CONSOLIDATED COMMENTS AND OBSERVATIONS

I. FINANCIAL ISSUES

1. CASH IN BANK

Audit of the Cash in Bank accounts with a total of P1,240,617,261 that represents 84 per cent of the cash and cash equivalents and 19 per cent of the total current assets disclosed the following deficiencies:

1.1 Unreconciled discrepancy between book and bank balances – P400,427,845.10

The audit disclosed prevalent discrepancies between the balances of the depository banks and the book balances of the Cash in Bank accounts of several regional offices. Total discrepancies amounted to P400,427,845.10, as shown below:

Region Book Balance Bank Balance Discrepancy

I P 41,998,589.20 P31,933,521.65 P10,065,067.55II 17,730,507.59 19,264,072.44 (1,533,564.85)III 160,435,292.40 7,591,937.20 152,843,355.20IV 155,292,315.62 17,603,452.59 137,688,863.03 V 18,500,000.00 16,800,000.00 1,700,000.00

VIII 5,988,497.58 26,887.64 5,961,609.94 IX 12,118,471.38 10,775,712.25 1,342,759.13

CAR 100,183,208.42 11,960,872.27 88,222,336.15 NCR 53,508,512.59 49,371,093.64 4,137,418.95

Total P565,755,394.78 P165,327,549.68

P400,427,845.10

At NCR, the discrepancy of P4,137,418.95 pertained to the negative balance of Equitable PCI Bank–General Fund due to the adjustment in funds transferred from General Fund to DMOF and vise versa, and dormant/closed accounts which still exist in the books.

At Regions I and II, the material discrepancies between book and bank balances pertained to prior years’ unidentified reconciling items which were carried forward in the books from year to year.

Of the total discrepancy of P152,843,355.20 of Region III, 83 per cent or P127,100,848.67 represents closed accounts at Philippine National Bank and Land Bank of the Philippines

The material difference per books and bank balance of Land Bank account at Region IV pertained to the unreconciled accounts in 2003 and prior years while the difference in Equitable PCI Bank pertained to erroneous recording of corporate fund deposits in Money Order Fund account. The negative balance of Equitable PCI Bank-MOF Cash Advance was due to the failure to record in the books of Region IV the funds transferred by the Central Office. This account does not also reconcile with the cashbook maintained by the disbursing officer.

At Region V, discrepancy of P1,700,000.00 is caused by reconciling items per book and per bank which remained uncorrected for eight (8) years, errors and omissions in recording deposits and remittances which remained unadjusted., closed postmasters bank accounts still carried in the books, understatement and overstatement of bank balances.

The discrepancy of P5,961,609.94 between book balance and Landbank balances on Postmaster’s account at Region VIII pertained to transactions prior to clustering which remained unreconciled.

At Region IX, Cash in Bank accounts amounting to P12,118,471.38 did not reconcile with the balance of its subsidiary ledgers amounting to P10,775,712.25 or a difference of P1,342,759.13.

At CAR, balance per ledger differs from the balance per bank by P88,222,336.15 as of December 31, 2005:

Cash in Bank per ledger P100,183,208.42

Cash in Bank per bank statements 11,960,872.27Overstatement of book balance P88,222,336.

15

The overstatement was due to unrecorded/erroneous recording of fund transfers, bank deposits, adjustments and disbursements.

We recommend that Management:

Require Regional Accountants to exert more effort to trace, verify, and reconcile variances between book and bank balances and to prepare bank reconciliation statements.

1.2 Delayed/non-preparation of Bank Reconciliation Statement (BRS) for 350 bank accounts - P608,072,502.35

PPC Head Office presently maintains twenty-one (21) bank accounts with four (4) different banks namely Land Bank of the Philippines, Equitable PCIB, Philippine National Bank and the Philippine Postal Savings Bank.

Out of the 21 bank accounts, two (2) bank accounts namely Cash in Bank-Local Current DMOF EPCIB are without BRS since March 1999. As of December 31, 2005 its book balance amounted to P169,930,487.64 which represents almost 39 per cent of the total cash in bank accounts.

The audit also disclosed that out of the 366 bank accounts maintained by the regional offices, 202 or 55 per cent has no updated bank reconciliation statements, while 148 or 40 per cent are delayed in submission from 1 month to one year. This renders the validity and fairness of the presentation of the Cash in Bank accounts in the financial statements doubtful.

Summary of Bank Accounts Without Updated Bank Reconciliation Statement (BRS)

Region No. of Bank Accounts

No BRS

With Delayed

BRS

Total Amount- No BRS/With Delayed BRS

With Updated

BRS

I 61 23 35 P40,544,028.25 3III 49 48 1 160,435,292.40 -

IV 92 21 71 155,292,315.62 -VI 31 23 - 13,633,101.66 8VIII 22 - 17 4,244,838.48 5IX 6 3 3 12,118,471.38 -X 33 30 3 150,955,399.91 -XII 6 5 1 7,657,699.32 -

CAR 51 39 12 11,960,872.27 -NCR 15 10 5 51,230,483.06 -

Total 366 202 148 P608,072,502.35 16

Non-preparation

The non-preparation/delayed preparation of BRS contravenes the provisions of Section 74 of PD 1445 which states that “At the close of each month, depositories shall report to the Agency Head, in such form as he may direct, the condition of the agency account standing on the books. The Head of the Agency shall see to it that reconciliation is made between the balance shown in the reports and the balance found in the books of the agency.”

Bank reconciliation tallies the cash balances of the agency’s records and bank records. It aims to identify transactions not recorded either by the bank or by the agency. It also points out errors committed with the end view of making necessary adjustments. Adjusting entries are recorded after the analysis and verification of the reconciling items appearing in the bank reconciliation statements. The preparation and analysis of bank reconciliation statement on a regular basis is an important tool for management in its proper cash management in order to arrive at sound decisions thus it should be given foremost importance and attention.

The non-preparation/delayed preparation of Bank Reconciliation Statements, which has been a consistent issue in previous Annual Audit Reports of PPC, resulted in the accumulation of reconciling items in the Cash in Bank account.

Furthermore, interested parties will be deprived of their opportunity to determine the irregularities or discrepancies that may arise from the transactions involving deposits.

We recommend that Management:

a. Require responsible officials to send periodic reminders to depository banks to ensure that the bank furnishes the PPC Regional Offices with the required bank statements within the prescribed period observed in the banking industry.

b. Require Regional Accountants to prepare bank reconciliation statements.

1.3. Subsidiary Ledgers of bank accounts are not updated/not maintained.

Paragraph 2(a) of Section 488 of the Government Accounting and Auditing Manual (GAAM), Volume II states that “totals of subsidiary ledger balances are reconciled with their respective control account at the end of each month. A statement thereon is prepared quarterly to support the corresponding account in the trial balance.”

A subsidiary ledger will facilitate the recording and tracing of transactions in detail which is necessary in coming up with information concerning past operations and present condition and used as basis for proper decision making.

Four (4) regional offices do not maintain subsidiary ledgers of its bank accounts while three (3) other regional offices including NCR are not updated in posting transactions of its bank accounts in the subsidiary ledger and general ledger.

Bank Accounts without Subsidiary Ledgers

Region No Subsidiary Ledger Subsidiary Ledger Not Updated

I XIII XIV XVI XVIII XCAR XNCR X

We recommend that Management:

Require Regional Accountants to maintain and update subsidiary ledgers for all bank accounts to facilitate the early detection of errors, expedite adjustments and to determine if total of individual accounts reconcile with the total in the General Ledger.

1.4. Non-closure of the agency’s dormant bank accounts - P 4,382, 226.34

Non-closure of the agency’s dormant bank accounts totaling P4,382,226.34 does not only deprive the corporation use of the idle funds but also allows the unnecessary loss of the funds due to the bank’s imposition of dormancy fees and the possible classification of the account into Unclaimed Balances Account

pursuant to Section 264 of the Manual of Regulations for Banks.

These bank accounts are as follows:

Bank Account Amount RemarksPPC Head Office:

PPSB Trust Fund Acct.

P2,770,990.04 5 years dormant

NCR:LBP-various MOFEPCI Thrift Stamps

fund

363,297.1020,930.00

Dormant since 1998Dormant since 2002

CAR:LBP-various-GFLBP-various-MOFEPCI-various-GF

217,002.44905,342.52

50,102.2442,680.00

Dormant since 1997do-

Dormant since 2003do-

Region VIII:EPCI-various-MOF 11,882.00 Dormant since 1998

Total P4,382,226.34

At PPC-Head Office, the PPSB Trust Fund remains dormant for more than five (5) years. This account was opened and funded by subsidy contributions from the National Government specifically to pay for the gratuity of employees who were laid off as a result of the conversion of the Postal Service to a corporation. To date the remaining balance amounted to P2,770,990.04.

At Region VIII these bank accounts had been non-moving since 1998 and no action was taken to close the accounts or transfer the remaining balances to their respective active accounts thus its balances were slowly being eaten up by bank charges.

At CAR, confirmation of bank account balances with the Land Bank of the Philippines and Equitable PCI Bank revealed that the corporation still maintains bank accounts amounting to P1,215,127.20 that are already dormant or inactive. Said balances are gradually decreasing due to bank service fees. It has been observed that the bank charged fees after a year of inactivity. Bank service charge was only P110.00 per month in 2003, and was increased to P200.00 in June 2005.

The Manual on Systems and Procedures of LBP specifically provides that inactive current/saving accounts and matured time deposits held by LBP in favor of persons known to be dead or unheard from during the preceding ten (10) years or more shall be classified/transferred to the Unclaimed Balances Account and that all Unclaimed Balances upon application of the proper proceedings shall be classified and transferred to “Due to the Treasurer of the Philippines” account.

We recommend that Management:

a. Considering the financial constraints of the corporation, immediately undertake the necessary procedures for the closure and/or transfer of these dormant bank accounts to avoid further loss due to dormancy fees.

b. Require the Accounting Division to monitor, review, and prepare the corresponding bank reconciliation for all dormant accounts and to inquire/confirm from former depository banks for any existing dormant accounts.

1.5 Unadjusted long outstanding reconciling items in the BankReconciliation Statement – P202,746,080.46

At Region IV, as in our previous year’s audit observation, it was noted that the reconciling items in the agency books are repeatedly carried in Bank Reconciliation Statements and remained unadjusted since 1997.

Included as reconciling items in the Bank Reconciliation Statements for Land Bank of the Philippines are balancing figures in the amount of P39,561,048.37 for Corporate Fund and P118,976,980.51 for Money Order Fund while reconciling items in the Bank Statements for Equitable PCI Bank (EPCIB) are erroneous recording of general fund deposits in the money order funds books and vice versa.

Another reconciling item for which no action was undertaken by the concerned officials is the continuous imposition of P50.00 monthly bank service charges on dormant accounts with Land Bank of the Philippines.

At Region V, reconciling items that remained uncorrected for 8 years are as follows:

Per Books Per BankCF-LBP P4,238,958.79 P2,063,592.65DMOF-LBP,old 5,491,855.24 7,356,822.25Errors and omissions

in recording of deposits and remittances

180,420.76 388,478.57

Current year reconciling items (net understatement)

240,459.83

At Region VII, , total unadjusted reconciling items since 1992 shown in the LBP bank reconciliation statements as of December 31, 2005 amounted to P33,559,186.96 representing net understatements of Cash in Bank –LBP account.

At Region VIII, verified bank reconciliation statements showed several reconciling items amounting to P497,170.00 which were not yet adjusted in the books, thereby understating the book balance as of December 31, 2005 by the same amount.

We recommend that Management:

Require Regional accountants to immediately effect the necessary adjustments of long outstanding reconciling items in the bank reconciliation statements to establish the accurate balances of cash in bank.

1.6. Unreleased checks as of December 31, 2005 were not restored to Cash in Bank account – P1,828,042.94

The NGAS which the agency adopted starting May 1, 2005 requires that at the end of the year, the cash equivalent of all unreleased checks shall be restored and the appropriate liability accounts shall be recognized before the closing of the books to reflect the correct balance of cash in bank and liabilities accounts in the books of the agency.

At Region VII, verification of outstanding checks disclosed a total of P 1,232,173.65 of unreleased checks as of balance sheet date. No reversing entries were made thus understating both the cash in bank and liability account.

Similarly, at Region VIII, unreleased checks as of December 31, 2005 totaling P595,869.29 were not restored to cash in bank account.

We recommend that Management:

Require Accounting Division to restore/revert the amount of unreleased checks to the Cash in Bank Account to fairly present cash and liability accounts as of balance sheet date.

1.7. Non-transfer of deposits in excess of maintaining balances

Deposits received by the Land Bank of the Philippines depository branches in excess of the maintaining balances are not being remitted or transferred in full to LBP Central Office account contrary to Sections 5.3 and 4.2 of the Memorandum of Agreement between LBP and PPC.

Analysis made on the monthly ending balances of the accounts maintained with LBP showed that they have not been remitting or transferring all deposits in excess of the maintaining balance to the LBP Central Office account. The maintaining balances for the General fund and Money Order Fund are P15,000.00 and P10,000.00 respectively.

We recommend that Management:

Coordinate with the various LBP branches for the transfer of all amounts in excess of the maintaining balance to the PPC-LBP Main Account to provide the corporation additional funds to finance its current operating expenses and to pay money order liabilities.

2. CASH COLLECTING OFFICERS

Analysis of the Cash Collecting Officers account amounting to P87,654,956.89 as of December 31, 2005 disclosed the following observations:

2.1 Unreconciled Subsidiary and General Ledger balances of Cash Collecting Officers Account – P32,075,728.04

Subsidiary and general ledger balances of Cash Collecting Officers account of several PPC regional offices showed discrepancies totaling P 32,075,728.04. Details follow:

RegionA m o u n t

General Fund Money Order T o t a lI 244,564.87 164,073.09 408,637.96II 403,541.87 (139,446.51) 264,095.36III 9,836,123.76 18,941,300.9

228,777,424.6

8VII 2,588,514.97 - 2,588,514.97VIII 749.95 36,305.12 37,055.07

Total 13,073,495.42

19,002,232.62

32,075,728.04

At Region VII, the unreconciled amount or discrepancy had increased from P1.51 M in 2004 to P2.58 M in 2005 or 71 per cent which signifies the lack of effort on the part of management to eliminate these discrepancies.

Likewise, at Region IV, subsidiary ledgers were not updated while no subsidiary ledgers were maintained in Regions V and CAR. At PPC-NCR, both subsidiary and general ledgers are not updated.

Section 488 of the GAAM Vol. II provides that subsidiary ledgers are necessary to support the balances of controlling accounts appearing in the general Ledger.

We recommend that Management:

Strictly require Regional accountants to reconcile Subsidiary and General Ledger balances of Cash Collecting Officer account

as well as the mandatory maintenance of updated subsidiary ledgers as required in Section 488 of GAAM, Volume II.

2.2 Unreconciled disrepancies between accounting records and postmasters’ financial reports/account current – P40,471,211.67

The accounting records and postmasters’ financial reports/account current in Regions II, III, IV, CAR and NCR showed the following discrepancies totaling P40,471,211.67

Region Per General Ledger

Per Postmasters’ Report

Discrepancy

II P2,603,202.06 P1,405,214.47 P1,197,987.59III 32,825,752.14 3,566,441.89 29,259,310.25IV 2,603,202.06 1,405,214.47 1,197,987.59

CAR (1,142,112.34) 249,323.11 (1,391,435.45)NCR 18,234,913.44 8,027,551.75 10,207,361.69

Total P55,124,957.36 P14,653,745.69 P40,471,211.67

Comparison of Cash Collecting Officers account per books with the actual cash on hand of postmasters per monthly financial reports submitted by postmasters from Regions II, III and NCR disclosed that balance per books is overstated by P40,664,659.53 while at CAR, the balance per books is understated by P1,391,435.45.

At Region III, the overstatement is brought about by the unrecorded cash shortages and unadjusted losses from cash due to robbery. Entries to adjust the overstatement cannot be effected due to the unavailability of records pertaining to the cash shortage and non-submission of required documents to support request for relief of accountability.

Meanwhile, at NCR, the discrepancy is attributed to unreconciled prior year’s balance and partly to the erroneous booking of transactions pertaining to tax withheld from mailers, Globe Auto Load sales, and advance payment of clients.

At Regions II and IV, adjustments made in the Postmaster’s Account Current has no corresponding entry in the books while at CAR, the negative book balance of the Cash Collecting Officer account started in 1998.

We recommend that Management take the following courses of action:

a. Require the reclassification to Receivables account claims against accountable officers’ shortages and losses of postmasters due to robbery without request for relief from accountability and the required documents within the prescribed period.

b. For NCR, require, the Accounting Division to investigate unreconciled prior years balances and effect the necessary adjusting entries.

c. In the case of newly implemented postal services in the NCR, require Accounting Division to follow the prescribed journal entries pursuant to issued guidelines. Require postmasters to be guided on the proper presentation of the sales proceeds from new postal services in their report of collections.

d. Require Accounting Division to continue to trace and reconcile Cash Collecting Officer account with the balances of cash on hand as reported by the Postmasters and Cluster Heads/Cashiers.

2.3 Undeposited Collections as of December 31, 2005 - P4,845,943.74

The following PPC regional offices reported undeposited collections totaling P4,845,943.74. Details follow:

Region General Fund Money Order Fund

Total

X P1,727,880.38 P32,992.43 P1,760,872.81

XI 1,100,858.55 191,966.20 1,292,824.75XII 356,104.00 1,436,142.18 1,792,246.18

Total P3,184,842.93 P1,661,100.81 P4,845,943.74

Similarly, Region VI also reported that collections were not being deposited intact in Bacolod City, Hinigaran, San Jose, and Kalibo post offices.

Section 69 0f PD 1445, DBM-DOF Joint Circular No. 1-81 and Section 134 of GAAM Volume 1 require that all collections should be deposited daily or not later than the next banking day.

We recommend that Management:

Require Regional Directors and Postal District Managers to closely monitor post offices under their jurisdictions and see to it that collections are deposited intact daily or not later than the next banking day to avoid exposure of government funds to risks of loss due to theft and robbery.

2.4 Net overstatement of Cash Collecting Officer account – P692,945.57

Hereunder are details of this overstatement/understatement in the Cash Collecting Officer account:

Region Amount Reasons/Causes of the Overstatement

(Understatement)VIII P697,285.00 Unrecorded depositsXII 1,411,707.54 Unadjusted cash

accountabilities of transferred, dismissed and deceased accountable officers

CAR 1,416,046.97 Double recording of May-December, 2005 deposits

P692,945.57

We recommend that Management:

Require Regional Accountants to make the necessary adjusting entries to establish the accurate balance of the Cash Collecting Officers account.

2.5 Violations of basic internal control principles in the handling of cash collections in Regions VI and VII

2.5.1 Bacolod City Post Office uses collections for payment of various expenses and unauthorized cash advances of employees. The cashier alleged that expenses were paid out of cash collections due to non-replenishment of the petty cash fund since August, 2005. Cash advances or vales were given to employees in anticipation of the GMA bonus.

2.5.2 At Region VII, there are postmasters who practice lapping by holding certain amount of cash collections from sale of postage stamps and postal money order for several days/months and at the same time report the equivalent stamps and other postal products sold as still part of their inventory in the Stock Accountability. This is in violation of Section 69 of PD 1445 and Section 134 of the GAAM, Volume I requiring the remittance or deposit intact the full amount of money received and collected to the treasury of the agency concerned and credited to the particular accounts to which said moneys belong.

2.5.3 Postal tellers in Roxas City Post Office were not properly designated contrary to Section 65 of the GAAM. Volume I which provides that the head of the agency may designate such number of collection officers or agents as may be deemed necessary.

Meanwhile, in Kalibo Post Office, 5 postal tellers were not bonded contrary to Treasury Order No. 1-99, Revised Regulations Governing Fidelity Bonding of Government Officials and employees.

2.5.4 At Region VII, original copies of cancelled official receipts and spoiled/damaged accountable forms with money value like postal ID and money order checks were not submitted to the COA auditor in violation of Section 99, GAAM, Volume I.

2.5.5 At Region VI, paid money order checks were not stamped “paid” as proof of payment by tellers/cashiers.

We recommend that Management take the following courses of action:

a. Instruct Postmasters/cashiers in Region VI to stop using cash collections to pay for office expenses and unauthorized cash advances of employees.

b. Internal Audit Service (IAS) should conduct regular surprise cash examination to uncover lapping practices in Region VII.

c. Require all postal tellers/accountable officers to be properly designated and bonded.

d. Strictly require submission of cancelled/defective official receipts and other accountable forms to COA.

3. CASH DISBURSING OFFICERS

This account pertains to cash advances granted to cashiers, postmasters or duly designated disbursing officers for salaries and wages, allowances and other similar payments for personal services. For Regional Offices, it also includes cash advances for domestic money order payments. Prior to the implementation of NGAS at PPC, the above-mentioned types of cash advance transactions were lodged under Cash Disbursing Officer – Regular (8-70-501-01) and Cash Disbursing Officer – Domestic Money Order Fund (8-70-502) accounts, respectively.

In the course of audit of this account, several audit observations have been noted, as discussed in the succeeding paragraphs.

3.1 Unliquidated cash advances of P86,876,050.85 for personal services expenditures as at year-end

Pertinent rules and regulations govern the grant, utilization and liquidation of cash advances in order to provide for a more efficient and effective control over such transactions. Section 89 of PD 1445, otherwise known as “The Government Auditing Code of the Philippines,” requires that “a cash advance shall be reported on and liquidated as soon as the purpose for which it was given has been served.” It also states that, “no additional

cash advance shall be allowed to any official or employee unless the previous cash advance given to him is first settled or a proper accounting thereof is made.”

With regard to cash advances for salaries, wages and allowances, Section 5.1.1 of COA Circular No. 97-002 dated February 10, 1997 requires that these be liquidated within five (5) days after each fifteen (15) day/end of the month pay period. In addition, Section 5.8 of the same Circular requires that all cash advances should be fully liquidated at the end of each year except for petty cash fund.

Review of Cash – Disbursing Officers account as of December 31, 2005, however, disclosed that cash advances for payments of personal services totaling P86,876,050.85 as shown in the table below, remained unliquidated contrary to the above-mentioned Section 89 of PD 1445 and Sections 5.1.1 and 5.8 of COA Circular 97-002. Details follow:

Region AmountHead Office P 286,776.82

NCR 35,810,825.65III 37,099,407.32IV 9,909,297.08VI 188,396.87VIII 435,707.00X 3,145,640.11

P 86,876,050.85

At the Head Office, approximately 34 percent or P96,355 of the year-end balance per books of P286,776.82 has been outstanding for over 60 days.

In the case of the NCR, the outstanding balance of subject account as of December 31, 2005 was not supported by a schedule since subsidiary ledgers (SL) for such account were not updated. Last update as of October 31, 2005 showed SL balance of P20,979,682.87 which was P4,735,904.92 less than the amount appearing in the books at such date. Based on the October 2005 SL balance, approximately 20% or P 4,199,861.54 has been outstanding for 120 days to 22 years. These cash advances were for payment of salaries and other personal benefits dating back as far as 1983. Approximately 39 percent of these non-moving cash advances belongs to accountable officers/postmasters who have either died, retired, resigned or been dismissed. As to the remaining 61% or P2,546,008.97, postmasters to whom demand letters were sent or telephone inquiries were placed, claimed that the said amount were not actually unliquidated but only unrecorded since some of them

have already submitted their liquidations, only that the Accounting Division thereat has lost/misplaced the corresponding paid payrolls and liquidation vouchers. The postmasters concerned have also claimed that since the cash advances were for payment of salaries, wages and other personal benefits, post office employees would have complained had they not received their salaries and wages.

At Region III, checks representing cash advances for the payments of salaries were mailed with the payroll to the postmasters concerned on or before the 15th and end of the paying month. However, timely submission of the duly accomplished payroll as part of the liquidation process was not properly observed by the postmasters, hence, cash advances remained unliquidated.

Likewise, almost P10 million cash advances still remained outstanding as at year-end at Region IV. These have accumulated since several postmasters were granted additional cash advances without requiring them first to settle their previous unliquidated obligations and even if the payroll for the previous day period were not returned to the Regional Office. Such practice violated Section 89 of PD 1445 as cited above. Moreover, subsidiary ledger cards thereat for cash advances were not updated for the year 2005. This has made monitoring of accounts difficult. The Chief of Accounting Section and the Disbursing Officer thereat explained that they lack personnel to update the subsidiary ledgers and monitor the cash advances granted to postmasters.

Non-liquidation of outstanding cash advances within the period prescribed under Section 89 of PD 1445 and COA Circular No. 97-002 resulted to the understatement of expenses, the overstatement of Income/Retained Earnings and the overstatement of the asset account, Cash-Disbursing Officers. Since SLs were not updated at the NCR and Region IV, the reliability of the GL balances of subject account thereat could not be ascertained.

We recommend the following courses of action:

a. Closely monitor the grant, utilization and liquidation of cash advances to ensure compliance with rules and regulations.

b. Discontinue the practice of granting additional cash advances when previous cash advances have not been liquidated.

c. Enforce immediate settlement of unliquidated cash advances.

d. Ensure that accountable officers (AO) settle their outstanding cash advances before being cleared of accountabilities with the PPC upon retirement, resignation, transfer or separation from the service. The officials responsible for approving their clearances without first enforcing settlement of cash advances granted to AO should be made liable.

e. Update SLs regularly and reconcile with GL monthly.

3.2 Unreconciled discrepancies between general and subsidiary ledgers – P2,932,943.14

Comparison of the balances of the general ledger (GL) and subsidiary ledger (SL) for Cash – Disbursing Officers account at three PPC regional offices showed the following discrepancies which were not reconciled as at year-end:

Region Per GL Per SL DifferenceIII P

37,099,407.32P 36,130,273.41 P( 969,133.91)

V 1,008,972.50 1,922,199.70 913,227.20VI 928,600.01 850,277.01 ( 78,323.00)X 5,397,297.87 2 ,598,584.44 (2,798,713.43)

P44,434,277.70

P41,501,334.56 P(2,932,943.14)

The difference of P913,227.20 at Region V resulted from unrecorded shortages, error in liquidation of cash advance and late recording of the liquidation. A portion of the discrepancy was the total amount of P 280,000 credited to the subject account after balance sheet date and before closing of books, which further reduced the GL balance.

At Region VI, verification of SL disclosed that P302,245.00 of its balance as of December 31, 2005 pertained to the unliquidated cash advance in Money Order Fund of an employee who has retired since February 1, 2002.

In the case of Region X, subsidiary ledgers were not properly maintained, hence, the total of the schedule of unliquidated cash advances for personal services and maintenance and other operating expenses of P402,305.44 and the total money order cash advances condensed from the report of checks issued maintained by the regional cashier amounting to P2,196,278.00

did not reconcile with the GL balance of P5,397,297.87 for subject account. No reconciliation of records and transactions by and between the Accounting Section and the Office of the Regional Cashier was made.

Failure to reconcile discrepancies between GL and SL at the above-mentioned four regional offices violated the requirement in Paragraph 2 of Section 403 of GAAM, Volume II, that, “totals of subsidiary ledger balances are reconciled with their respective control account at the end of each month.”

Unreconciled GL and SL balances resulted to unreliable book balances for subject account at the above-mentioned regional offices as at year-end.

We recommend the following courses of action:

a. Analyze/Reconcile discrepancies between GL and SL balances.

b. Ensure that accountable officers (AO) settle their outstanding cash advances first before being cleared of accountability with the PPC upon retirement, resignation, transfer or separation from the service. Hold liable the official/s responsible for approving clearances of these AOs without first enforcing settlement of their unliquidated cash advances.

3.3 Erroneous postings of entries leading to overstatement of P171,913.15 at the Central Office and understatement of P1,908,847.89 at the CAR

The year-end GL balance of P286,776.82 for subject account at the Central Office was overstated by P171,913.15 when compared to the SL balance of P114,863.67 which was the correct balance. The discrepancies consisted mostly of errors in posting to the related accounts for cash advances: Petty Cash Fund and Due from Officers and Employees. No adjustment has been made to correct the overstatement in Cash – Disbursing Officers account despite identification of transactions and their respective amounts comprising the discrepancies between the GL and SL balances.

At the CAR, the Cash – Disbursing Officers account was understated by a total of P1,908,847.89. Verification of the account disclosed that cash advances recorded in the Check Disbursement Journal in October 2005 in the amount of P1,719,234.01 was misposted to the Cash – Collecting Officer account. On the other hand, total liquidations recorded in the

Cash Disbursement Journal for the same month, differed from the amount posted in the GL, thus, overstating the subject account by P5,000.02. It has also been noted that the recording made in December 2005 of the liquidation of April 1-15, 2005 payroll of Baguio City Central Post Office was understated by P10.00. Furthermore, one transaction amounting to P193,603.90 pertaining to Cash - Collecting Officer account was erroneously posted to the Cash – Disbursing Officers account, overstating the latter account.

Proper accounting procedure demands that financial transactions be recorded in such a way as to avoid inaccurate or misleading information.

Erroneous entries compromise the integrity of balances and failure to correct such errors or discrepancies between GL and SL balances resulted in unreliable book balance for Cash – Disbursing Officers account at the Central Office and the CAR.

We recommend the following courses of action:

a. Book all identified discrepancies between GL and SL balances to show the correct balances of the affected accounts for cash advances at the Central Office.

b. Exercise careful review on the propriety of accounting entries made and their correct posting in the GL to avoid or minimize accounting errors.

3.4 SL balance of cash advances for money order payments differed from the postmasters’ cashbook balances by P202,833.21

At Region XI, comparison between the SL balance of cash advances for domestic money order (MO) cards presented for payment by clients and the accountable officers’ cashbooks maintained by Postmasters showed a difference of P202,833.21. It was noted that with the exception of those found to have shortages, several postmasters carried outstanding balances in their subsidiary for so long without the benefit of adjustment. Also, several postmasters did not exhaust the money order cash advance for the payment of MO cards but instead, used other funds like the GF and MOF as the case may be.

Unreconciled discrepancy between the SL balance and that of the accountable officers’ cashbooks compromised the integrity of the year-end balance for subject account at Region XI.

We recommend the following courses of action:

a. Verify and reconcile the discrepancy between SL and the cashbooks held by postmasters.

b. Discontinue the practice of utilizing other funds if cash advances for money order payments are still available.

3.5 Cash advances of P673,099.55 granted on account of infrastructure and other projects

Paragraph (g) of Section 174 of the Government Accounting and Auditing Manual, Volume 1, provides that “no cash advance shall be granted on account of infrastructures or other undertakings on a project basis”.

Review of the disbursements made at Region VIItg disclosed that several cash advances totaling P673,099.55 were drawn by various Postmasters/Supervising Postal Service Officers from funds intended for capital outlay. The existing practice is not only contrary to Section 174 of the GAAM but also exposes the funds to possible theft, loss or misappropriation. Management commented that they resorted to the practice of drawing cash advances from funds intended for capital outlay in order to facilitate and meet the target completion of the projects/s set by the Postmaster General.

We recommend that management adhere to the provision of Section 174 of GAAM, Volume I.

PETTY CASH FUND

Cash advances for petty operating and maintenance expenses granted to duly designated Petty Cash Fund Custodians are recorded in the Petty Cash Fund (104) account. This type of cash advances was formerly classified as Cash Disbursing Officer – Operating until PPC converted its old accounts to those prescribed under NGAS Chart of Accounts effective April 1, 2005.

At the Central Office, the year-end balance was unreliable due to erroneous postings or misclassifications of cash advances noted, as follows:

3.6 Unliquidated special cash advances of P1,858,664.04 for one-time or specific expenditures erroneously classified as Petty Cash Fund

Out of the Petty Cash Fund (PCF) account balance of P1,982,003.07 as of December 31, 2005, only P123,339.03 or approximately 6 percent comprised the regular fund held by duly designated custodians for recurring petty operating expenses. The balance of the account amounting to P1,858,664.04 or approximately 94 percent pertained to special cash advances for one-time or specific expenditures to accountable officers (AO) who were not duly designated PCF custodians. These were granted between January 1999 and August 2005 and records showed that five AOs were even granted additional advances for operating expenditures despite their outstanding balances.

The following rules and regulations on cash advances have not been observed with regard to the unliquidated/misclassified amount as at year-end and the additional cash advances granted to accountable officers despite their outstanding balances:

a. Section 89 of PD 1445

b. Section 5.1.2 of COA Circular No. 97-002 dated February 10, 1997 requires that cash advances for petty operating expenses and field operating expenses should be liquidated within twenty (20) days after the end of the year, subject to replenishment as frequently as necessary during the year.

c. PPC Memorandum Circular No. 05-05 dated March 30, 2005 provided for the modifications in the treatment and issuance of cash advances for petty operating expenses, among which are quoted below:

“(1) All accountable/disbursing officers maintaining cash advances for petty operating expenses and/or for expense where the issuance/payment thru check is impracticable, shall liquidate their cash advances on or before 15 April 2005.

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(10) All unliquidated cash advances as of 15 April 2005 as required under this Memorandum Circular shall be booked up as Due from the Accountable Officer/Employee concerned.

(11) If said cash advance after having booked up as Due from Officers/Employees shall remain unliquidated until 30 April 2005, the amount shall be subject for salary deduction effective the ensuing month.”

The erroneous classification of special cash advances for specific purposes other than PCF in the Petty Cash Fund account resulted to unreliable account balance at the Central Office.

Further, the non-liquidation of outstanding cash advances within the period prescribed resulted to the understatement of expenses, the overstatement of Income/Retained Earnings and the overstatement of the asset account, Petty Cash Fund.

We recommend the following courses of action:

a. Closely monitor the grant, utilization and liquidation of cash advances to ensure compliance with rules and regulations. Discontinue the practice of granting additional cash advances when previous cash advances have not been liquidated.

b. Enforce immediate settlement of unliquidated cash advances.

c. Exercise caution in the posting of accounting entries so as to avoid accounting errors. Reclassify the cash advances for one-time or specific expenditures lodged under the Petty Cash Fund account to Due from Officers and Employees account.

3.7 Cash advance utilized for purposes other than for which it was granted

Review of a liquidation voucher and its supporting documents that were submitted in 2005 in partial liquidation of a cash advance of P200,000 granted to an accountable officer at the General Services Department in 2003 revealed the following discrepancies:

a. A total of P45,558.25 was utilized for expenses on food and plaque which have no relation to the purpose for which the cash advance was granted. This action was contrary to Section 174 (e) of the GAAM, Volume 1, which provides that the cash advance shall be used only for the specific legal purpose for which it was granted.

b. While the cash advance was granted on June 18, 2003, the same was only partially liquidated on February 7, 2005 contrary to existing laws, rules and regulations, to wit:

i. Section 89 of PD 1445 requires that “a cash advance shall be reported on and liquidated as soon as the purpose for which it was given has been served.

ii. Section 179 (a) (2) of GAAM, Volume 1, provides:

“a. The accountable officer shall liquidate his cash advance within the prescribed period as follows:

xxx

1. For petty operating expenses and field operating expenses within 20 days after the end of the year; subject to replenishment during the year.”

iii. Section 5.1.2 of COA Circular 97-002 dated February 10, 1997 provides that cash advances for petty operating expenses and field operating expenses be liquidated within twenty (20) days after the end of the year.

c. The liquidation voucher was processed and credited without the approval of an authorized official. This was contrary to Section 138 (e) of the GAAM, Volume I, which provides the fundamental principle for the financial transaction and operations of any government agency that “disbursement or disposition of government funds and property shall invariably bear the approval of proper officials.”

d. The following requirements for the payment for the repair and maintenance and repair set forth under Section 362 of the GAAM, Volume 1, were not complied with:

If the repair involves replacement of spare parts, a Report of Waste Materials is prepared upon submission of the worn-out spare parts.

Canvass from at least three (3) repair shops or public bidding if the amount involved is more than P 50,000.

The repair shop to which the contract is awarded must be duly accredited by the Department of Trade and Industry, except in places where there is no accredited shop in the locality or where the accredited shop does not have sufficient facilities or where the cost of services of the accredited shop is relatively high or completion of repairs will suffer delays as certified by the head of the agency or his duly authorized representative.

The job contracts as to the specific job to be undertaken. The specifications of materials to be used. The period within which the job is to be completed and other details.

Warranty certificate of the repair shops.

Certificate of Acceptance test for the work or service done is in conformity with the specification of the contract and accomplished within the specified period of time.

We recommend the following courses of action:

a. Monitor disbursement and liquidations for compliance with existing laws, rules and regulations.

b. Strictly enforce liquidation of cash advance within the prescribed period.

c. Submit justification for non-compliance with the requirements for the payment for the repair and maintenance of government vehicles.

3.8 Overstated GL balance at the Central Office due to erroneous postings or classification of cash advances

The GL balance of P1,982,003.07 for PCF at the Central Office did not tally with the correct balance as shown in the subsidiary ledger (SL) thereby overstating the former by P163,169.94. The transactions and their respective amounts comprising the discrepancies between the GL and SL balances have already been identified but no adjustments have been made as at year-end to correct said balances.

Proper accounting procedure demands that financial transactions be recorded in such a way as to avoid inaccurate or misleading information.

Failure to adjust the discrepancies between GL and SL balances resulted in unreliable book balance for the Petty Cash Fund account at the Central Office.

We recommend that Accounting Section book all identified discrepancies between GL and SL balances to show the correct balances of the affected accounts for cash advances at the Central Office.

4. DUE FROM REGIONAL OFFICE/DUE TO CENTRAL OFFICE

Under the Chart of Accounts for the NGAS, “Due from Regional Offices/Staff Bureaus/Branch Offices”(GL Acct 142) and “Due to Central Office/Home Office” (GL Acct 421) shall be used to record interoffice transactions between the PPC Central Office (CO) and its Regional offices (RO) such as transfer of cash from RO’s to CO or vice versa, issuances/return of stamps to/from RO’s, transfer of fixed assets/ centrally procured supplies and materials to the regional offices and expenses incurred by Regional offices but paid by Central Office.

4.1 Abnormal balances of the interoffice accounts Due from Regional Office and Due to Central Office in the total amount of P 2,115,027,845.72.

Review of the accounts, Due from Regional Offices and Due to Central Office disclosed abnormal balances of the interoffice accounts in the total amount of P2,115,027,845.72. Details follow:

Region Due from RO(142)

Due to CO(421)

Difference

NCRRegion IRegion IIRegion IIIRegion IV

(3,147,633,356.79)

1,169,239,978.46214,805,817.85

73,070,823.01

670,354,781.631,366,145.55

50,037,302.41(2,039,206,883.08)

59,981,888.90

(3,817,988,138.42)

1,167,873,832.91164,768,515.44

2,112,277,706.09

Region Due from RO(142)

Due to CO(421)

Difference

Region VRegion VIRegion VIIRegion VIIIRegion IXRegion XRegion XIRegion XIICARUnidentifiedInventory – TotalPostshopOIMO

83,051,820.66210,903,876.24317,652,029.21107,595,276.20334,876,566.13309,433,890.24175,877,351.29228,200,850.54295,609,713.02233,903,555.53164,791,009.25

2,890,394.7248,829,411.44

3,547.55

87,676,842.74159,482,231.57308,341,263.79

36,997,588.6316,927,725.11

(583,359,379.00)12,514,918.94

(180,404,476.76)107,364,758.40

23,069,931.76123,227,033.50158,169,797.64

(200,745,987.59)297,878,977.50292,506,165.13759,236,730.29215,685,931.60476,014,189.78126,538,797.13164,791,009.25

2,890,394.7248,829,411.44

3,547.55 kTOTAL 823,102,554.55 (1,291,925,291.1

7)2,115,027,845.

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These accounts between the PPC Central office and its Regional offices, under normal circumstances shall show a zero balance in the consolidated financial statements.

The abnormal amounts represented prior year’s abnormal balance of interoffice transfers recorded under Accounts 8-71-901 and 8-81-901 in the Old Government Accounting System. These abnormal balance is a result of management’s failure to reconcile these accounts. The details and validity of these accounts cannot be fully ascertained due to lack of available records and supporting documents.

The reasons for these differences are the following:

Improper accounting entries drawn to adjust the unrecorded fund transfers

Unrecorded transfer of money order collections to Central Office for 2002 and prior years due to failure of Money

Order Service to coordinate with the Accounting Section to account for the actual money order issued.

Non-recording/delayed recording of transactions either by Central Office or Regional Office

Failure to conduct periodic reconciliation of the balances of the reciprocal accounts.

Considering these abnormal balances, the assets and liabilities accounts are both adversely affected.

This is an audit issue in the previous Annual Audit report of PPC.

We reiterate our recommendation on the following courses of action:

a. Reconcile regularly the Due from Regional Office and Due to Central Office accounts to ensure that all interoffice transactions are recorded in the books. Any discrepancy should be immediately analyzed and adjusted accordingly.

b. Improve the internal control measures and procedures regarding transfers of funds, supplies and materials, stamps and money orders to regional offices to ensure complete and accurate recording of all transactions in the books.

c. Observe close coordination of the concerned offices involve in the interoffice transfer transactions.

5. PROPERTY, PLANT AND EQUIPMENT

Property Plant and Equipment accounts of PPC with an aggregate balance of P2,354,035,662 net of accumulated depreciation of P775,074,199 as of December 31, 2005 represent 24 per cent of the total assets of PPC. However, fairness of presentation of the accounts in the financial statements of PPC is affected by the following observations:

5.1 Failure to conduct physical inventory of property, plant and equipment (PPE) – P720,949,063.99

Audit of the PPE accounts disclosed that the following PPC regional offices and Head Office did not conduct physical inventory of its PPE:

Region Amount of PPEI P17,368,474.60

IV 3,398,597.06VIII 39,001,938.00XII 5,809,628.17

Head Office 655,370,426.16Total P720,949,063.99

There were no verified physical inventory reports thus the accuracy and validity of the recorded balances as well as the physical status and existence of the items recorded under the PPE accounts can not be ascertained.

The Manual on the New Government Accounting System (NGAS), requires that Report on the Physical Count of Property, Plant and Equipment shall be used to report the physical count of property plant and equipment by type as of a given date. It shows the balance of property and equipment per cards and per count and shortage/overage if any. Moreover, it provides that “For check and balance, the Property and Supply Office Unit shall maintain Property Cards (PC) for property, plant and equipment and Stock Cards (SC) for inventories. The balance in quantity per PC and SC should always reconcile with the ledger cards of the Accounting Unit.”

5.2 Failure to maintain equipment ledger card for property plant and equipment - P124,564,644.27

No equipment ledger cards were maintained in Regions I and VII for property and equipment amounting to P38,697,007.43 and P85,867,636.84, respectively.

Section 441 of the GAAM, Volume II provides that:

“Equipment Ledger Card (ELC) shall be kept for each class of equipment to record the acquisition, description, custody, estimated life, depreciation, disposal and other information about the equipment based on the source documents of the transaction. Result of physical inventory shall be reconciled with this ledger card and the control accounts.”

Further, Section 3 of PD 1445 provides that “ The accounts of an agency shall be kept in such detail as necessary to meet the

needs of the agency and at the same time be adequate to furnish the information needed by fiscal or control agencies of the government. The highest standards of honesty, objectivity and consistency shall be observed in the keeping of the accounts to safeguard against inaccurate or misleading information.”

5.3 PPC properties without legal documents of ownership - P211,905,176.09

Verification made on Land account of the NCR disclosed that as of December 31, 2005, the cost of the land where PPC-NCR building is erected and where the Philippine Postal Savings Bank Inc. (PPSBI) is situated is still recorded in the books even without the necessary legal documents to support its ownership, thus overstating the cost of the land in the financial statements by P283, 446,000.00. This is due to the clarificatory statement of the Department of Environment and Natural Resources issued on September, 2005 stating that PPC is only an administrator of the subject land by virtue of Proclamation No. 406 and

not the absolute owner thus it cannot claim legal ownership and cannot transfer its right and ownership of the land.

Purchased and donated lots to various Regional offices amounting to P190,417,204.01 lack Transfer Certificate of Title as follows:

Region AmountI P 37,762,100.00II 7,751,900.00IV 15,163,700.00V 1,300,000.00VII 99,086,075.00VIII 14,908,340.00XII 14,445,089.01

Total P190,417,204.01

The Building and Structures account of Region I with appraised value of P21, 094,972.08 were not supported with valid documents of ownership, and hence the authenticity and propriety of the account cannot be ascertained.

On the other hand, in Region IV, five lots covered under conditional Deed of Donation with a book value of P393,000 were already reverted to the owners. However, these are still in the books of PPC.

5.4 Net Understatement of the Property, Plant and Equipment account- P38,719,087.15

Verification of the documents and schedules of motor vehicles and motorcycles disclosed that the following PPC Regional offices have understated/overstated balance of the account. Details follow:

In the books of Region 8, the value of buildings reported at P16, 034,134.82 was understated by P11, 434,794.21 computed as follows:

Total Per 1995 Asian Appraisal

P 24,457,000.00

Add: Acquisitions (1995-2005)

3,011,929.03

Value of Buildings, 12/31/05 27,468,929.03Balance Per General Ledger 16,034,134.82Understatement of Buildings

P 11,434,794.21

Likewise, audit of CAR Post Office revealed that the Office Building account was overstated by P2,650,947.61 due to:

Net overstatement due to unreconciled difference between recorded costs and billing and inspection reports

P207,151.66

Recorded office building in 2001 was again recorded in 2003

823,045.95

Cost of office buildings not constructed and not occupied by PPC-CAR recorded as part of its assets

320,000.00

Burned building still carried in the books 1,300,750.00Total overstatement P2,650,947.61

5.5 Discrepancy between General ledger and physical inventory count – P15,769,389.26

Audit of the motor vehicle account of the Head Office disclosed that there is a discrepancy amounting to P15, 769,389.26 between the GL balance of P94, 214,530.91 and the physical inventory count balance of P109, 983,920.17 as of December 31, 2005.

5.6 Undocumented Office Furniture, motor vehicle and equipment –In transit Account – P26,796,418.50

As of December 31, 2005, a total of P26,796,418.50 of Office Furniture, Motor Vehicle and Equipment remained in the books of the Head Office. Said amount has been outstanding since 2002 and has no subsidiary longer or documents on file.

We recommend the following courses of action:

a. Conduct periodic physical inventory of all Properties, Plant and Equipment to ascertain their existence, whereabouts and actual conditions. Make the necessary reconciliation to present fairly the balances of the property, plant and equipment accounts.

b. Maintain subsidiary ledgers or ledger cards for each asset to monitor the repairs and maintenance, additions or improvements made as well as the depreciated or appreciated value and any other necessary information needed that serve as accounting data.

c. Exert effort to document ownership of the real estate properties of PPC to prevent the possibility that these assets be titled in the name of private persons. Likewise, drop from the books the value of land and other depreciable assets of which ownership are not supported by legal documents and lots which are claimed back by the donors.

d. Secure necessary documents of ownership of depreciable assets like motor vehicles and motorcycles to validate the entries in the books of accounts. Effect adjusting entries to reflect correct amount of property and equipment.

6. ACCOUNTS RECEIVABLE

Accounts Receivable with a balance of P4,126,653,322, net of allowance for doubtful accounts in the amount of P65,856,907 represents 43 per cent of the total assets of PPC. The accuracy, validity and existence of the account, however, could not be relied upon due to the following observations:

Accounts Receivable/Payable - International6.1 Unreconciled Balance of Accounts Receivable/Payable

International per Accounting Books against records of International Accounts Division.

The International Accounts Division (IAD) of the Philippine Postal Corporation (PPC) records data pertaining to transactions on international accounts receivable and accounts payable coming from Central Mail Exchange Center (CMEC), Foreign Surface Mail Distribution Center (FSMDC) and the various Foreign Postal Administrations (FPAs) and airline companies. Based on the information received from CMEC, FSMDC, airline companies and the FPAS, IAD prepares reports and supplies the Accounting Division on the details of Accounts Receivable/Payable International for recording to PPC’s books of accounts.

On the other hand, the Accounting Division prepares journal entries to record in the books of accounts the information/data received from IAD and from PPC’s depository bank the remittances received from FPAs and payments made by PPC to the various FPAs and airline companies.

Analysis of the Accounts Receivable/Payable International accounts, disclosed that the balances per books as of December 31, 2005 do not tally with the balances of the outstanding Accounts Receivable/Payable- International from various FPAs of the International Accounts Division for the same period. Details follow:

Accts Receivable-International

Accts Payable- International

Per Books, as of 12/31/05

P1,682,830,806.43 P1,971,645,712.91

Per IAD’s Records, as of 12/31/05

680,427,993.27 290,436,214.81

Variance P1,002,402,813.16 P1,681,209,498.10

Also, to date the Accounting Division has not yet maintained subsidiary ledgers for Accounts Receivable/Payable-International

accounts. Due to the absence of subsidiary ledgers for Accounts Receivable/Payable-International accounts, the validity of the claims of PPC from the different FPAs could not be ascertained. Moreover, adjusting entries to correct balances of the claims of certain FPAs and vice versa could not be made as there are no individual ledgers for each FPA.

Individual ledgers for each FPA shall reflect the balance of the Accounts Receivable and Accounts Payable at any given period of time. Also, reconciliation will be made easier between records of various FPAs against PPC records.

Internal control policy of independent checks on performance and review systems under Section 55 of the Government Accounting and Auditing Manual, Volume III states that:

“Actions in carrying out and recording of transactions should be subject to review and cross-checking. Knowledge that one’s actions are checked from time to time is a deterrent to negligence in the performance of duties. Independent checks on performance include review systems and an internal audit office.”

Section 55 also prescribes as one of the elements of internal control, the presence of review system through periodic reconciliation of accounts which involves verifying the accuracy of one set of records against an independent set of documents.

We recommend the following courses of action:

a. Maintain subsidiary ledgers per FPA for easier reconciliation and monitoring.

b. Conduct periodic reconciliation of the records of the IAD and Accounting Division to arrive at the correct balance of the Accounts Receivable- International accounts.

c. Also, conduct regular reconciliation between PPC records and the records of the various FPAs to avoid discrepancies and correct existing ones.

6.2 Credit memos representing dollar remittances from various Foreign Postal Administrations (FPAs) remained unidentified and credited solely to Accounts Receivable as a result of the practice of the principle of offsetting.

As of December 31, 2005, audit showed a total of US$ 21,519,260.60 or P1, 186,599,865.45 representing remittances from various Foreign Postal Administrations. However, the FPAs who made these remittances and what particular transactions are being settled remained unidentified.

Article RE 1305, Number 3 of the Universal Postal Union (UPU) Agreement provides that FPAs “may settle postal debts expressed in Special Drawing Rights (SDRs) by offsetting credits and debits in its relations with another administration.”

PPC bills other FPAs by preparing a statement of amount due (PPC’s Accounts Receivable) on a quarterly basis. The statement of account is accompanied with the following reports:

Form CP 75, which is the summarized or recapitulation of the transactions presented in SDR;

Form CP 94, which is the detailed presentation of transactions of outward mails sent through airlines (air parcels) indicating therein the dispatching FPA, dispatching office of exchange, month and year of the transaction, quarter, mail number, total number of parcels and gross weight in kilograms and

Form CP 93, which is the detailed presentation of transactions of outward mails sent through shipment (surface parcels) indicating therein the dispatching FPA, dispatching office of exchange, month and year of the transaction, quarter, mail number, total number of parcels and gross weight in kilograms

On the other hand other FPAs send their statement of accounts (PPC’s Accounts Payable) to PPC with the same attachments enumerated above. Equitable PCIBank, the depository bank of PPC directly receives remittances from various FPAs. These amounts are credited to PPC’s account with the Equitable PCIBank by means of Credit Memos (CM). Equitable PCIBank notifies PPC and provides records of CM. It has been observed however that not all credit memos are provided with pertinent details of the transaction.

PPC records the transaction by debiting Cash in Bank and crediting Accounts Receivable. The amount of the Accounts Receivable credited pertains to the net amount collected resulting from offsetting of the receivable and payable from international transactions.

This practice affects the accuracy and reliability of the balances of the Accounts Receivable and Accounts Payable –International

accounts. Other accounts such as Prior Year’s Adjustment and Gain or Loss on Foreign Exchange are also affected by the practice of offsetting and settlement of accounts.

This has been an audit issue in last year’s audit.

We therefore reiterate our recommendation for management to:a. Obtain the details of payments made by FPAs

credited to the bank in order to record the correct amounts related to the affected accounts.

b. Require FPAs, through writing, to attach details of payment when making payments and notify PPC immediately of any remittances made directly to the bank.

c. Conduct regular reconciliation between records of FPA and the Equitable PCIBank.

6.3 As of December 31, 2005, Philpost USA has a total of P220, 823,239.72 past due account with the Philippine Postal Corporation.

Analysis of the Accounts Receivable- International account disclosed that as of December 31, 2005, Philpost USA has a total of US$ 4,158,629.75 or P220,823,239.72 of past due accounts. Records showed that part of the amount are transactions of prior years from 2001 to 2004.

On April 23, 2003, the Philippine Postal Corporation (licensor) and Philpost USA (licensee) executed a contract for the acquisition of Philpost USA from Philippine Postal Corporation the exclusive right to establish Sites, and use Philippine postage indicia, manifests, mailbags and support information in connection with the operation of its business of providing international remail services within the United States of America.

Philpost USA pays only an annual license fee of US$10,000 while its past due accounts totals US$ 4,158,629.75. Delayed collection of claims from Philpost USA may be translated as opportunity loss for PPC because of the huge amount involved. Had the Philpost account been collected and invested it could have earned for the Corporation additional income to be used for its day to day operations for a better delivery of services.

We reiterate our recommendations that:

a. Management ensure prompt collection of claims from Philpost USA such as early preparation and sending of bills and regular monitoring of accounts in order to seasonably detect long outstanding accounts.

b. Advise all concerned departments to closely coordinate with each other so that records and/or documents necessary for early billing and collection of Accounts Receivable from Philpost be made at the earliest possible time.

Accounts Receivable – International Money Order

6.4 Unreconciled discrepancy between accounting records and report of the Money Order Service – P24,686,180.42

The International Money Order Division of the Money Order Service (MOS) is responsible for the operation of the money order, fixing of money order fees, preparation and implementation of conventions and other agreements for the exchange of money orders with other countries, and submission of summarized reports of these transactions to the General Accounting Division (GAD).

The GAD, on the other hand, records, summarizes the transactions on money order based on reports and supporting documents submitted by the MOS, and maintains subsidiary ledgers for the twelve (12) different FPAs. Despite the maintenance of individual records of MOS and GAD, discrepancies were still noted. Comparison between the summary report on Accounts Receivable balances of FPAs as of December 31, 2005 of the MOS and the balance of the Accounts Receivable, International Money Order account per general ledger of the GAD showed a difference in the amount of P24,686,180.42, to wit:

GAD P47,908,667.28MOS 23,222,486.86Difference P24,686,180.42

Verification of the transactions disclosed that non-reconciliation of records gave rise to the discrepancy. The deficiency cannot be easily identified on which country it occurred as the GAD has not yet submitted subsidiary ledgers for each account of the twelve (12) FPAs.

Section 55 of the GAAM, Volume III provides that “Reviews of transactions and internal control shall be performed on an on-going basis for proper monitoring and adherence to prescribed policies and procedures.” It also states that “Actions in carrying out and recording of transactions should be subject to review and cross-checking. Knowledge that one’s action is checked from time to time is a deterrent to negligence in the performance of duties.”

We recommend the following courses of actions:

a. Improve the reporting and recording system being done by the MOS and GAD so there would be no duplication of report preparation and proper monitoring could be effected to regularly reconcile entries in the subsidiary ledgers of both departments.

b. Conduct regular reconciliation of subsidiary ledgers for all FPAs to ensure that any discrepancy is immediately identified and corrected and to ensure that records of the GAD and MOS agree with each other.

c. Observe close coordination between persons involved in the monitoring of transactions to ensure complete and accurate recording of all transactions in the books.

Postage Charge Accounts (PCA)

6.5 Balances of Postage Charge account in five PPC Regional Offices totaling P171,035,781.75 that represent 17 per cent of the total outstanding receivable of P1,034,560.789.67 cannot be ascertained.

The regional offices with the corresponding balances of PCA are as follows:

Region Amount

III P 67,329.00IV 1,192,786.45VI 350,554.93X 863,801.68

NCR 168,561,309.69Total P171,035,781.75

At NCR and Region X, the account balances are not reliable due to the failure of the Accounting Section to submit the monthly reports/schedules and documentation to COA which resulted in the non-verification of the account, while in Region IV the validity of the recorded balance cannot be established because there were instances wherein income on charge accounts were not accurately recorded in the books. Preparation of monthly reports is not attended to by management allegedly due to lack of personnel to handle the workload.

Subsidiary ledgers in Regions IV and VI are not maintained/updated, thus, the individual account balances of PCA holders were not reconciled with the respective control accounts at the end of the month. Similarly, a statement thereon was not prepared quarterly to support the corresponding accounts in the trial balance.

Verification of approved PCA permits in Regions III and VI revealed that agencies availing PCA have either expired, deficient or without permit contrary to the Operating Policies, Guidelines and Procedures on Business Mails/Postage Charge Account Service as approved under Board Resolution No. 2004-56. Section II.A.3 of the Operating Policies, Guidelines and Procedures provides that all PCA permits shall be valid only until December 31 of the year applied for. The renewal of permits shall be done every January of the ensuing year. Section II.A.5 of the Operating Policies, Guidelines and Procedures likewise provides that PCA permits become invalid when the permit was not renewed after expiration period and when the customer/s has not paid their account for two consecutive months.

6.6 Unreconciled balances of Postage Charge Account per books against clients/postmasters’ records and subsidiary ledgers in the amounts of P465,294.10 and P9,077,956.28 respectively.

Confirmation results in Regions III and CAR disclosed that the recorded balances of the Accounts Receivable – Trade were not reconciled with the clients’ and postmasters’ records by P465,294.10, thereby affecting the fair presentation of the account, to wit:

Region Per Books Per Confirmation DifferenceIII P67,328.60 P639,657.00 P572,328.40

CAR 177,126.75 70,092.45 (107,034.30)Total P244,455.35 P709,749.45 P465,294.10

At Region III, the account balance per books does not agree with the postmasters’ record due to the failure of the postmasters with PCA transactions to submit reports to accounting department.

On the other hand, review of the billing statements sent to PCA account holders in CAR showed that the statements include only the current charges. However, verification of reports revealed that the clients have outstanding balances with the Corporation.

The accounting department is still in the process of reconciling the accounts with the postmasters’ reports. However, there is difficulty in reconciling the accounts due to the non-availability of records of previous years.

On the other hand, recorded balances of the accounts in two regional offices do not agree with the balances per subsidiary ledgers/schedules by a net amount of P9,077,956.28, as presented below:

Region Per Books Per Subsidiary Ledger

DifferenceShort (Over)

VII P1,168,760.30 P1,107,284.72 P(61,475.58)CAR 177,126.75 296,482.92 119,356.17NCR 168,561,309.69 177,581,385.38 9,020,075.69

Total P169,907,196.74

P178,985,153.02

P9,077,956.28

6.7 Failure to impose surcharge on unpaid postage charge account.

Records showed that in Region III, no surcharge equivalent to one-tenth of one percent (1/10 of 1%) for every day of delay of payment of postage charge account in excess of 30 days was imposed contrary to Section II.C.1 of the Operating Policies, Guidelines and Procedures on Business Mails/Postage Charge Account Service as approved under Board Resolution No. 2004-56.

We reiterate our recommendations for Postage Charge Accounts to:

a. Enforce compliance with the Operating Policies, Guidelines and Procedures on Business Mails/Postage Charge Account Service as approved under Board Resolution No. 2004-06 on the following matters:

Section I.2 requiring payment of PCA within 30 days from date of mailing

Section II.C.1 requiring imposition of surcharge of 1/10 of 1 per cent for every day of delay of payment in excess of 30 days

Section II.A.3 and 5 on the validity of PCA permits

b. Require the Accounting Department to enforce collection of PCA and exert extra efforts to collect long outstanding accounts

c. Require the Accounting Department to reconcile the recorded balances of the accounts with the balances per clients; records and reports of postmasters/schedule of accounting

d. Comply with the provisions of Section 43 (4) of PD 1445 on the submission to COA of documents relative to Postage Charge Account transactions

DUE FROM OFFICERS AND EMPLOYEES

6.8 Unliquidated travel and special cash advances of P1,512,974.15

Review of cash advances lodged in the Due from Officers and Employees account at the Head Office disclosed non-compliance with the laws, rules and regulations on the granting and liquidation of cash advances. As of December 31, 2005, cash advances for travel and other one-time or specific expenditure of P1,512,974.15 remained unliquidated contrary to Section 89 of PD 1445. Approximately 68 per cent or P1,030,363.27 of the year-end balance has been outstanding for at least 60 days and up to 9 years despite the prescribed periods set in Section 5.1.3 of COA Circular 97-002 within which to liquidate cash advances. Twenty-three (23) accounts amounting to P244,958.14 or

approximately 16 percent of P1,512,974.15 pertained to balances of accountable officers who are no longer employed at PPC, hence, their settlements are doubtful. These pertained to cash advances granted between the period July 1996 and January 2003.

Further, additional cash advances for travel were allowed during the year without first requiring settlement of previous cash advances, in violation of Section 89 of PD 1445. Twenty-seven (27) officers and employees were granted additional cash advances for travel; two (2) officials were even allowed from 4 to 11 times.

Despite the issuance of Philpost Memorandum Circular No. 05-06 which among others, instructed the liquidation on or before April 30, 2005 of outstanding cash advances for travel on record as of date of conversion to NGAS accounts, most of these accounts still existed as at year-end. No salary deduction was effected for outstanding accounts, as provided under Section 5.1 of COA Circular 97-002, except for a few accountable officers already subjected to it prior to April 1, 2005.

Non-liquidation of outstanding cash advances within the period prescribed under Section 89 of PD 1445 and COA Circular No. 97-002 resulted to the understatement of expenses, the overstatement of Income/Retained Earnings and the overstatement of the asset account, Due from Officers and Employees.

We recommend the following courses of action:

a. Monitor the grant, utilization and liquidation of cash advances to ensure compliance with rules and regulations. Discontinue the practice of granting additional cash advances when previous cash advances have not been liquidated first.

b. Enforce immediate settlement of unliquidated cash advances.

c. Ensure that AOs settle their outstanding cash advances first before being cleared of accountabilities with the PPC once they transfer, retire or resign from the service. The officials responsible for approving their clearances without first enforcing settlement of their unliquidated cash advances should be made liable.

6.9 Understatement of general ledger balance by P362,867.92 pertaining to travel and special cash advances

The portion of the GL balance of the Due from Officers and Employees account pertaining to travel and special cash advances as of December 31, 2005 amounting to P1,512,974.15 did not tally with that of the SL which showed the correct balance of P1,875,842.07 resulting to understatement in the books by P362,867.92. The specific transactions comprising such discrepancy have already been identified but no adjustments have been made as at year-end to correct said balances.

Financial transactions must be recorded accurately to avoid presenting misleading information.

Failure to adjust the discrepancies between GL and SL balances resulted in unreliable book balances for the Due from Officers and Employees account at the Central Office.

We recommend that Accounting Department book identified discrepancies between GL and SL balances to show the correct balances of the affected accounts for cash advances.

6.10 Balances of Due from Officers and Employees account in four regional offices amounting to P17,665,796.05 representing 25 per cent of the total receivable of P69,579,809 cannot be ascertained.

The four regional offices with their corresponding balances are as follows:

Region AmountNCR P3,005,702.93III 6,642,263.23VI 439,573.52IX 7,578,256.37

Total P17,665,796.05

6.10.1 Subsidiary ledgers not maintained

Subsidiary ledgers are not maintained for Due from Officers and Employees accounts at NCR and Region VI in the amount of P3,005,702.93 and

P439,573.52, respectively. A schedule showing the individual balances at the end of the month is prepared in lieu of subsidiary ledgers at NCR.

6.10.2 Unreconciled balances of the account

At Region IX, the subsidiary ledger balance amounting to P9,903,638.18 do not reconcile with the balance per books of P7,578,256.37, thereby showing a discrepancy of P2,325,381.81. The accounts represent unsettled balances of thirty four (34) accountable officers, twenty three (23) of which are no longer in service. The collectibility of these accounts seems remote as no effort was exerted by management to recover the balances of these accounts.

On the other hand, the subsidiary records of the account in Region III amounting to P6,642,263.23 do not agree with the records of the Regional Internal Audit/Legal Division in the amount of P11,723,795.86 thereby resulting to a discrepancy of P5, 081,532.63.

Receivable – Charges/Disallowances

6.11 Unsettled balances of P18,137,761.28 and P3,543,236.00 at NCR and Region VIII, respectively, in the total amount of P21,680,996.28, representing 26 per cent of the total Receivables, Disallowances/Charges account of P82,814,081 are doubtful of collection.

Analysis of the account disclosed that at NCR and Region VIII, the account includes shortages of various persons who are no longer connected with the Corporation, some of whom are already deceased.

The account balance amounting to P862,903.91 has not been fully documented in Region X and schedules were not prepared by the accounting department. The account remained in the books for more than five years.

At NCR, the general ledger balance of P18,137,761.28 does not tally with the balance in the schedule of P17,641,949.68 or a difference of P495,811.60.

At Region VIII, total unrecovered shortages amounted to P3,543,236 as of December 31, 2005.

At Region III, comparison of the records of RIAS/Legal with the subsidiary ledger showed a discrepancy of P5,081,532.63. It as also noted that the shortage of Ms. Florenda David, Postmaster of La Paz Post Office amounting to P135,569.66 was not taken up both in the records of Accounting Division and Legal Division.

We recommend the following courses of action:

a. Strictly adhere to the provisions of Section 488, of GAAM, Volume II on the reconciliation of the totals of the subsidiary ledger balances with their respective control account at the end of each month.

b. Intensify collection of accounts receivable by issuing demand letters to delinquent debtors and other legal actions to enforce collection.

c. Submit to COA documentary evidence that all possible means have been resorted to recover the balances of the accounts. Request for write-off of accounts proven not valid or undocumented.

GSIS Arrearages

6.12 Assumption of interest on personal share for GSIS Life and Retirement Premium has no legal basis

A Memorandum of Agreement (MOA) was executed between the Philippine Postal Corporation (PPC) and the Government Service Insurance System (GSIS) on May 18, 2004, in order that the suspension of the loan privileges of PPC personnel in the Head Office and NCR due to the arrears in the payment of premium of PPC casual employees from June 24, 1997 to July 1999 be lifted.

As of December 31, 2003, arrearages totaled P57,654,856.53 broken down as follows:

Principal P29,087,007.16Interest 28,567,849.37

Total P57,654,856.53

One of the duties of PPC as provided for in Section 1 of the MOA states the following:

“1.0 PPC shall collect the arrears in premiums representing the employees’ share for the period from June 24, 1997 to July 1999 including interests for the same period and shall remit the amount so collected beginning January 2004 in accordance with the schedules as appearing in Annexes “A” and “A-1” x x x.”

While PPC has the duty to collect and remit the amount stated in the annexes mentioned, there was no attachment to the MOA providing for the names of employees whose premium payments were in arrears.

Based on the Statement of Premium Accounts provided by the GSIS, hereunder are the totals of the amount to be paid to GSIS relative to the arrearages from June 1997 to July 1999 for Head Office casual employees, payable monthly for three years starting January 2004 up to December 2006:

ParticularsGovernment Share and

EC (GS)Personal

Share(PS)

Total Principal GS P133,414.44/mo. PS P 89,559.58/mo.

P 4,802,919.84

P 3,224,144.88

Total interest for the period 06/24/97-12/31/03 GS P 131,090.41/mo. PS P 87,959.84/mo.

P 4,719,254.76

P 3,166,554.24

Total additional monthly interest for the months of January 2004 to December 2006.

P 1,777,080.32

P 1,192,933.58

On April 15, 2004, Check No. 207920 was issued by PPC in the amount of P2,183,263.95 in payment of the January 2004 GSIS amortization for NCR and Head Office casual employees as follows:

NCR P 1,580,698.38Head Office 602,565.57

Total P 2,183,263.95

The amount of P1,580,698.38 was recorded in the books under Due From Regional Offices – NCR, while for the Head Office, the

amount of P 602,565.57, was recorded under the following accounts:

Account Nature Amount

Prior Years Adjustments-Reductions (7-92-420)

Government share for principal (P133,414.44) and interest for the period 06/24/97–12/31/03 (P131,090.41)

P 264,504.85

Receivables from Employees (8-71-900-01)

Personal share for principal (P89,559.58); interest for the period 06/24/97-12/31/03 (P87,959.84); and interest for the month of January 2004 P64,482.90.

242,002.32

Interest Expense (3-09-000)

Government Share for interest for the month of January 2004

96,058.40

Total P 602,565.57

On April 30, 2004, Journal Voucher (JV) No. 3759 was drawn to reclassify the P152,442.74 interests on the unpaid personal share for GSIS Life and Retirement Premium arrearages previously recorded as Receivable from Employees.

The amount of P87,959.84 which corresponds to the interest for the period January 24, 1997 – December 31, 2003 for the January 2004 amortization was charged to Prior Year Adjustments-Reduction account (7-92-420) while interest on personal share for January 2004 in the amount of P64,482.90 was charged to interest expense account (3-09-000).

One of the supporting papers to the JV had a note which stated that interest previously charged to employees is assumed by PPC.

Verification from accounting records for the years 2004 and 2005 showed that subsequent payments for interests on

personal share were all assumed by PPC. PPC however, did not submit legal basis for treating the aforementioned interest as its expense.

For the years 2004 and 2005, interests on personal share of Life and Retirement premiums of casual employees assumed by PPC amounted to P3,273,710.94. This includes interest for the January 2006 amortization in the amount of P 109,454.14 paid by PPC to GSIS in December 2005.

Aside from the above mentioned interests on personal share, PPC also pays GSIS the amount of P89,559.58 per month corresponding to arrearages on personal share of the principal amount of GSIS premiums of casual employees. This is recorded in PPC’s books under Receivable from Officers/Employees account (Due from Officers/Employees – Account Code 123 under the NGAS).

Amount paid by PPC to GSIS corresponding to the above mentioned arrearages for the years 2004 and 2005 totaled P2,149,429.92. Out of this amount, only P1,486,060.41 has been deducted by PPC from the salaries of employees concerned leaving a balance as of December 31, 2005 on the Due from Officers/Employees account in the amount of P663,369.51.

The absence of the names of employees covered under the MOA contributed to the accumulation of the uncollected receivables from PPC’s officers and employees. Records show that while PPC pays GSIS the amount of P89,559.58 monthly for the principal amount of GSIS premiums (personal share), the full amount had not been deducted from the monthly salaries of employees concerned.

On May 30, 2005, Check No. 223194 was issued in the amount of P1,430,297.71 for remittance of insurance premium (employee’s share) underpayment for the years 2003 and 2004 as follows:

January to December 2003 P 697,077.30January to December 2004 733,220.41

Total P1,430,297.71

Out of the above amount, only P163,985.75 was deducted from salaries of employees concerned leaving a balance of P1,266,311.96 as of December 31, 2005.

Amount Due from Officers and Employees as of December 31, 2005 totaled P1,929,681.47 consisting of arrearages of principal amount of GSIS Life and Retirement of casual employees (personal share) in the amount of P663,369.51 and the balance of the amount advanced by PPC to GSIS for the insurance premium underpayment for the years 2003 and 2004 (employees share) in the amount of P1,266,311.96.

It was further noted that Check No. 220870 issued by PPC on October 20, 2004 in the amount of P89,559.58 for the July 2004 amortization was not posted in the General Ledger for the Receivable-Employees account in 2004 nor was it posted in the 2005 General Ledger for Due from Officers/Employees. This resulted in the understatement of the Due from Officers/Employees account as of December 31, 2005 by P89,559.58.

We recommend the following courses of action:

a. Determine the names of PPC casual employees covered in the MOA between PPC and GSIS. Make representations with GSIS and exclude the amount of arrearages and interests on personal share of employees who are no longer in the service of PPC at the time of the execution of the MOA.

b. Recognize the P3,273,710.94 interests on personal share of Life and Retirement premiums of PPC casual employees as Due from Officers/Employees in view of the absence of legal basis for PPC’s assumption of said interest.

c. Immediately deduct from the salaries of employees concerned the amount advanced by PPC due to the underpayment of GSIS premiums of its employees (personal share).

d. Considering the materiality of the amount advanced by PPC to the GSIS, and the tight financial condition of the Corporation, refrain from paying out of the government fund, personal share of its employees to other entities. Furthermore, intensify collection from its officers and employees amount advanced by PPC.

e. For proper monitoring of amount due from officers/employees relative to GSIS payments by PPC, a schedule should be prepared stating the names of employees, amount of receivable from each employee,

amount deducted from their salaries and the monthly balances of the receivables PPC has from each employee.

f. Adjust the accounting books to reflect the P89,559.58 understatement of the Due from Officers/Employees account.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The New Government Accounting System (NGAS) Manual provides for the following:

“Trade receivables shall be valued at their face amount minus, whenever appropriate, allowance for doubtful accounts. Bad debts expense and/or any anticipated adjustments which in the normal course of events will reduce the amount of receivables from the debtors to estimated realizable values shall be set up at the end of the accounting period. Receivables from government agencies and personnel shall not be subject to Bad Debts.”

It was further stated in the Manual that “the allowance for doubtful accounts shall be provided in an amount based on the collectibility of receivable balances and evaluation of such factors as aging of the accounts, collection experiences of the agency, loss experiences, and identified doubtful accounts”.

6.13 Adequacy of allowance for doubtful accounts cannot be ascertained due to lack of approved written policy – P65,856,906.55

The validity and reasonableness of the allowance for doubtful accounts in the amount of P65,856,906.55 cannot be ascertained due to lack of approved written policy.

Analysis of the account disclosed that allowance for doubtful accounts in the total amount of P65,856,906.55 was recognized by the PPC Central Office, NCR, Region V, and Region X. Details follow:

Further verification disclosed the following observations:

At the PPC Head Office –

For calendar years 2004 and 2005, no allowance for doubtful accounts was set-up in PPC Head Office books of accounts. The balance of the account as of December 31, 2005 amounting to P32,308,941.88 was a carry over of the allowance previously set up in the year 2003.

At NCR, the allowance for doubtful account amounting to P33,452,160.50 representing 19.85% of the total Postage Charge Account for the current year in the amount of P168,561,309.69, was computed without legal basis.

In view of the materiality of the outstanding receivable, we reiterate our previous recommendation to conduct a study for subsequent adoption of policy on the setting-up of allowance for doubtful accounts. It shall take into consideration such factors as aging of the accounts, collection experience of the company in relation to the particular receivables, past and expected loss experiences, and identified doubtful accounts, as well as the provisions of the NGAS Manual in the determination of the allowance for doubtful accounts to give assurance that receivables are presented in the financial statements at its net realizable value.

7. INVENTORIES

7.1 Balances of the following inventory accounts per books and per monthly accountability reports of regional custodians as of December 31, 2005 shows a total discrepancy of P79,163,265.86.

Balance Balance

Per Difference

Items Per Books Monthly Report Short (Over)

National Capital Region

Postage Stamps -

Reg. Custodian

199,764.18

186,037.59

(13,726.59)

Philatelic Stamps -

Reg. Custodian

207,062.22

20,257.90

(186,804.32)

Philpost Products -

Reg. Custodian

10,035.98

9,936.00

(99.98)

Official Receipts 114,792

.00 62,40

0.00 (52,392.

00)Money Order

Forms 282,472

.00 210,45

5.10 (72,016.

90) 814,126

.38 489,08

6.59 (325,039.

79)Region I

Philatelic Items 1,416,838

.58 677,40

2.11 (739,436.

47)Philpost

Products 48,340.

50 42,48

0.00 (5,860.

50)

Gummed Tapes 14,800.

00 14,80

0.00 -

Postage Stamps 2,324,686

.66 126,68

9.72 (2,197,996.

94)Money Order

Forms 12,316.

49 13,25

6.25 939.

76

Postal Ids 916.

87 86

3.72 (53.1

5) 3,817,899

.10 875,49

1.80 (2,942,407.

30)Region III

Philatelic Items 2,348,637 487,01 (1,861,623.

Balance Balance

Per Difference

Items Per Books Monthly Report Short (Over)

.28 4.23 05)Philpost

Products 165,141

.92 -

(165,141.92)

Office Supplies & Non-

Acctable Forms Invty.

2,495,409.28

934,179.54

(1,561,229.74)

Postage Stamps 17,039,525

.60 103,80

5.65 (16,935,719.

95)

Gummed Tape 1,145,805

.80 41,80

0.00 (1,104,005.

80)Money Order Blank Forms

44,164,231.15

75,990.73

(44,088,240.42)

Official Receipts 65,482.

56 61,20

8.16 (4,274.

40)

Postal ID (14,391.

68) 6,10

7.92 20,499.

60

Spare Parts 1,326,248

.50 100,02

1.00 (1,226,227.

50) 68,736,090

.41 1,810,12

7.23 (66,925,963.

18)Region XII

Postage Stamps 59,574.

66 37,31

3.83 (22,260.

83)Philatelic

Stamps 10,924.

46 3,61

0.96 (7,313.

50)Money Order

Form 14,050.

83 14,19

8.10 147.

27

Blank Postal ID 37,500.

00 37,50

0.00 - 122,049

.95 92,62

2.89 (29,427.

06)Region X

Postage Stamps (194,984.

20) 23,66

5.51 218,649.

71

Philately 173,182

.55 57,29

8.21 (115,884.

34)Money Order Blank Forms

126,762.96

20,513.00

(106,249.96)

104,961.31

101,476.72

(3,484.59)

CARAccountable

Forms

Inventory 8,426,728

.23 141,89

7.56 (8,284,830.

67)

Balance Balance

Per Difference

Items Per Books Monthly Report Short (Over)

Merchandise Inventory

734,486.74

78,888.88

(655,597.86)

9,161,214.97

220,786.44

(8,940,428.53)

Grand Total 82,651,380

.81 3,488,11

4.95 (79,163,265.

86)

The discrepancies were due to the following:

1. Errors in recording production/acquisition cost in the accounting records upon receipt and issuance of accountable forms.

2. Absence of periodic reconciliation of the Inventory Accounts balance per book with the Monthly Accountability Report balances.

3. Spare parts and some office supplies received from central office have no unit cost, hence, they are not recorded in the books of account.

4. Failure of Accountable Officers to regularly submit their monthly accountability reports.

5. Use of the selling price as unit cost and not the production cost in prior years.

We recommend the following courses of action:

a. Conduct regular reconciliation of accounting records against monthly report of accountabilities of inventory custodians. Take appropriate actions to correct any discrepancies.

b. Require PPC Central Office to send/transmit complete data including unit costs of transferred supplies, inventories and accountable forms.

8. ACCOUNTS PAYABLE

8.1 Various liability accounts with abnormal or debit balances -

P2,198,230,936.93

Analysis of Other Payables account in Region VII disclosed abnormal/debit balances of the following liability accounts:

Account AmountOther Payables-DMOF-CA P262,799,889.75Other Payables-CVGEMC Loan 1,501,242.77Other Payables-PSMBAI 6,846.51Other Payables-PEUP 19,460.00Other Payables-PHILAMLIFE 24,893.28 Total P 264,352,332.31

Meanwhile, in Region X, 23 abnormal liability sub-accounts are categorized as follows:

Current liability P1,382,124.59Inter-agency Payables 4,785,462.49Intra-agency Payables 1,911,251,780.22Other Liability account 90,486.32

Total P1,917,509,853.62

PPC-NCR’s liabilities with abnormal and dormant balances are:

Inter-agency payables-GSIS P12,004,363.68Intra-agency payables-subsidiaries

4,364,387.32

Total P16,368,751.00

Section 112 of PD 1445 provides that each government agency shall record its financial transaction and operations conformably with generally accepted accounting principles and in accordance with pertinent laws and regulations. In like manner, the financial statements shall be based on official accounting records kept in accordance with law and generally accepted accounting principles and standards.

Under the above circumstances, the existence of abnormal liability accounts indicates that the corporation settles its liabilities beyond the ceiling of legal and existing obligations. Abnormal accounts were observed to have been caused by improper recording of financial transactions, foremost of which are the adjustments and corrections of prior years. Non-

maintenance of complete subsidiary ledgers for sub-accounts aggravated the situation.

In the above list, prominent among the inter-agency payables of Region X is the GSIS Enhance Salary Loan in the amount of P3,043,728.50 which indicates overpayment of remittance for salary loan obligations to GSIS. In the case of PPC-NCR, the cause/reason of P12,004,363.68 debit balance of inter-agency payables cannot be ascertained.

We recommend the following courses of action:

a. Investigate all abnormal balances under the liability accounts. Reconcile remittances for inter and intra-agency payables to the concerned agencies and offices.

b. Maintain subsidiary ledgers for sub-accounts or transaction index cards to attain accuracy in reconciling account balances.

8.2 Unrecorded transfer to PPC-Central Office of trust liabilities representing money order issued amounting to P150,434,244.45 in Region IV.

Analysis of Other payables-Trust Liabilities-Domestic Money Order for both Land Bank and Equitable PCI Bank disclosed that the total amount of P150,434,244.45 reflected in the financial statement as of December 31, 2005 pertains to December 31, 2003 balance carried over to year 2005.

The amount represents money order collections for the period 2002 and prior years that were not transferred to Central Office due to failure of Money Order Section to coordinate with Accounting Division to account for the actual money order issued. PPC-Region IV records money order issued in the Cash Receipts Book based on Account Current/Abstract of Collections and Deposits submitted by postmasters while the transfer of trust liability to Central Office are recorded based on Monthly Report of Money Order Transactions prepared by Money Order Section. However, the personnel in-charge of the Money Order Section admitted that the Monthly Reports of Money Order Transactions exclude incomplete reports submitted by postmasters. It was also observed that such transfer of trust liabilities were not recorded in the Central Office books.

The unrecorded transfers overstated Other Payables-Trust Liabilities-DMOF and understated Due to Central Office accounts.

We recommend the conduct of periodic reconciliation of the records of Accounting Division and Money Order Service to ensure that all money orders are properly recorded

8.3 No subsidiary ledgers maintained for liability accounts amounting to P 838,146,856.38

Region Account AmountX Current Liabilities

Inter-agency payablesIntra-agency payablesOther liabilities

P14,958,727.715,861,082.80

245,733.76777,109,169.72

Sub-total P798,174,713.99IV Unliquidated

Obligations – PS (prior years)Unliquidated Obligations – MOOE (prior years)Unliquidated Obligations – PS (current year)Unliquidated Obligations – MOOE (current year)

P41,679,806.81

5,393,913.01

(11,846,132.75)

1,244,555.42

Sub-total 36,472,142.39V 3,500,000.00

Total P838,146,856.38

Section 488 of GAAM Vol. II states that “totals of subsidiary ledger balances are reconciled with their respective control accounts at the end of each month. A statement thereon is prepared quarterly to support the corresponding accounts in the trial balance.” The absence of subsidiary ledgers or inadequate maintenance of it renders the above liability accounts unverifiable thus its validity and accuracy could not be ascertained.

We recommend the following courses of action:

a. Regional Directors strictly require Regional accountants to maintain subsidiary ledgers for easy monitoring and accounting purposes.

b. Conduct periodic reconciliation of the balances of the subsidiary ledgers with their respective control account.

8.4 Unliquidated obligations of prior years remain unsettled and/or outstanding for more than 2 years.

At NCR, the unliquidated obligations are as follows:

Year No. of Years Outstanding Amount2001 and prior 5 years and more P39,629,371.402002 4 years 1,254,042.402003 3 years 6,221,541.89

Total P47,104,955.69

While in Region 7, prior years unliquidated obligations are:

Year No. of Years Outstanding

Amount

2001 5 years P257,912.352002 4 years 1,838,633.282003 3 years 70,214.672004 2 years 309,513.40

Total P2,476,273.70

The above balances are supposed to have been liquidated/adjusted for they have been recognized in the books as valid current obligations to be paid or settled ordinarily within the agency’s operating cycle or within a year. The existence of these unliquidated balances, the largest of which has been in the books for five years and more, is deemed irregular, casting doubt on the validity of the claims.

Section 98 of PD 1445 and Section 159 of the GAAM Vol.1 provide that balances of the Accounts Payable which have been outstanding for more than two years or more and against which no actual claim, administrative or judicial, has been filed, or which is not covered by perfected contracts on record may be reverted to the retained earnings.

We recommend the following courses of action:

a. Require Regional accountants to verify, investigate and adjust the above cited outstanding prior years’ balances.

b. Maintain subsidiary ledgers and conduct periodic reconciliation of subsidiary ledger balances with its corresponding control accounts.

c. Comply with the provisions of Section 98 of PD 1445 and Section 159 of the GAAM, Volume I requiring all claims outstanding for more than 2 years or more and not duly supported or validated be reverted to retained earnings.

8.5. Overstatement of various liability accounts in Cordillera Autonomous Region due to unrecorded transactions and erroneous accounting entries.

These accounts are the following:

OverstatementAccounts Payable (401) P838,093.01Other Accounts Payable (439) 9,148,317.25Inter-agency Payable-Other National Govt.

Agencies574,656.73

Total P10,561,066.99

The overstatement, among others, is due to double recording of adjusting entries and unrecorded cleared money orders for Other Payable account.

We recommend the following courses of actions:

a. Require the Regional accountant to establish the propriety of accounting entries before certifying the correctness of subsequent posting to the general ledger.

b. Make the necessary correcting entries to adjust the above-mentioned accounts.

9. CONTINGENT ACCOUNTS

9.1 Undocumented Contingent-Suspense Accounts

The NGAS Manual provides the following basic policies and concepts on contingent accounts.

“15. Contingent Accounts – Contingent accounts shall no longer be used. All financial transactions shall be recorded using appropriate accounts based on the prescribed chart of accounts.” (underscoring ours)

PPC adopted the NGAS Chart of Accounts effective April 1, 2005, converting its accounts using March 31, 2005 balances. Prior to the conversion of its accounts to NGAS , the Contingent Suspense accounts were the dumping accounts for any unreconciled and unsubstantiated accounts despite the issuance of PPC Memorandum on March 21, 2001 with a directive that only balances of the then Postal Service which cannot be substantiated by valid documents should be reclassified to the Contingent Suspense accounts. It further directed the PPC accountants to exhaust all efforts to reconcile and substantiate all account balances listed in the Summary of Suspense accounts within one (1) year upon receipt of said Memorandum.

The recorded balance of Contingent Assets, Contingent Liabilities and Contingent Capital Suspense accounts amounted to P1,430,843,508, P603,868,286 and P519,373,501, respectively, as of March 31, 2005.

It has been observed, however, that with the implementation of the NGAS coding system on April 1, 2005, the Contingent Suspense accounts of the PPC Head and Regional Office No. IX were written off from PPC’s books of accounts while in other regional offices, the balances were transferred to either the Due to Central Office, Other Assets or Other Payables accounts.

At PPC Head Office, out of the P1,203,524,509.52 balance of the Contingent Asset account, only P1,317,264.36 was converted to the NGAS Account Receivable, Disallowances/Charges while the remaining P1,202,207,245.16 was written off from the books. There are, however, no supporting documents from which to validate the adjustments to the contingent account..

At PPC Region IX, assets, liabilities and contingent capital accounts were adjusted by P10,223,372.52, P1,633,017.92 and P8,590,355.60, respectively to segregate good and bad accounts purportedly to enhance a reliable information of PPC financial position. Good accounts are those considered as realizable ones and duly substantiated with valid documents

while bad accounts are those which the agency could not produce documents to prove its existence, hence should be dropped/adjusted from the books of accounts.

At NCR, the balance of Contingent Asset account of P60,565,738.98 was debited and credited to Due to Central office account (Account No. 421).

The aforementioned adjustments resulted in the understatement of the accounts in the financial statements as of December 31, 2005.

At PPC Regions 3 and 6, the balances of Contingent Suspense accounts in the Preliminary Trial Balance remain unconverted to NGAS. However, the PPC Head Office converted the accounts to NGAS in the consolidated trial balance without verification of the schedules and details of the balances, thus, affecting the fair presentation of the accounts in the financial statements.

Contingent Suspense Accounts NGASRegion Assets Liabilities Capital Other Assets

(290)Other Payables

(439)3 P33,476,958.00 P33,476,958.00 P2,329,719.31 P33,476,958.00 P35,806,677.316 92,015,792.20 0.00 6,282,791.08 92,015,792.20 6,282,791.08

Total P125,492,750.20

P33,476,958.00

P8,612,510.39

P125,492,750.20

P42,089,468.39

We recommend the following courses of action:

a. Exert effort to reconcile and reclassify contingent items to their proper accounts. In the meantime that reconciliation had not been completed, revert back to the books of accounts as of December 31, 2005, the total amount written off from the Contingent Suspense accounts using the suggested NGAS accounts subject to changes upon submission and validation of supporting documents of the subject contingent items.

b. Ensure that any adjustment in the books should always be supported with sufficient authority or basis.

II. MANAGEMENT ISSUES

PERSONAL SERVICES

For CY 2005, Personal Services with an aggregate amount of P2,547,593,307 represent 67% of the total operating expenses. There was an increase in Personal Services in 2005 by P136,393,347 or

5.66% compared to P2,411,199,960 in CY 2004. The increase may be attributed to the following:

1. Payment of salary differentials for CY 1998 and 1999 has no legal basis – P127 million

Section 4 (1) of PD 1445, otherwise known as the Auditing Code of the Philippines, prescribes that one of the fundamental principles governing financial transactions and operations of any government agency is that “no money shall be paid out of any treasury or depository except in pursuance of an appropriation law or other specific statutory authority”.

Review of expenditures on personal services for CY 2005 disclosed that a total of P126,884,776.16 was paid to employees of PPC Head and Regional offices for salary differential for CYs 1998. (Annex A). Similar payments were made in CY 2004 covering salary differential for CY 1999 in the total amount of P197,923,006.85 (Annex A).

The Department of Budget and Management (DBM) approved Corporate Operating Budget (COB) for CYs 2004 and 2005 do not contain any budget for salary differential of prior years. Moreover, the DBM approved COB for CY 2003 stated that the amount appropriated for prior years’ Personal Services requirements which include salary differential of P156,620,000 has no legal basis since there was no DBM approved Organizational Structure and Staffing Pattern (OSSP) for CY 1998 and 1999. Also, the footnotes in the COB for CY 2003 provide that the recommended level for personal services is for budgetary purposes only and shall not be construed as appropriate authorization or legal basis for the grant of specific benefits/allowances.

PPC, by virtue of its Charter, R.A. No. 7354, has the power to fix the salaries and emoluments of its employees. However, the following provisions of Section 6 of P.D. No. 1597 requires that before their implementation, the salaries and emoluments of its employees should first be reviewed and approved by the DBM, who has the authority in approving plantilla positions:

“Agencies, positions or groups of officials and employees of the national government including government owned or controlled corporations who are hereafter exempted by law from OCPC coverage shall observe such guidelines and policies as maybe issued by the President governing position classification, salary rates, levels of allowance, project and other honoraria, overtime rates and other forms of compensation and fringe benefits. Exemption notwithstanding, agencies shall report to the

President, through the budget commission on their position classification and compensation plans, policies, rates and other related details following such specifications as maybe prescribed by the President.” (underscoring supplied)

We recommend the following courses of action:

a. Management should adhere strictly to the existing laws, rules and regulations regarding the basic requirements for payment of salaries.

b. Comply with the limitations set forth in the DBM approved Corporate Operating Budget.

c. Coordinate with the DBM relative to the conduct of rationalization and strategic review of PPC operations and functions to address all issues and concerns associated with the PPC plantilla.

Financial Reports

2. Delay in the submission of complete financial reports

Section 121 of P.D. 1445 provides that “The financial reports prepared by agencies shall comply with the specific requirements of applicable laws and regulations as to nature, accounting basis, content, frequency and distribution x x x.”

Section 122 of the same Code also states that:

“Submission of Reports. (1) Whenever deemed necessary in the exigencies of the service, the Commission may under regulation issued by it require the agency heads, chief accountants, budget officers, cashiers, disbursing officers, administrative or personnel officers and other responsible officials of the various agencies to submit trial balances, physical inventory reports, current plantilla of personnel, and such other reports as may be necessary for the exercise of its function. (2) Failure on the part of the official concerned to submit the documents and reports mentioned herein shall automatically cause the suspension of payment of their salaries until they shall have complied with the requirement of the Commission.”

Section 490 of the GAAM, Volume I requires the submission of monthly Trial Balance not later than the twentieth day after the end of the month.

On the other hand, Paragraph 8 of the Philippine Accounting Standards (PAS) 1 provides that a complete set of financial statements comprises:

a. Balance sheet

b. Income statement

c. Income statement

(i) all changes in equity(ii) changes in equity other than those arising from

transactions with equity holders acting in their capacity as equity holders

d. cash flow statement

e. notes, comprising a summary of significant accounting policies and other explanatory notes

Furthermore, the Corporate Accounting Manual of the agency specifically, the Financial reporting System provides for the preparation and submission to the Commission on Audit of the following financial statements:

Financial Reports Frequency of Preparation and Submission

Income Statement Monthly/Year-endBalance Sheet -do-Statement of Changes in Financial Position

-do-

Despite several verbal follow-ups and written requests/reminders, the required reports were not submitted on the specified period. To date, Management has not submitted the Notes to Financial Statements thus information enumerated under paragraphs 103-108 of PAS 1 relevant to the understanding of the financial statements were not disclosed. The practice defies the very purpose of government accounting, which is to provide control of acts of officials in the receipt, disposition and utilization of government funds and property and to provide management with timely information that may be used in decision-making.

Financial reports shall be submitted to the Office of the Auditor not later than the 10th day of the ensuing month. Failure on the part of the officials concerned to submit the documents and reports shall automatically cause the suspension of payment of their salaries

until they have complied with the requirements of the Commission on Audit.

Delay in the preparation and submission of financial reports has been a recurring condition in the agency. The Commission on Audit, one of the users of the financial reports was disadvantaged of the adverse condition as the delivery of auditing services was not implemented in due time.

It appears that the functions of recording of transactions, keeping of accounts and the preparation of financial reports could not be effectively delivered. Accounting records were inadequate and personnel are not well adept of the accounting functions.

We recommend the following courses of action:

c. Accounting personnel undergo training and seminars to attain efficiency in the preparation and submission of financial report within the prescribed deadlines.

d. Job rotation and re-assignment of personnel in terms of workload in conformity with basic internal measures.