Republic of the Philippines

COMMISSION ON AUDIT
Philippine Postal Corporation
Liwasang Bonifacio, Manila

INDEPENDENT AUDITORS REPORT

The Board of Directors

Philippine Postal Corporation
Liwasang Bonifacio, Manila

Report on the Financial Statements

We have audited the accompanying financial statements of the Philippine Postal

Corporation (PPC), which comprise the balance sheet as at December 31, 2011, and
the income statement, statement of changes in equity and cash flow statement for the
year then ended, and a summary of significant accounting policies and other explanatory
information.

Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial
statements in accordance with generally accepted state accounting principles in the
Philippines, and for such internal control as management determines is necessary to
enable the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our

audit. We conducted our audit in accordance with Philippine Standards on Auditing.
Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance whether the financial statements are free from
material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the
auditors judgment, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entitys preparation and fair
presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entitys internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our adverse audit opinion.
Basis for Adverse Opinion

The audit disclosed the following weaknesses or breakdown in the accounting system
which greatly impaired the fairness of presentation of major significant accounts in the
financial statements, as discussed in detail in the Comments and Observations portion
of this Report:

1. The Cash in Banks account balance in the books of the Corporation registered a
discrepancy of P210 million with those outstanding in the books of its depository
banks as of December 31, 2011. In the absence of the usual bank reconciliation
statements/schedules and plausible explanation on the reasons for the
discrepancy, the Cash in Banks account stated at P828 million, is of doubtful
accuracy. (Comments and Observations No. 1)

2. Reciprocal accounts, Due from Regional Offices and Due to Central Office, which
should normally be equal or zero during consolidation of the accounts at year-
end, as they are intended merely as clearing accounts for intra-agency
receivables and payables, have unreconciled balances that accumulated to
P4,479 million. Both accounts showed outstanding debit balances and abnormal
debit balances of P2,421 million and P2,058 million, respectively. The abnormal
debit balance of the Due to Central Office account of P2,058 million should have
been of great concern as it indicates overcharging of the account beyond its
normal credit balance being an intra-agency liability account, more so in the light
of its reciprocal account at the Central Office reflecting a still huge receivable
from the Regional Offices at P2,421 million. Since these reciprocal accounts
affect a group of real and nominal accounts which are either charged or settled,
the distortions in the balances of the related accounts affected reached quite an
unmanageable level in the face of the discrepancy being unreconciled over the
years which now stood at P4,479 million. (Comments and Observations No. 3)

3. The balances of the bad accounts included in the total assets at P1,241 million
and in the total liabilities and capital at P760 million that were unreconciled and
unsubstantiated put in question the validity, accuracy, existence, legitimacy and
relevance of the amounts recorded and their corresponding implications in the
financial position of the Corporation. (Comments and Observations No. 4)

4. Payable, Others-Domestic Money Orders, a liability account for Money Orders

which by design should be equal to and backed up by the Money Order Fund, a
trust fund maintained with banks for encashment of issued Money Orders,
showed a difference in bank balance of P2,903 million representing or at least
indicating unfunded payables of the same amount which have not been
reconciled for several years. The said unreconciled variance was too huge to
have not been reconciled for several years and implies lapses in the recording of
the transactions with significant impact on the balances of other accounts
affected. (Comments and Observations No. 6)
5. The huge unreconciled balances between the general ledgers and subsidiary
ledgers of the Accounts Receivable-International Accounts and the Accounts
Payable-International Accounts which stood at P609 million and P722 million,
respectively, greatly affect the reliability of the recorded amounts. The failure to
reconcile and support the substantial discrepancy in these accounts with the
details supposedly available from the subsidiary ledgers rendered the amounts
 as reported significantly unreliable. (Comments and Observations No. 7)

Adverse Opinion

In our opinion, because of the effects of the matters discussed in the Basis for Adverse
Opinion paragraphs, the financial statements do not present fairly, in all material
respects, the financial position of the Philippine Postal Corporation as of
December 31, 2011, and of its financial performances and its cash flows for the year
then ended in accordance with generally accepted state accounting principles in the
Philippines.

Report on the Supplementary Information Required Under Revenue Regulations

No. 15-2010

Management of the PPC has not presented the supplementary information on taxes,
duties and license fees required for purposes of filing with the BIR. Such information is
not required as part of the basic financial statements. Our opinion on the basic financial
statements is not affected by the non-presentation of the information.

COMMISSION ON AUDIT

VIRGIE A. PAZ
State Auditor V

March 25, 2013