AOM No.

: 2018-00
Date : MAY 17, 2018

AUDIT OBSERVATION MEMORANDUM (AOM)

For : Mr. JOEL L. OTARRA

Postmaster General and Chief Executive Officer
Philippine Postal Corporation
Liwasang Bonifacio, Manila

Attention: Ms. MAURA M. BAGHARI-REGIS, CESO III

Assistant Postmaster General for Administration and Finance

Ms. MARIETTA B. BERTILLO

Manager, Accounting Department

We have evaluated the Philippine Postal Corporation’s (PPC) compliance with existing
laws, rules and regulations on the insurance of government properties with the Government
Service Insurance System (GSIS) for Calendar Year (CY) 2017 and observed the following:

Properties amounting to P54.389 million were not insured with the GSIS in CY
2017 contrary to Section 5 of Republic Act (RA) No. 656 known as the Property
Insurance Law, thus, exposing PPC for non-indemnification in case of damage to
or loss of the uninsured properties.

1. This is a reiteration with updates of our previous year’s audit observation.

2. Section 5 of RA No. 656, otherwise known as the “Property Insurance Law”, as

amended by Presidential Decree (PD) No. 245 dated July 13, 1973, requires
every government agency to insure its properties with the General Insurance
Fund (GIF) of the GSIS.

3. Under RA 656 dated July 13, 1973, “Property” is defined as “vessels and craft,
motor vehicles, machineries, permanent buildings, properties stored therein, or
in buildings rented by the Government, or properties in transit.” (Emphasis Ours)

4. Moreover, the following information, among others, pertaining to the insurance of

government properties are provided for under the Property Floater of General
Insurance of GSIS:

 All movable properties of government must be insured with GSIS. These

include mobile, heavy, and contractor’s equipment used in government
offices or projects which must be protected against damage or destruction.
  The Property Floater insurance coverage of GSIS is neither subject to
policy limitations nor confined to a particular location. GSIS insures the
movable property is related to government undertakings.

 The types of movable properties of government that must be insured with

GSIS are the following:

Type Properties Covered

Heavy equipment, road rollers, dump trucks, garbage
A compactors, similar vehicle (not regularly utilizing public
highways)
Drilling equipment, pumps, electronic toll booth equipment,
B
generator sets, construction equipment
C X-ray machines, stationary, medicine palletizing equipment
Cell phones, communication equipment, firearms,
D
computer/laptop, etc.
Heavy vehicles / Testing vehicles regularly utilizing the public
E roads, such as garbage dump truck, smoke belching /
environment testing vehicles.

5. As of December 31, 2016, PPC’s records show that the total value of insurable
fixed assets and other movable assets was P610,871,060.08. However, only
buildings and motor vehicles with an aggregate carrying amount (CA) of
P556,481,902.45 were insured under GSIS-GIF. Hence, government properties
amounting to P54,389,157.63 were uninsured during CY 2017 which consist of
machineries, equipment, and furniture and fixtures which are located inside the
respective buildings. Details are presented in the table below:

Property, Plant and Insurable Insured Difference / Remarks /

Equipment Property at CA Properties at CA Uninsured Effectivity Date

Buildings & Others Structures1

Main Post Office Building
FSMDC Buildings 410,413,337.84 410,413,337.84 - 10/1/2017 - 10/1/2018
CMEC Compound
Subtotal 410,413,337.84 410,413,337.84 -

Machineries Equipment
Office Equipment 16,086,081.84 - 16,086,081.84
Mailing and Sorting
Machines 93,951,533.11 93,951,533.11 - 10/1/2017 - 10/1/2018
IT Equipment 15,070,813.07 - 15,070,813.07
Other Machineries and
Equipment 20,383,015.73 - 20,383,015.73
Subtotal 145,491,443.74 93,951,533.11 51,539,910.63

Transportation Equipment / Motor Vehicles

Delivery Van 24,614,101.00 24,614,101.00 - 2/1/2017-2/1/2018
Trucks 7,258,250.00 7,258,250.00 - 5/1/2017-5/1/2018
Mitsubishi Adventure 4,663,500.00 4,663,500.00 - 3/15/2017-3/15/2018
Motorcycle 324,050.00 324,050.00 - 3/15/2017-3/15/2018
Mitsubishi Canter 3,334,544.00 3,334,544.00 - 3/15/2017-3/15/2018
Toyota Corolla 435,000.00 435,000.00 - 3/15/2017-3/15/2018

1
No available schedule of buildings
 Property, Plant and Insurable Insured Difference / Remarks /
Equipment Property at CA Properties at CA Uninsured Effectivity Date

KIA Pride Ambulance 475,705.00 475,705.00 - 3/15/2017-3/15/2018

Nissan Sentra 4DR 437,480.00 437,480.00 - 3/15/2017-3/15/2018
Honda Accord VTEC 586,925.00 586,925.00 - 3/15/2017-3/15/2018
Toyota Tamaraw Wagon 441,030.00 441,030.00 - 3/15/2017-3/15/2018
Mitsubishi Montero Sport 1,411,000.00 1,411,000.00 - 8/1/2017-8/1/2018
Semi Trailer Flat Bed 100,000.00 100,000.00 - 8/1/2017-8/1/2018
Honda Civic 4DR 458,256.50 458,256.50 - 7/1/2017-7/1/2018
Nissan Patrol Wagon 5,543,185.00 5,543,185.00 - 8/1/2017-8/1/2018
Hino Tourist Bus 1,076,735.00 1,076,735.00 - 8/1/2017-8/1/2018
Hino Tractor Head 789,270.00 789,270.00 - 9/1/2017-9/1/2018
Suzuki WOUT Sidecar 168,000.00 168,000.00 - 3/15/2017-3/15/2018
Subtotal 52,117,031.50 52,117,031.50

Furniture & Fixtures

Furniture & Fixtures 2,133,797.00 - 2,133,797.00
Subtotal 2,133,797.00 - 2,133,797.00

Other Property Plant & Equipment

Other Property Plant &
Equipment 715,450.00 - 715,450.00
Subtotal 715,450.00 - 715,450.00

TOTAL 610,871,060.08 556,481,902.45 54,389,157.63

6. Inquiry with Management regarding non-insurance of the said properties

disclosed that only buildings and motor vehicles were being insured since then.
Management claimed that such properties were included in the insurance policy
of buildings where they are located or stored. However, verification with GSIS
personnel disclosed that PPC’s insurance policies do not include the contents
located in said buildings such as the IT equipment2.

7. Based on the PPC Insurance Policy, the remaining insured buildings and
machineries with total carrying amount of P410,413,337.84 were insured at a
higher value of P581,966,622.64.

Remarks /
Insurable Amount Insured Over/(Under)
Particulars Effectivity Date
Property at CA Per GSIS Policy Uninsured

Buildings & Others Structures

Main Post Office Building
FSMDC Buildings 410,413,337.84 581,966,622.64 171,553,284.80 10/1/2017 - 10/1/2018
CMEC Compound
Subtotal 410,413,337.84 581,966,622.64 171,553,284.80

Machineries Equipment
Hybrid Mailing Machines 14,818,050.00
101,743,492.50 7,791,959.39 10/1/2017 - 10/1/2018
Mail Sorting Machine 79,133,483.11
Subtotal 93,951,533.11 101,743,492.50 7,791,959.39

TOTAL 339,796,050.00 683,710,115.14 179,345,244.19

8. The non-insurance of some properties exposes PPC to the risk of non-

indemnification or non-compensation in case of damage or loss due to
occurrence of peril insured against.

2
Reply of Ms. Carina M. Salamera, Marketing Officer, Marketing Department, Insurance Group, GSIS
 9. We recommend that Management:

a. Conduct inventory and classify insurable assets including, among

others, office and IT equipment, and provide adequate budget for
payment of insurance premiums; and

b. Comply strictly with the provisions of RA 656, as amended by PD No.

245 dated July 13, 1973 on securing insurance coverage for all insurable
assets.

May we have your comments on the foregoing audit observations within five calendar
days from receipt hereof.

he pr eparation and pres entati on of c ons olidated fi nanci al statements for a group of entiti es under the c ontrol of a parent

MUHAMMAD REZA M. MAMOWALAS

State Auditor I
Audit Team Member

EDGARDO S. PAULINO
State Auditor IV
Audit Team Leader

MARLYN V. BALAZON
State Auditor V
Supervising Auditor

Proof of Receipt of AOM:

________________

Date: ________________