REPORT ON INTERNAL CONTROL

Mr. President of
TELAM PUBLIC LIMITED COMPANY, INFORMATORY AND ADVERTISING
Bolivar 531 - Federal Capital

In the exercise of the powers conferred by article 118 of law 24156 the
NATIONAL AUDIT OFFICE proceeded to conduct an examination in the area of the
company TELAM SOCIEDAD ANONIMA, INFORMATION AND ADVERTISING, with the purpose
as detailed in the following section 1.

1- AUDIT OBJECT

General assessment of the existing internal control environment in the entity with the
purpose of knowing the degree of reliability of it and thus establish the scope,
nature and the opportunity of the audit procedures to be applied in the review of the
financial statements for the year ended 31-12-96.

2 -SCOPE OF THE AUDIT

Our examination was conducted in accordance with the auditing standards approved by the
National General Audit through resolution No. 145/93, issued by virtue of the
powers granted by article 119 paragraph d) of law 24.156. These regulations are
compatible with those adopted by the Professional Council of Economic Sciences of the Capital
Federal.

The work carried out has basically consisted of evaluating the controls they have.
effect on the accounting information generated by the Company and which can, therefore, affect
the final balances of the financial statements. This examination was completed on 12-20-97

Depending on the defined objectives, the content of this report regarding the evaluation
of internal control, only covers those aspects that have arisen during the development of
our exam and therefore does not include all those comments and recommendations that a
a specific study aimed at that end could reveal

3- COMMENTS AND RECOMMENDATIONS

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3-A) ASPECTS THAT REMAIN PENDING IMPLEMENTATION OF
PREVIOUS EXERCISES

I) ORGANIZATION OF THE COMPANY

COMMENTS

1) Existence of established lines of responsibility and authority that do not arise from a
Updated Organization Manual. The only progress on the matter is that on the date of 14 of
February 1997 by Board Act No. 814, the 'new operational diagram of the
Company" from which the dissolution of the Legal Affairs and Creativity Departments results,
leaving the Legal area as a Department within the Administration Management and
the Creativity directly depending on the General Manager (not arising from the minutes if in
quality of Department).

2) The location of the Legal area depending on the Administrative Management is observable.
Given that the issues generally dealt with are of an administrative-financial nature
The reporting and monitoring level would correspond to a higher level such as the Board of Directors.

3) Non-existence of a registry of authorized signatures indicating the level and authority of each one
of managerial level officials to carry out certain operations.

RECOMMENDATIONS

Development of an Organizational Chart supported by its corresponding Manual of

Organization, Procedures and Functions open to the Department level

2) Relocate the Legal area depending on the Board.

3) Create a register of authorized signatures for both types of operations

financial as commercial with explicit determination of extension levels.

COMPANY RESPONSE

1) Regarding the suggestion we are dealing with, it is worth highlighting that the definition of the
The structure of any organization can and must be considered a relevant aspect, being able to

2
similarly and as a consequence of this, to be classified as of high complexity all actions
which must be undertaken for such purposes.

This is why it must be mentioned that it does not escape the perception of the
The management of this company recognizes the need to redouble efforts aimed at enhancing the
measures already adopted, so that they are gradually and steadily materialized in the
minimum possible time for the tasks of analysis, design, approval and implementation of a
organizational structure that meets the expectations and aspirations of that Direction, as well as
also, any recommendations that may be made in that regard by the
NATIONAL AUDIT OFFICE and by the GENERAL AUDITORY OF THE
NATION.

2) In this regard, it is appropriate to refer to the concepts expressed when addressing the
treatment of the recommendation stated as point 1

3) In this regard, it is noted that the relevant instructions will be given for the purposes.
to satisfy the extremes contained in the suggestion under examination

II) AUTHORIZATION, EXECUTION AND VERIFICATION OF OPERATIONS.

COMMENTS

1) There are no procedure manuals or sequence diagrams by categories or areas.

administrative

2) The substantial recommendations arising from the reports prepared by the Unit
The Internal Audit of the Company should be addressed in the Board meetings.

3) Budgets are not prepared by areas of responsibility.

RECOMMENDATIONS

1) Develop a procedures manual

2) The substantial recommendations made by the Internal Audit Unit of the

Society should be addressed in Board meetings, which should also be
promote the mechanisms aimed at achieving its implementation.

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3) Prepare budgets by areas of responsibility.

COMPANY RESPONSE

1. In this regard, it is worth mentioning that although to date it has not been structured in a
the only body known as the Manual of Standards and Procedures, regarding the subject matter
"Standards and procedures," it is worth noting that:

A. Established Standards and Procedures:

Starting from June of the year 1994, Norms and Procedures were developed.
linked to the following themes:

1. Contracts executed within the framework of TELAM SAIyP

2- Petty cash

3. Employee attendance control

4. Reception, Filing, and Claiming of receipts signed by the Department of

Personal

5. Wealth Affidavits

6. Certifications issued by the Human Resources Department

7. Pending cash settlements - Human Resources Department -

8. Signed payroll receipts - Signature verification

9. Hiring of production services

10. Collections

b) Standards and procedures in the drafting process

In this regard, it is expected to carry out the preparation and subsequent approval of the
following standards:

Hiring of advertising spaces on behalf of and at the request of Client Agency

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 2. Advances of expenses to be settled

3 Marketing of the information service of TELAM SAIyP

4. Journalistic file

5. Goods for use

6. Internal staff transfers

7. Receipt of supplier invoices, their approval, and subsequent accounting.

Request for issuance of tickets

Obviously, the decision to implement measures aimed at developing

The standards mentioned above should be understood as the starting point of a global process.
and of greater complexity, which will have:

a) As a first phase, the definition and approval of the rules and procedures that
Consider the most important and crucial operating circuits of this Company.

b) As a second phase, the notification by the involved areas of

the rules and procedures in treatment, their implementation and the monitoring aimed at
determine its effective implementation, as well as the need to have -in
in case the modifications deemed appropriate correspond.

c) As a third phase, the incorporation and regrouping of the different regulations and
procedures outlined and approved in a single body.

2) In this regard, it is worth referring to the terms expressed on various occasions by the
own Internal Audit Unit, from which it is possible to highlight the important
degree of acceptance and implementation of the recommendations made by it, fact
this from which the will and decision adopted by the Management of this Company emerges,
to gradually and permanently achieve the realization of a primary objective, which is to
reaching day by day, higher levels of efficiency, effectiveness, and economy in everything related to the
application of the resources both human and material that it currently has
TELAM SAIyP.

Finally, regarding the theme at hand, it is worth highlighting the decision issued.
from the TELAM Directorate to redouble the efforts made so far, keeping in mind the
need to also satisfy all the requirements that are formulated by

5
NATIONAL AUDIT OFFICE and by the GENERAL AUDITORY OF THE
NATION.

3) On the subject, and regarding the theme "Budget", it is worth noting that they have been
instructions were given to enhance the actions carried out so far,
such a way to achieve:

a) In the first instance, obtain the final approval of the budgets

corresponding to the years 1996, 1997, and 1998, by the MINISTRY OF
ECONOMY AND PUBLIC WORKS AND SERVICES.

b) In a second instance, adopt the measures aimed at presenting in due time and form
the budget corresponding to the year 1999, and obtaining the respective approval from
part of the aforementioned Ministry.

c) Outline the guidelines that allow for the prompt completion of the
extremes contained in the sub examine suggestion.

III) PERSONNEL DEPARTMENT

COMMENTS

1. There are no employee rotation programs.

RECOMMENDATIONS

1. Establish a rotation plan in the administrative areas.

COMPANY RESPONSE

1. It will be assigned to the Human Resources Department to adopt measures leading to

start the respective analysis process, all with the aim of determining the feasibility of
implement, as quickly as possible, measures that allow for compliance with the suggestion in
deal.

IV. FINANCIAL DEPARTMENT - SALES AND ACCOUNTS SECTOR

TO CHARGE

COMMENTS

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1. There is no manual of rules and procedures for this sector; however, it is used.
standard AF 003/94 related to collection management

2. The advertising files are not bound.

3. New advertising orders with check payments for those orders are accepted, no.
despite the existence of outstanding balances; when in reality they should be applied to the balances
previous.

RECOMMENDATIONS

1. Adopt the necessary precautions in order to draft a precise regulation on the

operations of the sector under analysis.

2. The concept of a file implies the compilation of documentation that must be

incorporated following an order that must be recorded through numbering.

3. It should include in the recommended standard in point 1. an instruction that covers the
authorization channels for exceptional cases.

COMPANY RESPONSE

1/3 The implementation of measures began during the course of the year 1997.
aimed at addressing the deficiency under analysis regarding files related to hiring of
production work on behalf and order of third parties. This decision has been received in the
Norms and procedures approved during the year 1997 and that are found in
validity.

In the area of propaganda and advertising files, the implementation of

measures similar to those stated in the previous paragraph, it should be noted that it is located in
process of drafting the respective Standard, which will contain concrete guidelines regarding the
sub examine theme.

V. BILLING SECTION

COMMENTS

1. The file of registration certificates at the DGI of the clients is incomplete. Missing
Reception of signed Form 576.

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 RECOMMENDATIONS

1. Since the tax regulations require the filing of the registration certificate in
the different taxes, with a monetary penalty for their omission, must be practiced
case verifications and complete the file.

COMPANY RESPONSE

1. During the course of the year 1998, the Billing area has started the implementation of
measures that will allow to comply with the suggestion in question.

VI. Tax Area

COMMENTS

For the Company, the taxable event arises with the issuance of the invoice even if it indicates that
the provision of the service was earlier, this is justified for practical reasons given that until
do not receive the supplier's invoice with the advertising certification, a receipt is not issued
on the part of the Company.

2. The company issues internal credit and/or debit notes to adjust the billing.
from the supplier to the advertising guidelines and consequently to billing the Client, this causes
differences in the taxable base according to the legislation of the Value Added Tax.

RECOMMENDATIONS

1. and 2. Adopt the necessary measures to comply with the regulations set forth by the D.G.I.

COMPANY RESPONSE

1) In this regard, it is worth noting that the standard is in the process of being developed.
related to the hiring of advertising spaces on behalf of and by order of organizations
Clients, and from which guidelines will be established that will allow to streamline the task of
billing by TELAM, in such a way as to significantly reduce the period in between
between the provision of services and the invoicing of the same, by this Company.

2) The replacement of the documents mentioned in this point will be implemented shortly.
documents that meet the formalities required by R.G. D.G.I. 3419 manually,
called 'Debit and/or Credit Notes - Supplier Adjustments'. Likewise, it is desired to leave

8
It is clarified that although the current procedure entails a formal violation of the Regulation before
cited, this is not likely to generate substantial differences in the Value Added Tax
Added, anytime they are treated in the same way as credit notes and/or
debt that suppliers must issue.

VII. DEPARTMENT OF GENERAL ACCOUNTING

The department does not have a Procedures Manual, nor an accounts manual.
accountable and there is a lack of regulations that establish, for example: activation criteria
Goods for Use

2) At the date of our review, commissions are pending to be reported.

carried out in previous years, new amounts are also assigned without accounting for the previous ones
violating the rule of making the renderings within 48 hours.

RECOMMENDATIONS

Create a manual of procedures that includes the registration mechanics of

the specific operations of the activity.

2. Implement a strict policy with staff who do not meet submission deadlines.
and shape.

COMPANY RESPONSE

1- Please refer to the terms expressed when addressing the treatment of the RECOMMENDATION.
No. 1 of Chapter II) "AUTHORIZATION, EXECUTION AND VERIFICATION OF
OPERATIONS.

2- In accordance with previously expressed concepts, it is worth noting that it is in process.

on the development of the relevant standard, which will basically aim to outline procedures
related to the request and approval of Advances for Expenses to be Settled, agreed upon with agents of
this Company based on the need to make commissions within the country or abroad,
the deadlines for the submission of the respective report and its subsequent approval, as well as,
the measures that must be taken in the event of failure to report in a timely and proper manner of the
advances in question.

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 On the other hand, it is worth noting the gradual and sustained positive evolution achieved in
starting from the year 1994, in terms of accounting for advances to be settled, it is worth highlighting
From Report No. 50/98 produced by the Internal Audit Unit, it is evident that the
The balances to be accounted for as advances amounted to the sum of:

$ 401,115.86 as of 08/31/94;
237,202.86
$ 122,058.08 as of 11/30/96; and
$ 117,712.08 as of 12/31/97.

3-B) ASPECTS EMERGED DURING THE AUDIT OF THE 1996 EXERCISE

I. BILLING

COMMENTS

1. The company often does not invoice in the name of the business name or first and last name.
of the client as established by RG 3419 of the DGI but the trade name is used or
of fantasy.

Examples:

according to receipt number billed to the name of company name

folio
[Link]
119 FC B55314 CHANNEL 9 [Link].83 TELEARTE S.A.
119 FC B55307 DIARY THE VOICE OF THE INTERIOR
INTERIOR S.A.
120 FC 55381 INDEPENDENCE RADIO BROADCASTER
LV 12 INDEPENDENCE SRL
122 FC 55488 RADIO LA RED RED SKY AND WHITE
S.A.
125 FC 55652 CLARÍN DIARY GRAPHIC ART
ARGENTINE EDITORIAL
S.A.

2. There are differences between the billing database and its correlation with the database.
of client registration and tax categorization. For example:

10
a) Cases with differences in categorization:

Date Folio Base Doc. Nª Fc. [Link]. Company Cat. Name Cuit
July 8, 1996
125 Lº Vtas B55639 20 [Link]. Cons.F. 30-5719837-5
Invoice Media Secretary exempt

July 8, 1996
125 Lº Sales B55641 20 Sales vs. Photos. Consumption
Invoice 20 Sec. Exempt Means 30-5719837-5
7/8/96 125 Lº Sales B55640 20 sales. Vs. Photo. Cons.
Invoice 20 Sec. Exempt media 30-5719837-5
22/8/96 B55748 3365 H.C. [Link].F
Invoice 3365 [Link]. exempt 30-54421333-0

b) Cases with differences in the number of CUIT and/or company name

Date Folio Base doc No. Invoice [Link] Business Name CUIT
1/8/96 118 Lª Sales B55261 548 Marques R - 23-04316539-9
FM Bahia Invoice
548 [Link] Urquiza 30-68517656-0
SRL
1/8/96 30-63652916-4
Invoice 369 Produfe S.A. 30-64470429-3
1/8/96 30-54666243-4
Invoice 279 Gob. de T. Del 30-54666243-4
Fire

RECOMMENDATIONS

1- Invoicing according to the client's legal status, whether it is the business name or individual name and
last name according to the updated form 576.

2- Adopt the necessary measures aimed at unifying and updating the database of
billing and registration.

COMPANY RESPONSE

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1- During the course of the year 1998, the Billing area has begun the implementation of
measures that will allow for the suggestion in question to be fulfilled.

2- The case instructions will be provided in order to comply as soon as possible.

suggestion that concerns us.

II. REGISTRATION

COMMENTS

1. It is necessary to detail in the Sales VAT Book the name and

last name or business name and/or CUIT and/or DNI for amounts greater than $1000 (according to article 19 section 1.1.2.
from RG 3419 of the DGI

Examples:

FC B 55639 folio 125 Sales Book

FC B 55640 page 125 Sales Book
FC B 55641 folio 125 Sales Book

2. The justification for the effects of a subsequent control appears to be insufficient.

accounting entries regarding the supporting legend of them, (the receipts of
diaries generally lack support), especially in those that are non-routine and that entail
adjustments or reclassifications of accounts that, if not clearly supported, hinder the
validation of them during the audit process.

RECOMMENDATIONS

1 Adopt the necessary measures aimed at complying with the regulations set by the DGI.

2. We reiterate the comment regarding the need to develop standards and procedures in
the accounting area.

COMPANY RESPONSE

1 Due note has been taken of the issue in question, in order to detail it in the I.V.A. book.
Sales operations with end consumers for amounts greater than $1,000.00.

12
2 It is necessary to clarify that in many cases the journal entries lack
documents that support them in virtue of prioritizing administrative economy principles, being
reflected the adjustments in the respective account analyses that the Accounting Department
General realizations and that are also delivered in binders and by categories to the General Audit
of the Nation. From this it follows that although the validation of some adjustments involves the
pertinent inquiry to the aforementioned Department, it becomes evident in the
verification of the composition of balances presented in account analyses. However
The aforementioned will be observed in the future regarding the comment in question in order to provide greater
clarity to the entries that are made.

III. TAX AND SOCIAL SECURITY OBLIGATIONS

COMMENTS

1. The Society has paid overdue pension debts on several occasions.

the period under analysis, which brings with it the non-compliance with legal provisions
current, with possible sanctions, and threatens the reduction of employer contributions.

Examples:

period concept Due Paid import

5/96 contributions July 6, 1996 January 23, 1997
220802.36
6/96 contributions August 7, 1996 January 23, 1997
333880.40
7/96 contributions June 8, 1996 January 23, 1997
216213.88
8/96 contributions June 9, 1996 23/05/97 210532.53
11/96 contributions September 12, 1996
01/04/1997 211,467.07
11/96 social work September 12, 1997
January 4, 1997
108255.68

2. The society has paid tax obligations outside the deadline, according to the following
detail

a) Withholdings of the Income Tax

Example:

13
period concept paid expiration
11/96 payment on account November 26, 1996

b) VAT Withholdings.

Examples:

period concept payment due

11/96 payment on account November 26, 1996
February 1, 1997
11/96 balance 15/12/96 February 1, 1997
12/96 payment on account 23/12/96 February 1, 1997
12/96 balance January 13, 1997January 23, 1997

c) Monthly VAT Positions

position expiration paid

3/96 April 19, 1996 23/5/97
6/96 July 19, 1996 May 23, 1997
7/96 20/8/96 May 23, 1997
8/96 September 20, 1996
May 23, 1997
9/96 21/10/96 May 23, 1997
10/96 21/11/96 May 28, 1997
11/96 December 19, 1996
28/5/97
12/96 21/1/97 June 27, 1997

d) Moratorium Decree 316/95, which implied the expiration of the payment plan.

Examples:

due installment paid

10 January 18, 199613/2/96
12 18/3/96 March 19, 1996
13 April 18, 1996 October 5, 1996
14 May 20, 1996 June 14, 1996

14
18 18/9/96 22/10/96
19 18/10/96 October 22, 1996
21 18/12/96 February 1, 1997
22 January 20, 1997January 23, 1997

RECOMMENDATIONS

1. and 2. Adopt the necessary measures in order to prevent the recurrence of situations like the
commented, which imply breaches of the current legal provisions.

COMPANY RESPONSE

1 and 2 The situations of delays in meeting both tax obligations and

The provisions addressed in these comments were motivated by the difficult economic situation.
financial situation that the Company went through in the mentioned periods. From the regularization
carried out in the 1997 exercise of all overdue social security and tax debts,
The company has made and has made the payments for these obligations in a timely manner.

IV. PURCHASES AND ACCOUNTS PAYABLE

COMMENTS

1. Adequate controls are not implemented for advance payments to suppliers.

Example:

Payment Order No. 38223 dated 1/22/97 MLG & PARTNERS SRL

According to the Payment Order, the following was paid: 'Advance on invoices 15, 16, 17' of that
signed, on 1/23/97. The invoices listed in that payment order "have issue dates 3 and 4
February 1997

RECOMMENDATIONS

15
 Carry out appropriate controls for the payment of advances to suppliers.

COMPANY RESPONSE

Measures will be adopted to prevent the occurrence of similar circumstances.

those that motivated the suggestion under examination, especially considering the need for
part of TELAM to meet the requirements of the current regulations, being able to cite by way of
example, the provisions of Law No. 24769.

V. HIRINGS

COMMENTS

From a sample of goods and services contracts, the following have emerged
aspects

1. Direct hiring cases were detected that corresponded to the amount.

search and/or request for a quote from at least three firms, according to what is outlined
internal regulations of TELAM

examples:

Direct Hiring
Subject: Recording service for commercials and notes related to official advertising.
01/11/95 to 30/4/96
Thales S.A.
$36,300
.
b) Direct hiring
Object: Medical services
09/09/95 to 1/8/96
Awardee: Science SRL
$ 89100

RECOMMENDATIONS

16
1. Adopt the necessary precautions to avoid the recurrence of situations like the
commented on and frame the contracts within the current regulations.

COMPANY'S RESPONSE

In this regard, it is necessary to highlight the clear decision made by the Management.
from this Company to avoid the repetition of similar events to those analyzed here, in such a way that
fulfill the required extremes established by Standard No. VS 2/94 in force within TELAM,
as well as any other suggestion or request that may be made by the
NATIONAL GENERAL AUDIT OFFICE and by the GENERAL AUDITORY OF THE
NATION.

In order to better provide, it is worth highlighting that in the matter of service contracting
doctors in question, it is worth mentioning that once the contract signed with the firm is completed
Sciense SRL was arbitrated during the period between the last quarter of 1996 and
January 1997, collections aimed at carrying out the price contest
corresponding to the purposes of awarding the contracting of the aforementioned services.

BUENOS AIRES, May 8, 1998

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