Basic Policy on Internal Audit System

　At a meeting of the Board of Directors held on August 21, 2020, NIPPO LTD. (hereinafter referred to as "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 Conduct" 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 Committee" for the Auditing 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 Auditing 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.
"Rules for personal information management" and "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 Promotion Division 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 Corporate Headquarter Director-General shall serve as the Director-General of the Promotion Division.
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 Strategic Management Council consisting of a full-time Director and the chairperson of the Auditing 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 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 The Company shall attend "Board of Directors", "Strategic Management Council" 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 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 Management Regulations, Managerial Position System Regulations, and Standards for Transaction between subsidiaries companies 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 and Supervisory Committee and the Internal Audit Office 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 and Supervisory Committee, etc., such employee shall be established on a case-by-case basis. In selecting such employees, The Audit and 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 and Supervisory Committee attend the Board of Directors, and the Chairman of the Audit Committee attends important The Company meetings such as Strategic Management Council. The Director shall report the status of execution of duties to The Audit and Supervisory Committee at these important meetings.
All information reported through the in-house reporting system shall be promptly reported to The Audit and Supervisory Committee.

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

The Internal Audit Division reports the eaudit plan and resultsf to the Audit and supervisory comittee member to contribute to efficient results by the Audit and supervisory comittee member.
To secure the effectiveness of audits by the responsible parties, "Audit and supervisory comittee Regulations" are established to ensure that reports are submitted to NIPPO LTD.'s Audit and supervisory comittee member by directors, executive officers and employees, as well as directors, auditors and employees of subsidiaries.
Directors and employees of subsidiaries should swiftly submit appropriate reports when auditors of the relevant subsidiaries request reports related to the execution of operations.
Without limitation to internal reports, directors, auditors and employees of Our Companyfs Group submitting reports to Audit and supervisory comittee member shall not be placed at a disadvantage for the reason of the said report.
When Audit and supervisory comittee member request advance payment for the execution of their duties, we shall pay it without delay. However, the necessity and required amount of payment may be checked by the Corporate Planning Division at a later date.

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