II.

OBSERVATIONS AND RECOMMENDATIONS

A. FINANCIAL AUDIT

1. Substandard loans with book value of P210.880 million were provided 100
per cent allowance for impairment contrary to PDIC’s Standard Operating
Guidelines and Instructions on Impairment Losses and Write-off of Assets,
thereby, overstating the Allowance for Impairment-Acquired Loans Receivables-
Operating Banks account by P158.160 million and understating the Reversal of
Impairment Loss account by the same amount.

1.1 The Standard Operating Guidelines and Instruction (SOGI) on Impairment

Losses and Write-off of Assets described loans classified as Substandard and Loss as
follows:

Substandard-

6.3.2.1.1 Loans under litigation; or

6.3.2.1.2 Loans with unsigned Promissory Notes or signed by
unauthorized person
6.3.2.1.3 Past due for more than 90 days:
a. Unsecured loans;
b. Secured by REM with the following characteristics:
- with possibility of foreclosure or acquisition of collateral
because of failure of all collection efforts, provided the
right to foreclose has not prescribed;
- the property/ies securing the loan have declined in
value materially or found to have defects as to
ownership or other adverse information.
6.3.2.1.4 Secured current loans with audited Financial Statement that
shows impairment or negative networth.

Loss-

6.3.2.3.1 Past due loans for more than twelve (12) months with
unpaid interest for a period of six (6) months:
a. unsecured loans;
b. secured loans where the collateral is considered worthless
and borrower and/or co-maker are insolvent.

1.2 Further, paragraph 6.3.3 of the same SOGI provided that:

Impairment loss shall be provided based on the outstanding book value of

the loan account:

Loan Classification Impairment Loss

Unclassified 0%
Substandard 25%
Doubtful 50%
Loss 100%

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1.3 Evaluation of loans receivable acquired from financially assisted banks secured
by REM and Status of Foreclosed Properties from 2015 to 2017 revealed that loans with
book value of P210.880 million as of December 31, 2017 are for consolidation in PDIC’s
name. However, it was noted that subject loan accounts were classified as loss and
were provided impairment loss equal to 100 per cent of their book value or P210.880
million, instead of substandard as provided in the SOGI.

1.4 The difference of the recorded impairment loss and the estimated impairment
loss required in the SOGI for substandard loans is presented below:

Bid Price of 25% Allowance 100%

Book Value of Foreclosed for Impairment Allowance for
Difference
Loan Properties with required per Impairment
Certificate of Sale SOGI Recorded
Borrower 1 2,728,527.20 1,111,000.00 682,131.80 2,728,527.20 2,046,395.40
Borrower 2 3,992,335.00 1,369,810.00 998,083.75 3,992,335.00 2,994,251.25
Borrower 3 3,251,626.88 5,751,000 812,906.72 3,251,626.88 2,438,720.16
Borrower 4 1,410,000.00 1,437,000.00 352,500.00 1,410,000.00 1,057,500.00
Borrower 5 20,000,000.00 20,477,882.07 5,000,000.00 20,000,000.00 15,000,000.00
Borrower 6 2,000,000.00 11,057,471.74 500,000.00 2,000,000.00 1,500,000.00
Borrower 7 11,384,330.00 6,797,000.00 2,846,082.50 11,384,330.00 8,538,247.50
Borrower 8 35,020,000.00 49,087,700.00 8,755,000.00 35,020,000.00 26,265,000.00
Borrower 9 5,000,000.00 8,364,000.00 1,250,000.00 5,000,000.00 3,750,000.00
Borrower 10 30,900,000.00 16,844,430.00 7,725,000.00 30,900,000.00 23,175,000.00
Borrower 11 2,629,000.00 2,391,600.00 657,250.00 2,629,000.00 1,971,750.00
Borrower 12 4,450,000.00 3,468,000.00 1,112,500.00 4,450,000.00 3,337,500.00
Borrower 13 19,257,727.90 35,846,578.00 4,814,431.98 19,257,727.90 14,443,295.93
Borrower 14 23,363,218.15 22,563,218.15 5,840,804.54 23,363,218.15 17,522,413.61
Borrower 15 29,038,795.98 38,505,800.00 7,259,699.00 29,038,795.98 21,779,096.99
Borrower 16 15,345,763.14 15,345,763.14 3,836,440.79 15,345,763.14 11,509,322.36
Borrower 17 1,108,521.81 3,582,000.00 277,130.45 1,108,521.81 831,391.36
210,879,846.06 244,000,253.10 52,719,961.53 210,879,846.06 158,159,884.56

1.5 The provision of allowance for impairment to substandard loans equal to 100 per
cent of book value was not in accordance with the SOGI for Impairment Losses and
Write-off of Assets, thereby, overstating the Allowance for impairment - Acquired loans
receivables - Operating banks account by P158.160 million and understating the
Reversal of Impairment Loss account by the same amount.

1.6 We recommended that Management:

a. Prepare the necessary adjustment to reverse excess Allowance for

Impairment on acquired loans; and

b. Strictly and immediately implement the prescribed guidelines in the

SOGI on Impairment Losses and Write-off of Assets; and

1.7 Management committed to reverse the excess allowance for impairment on

acquired loans amounting to P158.160 million to comply with the prescribed guidelines
in the SOGI on Impairment Losses.

41
2. Full impairment of jewelries with book value of P32.506 million is without
basis due to absence of updated appraisal to determine their current valuation
contrary to PAS 36.

2.1 Paragraphs 8 and 9 of Philippine Accounting Standard (PAS) 36 on Impairment

of Assets state that:

8 An asset is impaired when its carrying amount exceeds its

recoverable amount. X x x.

9 An entity shall assess at the end of each reporting period whether

there is any indication that an asset may be impaired. If any such
indication exists, the entity shall estimate the recoverable amount
of the asset.

2.2 Further, SOGI on Impairment Losses and Write-Off of Assets provides that:

6.5.1 Impairment loss on the following assets acquired from banks

granted FA or closed banks shall be the excess of their carrying amount
over their estimated realizable value.

6.5.1.1 Real Properties

6.5.1.2 Artworks
6.5.1.3 Jewelries
6.5.1.4 Motor Vehicles
6.5.1.5 FFE and other depreciable assets

2.3 Jewelry items with a book value of P32.506 million was acquired by PDIC from
two banks. Since acquisition, there was no appraisal made to determine their current
valuation. However, allowance for impairment equal to the book value of the jewelry
items of P32.506 million was provided.

2.4 Asset is impaired when its carrying amount exceeds its recoverable amount. The
recoverable amount of the jewelry items was not yet determined due to absence of
appraisal; hence, the provision of allowance for impairment equivalent to 100 per cent of
book value was not appropriate.

2.5 Management initial comment provides that no appraisal was made yet for the
subject jewelries to determine their current market value, hence, the Allowance for
Impairment Loss provided then was 100 per cent of book value, following Section 6.5.2
of the Standard Operating Guidelines and Instruction (SOGI) on Impairment Losses and
Write-off of Assets, to wit:

If current market value cannot be determined or the asset has no

realizable value, the allowance shall be equivalent to 100 per cent of
book value.

2.6 The SOGI on Impairment Losses and Write-off of Assets is not aligned with the
provision of PAS 36 on the impairment of assets. Non-determination of current market
value due to absence of appraisal does not indicate impairment of assets. Further, the
provisions of the SOGI is not applicable to jewelries on hand since the current market

42
value or realizable value of these assets can be readily determined by professional
appraisers.

2.7 We recommended that Management:

a. Engage the services of a registered gemologist to appraise the

jewelries;

b. Reverse the impairment booked pending the availability of current

valuation; and

c. Restudy the existing guidelines which provides allowance

equivalent to 100 per cent of book value to properties with undetermined
current valuation, and realign with the provision of PAS 36.

2.8 Management committed to look for experts that can appraise the jewelry items.
The result of the appraisal shall serve as the basis in insuring from fire and theft those
items with a valuation of above P100,000.00 and for adjusting the 100 per cent
Allowance for Impairment Loss provided on the jewelry items.

2.9 The Asset Management and Disposal Group will recommend the reversal of the
Allowance for impairment loss of P32,505,46.47 in the meantime that PDIC have not
engaged the services of experts for the appraisal of the jewelry items.

B. COMPLIANCE AUDIT

3. The dividends declared for CY 2017 of P2.884 billion was deficient by

P2.351 billion because interest expense on borrowings amounting to P3.556
billion and non-cash incomes totaling P1.146 were deducted from the income
base of P10.390 billion, contrary to Section 18 of R.A. No. 3591, as amended by
R.A. No. 10846.

3.1 Section 18 of R.A. No. 3591, as amended by R.A. No. 10846 which took effect
on June 11, 2016, states the following relative to the dividend declaration:

SEC. 18. Consistent with the policy of the State to generate, preserve,
maintain faith and confidence in the country’s banking system, the
Corporation shall build up and maintain the DIF [Deposit Insurance Fund]
at the target level set by the PDIC Board of Directors. Such target level
shall be subject to periodic review and may be adjusted as necessary.

The Corporation is exempt from Republic Act No. 7656; instead, the
Corporation shall remit dividends to the National Government if the target
DIF level for the applicable year has been reached. For purposes of
computing the amount of dividends to be declared and remitted to the
national government, all assessment collections shall not be considered
as income. The dividend rate shall be at least fifty percent (50%) of the
income from other sources only. (Underscoring ours)

3.2 For CY 2017, income from other sources aggregated to P10.390 billion. In
accordance with the above-cited law, the amount of dividends shall be computed at 50

43
 per cent of the said income or P5.195 billion. However, the dividends declared in 2017
amounted to P2.844 billion, computed as follows:

Per Management Per Audit

Gross income P31,381,777,948.19 P31,381,777,948.19
Assessments income (20,991,903,022.95) (20,991,903,022.95)
Interest expense on borrowings (3,555,717,645.96) -
Unrealized income (1,145,559,743.99) -
Income base for dividend computation 5,688,597,535.29 10,389,874,925.24
Dividend rate 50% 50%
Dividend P 2,844,298,767.65 5,194,937,462.62
Deficiency on dividend declaration P 2,350,638,694.98

3.3 As shown above, the interest expense on borrowings amounting to P3.556 billion
and unrealized income totaling P1.146 billion were deducted from income from other
sources to arrive at the net income subject to dividend. This computation was based on
PDIC Board Resolution No. 2018-02-012 dated February 7, 2018, which resolved that
pending the approval of the PDIC Dividend Declaration Implementation Guidelines which
was submitted to the Department of Finance (DOF), other income subject to dividends
shall exclude unrealized income, and interest expense from borrowing shall be deducted
from income from other sources.

3.4 Considering that the Resolution was issued by the PDIC itself, it cannot be used
as a legal basis for the computation of the dividends due to the National Government.

3.5 We recommended that Management:

a. Follow-up with the DOF the request on the proper interpretation of

Section 18 of the revised PDIC Charter by the appropriate authority; and

b. Compute the dividends to be declared and remitted to the National

Government based on the results of the interpretation by the appropriate
authority and/or the approved interim guidelines.

3.6 Management maintained its position that the deduction of interest on borrowings
is in full accord with Section 8 of the PDIC Charter. Likewise, the PDIC Board of
Directors has authorized the Management to negotiate with the DOF on the terms and
conditions of a Memorandum of Agreement between PDIC and the National
Government, through the DOF, relative to the subject issue.

3.7 Further, the issues on the four items that comprise unrealized income so far will
not be included in the request for interpretation with the DOJ, but will be resolved
between DOF and PDIC. Discussions with the DOF are still ongoing.

3.8 The proposed Dividend Declaration Implementation Guidelines was transmitted

on 07 July 2017 and is pending with the DOF for comments. A follow up letter was sent
to the DOF on 02 February 2018. Nonetheless, given that the issue on the interpretation
of Section 18 of the PDIC Charter, as amended, shall be referred to the DOJ, issuance
of the proposed Guidelines shall be deferred until final resolution by the DOJ.

44
3.9 As a rejoinder, Management’s actions relative to the declaration of dividend will
be closely monitored.

4. Absence of Standard Operating Guidelines and Instructions (SOGI) in the

management of acquired assets resulted to former owners/unauthorized persons’
occupancy of the nine properties with book value aggregating P22.420 million for
free, thereby depriving the Corporation of the income that could have been
derived therefrom.

4.1 One of the three functions of the Asset Management and Disposal Group is to
formulate and implement asset management and disposal strategies to maximize the
realizable value of assets. At the same time, the departments under the Group have the
following specific functions, among others:

a. Formulates and implements asset management and disposal

strategy;

b. Evaluates offers to buy/lease and other proposals, and negotiates

with buyers/ lessees/concerned parties; and

c. Institutes and implements measures to preserve assets via

regular inspection, insurance, security/caretaker arrangements, payment
of realty taxes/dues.

4.2 The Corporation has an approved SOGI on the disposal of assets but they do not
have guidelines for the preservation and management of assets pending disposal.

4.3 Ocular inspection was conducted to verify the physical existence and present
condition of the acquired assets of PDIC in the following cities and municipalities:

Inspection Date Location No. of Properties

2/23/2018 San Mateo, Rizal 2
Marikina City 5
2/28/2018 Cities of San Juan, Manila, Caloocan and Quezon 4
3/8/2018 Los Baños, Laguna 12
23

4.4 Of the 23 properties inspected, nine lots with residential/commercial building

were occupied by former owners/unauthorized persons who were not paying monthly
rentals to PDIC, as follows:

Lot Area
TCT/ TD Number (sq.m.) Book Value Property Location Use of Property
1 009-2011004426 328 P2,029,736.25 Malanday, Marikina City Travel Agency/Residential
2 009-2011004427 211 1,307,308.75 Malanday, Marikina City Motorcycle Shop/
Residential
3 N-473216 706 3,335,850.00 Concepcion I, Marikina City Stainless Steel
Fabrication/ Eatery/
Electronic Shop
4 332100 59 540,169.56 Concepcion I, Marikina City Residential
5 002-2011003038 277 5,500,000.00 Sta. Cruz, Manila Hardware Shop
6 004-2011013754 238 2,392,268.04 Pasong Tamo, Quezon City Auto shop (buy and sell

45
 Lot Area
TCT/ TD Number (sq.m.) Book Value Property Location Use of Property
business)
7 C-347281 300 2,400,000.00 Caloocan City Residential
8 Land-11-0010-03837 2,826 3,700,000.00 Mayondon, Los Baños, School site
Bldg.-11-0010-03838 Laguna
9 11-0002-04041 703 1,214,839.80 Anos, Los Baños, Laguna Residential
P22,420,172.40

4.5 Guidelines on activities after acquisition of assets have not been established.
Documents revealed that in 2015 PDIC paid real property taxes including garbage fees
amounting to P21,040.82 for the two mentioned properties in Malanday, Marikina City.
While PDIC was burdened of paying such fees, the occupants were benefited from using
the properties for their business undertakings and residential purposes for free. Further,
PDIC have no lease agreements with the occupants as such properties were not
included in the report of Joint Ventures, Leases, Usufructs and Other Contracts Involving
Real Properties and Rights Thereto as at December 31, 2017.

4.6 The latest appraisal reports disclosed the presence of improvements and
unauthorized occupants on the identified properties but as of inspection date, no lease
agreements were entered into by PDIC with the present occupants.

4.7 It was noted that above observation was a result of the absence of SOGI which
will provide Management the step-by-step procedures in the administration and
preservation of the Corporation’s acquired assets.

4.8 We recommended that Management:

a. Formulate SOGI specifically on the management and preservation of

acquired assets;

b. Execute lease agreement with all unauthorized occupants of PDIC

properties as basis in the collection of rentals for the use of these
properties; and

4.9 Management agreed and informed that Notices to Vacate were already sent to
the occupants of the seven properties. Of the seven, two offered to lease while no
feedback was received from the five, thus, Final Notice to Vacate will be sent to
occupants prior to filing of ejectment cases. Notices to Vacate will be sent to the
occupants of the other two properties.

4.10 Further, appraisal of the corporate properties with expired appraisals has already
been requested. Results of the inspection thereof shall serve as basis in sending
notices to the occupants either for them to vacate the property or to enter into a lease
agreement with PDIC. Efforts shall also be exhausted in implementing measures to
preserve the corporate properties through inspection and posting of security or entering
into caretakership arrangements.

46
5. Four properties with book value aggregating P11.229 million, appraised in
2015, were not disposed despite the availability of interested buyers, thereby
delaying the Corporation’s recovery from financial exposures.

5.1 The Asset Management and Disposal Departments have the following specific
functions, among others:

d. Formulates and implements asset management and disposal

strategy; and

e. Evaluates offers to buy/lease and other proposals, and negotiates

with buyers/ lessees/concerned parties.

5.2 During the inspection, we were informed that Occupant A, a former owner of lots
covered by TCT Numbers 009-2011004426 and 009-2011004427 with net book value of
P3.337 million, have the intention to buy the two properties. These lots are located in
Block 83-B Malaya Street in Barangay Malanday, Marikina City, already with
improvements and currently occupied by Occupant A’s family for residential and
commercial use.

5.3 In her letter in 2013 that was acknowledged by then Head of the Secretariat to
the ROPA Disposal Committee, Occupant A had expressed her interest to buy the
properties. She claimed that every time she calls PDIC, Management keeps on
informing her that the properties shall be appraised first before they can be offered for
sale via public bidding. Review revealed that the subject properties were appraised on
January 30, 2015 but were not yet offered for sale.

5.4 Further, it was found out that the following properties were also occupied by
interested buyers:

TCT No. Book Value Use of Property

1 002-2011003038 P5,500,000.00 Hardware Shop
2 004-2011013754 2,392,268.04 Auto Shop
P7,892,268.04

5.5 The occupants of the above assets informed us of their intention to buy the
properties since they were using them for their businesses. According to them, since
they occupied the properties, they did not receive any notice from the PDIC, hence, they
were not aware of the rightful persons whom to convey their intention to buy these
properties.

5.6 It was also observed that Management did not provide notices or signboards in
the property premises to inform prospective buyers of PDIC’s ownership and intent to
sell.

5.7 The properties have prospective buyers and were already appraised but not yet
offered for sale via public bidding thereby delaying the Corporation’s recovery from
financial exposures.

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5.8 We recommended Management to:

a. Re-appraise the properties and offer them for sale; and

b. Place signboards indicating that the subject properties are owned

by PDIC and are for sale.

5.9 Management commented that properties with expired appraised values have
already been requested for re-appraisal. Once the new appraisal reports are received,
the approval of the Minimum Disposal Price of the properties shall immediately be
sought prior to the disposal thereof thru public bidding. Present occupants, former
owners, lessees and interested buyers shall be informed of the conduct of the public
bidding for the properties.

5.10 Management also commented that posting of Notice on the properties for sale is
now being practiced as part of the marketing strategies in the disposal of assets. As to
other properties, posting of notices or signboards of the ownership of PDIC shall
henceforth be undertaken.

5.11 Further, Notice to vacate was already sent to occupant of property covered by
TCT Number 002-2011003038, however, as of date, no feedback or offer has been
received yet. As to allegation of the occupant of the property covered by TCT No. 004-
2011013754 that he did not receive any notice from PDIC, this is belied by the Notice to
Vacate dated April 29, 2016 that was sent to him. Another notice dated March 7, 2018
was sent, but no reply or offer was received yet from the occupant as to his intent to
acquire the property.

5.12 As a rejoinder, the delivery address on the notice to the occupant of property
covered by TCT No. 004-2011013754 was not accurate. Management shall ensure that
communications through mailers were really delivered to the occupants.

6. The SOGI in the accomplishment of the Inventory and Inspection Report of

Unserviceable Property (IIRUP) was not properly implemented, while the work
instruction on the actual pull-out of the disposed properties is lacking details
resulting to deficiencies in derecognition from the book and doubt on the
accuracy of the properties taken-out/delivered to winning bidder.

6.1 The Standard Operating Guidelines and Instructions (SOGI) on Disposal of

Unserviceable Corporate Property set out the work instructions from turn-in of
unserviceable property to the Procurement and Property Department (PPD) up to the
recording of the disposal in the books by the Accounting Department. In the comparison
of the SOGI and the actual practice we observed the following deficiencies in complying
with the detailed activities:

Provision in the SOGI Deficiency in Actual Practice

8.0 Work Instructions

8.1 Turn-in of unserviceable property to PPD

8.2 Preparation of Detailed List of

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 Provision in the SOGI Deficiency in Actual Practice
Unserviceable Property

1. Prepare inventory of all turned-in

unserviceable properties

2. Fill up the corresponding forms: IIRUP is not prepared/filled-up. Instead,

a. IIRUP - for the disposal of
vehicles, mechanized
equipment, office equipment,
furniture and semi-expendable
materials
b. RWM [Report of Waste Material]
c. IRP [Invoice Receipt of Property]
3. Submit the list and recommend for
disposal of unserviceable property
and forward to UPDC [Unserviceable
Property Disposal Committee] for
inspection and appraisal.
PPD Property Officer prepares a
separate List of Corporate Property and
Equipment containing the Property
Number (PN) and the description of the
property.
The List of Corporate Property and
Equipment is submitted to UPDC,
instead of the IIRUP.

8.3 Inspection and Appraisal of the

Unserviceable Property

8.4 Disposal of Unserviceable Property

6. Furnish the COA Auditor with a copy
of program for disposal, IIRUP/RWM,
appraisal documents and disposal
procedures at least five (5) working
days before the scheduled bidding.
 IIRUP is not regularly submitted to
COA;
 The information on Accumulated
Depreciation and Carrying Amount
is not indicated in the IIRUP; and
 There are times the witness portion
of the Form remained blank.

17. Accomplish a Tally-Out Sheet as  No itemized description and

evidence of actual delivery. Pull-out quantity of the property sold,
of property sold may be witnessed by instead “Unserviceable Properties”
Internal Audit Group observer. and “1 Lot” was written on the
space provided in the Sheet for
“Description” and “Quantity”,
respectively.
 The “Witnessed by” portion of the
Sheet was signed by a contractual
employee assigned at PPD.
 There was no actual checking of
assets pulled-out against the list of
assets sold/disposed.

6.2 The following would have been prevented had the provision of the SOGI been
strictly complied and had IIRUP been properly accomplished:

a. Inclusion in the Inventory Report and in the books of accounts as of

December 31, 2017 of five disposed ICT Equipment (Adjusted in the books on
May 30, 2018 per AOM No.4);

b. Derecognition from the books of accounts and exclusion from the

49
 Inventory Report as of December 31, 2017 of 12 FFE items which were found in
custody at PPD and not yet disposed (Adjusted in the books on May 30, 2018
per AOM No. 4); and

c. Incorrect property number indicated in the Appraisal Report of the

Property Appraisal Department (PrAD).

6.3 The Tally-Out Sheet would have served as an evidence of the actual delivery of
the assets sold/disposed at a particular time had it been properly accomplished as to the
description and quantity. It would serve as a control measure to ensure that the assets
sold to the buyer were the same assets released to them and that no other assets were
taken out of the PDIC premises without the proper documentation. The presence of an
IAG observer as witness in the actual pull-out of the property is also part of the control
being a third party to the transaction, instead of a representative from the PPD.

6.4 We recommended that Management require the responsible unit to:

d. Accomplish properly the Tally-Out Sheet by indicating the

description and quantity per item of the property taken-out/delivered to the
winning bidder;

e. Ensure that the assets sold/disposed are the same as those

included in the IIRUP and the Valuation Report from PrAD; and

f. Require the presence of a third party witness in the release of

property sold to the buyer and to sign in the “Witnessed by” portion of the
Tally-Out Sheet after consummation of the disposal proceedings.

6.5 Management replied that PPD has submitted for approval to the Policy Systems
Department a Document Addition and Revision Form to effect the following
changes/revisions in the procedure in the SOGI on Disposal of Unserviceable Corporate
Property:

a. Section 8.2 on the Preparation of Detailed List of Unserviceable Property

where the IIRUP is the document to be forwarded to PrAD for the appraisal of the
properties;

b. Section 8.4.17 – The IIRUP form will be used to validate the properties
pulled-out/taken-out by the winning bidder instead of using the Tally-out Sheet;
and

c. An observer from the Internal Audit Department or any other party from
another department shall be invited to witness the pull-put by the winning bidder.

50
Gender and Development

7. The annual Gender and Development (GAD) Plan and Budget of PDIC for FY
2017 was submitted to Philippine Commission on Women (PCW) on March 31, 2016 for
review. GAD budget for CY 2017 amounted to P362,000.00, a near 2 per cent increase
from the P355,400.00 budget in CY 2016. Of the seven programmed GAD activities for
CY 2017, five were fully implemented, one was partially implemented due to declaration
of special non-working day and another one was not implemented but replaced with an
activity that was also included in the PCW – endorsed GAD program.

Compliance with Tax Laws

8. In compliance with Tax Laws, the information on taxes and licenses paid or
accrued during the year 2017 were disclosed under Note 29 to the 2017 Financial
Statements. The taxes withheld from compensation, benefits and other sources
amounting to P202.095 million were remitted to the Bureau of Internal Revenue in
accordance with the deadlines on payment/remittance of taxes prescribed by the
National Internal Revenue Code.

GSIS Contributions and Remittances

9. In 2017, PDIC complied with the rules and regulations implementing the GSIS
Act of 1997 on the collection and remittance of contributions to GSIS as follows:

a. Mandatory monthly contribution of covered employees and employer in

accordance with Rule III, Section 3.1 and 3.3; and

b. Remittance of employees’ and employer’s compensation premium within

the due date pursuant to Rule III, Section 3.4.

Philhealth and Pag-Ibig Premiums

10. In 2017, PDIC complied with the Implementing Rules and Regulations of R.A.
No. 7875, as amended, in the payment of national health insurance premium
contributions to the Philhealth. PDIC also complied with the applicable provision of the
Implementing Rules and Regulations of R.A. No. 9679 or the Home Development Mutual
Fund Law.

Government Subsidy

11. There is no recorded subsidy from the National Government for CY 2017.

51
C. PERFORMANCE AUDIT

12. PDIC’s strategic objectives and measures are consistent with its mandate to
provide a maximum deposit insurance coverage of P500,000 per depositor per bank, to
proceed with the liquidation process upon order of the Monetary Board of the Bangko
Sentral ng Pilipinas, and to ensure financial safety and soundness of banks. In CY
2017, PDIC obtained a 100 rating on its accomplishments based on its targets as
presented in the next table.

Strategic Objective (SO)/ CY 2017 CY 2017

Strategic Measure (SM) Targets Accomplishments Rating
SO 1 Sustain Client Satisfaction Level
SM1. Satisfaction rating based on responses of Not lower than 4.73 10
clients to survey Very (Very Satisfactory
Satisfactory based on a 12- month
average)
SO2. Maintain the Deposit Insurance Fund (DIF) to Adequately Cover Deposit
Insurance
SM2. Adequacy of capital against deposit 5.5% to 8.0% 6.11%
insurance costs (based on a 12- 20
month average)
SO3. Settle Valid Deposit Insurance Claims Promptly
SM3. Settlement of valid deposits promptly 100% of valid 100% of valid 12.5
within turn around time (TAT) for deposits paid deposits paid
accounts with less than or equal to within TAT within TAT
P100,000 balances of business entities
or matched with loans
SM4. Settlement of valid claims promptly within 100% of valid 100% of valid 12.5
TAT for accounts with greater than claims settled claims settled
P100,000 balances of business entities within TAT within TAT
or matched with loans
SO4. Immediately Distribute Assets to Creditors and Terminate Liquidation of Closed
Banks
SM5. Number of asset distribution plan filed 40 40 20
with the liquidation court
SO5. Protect the Deposit Insurance Fund from Illegal Schemes and Machinations
SM6. Average number of days to file a case Average of 30 Average of 17 days 10
against erring bank officials from days (for 8 cases filed)
approval of the appropriate approving
authority
SO6. Continuously Develop a Committed and Competent Workforce to Deliver
Responsive Public Service
SM7. Synergizing the new organization 1 HR intervention 2 HR intervention 10
for the Core on “Core
Competency gap Competency Build-
based on the up Program:
Baseline Commitment to
Competency Depositor
Assessment Protection”
Survey Results conducted
SM8. ISO Certification of frontline service Maintain ISO Passed the 1st 5

52
 Strategic Objective (SO)/ CY 2017 CY 2017
Strategic Measure (SM) Targets Accomplishments Rating
9001: 2008 surveillance audit
Certification for conducted by TUV
Claims Rheinland to
Settlement maintain the ISO
Operations and Certification of
Assessment of QMS.
Member Banks
ISO Certification ISO 9001:2008
9001: 2008 of Certificate effective
Loans 12.21.17 received
Management on 01.10.18
System
100

SUMMARY OF AUDIT SUSPENSIONS, DISALLOWANCES AND CHARGES

13. As at December 31, 2017, audit disallowances amounted to P2.157 billion details
as follows:

Date Amount
ND No. Issued (In Philippine Peso) Particulars of the Disallowance

13-004-OBA- 1/8/2014 1,162,556.14 Payment of excess anniversary bonus

AB(13) of P2,000.00 for each employee
14-002-HPP(13) to 7/3/2014 25,556,706.05 Total of 19 Notices of Disallowance for
ND Nos. 14-020- the procurement of additional private
HPP913) health care insurance
15-001-AFA 98 7/14/2015 325,000,000.00 Write-off of the accounts of Keppel
Monte and Savings Bank denied by
COA per CP Decision No. 2012-120
15-002-AFA 99 7/20/15 1,656,830,000.00 Condonation of the Financial
Assistance granted to Westmont Bank
denied by COA per CP Decision No.
2012-120
16-002-PS-14 9/20/2016 70,639,713.21 Granting of 14th month pay and year-
end Christmas gift for CY 2014 without
the approval of the Office of the
President
16-003-PS-15 9/20/2016 78,209,673.70 Granting of 14th month pay and year-
end Christmas gift for CY 2015 without
the approval of the Office of the
President

2,157,398,649.10

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All outstanding NDs were appealed to COA in accordance with the provisions of the
2009 Revised Rules of Procedures. There were no outstanding audit suspensions and
charges as at year-end.

OTHERS

GSIS Family Bank

On May 13, 2016, the Bangko Sentral ng Pilipinas Monetary Board (MB) placed the
Comsavings Bank with trade name “GSIS Family Bank (A Thrift Bank)” under the
receivership of the Philippine Deposit Insurance Corporation by virtue of MB Resolution
No. 826.A.

The bank was placed under liquidation on November 3, 2016 by virtue of MB Resolution
No. 1981. The Petition for Assistance in the Liquidation was filed with the liquidation
court, RTC Branch 157 Pasig City, Metro Manila on March 7, 2017.

The Comparative Statement of Condition as at December 31, 2017 reported total assets,
total liabilities and capital account deficit at P1.524 billion, P1.572 billion and P47.667
million, respectively.

While in the liquidation phase, its Statement of Affairs as at December 31, 2017 reported
Funds Held in Trust by PDIC, Deposit Liabilities, Subrogated Deposits and Receivership/
Liquidation Expenses due to PDIC at P546.914 million, P247.123 million, P721.242
million and P7.802 million, respectively.

The Comparative Statement of Recoveries and Expenses as at December 31, 2017

reported Total Recoveries at P5.547 million and Total Cash Expenses at P39.890
million.

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