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MANILA, Philippines --- The Commission on Audit (COA) revealed that the Social Security System (SSS) has overcharged its members by some P788.842 million in advance interest on salary loans in 2011. COA urged the state insurance firm to refund the amount to borrowers.

State auditors claimed that the failure of the SSS to adopt the accepted rule in computing interest for installment payment of loans triggered the excessive imposition. The rule has been set forth under Section X307.2 of the Bangko Sentral ng Pilipinas (BSP) Manual of Regulations.
''We recommend that management calculate interest using the method for normal installment type of credit prescribed by the BSP, and refund the excessive interest collected from borrowers,'' COA said in its 2011 Annual Audit report submitted to the SSS.
In the audit report that COA sent to the SSS Commission, State Auditor V Delia D. Agatep noted that a total of P43.23 billion membership loan granted as of December 31, 2011 by the SSS exceeded the ''10 percent limit of the Investment Reserve Fund (IRF)'' by 38.05 percent or P11.915 billion.
According to the report, 87.15 percent of these receivables ''are delinquent, 39.38 percent of which or P18.135 billion are already past due for five years or more, limiting the use of funds to more viable investments.''
State audit examiners said that salary loans granted members are subjected to a nominal 10 percent per annum interest with the first year interest deducted in advance from the proceeds of the loan.
Loans should be paid within two years in 24 equal monthly installments and will carry a one percent per month interest for delayed amortization. A 1 percent service fee will also be deducted from the loan proceeds.
''Management continued to calculate the interest for the first year that is deducted in advance from the proceeds of the loan by simply applying the nominal interest of 10 percent per annum on the loan amount. For the second year the interest on the loan is pre-computed by multiplying the interest rate of 10 percent on one-half of the original loan amount based on the presumption that half of the loan would be paid thru monthly principal amortization for the first 12 months, and the resulting amount is divided into 24 months and added to the monthly amortization,'' COA explained.
Auditors said this ''practice is not in accordance'' with the method of computer interest under the BSP manual.
''The manner of computing was already raised in the previous year for which Management commented that the member Loans Department was in the process of revising the computation of interest on salary loans to be consistent with the method for normal type of credit prescribed by the BSP regulation,'' COA stated.
The audit agency lamented that the promised revision has yet to be completed.
''In maintaining the current way of computing interest, the borrower is charged excessive interest by P982.61 for a P20,000 salary loan, if compared with the computing required under the BSP regulation. The rate applied was actually 18.45 and not 10 percent per annum,'' the audit report added.
State audit examiners also revealed that another setback in the pre-computed interest for the second year of the loan is ''no longer applicable once the monthly loan amortization is not paid on due date and when there are partial payments anytime during and beyond the term of the loan, which already necessitates recalculation of the interest based on the outstanding loan balance at the end of the first year and every month thereafter until fully paid.''
''Since the pre computed interest forms part of the monthly loan amortization, such interest, which is actually due and payable on the second year, is incorrectly recognized as interest income if paid, instead of unearned income, and treated as past due if unpaid and inappropriately charged penalty fee in the first 12 months of the loan,'' COA explained.
The audit agency also chided the SSS for imposing a requirement that would force the claimant to present document that would show ''he is in dire need of the money.''
''Such requirement is unnecessary and it does not promote a customer service-oriented attitude,'' COA said.
With regards to the member loans that have exceeded the 10 percent of the IRF, COA said this rule is provided under Republic Act 8282, yet has been ''continuously breached.''
According to COA, as of December 31, 2011, IRF has reached P313.149 billion, of which P31.3 billion should be the limit for investment in membership loans.
''As of the same period, the outstanding loans receivables from members amounted to P43.230 billion, thus exceeding the limit by P11.915 or 38.05 percent,'' COA stated.
Auditors said SSS should take a ''comprehensive approach in addressing the problem on delinquent accounts to limit member loans at reasonable levels.''



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