COA flags PhilHealthâs P14.3 B bond investments
Based on COA’s 2018 annual audit report on PhilHealth, the state firm bought bonds from several corporations with questionable financial statements and creditworthiness.
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COA flags PhilHealth’s P14.3 B bond investments
Elizabeth Marcelo (The Philippine Star) - August 8, 2019 - 12:00am

MANILA, Philippines — The Commission on Audit (COA) has flagged the Philippine Health Insurance Corp. (PhilHealth) for placing the government fund at risk over questionable investments in corporate bonds amounting to P14.34 billion.

Based on COA’s 2018 annual audit report on PhilHealth, the state firm bought bonds from several corporations with questionable financial statements and creditworthiness. 

“Lapses in the selection of corporate bond investment totaling P14.345 billion were noted, contrary to Section 27, Paragraph 2 of Republic Act 10606 (National Health Insurance Act of 2013) as amended, exposing government funds to undue risk of loss,” the COA report said.

For one, seven out of the 14 prospectuses of the bond issuers were unnotarized, putting the validity of their bond offerings in question, COA said.

A prospectus is a legal document mandated to be submitted by the bond issuer to the Securities and Exchange Commission (SEC). It shall contain the issuer’s company profile, a description of the fund offering, the fund’s fee structure and other information that might be required by the investors or prospective clients.

“The notarized prospectuses from bond issuers would ensure security feature as to the veracity of the contents thereof, as falsities/misstatements made in a notarized document expose the affiant to criminal charges,” the COA said.

Furthermore, the audit body said the financial statement of one of the bond issuers was unaudited in violation of investment rules. 

“As much as possible, the financial statements must be audited by one of the prestigious auditing firms in the Philippines to be able to attract the public to purchase the bond offerings. However, it was noted that PhilHealth used the unaudited financial statements of one of the bond issuers in the evaluation of financial status and its creditworthiness,” the COA said.

COA said PhilHealth also used un-updated financial statements in evaluating the reserve funds of five bond issuers.

State auditors added that another bond issuer also failed to present the requisite Philippine Rating Report (PRR) by the Philippine Rating Services Corp. (PRSC), a domestic credit rating agency accredited by the Bangko Sentral ng Pilipinas.

Worse, it said, “bond issuers were not evaluated on their capacity to pay interest on their securities.”

“Review of the evaluation report disclosed that (PhilHealth’s) Investment Division – Treasury Department (ID-TD) disregarded the evaluation of the corporate bond issuers’ capacity to pay interest on their securities without default during the last five years prior to the date of [bond] acquisition, contrary to Section 27, Paragraph 2 of RA10606.” the COA said.

“The ID-TD informed that since the bond issuers were rated ‘AAA,’ they have the strongest capacity to repay their debt obligations and therefore no need to evaluate their history on paying interest on their securities,” it said.

Lastly, the COA said one of the bond issuers is a holding company engaged in power generation and distribution and retail of electricity, which is considered as “unethical investment” under PhilHealth’s own Corporate Order 2018-005 dated Jan. 26, 2018.

“It (holding company) uses hydrothermal, geothermal, solar, coal and oil on their power distribution. The use of coal and oil requires minerals through mining which is among the ‘negative list’ of investments that is considered not ethically and socially responsible by PhilHealth,” the COA said.

Meanwhile, in the same audit report, the COA also called out PhilHealth over P68.95 million in allowances unlawfully granted to its officials and employees in regional offices 4-A (Calabarzon), 5 (Bicol Region) and 8 (Eastern Visayas).

COA said PhilHealth continued to grant hazard pay, subsistence and laundy allowances, shuttle service allowance, rice allowance and self-issurance benefits to its provincial officials and employees even if the audit team had already repeatedly stated that such benefits are exclusive to public health workers (PHWs) in accordance with Republic Act 7305 or the Magna Carta of Public HealthWorkers.

It maintained that PHWs, as defined in RA 7305, are those delivering actual health services in a health establishment or facility. The COA reiterated that PhilHealth officials and employees are not considered as health workers.

“Despite the previously issued notices of disallowance (NDs) and COA decisions, PhilHealth continued to grant the unauthorized allowances and benefits resulting in the incurrence of irregular, unnecessary and excessive expenditures and ultimately loss of funds for the insurance coverage of member-beneficiaries,” the COA said.

The audit body directed PhilHealth to cause the refund of the unauthorized allowances and benefits received by its officials and employees.

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