The Department of Finance (DOF) has directed three government social institutions (GSIs) to fully comply with the Philippine Financial Reporting Standards (PFRS) 4 in reporting their social benefit liabilities (SBLs).
In a briefing, Finance Secretary Carlos G. Dominguez III said on Friday, Dec. 3, that Social Security System (SSS), the Government Service Insurance System (GSIS), and Philippine Health Insurance Corporation (PhilHealth) were not properly reporting their liabilities.
SBLs represent the GSIs’ 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.
The implementation of the directive will start with the 2020 financial reports of the SSS, the GSIS, and PhilHealth, which will show a combined total liability of P9.94 trillion after full compliance with PFRS 4.
Dominguez said there is no need for the public to be alarmed about these huge liabilities because the GSIS, the SSS, and PhilHealth are still financially sound and can meet their obligations to their respective members.
Adoption of PFRS 4 will ensure the accurate and transparent reporting of both the incomes and liabilities of the SSS, the GSIS, and the PhilHealth.
“This directive is in line with the Duterte administration’s efforts to ensure that the financial reports of GSIs are transparent and based on facts.” Dominguez, the concurrent chairman of the Social Security Commission (SSC), said.
This new directive, he said, is only a change in accounting policy in terms of recording the SBLs of the GSIs, as required under PFRS 4.
Booking and reporting the SBLs in accordance with the generally accepted accounting principles do not affect the GSIs’ cash flow and funding situation.
He explained that the GSIs had not been properly reporting their liabilities in their financial statements for 15 years. As a result, they 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 social institutions,” Dominguez added.
PFRS 4 is the current and interim accounting standard imposed on insurance entities in the Philippines. It was adopted from the International Financial Reporting Standards or IFRS, which provides guidance on the proper financial accounting of insurance contracts.
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.
Hence, the contributions/premiums/fees the GSIs receive should be reflected in their financial reports both as income and liability.
Dominguez said full compliance with PFRS 4 will ensure stability and transparency throughout the reporting process of GSIs, bolster the credibility of their financial statements, and provide policymakers with accurate and factual information to make sound economic decisions.