REPUBLIC OF THE PHILIPPINESCOMMISSION ON AUDIT

Commonwealth Avenue, Quezon City

State Auditor’s Report on the Financial Statements

The Board of DirectorsPhilippine Postal CorporationPlaza Lawton, Manila

We have audited the accompanying balance sheet of the Philippine Postal Corporation (PPC) as of December 31, 1998 and the related statements of income and cash flows for the year then ended pursuant to Section 2, Article IX-D, of the Philippine Constitution and Section 43 of Presidential Decree No. 1445. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conduct our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatements. Our audit included examining on a test evidence supporting the amounts and disclosures in the financial statements. We also included assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

The agency’s accounting system is inadequate such that the balances reflected in the financial statements cannot be considered fairly stated. As noted in Finding No. 1, Cash in bank amounting to P569,550,353 is not reconciled with balances per bank resulting in an unreconciled difference of P114,006,275. In Finding No. 2, 38% or P124,598,265 out of P214,598,285 short term investment cannot be accounted for due to failure to reconcile the accounts. In Finding No. 3, collection of accounts Due from Philippine Postal Bank in the amount of P17,218,382 is doubtful because no corresponding Due to PPC account was recorded in the books of PPSB.

As discussed in Finding Nos. 4, 5 & 6, validity of Accounts Receivable from Foreign Postal Administration, from employees and other government agencies amounting to P1,683,033,413, P13,216,890, and P2,789,910 respectively, are doubtful due to non-submission of supporting documents to substantiate the corrections of the amount involved, non-maintenance of subsidiary ledgers and poor coordination with other agencies/offices. In Finding No. 10, 11 and 13, Fixed Assets, Leasing Cost, Inventories-Gasoline and Oil, Supplies and Materials, Stamps

and Money Order Forms cannot be considered reliable because the agency failed to conduct inventory taking, submit reports and necessary documents and reconcile balances per books and actual inventory.

In our opinion, due to the materiality of the effects of the matters discussed in the preceding paragraphs, the financial statements referred to above do not present fairly, the financial position of the Philippine Postal Corporation as of December 31, 1998 and the results of its operations and cash flows for the year ended in conformity with the generally accepted accounting principles.

COMMISSION ON AUDITby:

(Original Signed)ATTY. ELENITA DE VERA - LUMONGSOD

State Auditor IV Corporate Auditor

March 31, 1999

2