GOVERNMENT SERVICE INSURANCE SYSTEM
SOCIAL 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 GSIS maintains its officially registered address at the Government Financial Center, Roxas Boulevard, Pasay City, which is also its Home Office. It has 15 Regional Offices, 25 Branch Offices, 19 Satellite Offices and 5 District 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 April 30, 2009.
2. CHANGE IN FINANCIAL STATEMENTS PRESENTATION
The GSIS Board of Trustees, in its Resolution No. 180, dated November 5, 2008, has approved the change in financial statements presentation of the GSIS Social Insurance Fund to conform to the format prescribed under Philippine Accounting Standards (PAS) 26 and International Financial Reporting Standards (IFRS) for pension funds.
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 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).
The financial reporting format prescribed under PAS 26 is used for the reporting period December 31, 2008.
The financial statements for the Social Insurance Fund 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
In compliance with 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, the Financial Statements of the GSIS Subsidiaries now form part of the GSIS Financial Statements for Social Insurance Fund for the year December 31, 2008 with 2007 as its transition date.
The adoption of PAS 27 involved the following steps/procedures:
§ The carrying amount of GSIS’ investment in each subsidiary and the GSIS portion of equity of each subsidiary are eliminated;
§ Intragroup 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.
Basis of Consolidation
The consolidated financial statements include the financial statements of the GSIS and its subsidiaries as at December 31, 2008. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease 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. Inter-company balances and transactions, including intra-group profits and losses are eliminated.
The GSIS Subsidiaries and its percentage of ownership as at December 31, 2008 are as follows:
Subsidiaries / Percentage of OwnershipGSIS Family Bank (GFB) / 99.55%
GSIS Properties, Inc. (GPI) / 100.00%
Meat Packing Corp. of the Philippines (MPCP) / 100.00%
GSIS Mutual Fund Inc. (GMFI) / 57.48%
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.
3. UPDATE ON GSIS NEW COMPUTERIZED SYSTEM
3.1 Integrated loans, membership, acquired assets and accounts management system (ILMAAAMS)
The ILMAAAMS is designed to handle and process all data requirements in four major areas that form the core of GSIS operations: membership, loans origination and administration, acquired assets, and accounts management. Its main objective is to have a concrete grasp on the concept of “one member view”.
The system facilitates the automatic posting of financial data to the members’ accounts on a transaction level. As a result, the GSIS has drastically quickened the pace by which it administers membership accounts from loans processing to the identification of delinquent members – by integrating its financial requirements in all processes of loan granting, premium billing, and loan and premium collection.
ILMAAAMS can integrate with the general ledger system of the Financial Information (FI-GL). Transactions like loan granting and collections, premium billing and collections etc. are automatically reflected in the general ledger. There is seamless communication between these two systems.
At present, posting periods from January 1997 to December 2008 in the SAP are still open due to the on-going updating of members’ accounts.
3.2 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 Systems Applications and Programs (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. It captures transactions involving equities as well as local and foreign fixed-income securities. It also handles accruals, maturities, amortizations of bond and premiums and mark-to-market valuations of equities. The system generates a SAP-prescribed template with predefined accounting entries in excel format for batch uploading to FIS.
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.
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.
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. The CPAS Project will be implemented in 2009.
At present, all social insurance claims and pensions are uploaded to FIS through manually-prepared templates based on the monthly abstract of disbursed claims extracted by the Information Technology Services Group (ITSG) from the mainframe.
The GSIS is still in a transition period due to the recent implementation of the new systems, thus the financial statements for CY2008 were prepared manually based on the readily available data from the SAP and feeder systems.
4. RECORDING OF COLLECTIONS AND DISBURSEMENTS IN FIS
4.1 Collections
a. Collections thru the Financial information - Cash desk (FS-CD) facility of ILMAAAMS
Effective October 13, 2008, all collections pertaining to loans and contributions were processed thru the FS-CD of ILMAAAMS where transactions are automatically recorded simultaneously in the general ledger and subsidiary ledger.
b. Collections thru the Cash receipts and management system (CRMS)
All collections pertaining to Social Insurance (SI) accounts not covered by the FS-CD, investments and other miscellaneous transactions are processed thru the CRMS. Collections done thru the CRMS are uploaded to FIS through the use of templates.
c. 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. Collections that are covered by LOAs are uploaded to FIS through manually prepared templates based on the manually processed LOAs.
Effective December 2008, all LOAs covering incoming collections are prepared in the SAP where transactions are automatically recorded in the FI-GL.
4.2 Disbursements
All disbursements pertaining to investments, payroll and other miscellaneous transactions from January to May 2008 were uploaded to Financial Information System (FIS) through manually prepared templates based on the manually-processed disbursement vouchers and LOAs.
In June 2008, the Accounts Payable (AP) Module, one of the subsystems of the FIS was implemented. The subsystem provides automated support in processing the miscellaneous disbursements of the GSIS. It generates disbursement checks and provides accounting information.
Effective October 2008, all LOAs covering miscellaneous disbursements and fund transfers to other bank accounts are prepared in the SAP where transactions are automatically recorded in the FI-GL.
5. GSIS RATIONALIZATION PROGRAM
In 2008, the GSIS underwent a major change in its corporate structure. The rationalization was a direct offshoot to the implementation of the new computerized systems in the GSIS operational processes.
As the GSIS geared towards full automation, a lot of units were rendered irrelevant and a number of employees previously engaged in paper-based transactions were left in operational limbo. There was an overlapping of functions. As a result, the GSIS has offered the GSIS Retirement Incentive Program (GRIP) to solve its “redundancy problem” and to be able to hire people with expertise and necessary skills and talents that will improve the overall productivity and operational efficiency of the System. There were 790 GSIS employees who availed of the retirement program. In the light of the implementation of the FIS, the accounting function was centralized in the Home Office; hence the accounting divisions in the Field Offices were abolished.
The GSIS has applied the so-called “scrap and build” scheme wherein certain executive positions that have been vacated were dissolved and converted into multiple lower-rank positions. The cost of keeping many of these created positions virtually equaled the cost of paying the few executive positions that were vacated.
The GSIS Corporate Rationalization has been approved in a series of board resolutions, as follows:
§ Board Resolution No. 197, dated December 3, 2008;
§ Board Resolution No. 70, dated May 14, 2008; and
§ Board Resolution No. 62, dated April 23, 2008.
6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6.1 Basis of preparation 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 principles and reporting practices prescribed by the Insurance Commission.