ALLEGATION ON INTEGRITY OF

METROBANKS INTERNAL BANKING SYSTEM

AND CONTROL

Audit Case

Submitted by:

DELIGERO, Hydee R.

Submitted to:

Sir Armando L. Banares, CPA, PhD.

Subject:

ACTG 422- Assurance Principles with Ethics and Good Governance

Date:

August 18, 2017

 July 17, 2017- A senior official of the Metropolitan Bank and Trust Co.

(Metrobank) suspected of orchestrating an elaborate fraud scheme to embezzle millions

of pesos from the second largest bank in the country was arrested by the National

Bureau of Investigation (NBI).

In a statement released by Metrobank on Friday, July 21, it said that the

authorities have already arrested last Monday the alleged mastermind of the P900-

million internal fraud. NBI sources identified the suspect as Maria Victoria Lopez, vice

president of the corporate services unit in Metrobank's Makati City head office. The

Metrobank assured the public that none of its clients have been affected by the incident

that may have lost as much as P2.5 billion.

"The bank is reinforcing its commitments to the highest standard of integrity and

upholds the protection of its customers as its main priority," it said. "No customer has

been affected by this incident. In the context of the bank's P1.9 trillion financial

resources rest assured that we continue to operate business as usual for the bank and

our customers," it added. The management also said it cannot comment further as the

case has already been filed against Lopez.

Lopez, 54, now detained at the NBI headquarters in Manila, was accused of

funneling loans into fake accounts in the name of a legitimate client, Universal Robina

Corporation. The funds allegedly went to other accounts and financial institutions

controlled by Lopez.

Banko Sentral ng Pilipinas Governor Nestor Espenilla in a statement said they

will look into the issue, particularly on how a sole official was able to rob such a huge
amount from the bank. Espenilla also said they will look into the adequacy of the

controls being used by banks in the country to prevent electronic fraud. "Our banks

have their natural internal controls precisely to prevent these things from happening," he

said.

"So we will have to look into the adequacy of those controls if in fact, a signicant

crime happened within the bank," he added. Espenilla said "no system is perfect" but

believes that Metrobank is resilient to such issues. (SunStar Philippines)

The Inquirer learned that Metrobank, owned and controlled by George Ty, may

have lost as much as P2.5 billion after a bank vice president allegedly funneled

disbursed loans into fictitious accounts created in the name of a legitimate client,

Universal Robina Corp.

The funds in the fake accounts, controlled by the rogue officer, were then

siphoned off electronically to other accounts in other financial institutions and into the

pockets of the suspect.

BSP PROBE

This prompted Governor Nestor Espenilla Jr. of the Bangko Sentral ng Pilipinas

(BSP) to launch a probe to determine how a single official was able to circumvent the

banks internal controls to commit qualified theft.

The BSP immediately mobilized its examiners and auditors to pore over

Metrobanks records.
 A Metrobank official, who spoke on condition of anonymity because the probe

was going on, said the preliminary amount of the stolen funds that could be confirmed

as of Thursday stood at around P900 million.

VP arrested

The suspected rogue official has been identified as Maria Victoria Lopez, a vice

president at the corporate services unit of Metrobanks Makati City head office.

She was arrested on July 17 by the National Bureau of Investigation in a sting

operation on the banks premises.

False loan releases

Another banker, who was familiar with the details of the scam, told the Inquirer

that the suspect engineered false loan disbursements from Metrobank to the fake

Universal Robina account in tranches of P30 million.

She or they did this over a long period for P30 million disbursements to reach a total of

P2.5 billion, the banker said. How far back? Thats what theyre trying to figure out

right now.

Metrobank, a publicly listed company, had P1.9 trillion in assets as of the first

quarter of 2017. It earned P6.21 billion from January to March.Metrobank had 959

domestic branches and 202 foreign branches, offices and subsidiaries last year.
BAP Probe

The Bankers Association of the Philippines on Friday said the reported theft at

the Metropolitan Bank and Trust Company or Metrobank allegedly committed a senior

official appeared to be an isolated incident.

The following is the official statement of the Bankers Association of the

Philippines regarding this recent Metrobank development: The Bankers Association of

the Philippines (BAP) is confident that Metropolitan Bank and Trust Company

(Metrobank) will quickly resolve the recently reported theft committed by a senior

official. This appears to be an isolated incident and we are confident the facts will arise

from the ongoing investigations being carried out by both Metrobank and the Bangko

Sentral ng Pilipinas (BSP).

Such incident is quite unfortunate but we wish to reiterate that banks have

established internal controls and systems and instituted separation of functions

designed to help prevent crimes of this nature from happening.

Suffice it to say, Metrobank assures the public that none of its customers have

been affected by this incident as it reinforces its commitment to the highest standards of

integrity and uphold the protection of each and every one of its customers.

Together with the BSP, we agree that Metrobank, the second largest banking

institution in the country with assets of more than P1.9 trillion will quickly enforce the

necessary remedial measures and policies required to prevent such incidents from

happening again.
 NBI officials said in a news briefing that Lopez faces charges of qualified theft,

falsification and violation of the General Banking Law.

NBI spokesperson Ferdinand Lavin said Lopez was arrested while trying to move

the stolen money to an unspecified personal account. The money was taken from the

credit facility of one of the Metrobank's biggest corporate clients."The biggest loser of

this is the integrity of the banking system," Lavin said.

The NBI spokesman said Lopez had refused to cooperate in the investigation. "At

this point of the investigation, shes not cooperating; shes not talking," he said.He said

Lopez had served Metrobank for over 30 years and received a monthly compensation of

at least P250,000. NBI officials said Lopez was trusted by big clients.

The Ty family-led bank on Friday announced the arrest of the suspect in an NBI

entrapment operation earlier this week.Upon our own discovery, the Bank immediately

caused the arrest of the individual involved in this case, who has been detained by the

authorities since Monday, Metrobank said in a disclosure to the stock exchange on

Friday.

'Business as usual'

Metrobank pointed out that it is "reinforcing its commitment to the highest

standards of integrity and upholds the protection of its customers as its main priority. No

customer has been affected in this incident."

The Philippine Daily Inquirer earlier reported that Metrobank had been hit by a

multimillion-peso case of internal fraud involving a bank officer who had funnelled at
least P900 million into a fictitious Universal Robina Corporation (URC) account and then

channelled the cash to other bank accounts.The report said the amount involved could

reach P2.5 billion.

BSP Probe

In response, the Bangko Sentral ng Pilipinas launched a probe into the internal

security controls of the bank which BSP Governor Nestor Espenilla Jr called "qualified

theft."

The House of Representatives Banks committee announced it will summon

representatives from the BSP and Metrobank to explain how the incident happened.

News of the fraud caused the shares of publicly-listed Metrobank to drop by 4.97% as

2:35 pm on Friday.

While the reported amount is alarming, we believe the incident should have no

lasting effect on MBTs operations. Note that the fraud has already been discovered and

the alleged perpetrator caught. This should allow the bank to strengthen its internal

operations to prevent similar incidents from happening in the future. In addition, the

brokerage said in a note to investors on Friday afternoon.

We believe that the bank could realistically,get back part of the money that was

taken, thus minimizing its losses. More importantly, note that no individual depositor lost

money in this incident (as the funds were effectively taken from the bank itself). As

such, it should have minimal impact on its relationships with MBTs clients going

forward, it added.
 COL Financial described the drop in Metrobanks stock price as an overreaction

by investors and said it fully expects it to weather the storm.

Assuming the worst-case scenario of the bank losing P2.5 billion (assuming no

part of the money will be returned and no insurance collection), MBTs equity capital

would go down by just 1.2%. While its 2017 income could drop by 12% assuming it fully

provides for the reported amount, the drag will not be recurring. COL Financial said.

Metrobank is the countrys second largest bank in terms of total assets with P1.9

trillion as of Q1 2017. It also reported a net income of P6.21 billion for the same period.

URC wont incur losses

Meanwhile, the Gokongwei-led URC, a customer of Metrobank, said it would not

be affected financially by the fraud. It noted that URC and its Metrobank account were

mentioned in connection with the case.

"Even as Metrobank continues to conduct an internal investigation on the matter,

we would like to assure everyone that URC will not incur any financial loss whatsoever

and that the integrity and security of URC and its active accounts at Metrobank remain

unaffected by the said incident," URC said.

It thanked Metrobank President Fabian Dee for alerting the company about the

"unfortunate development and his assurance that URC will not be financially impacted in

any way by this incident."

"We take this occasion to also reiterate our confidence with Metrobank as we

continue to conduct regular, business as usual transactions with them, it added.

SENATES PROBE

The executives of the Metropolitan Bank and Trust Company (Metrobank), Anti-

Money Laundering Council (AMLC), and Bangko Sentral ng Pilipinas (BSP) will face the

Senate committee on banks, financial institutions, and currencies after a former senior

official of Metrobank allegedly committed internal fraud involving P900 million to P2.5

billion.

Senator Francis Escudero, the committee chairman, said in a statement on

Tuesday, July 25, that the panel will not yet launch an investigation and would like to

see first how the inquiry being conducted by Metrobank along with the National Bureau

of Investigation (NBI) will turn out.

Instead, Escudero will call the officials of Metrobank, AMLC, and the BSP to a

meeting for the Senate committee to be informed about the developments of the case

and determine if there are loopholes in the safety mechanisms and procedures for

banks. (READ: Metrobank loses over P1B in market value amid fraud issue) I want to

be enlightened and I want to hear it straight from Metrobank. I want to know how the

bank executive was able to commit such a massive scale of fraud even with the bank's

internal control and checks and balances, Escudero said.

The suspect, Maria Victoria Lopez, was arrested through an entrapment

operation conducted by the NBI last July 17. Lopez is the head of the corporate services

management division of Metrobank's head office.

 According to the NBI, Lopez supposedly fabricated documents and facilitated the

disbursement of loans into fake accounts under the name of one of their corporate

clients, the Gokongwei-led Universal Robina Corporation (URC).

Through the P25-billion credit line of URC, Lopez was able to process loans

amounting to P900 million and P50 million. According to reports, the suspect was able

to release the loans in tranches of P30 million for the bank to have lost as much as P2.5

billion.

Meanwhile, the Gokongwei-led URC said in a separate disclosure last week that

it would not be affected financially by the fraud.

Questions abound

The anomaly was only discovered when Metrobank noticed irregularities in the

supposed letter request from the client, which asked the bank to issue a P2.25-million

manager's check to an individual payee as interest payment.

After verifying with URC, the company said it was not aware of the letter or of the

account where the payment would be debited.

So what we want to know now is how often the audit happens, from the side of the BSP

and the bank itself. How come the bank did not detect what was going on at the early

onset? Escudero asked.

Metrobank and the NBI are also looking into the possibility that the suspect

connived with other bank employees in committing the fraudulent transactions.

 Aside from the full-blown investigation by Metrobank and the NBI, a separate

probe will also be done by AMLC, under the supervision of the BSP, to check

Metrobank's internal controls.

Escudero said they will await results of the investigations and from there, decide

whether or not a Senate probe would still be necessary.

We expect banks to immediately detect red ags in their system and immediately

resolve internal matters. Apart from ensuring that the culprit will be brought to justice,

Metrobank must assure its clients they have a robust internal control framework and

that they will rigorously monitor their system, he said.

Lopez has been charged with qualified theft, falsification, and violation of the

General Banking Law before the Makati City Prosecutor's Office.

HUBERT CO AND SUE SAI CLAIM THEY WERE DUPED BY THE KEY SUSPECT,

METROBANK EXECUTIVE MARIA VICTORIA LOPEZ.

Metropolitan Bank and Trust Company (Metrobank) filed charges against two

individuals, Hubert Co and Sue Sai, for allegedly conspiring with the bank's ranking

official in connection with the P900-million case of internal fraud.

But Co and Sai, through their lawyer, said they are ready to prove their

innocence and help the authorities in bringing Maria Victoria Lopez, vice president of

the Corporate Service Unit at Metrobank's Makati head office, to justice.

 In a 17-page complaint affidavit, the George Ty-owned bank filed charges before

the Makati City Prosecutor's Office against Lopez, Co, and Sai for falsification of

commercial documents as well as violation of the General Banking Law.

Metrobank alleged that Lopez used her position to conspire with Co and Sai,

making it appear that a major Metrobank corporate client issued a promissory note

amounting to P900 million last June 16. (Metrobank loses over P1B in market value

amid fraud issue)

The National Bureau of Investigation (NBI) arrested Lopez last month while she

was trying to move the stolen money to an unspecified personal account. She is being

detained at the NBI detention facility, while both Co and Sai are at large.

It is sad that Metrobank filed a complaint against my clients. My clients are

innocent victims of Ms Lopez as she took advantage of them the same way she took

advantage of Metrobank's trust in her, Reginald Tongol, lawyer of Co and Sai, said in a

statement.

Tongol said Lopez fooled Co and Sai by personally borrowing from them and

paying them with manager's or cashier's checks.

To my clients' minds their transactions with Ms Lopez are legal and above board

as simple loan contracts. They have no way of knowing that the money paid came from

the other victims of Ms Lopez, the lawyer said.

Tongol stressed that his clients were duped by Lopez into being involuntary and

unwilling participants in her elaborate scheme.

 If she was able to fool a big bank like Metrobank with all its supposed security

protocols surely she can fool simple people like my clients. We are ready to show their

innocence and help the authorities in bringing Ms Lopez to justice, the lawyer said.

NBI spokesperson Ferdinand Lavin said the 54-year-old Lopez, who was trusted

by big corporate clients, had served the bank for over 3 decades and received a

monthly salary of at least P250,000.

Shares in Metrobank plunged to P6.50 each on Wednesday, August 2, from July

20's P91.50.
 REFERENCES

http://www.sunstar.com.ph/manila/local-news/2017/07/21/bank-executive-arreste

d-over-p900-m-metrobank-fraud-554153

http://www.rappler.com/business/176681-senate-discuss-fraud-case-metrobank-

amlc-bsp

http://business.inquirer.net/233589/p900-m-internal-fraud-rocks-metrobank

http://business.inquirer.net/233605/bap-issues-statement-metrobank-incident

http://news.abs-cbn.com/business/07/21/17/how-nbi-caught-metrobank-executive

-linked-to-fraud

http://www.rappler.com/business/176289-metrobank-internal-fraud-urc-bsp

ttp://www.manilatimes.net/metrobank-exec-probed-billion-peso-theft/339823/