Chain-of-Custody 2006 Annual Audit Report for: Potlatch Corporation - Prescott Lumber Mill In Prescott, Arkansas, USA

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1 Certified by: SmartWood Headquarters 65 Millet St. Suite 201 Richmond, VT USA Tel: Fax: Certification Audit Performed by: SmartWood - USA 101 East Fifth St., Suite 208 rthfield, MN Tel: Fax: Contact person: Emily A. Jaklitsch ejaklitsch@ra.org Chain-of-Custody 2006 Annual Audit Report for: Potlatch Corporation - Prescott Lumber Mill In Prescott, Arkansas, USA Report Finalized: July 6, 2007 Audit Date: January 4, 2007 Auditor: Richard Cipperly Type of certificate: Single CoC Certificate code: Report for FSC-STD SW-COC-1673 ACCREDITED FSC-SECR Forest Stewardship Council A.C. Operation Contact: Brad Fountain Address: P.O Box 610 Prescott, AR 71857

2 I. AUDIT BACKGROUND Auditor, qualifications: Richard Cipperly, B.S., State University of New York, College of Forestry at Syracuse University in 1964 with a major in forest land management. For over 20 years served as manager of a large field office for NY State Forestry agency which dealt with public and private forest land stewardship. Consulting Forester serving Eastern Adirondacks since Owns and operates rth Country Forestry consulting forestry business. Society of American Foresters Certified Forester Since 1998, Mr. Cipperly has participated in and authored more than 250 SmartWood forest management and chain of custody assessments and audits. Date Range Audit Covers: September, December 31, 2006 Sites visited: People Interviewed, Titles: Offices and mill facilities of Potlatch Lumber in Prescott, Arkansas Larry Smith, Quality Control Process Improvement Supervisor Matt Roberts, Area Marketing Manager Audit Overview: Changes to the operation/ CoC procedures: Feedback to SmartWood: The audit consisted of a meeting with Matt Roberts covering the key elements of the audit reporting: sales, purchases and controlled wood documents. A tour of the Potlatch mill with Larry Smith and Matt Roberts followed with special emphasis on labeling and production tracking. ne ne II. GENERAL COMPANY INFORMATION A. SmartWood s Primary Contact Primary contact for certification, title: Brad Fountain, Plant Manager, Prescott Lumber Mill Address: P.O Box 610, Prescott, AR Telephone/Fax/ Tel: Fax: Brad.Fountain@potlatchcorp.com B. SmartWood Customer Fact Sheet Contact (on Public contact, title: Matt Roberts, Area Marketing Manager SmartWood Program Page 2

3 Address: P.O Box 390, Warren, AR Telephone/Fax/ Tel: Fax: Services: C. Details of Sites Included in the Certificate Scope Location (address) Operation Type Annual Volume of FSC Inputs (App.) Inputs for FSC Product Group Potlatch Corporation Primary Manufacturer 13,800 mbf FSC-Pure and P.O. Box 610 controlled wood Prescott, AR Southern Yellow Pine (SYP) logs 1000 tons FSC Pure and controlled wood Southern Yellow Pine (SYP) Logs *FSC product group must be based on terminology used in the UN/CEFACT coding system FSC Product Group* (include brief description) FSC-Pure SYP dimensional lumber FSC-Mixed- Credit material SYP dimensional lumber FSC Mixed Chips D. Size Class of Certificate Holder (for FSC AAF purposes) Check AAF Size Class Annual Turnover ($USD) Class 1 < $200,000 Class 2 $200,001 1,000,000 Class 3 $1,000,001 5,000,000 Class 4 $5,000,001 25,000,000 Class 5 $25,000, ,000,000 Class 6 > $100,000,000 E. Certified Sources and Buyers List certified suppliers (include FSC Certificate code): List certified customers (include FSC Certificate code, if known): List any companies SmartWood should send certification literature: Potlatch Company lands SW FM/COC-1598 Certified Wood Products: SW-COC-419 Curtis Lumber and Mfg.: SW-COC Domtar - Ashdown, AR (chips): SW-COC-1840 ne noted III. AUDIT FINDINGS: COMPLIANCE WITH FSC CHAIN-OF-CUSTODY REQUIREMENTS The following section summarizes the company s compliance with FSC chain-of-custody requirements. The checklist is directly based on FSC standard (STD FSC chain of custody standard for companies manufacturing FSC-certified products (version 1.0) References to the specific FSC standard number are included in parenthesis at the end of each standard e.g. (1.1). Selected references are also made to FSC-STD FSC on-product labelling requirements (version 1). SmartWood Program Page 3

4 Part 1: Quality System Requirements Standard Requirement Compliance 1.1 Documented procedures exist that cover all elements of the Standard including (3.1): a) Personnel responsible for implementing each part of the control system and key procedures (3.2); b) Scope of the CoC system including definition of FSC product groups (2.1); c) Classification of wood inputs according to FSC defined categories (6.1); d) Tracking and handling of all wood categories e) Forms and records used (2.5); f) Compilation of volume summary data; g) Keeping accurate, complete, up-to-date and accessible records and reports covering all aspects of the standard (4.1); h) Staff training requirements related to the standard (5.1). Findings: Detailed documented procedures were produced for the September 05 assessment. The auditor verified that they are still current and are kept up to date. 1.2 The company has appointed one person (or position) with overall responsibility for the company s compliance with all aspects of the standard (1.1): Findings: Brad Fountain has this responsibility and coordinates all FSC certification issues with Matt Roberts, as verified by the auditor. 1.3 All key personnel (employees and contractors) demonstrate understanding of their specific responsibilities in order to implement all the requirements of the standard (1.2): Findings: Auditor verified that all supervisors are aware of their responsibility in FSC certification product tracking and labeling. 1.4 The company s FSC CoC control system (policies, systems, procedures, work instructions, etc.) is implemented as designed and is sufficient to ensure that all products specified in the company s FSC product group schedule meet all of the requirements of the standard at all times (2.5): Findings: The procedures developed in 2005 are still in place and are sufficient to ensure that all products specified in the company's product group schedule meet all of the requirements of the standard, as verified by the auditor. 1.5 The company maintains an up-to-date FSC product group schedule of all product groups included in the company s FSC CoC control system (2.1 and 2.3): Findings: Auditor verified that all products are FSC Pure or FSC Mixed- Credit Material. The FSC Product Group Schedule is current and kept up to date. 1.6 Company classifies each product group as either a) FSC-pure, b) FSC-mixed, or c) FSC-recycled (2.4): Findings: Products are correctly classified as FSC-Pure and FSC-Mixed,as verified by the auditor. 1.7 Company retains all records and reports for at least five (5) years (4.2): Findings: Auditor verified that records are retained as required. 1.8 Company provides training to staff in relation to implementation of the defined CoC procedures and policies (5.2): Findings: Staff training is conducted as required, as verified by the auditor. 1.9 Company keeps records of the training provided to staff in relation to the standard (5.3): Findings: Auditor verified that training records are maintained. Training records and dates were reviewed as required. Part 2: Wood Sourcing Standard Requirement Compliance SmartWood Program Page 4

5 Input specifications 2.1 For the purposes of FSC CoC control and on-product labelling, the company has adopted and uses the definitions of wood, fiber or other materials (e.g. FSC-pure, FSCmixed, post-consumer reclaimed wood, etc.) as specified in the standard (6.1): Findings: The auditor observed that the company has adopted and uses the definitions specified in the standard. All of the wood sourced by the company is defined as either FSC-pure or Controlled Wood. 2.2 All wood used by the company in the manufacture of any FSC product group is classified into one or more of the following categories (6.2): a) FSC-pure b) FSC-mixed c) post-consumer reclaimed d) other reclaimed e) controlled Findings: Auditor verified that all wood sourced for FSC certified product manufacture is either FSC Pure or Controlled wood. 2.3 Company classifies as uncontrolled wood all material that it is not clearly identifiable as one of the permitted FSC categories specified in 2.2 above for the purposes of FSC CoC control and maintains this material separate (6.3): Findings: The auditor verified that the company has an adequate process to not accept any wood that is not clearly identifiable as one of the permitted FSC categories specified in 2.2 above for the purpose of FSC CoC control. Specifications for FSC-certified material 2.4 Company has written specifications for the purchase of all FSC-certified material which includes the following requirements (6.4): a) The company supplying the FSC-certified material shall have a valid FSC FM/COC or CoC certificate; b) Material to be supplied shall be identified as FSC-pure or FSC-mixed; c) Material to be supplied shall be covered by the scope of the supplying company s FSC certificate; d) Transport documentation and invoices issued for the FSC-certified material shall quote the supplying company s FSC certificate code. Findings: Auditor verified that all incoming FSC certified logs are accompanied by documentation as to show the FSC certified source. Specifications for reclaimed wood 2.5 Company has written specifications for the purchase of all reclaimed material which include the following requirements (6.5): a) The reclaimed wood and fiber material shall be correctly described in accordance with FSC definitions (see SW CoC Standard); b) All post-consumer reclaimed material shall be verified with respect to its quantity and compliance with the specified definitions (see SW CoC Standard) through independent verification or through other credible documentation; c) The shipping documentation and invoices issued for independently verified material shall quote the supplying company s certificate registration code or equivalent proof of independent verification. Findings: Specifications for controlled wood 2.6 Company uses controlled wood (non FSC-certified material) in FSC product groups in compliance with FSC controlled wood requirements (6.6, 6.7): NOTE: if company utilizes controlled wood in FSC product groups, an additional evaluation of compliance with the FSC controlled wood standard is required (FSC-STD ). Findings: Specification for controlled wood is very complete and meets FSC criteria for controlled wood verification, as verified by the auditor. SmartWood Program Page 5

6 Specifications for generating reclaimed material on-site 2.7 Company generates and collects reclaimed material on-site which is used for further processing or for sale. This material is classified into one of the following categories (7.1): a) FSC-pure material b) FSC-mixed material c) post-consumer reclaimed material d) other reclaimed material e) controlled material f) uncontrolled material Findings: 2.8 Company has defined procedures and/or work instructions for the collection and storage of reclaimed material that is generated on site. The category to which the material belongs shall be clearly identified (7.2): te: if it is not possible for the company to identify FSC-Pure from FSC-Mixed, then all material must be classified as FSC-Mixed. If it is not possible to identify post-consumer reclaimed from other reclaimed material then all material must be classified as other reclaimed material. (7.3, 7.4) Findings: Companies collecting or trading in post-consumer reclaimed material 2.9 Company collects and/or trades in post-consumer reclaimed wood for inclusion in FSC-labeled products (8.1): Findings: 2.10 Company clearly demonstrates that wood reclaimed from consumers/end users (by either themselves or by suppliers) meets the FSC definition of post-consumer reclaimed material (8.2): te: if materials are mixed prior to sale, then CoC requirements must be applied. (8.3, 8.4) Findings: Receipt and storage of material 2.11 The company shall check all received material on arrival to ensure that the wood/fiber has been clearly classified into a wood category according to FSC Definitions (see SW CoC standards) (9.1): Findings: Auditor verified that all incoming wood is classified correctly as FSC Pure or Controlled and it is stored separately from non certified material The company shall check on arrival that all wood products are accompanied by shipping documents that include: For FSC-Pure and FSC-Mixed: the correct and valid FSC certificate code. (9.1) Post-consumer reclaimed wood: a valid certificate number or equivalent identification as post-consumer reclaimed. (9.2) Controlled Wood: supplier documentation is sufficient to assess risk as per the controlled wood standard. (9.3) Findings: Both FSC Pure and Controlled wood deliveries are accompanied by shipping documentation that shows the source, FSC definition, and supplier's FSC CoC code, as verified by the auditor Company ensures that all FSC-Pure material received that is to be used in FSC-Pure products is clearly identified and/or stored separately from the other material categories (9.4): Findings: Auditor verified that FSC Pure materials are stored separately so FSC Pure products may be manufactured separately and claimed as FSC-Pure Company ensures that all material that cannot be identified as one of the categories in 2.7 above shall be kept separate from material for use in FSC product groups (9.5): Findings: Only FSC-Pure and controlled wood is accepted by the company. Any wood that is not FSC certified or the origin is unknown is not accepted. SmartWood Program Page 6

7 2.15 Company record keeping systems provide current and accurate information on inventory for each category: Findings: Auditor verified that Company records are sufficient to track all inventories of FSC Pure and controlled wood. This is done through the company MSP-023 Forest Stewardship of Gatewood, Exhibit 2. Part 3: Production Control and Records Standard Requirement Information collection and records 3.1 For each product group, the company records the quantity (by volume or weight) of FSC-pure, FSC-mixed, post-consumer reclaimed, other reclaimed, and/or controlled material on a monthly* basis (10.1): a) received as stock for production; b) used for the manufacture of each FSC product group; and c) sold as FSC-certified (FSC-pure, FSC-mixed, or FSC-recycled). Compliance * te: Company may reduce time period to less than one month for sporadic or limited orders (10.2, 10.7). Findings: Auditor verified that all inputs of FSC products are tracked accurately by quantity of FSC-Pure and controlled wood as the material is received, manufactured, and sold as FSC certified. Identification of rolling average 3.2 Company procedures define the methodology for determining the rolling average and the claim period for each FSC product group (10.6): Findings: Company has created an acceptable spreadsheet and methodology for calculating the rolling average, as verified by the auditor. 3.3 Company maintains documented calculations of the rolling average of FSC-certified material for each product group from the specified starting date to the date on which a claim is made (10.3): Findings: Auditor verified that the Company records are adequate to meet this requirement. The credit account spreadsheet was reviewed by the auditor with the company and is attached as Exhibit Company produces for each product group a monthly record of the rolling average of the FSC material used in the product group (10.4): Findings: Monthly reporting of rolling average is available for the single product group, as verified by the auditor. 3.5 The company assigns a number (e.g. a batch number) or other unique identifier by which it is possible to identify all products in the FSC product group (10.5): Findings: Auditor verified that all FSC certified lumber produced is tracked by pack numbers. 3.6 For each product group the company shall specify an FSC claim period of up to12 calendar months (10.6): Findings: Company uses a 12 month FSC claim period, as verified by the auditor. Part 4: Requirements for Labelling Standard Requirement SmartWood Program Page 7 Compliance 4.1 Company will use FSC on-product labels/logos (12.1): Company s FSC product groups qualify for the following labels: FSC-Pure FSC-Mixed FSC-Recycled Findings: Auditor verified that Company products qualify for FSC-Pure and FSC-Mixed labels, depending on mill tracking procedures. Eligibility for on-product use of the FSC trademarks 4.2 Company has met eligibility requirements for on product use of FSC trademarks: a) The company complies with parts 1-3 of the standard; b) The product to be labeled is included in the company s FSC product group schedule

8 (11.1); c) FSC labels are used only on products eligible for the specific label (FSC-STD sections 1.2, 4.8, 4.9, 4.10). Findings: All products are eligible for FSC certification labels; the products are included in the FSC Product Group Schedule. Labels are used on products only where eligible, as verified by the auditor. Requirements for labelling with the FSC-pure label 4.3 Company labeling procedures are in compliance with FSC policy (section 12) and uses only 100% FSC-pure material during the entire claim period (12.2 and FSC-STD ): Findings: Auditor verified that only FSC Pure labels are used on FSC Pure product runs. (none this period) Requirements for labeling with the FSC-mixed label (Threshold System) 4.5 Company procedures for labeling based on a threshold system are in compliance with FSC policy (Section 12.3 and FSC-STD ): Findings: Requirements for labelling with the FSC-mixed label (Credit System) Company procedures for labeling based on a credit system are in compliance with FSC policy (Section 12.4, 12.5, 13 and FSC-STD ): te: Company must demonstrate compliance with the FSC Credit System section below (14) Findings: Labels are used correctly on FSC Mixed - Credit Material lumber products, as verified by the auditor. Requirements for labeling with the FSC-recycled label 4.7 Company labeling procedures are in compliance with FSC policy (section 12) and uses only 100% post-consumer reclaimed wood/fiber during the claim period (12.6 and FSC- STD ): Findings: Approval of labels and claims 4.8 Company demonstrates compliance with FSC on-product labelling requirements (FSC- STD ) for all on-product FSC labels and claims (15.1): Findings: Auditor verified that Company records and procedures demonstrate compliance with labeling requirements 4.9 Company procedures include: a) Provisions for submission to and approval by SmartWood for on-product labels and/or off-product claims that make use of the FSC trademarks, prior to the labels or material being printed (15.2 and FSC-STD sec 1.4). b) Controls to ensure that FSC trademarks are not used for the promotion of products which do not meet the thresholds for labelling outlined in Part 4 of the standard (16.6, 16.8): Findings: Procedures include submittal to SmartWood for label approvals and contain controls to ensure only eligible products are labeled as FSC certified, as verified by the auditor Company maintains on file records of all SmartWood approvals of logo use and labels (15.3): Findings: Auditor verified that all logo/label approvals are retained by the Company as required Company procedures for use of FSC labels include the following provisions: a) FSC labels are not used on-product with the logos or names of other forestry certification schemes (FSC-STD sec 1.9). b) FSC labels are applied directly to the certified product or packaging and are clearly visible (FSC-STD sec 1.12). c) FSC-labeled products do not carry additional claims referring to the sustainability of the source forest (FSC-STD sec 1.11). d) Removal when there is use of simplified FSC labels for internal segregation of certified materials during processing before sale if the labels do not meet all of the FSC requirements (FSC-STD sec 2.2). e) Translation of labels is approved by SmartWood prior to use (FSC-STD sec 2.3). Findings: Auditor verified that company procedures are adequate for the above criterion and all labeling is SmartWood Program Page 8

9 done according to standards as they apply. Company currently puts all FSC certified lumber through an ink stamper which places the appropriate FSC label on the wood. Arrangements for printing and applying labels between certificate holders 4.12 If Company will request certified suppliers to label products with Company s FSC certification code (or if Company is requested by buyer to label with buyer s code), then company procedures shall include provisions that: a) Both buyer and manufacturer inform their certification body of the agreement and receive written authorization from the certifier. b) The manufacturer is responsible for final approval of the product label and to ensure that the buyer s label only appears on products supplied to said buyer. c) The buyer makes available background information on the labelling arrangement to all affiliate group companies selling the products in question (FSC-STD sec 5.1). Findings: FSC-Credit System check if section not applicable Standard Requirement 4.13 Company has documented procedures for the establishment and maintenance of an FSC-credit account. Written procedures specify: The methodology for creation and management of an FSC credit account for each FSC product group, including forms and recordkeeping. Compliance Findings: Company has adequate written procedures in place for the establishment and maintenance of an FSC Credit account for the Prescott Mill, as verified by the auditor Company has documented procedures for the labelling of products under the credit system, including specifications that: a) If the FSC content in a product group falls below the minimum 10% rolling average for labeling then the FSC trademarks shall not be used on-product until the rolling average again meets the specified minimum (12.5, 13.1). b) Labelling shall not be based on future predictions of purchases of FSC-certified material which exceed the FSC-credit achieved to date (13.2, 14.10). c) On-product labelling does not exceed the total accumulated credit available in the FSC-credit account for that product group at the end of the preceding month (14.5). Findings: Auditor verified that the credit account procedures have checks to insure labeling is only done when adequate credit is available and when the rolling average permits on product labels. FSC-credit accounts 4.15 Company has established an account for each FSC product group. For each account, the company has: a) Identified the inputs for which FSC-credit will be attributed according to different components; b) Identified the conversion factor for each individual component (14.1). Findings: There is one credit account for FSC mixed products. All inputs are recorded correctly and an acceptable range conversion factor is used, as verified by the auditor. Entering inputs to an FSC-credit-based account 4.16 Company records in the FSC credit account on a monthly basis: a) The FSC credit amount for each FSC product group with the FSC-input entered for each component of the product group. I.e. the FSC credit shall be calculated on the basis of the information specified on the invoice for the purchase of the FSC material (14.2, 14.3). b) The converted amount for each component of the FSC product group. I.e. the converted amount is calculated to reflect the transformation of the component (14.4). Findings: Auditor verified that entries into the FSC Credit account have been updated on a monthly basis. The FSC credit amount for the FSC product group with the FSC-input are entered for each component of the product group. All conversions were verified by the auditor to be accurate. SmartWood Program Page 9

10 Withdrawing FSC-credit from the FSC-credit account 4.17 Company calculates and records: a) The amount of product (volume or weight) sold as FSC during the month, and deducts this amount from the total FSC credit available at the end of the preceding month (14.6). b) The invoice reference of the FSC labelled products sold in the FSC-credit account (14.7.). Findings: Withdrawals from the credit account are correctly recorded for each month and used to determine adequate credit available, as verified by the auditor The company written procedures and or work instructions include provisions to ensure that the FSC-credit account shall not be overdrawn (14.11): Findings: Auditor verified that written procedures indicate the credit account cannot be overdrawn. Deducting expired credit from an FSC-credit account 4.19 At the end of each month the company: a) Deducts from the FSC-credit account any remaining credit that was entered more than 12 months previously (14.8.); b) Calculates the total FSC-credit remaining in the FSC-credit account (14.9.). Findings: Instruction are in place to assure credit over 12 months old is not used in credit balances, as verified by the auditor. Part 5: Invoicing, Sales, and Shipping Documentation Standard Requirement 5.1 Company invoices issued for sales of products on the FSC product group schedule include the following required information (16.1): a) The name and address of the buyer; b) The date on which the invoice was issued; c) Description of the product which is the same as the description of the same product on the FSC product group schedule; d) The quantity of the products sold. e) The correct FSC certification code; f) Reference to the product s batch and/or to related shipping documentation, sufficient to link the invoice to the goods received by the customer. Compliance Findings: Auditor observed several company invoices issued for sales of FSC certified products and verified that all of the above information is included on Company invoices. 5.2 Company invoices meet the following requirements: a) The registration code number on invoices is clearly linked to the certified products; b) When several codes cover different certified products on an invoice, there shall be a clear link between the products and their respective code; c) Clear identification of which products appearing on the invoice are FSC-certified and which are not (16.2); d) The statement FSC-pure is only used on invoices accompanying material sold as FSC-pure (16.3); e) For FSC-mixed products from the threshold system, include the minimum percentage of FSC material claimed for the product group over the labelling period (16.4); f) For FSC-mixed products from the credit system, include the statement FSC-credit material (16.5). Findings: All of the above information is included on Company invoices reviewed (Invoice numbers and ), including the use of the term FSC Mixed - Credit Material as appropriate. Shipping documentation 5.3 Company shipping documents issued for deliveries of products containing FSCcertified or post-consumer reclaimed material include (17.2): a) The correct FSC certification code; b) The percentage of FSC-certified material claimed for the product group as applicable. Findings: Auditor verified that the shipping manifests reviewed include the Company's FSC COC Code as well as the FSC certified status and product group information. SmartWood Program Page 10

11 5.4 Company shipping documents include the following when invoices do not physically accompany FSC-certified products (17.1): a) The name and address of the buyer; b) The date on which the invoice was issued; c) A description of the product which is the same as the description of the same product on the FSC product group schedule; d) The quantity of the products included in the shipment; e) Reference to the sales invoice for the products delivered, sufficient to link the goods shipped to the specific invoice for the goods. Findings: All of the above information is included on Company shipping documents reviewed, including a link to invoice/order numbers. Sales records 5.5 The company maintains a record of all its buyers of FSC-certified material in the product group schedule as well as volumes of material sold as FSC-certified material (pure, mixed, recycled). This record is available upon request by SW or the FSC (18.1): Findings: Auditor verified that an adequate record of all FSC certified product purchasers was available for review. IV. REVIEW OF CORRECTIVE ACTION REQUESTS (CARs) This section indicates the company s actions to comply with CARs that have been issued during or since the last audit. Failure to complete a minor CAR results in the CAR being upgraded to major and a specified follow-up action that is required by the company or involuntary suspension will take place. Status Categories Closed Open Explanation Certified operation has successfully met the CAR. Closed indicates the CAR does not need to be revisited in future audits as the intent will be verified as part of normal auditing procedures. Certified operation has either not met or has partially met the CAR. CAR #: 1/05 Reference Standard #: 9.4 n-compliance Potlatch did not provide a sampling size and methodology for verification of Major: Minor: X transport and purchase documents. Corrective Action Request: Potlatch shall propose sampling size and methodology for verification of transport and purchase document of their suppliers based on the best available guidance provided by FSC sampling methodology, another certification such as SFI, or other statistically appropriate recommendation. Timeline for Compliance: Prior to the next annual audit. Audit findings: The sampling size and methodology has been prepared, reviewed and is acceptable to substantiate verification of wood supply. (See Exhibits CW 1-4 attached) as well as comments in Controlled Wood Appendix. Status: Closed Follow-up Action (if applicable): V. AUDIT CONCLUSIONS Potlatch Lumber Mill, Prescott has demonstrated the following level of compliance with SmartWood Chain-of-Custody requirements: Full compliance: Certificate maintenance recommended. SmartWood Program Page 11

12 Partial compliance: Improvement required for continued program participation. See CARs below. Inadequate compliance: Suspension or termination recommended. Comments: A. Corrective Action Requests Corrective action requests (CARs) are necessary to improve aspects of the company s certification system. Compliance with CARs should be as soon as possible and will be examined at the next audit, unless otherwise specified. Failure to comply with CARs may result in suspension or termination of a certificate. ne B. Focus for Next Audit Appendix A: VERIFICATION SYSTEM FOR CONTROLLED WOOD 1.0 Quality System Requirements Standard Requirement Compliance 1.1 Documented procedures include all elements of the controlled wood standard including (2.0): i) Origin of wood verification and documentation (6.0) j) Requirements for supplier declarations (7.0) k) Completing a risk assessment (8.0) l) Evaluating high risk sources (9.0) Findings: Company has a completed set of Documented Procedures (prepared for 05) which were reviewed by the auditor and are complete as required. 1.2 The company has an updated list of all incoming controlled wood materials (1.0). Findings: Auditor verified that all incoming controlled wood is southern yellow pine logs. This list was verified by the auditor to be up to date. 2.0 Company Requirements Standard Requirement Compliance Company Policy 2.1 Company has a publicly available written policy commitment endorsed by a senior executive to exclude wood harvested from the following sources (5.1): a) wood harvested from forest areas where traditional or civil rights are violated; b) wood harvested from non FSC-certified forest areas having high conservation values which are threatened; c) wood harvested from genetically modified (GM) trees; d) illegally harvested wood; e) natural forest that has been converted to plantations or non-forest use. Findings: The publicly available statement is found on the Company website at potlatchcorp.com. The policy was signed and endorsed by senior Potlatch executives, as verified by the auditor. SmartWood Program Page 12

13 Origin of Wood Inputs 2.2 Company has a publicly available list that identifies and records the countries and district of origin of its incoming controlled wood and wood fiber (6.1). Findings: Auditor verified that all areas (all are US only) of incoming controlled wood are identified by counties, which is publicly available posted on company property. 2.3 Company identifies and records the documentation that its suppliers shall have available to confirm the origin of controlled wood to district level (6.2). Findings: Company records the exact origin of each load of incoming controlled wood when the wood arrives on-site by delivery slip, see Exhibit 4. Auditor verified that this information is then entered into the company computer system for the record. 2.4 Company s suppliers of controlled wood have agreed to provide such information on request (6.3). Findings: Auditor verified that Company suppliers have agreed to provide all incoming wood origin information. The gatewood master agreement was signed by all suppliers. Delivery slips are then provided with each incoming load of wood, as verified by the auditor. 2.5 Company has implemented a verification system for transport and purchase documents on sampling basis to confirm the country and district of origin of controlled wood and fiber (6.4). Findings: Company has a verified sampling program (see Exhibits CW 1-4) to confirm the origin of controlled wood materials, as verified by the auditor. Incoming wood 2.6 For all incoming controlled wood, Company requires supplying companies to provide: a) declaration confirming the origin of the wood or fiber to district level. b) declaration that the wood or wood fiber in the shipment is controlled to avoid sources specified in FSC-STD (FSC standard for forest managers for controlled wood) (7.1). Findings: Auditor verified that all suppliers agree to provide and did provide the origin information as required. Risk Assessment 2.7 Company evaluates all forest areas from which non FSC-certified controlled wood is sourced in accordance with the criteria for identifying high-risk forest areas as specified in annex 2 of the standard (8.1). Findings: All forest areas were evaluated in the Company Controlled Wood Risk Assessment and Procurement Procedures Document reviewed by the auditor. 2.8 Company has a system for evaluating wood from forest areas which are high-risk in relation to the categories listed in section 4.1 of FSC-STD FSC standard for forest managers for controlled wood, in accordance with 2.10 to 2.13 below (8.2). Findings: Auditor verified that the Company Controlled Wood Risk Assessment and Procurement Procedures Document contain specific procedures for evaluating high risk potential areas. 2.9 Company re-evaluates the source and justifies the basis on which it has been categorized in case the categorization of high risk and low risk forests are challenged and evidence provided thereof e.g. by external party (8.4) Findings: Auditor verified that none have been challenged to date. If so, Potlatch is to re-evaluate high-risk areas, as verified by the auditor in company procedures. Evaluating High Risk 2.10 In case of sourcing controlled wood and fiber from high risk areas company has implemented a program for evaluation incoming wood (9.2). Findings: All forest areas were evaluated in the Company Controlled Wood Risk Assessment and Procurement Procedures Document, as reviewed by the auditor, and the wood basket was found to be low risk. Company is not to accept wood from high risk areas. SmartWood Program Page 13

14 2.11 For controlled wood and fiber coming from high-risk forest areas, the Company has either: a) required the supplier to provide it with independent verification by an FSC accredited certification body to confirm that the source in question is controlled for the categories identified in FSC-STD FSC Requirements for forest managers for controlled wood; or b) ascertained the forest management unit of origin of the wood or wood fiber and include the source in the Company program of verification to confirm that (for the category or categories of high-risk forest areas identified) such sources comply with FSC-STD FSC requirements for forest managers for controlled wood (9.3). Findings: All forest areas were evaluated in the Company Controlled Wood Risk Assessment and Procurement Procedures Document reviewed by the auditor. All source areas were evaluated against known criteria for avoiding any controversial sources in high-risk areas. Auditor verified that the company does not accept wood from high-risk forest areas If the Company carries out verification as specified in 2.11.b, the company undertakes field inspections on the basis of sampling in accordance with the requirements outlined in Annex 3 of the Standard. Field inspections investigate that wood or wood supplied complies with the requirements outlined in STD FSC requirements for forest managers for controlled wood (9.4). Findings: All forest areas were evaluated in the Company Controlled Wood Risk Assessment and Procurement Procedures Document reviewed by the auditor. All source areas were evaluated against known criteria for avoiding any controversial sources in high-risk areas. Auditor verified that company rejects wood from high-risk forest areas In case Company is unable to ascertain the forest management unit of origin of the wood or wood fiber in question the Company provides justification by which it has confirmed that that source has been controlled (9.5). Findings: t Appliable: Auditor verified that company will not accept wood where the forest management unit or origin is unknown. Records 2.14 Company maintains records that demonstrate compliance with 2.10 to 2.13 for a minimum of 5 years (10.1). Findings: t Applicable: Auditor verified that the company does not qualify for above so maintenance of records is not needed. Excluding Uncontrolled Wood 2.15 Company has procedures in place to ensure that where documentation relating to compliance with this standard is not provided or is incomplete or unreliable, or source evaluations reveal that the source cannot be confirmed as being controlled, such material shall not be mixed with controlled wood/fibre wood until the supplier can demonstrate full compliance with the specifications outlined in FSC-STD FSC requirements for forest managers for controlled wood for that material source (11.1). Findings: Auditor verified that no uncontrolled wood is to be accepted by the Company. CITES Species If incoming wood is from species listed in Annex 1, 2 or 3 of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) it is accompanied by relevant licences and/or export permits (12.1). Findings: t Applicable: wood is received from areas of or in species listed in Annex 1, 2 or 3, as verified by the auditor. Exhibits collected for this section: Exhibit 1- (Excel) Gatewood Auditing Calculation Exhibit 2 MSP 023- Gatewood Auditing procedures Exhibit 3- MSP 023- Gatewood Audit Form Exhibit 4- Gatewood Master Agreement with Suppliers SmartWood Program Page 14

15 SmartWood Program Page 15

16 Appendix B: Certified Production Summary PURCHASES Reporting Period: (From Month of Last Audit to Month of Current Audit) VENDOR FSC Certification Number PRODUCTS RECEIVED VOLUME (UNITS) Potlatch SW Roundwood 65,161 FM/COC- tons 1598 SPECIES Southern Yellow Pine SALES Reporting Period: (From Month of Last Audit to Month of Current Audit) CUSTOMER FSC Certification CERTIFIED PRODUCTS VOLUME SPECIES Number (if certified) SOLD (UNITS) Certified Wood products, Inc,, SW COC 419 Dimension Lumber 23.5 mbf Southern yellow pine Nature Neutral SCS-COC Curtis Lumber & Mfg 14.4 Domtar- Ashdown Chips 1000 tons Southern yellow pine Appendix C: Summary of Exhibits Collected and Included with this Report Exhibit 1- (Excel) Gatewood Auditing Calculation Exhibit 2 MSP 023- Gatewood Auditing procedures Exhibit 3- MSP 023- Gatewood Audit Form Exhibit 4- Gatewood Master Agreement with Suppliers Exhibit 5- Credit System Worksheet SmartWood Program Page 16

17 Appendix D: Conversion Table Standard Conversions 1 mbf = 5.1 m 3 1 cord = 2.55 m 3 1 Gallon (US) = Liters 1 acre = hectares 1 foot = Meters 1 mile = Kilometers All Information is Kept Confidential SmartWood Program Page 17