No more painting rosy pictures

With just a little over six months left of his term, the outgoing administration of President Rodrigo Duterte can rightfully lay claim and credits on the fruits and outcome of the reform initiatives started by his predecessors. After all, President Duterte continued and even improved upon these various reform measures that his administration has inherited. When the Duterte administration took over in June, 2016, these macro-economic fundamentals were already deeply rooted.

That’s why these strong macro-economic fundamentals have kept us afloat and sustained us through the impact of the coronavirus disease (COVID-19) pandemic. After the hardest lockdowns that President Duterte took to contain the COVID-19 outbreak that struck us January last year, the Philippine economy is now getting back steadily on a sustained growth recovery track.

At the very start of the presidential campaign in May, 2016 elections, the former Davao City Mayor did not offer new ideas or “magic formula” on how to push forward the Philippines into the ranks of developed countries. He even vowed to “copy” the economic programs of his rivals. He hastened to add, however, he would copy only “the good ones,” add few tweaks here and there, to best pursue his own programs.

President Duterte remained true to his campaign promise. The Chief Executive indeed stayed away from this field and left this task to his economic team of Cabinet officials. And this great task was thrust to Department of Finance (DOF) Secretary Carlos “Sonny” Dominguez lll, his former classmate at the Ateneo de Davao University. There were occasions in their past public appearances together when President Duterte cracked jokes that Dominguez was their “class valedictorian” who got more rich as a financial whiz kid. But among friends, Dominguez would always clarify he was not the “class valedictorian” but another Ateneo classmate of theirs who had already migrated abroad.

Dominguez was not trying to be humble but he is one guy who sticks to fact and truth. As a technocrat, Dominguez closely adheres to the hard facts and truthfulness of data, financial statements, statistics and figures. There is no gray area for him, especially on the bottom lines.

As someone who does not sugarcoat his words, the Finance Secretary declared last week this is no reason to stop the reforms and correcting wrong and obvious faulty accounting methods and practices. More so, even when the Duterte administration is already in the last stretch in office.

In a virtual presser he called last Friday, Dominguez announced his directives to all government insurance institutions (GIIs) – Social Security System (SSS), the Government Service Insurance System (GSIS), and Philippine Health Insurance Corporation (PhilHealth) – to fully comply with the Philippine Financial Reporting Standards (PFRS) 4 in reporting their social benefit liabilities (SBLs).

The SBLs refer to the GIIs’ net legal obligation to pay specific, guaranteed amounts of money or benefits to their policyholders which include both actual claims and the required reserve for future claims. This involves all of us 40 million SSS members; 2.2 million government workers who contribute to the GSIS; and 94.79 million PhilHealth members.

All these three GIIs, Dominguez disclosed, had not been properly reporting their liabilities in their financial statements for the past 15 years. As a result, he explained, the three GIIs have been overstating their income and understating their liabilities for years for financial accounting purposes.

“It is only the Duterte administration that has acknowledged this issue and is determined to correct it once and for all in order to provide the stakeholders and policymakers with a more accurate financial situation of government insurance institutions,” Dominguez pointed out.

As ordered by the Finance chief, the implementation of this directive will start with the 2020 financial reports of the SSS, the GSIS, and PhilHealth. Upon initial review by the DoF, the three GIIs showed a combined total liability of P9.94 trillion after full compliance with the adoption of the PFRS 4 system of reporting. In fact, Dominguez also announced, the Commission on Audit (COA) will soon publish in their website the financial review on the results of their audits on the three GIIs.

Dominguez assuaged the public, however, this should not alarm GSIS, the SSS, and PhilHealth members about these huge liabilities of the three GI Is. He averred they are all financially sound and can meet their obligations to their respective members. Based from acturial studies, he bared, the SSS has a fund life of until 2054. The GSIS has a fund life of until 2053. The PhilHealth has a fund life up to 2027.

“It will not affect the ability of these institutions to pay the pensions or other benefit claims by its members,” Dominguez reassured all concerned. “This directive is in line with the Duterte administration’s efforts to ensure that the financial reports of GIIs are transparent and based on facts.” Dominguez added.

The new directive of Dominguez is only a change in accounting policy in terms of recording the SBLs of the GIIs, as required by PFRS 4. Under PFRS 4, when an insurance entity receives money from its members and enters into a contract with them to provide monetary obligations when certain events occur, it must set aside a reserve to cover its liabilities.

To ensure that these liabilities are properly accounted for, the DOF adopted the International Monetary Fund recommendation to institute the PFRS 4. Hence, the contributions/premiums/fees the GIIs receive should be reflected in their financial reports both as income and liability. Pardon these financial jargons.

Simply put in layman’s language, the days of window-dressing by the three GIIs are over.

No more painting rosy financial pictures henceforth. But the question is: Will the next administration find merits to continue with these accounting standards?