QuestionsQuestions (CDA MEMORANDUM CIRCULAR NO. 2011-13)
Art. 56 of R.A. 9520.
Several queries were raised to the CDA why the bond required for directors, officers, and employees handling cooperative funds, securities, or property shall be covered by a surety bond (Art. 56 of R.A. 9520) instead of a fidelity bond.
A surety bond is a promise to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligations, such as fulfilling the terms of a contract.
It protects the obligee against losses resulting from the principal’s failure to meet the obligation.
At least three parties: (1) the obligee (recipient of an obligation), (2) the principal (primary party to perform), and (3) the surety (assures the obligee that the principal can perform).
It is a guarantee insurance.
A fidelity bond is a form of insurance protection that covers policyholders for losses they incur due to fraudulent acts by specified individuals.
Fraudulent acts by specified individuals, typically dishonest acts of employees that cause losses of company monies, securities, and other property.
It usually insures a business for losses caused by the dishonest acts of its employees; despite being called “bonds,” these are treated as insurance policies.
Examples given include burglary, fire, general theft, computer theft, disappearance, fraud, forgery, and other theft/fraud-related risks.
It states that fidelity bonds are a form of crime insurance.
Surety bonds focus on failure to meet obligations by the principal as a whole (contractual obligation failure), while fidelity bonds focus on losses arising from fraudulent/dishonest acts by specified individuals (employee wrongdoing).
The principal’s failure to meet some obligations, such as failing to fulfill the terms of a contract.
Losses must be incurred as a result of fraudulent acts by specified individuals.
The circular indicates surety bonds are meant to secure performance of obligations and compensate the obligee for losses from failure to fulfill obligations, whereas fidelity bonds specifically address losses from fraudulent/dishonest acts by specified individuals; thus the CDA’s requirement under Art. 56 is tied to the obligation/performance concept of a surety bond.