Safbon Water Service (Holding) Inc.Shanghai(300262) : self evaluation report on internal control in 2021

Safbon Water Service (Holding) Inc.Shanghai(300262)

Self evaluation report on internal control in 2021

Safbon Water Service (Holding) Inc.Shanghai(300262) all shareholders:

In accordance with the provisions of the basic norms of enterprise internal control, the guidelines for the standardized operation of companies listed on GEM and its supporting guidelines and other internal control regulatory requirements (hereinafter referred to as the “enterprise internal control normative system”), combined with the internal control system and evaluation methods of Safbon Water Service (Holding) Inc.Shanghai(300262) (hereinafter referred to as the “company”), on the basis of daily and special supervision of internal control, We evaluated the effectiveness of the company’s internal control on December 31, 2021 (the benchmark date of the internal control evaluation report).

1、 Important statement

It is the responsibility of the board of directors of the company to establish, improve and effectively implement internal control, evaluate its effectiveness and truthfully disclose the internal control evaluation report in accordance with the provisions of the enterprise’s internal control standard system. The board of supervisors shall supervise the establishment and implementation of internal control by the board of directors. The management is responsible for organizing and leading the daily operation of the enterprise’s internal control. The board of directors, the board of supervisors and the directors, supervisors and senior managers of the company guarantee that there are no false records, misleading statements or major omissions in the contents of this report, and bear individual and joint legal liabilities for the authenticity, accuracy and completeness of the contents of the report. The objective of the company’s internal control is to reasonably ensure the legal compliance of operation and management, asset safety, authenticity and integrity of financial reports and relevant information, improve operation efficiency and effect, and promote the realization of development strategy. Due to the inherent limitations of internal control, it can only provide reasonable assurance for the realization of the above objectives. In addition, as changes in circumstances may lead to inappropriate internal control or reduced compliance with control policies and procedures, there is a certain risk to speculate the effectiveness of internal control in the future according to the internal control evaluation results.

2、 Internal control evaluation conclusion

According to the identification standard of major defects in the company’s internal control over financial reporting, there are no major defects in the internal control over financial reporting on the benchmark date of the internal control evaluation report. The board of Directors believes that the company has maintained effective internal control over financial reporting in all major aspects in accordance with the requirements of the enterprise’s internal control standard system and relevant regulations.

According to the identification standard of major defects in the company’s internal control over non-financial reports, the company found no major defects in the internal control over non-financial reports on the benchmark date of the internal control evaluation report.

There are no factors affecting the evaluation conclusion of the effectiveness of internal control from the base date of the internal control evaluation report to the date of issuance of the internal control evaluation report.

3、 Internal control evaluation

According to the risk oriented principle, the company determines the main units, businesses and matters included in the evaluation scope and high-risk areas.

1. The main units included in the evaluation scope include the company and its wholly-owned subsidiaries and holding subsidiaries.

2. Proportion of units included in the scope of evaluation:

Proportion of indicators (%)

The ratio of the total assets of the units included in the evaluation scope to the total assets of the company’s consolidated financial statements 100

The total operating income of the units included in the evaluation scope accounts for 100% of the total operating income in the company’s consolidated financial statements

3. The main operations and matters included in the scope of evaluation include:

Corporate governance structure, organizational structure, development strategy, social responsibility and corporate culture; Sales business, procurement business, engineering projects, contract management, fund management, subsidiary management, related party transactions, external guarantee, external investment, asset management, information disclosure, etc.

4. High risk areas of focus mainly include:

Capital, procurement, assets, sales, engineering, contract, guarantee, investment and subsidiary management.

5. The above businesses and matters included in the evaluation scope and high-risk areas cover the main aspects of the company’s operation and management. Is there any major omission?

□ yes □ no

(II) basis of internal control evaluation and identification standard of internal control defects

The company organizes the internal control evaluation according to the requirements of the enterprise internal control standard system and in combination with the relevant internal control systems of the company. The board of directors of the company distinguished the internal control of financial report from the internal control of non-financial report according to the identification requirements for major defects, important defects and general defects of the enterprise internal control standard system, combined with the factors such as the company’s size, industry characteristics, risk preference and risk tolerance, and studied and determined the specific identification standards of internal control defects applicable to the company, which are consistent with the previous years. The identification standards of internal control defects determined by the company are as follows: 1. Identification standards of internal control defects in financial reports

The quantitative criteria for the evaluation of internal control defects in financial reporting determined by the company are as follows:

Index name major defect important defect general defect

Pre tax profit misstatement ≥ 3% of pre tax profit, 1% of pre tax profit ≤ misstatement misstatement 1% of pre tax profit, 3% of pre tax profit

The qualitative criteria for the evaluation of internal control defects in financial reporting determined by the company are as follows:

Qualitative standard of defect nature

(1) Fraud by directors, supervisors and senior managers;

Major defects (2) error correction for major errors in the announced financial report;

(3) There is a major error in the current financial report, but the error is not found in the operation of internal control; (4) The audit committee and Audit Department of the company have ineffective supervision on the internal control of financial reports.

(1) Failure to establish anti fraud procedures and control measures;

Important defects (2) no corresponding control mechanism has been established for the accounting treatment of unconventional or special transactions;

(3) For one or more defects in the preparation of financial reports, it is impossible to ensure that the prepared financial statements achieve the goal of authenticity and accuracy.

General defects: (1) there is a small error in the current financial report, but the error is not found in the operation of internal control; (2) There are deficiencies in the general supervision of the company’s internal audit department and the audit committee

2. Identification standard of internal control defects in non-financial reporting

The quantitative criteria for the evaluation of internal control defects in non-financial reporting determined by the company are as follows:

Index name major defect important defect general defect

Direct loss amount direct loss amount ≥ 0.05% of total assets ＜ direct loss amount ≤ 0.5% of total assets ＜ 0.05% of total assets

Qualitative criteria for evaluation of internal control defects in non-financial reporting determined by the company

Qualitative standard of defect nature

(1) The company’s business activities violate national laws and regulations;

Major defects (2) frequent exposure of negative media news, which has a significant impact on the company’s reputation;

(3) Serious loss of senior managers and core technicians;

(4) Major defects in internal control have not been rectified.

(1) The company’s activities in violation of national laws and regulations are subject to minor punishment;

Important defects (2) negative news in the media, which has an impact on the company’s reputation;

(3) Serious loss of personnel in key positions;

(4) Important defects in internal control have not been rectified.

(1) Negative news appears in the media, but the impact is small;

General defects (2) serious loss of personnel in general posts;

(2) General defects in internal control have not been rectified.

(III) identification and rectification of internal control defects

1. Identification and rectification of internal control defects in financial reporting

According to the above identification standards of internal control defects in financial reporting, the company has no major defects and important defects in internal control of financial reporting during the reporting period.

2. Identification and rectification of internal control defects in non-financial reports

According to the above identification standards of internal control defects in non-financial reports, no major defects and important defects in the company’s internal control over non-financial reports were found during the reporting period.

4、 Procedures and methods of internal control evaluation

The internal control evaluation is carried out in accordance with the procedures specified in the basic norms and evaluation guidelines. The management of the company authorizes the internal audit department to be responsible for the specific organization and implementation of the internal control evaluation and evaluate the high-risk fields and units included in the evaluation scope. During the evaluation process, we adopted appropriate methods such as problem investigation, special discussion and on-site inspection to widely collect evidence of the effectiveness of the company’s internal control design and operation. For the problems found in the audit, after on-site inspection and discussion, we will report the summarized suggestions and implementation plans to the company’s management. Truthfully fill in the working paper of self-evaluation, analyze and identify the deficiencies in internal control, and formulate corresponding improvement measures in time.

5、 Internal control construction of the company

(I) organizational structure of the company’s internal control

In accordance with the provisions of relevant national laws and regulations, the company has continuously improved and standardized the organizational structure system of the company’s internal control, defined the responsibilities and authorities of the general meeting of shareholders, the board of directors, the board of supervisors and department heads, formulated the control process at all levels, clearly defined the objectives, responsibilities and authorities of each functional department and post, set up an organizational functional organization suitable for production, operation and scale, and established a reasonable division of labor, clear rights and responsibilities The corporate governance structure of mutual checks and balances forms a good internal control environment and constitutes a relatively perfect internal control organizational structure.

1. Shareholders and general meetings

The company actively protects the legitimate rights and interests of all shareholders and strives to ensure that all shareholders can enjoy equal status and fully exercise their rights. During the reporting period, the company held three general meetings of shareholders. The convening and convening procedures of each general meeting of shareholders, the qualifications of personnel attending the general meeting of shareholders and the voting procedures of the general meeting of shareholders were in line with the provisions of the company law, the articles of association, the rules of procedure of the general meeting of shareholders and other relevant laws and regulations.

2. Directors and board of directors

The board of directors is responsible to the general meeting of shareholders and exercises the company’s business decision-making power according to law. The board of Directors consists of 7 directors, including 4 internal directors and 3 independent directors. The board of directors has one chairman and one vice chairman.

The board of directors of the company has a strategy committee, an audit committee, a nomination committee and a salary assessment committee. Mainly responsible for:

(1) Determine the company’s development plan, improve the investment decision-making procedures, strengthen the scientificity of decision-making, and improve the efficiency and quality of major investment decisions;

(2) Communication of internal and external audit, establishment and implementation of internal control system, audit and verification of major events and financial information;

(3) The directors of the company shall select the candidates, selection criteria and procedures of senior managers and put forward suggestions. (4) Formulate and review the remuneration policies and plans of the company’s directors and senior managers.

The above special committees are responsible for and report to the board of directors, and perform their duties on the decisions of the company’s relevant businesses.

During the reporting period, the company held 11 meetings of the board of directors. The meetings of the board of directors of the company could be convened and held in accordance with relevant regulations, and the contents of the meetings were recorded completely and accurately and kept properly. The independent directors conscientiously performed their duties and provided useful opinions on the company’s major investment, related party transactions, asset management and information disclosure, which played a positive role in further improving the company’s corporate governance structure and promoting the healthy and stable development of the company. The independent directors of the company are diligent and conscientious, faithfully perform the obligations and responsibilities of the independent directors, do not be influenced and influenced by the major shareholders, actual controllers or other units or individuals with interests in the company, seriously participate in each board of directors and shareholders’ meeting, seriously express independent opinions and provide constructive suggestions; It has played a positive role in the standardized operation and scientific decision-making of the company and improved the overall decision-making level of the company. It has enhanced the transparency of the decision-making of the board of directors and safeguarded the legitimate rights and interests of all shareholders of the company, especially small and medium-sized shareholders. In addition, independent directors also gave full play to their own expertise and experience, and earnestly carried out and did a good job in the work of their respective professional committees.

3. Supervisors and the board of supervisors

The board of supervisors of the company consists of three supervisors. The board of supervisors has one chairman and one employee supervisor. The supervisors of the company can exercise the supervision function with a rigorous and responsible attitude and effectively supervise the performance of the company’s finance, directors and senior managers. The meeting of the board of supervisors of the company can be convened and held in accordance with relevant regulations, and the contents of the meeting shall be recorded completely and accurately and kept properly.

4. Internal audit department

In order to strengthen the internal audit work, the board of directors of the company has formulated the internal audit work system, established an internal audit department independent of the financial department, and equipped with full-time auditors. The work of the internal audit department is not interfered by other departments or individuals, and reports directly to the board of directors and the general manager. The internal audit department regularly or irregularly inspects and evaluates the important links in the company’s economic and business activities, focuses on the risk of major events such as the company’s procurement and supply, financial management, cost accounting, investment and financing, and timely puts forward rectification suggestions according to the audit, which plays a role of supervision, control and guidance for the company’s production and operation.

(II) construction of the company’s internal control system

The objective of internal control is to reasonably ensure the legal compliance of enterprise operation and management, asset safety, authenticity and integrity of financial reports and relevant information, improve operation efficiency and effect, and promote the realization of enterprise development strategy. According to the requirements of the guidelines on internal control of listed companies, in order to standardize management and control business risks, the company has established and improved a set of relatively perfect internal control system with clear levels, rigorous control and strong operability in combination with its own characteristics and management needs. Among them, in improving the corporate governance structure, there are mainly the articles of association, the rules of procedure of the general meeting of shareholders and the rules of procedure of the board of directors