number of the Certificate of Origin accompanying the shipment; and • Transport of logs / Timber derived from planted trees inside private lands, provided accompanied by a Certificate of verification issued by a DENR local official at the CENRO level. ** - No Certificate of Lumber Origin shall be required in the following: • Lumber and Lumber products transported from source to buyer / end-user within the confines of the province or within the Greater Manila area, provided that the same are covered by the corresponding sales invoice and/or delivery receipt; • Lumber transhipped from the point of initial loading to its final point of destination, provided accompanied by a Certificate of Transhipment (COT) issued by the CENRO concerned indicating therein the kind, number, volume and consignee of the shipment as well as the serial number of the Certificate of Origin accompanying the shipment; and • Transport of Lumber derived from planted trees inside private lands, provided accompanied by a Certificate of verification issued by a DENR local official at the CENRO level. Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

2. Certificate of Timber / Lumber Origin Form

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

3. Tally Sheet - Logs

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

4. Tally Sheet - Lumber

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

5. Delivery Receipt

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Appendix C. Guide on Importing & Risk Assessment 1.0 Regulations on Importing Timber and Timber Products DENR Regulation

Guidebook Reference

Authority to Import Wood Materials

DAO 1999-46

C-1.1

Certificate of Registration to Import Wood Material

DAO 1999-46

C-1.5

Phytosanitary Certificate Issued by the Country of Origin

DAO 1999-46

C-1.5

Bill of Lading

DAO 1999-46

C-1.6

Summary of Packing List

DAO 1999-46

C-1.6

Required Document

2.0 Guide on Risk Assessment The objective of the supplier evaluation is to document that the supplier can trace raw material to a non-controversial source that is considered Low (negligible) Risk of being illegal to classify the material as Verified Legal (VL). The critical element is to document that there is a low risk for the supplier to have controversial or illegal material. Timber Industry needs a simplistic system to evaluate the risk of timber being purchased, manufactured and traded within the supply chain. The Risk Assessment for this Procedural Guidebook is based on the system developed by Global Forestry Services (GFS) that has provided for a fundamental risk evaluation using General Risk Categories. GFS Wood Tracking Program has defined that risk can be based on general risk categories in respect to:

• Country risk; • Species risk; • Operational risk GFS - General Risk Categories: Country Risk: Based on a Corruption Perception Index (http://cpi.transparency.org) by Transparency International. Country Risk is directly related level of Law Enforcement and transparent Governance that is related to corruption.

Low Risk Country

Countries with CPI score of 60 and above. Developed countries in North America, Western Europe, Australia, New Zealand and Japan have high levels of Law Enforcement and Governance. These countries tend to have detailed forest management and environmental requirements & for harvesting timber that originates within those countries.

Medium Risk Country

Countries with CPI scores between 40-60 can be considered as medium.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

High Risk Country

Countries with CPI scores below 4.0. Developing countries and tropical countries mostly located in South America, Africa, Russia, Asia and South Pacific mostly have poor records of good governance and law enforcement that directly affects the forest and timber industries.

Species Risk: Species Risk: Species risk is based on the potential for illegal activities occurring based on the timber species. Timber species that are planted and low value are usually not under threat of being harvested and traded illegally. High value species and species from tropical natural forests are considered to be higher risk of being illegally harvested and traded. Low Risk Species

Low Risk is linked to Low Value Species that are generally planted: Plantation based species (such as rubberwood (Hevea brasillensis), Eucalyptus spp, pine (Pinus spp), Gmelina spp, Acacia spp, Albiza spp, Poplar (Populus spp); Planted temperate species and low value tropical pioneer species; Natural temperate forest species from low risk countries.

High Risk Species

Tropical natural forest species such as dipterocarps; high valued species (such as: teak, sandal wood, mahogany, rosewoods, ironwoods, ramin, etc.) that are grown naturally or planted. ALL CITIES listed species without CITIES certificate

Operational System Risk: Operational risk is based on the presence of 3rd party verification or government verification of compliance to regulations or international standards of certification. Independent verification of forest and supply chains indicate low risk even when country or species risk is not low risk. Low Risk Operations

Forest or Plantation areas audited under third party systems such as international or national certification systems. Wood Processing and trading companies, which have formal chain of custody systems audited by 3rd parties. Forest or plantation areas that are regulated by government agencies whereby documentation of compliance is available.

High Risk Operations Forest or Plantation areas in high-risk areas / countries that are not audited by third parties or by government agencies, where no information or records are available regarding compliance to regulations. Wood processing and trading companies that do not have formal chain of custody systems to demonstrate traceability of wood products back to raw material and forest of origin.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

The Procedural Guidebook adopted the Global Forestry Services (GFS) method to evaluate risk of timber / supplier to avoid the costs and time for assessment of documented Low Risk Sources as it would not be economically viable for companies in the Philippines. A fundamental evaluation is based on the General Risk Categories detailed above using the following matrix:

Risk Matrix: Evaluation of General Overall Risk Categories

Low Risk Country

Medium Risk Country

High Risk Country

Low Risk Species

Low Risk

High Risk

High Risk Species

Low Risk

High Risk

Low Risk Operations

Low Risk

High Risk Operations

Low Risk

High Risk

Suppliers or timber that falls into a High Risk Red Box will require additional information or independent verification to reduce the risk. Additional information can be obtained through using the Detailed Supplier Information Checklist to document the supplier and timber is not high risk. The objective is to ensure that overall risk through formally documented evidence is low. Suppliers may provide information that identifies the timber or supplier as Medium Risk relevant to the General Risk Categories and the Risk Matrix. The Company needs to provide additional information to justify reduction of Medium Risk to Low Risk.

Approval Record: Record of Risk Evaluation Results for each timber product according to the General Category and record the overall evaluation based on the Risk Matrix above. Supplier Name General Risk Categories Timber Product Group

Country Risk

Species Risk

Operational Risk

Risk Matrix Overall Risk

Note: Any timber product not defined as Overall Low Risk following the General Risk Assessment, will require an independent verification to document low risk.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Appendix C-1.5 Certificate of Registration as Importer

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Appendix D. Reference for Manufacturing 1. Timber / Timber Product Processing / Manufacturing Wood Processing Document

DENR Regulations

Guidebook Reference

Permit to establish and operate Wood Processing Plant

DAO 2003-53 DAO 2003-41 MAO 1986-50

A-3.4

Environmental Clearance Certificate

DAO 2003-30

N/A

Approved Log Supply Contract

DMC 1994-18

N/A

Mayorâ&#x20AC;&#x2122;s Permit

Local Ordinace

A-3.4

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

2. Processing Timber/Timber Products Wood Processing Plant Permit Form

Department of Environment and Natural Resources R_______________ /C___________ DENR Form No. 13 No. __________________________

WOOD PROCESSING PLANT PERMIT Pursuant to Presidential Decree No. 705 and other existing law and regulations, a Wood Processing Plant Permit is hereby issued to ______________________________________________________ Citizen/Corporation of the Philippines with address at ____________________________________ __________________ to operate a ____________________________________________ located at _______________________________________ and having a daily rated capacity of approximately ___________________. The permittee has log supply contract(s) with the following. SUPPLIER/S name/co. ___________________________ ___________________________ ___________________________ ___________________________

VOLUME (cu. m.) ___________________________ ___________________________ ___________________________ ___________________________

Which volume is considered adequate to supply the log requirements of the mill under this permit. This permit is subject to the provisions of Presidential Decree No. 705 as amended by Executive Order No. 277, and other applicable laws, including the rules and regulations promulgated thereto, and such other additional regulation which may hereinafter prescribed This permit is effective on the date of issue and expires on _______________________________. Issued this _____ day of ____________________ at Davao City, Philippines

Regional Director Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Appendix E. Reference Sales & Exports 1. Sales / Trade Required Documents

DENR Regulations

Guidebook Reference

Lumber Dealer Permit

DMO 1986-13

N/A

DENR Regulations

Guidebook Reference

Sales Invoice and/or delivery receipts

DAO 1999-46

E-1.2.4

Photocopies of the Photosanitary Certificate and corresponding sales invoice and delivery receipts

DAO 1999-46

E-1.2.4

Photocopies of the Photosanitary Certificate and Quarantine officer concerned

DAO 1999-46

E-1.2.4

Bill of lading

DAO 1999-46

E-1.2.4

Summary of Packing list duly authenticated by the CENRO concerned and / or his authorized representatives

DAO 1999-46

E-1.2.4

2. Exporting Required Documents

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Appendix E-1.2.1 Export Authority

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Appendix E-1.2.2 Export Compliance Certificate

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Appendix F. Assessment Checklist & Report v01 March 2015

Philippine Chain of Custody / Due Diligence Checklist & Assessment Report

Organization

Company Name

Reference #

member # - doc #

Contact Person

Assessment #

Office Address

Assessment Date

dd/mm/yyyy

Sawmill

Date of Report

dd/mm/yyyy

Address

Date of close out

Telephone

Lead Assessor

Fax

Assessor

Approved By

Membership Information Member # Issuance Date

dd /mm /yy

Expiration Date Scope of Assessment Company Type

Sawmill / Wood Processing /Trading,

Scope of Assessment

Company Name (office / factory; include subcontractors)

Product Group

Veneer; Plywood; Sawn Timber; Mouldings; Furniture

Sources of Material Species

Common & Scientific Names

Background Information: Associated Organizations & Subcontractors: Description of the Supply Chain:

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Assessment Results: GAPs in Conformance: GAP #

Type

001/yyyy

Minor

002/yyyy

Major

Checklist

Description

003/yyyy Close out visit (if applicable)

Date

Not applicable Status of Previous GAPs: GAP #

Type

001/yyyy

Minor

002/yyyy

Major

Checklist

Description

Status

003/yyyy Recommendations Company Name has demonstrated compliance to the requirements as no major gap was identified during the assessment thus is recommended to receive a Statement of Compliance against the Philippine Guidebook. Minor Gaps identified in this assessment should be addressed before the next surveillance visit. Actions required to close the gaps include: â&#x20AC;˘ Action #1 â&#x20AC;˘ Action #2 The next surveillance visit is scheduled for Month / Year.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

Due Diligence Requirements for the Philippines B-1.0 Purchasing Domestic Timber

The organization shall have a formalized system for purchasing and receiving and recording of raw material and products that are verified as legal based documented compliance with Philippine regulations.

Compliance Non-Compliance

B1.1 The organisation shall have a formalized system to ensure that all raw material or products purchased are traceable to legal sources that includes documentation required by the DENR. FINDINGS: Describe findings

GAP #: record Gap # 01/2015 (major or minor)

B-1.2 Organization has purchase order defining purchase of raw material or products. FINDINGS:

GAP #:

B-1.3 Purchase orders and associated documents shall contain adequate information clearly describing the quantities of material, species of timber and reference to legal or certified status. FINDINGS:

GAP #:

B-1.4 Relevant documents (Transport permits (CTO, CO, Self Monitoring Form; CLO, Transport Agreement, etc) are available to confirm material or products purchased and received. FINDINGS:

GAP #:

B-1.5 Tally sheets should contain detailed information on logs (log numbers, dimensions) to match the associated CTO / CO transport permit. FINDINGS:

GAP #:

B-1.6 Delivery Receipts issued by lumber yards or timber traders need to be referenced back to the original CTO, CLO provided by the mill of origin (as appropriate). FINDINGS

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

GAP #:

B-1.7 Receipt of timber shall be referenced to the Purchase Order with clear labelling of species dimensions quantity and legal status. FINDINGS:

GAP #:

B-1.8 Records of timber received shall be allocated to stock, production or sales and shall contain reference between the Purchase Order, Production Batch Unit #, or Sales Order # as appropriate. FINDINGS:

GAP #:

B-1.9 Records for purchasing; receiving; warehousing; etc shall be maintained for at least 5 years. FINDINGS:

GAP #:

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

C-1.0 Purchasing Imported Material

The Organization shall have a formalized system for legally importing timber and wood products that are evaluated as low risk based on information obtained against General Risk Categories.

Compliance Non-Compliance

C-1.1 The Organization needs to obtain an import license from DENR & Customs. FINDINGS:

GAP #:

C-1.2 The Organization shall implement a risk evaluation system for importing timber products that includes methods for defining low risk based on: 1) country of timber origin, 2) timber species and 3) operational risk for monitoring legal compliance and tracking through the supply chain. FINDINGS:

GAP #:

C-1.3 The Organization shall evaluate risk of each supplier and timber product using the Risk Matrix and maintain records of approval. FINDINGS:

GAP # : (M / m)

C-1.4 Suppliers that are not considered low risk following evaluation, must not be used in manufacturing or trade of verified legal products and would need to undergo independent verification to mitigate risk of material to be supplied FINDINGS:

GAP #:

C-1.5 Organisation shall have a valid import permit from DENR and Customs for the consignment along with phytosanitary inspections and fees paid as applicable. FINDINGS:

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

GAP #:

C-1.6 Organisation shall demonstrate the import documents correspond to the material imported: – Import approval from appropriate government organization (DENR & Customs) – Customs Declaration Forms – Purchase Agreement / Contract – Physical Inspection report by appropriate government organization (Customs; DENR). – Records of Import data – Packing list (log list) – Transport Permits: (CO; CTO; CLO, Packing List; etc. FINDINGS

GAP #:

C-1.7 The organisation shall provide for adequate documentation, physical identification / segregation of raw material or goods received based on certification & legal status based on bonded warehousing requirements. FINDINGS

GAP #:

C-1.8 Stock of material on site match records of raw material or products received & stored in the log yard or bonded warehouse. FINDINGS

GAP #:

C-1.9 Records of raw material or products purchased/ received by month are available and maintained for 5 years. FINDINGS

GAP #:

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

D-1.0 Process Control & Manufacturing

The organization shall maintain a clear system for control of production, identification and recording of verified legal material through processing and handling of finished goods.

Compliance Non-Compliance

D-1.1 Manufacturing companies shall have procedures and planning to ensure raw materials are correctly issued into a defined production batch (such as work order WO#) that clearly defines the units for production, status (certified; verified legal; other) along with the production period. FINDINGS: D1.1.1.) Company demonstrates adequate production planning and procedures that define unique production units (Work Order / batch #, etc.). D1.1.2) Company has system to allocate raw material that is traceable to its origin (Local supplier, Imported) and quantity into the production batch (Work Order / batch #, etc.). D1.1.3) Company adequately implements planning and production controls to segregate production of Verified Legal products from Other or Certified material or products.

GAP #:

D-1.2 Manufacturing companies shall maintain adequate documentation of raw material used in each production unit to allow calculation of recovery based on volume of raw material input and volume of products produced. FINDINGS: D-1.2.1) Company has adequate records of raw material stock and issuing of material into each planned and defined production batch (Work Order, batch, etc.) that is traceable back to a CTO / CLO as appropriate. D-1.2.2) Company maintains records of input volume of raw material and output volume of products for production units (Work Orders) for calculation of recovery. D-1.2.3) Summary records of raw material allocated to production and products produced for each production batch unit are maintained by month.

GAP #:

D-1.3 All work in progress, components and finished goods shall be clearly identifiable to its environmental status and appropriate production batch (work order #; batch #, etc.) to maintain traceability from raw material issued through finished products, warehousing and sales. FINDINGS: D-1.3.1 Work in progress is consistently identified to a specific unit of production (Work Order #, batch #) and legal status. D-1.3.2) Stock material on the production floor, rework material, etc, are clearly identified as to legal status and production or purchase order. D-1.3.3) Finished goods are consistently identified to a specific unit of production (Work Order #, batch #) and environmental status.

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

GAP #:

D-1.4 The company shall maintain detailed production records of finished goods that should be entered into a warehouse and allocated to a sales order based on both legal & certification status and production batch # (work order #). FINDINGS:

GAP #:

D-1.5 Records associated with production shall be maintained for 5 years FINDINGS:

GAP #:

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

E-1.0 Purchasing, Importing & Receiving

The organization shall maintain a clear system for identification, and traceability of legal products manufactured and purchased for sale and export.

Compliance Non-Compliance

E-1.1 The Organisation shall have procedures to ensure that all products sold under a sales order are clearly identifiable according to the legal or certification status and traceable to the production batch and/or purchase order as appropriate. FINDINGS:

GAP #:

E-1.2 The company shall comply with export regulations and ensure payments of exports fees and taxes are current. FINDINGS: E1.2.1) The Organisation shall possess a valid Export License from DENR & Customs E1.2.2) The Organisation shall ensure that each consignment for export has been approved and inspected by DENR & Customs as applicable.

GAP #:

E-1.3 The Organisation shall maintain adequate sales records that can be summarized to verify quantity of material and finished goods sold by environmental status and production batch as appropriate. FINDINGS: E-1.3.1) Sales records clearly identify legal products sold that can be traced to defined production batch and or purchase orders. E-1.3.2) Quantity of legal material sold to various buyers is clearly defined.

GAP #:

E-1.4 Records of sales and exports shall be maintained for 5 years. FINDINGS:

Guidebook on requirements for Chain of Custody Systems & Monitoring Compliance in the Philippines

GAP #: