StraMa Worksheet 10 – Internal Audit Checklist

Name ANCHETA,MARTIN,OBONG,PASCUA,PASCUA Date April 18, 2022___

Audit Question Yes/No Discussion/Basis (Quantify where possible.) Supporting Document/s

Source

Management Audit

1. Does the firm use strategic-management concepts? YES BDO is a highly-regulated business which is being Interview and Annual Report 2021

regulated by the Bangko Sentral ng Pilipinas

(BSP) and Securities Exchange Commission (SEC).

The bank’s strategy is focused on three (3) core

areas namely to: 1) Build a diversified and

sustainable earning stream, 2) Create operating

leverage and 3) Prudently manage the balance

sheet. Furthermore, the bank’s strategic

management concepts focus on building a strong

business franchise to achieve diversity and

sustainability of earnings over the long term.

2. Are company objectives and goals measurable and well communicated? YES The firm sets goals and they make sure that it is Interview

measurable because they rate their people. To

effectively measure the performance of their

people, BDO ensures that the goals are

measurable and attainable. BDO has KRAs (Key

Result Areas), and KPAs (Key Performance

Areas), and these are well-communicated semi-

annually to their people. Moreover, the

objectives and goals are also discussed to their

employees and those part of their management

before they formally start working through a

work seminar as an introduction and they are

refreshed about the objectives and goals of the

firm through their annual orientation.

3. Do managers at all hierarchical levels plan effectively? YES The managers of BDO plan annually. Before the Interview

start of the year, the managers at all hierarchical

levels do planning, and during mid-year, they do

evaluations of the progress as regards to their

plans, whether there are significant changes or

not. The BDO makes an evaluation every six (6)

months and they monitor their plans and

progress on a monthly basis.

4. Do managers delegate authority well? YES The BDO managers follow the firm’s established Interview

company policies for them to delegate authority

well, and they are required to do their work in

 accordance with the prescribed job description

of the firm. Moreover, every level of

management thereon is defined in the firm’s

policies so that every work is in line with the

company’s goal and objectives.

5. Is the organization’s structure appropriate? YES Annually, BDO modifies their Board and Interview

Management Directory in order to be up to date.

The organizational structure of BDO shows that

they have different department heads who are

assigned and have a specific function. It shows

that each committee and management group has

its own head to whom they report to.

Furthermore, the different heads collectively

report to the higher ups. BDO follows a

systematic process of communication all

throughout the firm which is prescribed in their

company manual.

6. Are job descriptions and job specifications clear? YES The personnel and employees have a job Interview

description and the specifications which are

clearly known to them from job application and

up to hiring. It is being discussed at the beginning

of the year. The firm makes it a routine to discuss

their job descriptions. BDO ensures that they

discuss it at the beginning of every year. The area

manager of every operating branch ensures that

the personnel and employees are well-informed

of their job descriptions and job specification

which happens during the application process

and when they are already hired. Moreover, they

are also given a copy of the corporate and

employee manual specifying in detail their

assigned tasks.

7. Is employee morale high? YES The firm occasionally conducts motivational Interview and Annual Report 2021

talks, seminars and orientation focusing on

boosting the employee's morale towards work.

The head managers of every operating branch

are also required to conduct employee training

with benefits including the allowances, travel

expenses, and hotel accommodations. Such

training is said to be not purely work related but

also includes team building activities among the

employees. BDO also has merit increases,

promotions if the firm observes that the

employee or member is doing an exemplary

work output. Moreover, the organizational

reward and control are done annually. After the

evaluation of the performance of each employee,

the heads or managers recommend such

employees either for merit increase or for

 promotion.

8. Are employee turnover and absenteeism low? YES On a scale of the employee turnover and Interview

absenteeism, the area manager said that it is a 3

out of 10 because the BDO is strict in complying

with the company rules and regulations laid

down towards the performance of the

employees. When the management notices that

there may be a conflict or problem regarding the

employee, the firm does coaching and the

management will talk to the employee. After

coaching, the employee/s are monitored and

evaluated and the manager will discuss the

observations with the employee to turn it into a

positive development.

9. Are organizational reward and control mechanisms effective? YES BDO has a remuneration policy wherein it is Interview

geared towards attracting, retaining and

motivating employees. Their policy includes fixed

pay, bonuses and the Employee Stock Option

Plan (ESOP) as a long term incentive program.

Aside from this, the firm ensures that they

implement safety measures at every branch to

protect their clients and employees. Moreover,

99% of BDO employees are now fully vaccinated,

with an additional 47% receiving booster shots

within the first two months of 2022

Marketing Audit

1. Are markets segmented effectively? YES BDO segmentizes their market so that they know Interview

how to deal with their clients, where to go, what

products are to be offered to each and every

client or branch since there are peculiarities for

each. For example, some parts of Laguna are

industrialized segments. There are also factories,

car manufacturers, etc.

BDO Unibank operates through the following

segments: Commercial Banking segment which

handles the entire lending, trade financing, and

cash management services for corporate and

retail customers; Investment Banking segment

offers services to corporate clients outside the

traditional loan and deposit products; Private

Banking segment delivers traditional and non-

traditional investment and structured products

to high-net-worth individuals and institutional

accounts; Leasing and Financing segment is

involved in direct leases, sale and leaseback

arrangements, and real estate leases; Insurance

segment includes insurance brokerage and life

insurance business by providing protection,

education, savings, retirement, and estate

 planning solutions to individual and corporate

clients through life insurance products and

services. The Others segment focuses on asset

management, realty management, remittance,

accounting service, credit card service, and

computer service.

2. Is the organization positioned well among competitors? YES BDO is the number one (1) bank in the Interview, Annual Report 2021, and Bangko

Philippines to date. Hence, it is in the better Sentral ng Pilipinas statistics

position than their competitors. It has the biggest

branch network, the biggest asset, and the

biggest resources, compared to other banks.

As of December 2021, the Bangko Sentral ng

Pilipinas (BSP) released the ranking of bank

groups as to their total assets. BDO ranked first

with P3,484,525.19. They were followed by Land

Bank of the Philippines and Metropolitan Bank

with P2,586,099.11 and P2,179,339.00 total

assets, respectively.

3. Has the firm’s market share been increasing? YES During the pandemic, BDO did not close Interview and Annual Report 2021

branches compared to other banks who

unfortunately closed some of their branches.

Instead, BDO has opened more branches.

In 2020, there were 1,472 existing branches.

However, an additional 5% or an equivalent of 72

new branches were opened the following year.

BDO’s wealth management business held up well

in 2021, as total trust assets under management

(AUM) grew by 9% to P1.8 trillion on good

returns and sustained client servicing and

support. The Bank continued to lead the industry

in terms of AUM with more than 38% market

share.

4. Are present channels of distribution reliable and cost-effective? YES The banking industry is now gearing into digital Interview and Annual Report 2021

transformation, so BDO’s distribution is very

effective. BDO has the traditional distribution

process - that’s the branches. BDO is also into

digitalization. Those are the current channels

that BDO is using.

BDO has the largest distribution network with

over 1,500 operating branches and more than

4,400 ATMs nationwide.*

5. Does the firm have an effective sales organization? YES BDO’s sales people are very robust. BDO trains Interview and Annual Report 2021

them regularly to adjust and to adapt with the

environment because the market is also

changing. As the market changes, BDO also

 retool their people constantly.

Risk management at BDO begins at the highest

level of the organization. At the helm of the risk

management infrastructure is the Board of

Directors (the Board), which is

responsible for establishing and maintaining a

sound risk management system. The Board

assumes oversight over the entire risk

management process and has the ultimate

responsibility for all risks taken. It regularly

reviews and approves the institution’s tolerance

for risks, as well as its business strategy and risk

philosophy.

6. Does the firm conduct market research? YES BDO conducts market research annually. Interview

However, research is a continuous process. As

there are developments, BDO managers report

and evaluate it. Hence, BDO’s market research is

actually a continuous process, not just an annual

conduct. Market researches are usually

conducted by the Marketing Communications

team under the Support and Delivery

Management Groups.

7. Are product quality and customer service good? YES BDO’s product quality and customer service are Interview and Annual Report 2021

good because it benchmarks their products and

even their services. BDO conducts surveys, asks

feedbacks, and has a very robust complaints

desk. Hence, whether it be a complaint or a

commendation, BDO encourages it so that it can

improve their products and services.

The Bank completed major strategic initiatives in

2021. Notable of these are the completion of the

Next Gen IT Transformation Program, the rollout

of End-to-End Branch Automation, and the

launching of the Bank’s mobile wallet, BDO Pay.

The Bank will continue to invest in its digital

infrastructure to enrich product functionalities

and enhance end-to-end processing

capabilities, effectively making banking services

more accessible, easier

to use, and more operationally efficient.

8. Are the firm’s products and services priced appropriately? YES BDO’s products and services are priced Interview, Annual Report 2021

appropriately because even if a firm has the best

product, if it cannot price it properly, it will not

be patronized by the clients. During the

pandemic, BDO lowered fees. In fact, BDO

waived fees, and adjusted into the market

 conditions.

BDO seems to be on par with the offerings of

other leading banks when it comes to ATM

withdrawal fees using a different ATM (P18.00),

below maintaining balance charges (P300.00),

and ATM Withdrawal Limit (P50,000.00).

Significantly, during the strict lockdowns BDO

waived such fees to accommodate and lighten

the burden of its consumers. However, currently

all fees are in force and effect again. BDO may

adjust or slightly decrease their fees and charges

in order to encourage and attract more

consumers to favor their services and products.

In the ten leading banks in the Philippines, the

top five banks have similar amounts of fees and

charges; the lower five banks have significantly

lower fees and charges. Hence, BDO may opt to

slightly decrease their charges and fees to

solidify their lead.

9. Does the firm have an effective promotion, advertising, and publicity strategy? YES BDO has a separate department that handles the Interview

effective promotion, advertising, and public

strategy of the company. It is called the MCG –

Marketing Communications Group. In fact, BDO

has talents like Piolo Pascual, Pia Wurtzbach and

the rest of the celebrities, who they consider as

brand ambassadors/ambassadress. BDO is

equally active on advertisements in social media

as well as televisions.

10. Are marketing planning and budgeting effective? YES BDO’s marketing, planning and budgeting are Interview

effective. BDO cannot succeed; these are taken

lightly by its managers. BDO’s performance will

only be a good competitor if it has those.

11. Do the firm‘s marketing managers have adequate experience and training on YES BDO’s marketing managers have adequate Interview

marketing? experience and training on marketing. They

equip and retool them every now and then with

continuous training since the market is changing.

Hence, BDO has to adapt to the situation. What

is effective now, may not be effective tomorrow,

and vice-versa.

12. Is the firm’s Internet presence excellent as compared to rivals? YES BDO’s internet presence is excellent compared to Interview

rivals, especially now that it has already

embarked on a digital transformation. BDO now

has QR codes, biometrics and the likes. It makes

the transactions of clients easier, such as when

withdrawing or transferring money, clients may

optimize their mobile devices’ face recognition or

 fingerprint sensors.

Finance/ Accounting Audit

1. Where is the firm financially strong and weak as indicated by the financial ratio Annual Report and Financial Statements

analyses?

2. Can the firm raise needed short term capital? YES The firm can raise the needed short term capital Interview

because the firm is backed by the SM Groups

making it easy for the company to raise the

needed capital.

3. Can the firm raise needed long-term capital through debt and/or equity? YES Proven in the history of BDO, the firm has Interview

already raised the needed long-term capital

through debt and/or equity. In today’s time,

raising the needed long-term capital through

debt and/or equity will depend on the market

needed.

4. Does the firm have sufficient working capital? YES BDO’s sufficient working capital is observed to be Interview

above the minimum requirement prescribed by

the BSP

5. Are capital budgeting procedures effective? YES BDO’s capital budgeting procedures are effective Interview

because the audit and financial committee of the

firm quarterly review the performance of the

company and through this, the committee will

propose and identify investments and prepare

the necessary actions for such investments.

Moreover, the firm recently disclosed that the

firms’ income in 2021 is P42.8 B and P11.7B

during the first quarter of 2022.

6. Are dividend payout policies reasonable? YES The firm’s dividend payout policies are Interview

reasonable because BDO is very generous in

 giving dividends – cash dividends and stock

dividends. In the firm’s Declaration of Stock

Dividends, it states that the Board of Directors

approved the declaration of stock dividends

which is equivalent to 20% of the outstanding

capital in relation to its increase in the authorized

capital stock from 5,500,000,000 to

8,500,000,000 shares.

In addition to this, the policies are modified

annually depending on the financial situation of

the company. Sometimes they pay in cash

dividends, and sometimes they give stock

dividends.

7. Does the firm have good relations with its investors and stockholders? YES The firm has good relations with its investors and Interview

stockholders because the company keeps their

lines of communication open with them wherein

they conduct an investors and stockholders

meeting quarterly or when the need arises.

8. Are the firm’s financial managers experienced and well trained? YES The firm’s financial managers are experienced Interview

and well trained since BDO conducts coaching

and training annually.

9. Is the firm’s debt situation excellent? YES BDO’s debt situation is excellent since it is Interview

reported that the company’s debt is only minimal

and it shows that the company is in a robust

position.

Production/Operations Audit

1. Are supplies of raw materials, parts, and subassemblies reliable and reasonable? N/A

2. Are facilities, equipment, machinery, and offices in good condition? YES BDO does the facility’s auditing every now and Interview and BDO Annual Report 2021

then, and checks each branches’ facility every

month. The company also has an assigned

checklist/punch list in premises auditing.

Moreover, BDO is also focused on its three (3)

core areas which creates a balance over its long-

term goals in building a strong business franchise

and maintaining that its services are in good

condition; namely, To build a diversified and

sustainable earnings stream, Create operating

leverage, and Prudently manage the balance

sheet.
3. Are inventory-control policies and procedures effective? YES BDO conducts inventories every month. It has a Interview and BDO Annual Report 2021

separate unit conducting such procedures in

each branch such as also in the field of Sound

Liquidity Management, Sustainable Earnings

Generation, and Adequate Capital Ratios.

The company is also seeking to have a greater

improvement in 2022 alone as less restrictions

are provided by the government in terms of

physical interactions with a result much greater

than in the previous years, specifically in

solidifying the position of the bank for a more

long-term sustainable growth.

4. Are quality control policies and procedures effective? YES BDO constantly monitors and updates its policies Interview and BDO Annual Report 2021

and procedures as it gives importance in being a

highly-regulated institution in maintaining a

strong “control culture” as well as having an

effective control system with regard to the

activities being functioned and transactions in

different bank branches including operational,

reputational, and the legal aspects.

5. Are facilities, resources, and markets strategically located? YES BDO takes high regard in strategizing its Interview and BDO Annual Report 2021

branches’ locations having in mind the

availability and accessibility to its consumers,

specifically its market conditions.

In 2021, BDO opened all of its 1.542 branches

and are all prescribed to the government’s health

guidelines while still ensuring that customers are

being served with high quality services despite

the pandemic, including the manpower

requirements and flexible operating schedules.

Other than that the bank locations are also

 carefully strategized and evaluated through their

studies in order to safeguard the company’s

profitability.

6. Does the firm have technological competencies? YES BDO is dedicated to evolving its company to a Interview and BDO Annual Report 2021

more digital transformation. Also, the company

has a high competency with the other firms with

regard to the technological approach.

They also ensure that the approach they provide

is convenient to both its clients and employees

such as using the full potential of the digital

world in holding meetings and discussions with

its clients, providing immediate actions and

resolutions in the problems faced while at the

same mitigating the impact of how limited

physical interactions are in the middle of a

pandemic for smooth transactions.

Research and Development

1. Does the firm have R&D facilities? Are they adequate? YES BDO has an established R&D department that

continuously monitors their services and aligns Interview and Annual Report 2021

them to the present market conditions. Through

studies conducted by such a department, BDO is

able to further develop their products.

For example, the Bank operates an enterprise-

wide risk management framework to address the

risks it faces in its banking activities. Operational

risk, legal, regulatory and compliance risks, and

reputational risks are invariably managed by the

development of both a strong “control culture”

and an effective internal control system that

constantly monitors and updates operational

policies and procedures with respect to the

Bank’s activities and transactions.

Risk management process is just one of the

procedures where the company maximizes its

research-related aspect through reports,

evaluations, analysis and assessments, made to

address the risks it faces in its banking activities.

2. If outside R&D firms are used, are they cost-effective? N/A

3. Are the organization’s R&D personnel well qualified? YES BDO is committed in rendering quality services Interview and Annual Report 2021

to the public; ergo, it provides for adequate

training directed both to its directors and down

to its employees. As such its R&D personnel are

well-qualified for their roles.

The Bank provides various in-house programs

such as orientation programs for new hires, job

specific training courses and officers

 development programs to enhance the

knowledge, working 5 skills and managerial

ability of its employees.

One of the committees which oversee the

competencies of the company’s workforces is

the BDO’s Compliance Group. Such a group

forms processes, people, policies and other

components that, as an integral unit, ultimately

drive the Bank’s initiatives to conform to industry

laws, regulations and standards.

The Bank allocates every year a training budget

to cover internal training programs.

4. Are the R&D resources allocated effectively? YES BDO has a team of research analysts whose job

is to provide high-quality fundamental analysis

on a regular basis. As stated, however, BDO’s Annual Report 2021 and BDO Website

board has established nine committees to help in

discharging its duties and responsibilities. These

committees focus on audits and finances,

corporate governance, risk management, and the

like, to monitor that the company is coping with

possible changes in the market.

Aside from possible changes in the market, R&D

is also employed to monitor internal factors

present within the organization.

A yearly self-assessment is conducted focusing

on the performance of the Board, directors,

Committees and senior management, through

the Corporate Governance Committee, using an

approved set of questionnaires. The

performance evaluation process begins with

sending out customized Board Evaluation

Questionnaires to each director and advisor.

They are required to complete the questionnaire

explaining the rationale of their response, the

results of which are tabulated and consolidated.

An overall report is then prepared and presented

to the Corporate Governance Committee for

discussion and endorsement to the Board,

including the recommended actions and focus

areas to improve effectiveness.

5. Are management information and computer systems adequate? YES BDO is under the financial sector; as such, its Interview and Annual Report 2021

management information and computer systems

are not just adequate but are also up to date to

ensure that no financial losses shall exist.

BDO established several committees directed to

strengthen the bank’s systems; one of which is

the Information Technology Steering

Committee. Such a committee provides for

oversight and governance over the Bank’s IT

functions, including approvals of information

technology related policies and practices of the

 Bank and applicable guidelines. It also informs

the Board of both internal and external IT-related

developments and activities, potential challenges

and risks, progress versus strategic objectives.

6. Is communication between R&D and other organizational units effective? YES As stated, BDO makes use of its R&D to fortify Interview and BDO online Website

its quality services.

Under BDO Securities are research analysts of

several branches. Such analysts are responsible

for preparing financial market research reports

or publications and dissemination to the

marketing units and their institutional / retail

clients.

7. Are present products technologically competitive? YES Digital initiatives and investments remain as Interview and Annual Report 2021

BDOs top priority. In the midst of the COVID-19

pandemic, BDO continued to work on their

digital infrastructure, making their banking

services more accessible and easier to use. BDO,

being at the forefront of the banking industry,

introduced new digital capabilities on its

branches including biometric ATM machines and

paperless transactions.

Further, the Bank completed major strategic

initiatives in 2021. Notable of these are the

completion of the Next Gen IT Transformation

Program, the rollout of End-to-End Branch

Automation, and the launching of the Bank’s

mobile wallet, BDO Pay.

Computer Information Systems

1. Do all the managers in the firm use information system to make decisions? YES Managers use information systems to inform the Interview and Annual Report 2021

Board of both internal and external It-related

developments and activities, predicted

challenges and risks. They approve and give

endorsements to the Board on IT-related best

practices, strategic plans, policies, and

procedures. In that way, the firm maintains an

effective oversight of the Bank’s protection

policies and programs.

2. Is there a chief information officer or director of information systems position in the YES As of 2021, George Barcelon is the chairman of Interview and Annual Report 2021

firm? the Information Technology Steering Committee,

with Frederic Gomez, Dioscoro Ramos, and

Nestor Tan as his members. The said committee

provides oversight over the information

technology of the bank. They are responsible for

managing technology risks that confront the

Bank and its subsidiaries to guarantee the risks

are properly managed and mitigated.

Recently, BDO was involved in a cyber-scandal

where hundreds of accounts of its clients were

 hacked. In this light, BDO implemented a

campaign called #BDOAntiScam, which provides

for caution and the general banking public

against cyber-attacks. BDO empowers its clients

with information that teaches them how to be

smarter than scammers. It exposes scam attacks,

reminds about the things legitimate bank officers

will never do or ask for, and shares defenses such

as never sharing personal information and never

clicking on links to verify their bank accounts.

3. Are data in the information system updated regularly? YES The information system of the company is Interview and Annual Report 2021

updated, as the need arises. They try as much as

possible to update data and information in their

system to avoid confusion in their datalines.

Whenever there’s a newly imposed guideline in

certain laws that affects the bank, they

immediately revise and update their system and

policies. Further, they stated that continuous

giving of updates to the company helps them

keep the momentum going in giving high quality

services to their customers.

4. Do managers from all functional areas of the firm contribute input to the information YES Managers in the company give emphasis on the Interview and Annual Report 2021

system? feedback of their co-workers in the workplace

and their clients. Based on the gathered

feedback, they give recommendations to the

higher officials to approve such actions because

there are times that executive boards do not

notice small details that can be effective in the

firm. In relation to that, six special board

meetings were called in 2021 to discuss the

bank’s strategies for an enhanced customer

journey, seamless digital transformation,

effective wealth management, initiatives, and

robust cyber security measures.

5. Are there effective passwords for entry into the firm’s information system? YES Utilizing the current security technologies as well Interview

as processes, the company uses authentication

protocols for confidentiality and privacy of the

bank and its clients. It uses an authentication

factor method where it ensures that only

authorized users can access the BDO Internet

banking system by verifying the identity of the

user, through the use of a user name and a

password.

6. Are strategists of the firm familiar with information systems of rival firms? NO The strategists of the bank are not quite familiar Interview

with the information systems of their

competitors because the firm listens more to

their clients than their competitors. They state

that although they all do benchmarking, the bank

also makes adjustments based on the customer’s

 needs, which makes them the leading Philippine

bank.

7. Is the information system user-friendly? YES The bank runs tests, such as pilot-testing to Interview and Annual Report 2021

ensure that the system they launch is user-

friendly and also help those people who are not

tech-savvy. Further, in the system of BDO,

subjects can be easily navigated. BDO lays out

reports on Corporate Governance, Investor

relations, disclosures, subsidiaries, and branches.

On its left wing, the navigation is subdivided into

two, for personal accounts and business

accounts. The system also collaborates with

images, procedures, directions, and sub-

information to better navigate what the

customer wants to do and/or inquire.

Based on the survey and recent feedback, a

respondent says that the system is “Very good

service as compared to similar institutions that I

deal with internationally. The screen layouts are

good and the security for the site is what I would

expect from a banking service provider.

8. Do all users of the information system understand the competitive advantages that YES In 2021, the Information Technology Steering Interview and Annual Report 2021

information can provide firms? Committee monitored the progress and

improvements of information technology

projects and cybersecurity activities. It regularly

assesses, discusses, and reviews IT-related issues

reported by internal auditors and regulators, as

well as keeping track of the status of the

remediation of said issues.

9. Are computer training workshops provided for users of the information system? YES As BDO holds regular meetings to hear feedback Interview and Annual Report 2021

from different perspectives inside and outside

the firm, BDO also maintains a mentorship

program for their employees because technology

also changes and becomes more advanced;

therefore, the company strives to be fit with the

present circumstances, meeting with the

changing needs of their clients.

10. Is the firm’s information system continually being improved in content and user- YES BDO stresses that they have to be abreast with Interview

friendliness? the technology; hence, they improve their

information system continuously. “What was

effective yesterday may not be effective today,”

Vice President Guimmayan said. Along with their

vision-mission statement, the company wants to

be committed to its objectives, instill that they

should be one step ahead of their competitors,

and let their customers and clients experience a

quality service that they deserve.