Pharmally can’t account for P3.4B, says witness

Raymond Abrea —SENATE SCREEN GRAB

MANILA, Philippines — As much as P3.4 billion out of P7.2 billion that Pharmally Pharmaceutical Corp. reported as purchases it had made under contracts to provide pandemic supplies to the government could not be properly accounted for by the company as it lacked supporting documents, an accountant assisting a Senate investigation said on Tuesday.

Raymond Abrea, a certified public accountant and chief strategy officer of Abrea Consulting Group who was called as an expert witness by the Senate blue ribbon committee, told senators that the undercapitalized company declared P7.2 billion in total purchases in its audited finance statement (AFS).

However, Pharmally’s income tax return (ITR) for 2020 reflected only P3.8 billion in purchases, including P600 million in imports, Abrea said.

There were no documents to account for the P3.4 billion difference between the amounts reported in the ITR and the AFS, he said.

Abrea noted “material misstatements” in the AFS that Pharmally submitted to the Bureau of Internal Revenue (BIR), including P32 million in “overstated expenses.”

He said these were “not in consonance with the attestation of the auditor of an unqualified opinion, since full disclosure is required by accounting principles.”

Another misstatement that Abrea pointed was the discrepancy in the tax payments, as Pharmally claimed to have paid P95 million in taxes in its audited financial statement while its ITR showed that it paid only P21 million, raising doubts about the P74 million in “unaccounted cash” that was in its AFS report to the BIR.

A lot to explain

He said the author of the AFS must explain how the P3.4 billion, which was not backed by documents, was derived because the company’s “summary list of purchases” totaled only P3.2 billion and their “summary list of importations” was only P600 million.

“It appears that they reported only P3.8 billion to the BIR and [the Bureau of Customs], but they reported P7.2 billion in their audited [financial statement] to reduce their tax payment,” he said.

He said the purchases that Pharmally claimed to have made were not only limited to pandemic supplies but also included a P6.8-million Porsche, a P4.1-million Toyota vehicle as well as expenses for fast food, groceries and even toll fees.

“Obviously (Pharmally) reported purchases of P7.2 billion to bring down their tax liabilities,” he said.

Abrea presented his findings during the 14th hearing of the Senate blue ribbon committee which is investigating the alleged misuse of about P67.3 billion funds for the government’s pandemic response, including P42 billion that was transferred by the Department of Health to the Procurement Service of the Department of Budget and Management (PS-DBM).

His help was sought by the Senate in analyzing tax records submitted by Pharmally following doubts about whether the company had paid the correct taxes for the P11.5 billion worth of contracts it got from the PS-DBM for pandemic supplies.

Full disclosure required

Contrary to a previous testimony of Pharmally director Linconn Ong that the company obtained its face masks from TigerPhil Marketing Inc., Abrea noted that this company was not listed as a supplier in Pharmally’s audited financial statement.

On the Pharmally list of suppliers were Evermore for P2.9 billion worth of undisclosed type of supplies, and Acme Pinnacle for another P2.7 million.

“Companies are required by law to make full disclosure of their transactions especially if any fault or error will cause material alterations in the financial statements or tax payments,” Abrea said.

The burden of proof for any claim aimed at lowering their tax liability rests on taxpayers, Abrea said.

He said the other declarations made by Pharmally that were not supported by sufficient documents included foreign exchange gains amounting to P92 million, a P898 million in value-added tax credit claim, P60 million in undisclosed trade payables and the P33 million in donations earlier flagged by the senators.

Lacking info

Abrea lamented the many instances of missing or lacking information on the company’s financial records, which, he said, should have been checked by the Pharmally accountant.

He offered recommendations for possible legislation. One was to require the presentation of a tax identification number and bank statements as proof of financial capacity for all companies contracting with the government.

Senators earlier questioned why Pharmally was awarded more than P11 billion worth of contracts when its working capital in 2020 was only P595,000, even lower than its paid-up capital of P625,000 when it was incorporated in 2019.

‘Courageous’

Sen. Richard Gordon, chair of the blue ribbon panel, praised Abrea for his work and for being “courageous and intelligent.”

Gordon also said the panel had cited Lloyd Christopher Lao, former PS-DBM chief, for contempt for his fourth absence from the hearings.

Lao, a former budget undersecretary, is no longer connected to the government after he resigned in June this year. As such, he is not covered by an Oct. 4 directive by President Duterte barring executive officials from attending further committee hearings.

Gordon denounced the continued absence of other officials in the hearings that started in August.

“I wish to inform the public that if ever there was delay in this investigation, it’s the fault of President Duterte and not this committee,” he said.