MANILA, Philippines — The Commission on Audit (COA) has called out the Civil Aviation Authority of the Philippines (CAAP) for purchasing life insurance plans worth a total of P500 million for 10 of its officials, despite lack of board approval and proper selection criteria.
In its annual audit report, the COA said the insurance plans, bought from United Coconut Planters Life Assurance Corp. (Cocolife), were the single-pay variable life insurance type, also called the Zenith plan under Cocolife.
A variable life insurance product is an investment-linked product that simultaneously provides insurance and invests in mutual funds or unit investment funds.
State auditors said the investment was not properly studied and was not approved by the CAAP board. There was also no adequate criteria for the selection of the insured executives.
‘No board resolution’
The CAAP management explained, however, that the transaction was presented to the CAAP Board of Directors during its Dec. 13, 2018, meeting. None of the board members objected to the plan, the management also said.
The CAAP also cited a secretary certificate dated July 3 a year earlier, as issued by lawyer and corporate board secretary Victor Eleazar, which authorized the agency to invest in certain types of investments.
But the lack of a board resolution meant that the investment was not board-approved, the COA maintained, adding that the Zenith plan that the CAAP invested in “is not mentioned as one of the investment facilities authorized under the secretary certificate issued by the corporate board secretary.”
Investment scrutinized
“There is no duly signed board resolution approving the investment in single-pay variable life insurance, being a new mode of investment. No action of the board was recorded in the Minutes of Board Meeting No. 06-2018 because the CAAP presented the proposed investment insurance plan with Cocolife only for the information of the board during its regular meeting on Dec. 13, 2018, and did not seek its approval,” the report said.
The auditing body also said the CAAP’s management was unable to show any in-depth study on how the investment is beneficial to the agency.
In a comparison between the returns of the life insurance plan from Cocolife and of a hypothetical P500-million investment in either Treasury bonds (T-bonds) or Treasury bills (T-bills), the COA found that the amount in question, if invested in T-bonds or T-bills, could have yielded a higher return.
“The CAAP could have earned 131 percent more if the amount was invested in Treasury bonds and 110 percent more if placed in Treasury bills,” the report said.
The audit report pointed out further that “the variable unit linked insurance with Cocolife did not undergo the proper evaluation and in-depth study by an investment group of possible investment options so that the CAAP is assured of the most advantageous investment portfolio of its idle funds.”
Coterminous with Duterte
The COA also found that, of the 10 executives selected by the CAAP for its insurance purchase, two are presidential appointees and are thus coterminous with President Rodrigo Duterte, who has only three years left in his term, whereas the investment made has a fixed five-year term.
“The insurance for the 10 key men are nontransferable,” the report also said. “The account value, or the full amount of the investment shall then be automatically withdrawn with corresponding charges, depending on the number of years invested, once the key men are separated from the CAAP.”
The audit body also said there were other officials insured who do not serve critical functions in the agency. Thus, the selection criteria of those insured “raises doubt as to the objective of management in insuring them.”
The COA recommended that the CAAP recover the full amount paid to Cocolife, and instead invest its idle funds in a government facility which yields higher returns with less risk.
The audit body also urged the CAAP to consider creating an investment committee that will handle the agency’s fiduciary responsibilities.