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GOVERNMENT SERVICE INSURANCE SYSTEMSOCIAL INSURANCE FUND
NOTES TO FINANCIAL STATEMENTS(All amounts in Philippine Peso unless otherwise stated)
1. GENERAL INFORMATION
The Government Service Insurance System (GSIS) is a government financial institution, organized and created to administer the System’s funds and implement the laws that govern the social security and insurance benefits of all government employees. The official address of its Home Office is at the Government Financial Center, Roxas Boulevard, Pasay City. GSIS has 15 Regional Offices, 26 Branch Offices, and 19 Satellite Offices strategically located in various cities and municipalities of the country.
The GSIS was created by the Congress of the Philippines through the passing of Commonwealth Act. No.186 on November 14, 1936. Its primary objective is to promote the welfare of the employees of the government through an insurance system that will protect its members against adverse economic effects resulting from death, disability and old age.
On May 31, 1977, Presidential Decree No. 1146, otherwise known as “Revised Government Service Insurance Act of 1977,” was issued by then President Ferdinand E. Marcos. On June 24, 1997, Republic Act (RA) No. 8291 otherwise known as, “The Government Service Insurance System Act of 1997,” was enacted into law, enhancing the social security coverage of the GSIS.
Pursuant to Section 34 of RA 8291, all contributions payable under Section 5 thereof, together with the earnings and accruals thereon shall constitute the GSIS Social Insurance Fund (SIF). The said Fund shall be used to finance the benefits administered by the GSIS under RA 8291. As such, the Social Insurance Fund (SIF) serves as the core fund of the GSIS, as distinguished from the other funds that the GSIS is mandated to administer.
The accompanying consolidated financial statements of the GSIS were authorized for issue by the GSIS management represented by the President and General Manager and the Senior Vice President – Controller Group on June 24, 2010. In compliance with the Philippine Accounting Standard (PAS) 27 which requires the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent, and the applicable rules and regulations issued by the Commission on Audit (COA), the Consolidated Financial Statements for Social Insurance Fund include the accounts of the GSIS and its majority owned subsidiaries for the year ending December 31, 2009 and 2008 which consist of the following:
Statement of Net Assets Statement of Changes in Net Assets Statement of Changes in Net Worth Cash Flow Statement Notes to Financial Statements
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Basis of Consolidation
The consolidated financial statements include the financial statements of the GSIS and its subsidiaries as at December 31, 2009. Subsidiaries are consolidated from the date on which control is transferred to the Group and ceased to be consolidated from the date on which control is transferred out of the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
The following steps as specified in PAS 27 were applied in the consolidation process:
The carrying amount of GSIS’ investment in each subsidiary and the GSIS portion of equity of each subsidiary are eliminated;
Intra-group balances, transactions, income and expenses are eliminated in full;
The accounts for both GSIS and those of the subsidiaries were combined line by line by adding together like items of assets; liabilities, equity, income and expenses;
Minority interests in the profit or loss of consolidated subsidiaries for the reporting period are identified; and
Minority interests in the net assets of consolidated subsidiaries are identified separately from the GSIS’ net assets.
The GSIS Subsidiaries and its percentage of ownership as of December 31, 2009 are as follows:
Subsidiaries Percentage of Ownership
GSIS Properties, Inc. (GPI) 100.00%GSIS Family Bank (GFB) 99.55%GSIS Mutual Fund, Inc. (GMFI) 59.58%Meat Packing Corp. of the Philippines (MPCP) 100.00%
Meat Packing Corporation of the Philippines, however, is not included in the consolidation. It is now in the process of liquidation, thus, equity method is used in recording GSIS’ investments in the subsidiary.
2. UPDATE ON GSIS NEW COMPUTERIZED SYSTEM
2.1 Integrated loans, membership, acquired assets and accounts management system (ILMAAAMS)
To hasten the reconciliation of subsidiary and general ledger balances of contributions/premiums and loans receivable accounts, GSIS has developed various programs to enhance the reliability of the two major modules in ILMAAAMS, the Collections and Disbursements (FS-CD) and the Consumer and Mortgage Loans (FS-CML). Although these two systems were designed to be linked because of the billing and
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remittance processes for premiums and loans, their integration was not really inherent in the design of SAP. This meant that a lot of customization and work-around procedures needed to be put in place in order to ensure that the system would function as designed.
The integration of the FS-CD and FS-CML, particularly the jobs executed for creation of receivables in both modules upon accrual of the regular monthly installment (RMI) was modified due to resource issues. The initial design proved to be too taxing on resources and the bulk of the transactions could not be managed. The system was enhanced to ensure that all payments on loan accounts have been posted and members’ records are updated.
2.2 Financial information system (FIS)
The FIS is designed to capture the recording of all the financial transactions from the source or feeder systems. These feeder systems have implementation environments different from that of the FIS subsystems. Financial data from various feeder systems are either automatically extracted and uploaded to FIS through interface program or generated in excel format following a SAP-prescribed template with pre-defined accounting entries and manually uploaded to FIS through an upload program.
The following are the different feeder systems and a brief description on how accounting data are captured and fed to the FIS:
a. Technistock portfolio management system (TPMS)
The TPMS is a portfolio management solution which was customized to fit the back-office portfolio requirements of the Investment Management Office (IMO). The system generates a SAP-prescribed template with predefined accounting entries in excel format for batch uploading to FIS. However, TPMS was used only up to May 2009. The contract with Technistock (Phils.), Inc. for 2009 was no longer renewed.
At present, most of the investment transactions are uploaded to FIS based on the manually-prepared SAP-prescribed template. These transactions include placement in foreign-denominated notes and bonds, accrual and collection of interests, treasury bills and bonds maturities, premium and discount amortization and valuation of stocks. However, placement in peso bonds and buying of stocks are directly set-up in the Accounts Payable (AP) Module while selling of stocks is directly set-up in the Accounts Receivable (AR) Module.
b. Human resources information system (HRIS)
The payroll system of the GSIS is processed through HRIS. The system generates the payroll file with predefined accounting entries in excel format. The file is saved in a specified storage directory, and extracted for batch uploading to FIS.
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c. Real and other properties owned and acquired (ROPOA) and Leasing manager
The ROPOA Manager is a system used for monitoring and recording the acquisition, administration and disposition of acquired assets. For financial recording purposes, the system is capable to do the following:
Creation of records for new acquired assets upon tagging of loans in default in the Customer Mortgage Loan (CML) module of ILMAAAMS;
Seamless interface with Leasing Manager for the creation of rental record and accrual of rental receivables;
Generation of report on gain or loss on valuation;
Tagging of acquired assets as disposed upon cash or installment sale; and
Automatic creation of interface file for FIS to book newly acquired assets, gain or loss on valuation, disposal and closing of corresponding rental receivables upon cash or installment sale.
The Leasing Manager, on the other hand, is a system that creates the records for the accrued rental receivables on occupied properties that were previously covered by cancelled deed of conditional sale (DCS) and occupied foreclosed properties after the expiration of the redemption period. For financial recording purposes, the system is capable to do the following:
Creation of property record, lease contract and tenant record;
Monthly accrual of rental receivables;
Generation of statement of account on rental receivables;
Posting of rental payments from cash desk (CD) module as well as those collected through Claims and Loans Interdependency Program (CLIP);
Stoppage of rental receivable upon conclusion of sale; and
Automatic creation of interface file for FIS to book accrued rental receivable, rental payments collected or “CLIPped,” and closing of rental receivables upon disposition of acquired assets.
Both systems generate file with predefined accounting entries in excel format. The file is saved in a specified storage directory and extracted for batch uploading to FIS.
d. Claims and pensions administration system (CPAS)
CPAS is a comprehensive application system that will consolidate all information and processing requirements of members’ claim, pension, retirement and dividend under the new open system platform - SAP.
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The CPAS is designed to provide online facility for inquiry, processing and
computation of life, retirement and survivorship claims. It can integrate with the
general ledger system of the FIS. Completed transactions of claims and pensions will be automatically reflected in the general ledger.
Phase I of the CPAS Project was implemented in September 2009 for life, retirement and survivorship claims and pensions.
e. Migration of SAP DB2 to ORACLE database system software
On November 26, 2009, Management addressed the problem on the database crash and technical problems encountered with the DB2 software through the migration of SAP DB2 to Oracle PROD. This is in addition to the implemented data recovery measures by the GSIS to assure its members and pensioners that
the integrity of all its data has not been compromised and no data is lost. The GSIS is still in a transition period due to the recent implementation of the new systems, thus the financial statements for CY2009 were prepared manually based on the readily available data from SAP, feeder systems and other reports furnished by operating units concerned (OUCs). However, Management is pursuing that by 2010, GSIS Financial Statements can be generated real-time using the FIS.
3. RECORDING OF COLLECTIONS AND DISBURSEMENTS IN FIS 3.1 Collections
a. Collections thru the Financial information - Cash desk (FI-CD) facility of ILMAAAMS
All collections pertaining to loans and contributions are processed thru the FI-CD of ILMAAAMS where transactions are automatically recorded simultaneously in the general ledger and subsidiary ledger. However, this facility was stopped on April 2, 2009 when it encountered some technical problems during the database crash.
b. Collections thru the Cash receipts and management system (CRMS)
All collections pertaining to Social Insurance (SI) accounts not covered by the FI-CD, investments and other miscellaneous transactions are being processed thru the CRMS. Collections done thru the CRMS are uploaded to FIS through the use of templates.
c. Collections thru the Accounts receivable (A/R) Module
Effective December 15, 2009, all collections from investments, investment property, and administrative/miscellaneous transactions with corresponding
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receivable accounts are being processed directly in SAP thru the FI-AR module. For the meantime, this is being implemented at the Central Office only.
d. Collections covered by Letter of authority (LOAs)
All collections pertaining to investment maturities and interests and all fund transfers from other bank accounts are covered by LOAs. LOAs are generally prepared thru SAP, but currently, there are still some manually prepared LOAs. Manually prepared LOAs are posted to SAP while SAP LOAs are automatically posted to the General Ledger (GL) accounts of Cash and Receivable accounts.
During the database crash that happened in April 2009, LOAs are prepared manually. Preparation of LOAs in SAP was resumed only on October 27, 2009.
Data that were lost in March, April and May 2009 were all recovered and uploaded to SAP through manually prepared templates.
3.2 Disbursements
All disbursements pertaining to investment placements and fund transfer to other bank accounts, payroll and other miscellaneous transactions are covered by LOAs which are prepared directly in SAP. However, during the database crash that happened in April 2009, LOAs were prepared manually. Preparation of LOAs in SAP was resumed only on October 27, 2009. The miscellaneous disbursements of the GSIS are being processed thru the AP module of the FIS. Disbursement checks are being generated from this module and these transactions are automatically recorded in the FI-GL.
4.1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
4.1 Basis of preparation and presentation of financial statements
The accompanying financial statements for the Social Insurance Fund (SIF) have been prepared in accordance with the Philippine Accounting Standards (PAS)/ Philippine Financial Reporting Standards (PFRS) and the generally accepted insurance accounting principles and reporting practices prescribed by the Insurance Commission.
The financial statements have been prepared on historical cost basis, except for certain financial instruments and investment property which are carried at fair values.
The GSIS has adopted for the financial statements presentation of the Social Insurance the format prescribed under PAS 26 and PFRS for pension funds under Board Resolution No. 180 dated November 05, 2008.
PAS 26 prescribes measurement and disclosure principles for the reports of retirement benefit plans, under either defined contribution plan or defined benefit plan. The standard requires that for defined benefit plans, the financial statements shall contain a statement of net assets available for benefits and a statement of changes in net assets available for benefits. The format in the disclosure and presentation of actuarial
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information, however, may vary (i.e. can be included as a statement of changes in the actuarial present value of promised retirement benefits; or in a disclosure in the notes to financial statements; or contained in a separate actuarial report).
4.2 Centralized deposit and funding system or “One-bank account” policy
Under the centralized deposit and funding system, all collections are deposited to a centralized collection account and all disbursements are funded through the same account, which is maintained in the Home Office.
This cash management policy is adopted to manage efficiently the cash in bank and to strengthen the monitoring and control of cash flows.
4.3 Cash and cash equivalents
Cash includes cash on hand and in banks. Cash equivalents are short - term and highly liquid investments with maturity of less than three months and readily convertible into cash such as high-yield short-term placements (HYSTP), special savings and time deposits.
4.4 Contributions and premiums receivable
Pursuant to Section 5 of RA 8291, it shall be mandatory for all the covered members of the GSIS to pay monthly contributions based on the members’ Monthly Compensation (MC), as follows: 9% thereof payable by the member and 12% payable by the employer. The premium contributions are remitted directly to the GSIS within the first ten days of the month following the month to which the contributions apply.
Based on the member’s monthly compensation/salary, premium contributions are set-up in the books as Premiums Receivable and correspondingly presented as additions to net assets. Upon actual receipt of remittances, the receivable account is adjusted accordingly.
4.5 Loans and accounts receivable
Loans and accounts receivables are stated net of deferred income or provision for estimated uncollectible accounts.
a. Provision for probable losses is established for estimated losses on the principal portion of business loans and receivable accounts based on management’s evaluation if the accounts are collectible.
b. Allowance for doubtful accounts/bad debts is established for estimated losses on the interest income portion of business loans and receivable accounts.
4.6 Investments
Investments are classified according to the following categories at initial recognition based on the purpose for which they are acquired.
a. Held for trading (HFT) or Fair value through profit or loss (FVPL)
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These are financial assets acquired principally for the purpose of generating profit from short-term fluctuations in price or dealer’s margin.
These are initially recorded at cost and are revalued at fair values every reporting date. Any difference between the cost and the fair value is recorded as appreciation or depreciation of the fair value of investments in the statement of changes in net assets. Investments in equity securities - stocks traded are classified as HFT or FVPL and as such, these are recorded at cost and are revalued every month-end.
b. Held-to-maturity investments (HTM)
These are financial assets with fixed or determinable payments and fixed maturities. They are carried at amortized cost using the effective interest method and are classified as non-current assets.
Investments in Foreign Currency and Peso Denominated Bonds are classified as Held-to-Maturity and as such, these are recorded at cost, duly adjusted periodically through the amortization of premiums or discounts.
c. Available-for-sale (AFS)
Available-for-sale financial assets are acquired and held indefinitely for long-term capital appreciation or are not classified as (a) loans and receivables (b) held-to-maturity investments or (c) financial assets of fair value thru profit and loss. These assets are initially recognized at cost and are subsequently valued at fair values. Any difference between the cost and the fair value is recorded as appreciation or depreciation of the fair value of investments in the statement of changes in net assets.
d. Investments in subsidiaries
The System practices the equity method in accounting for investments in shares of stocks in which it holds at least 20 per cent ownership or where it has the ability to exercise significant influence over the companies’ operating and financial affairs.
The equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the net investors’ share of the net assets of the investee.
e. Investments in non-traded stocks
Non-traded stocks are valued at cost, net of allowance for impairment in value.
4.7 Investment Property
Investment property pertains to land or a building or part of a building or both, held to earn rentals or for capital appreciation or both.
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These consist of real properties that were previously the subject of mortgage loan, individual real estate loan, commercial - industrial loan, lease-purchase agreement, or deed of conditional sale, which were either foreclosed or cancelled or dacioned by former owners in favor of the System.
a. Fair valuation model
In compliance with PAS 40, the GSIS applies fair value model consistently on its investment property, whereby the assets were initially recorded at cost (consisting of the purchase price and any directly attributable expenditures), then subsequently valued at fair values.
Gains or losses from changes in fair values are recognized during the period in which they occur.
b. Selling price
In November 2007, the GSIS Board of Trustees in its Resolution No. 167 approved the computation of the new selling price of acquired housing units and lots for disposition by applying the higher of 70 per cent of the current market values (CMV) of the said acquired properties; and book value plus 50 per cent of the rental receivables of the acquired property.
4.8 Property and equipment
These assets are recognized and recorded in accordance with PAS 16.
Depreciation is computed in conformity with the provisions of COA Circular No. 2003-007 dated December 11, 2003. The COA Circular provides the revised estimated useful life in computing depreciation for government property, and equipment effective January 1, 2004. The major changes involve the following:
Depreciation is computed on a straight-line method based on the estimated useful life of 20 to 30 years for buildings and a residual value of ten per cent of the acquisition cost/appraised value thereof.
Prior to CY 2004, the salvage value for building was computed at five per cent of its cost while useful life is estimated at 50 years. For land improvements, depreciation was computed at five per cent residual value and useful life of five years.
In October 2004, the above circular was amended by COA Circular No. 2004-003 which prescribe that the resulting adjustment from the change in the depreciation computation shall be charged to the current depreciation expense and that past depreciation expense need not be adjusted.
Computer equipment is carried at cost less salvage value of ten per cent of the cost of the equipment. Depreciation is computed on a straight-line method over estimated life of five years.
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The Asset Accounting (AA) Module of the FIS was designed to manage and supervise all GSIS’ assets which are used in the normal business operations. These assets include, but are not limited to, land and land improvement, building and building improvement, information technology (IT) resources, construction in progress, furniture, equipment and fixtures, and asset under construction (AUC).
The AA module provides an efficient and effective system of recording assets in the financial book of accounts from asset acquisition, transfers, retirements, and depreciation postings. It also serves as a subsidiary ledger to the financial accounting general ledger (FI-GL), providing detailed information on asset transactions.
4.9 Revenue recognition
The major sources of operating revenues of the Fund are investment income, interest income from loans, rental income from investment properties and other income.
The GSIS uses the accrual method in recognizing revenues.
a. Service loans
The full implementation of ILMAAAMS and FIS facilitates the accurate computation and recording of interest for each loan and timely distribution of collection to the proper loan account. The system computes interests in advance on consoloan, policy loan, eCard cash advance, emergency loans, emergency loans assistance and pension loans for the entire term of the loan upon granting and are made part of the loan amortization. This is recorded as deferred interest income and recognized as earned upon collection.
b. Housing loans Accrual of interest on housing loans Real estate loans (REL) and Deeds of conditional sale (DCS)
The system accurately computes and records interest on REL and DCS and timely distributes collections to the proper loan account.
Interest income on housing loans, REL and DCS
In April 2009, the GSIS Board of Trustees in its Resolution No. 64, approved the adoption of a single interest rate of eight per cent per annum compounded annually, for the GSIS’ new DCS housing loan program.
However, due to the devastation caused by Typhoon Ondoy, a one year moratorium on Housing Loan repayments together with consoloan repayments of qualified borrowers nationwide was approved under Board Resolution No. 173 in October 2009. The program covers the amortizations for the month of October 2009 up to September 2010. To this effect, the unpaid monthly amortization (principal and interest) would earn an interest of five per cent per annum.
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4.10 Foreign currency transactions and translations
a. Functional and presentation currency
The financial statements are measured and presented using the Philippine Peso, which is the System’s functional and presentation currency.
b. Foreign currency translations
Foreign currency income and expenses are translated into Philippine Pesos based on the Philippine Dealing System Weighted Average Rate (PDSWAR) exchange rate prevailing on transaction dates.
Foreign currency-denominated assets and liabilities are translated into Philippine Pesos based on PDSWAR prevailing at the end of the interim reporting period. At the end of the reporting year, foreign currency-denominated assets and liabilities are translated to Philippine Peso using the exchange rate provided by the Insurance Commission.
Gain or Loss from foreign exchange transactions and revaluation of foreign currency-denominated assets and liabilities are credited to or charged against current operations.
As of December 31, 2009, the exchange rate provided by the Insurance Commission per its Circular Letter No. 5-2010 dated January 27, 2010 was P46.3560 to $1.00.
4.11 Administrative loading
Pursuant to Section 35, RA 8291, the Fund is allowed to disburse a maximum of 12 per cent of the annual revenues from all sources for administrative and operating expenses.
4.12 Claims and benefits
Regular disbursements of the Social Insurance Fund comprise the claims of members/pensioners involving the following:
Life insurance benefits claims which consist of policy maturities, cash surrender values, disability benefit, death benefit, accidental benefit, accidental death benefit, and funeral benefits;
Retirement Claims;
Monthly Old-age Pension;
Monthly Survivorship Pension; and
Cash Gift to all entitled old-age pensioners.
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4.13 Actuarial reserves
Actuarial Reserve requirements for the mandated obligations of the System are computed monthly by the GSIS Actuarial Group based on certain assumptions which are in accordance with generally accepted principles of actuarial valuation. The actuarial reserves are set up/appropriated out of the accumulated earnings of the Social Insurance Fund. Any amount in excess of actuarial reserves requirements is presented as additional reserves for contingencies.
4.14 Non-admitted assets
Pursuant to Section 179 of the Insurance Code, certain assets are not allowed as Admitted Assets; hence, are presented as Non-Admitted Assets. These are furniture, fixtures and equipment; deposit and indent orders; supplies and materials in stock; prepaid expenses; income receivable; and such other assets proven to be of doubtful value.
Non-Admitted Assets include accrued interests on obligations of Department of Budget and Management (DBM) and other government agencies for unpaid and/or delayed remittances of social insurance premiums and rental receivable on occupied housing units with cancelled DCS and foreclosed REL. Since collection thereof is very low and the receivables are not readily realizable, the same were classified from admitted to non-admitted assets.
4.15 Related party transactions/agreements
Related party relationships exist when one party has the ability to control, directly or indirectly through one or more intermediaries, the other party or exercise significant influence over the other party in making financial and operating decisions. Such relationships also exist between and/or among entities which are under common control with the reporting enterprise, or between and/or among the reporting enterprises and their key management personnel, directors, or its stockholders. Transactions between related parties are accounted for at arm’s length prices or on terms similar to those offered to non-related entities in an economically comparable market.
PAS 24 provides additional guidance and clarity in the scope of the standard definitions and disclosures for related parties.
5. CASH AND CASH EQUIVALENTS
This account consists of the following:
2009 2008
Cash on hand and in banks 3,939,058,746 4,581,137,015Cash equivalents 26,772,388,558 40,573,044,950
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30,711,447,304 45,154,181,965
6. RECEIVABLES
This account consists of the following:
2009 2008
Contributions and premiums receivable 27,306,507,367 30,404,319,418Other receivables 18,515,882,615 16,755,096,533
45,822,389,982 47,159,415,951
6.1 Contributions and premiums receivable
General Ledger (GL) and Subsidiary Ledger (SL) Discrepancies
As of December 31, 2009, the SL balance based on SAP-ILMAAAMS data for contributions and premiums receivable are already reconciled with their GL balances amounting to P27.307 billion.
6.2 Other receivables
Other receivables account consists of the following:
2009 2008
Income receivables 15,762,461,078 12,875,618,861Contingent asset disallowance - net 53,289,367 53,289,367Advances to contractors 16,623,327 16,574,732Cash advances 529,508 2,581,861Accounts receivable for deficit cases – net - 2,875,242Other receivables-agencies with MOA 1,978,258,087 2,294,321,811Other receivables 426,296,439 368,541,390Sundry accounts receivable - net 278,424,809 1,141,293,269
18,515,882,615 16,755,096,533
6.3 Other receivables
Other receivables account amounting to P426.296 million represents the following receivables of the GSIS Family Bank:
2009 2008
Due from Bangko Sentral ng Pilipinas 66,432,587 20,941,645Sales contract receivables 33,163,871 18,395,913Due from other banks 18,935,775 11,707,712Other assets 307,764,206 317,496,120
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426,296,439 368,541,390
7. INVESTMENTS
This account consists of the following:
2009 2008
Financial securities 253,279,958,245 200,924,696,977Loans – net 167,997,668,874 161,402,025,433Investment property 26,281,494,172 26,158,601,236
447,559,121,291 388,485,323,646
7.1 Financial Securities
Financial securities account consists of the following:
2009 2008
ROP notes and bonds 162,028,691,230 111,330,318,233Notes receivable 30,876,006,963 21,143,238,859Externally managed funds - global 26,532,560,072 24,014,881,154Stocks - traded - AFS 13,411,167,197 4,408,587,755ROP bills 10,118,078,153 24,907,207,476Externally managed funds - domestic 6,562,527,291 5,141,899,817Investment in joint venture 1,035,621,401 1,039,245,941Stocks - non-traded 946,681,100 921,681,100Investment in subsidiaries 752,958,058 762,808,146Stocks - traded - HFT 15,666,780 432,016,004Asset participation certificate - 181,257,354Other investments - subsidiaries - 6,641,555,138Other receivables - investments 1,000,000,000 -
253,279,958,245 200,924,696,977
Notes receivable increased by P9.733 billion or 46 per cent primarily due to the installment sale of MERALCO shares in December 2009.
a. Investment in subsidiaries
In December 2009, Philippine Integrated Meat Corporation (PIMECO) entered into a compromise agreement with MPCP-GSIS to accelerate the acquisition of the Property by PIMECO and the new investor, Consolidated Prime Development Corporation (CPDC). PIMECO and CPDC shall pay GSIS the sum of P1 billion in the concept of compensation or indemnity for the opportunity losses it suffered on account of the Property being immobilized and rendered non-productive and MPCP the sum of P100 million as considerations stipulated in the Lease Purchase Agreement. The consummation of the settlement is subject to the
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compliance and fulfillment of all the Closing Conditions by the parties. The payment of P1 billion was received from CPDC on May 19, 2010.
7.2 Loans - net
The total loans financed by the Fund consist of the following:
2009 2008
Consolidated loans 71,986,780,358 59,786,812,942Salary loans 30,257,497,278 37,186,010,301Policy loans 18,141,166,974 17,334,610,666Real estate loans 13,632,897,617 14,279,668,079Emergency/calamity loans 8,083,708,364 4,400,694,833Government loans 6,214,907,610 6,229,176,066Deeds of conditional sale 5,423,700,809 4,890,096,600eCard/eCard plus cash advance loan 4,890,124,886 7,256,289,102Private loans 2,628,865,812 2,964,144,975Loan receivable – subsidiaries 1,944,511,309 -Emergency loan assistance 1,764,158,694 2,079,694,353Summer one month salary loan 1,723,172,256 3,364,416,637Pension loan 1,179,402,862 1,273,582,842Interim loan 123,877,708 123,877,707Lease purchases 2,896,337 160,016,846Stock Purchase Loans - 41,043,549Educational assistance loans - 31,889,935
167,997,668,874 161,402,025,433
Emergency loan increased by P3.683 billion or 84 per cent primarily due to the P5.5 billion and P550 million worth of calamity loan allocated to the GSIS members who were affected by Typhoon Ondoy and Pepeng.
General Ledger (GL) and Subsidiary Ledger (SL) Discrepancies
As of December 31, 2009, the summary of the subsidiary ledger balances based on SAP-ILMAAAMS data for service loans and the general ledger balances for the same showed the following:
On PrincipalGL SL
Consolidated loans 71,986,780,358 71,986,780,358Salary loans 30,257,497,278 30,257,497,278Policy loans 18,141,166,974 18,141,166,974Emergency loans 8,083,708,364 8,083,708,364eCard plus cash advance loan 4,199,453,023 4,199,453,023Emergency loan assistance 1,764,158,694 1,764,158,694Summer one month salary loan 1,723,172,256 1,723,172,256
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Cash advances 690,671,863 690,671,863
136,846,608,810 136,846,608,810
On Interest Receivable
GL SL
Consolidated loans 4,143,407,692 4,143,407,692Salary loans 2,125,655,744 2,125,655,744eCard plus cash advance loan 355,923,048 355,923,048Emergency loans 148,698,651 148,698,651Summer one month salary loan 112,516,925 112,516,925Emergency loan assistance 101,422,194 101,422,194Cash advances 9,491,764 9,491,764
6,997,116,018 6,997,116,018
7.3 Investment property
As of December 31, 2009, Investment property is broken down as follows:
2009 2008
Cancelled deeds of conditional sale/ (Mass housing) 14,939,456,204 15,405,073,609
Foreclosed real estate loans 3,375,523 160,165,352Other investment property 11,338,662,445 10,593,362,275
26,281,494,172 26,158,601,236
The investment property of the GSIS earned P1.201 billion in 2009 and P2.999 billion in 2008 primarily from the capital appreciation, disposition and rental of the properties.
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8. PROPERTY AND EQUIPMENT – NET
The property and equipment account consists of the following:
Land and land
improve- ments
Building andimprove-
ments
Real estate
apprecia-tion
Technology (IT)
resources
Construc-tion in
progressFFE -
Subsidiary TotalCost
January 1, 2009 504,272,222 3,721,863,779 69,781,103 1,730,453,746 299,695,822 59,573,142 6,385,639,814
Additions - 22,134,209 - 240,772,416 624,932,424 6,384,596 894,223,645
Adjustments (17,083,693) 356,678,071 - 204,799,078 (7,585,599) - 536,807,857Derecognition in books(due to donations/sale) (1,796,195) (451,047) - (580,589,403) - - (582,836,645)
December 31, 2009 485,392,334 4,100,225,012 69,781,103 1,595,435,837 917,042,647 65,957,738 7,233,834,671
Accumulated Depreciation
January 1, 2009 185,957,268 1,302,339,781 - 1,153,062,127 - 36,757,678 2,678,116,854
Depreciation Charges during the year 451,011 126,856,213 - 201,016,624 - 7,170,672 335,494,520
Derecognition in the books – (due to donations/sale of unserviceable units)
- - - (492,532,205) - - (492,532,205)
Adjustments (17,083,693) 370,114,558 - 122,065,174 - - 475,096,039
December 31, 2009 169,324,586 1,799,310,552 - 983,611,720 - 43,928,350 2,996,175,208
Net Book Value – December 31, 2009 316,067,748 2,300,914,460 69,781,103 611,824,117 917,042,647 22,029,388 4,237,659,463
Net Book Value – December 31, 2008 318,314,954 2,419,523,998 69,781,103 577,391,619 299,695,822 22,815,464 3,707,522,960
9. OTHER ASSETS
The Other assets account consists of the following:
2009 2008
Paintings and tapestries 195,838,027 18,089,910Discontinued operationsLand - 43,048,600Building - 2,975,410
195,838,027 64,113,920
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10. SOCIAL INSURANCE CLAIMS PAYABLE
Social insurance claims payable account pertains to the claims on retirement and life insurance benefits due to members as at December 31, 2009 but which remained unpaid as of year-end broken down as follows:
2009 2008
Claims and benefits payableRetirement claims 2,071,925,511 5,169,157,045Life insurance claims 1,620,165,241 1,738,692,401Survivorship 184,987,120 44,619,450Funeral 58,205,685 6,309,144Pension 2,077,675 -Other social insurance benefits-scholarship program - 12,000,000
3,937,361,232 6,970,778,040
Dividends payable 668,427,520 1,855,673,871
4,605,788,752 8,826,451,911
Dividends payable
The GSIS Board of Trustees under Resolution No. 188 dated November 18, 2009 declared an annual cash dividend of P893 million to Compulsory Life Insurance Policy Holders, chargeable against the surplus of the Social Insurance Fund.
11. DEFERRED CREDITS Deferred credits account consists of the following:
2009 2008
Unreconciled accounts 4,739,563,261 7,621,330,558Unrealized income 1,729,610 1,857,055
4,741,292,871 7,623,187,613
The unreconciled accounts amounting to P4.740 billion can be attributed mainly to the crash of the database management system software or the IBM-DB2 which was experienced last March and April 2009. During the system crashes, the GSIS membership records could not be updated and transactions could not be recorded. However, the successful migration of the GSIS database from the defective IBM-DB2 to Oracle in November and December 2009 not only ensures faster processing of members’ loans but also a more reliable and updated membership records.
At present, reconciliation of unreconciled accounts is still on-going.
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12. OTHER LIABILITIES
This account consists of the following:
2009 2008
Funds held in trust 988,250,275 1,087,260,504Loans payable 738,056,246 1,488,403,467Due to Philam Asset Management 10,758,673 33,831,476Sundry accounts payable 2,842,654,369 1,260,305,519Other liabilities – subsidiaries 1,944,597,813 1,626,554,297
6,524,317,376 5,496,355,263
12.1 Sundry accounts payable
The account consists of the following:
Investment placements and buying accrued but not yet paid as of balance sheet date;
Accrued employees’ benefits - in compliance with PAS 19; Administrative and operating expenses already incurred but not yet paid as of
balance sheet date; Goods already delivered and services already rendered but not yet paid as of
balance sheet date; Unpaid bank service fee on eCrediting transactions; and Custody fee.
2009 2008
DBM payments to Philippine Health Insurance Corporation (PHIC) 408,875,850 408,875,850
FHIT-Bidder's Deposits - ROPOA 106,348,181 144,102,799
GSIS Employee Loyalty Incentive Plan (ELIP) Retirement fund 104,958,223 96,057,740Others (retention fee of contractor/Bid Security/Performance Bond/Rental Deposit/Cash collateral) 368,068,021 438,224,115
988,250,275 1,087,260,504
12.2 Other liabilities - subsidiaries
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This account consists of the following:
2009 2008
Deposit liabilities 1,935,785,064 1,621,233,097Bills payable 4,537,606 119,685Treasurer’s/cashier/manager’s check 2,500,743 3,819,192Due to the Treasurer of the Philippines 1,774,400 1,361,116Time certificates of deposits - 21,207
1,944,597,813 1,626,554,297
13. MINORITY INTEREST IN THE NET ASSETS OF THE CONSOLIDATED SUBSIDIARIES
This account consists of the following:
2009 2008
GSIS Mutual Fund, Inc. (GMFI) 1,404,594,254 1,119,505,318GSIS Family Bank (GFB) 3,216,115 3,384,563
1,407,810,369 1,122,889,881
14. RESERVES
A comparison between the actuarial reserves requirements and the actual financial reserves is shown as follows:
2009 2008
Old age benefits 351,893,893,736 318,929,470,318Survivorship benefits 64,426,068,155 59,881,700,423Policies in force 56,256,959,023 43,388,619,424Disability benefits 12,015,880,621 10,918,356,716Burial benefits 2,982,531,170 2,568,096,718Contingencies 2,821,581,507 1,700,667,353
Actuarial reserves requirements 490,396,914,212 437,386,910,952Surplus appropriated to additional reserves for contingencies 20,850,332,487 24,114,762,822
Actual financial reserves 511,247,246,699 461,501,673,774
The reserves for policies in force are computed individually as of December 31, 2009.
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15. LOANS AND INVESTMENT REVENUE - NET
This consists of the following:
2009 2008
Revenue from loansInterest on consolidated loan 7,431,277,202 6,145,029,749Interest on policy loans 1,258,719,319 1,284,309,972Interest on eCard plus cash advance 498,148,515 698,756,212Interest on private loans 464,701,595 18,678,201Interest on government guaranteed loans 436,190,687 485,991,472 Interest on real estate loans 427,643,884 443,177,636Interest on emergency/calamity loans 265,572,376 357,943,573Interest on deeds of conditional sale 237,941,310 187,565,614Interest on pension loan 199,160,867 168,606,815Interest on salary loans 173,550,893 3,008,571,976Interest on emergency loan assistance 13,826,250 171,660,235Interest on eCard cash advance 5,881,666 140,752,792Interest on SOS loan 2,107,519 278,714,331 Service revenue 589,080,754 458,947,455 Interest revenue from loans – subsidiaries 369,846,134 1,175,623,434Surcharges on loans in arrears 77,959,628 105,041,469
12,451,608,599 15,129,370,936Revenue from investmentsGain on sale of stocks 9,493,387,051 9,221,355,361Loss on sale of bonds - 457,362,100
9,493,387,051 8,763,993,261Net appreciation/(depreciation) in FV of investmentsUnrealized gain – Held for trading 60,724,712 187,123,950
Interest on investmentsInterest on ROP notes and bonds 10,831,811,440 6,387,885,228Interest on ROP bills 739,829,682 1,409,298,257Interest on Asset Participation Certificates 14,616,891 29,154,328
11,586,258,013 7,826,337,813
2009 2008
Fixed term interest - sale of Meralco shares 1,487,392,271 212,468,439
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Gain/(loss) on revenue from investments-subsidiaries 1,042,948,179 (1,288,890,561)
Dividend on stocks 370,649,658 607,280,714Equity share in net increase (decrease) in the net assets of subsidiaries (9,850,089) -
(Loss)/Gain on forex (1,840,368,003) 5,579,746,574Other investment revenue 2,871,581,228 2,766,752,650
3,922,353,244 7,877,357,816
Investment expensesExpenses on eCard 66,427,233 38,508,995Investment fees and others 57,958,893 45,774,406Foreclosure expenses 11,245,376 8,750,861Interest expenses 5,012,128 878,068,776Impairment loss 190,000 -
(140,833,630) (971,103,038)
Revenue from investment propertyGain on valuation of investment property 1,080,627,783 2,813,566,294Rental of investment property 99,026,340 75,549,036Gain on disposition of investment property 21,819,251 110,198,972
1,201,473,374 2,999,314,302
38,574,971,363 41,812,395,040
16. OTHER REVENUE This account consists of the following:
2009 2008
GSIS fees and commissionsAdministration fee 373,856,104 979.166.878Marketing commission 317,681,718 1,098,675,080Management fee 177,513,454 182,941,745
869,051,276 2,260,783,703
Revenue from rental 107,450,846 104,759,883Interest on receivables – agencies with MOA 74,569,245 228,629,079Interest on savings deposits 16,934,877 20,341,158Refund of gratuity 740,539 771,252Gain/(Loss) on disposition of assets (11,982,294) 4,966Others 59,380,546 61,308,567
1,116,145,035 2,676,598,608
GSIS fees and commissions revenues
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The Social Insurance Fund, being the administrator of the General Insurance Fund (GIF) which consists of the General Insurance business, Optional Life Insurance (OLI) business and Pre-Need (PN) business, and Employees Compensation Insurance Fund (ECF), charges the latter funds administration fees, marketing commissions, and management fees, as follows:
10 per cent Administration Fee based on the three Businesses’ respective gross income;
20 per cent Marketing Commission based on gross premium earned of the GI and the OLI businesses; and
10 per cent Management fee on ECF premium collections.
17. PERSONAL SERVICES
This account consists of the following:
2009 2008
Statutory expenses 1,305,864,897 690,106,275Salaries and wages 1,255,956,919 1,245,788,205Allowances 480,900,250 491,828,777Bonus/awards 335,782,772 311,586,642Fringe benefits 36,446,535 448,236,024
3,414,951,373 3,187,545,923
18. OPERATING EXPENSES
This account consists of the following:
2009 2008
Depreciation/amortization expense 394,815,250 368,221,726Separation pay 269,805,429 1,644,405,835Public relations and advertisement 135,470,923 120,234,894Electric and water consumption 126,954,913 127,619,557Assets and facilities maintenance expense 124,618,038 122,449,946Insurance expense 105,382,448 83,033,394Retainer's and consultants 99,778,933 99,803,265Overtime expenses 80,165,342 80,039,345
2009 2008
Auditing expenses 77,756,150 78,563,877
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Education, training and scholarship 77,330,267 42,667,692Communication services 66,633,193 84,425,133Taxes and licenses 59,898,778 14,721,706Computer expenses 31,586,222 71,258,530Traveling expenses 30,273,338 33,358,679Rental expenses 27,158,024 25,759,689Office supplies expenses 23,503,864 65,940,078Athletic and cultural expenses 17,551,167 15,320,604Representation expenses 15,471,708 16,820,370Fuel and gasoline consumption 12,092,676 13,135,192Discretionary expenses 10,867,276 14,063,674Contractual services 5,977,317 31,929,565Medical supplies expenses 4,158,935 2,155,423Contributions (others) 3,421,726 2,921,748Library books and materials 293,383 395,857Extra remuneration - 966,873Provision for income tax - 21,688,790Miscellaneous expenses 137,864,252 137,089,657
1,938,829,552 3,318,991,099
19. MINORITY INTEREST IN THE NET INCOME/ (LOSS) OF THE CONSOLIDATED SUBSIDIARIES
This account consists of the following:
2009 2008
GSIS Mutual Fund, Inc. (GMFI) 386,794,222 (545,615,537)
GSIS Family Bank (GFB) 94,534 293,078
386,888,756 (545,322,459)
20. OTHER ADDITIONS/(DEDUCTIONS)
This account consists of the following:
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2009 2008
Increase/(Decrease) in unrealized gain/(loss)-available for sale 5,503,838,454 (13,479,920,868)Increase in appraisal surplus 176,702,116 10,981Increase/(Decrease) in proceeds from issuance of capital stock-net 160,527,264 (160,527,264)Increase in minority interest in the changes in equity of the consolidated subsidiaries 101,968,268 66,165,531 Increase in donation surplus 20 30Increase in contingent surplus - (29,082,550)Increase in surplus adjustments - (632,875)Adjustment on beginning surplus of subsidiaries (334,311,915) -
(Decrease)/Increase in non-admitted assets (538,863,878) 1,003,494,489
5,069,860,329 (12,600,492,526)
20.1 Non-admitted assets
The Increase/(Decrease) of Non-admitted assets account consists of the following:
2009 2008
Sundry accounts receivable 197,967,324 -
Loans and investment 127,679,521 (10,000,000)
Stock purchase loan 37,988,991 -
Educational assistance loan 28,888,608 -
Furniture, fixtures and equipment - net 4,158,042 23,455,541
Suspense account 46,059 -
Deposit and indent orders (236,285) (222,863)
Contingent asset - deficit cases (4,368,275) (2,457,378)
Supplies and materials in stock (6,451,823) 14,414,519
Prepaid expenses (44,586,477) (981,264,203)
Medicines and other medical supplies - (25,861,006)
Others 197,778,193 (21,559,099)
538,863,878 (1,003,494,489)
20.2 Minority interest in the changes in the equity of the consolidated subsidiaries
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For CY 2009, the increase of P102 million in the minority interest in the changes in the equity of the consolidated subsidiaries consists of the following:
2009 2008
GSIS Mutual Fund, Inc. (GMFI) 168,448 230,558
GSIS Family Bank (GFB) 101,799,820 65,934,973
101,968,268 66,165,531
21. CONTINGENT LIABILITIES
At present, there are lawsuits and claims against the GSIS that are either awaiting decisions by the courts or are subject to settlement agreements. In the opinion of Management and its legal counsels, the contingent liability or loss arising thereto, under the Social Insurance Fund, amounts to at least P1.696 billion. Reserve for Contingencies has been set for the same amount.
Additional Reserve for contingencies2009 2008
Cases involving the Housing and Insurance Group 1,435,331,465 725,366,465
Cases involving the Administration Group 258,203,825 53,107,825
Cases involving the Field Operations Group 2,907,037 2,907,037
1,696,442,327 781,381,327
22. RELATED PARTY TRANSACTION
The GSIS, in its regular conduct of business, has transactions with its subsidiaries, GSIS Family Bank (GFB) acts as conduit for its short-term placements with the BSP. While waiting for longer tenor instruments providing better yields, GSIS places its investible funds with BSP through GFB.
As of December 31, 2009, the total short-term placements of the GSIS through GFB amounted to P1.008 billion. These funds were invested overnight to BSP. Maturities of the overnight placements were credited back to GSIS investment account with the Union Bank of the Philippines (UBP) via Real-Time Gross Settlement (RTGS).
23. ADMINISTRATIVE LOADING
For CY 2009, the administrative loading of the Fund is 5.78 per cent which is well below the allowable limit of 12 per cent.
24. EXEMPTION FROM TAX
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Pursuant to Section 39 of RA 8291, the GSIS, its assets, revenues including all accruals thereto, and benefits paid are exempted from all taxes, assessments, fees, charges or duties of all kind.
25. EVENTS AFTER THE BALANCE SHEET DATE
Termination of ING Investment Management (ING)
On January 5, 2010, the GSIS terminated its Investment Management Agreement with ING as one of its Global Fund Managers. ING ceased trading on January 26, 2010. The termination becomes effective on January 29, 2010.
The GSIS appointed JP Morgan as Transition Manager for its Global Fund ING Account per Board Resolution No. 11 dated February 3, 2010.
Hiring of Pacific Investment Management Company (PIMCO) as new Global Fund Manager
On February 5, 2010, the GSIS hired PIMCO as the new Global Fund Manager per Board Resolution no. 12 dated February 03, 2010. However, the Investment Management Agreement between the GSIS and PIMCO was officially signed on February 18, 2010. On March 24, 2010, GSIS invested $200 million to PIMCO.
Increase in the Investment Mandate of Credit Agricole Asset Management (CAAM)
On February 10, 2010, the Investment Mandate of CAAM was increased by $100 million per Board Resolution No. 13 dated February 03, 2010.
Termination of the Bank of the Philippine Islands (BPI) Asset Management
On April 14, 2010, the GSIS terminated its Investment Management Agreement with BPI as one of its Local Fund Managers effective April 15, 2010. The transfer of BPI Portfolio (i.e., cash, equities, retail treasury bonds, treasury bills, treasury bonds and corporate bonds) to GSIS Asset Management Group reflects the market value on the date when the securities were received by GSIS.
Go Live of Systems Applications and Programs (SAP) Financial Statements (FS)
Although SAP Financial Information System (FIS) was implemented in 2007, it was only in March 2010 that the posting periods from 1997 to 2008 were closed in the system. Thus, the audited FS for CY 2006 to 2008 can be viewed and generated using the FIS starting April 2010 while the 2009 financial statements in June 2010. For CY 2010, the management is looking forward to the real-time generation of FS in the FIS.
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