EXECUTIVE SUMMARY

INTRODUCTION

The Social Security System (SSS) is a corporate body created under RA No. 1161,
otherwise known as the Social Security Act of 1954. Amendatory bills were introduced and
were finally implemented on September 1, 1957, marking a significant milestone in the
social security program. The SSS administers the Social Security Program and
Employees’ Compensation (EC) Program for private sector workers.

To further strengthen the SSS, RA No. 8282, also known as the Social Security Act of
1997, was signed on May 1, 1997. Under this Act, the government accepts general
responsibility for the solvency of the SSS and guarantees that prescribed benefits to
members shall not be diminished. Section 16 of RA No. 8282 exempts the SSS and all its
benefit payments from all kinds of taxes, fees or charges, customs or import duty.
However, SSS exemption on VAT has been repealed pursuant to Section 86(q) of the RA
No. 10963 otherwise known as the “Tax Reform for Acceleration and Inclusion (TRAIN)”
Law effective January 1, 2018,

On February 7, 2019, RA No. 11199 or the Social Security Act of 2018 was enacted to
rationalize and expand the powers and duties of the Social Security Commission (SSC)
to ensure the long-term viability of the Social Security System, repealing for the purpose
RA No. 1161, as amended by RA No. 8282.

The SSS has now a membership of 38.797 million. Services to members are extended
through SSS’ network of 324 local offices and 28 foreign offices. The SSS is directed and
controlled by the SSC. The general conduct of the operations and management functions
is vested on the SSS President and Chief Executive Officer (PCEO). All members of the
SSC including the SSS PCEO are appointed by the President of the Philippines.

The principal office of SSS is located in East Avenue, Quezon City. It has a total personnel
complement of 8,322 consisting of 3,344 and 4,978 from Main Office and Branch Offices,
respectively.

The approved Corporate Operating Budget (COB) of SSS for CY 2020 amounted to
P271,076 million. Of the amount, only P249,378 million was utilized. Details follow:

DBM
Disbursements Balance
Approved COB
(In Million Pesos)
Personnel services 8,564 6,769 1,795
Maintenance and other
operating expenses 2,940 2,136 804
Capital outlay 2,171 357 1,814
Benefits payment 206,401 194,871 11,530
Small Business Wage Subsidy
(SBWS) Measure 51,000 45,245 5,755
Total 271,076 249,378 21,698

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FINANCIAL HIGHLIGHTS (In Million Pesos)

I. Comparative Financial Position

2019 Increase
2020
(Restated) (Decrease)
Assets 639,994 601,383 38,611
Liabilities 6,767,251 6,309,071 458,180
Equity (6,127,257) (5,707,688) (419,569)

II. Comparative Results of Operations

2019 Increase
2020 (Restated) (Decrease)
Revenues 254,336 276,605 (22,269)
Expenses 681,610 601,454 80,156
Net loss (427,274) (324,849) (102,425)
Other comprehensive income 8,185 76 8,109
Total comprehensive loss (419,089) (324,773) (94,316)

In CY 2020, SSS recognized contingent liability for the present value of future benefits and
expenses, less the present value of future contributions discounted at the appropriate risk-
free discount rate pursuant to Philippine Financial Reporting Standard (PFRS) 4 –
Insurance Contracts, thus the significant liability amounts and negative equity.

SSS recorded net losses of P427.274 billion and P324.849 billion in CYs 2020 and 2019,
respectively, as a result of the adoption of PFRS 4. The increase in net loss of P102.425
billion was mainly due to the decrease in income from premium contributions by P17.049
billion from P222.746 billion in CY 2019 to P205.697 billion in CY 2020. The quarantine
protocols during the COVID-19 pandemic resulted in the closure of some business
enterprises and unemployment to some SSS members. Consequently, SSS extended the
payment deadlines of premium contributions. Members who are actively paying their
contributions decreased by 1.459 million or 8.27 per cent from 17.640 million in CY 2019
to 16.181 million in CY 2020.

On the expenditure side, SSS posted an increase of P80.156 billion or 13.33 per cent in
CY 2020 mainly due to the increase of expenses related to the recognition of provision for
insurance contract liability by P73.414 billion. Furthermore, 34.79 per cent of the allowed
charter limit was spent for administrative and operational expenses.

OPERATIONAL HIGHLIGHTS

Aside from its notable financial performance, the SSS had successfully implemented
various plans, programs and measures anchored on providing universal and equitable
social protection through world-class service and fund viability. The status report of the
recalibrated CY 2020 plans, programs and measures in view of the circumstances brought
about by the COVID-19 pandemic are as follows:

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 Percen-
Plans and Programs Target Accomplishment
tage
I. Sustain the Viability of the Social Security Program
1. Increased fund life CY 2042 or beyond CY 2054 100
II. Increase Collection
2. Contributions collected P194.29 billion P206.14 billion 100
III. Ensure Fund Stewardship
3. Shift in investment P50.70 billion for all type of
P65.76 billon 100
loan releases
4. Compliance to Charter Limit of < 70 per cent of total
34.79 per cent 100
operating expenses income
IV. Improve Customer Satisfaction
5. Percentage of satisfied customer 90 per cent 91 per cent overall 100
satisfaction score
6. Expand e-centers in the Branches 100 Branches 100 Branches 100
V. Improve Compliance of Employers and Members
7. Percentage of referred delinquent
85 per cent 100 per cent 100
employer accounts
8. Percentage of economically active
41 per cent 38.96 per cent 95
population contributing to SSS
VI. Deliver Innovative, Quality Service
9. Number of SSS members
benefited under the SBWS 3 million 3.1 million 100
program
10. Number of IT-enabled service Full implementation of Full implementation of the 100
delivery channels eight IT-enabled projects eight IT-enabled projects
11. Percentage of applications 90 per cent Retirement – 35.59 per cent 44
processed within the applicable Death – 43.98 per cent 49
time upon receipt of complete Disability – 74.07 per cent 82
documents Sickness – 79.18 per cent 88
Maternity – 73.06 per cent 81
Funeral – 86.26 per cent 96
Loans – 100.00 per cent 100
VII. Build a Culture of Continual Improvement and Excellence
12. Implement quality management ISO Certification of all core For continual improvement
system processes of 51 NCR on the scope of the ISO
Branches certification from process to
program-based audit
13. Improve average competency
86 per cent 88 per cent 100
level

SCOPE OF AUDIT

Our audits covered the examination, on a test basis, of the accounts and transactions of
the SSS for the period January 1 to December 31, 2020 in accordance with International
Standards of Supreme Audit Institutions to enable us to express an opinion on the fairness
of presentation of the financial statements for the years ended December 31, 2020 and
2019. Also, we conducted our audit to assess compliance with pertinent laws, rules and
regulations, as well as adherence to prescribed policies and procedures.

AUDITOR’S OPINION

We rendered an unmodified opinion on the fairness of presentation of the financial

statements of SSS as at and for the years ended December 31, 2020 and 2019, with
emphasis on the recognition of Insurance Contract Liability in the SSS’ financial
statements in compliance with the policy directive of the National Government requiring
government insurance institutions to adopt the PFRS 4 – Insurance Contracts effective
CY 2020. This is a shift in the accounting treatment of contingent liability under Philippine
Accounting Standard (PAS) 37 – Provisions, Contingent Liabilities and Contingent Assets.

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Management believes that the resulting significant increases in liabilities, expenses, net
loss and net deficit in CYs 2020 and 2019 did not affect SSS’ ability to continue as a going
concern.

SIGNIFICANT AUDIT OBSERVATIONS AND RECOMMENDATIONS

While the following audit observations impact on the balances of the accounts affected,
taken together, they did not exceed the materiality level set for the CY 2020 and CY 2019
audits of the accounts and transactions to warrant a modified opinion.

1. The non-submission of collection documents by Collecting Banks (CBs)/Collecting

Agents (CAs) and incorrect/invalid collection data files resulted in the accumulation
of negative balances in the Receivables-CBs/CAs account totaling P720.633 million
as at December 31, 2020 causing the delayed posting of the collections thereby
understating the Members’ Contribution and related income accounts and
overstating the loans and interest receivables accounts by a total amount of
P720.633 million, contrary to the fair presentation required by PAS 1 and Conceptual
Framework for Financial Reporting 2018 (Conceptual Framework).

We recommended and Management agreed that:

a. The Liquidity Management and Bank Deposits Department (LMBDD) and

Treasury Division (TD) to hasten the activities to ensure that all collecting banks
and agents are fully operating under the Real Time Processing of Contribution
(RTPC)/ Real Time Processing of Loan (RTPL)-Payment Reference Number
(PRN) program;
b. The Contributions Accounting Department (CAD) to continue the reconciliation
of the Subsidiary Ledgers (SLs) of individual members to the corresponding
General Ledgers (GLs) and validation of excess postings in the SLs; and
c. The General Accounting Department (GADept) and Collection Data Processing
and Reconciliation Department (CDPRD) to continue the conduct of thorough
analysis and reconciliation of collections between their records and to effect the
necessary adjustments to Receivable–CBs/CAs and affected income and
receivables accounts to eliminate prior years’ negative balances.
2. Collections totaling P671.036 million are temporarily recorded under Other
Payables(OP)–Member Loans (ML) Collections account instead of directly crediting
to Loans and Interest Receivables–ML and penalty income accounts, hence, these
are not immediately posted to the member-borrowers loan ledgers resulting in the
overstatement of the balances of Loans and Interest Receivables–ML accounts,
understatement of corresponding penalty income account contrary to the fair
presentation required in Paragraphs 2.12 and 2.13 of the Conceptual Framework
and PAS 1. This also resulted in incorrect employee subsidiary ledger loan balances
that may further result in erroneous or delayed payment of benefits to members.

We recommended and Management agreed that:

a. The Task Force on Loan Payment and Loan Delinquency to:

i. continue to supervise and assist SSS Branches on the correction/adjustment

of unposted transactions, and

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 ii. hasten the formulation of a policy to correct/adjust unposted payments by
unlocated/non-existing payee-employers; and

b. The Member Loans Department (MLD) and Investments Accounting Department

(IAD) to continue the monitoring of actions taken by SSS Branches on the
processing and correction of unposted payments of employers within their
jurisdiction.

3. Member Loan (ML) overpayments not yet refunded or applied to

new/subsequent/existing loans or adjusted due to erroneous postings which are
recorded under Accounts Payable (AP) totaling P1.045 billion as at December 31,
2020 deprived the member-borrowers of the use of their money. Also, various
deficiencies noted in the verification of the details of the account balance and of the
automated one-time run of application of overpayments to current loan totaling
P3.945 billion are contrary to the fair presentation required under Paragraph 2.12 of
the Conceptual Framework, which may result in the misstatement of the AP and
affected Receivables-ML accounts as at December 31, 2020.

We recommended and Management agreed that:

a. The MLD, Information Systems Department (ISD) III and IAD to:

i. thoroughly verify the individual loan accounts and correct/adjust the

erroneously posted payments, Loans Granting Facilities and final benefits
(death, disability and retirement), to ensure that only correct overpayments
are posted as payment to current loans, and

ii. immediately adjust or reverse unvalidated negative balances that were

applied as payment under the automated one-time run of application of
Overpayment to Current Loan;

b. MLD to inform member-borrowers without current loans of validated

overpayments so that request for refund can be filed; and

c. Set target percentage of reduction of the balance of ML overpayments from this

date until December 2021 and in the succeeding year until all the validated ML
overpayments are returned to members/beneficiaries.

Other significant audit observations and recommendations that need immediate action are
as follows:

4. A total of 926,899 employers are delinquent in their remittances of premium

contributions including penalties and damages with a total assessment of P321.532
billion as at December 31, 2020 despite the implementation of the Accounts
Management System and the Condonation Penalty Contribution Program in CY
2019, consequently depriving the SSS of much needed funds for prompt delivery of
social security protection, claims and benefits for its members and beneficiaries.

We recommended the following:

a. Branch Operations Sector, Large Account Division, Legal and Enforcement

Group–Operations Legal Services Division I and II/Employers Delinquency

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 Monitoring Department and the SSS COMSEC–Office of the Sheriff to intensify
collection effort of employer delinquencies;
b. Review/revisit the Account Management System and implement stricter
guidelines to address the issue of increasing number and percentage of
delinquent employers;
c. Hasten the preparation and approval of the MOP on the Handling of Non-
Compliant and Delinquent Employer Accounts; and
d. Consider another condonation program pursuant to Sections 4(a)(5) and 4(8)
to collect from delinquent employers and members who failed to avail of the
previous program and offer the program for a longer period.
5. Various ML accounts totaling P66.275 billion or 56 per cent of the total P118.173
billion remain uncollected as at December 31, 2020, the same status of being more
than 50 per cent of the total ML balance from CYs 2016 to 2019, hindering the use
of funds for more viable and profitable investments.

We recommended and Management agreed that:

a. The MLD to:

i. Closely monitor the collection performance of Branches according to their
collection quota; and

ii. Hasten the implementation of the planned activities regarding the cleanup of
uncollected loans for more than five years; and

b. The ISD III to hasten the development of programs/modules under the various
System Development Requests submitted by the MLD.

SUMMARY STATUS OF SUSPENSIONS, DISALLOWANCES AND CHARGES

As at December 31, 2020, audit disallowances totalled P1.398 billion. Of the total
outstanding Notices of Disallowance (NDs), P258.711 million were issued Order of
Execution and Notice of Finality of Decision, P329.127 million were affirmed by the COA
CGS Cluster II, P669.403 million are either under appeal or under a Petition for Review
before the Commission on Audit and the Supreme Court of the Philippines, while NDs
totalling P140.732 million pertain to SSS Branches.

STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

Out of the 117 audit recommendations embodied in the CY 2019 Annual Audit Report, 24
were fully implemented, 70 were partially implemented, of which 18 were reiterated in Part
II of this Report, ten were reconsidered and 13 were not implemented. Of the 13 audit
recommendations that were not implemented, two were reiterated in Part II of this Report.

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