PHILIPPINE POSTAL CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2007 (With Comparative Figures for 2006) (In Philippine Peso) 1. Agency Profile By virtue of Republic Act No. 7354, otherwise known as the “Postal Services Act of 1992,” the then Postal Services Office was converted into a government-owned and controlled corporation known as the Philippine Postal Corporation (PPC). Philippine Postal Corporation or Philpost develops, promotes, and operates a nationwide postal system with a network to any settlements in the Philippines and around the world to sustain the postal requirements of the Filipinos in the 21 st century. At present, it has 14 regional offices and operates a total of 1,960 post offices nationwide. 2. Operational Highlights For the past five (5) years, Philpost was on the red due to very minimal increases in revenue and increasing cost of operations. For the financial year ending December 31, 2007, Philpost generated total revenue of P 3.5 billion, a decrease of 5% from their 2006 revenue of P 3.7 billion. The decrease was brought about by the decrease in service income and subsidy from Affiliates (UPU). The corporation’s major source of revenue are postage fees which constitute 70% of its total revenue. The remaining 30% is distributed as follows: 2007 2006 Foreign Postal Accounts 21% 22% Postal ID 4% 3% 7
Transcript
PHILIPPINE POSTAL CORPORATIONNOTES TO FINANCIAL STATEMENTSDecember 31, 2007(With Comparative Figures for 2006)(In Philippine Peso)
1. Agency Profile
By virtue of Republic Act No. 7354, otherwise known as the “Postal Services Act of 1992,” the then Postal Services Office was converted into a government-owned and controlled corporation known as the Philippine Postal Corporation (PPC).
Philippine Postal Corporation or Philpost develops, promotes, and operates a nationwide postal system with a network to any settlements in the Philippines and around the world to sustain the postal requirements of the Filipinos in the 21st century.
At present, it has 14 regional offices and operates a total of 1,960 post offices nationwide.
2. Operational Highlights
For the past five (5) years, Philpost was on the red due to very minimal increases in revenue and increasing cost of operations.
For the financial year ending December 31, 2007, Philpost generated total revenue of P3.5 billion, a decrease of 5% from their 2006 revenue of P3.7 billion. The decrease was brought about by the decrease in service income and subsidy from Affiliates (UPU).
The corporation’s major source of revenue are postage fees which constitute 70% of its total revenue. The remaining 30% is distributed as follows:
2007 2006
Foreign Postal Accounts 21% 22% Postal ID 4% 3%Money Order Fees 2% 2%Philatelic Items 1% 1%
Other Income 2% 2% 30% 30%
3. Compliance with NGAS
The corporation adopted the New Government Accounting System prescribed by the Commission on Audit and whenever applicable, suppletorily adopted
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significant accounting policies which are in accordance with the Philippine Financial Reporting Standards (PFRS) issued by the Accounting Standards.
4. Significant accounting policies
Basis of accounting – The financial statements have been prepared on the basis of historical cost, and except where stated, do not take into account changing prices and current value of non-current assets.
Cash equivalents – The Corporation considers all highly liquid investments with maturities of three months or less when purchased as cash equivalents.
Receivables – Receivables are stated at net realizable values. Allowance for bad debts are set up following the aging method for trade receivables and amount of receivable less benefits/claims for non-trade receivables. Receivables from Foreign Postal Administrations are offset against the payables to the same Foreign Postal Administrations under the Universal Postal Union rules and regulations.
Inventories – Inventories are priced at moving average method or net realizable value.
Fixed Assets – Fixed assets are recorded at cost, except for the land, buildings and motor vehicles transferred from the former Postal Services Office to the surviving PPC which assumed the amounts provided by an independent appraiser. The straight line method is used in recording depreciation on the basis of the estimated useful lives of the assets and the ten percent (10%) salvage value based on cost prescribed by the COA.
Capital expenditures – Tangible assets with a cost of at least ten thousand pesos (P10,000.00) when purchased are recorded as Fixed Assets. Expenditures incurred subsequent to the acquisition of fixed assets are capitalized if such expenditures appreciably extend the life, increase the capacity or improve the efficiency and safety of the property and extend the asset’s useful life, upgrade quality of output and lead to large reduction in operating cost.
5. Exemption from taxes, customs and tariff duties
The Corporation is exempt from all direct and indirect taxes, customs duties, fees, imports and tariff duties, compensating taxes, wharfage fees and other charges and restrictions on the importation of equipment, machineries, spare parts, accessories, and other materials, including supplies and services used directly in the operations of the Postal System, not obtainable locally on favorable terms.
All obligations entered into by the Corporation and any income derived therefrom, including those contracted with private international banking and financial institutions are exempt from all taxes on both principal and interest.
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The Corporation is also exempt from the payment of capital gains tax, local government imposts and fees after December 31, 1997.
The Corporation may also offset the full value of capital investments not otherwise funded by the National Government against any income tax due for the same period.
6. CASH AND CASH EQUIVALENTS
2007 2006
Cash Collecting Officers- Foreign - 47,655Cash Collecting Officers- Local 174,003,297 89,833,894Cash Disbursing Officers 75,825,437 65,926,806Petty Cash Fund 1,368,091 1,242,489Payroll Fund 69,769,835 68,302,358Cash in Bank, Local Currency- Current account
964,427,809 948,717,767
Cash in Bank, Local Currency- Savings account
549,621,775 61,749,084
Cash in Bank, Local Currency- Time Deposits
234,021,057 41,674,381
Cash in Bank, Local Foreign Currency- Savings account
(267,774,648)
46,873,291
1,801,262,653
1,324,367,725
Cash Collecting Officers, Foreign refers to collections on hand from Foreign Postal Administration.
Cash Disbursing Officers represents revolving funds that are more than P100,000.00 which are issued to centers/departments.
Petty Cash Fund represents revolving funds that are less than P100,000.00 which are issued to other offices and committees.
Payroll Fund account is an account used for Cash Advances for Salaries and Wages and other benefits of officers and employees in compliance with COA Accounting Circular Letter No. 2007-003 dated January 17, 2003.
Remittances from foreign postal administrations are credited/deposited to the dollar account maintained with Equitable-PCI Bank (EPCIB) which are converted and transferred to the peso account from time to time when local checks (money orders) are prepared for the recipient.
The negative balance in the peso account is due to the cutoff being observed in the conversion/transfer of dollar IMOF (EPCIB) accounts as practiced by the investment division. At times, this is also to take advantage of fluctuations in foreign currency exchange rates.
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Total deposits to Postshop account amounting to of P639,838.99 was unrecorded, thus resulting to negative balance of Cash in Bank, Local Savings-PPSB Postshop. Corresponding deposits will be recorded in January 2008.
Currency accounts are valued at transaction month end BSP exchange rate.
An amount approximately totaling P901,972,472 of the Cash and Cash Equivalents is doubtful because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
Cash Collecting Officers- Local 140,028,817
Cash Disbursing Officers 51,348,380
Cash in Bank- Local Currency Current Account 681,486,349
Cash in Bank- Local Currency Savings Account 344,955,695
Cash in Bank Foreign Currency- Savings Account (315,846,769)
901,972,472
7. ACCOUNTS RECEIVABLE
2007 2006 Accounts Receivable, International Accounts
2,952,031,606
2,116,434,384
Due from Regional Office 709,461,509
(1,899,947,630)
Accounts Receivable, Trade 229,668,345
1,099,719,371
Due from National Treasury 161,756,5 161,756,50
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01 2 Due from Subsidiaries 153,359,8
25 153,453,61
1 Accounts Receivable, Int’l. Accounts - MOF
108,961,234 23,720,00
9 Due from Officers and Employees 94,418,1
63 70,011,50
5 Due from NGAs 72,968,0
15 95,665,74
0 Receivables, Disallowances/Charges 46,913,5
91 81,922,28
7 Receivables, Others 27,571,3
97 3,400,55
0 Due from Local Government Units 526,3
87 526,38
6 Due from Central Office 128,4
49 128,18
9 Due from GOCCs 107,0
47 107,04
7 Sub-total 4,557,872,0
69 1,906,897,9
51 Allowance for Doubtful Accounts (105,081,42
9) (88,065,17
1)
4,452,790,640
1,818,832,780
Accounts Receivable International Accounts includes transactions with Philpost USA, a franchise of Philpost which operates an extra territorial office of exchange (ETOE) in New York since year 2000. It includes a disallowed refund of the 2001 terminal dues amounting to $1,031,936 and disputed bulk mail charges of $1,559,787.
Accounts Receivable Trade includes Postage Charge Account (PCA). Bulk of this amount are transactions of the National Capital Region. Of the total amount of PCA balance as of December 31, 2007, P35.9 Million consists of unadjusted discounts while P14.6 Million are inactive accounts. Inactive accounts consist of (1) relatively small amount of penalties the principal amount of which have already been paid; (2) accounts of companies which could either not be located or which have closed business; (3) accounts which have offsetting claims with Philpost that have not been acted upon; and (4) account which are undergoing reconciliation that have no current transactions with NCR.
Receivables from Subsidiaries includes organizational/operating expenses incurred during their corporatization which are long outstanding receivables and still subject for reconciliation. No available document was submitted to the Accounting Division as basis for dropping. Advances to Officers and Employees account includes balances of Cash Advances granted to Officers and Employees for special and time-bound undertaking which are reclassified from the Due from Officers and Employees
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account in compliance with COA Accounting Circular Letter No. 2007-003 dated January 17, 2006.
Fund Transfers from Central Office to Regional Offices covering budgetary requirements for Current Operating Expenses were reclassified from Due from RO/Due to CO to Subsidy from CO/Subsidy to RO but not all Regional Offices made the necessary adjustment due to non-receipt of memorandum from the Central Office.
Allowances for Doubtful Accounts is computed at 2%, from 10% for the NCR, of the long outstanding receivables for the Due From Customers and for Due From Subsidiaries and Employees depending on the nature/status of the company/employee. The adjusted amount is booked up in the Central Office books under JEV #00011281A dated December 31, 2007.
The percentage of allowance for each category is as follows:
AMOUNT %Due from Employees 3,626,208 3.45%Due from Subsidiaries 27,933,183 26.58%Due from Customers 73,522,038 69.97%
105,081,429
100.00%
An amount approximately totaling (P787,057,238) of the Accounts Receivable is doubtful because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
Accounts Receivable, International Account 757,976,48
2
Due from National Treasury 161,756,50
2
Accounts Receivable International Money Order 93,698,16
8
Receivables, Disallowances/Charges 51,117,42
9
Due from NGAs 46,915,46
7
Due From Officers and Employees 42,998,90
1
Receivable, Others 24,916,21
2
Accounts Receivable, Trade 7,389,58
5
Due from Subsidiaries 794,23
4
Due from GOCCs 107,04
7
Advances to Officers and Employees 37,32
4 Due from Local Government Units 6,38
12
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Due from Regional Offices- CF/MOF (1,974,770,97
6)
(787,057,23
8)
8..
INVENTORIES
2007 2006
Accountable Forms Inventory 906,665,043 770,409,576Office Supplies Inventory 85,523,401 123,288,174Merchandise Inventory 47,452,784 43,798,818Other Supplies Inventory 36,674,406 4,994,258Spare Parts Inventory 12,013,876 12,421,136Gasoline, Oil, and Lubricants Inventory 6,085,139 4,551,475Drugs and Medicines Inventory 238,142 50,623Construction Materials Inventory 175,082 -Medical, Dental, & Laboratory Supplies Inventory 169,984 243,622Textbooks & Other Instructional Materials 16,516 14,362
1,095,014,373
959,772,044
An amount approximately totaling P1,029,226,236 of the Inventory Account is doubtful because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
Accountable Forms Inventory 888,265,226Office Supplies Inventory 84,860,939Other Supplies Inventory 30,827,913Spare Parts Inventory 8,540,196Merchandise Inventory, Philpost Products
7,826,502
Merchandise Inventory, Philatelic Items
7,649,051
Gasoline, Oil, and Lubricants Inventory
1,256,409
1,029,226,236
9. DEFERRED CHARGES
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2007 2006
Deferred Charges 2,096,655 817,019 Guaranty Deposits 1,254,275 1,180,372 Prepaid Insurance 492,953 859,964 Advances to Contractors 36,120 (850,949)Prepaid Rent 22,000 20,600 Other Current Assets 3,140 2,422,660 Other Prepaid Expenses (146,436) 317,264
3,758,707 4,766,930
An amount approximately totaling (P101,374) of the Deferred Charges Account is doubtful because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
The respective Boards of Directors of the Philippine Postal Institute Foundation, Inc., and the Philpost Mail Management Corporation approved the dissolution of the two PPC subsidiaries on 13 December 2000 and 31 December 2000, respectively. Said subsidiaries have no operations since then.
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Similarly, the Board of Directors of Philpost Leasing and Financing Corporation passed and approved a resolution to dissolve said corporation in CY 2000. At present its operation is limited to collection of accounts receivable and attendance to court cases for its collection cases.
An amount approximately totaling P187,180 of the Investments Account is doubtful because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
11. PROPERTY, PLANT & EQUIPMENT
Movement of the property, plant and equipment is as follows:
Land Building FurnitureIT
Equipment Library
and LandImprovements & Other Fixtures &
Transportation and Books &
Improvements. Structures Equipment Equipment Software Arts Total
December 31, 2007 311,474,436 925,981,938 657,478,947 67,548,072 253,848,66
6 34,390 2,216,366,4
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Property and Equipment account includes all existing assets and facilities transferred from the defunct Bureau of Posts and thereafter the then Postal Service Office to the Philippine Postal Corporation (PPC) pursuant to Sec. 9(b) of R.A. 7354. The property and equipment are carried at cost, except for land and buildings which are carried in the books at appraised values determined by an independent appraiser, Asian Appraisal Company, Inc., on 15 September 1994.
An amount approximately totaling P1,421,309,512 of the Fixed Assets Account is doubtful because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
Furniture and Fixtures 721,259,327 Land 307,119,214 IT Equipment and Software 240,983,376 Office Building 136,704,196 Motor Vehicle 37,337,853 Office Equipment 7,153,280 Land Improvements 6,335,629
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Other Machineries Equipment (Semi-Expendable)
2,121,700
Other Property, Plant and Equipment) 6,8171,459,021,392
An amount approximately totaling P1,269,743,745 of the Other Assets Account is doubtful because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
13. ACCOUNTS PAYABLE
This account consists of:2007 2006
Accounts Payable, International Accounts 2,339,522,518
2,192,667,670
Accounts Payable, Trade 1,066,934,770
247,472,826
Due to Officers and Employees 182,440,905 156,736,519 3,588,8
98,193 2,596,877, 015
Accounts Payable, International Account refers to Foreign Postal Accounts (FPAs) that are settled in accordance with UPU conventions, rules and regulation which may be either thru the direct payment mode or the offsetting mode. Under the offsetting mode, receivables and payables are net and the balances are either paid or billed/collected. FPAs are accounted for in SDR (Special Drawing Rights) and translated at closing SDR rate and USD rate to peso equivalent at balance sheet date.
An amount approximately totaling P888,324,077 of the Accounts Payable Account is doubtful because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
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Accounts Payable, Trade 873,859,136Due to Officers and Employees 14,464,941
888,324,077
14. INTER-AGENCY PAYABLES
This account includes amounts due to:
2007 2006
BTR (1,030) 1,542,036 BIR 53,893,622 65,887,761 GSIS 39,167,079 29,608,509 Pag-ibig 9,730,770 10,163,558 Philhealth 5,787,415 10,936,346 NGAs 276,150,119 269,219,702 Other GOCCs 8,239,665 8,920,690 LGUs 142,428 142,428 Central Office (1,569,099,702
An amount approximately totaling P878,415,504 of the Inter-Agency Payable Account is doubtful is because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
CO/RO 875,188,713 GSIS 3,580,401 BIR 286,176 Philhealth 159,419 National Treasury (131)Pag -ibig (107,409)Other GOCCs (691,665)
An amount approximately totaling P975,829,984 of the Accounts Payable Account is doubtful because these are unsubstantiated accounts which have accumulated even before the transfer of the books to Corporate books.
Due to Subsidiaries (2,492,377)Payables, Others – MO Fund, International Incoming
Equitable PCI Bank 366,616,307 430,375,665Philippine Postal Savings Bank 208,366,152 212,464,458Development Bank of the Philippines 18,266,297 18,266,297
593,248,756 661,106,420
The loan account with the Equitable PCI Bank (formerly Philippine Commercial International Bank) had an original principal of P645 Million in 1997. This was restructured for seven (7) years commencing on 01 October 2006 until 01 October 2013.
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The loan payable to PDIC represents loan availed by PLFC which was assumed by PPC on July 2002 as a guarantor and was offset against the payable of PPC to PLFC. On December 11, 2006, the Philippine Postal Savings Bank took out the PDIC loan. Monthly amortization of PPC was offset against rentals of PPSB starting February 2007.
17. AUTHORIZED CAPITAL STOCK
Under Section 9 of R.A. 7354 or the Postal Services Act of 1992, the Corporation shall have an authorized capital stock of P10 Billion Pesos (P10,000,000,000) divided into 45 Million Class “A” shares to be subscribed by the Government and 55 Million Class “B” shares to be subscribed by private entities with par value of P100.
The sale of the 55 Million Class “B” shares is now undergoing study by the Privatization Management Office under the Office of the President (PMO). The Pricewaterhouse Coopers was hired as Financial Advisor by the PMO for the said undertaking.
18. FUNDAMENTAL ERRORS
The balance of the retained earnings at year-end has been restated to include the following:
Prior years’ adjustments – expenses includes unbooked tax liability for taxable years 2004 to 2006 from the Bureau of Internal Revenue amounting to P152,240,767.58.
19. Tax Assessment
A tax subsidy in the amount of P413,691,691 to cover payment for value-added tax on domestic postal services for the years 2006 and 2007 and Minimum Corporate Income Tax for the years 2004 and 2005 was again released in the form of Special Allotment Release Order (SARO) No. D-07-06672 payable to the Bureau of Internal Revenue pursuant to Fiscal Incentive Review Board (FIRB) Resolution No. 8-07 and Certificate of Entitlement to Subsidy (CES) No. 0383 dated July 17, and July 16, 2007, respectively.
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This liability for MCIT is not taken up in the books of accounts. It was only booked up upon receipt of CES and SARO.
20. OTHER INCOME
This account consists of:
2007 2006
Interest Income 3,091,158 2,895,868Dividend Income 134,770 14,882Gain/loss on sale of disposed assets 270,956 155,748Landing and Parking Fees 11,000 7,889Sale of confiscated abandoned/seized goods property - 78,845
3,507,884 3,153,232
21. PERSONAL SERVICES
This account consists of:
2007 2006
Salaries and Wages1,446,846,3
08 1,556,131,383 Other Compensation 787,546,461 638,844,379 Personnel Benefits contribution 241,595,001 227,462,195 Other Personnel Benefits 100,866,754 130,629,949
2,576,854,524 2,553,067,906
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22. MAINTENANCE AND OTHER OPERATING EXPENSES
This account consists of:
2007 2006
Transportation and Delivery expenses 548,421,765 659,083,445Supplies and Materials expenses 108,074,160 114,072,615Non -Cash expenses 60,253,237 112,426,218Travelling expenses 49,551,474 48,505,739
2007 2006Utility expenses 49,262,566 53,224,862Professional services 27,290,882 25,287,930Other Maintenance and Operating expenses 18,809,121 11,293,508Repairs and Maintenance 13,851,171 19,254,672Communication expenses 12,555,632 10,581,453Taxes, Duties and Insurance Premiums and other Fees 8,773,702 12,186,494Rent Expenses 8,287,517 7,219,270Subscription and membership dues expenses 2,677,250 4,148,603Representation Expenses 2,347,790 2,393,766Extraordinary and Miscellaneous expenses 2,004,235 1,983,496Training expenses 1,009,210 1,313,690Advertising expenses 767,753 1,036,232Rewards and Other Claims 260,964 19,921Subsidies and Donations 5,000 10,000
914,203,429 1,084,041,914
23. MODERNIZATION PROGRAM
The President of the Philippines through the ICC-NEDA approved on March 28, 2006 a proposal by a Japanese Firm, Renaissance of Age (ROA), to modernize the postal system through a Build-Lease-Transfer scheme. The contract for the same was signed by the parties on 01 September 2006.
Under the proposal, the ROA will build a modern postal system with a cost of P3.4 Billion. It includes a digital identification card issuing machine hybrid mail and e-post shops with provisions of internet, desktop publishing, VoIP, Money Order System, track and trace, Bills Payment. The project has a term of seven (7) years. Philpost and ROA will share on the incremental revenue from the project on 28% - 72% ratio respectively.
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24. OTHER MATTERS
a) Foregone revenues from franked mails are estimated at P164,658,670. Franked mail privileges were authorized under several administrative issuances and were given to several government offices such as Comelec, Office of the President, Supreme Court, Senate, Congress, etc.
b) The corporation receives subsidy from UPU-QSF amounting to P5,127,027.51 (USD116,391.09) for the final payment to Union Motors Corporation of the procured vehicles for mail operations.
c) The extraordinary losses is comprised of fire loss that gutted the Domestic Airport Post Office with an estimated cost of P12,879,999.00. This is recorded in the Central Office books since NCR books were already closed.
PPC stood as guarantor to PLFC loans as follows:
Credit of Bank Original Amt. Principal Interest Total Balance
AAA Special Fund III-FBTC 320,000 250,722 151,415 402,137
EPCI Bank 199,500 189,525 37,191 226,716Allied Banking Corp. 100,000 44,218 23,371 67,589Provident Fund 20,000 3,289 44 3,333
487,754 212,021 699,775
d) Bad Accounts are accounts which accumulated from the time before corporatization and during conversion of accounts from the then Bureau of Post to the Corporate books which at this time could not be substantiated with proper supporting documents. The amount reflects the consolidated total of the head office and the regional accounts. Postage Stamps Inventory, for example, in some regions reflect the face value instead of printing cost; Due from Officers and Employees includes incomplete or unliquidated payroll; Receivables/Disallowances includes accountabilities/shortages of absconded employees; Land includes booked-up value of properties without titles; Accounts Payables include excess certification or booked-up payables without corresponding disbursement vouchers or valid supporting documents. These accounts are subject to verification and validation and further subject to COA approval for adjustments. Breakdown of Bad Accounts is as follows:
ASSET ACCOUNTS
Cash and Cash Equivalent 901,972,472 Accounts Receivables (787,057,238)Inventory 1,029,226,236
