Financial Section Part II

Foreign Currency Exchange Rate Risk

We have foreign currency risk related to the settlement of terminal dues and transit fees with foreign postal administrations for international mail. The majority of our international accounts are accounted for based on International Monetary Fund special drawing rights (SDR). The SDR exchange rate fluctuates daily based on a basket of currencies comprised of the euro, Japanese yen, pound sterling, and U.S. dollar. Changes in the relative value of these currencies will increase or decrease the value of our settlement accounts and result in a gain or loss from revaluation. The actual currency used to settle accounts varies by country based on individual agreements. We purchase the required currency at the time of settlement, but when we know the timing and the amount of scheduled payments in advance, we may purchase short duration forward contracts.

At year end, we adjust the reported receivable and payable balances to reflect the fair value based on the SDR rate published in the Wall Street Journal on the last day of September. The revaluation did not significantly impact our financial statements. We do not use derivative financial instruments to manage the risk of changes in the value of the SDR.

Interest Rate Risk

We have not used derivative financial instruments to manage risk related to interest rate fluctuations for debt instruments.

We estimate that a 1% increase in interest rates would have an insignificant impact on our financial statements due to the structure of our investment portfolio.

Item 8 – Financial Statements

Our Statements of Operations, Balance Sheets, Statements of Changes in Net Capital, Statements of Cash Flows and Notes are available in the Financial Statements section of this report, pages 43–55.

Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A – Controls and Procedures

Management is responsible for the preparation, integrity, and fair presentation of the financial statements of the Postal Service.

Internal Controls

We maintain a system of internal control that is designed to provide reasonable assurance that transactions are executed as authorized and accurately recorded, that assets are safeguarded, and accounting records are sufficiently reliable to permit the preparation of financial statements that conform to accounting principles generally accepted in the United States. We maintain disclosure controls and procedures designed to ensure that information to be disclosed by us is recorded, processed, summarized and reported within the time periods specified by our Board of Governors and the Office of Management and Budget. We monitor our internal controls over financial reporting, disclosure controls and procedures through internal self-assessments.

Code of Ethics

The Standards of Ethical Conduct for Employees of the Executive Branch at 5 Code of Federal Regulations (C.F.R.) §2635 apply to all postal employees. The Standards were issued in 1993 by the U.S. Office of Government Ethics, and replaced the individual agency standards then applicable to all employees of the executive branch. Our employees are also covered by the Supplemental Standards of Ethical Conduct for Employees of the United States Postal Service at 5 C.F.R. §7001. The Standards and Supplemental Standards are detailed and contain many examples to help employees recognize and resolve ethical issues. We give employees a summary of the standards, and other ethical conduct materials at initial employee orientation training and other times during the year. We also provide annual ethics training for all employees who file a financial disclosure report. To support our employees on ethical issues, we maintain a dedicated phone line and e-mail address for providing ethical advice.