The Insurance Commission (IC) has formed project audit teams to ensure that the country’s social insurance institutions are adopting the globally accepted Philippine Financial Reporting Standards 4 (PFRS 4), in compliance with the instructions of outgoing Finance Secretary Carlos Dominguez III.
IC Commissioner Dennis Funa said in his report to Dominguez that the audit to monitor the compliance with PFRS 4 covers the Government Service Insurance System (GSIS), Philippine Health Insurance Corp. (PhilHealth), and the Social Security System (SSS).
Funa said the audit teams will begin their tasks of auditing the GSIS next month, the SSS in September and PhilHealth in October.
“We shall provide the Secretary of Finance the respective final audit reports immediately after the endorsement and approval from the Insurance Commission Executive Committee,” Funa said.
Last December, Dominguez ordered SSS, GSIS and PhilHealth to fully adopt PFRS 4, which provides guidance on the proper financial accounting of insurance contracts.
PFRS 4 is the current and interim accounting standard imposed on insurance entities in the Philippines that is based on International Financial Reporting Standards (IFRS).
All private insurance companies in the Philippines have been using PFRS4 since 2005.
Dominguez issued the directive after a comprehensive review conducted by the Department of Finance (DOF) and the International Monetary Fund (IMF) revealed that these institutions were not adopting internationally accepted accounting principles in their financial reporting and management of their social benefit liabilities.
With the government social institutions’ full compliance with the PFRS 4, the combined total liability have increased to P9.94 trillion in 2020 from P154 billion in 2019. The increase in liabilities is primarily because of the proper booking of their social benefit liabilities, as required under PFRS 4.
Dominguez has assured members of SSS, GSIS and PhilHealth that the booking and reporting of the social benefit liabilities under PRFS4 do not affect the cash flow and funding status of these institutions, and that they remain fully capable of meeting their short- and long-term obligations.
To improve the management of the funds and maximize the return on investments in these institutions, the DOF has recommended that these resources be pooled to constitute a sovereign wealth fund, which is the practice of many countries, including Singapore, Japan and Indonesia.