By Ariel Fernandez
The Civil Aviation Authority of the Philippines (CAAP) sought to clarify on Tuesday concerns raised by the Commission on Audit (COA in its annual audit report of the agency regarding a CAAP-Cocolife investment placement amounting to P500 million.
Under Republic Act 9497, the law that created CAAP, the Authority was legally authorized to invest its funds, not needed in its operations, in any business venture it may deem appropriate, or in such secured note, government securities, and other negotiable instruments.
The CAAP said it was regularly investing its corporate savings in government bonds and securities, with the aim for these funds to earn interest income.
UCPB, a government depositary bank, and Cocolife, a government-owned and controlled corporation (GOCC), presented CAAP with the P500-million investment package.
The investment would be through a variable life insurance placement with a holding period of five years. The fund is limited to be invested in government securities and bonds as regulated by pertinent circulars of the Department of Finance (DOF). The interest income it generates will be based on the performance of government securities and bonds in the market. For all intents and purposes, it is a government to government contract.
A major consideration of CAAP to enter into the investment was Cocolife’s offer to provide free group life insurance to all plantilla employees of the Authority.
Prior to the policy, employees, who die during active service, receive no benefits from CAAP as the law has accorded no such benefits for plantilla employees. Employees, who have served and unfortunately die, are only left with benefits based on their GSIS contributions.
As of this time, from the effectivity of the policy, three (3) families of deceased CAAP employees have been able to avail of the group life insurance benefit from Cocolife.
CAAP decided to pursue the investment in good faith and diligence that it was acting for the benefit of its employees, and with the best interest of the government in mind.
Aside from this main issue, the CAAP would also like to address several matters pointed out by the COA Audit Report.
Contrary to the report, the CAAP Management presented the investment policy to the CAAP Board of Directors on 13 December 2018. Prior to the presentation, the Director General already possesses delegated authority in the Manual of Approvals from the Board of Directors. The authority of the Director General to invest CAAP’s corporate savings has been in force since 2010 through Board Resolution No. 2010-019.
Despite the Director General’s authority to implement the policy, he still deemed it prudent to present the policy investment to the Board for their comments and approval. No board resolution was issued because the authority to invest by the Director General has already been delegated in a previous resolution.
The Cocolife variable life insurance plan is both an insurance and an investment. It is thus regulated under the pertinent rules of the Insurance Commission.
In the case of CAAP, the mode of insurance is through a policy called “Key Man Insurance” wherein the life of the key officers of a corporation are insured on the premise that their productivity is an asset of the corporation. The primary beneficiary of the insurance policy is CAAP and not the key man.
To choose the appropriate key men of CAAP, all officers from the rank of Department Manager (SG26) and above were made to undergo a series of medical examinations to determine their level of insurable risk based on their health. Thirty (30) CAAP officers underwent this process. However, only 10 were selected as viable key men for the insurance-investment policy. The selection on the acceptability of the insurable key men was determined by Cocolife based on its internal policies and procedures.
The investment fund of P500 million was spread among the 10 key men. If 30 key men were selected, then the investment would have been spread among 30 individuals.
It was emphasized that CAAP was the primary beneficiary of the policy in the event of the death of the key men. This means that per the policy, all proceeds will go to CAAP exclusively, notwithstanding the insurance rules and regulations allowing a maximum of 25 percent of the insurance amount to be shared with the immediate family of the deceased key man upon approval of the Corporate Board.
To emphasize, not a single centavo will go to the selected insured key man, except the burial/funeral expenses accorded to all CAAP employees in case of death.
The CAAP placed an investment with Cocolife as it was an insurance qualified as an investment instrument regulated by the DOF and the Bangko Sentral ng Pilipinas (BSP). Regulations allow for government funds to be placed in government securities, treasury bonds, t-bills, and other certificates of indebtedness or negotiable instruments of government corporations. The performance of the investment of CAAP will depend on the performance of such bonds and investment instruments in the market.
The investment rates presented by the Bureau of Treasury (BTr) are not immediately accessible to end-user clients such as CAAP. Only accredited banks and financial institutions have direct access to purchase bonds from the BTr. The banks then resell such bonds to the public.
Furthermore, CAAP funds cannot simply be placed in the highest yielding instrument as there is a need to diversify investments to minimize risks. At present, CAAP funds are invested through its depositary banks in several investment placements that would bring interest income to CAAP to fund its operations.
The COA findings on the policy have not attained a state of finality. Under COA rules and regulations, the CAAP has available legal remedies to elevate the matter to the Commission Proper.
CAAP is confident that with proper dialogue with COA, the Commission will find that the investment placement is for the best interest of the government and promotes the welfare of CAAP employees.
Nevertheless, the CAAP is committed to transparency and accountability, and will always heed to the recommendations of COA once all issues are presented and addressed.