Countermeasures

The report on the processing of and improvements by the Company as a result of the former employees’ misconduct case filed by the Hsinchu District Prosecutor’s Office in December 2021

 

The Company's Handling of the Matter:

  • The Company received a report from an individual in September 2020 that employees were involved in abnormal transactions which caused the company losses. Upon discovering the employees’ misconduct after preliminary investigation, the Company immediately conducted a thorough internal investigation and the Company also notified and cooperated fully with the Investigation Bureau and the Prosecutor’s Office in the investigation of the matter. After the disciplinary committee of the Company determined that the employment of two employees should be terminated, the Company dismissed two employees involved in the case in November 2020.
  • The Company reported the former employees’ misconduct to the Audit Committee on Nov 17, 2020 and Nov 25, 2020.
  • Jan 26, 2021: The Company reported the former employees’ misconduct to the Audit Committee and invited auditors in attendance to provide comments about the impact on the statements relating to internal control and internal audit system in the Company’s current financial statement resulting from this incident. After further evaluation, the auditors assessed that the impact of this matter on the financial statement did not exceed the determined materiality threshold. In addition, there were no significant deficiencies found in the Company’s internal control and internal audit operations. To monitor and control high-risk behaviors, the Audit Committee has agreed to appoint forensic accountants to assist in establishing a continuous auditing dashboard.
  • July 28, 2021: The Company reported sales analysis - yield rate and shipment of downgrade products (I) explaining the relevance between yields and the analysis of yields and shipments to the Audit Committee.
  • Dec 20, 2021: The Company reported sales analysis - yield rate and shipment of downgrade products (II) to the Audit Committee and updated the status of the Company’s cooperation with the Investigation Bureau and the Prosecutor’s Office in the investigation of the former employees’ misconduct. The Audit Committee suggested the Company review its shipment systems and communicate to the Audit Committee any material matters discovered.
  • Dec 29, 2021: The Company reported the improvements made to the Company’s policies and procedures as a result of the former employees’ misconduct to the Audit Committee. In addition, the Company also made further improvements as a result of the Audit Committee’s suggestions.

 

Improvements：

1. The Company plans to enhance the control of the inventory categorization and the authorization procedures. The Company’s proposed improvements and status of implementations are as follows:

Improvements

Items

Descriptions

Implementation status/Results

Enhancing internal control

Enhancing the control of the shipping grade

Applying the program to assist in controlling the shipping grade
  • The program was launched on December 2020.
  • The Company has improved internal controls.

Enhancing the control of selling Down grade(DG)

Requiring discussions and approvals of different units before inventories’ downgrade and selling

The Company has implemented the control according to the improvement plan.

Implementing integrity policies

Promoting integrity policies to distributors and requesting their integrity commitments

Reviewing distributors and requesting their integrity statements
  • The percentage of distributors signing the integrity statements is 100%.
  • The Company has improved the promotion of integrity policies.

Imposing job rotation on certain positions regularly

Identifying employees required to rotate between different positions by the system and implementing job rotation
  • The system is set to launch in the first quarter of 2022.
  • The target percentage of certain job rotation in 2022 is 100%.

Detecting and preventing misconduct

Appointing forensic accountants to assist in establishing a continuous auditing dashboard to monitor and control high-risk behaviors

Appointing the KPMG to provide training to the Company for establishing the continuous auditing dashboard, which can warn of abnormal transactions by detecting the reasonability of customer transactions such as sales, returns and price with 6 programs, 31 check points and multidimensional analysis

The Company has launched the dashboard in January 2022.

Carrying out on-site inspections of high-risk suppliers and customers

Retaining outside experts to inspect suppliers and customers based on the risk evaluation annually

The Company plans to retain outside experts and start inspection in the first quarter of 2022.

The improvement includes subsidiaries.

The Company started sharing its experiences learned and improvements made with subsidiaries since January 2022.
The Company intends to recover losses and submit an insurance claim if it is possible to protect shareholders’ interest.

The Company reported this matter to the insurance company in January 2022.

2. The Audit Committee’s suggestions:

  1. The Company cooperates with the Investigation Bureau and the Prosecutor’s Office in the investigation and recovery to protect shareholders’ interest.
  2. The Company reports to the Audit Committee any material matters discovered.
  3. Enhancing corporate governance:

Suggestions

Improvements

Implementation status/Results

Reviewing the qualification process for agents/distributors

Building and implementing the qualification process for agents/distributors

The qualification process:

  • Reviewing the necessity of adding distributors in the process
  • Restricting the transaction mode to outright purchase/sale only
  • Involving senior management or different units to review

 

Relevant operations:

  • All distributors will be required to sign the commitment of honest transactions and identify with the transaction mode of outright purchase/sale.
  • The Company plans to implement in the first quarter of 2022.

Strengthening the promotion of the Whistleblower policy to employees and further involving suppliers and customers in its promotion
  • Chairman will send letters or messages promoting Whistleblower policy to all employees.
  • Involving other stakeholders (not limited to suppliers) in Employee Ethics Violations Reporting System and improving the disclosure of the reporting system on the Company’s website
  • The promotion of the commitment of honest transactions and Employee Ethics Violations Reporting System: Suppliers will be required to sign the commitment; new/regular customers will be notified by the system.
  • The Company plans to implement in the first quarter of 2022.
  • The Company plans to implement in the first quarter of 2022.
  • The Company has required new customers to implement the plan in February 2022; and regular customers have also been notified in February 2022.

 

Note: Status as of February 2022. Information will continue to be updated from time to time.