GSIS

ABSTRACT

The Government Service Insurance System (GSIS) is a government owned and

controlled corporation (GOCC) of the Philippines. It is one of the two largest pension
funds in the Philippines. This sector envisioned itself into becoming The Social Security
Institution in the country by delivering timely, prompt, effective and efficient service to
beneficiaries. It offered benefits to its members such as retirement and pension, preneed plans, and general insurance. In addition, GSIS opened loan windows that its
members can use for various purposes. For individual borrowers, it offered three credit
services to its members: salary loans, insurance policy loan and mortgage loan. For
institutional borrowers it opened a lending facility for SMEs and cooperatives, LGUs and
industrial and commercial lending facilities.

The government agency was a conduit of the loans applied by members. GSIS
approved the salary or other loans if the member met all the eligibility requirements.
Once approved, the agency and the employee were notified and the features of the loan
as to amount, term, interest and amount to be deducted from the employees salary
were advised to the employee. Then loan was released by the agency to the employee
and repayments were done through salary deduction.

In 1996, GSIS used an open system computer platform which would allow the
satellite interfacing of computer among GSIS offices. Management reported that it

lowered the transaction processing time for salary and policy loan to an average of four
days. In 2002, the GSIS annual report did not have the usual opinion statement from the
COA. The FS were unaudited and did not have an auditors certificate for year 2001 and
2002. In addition, the GSIS was unable to comply the validity of the said account by
means of other auditing procedures due to inadequacy of providing records or updated
list of individual borrowers for the reason of not confirming loans to members amounting
to 44B pesos. Moreover, errors were likely to creep in whenever a total remittance
submitted to GSIS did not match the sum of the details for borrowing members. The
total amount being remitted by the agency would not tally with the breakdown of
remittances by members paying their loans. Once this basic error in the loans process
was understood, many possible errors can be the sources of the problem raised by the
COA Auditor.

In the end, it was impossible to prepare financial statements that was in

conformity with reporting standards for loans since reconciliation of salary loan balances
between GL and SL is was not yet set up; so one had no choice but to use estimates of
agency remittance volumes, breakdown of principal and interest, etc. to determine the
balance of the salary loans that appeared in the Annual Reports. However, estimates
were not accepted accounting procedures and not IFRS complaint.