The Supreme Court addressed the conflict between a government corporation’s fiscal autonomy and the Commission on Audit’s (COA) oversight authority. The court ruled that while government-owned and controlled corporations (GOCCs) may have the power to fix employee compensation, this power is not absolute. These corporations must still adhere to standards set by laws and presidential directives, ensuring that compensation aligns with government policies. The decision clarifies that fiscal autonomy does not exempt GOCCs from COA’s power to disallow irregular, excessive, or unnecessary expenditures, safeguarding public funds while respecting corporate independence. Ultimately, the court sought to balance corporate flexibility with accountability, protecting public resources while enabling effective governance.

Gifts or Governance? PhilHealth’s Allowances Under Audit

This case revolves around the Philippine Health Insurance Corporation Regional Office-CARAGA (PhilHealth CARAGA) and the Commission on Audit’s (COA) disallowance of various benefits granted to PhilHealth CARAGA’s officers, employees, and contractors. These benefits, totaling P49,874,228.02, included contractor’s gifts, special events gifts, project completion incentives, nominal gifts, and birthday gifts. The central legal question is whether COA overstepped its authority in disallowing these benefits, considering PhilHealth CARAGA’s claim of fiscal autonomy and the good faith of the recipients.

The COA disallowed the benefits based on the lack of approval from the Office of the President (OP) through the Department of Budget and Management (DBM), citing Section 6 of Presidential Decree (P.D.) No. 1597, Memorandum Order (M.O.) No. 20, and Administrative Order (A.O.) No. 103. These laws mandate that additional compensation packages in government-owned and controlled corporations (GOCCs) should be reviewed and approved by the OP through the DBM. PhilHealth CARAGA argued that these laws infringed upon its Board of Directors’ power to fix compensation, as granted by its charter, and that the benefits were received in good faith.

The Supreme Court, in its analysis, emphasized the constitutional mandate of the COA to safeguard public funds. The Court acknowledged that COA is endowed with the exclusive authority to determine and account for government revenue and expenditures, and to disallow irregular, unnecessary, or excessive use of government funds. This power is crucial for ensuring accountability and transparency in the management of public resources. The Court stated,

“The COA as a constitutional office and guardian of public funds is endowed with the exclusive authority to determine and account government revenue and expenditures, and disallow irregular, unnecessary excessive used of government funds.”

Building on this principle, the Court addressed PhilHealth CARAGA’s claim of fiscal autonomy. While PhilHealth CARAGA is indeed exempted from the Office of Compensation and Position Classification under Section 16 of R.A. No. 6758 and enjoys fiscal autonomy under Section 16(n) of R.A. No. 7875, this does not grant it absolute discretion in fixing compensation and benefits. Fiscal autonomy must still align with the standards laid down by Section 6 of P.D. No. 1597, which states:

“Agencies positions, or groups of officials and employees of the national government, including government owned or controlled corporations, who are hereafter exempted by law from OCPC coverage, shall observe such guidelines and policies as may be issued by the President governing position classification, salary rates, levels of allowances, project and other honoraria, overtime rates, and other forms of compensation and fringe benefits.”

The Court further clarified that the power of GOCCs to fix compensation and grant allowances is subject to review by the DBM, even if the GOCC is exempted from OCPC rules. In Philippine Health Insurance Corporation v. Commission On Audit, the Supreme Court held,

“Even if it is assumed that there is an explicit provision exempting the PCSO from the OCPC rules, the power of the Board to fix the salaries and determine the reasonable allowances, bonuses and other incentives was still subject to the DBM review.”

This ensures that the GOCC’s compensation system conforms with that provided for other government agencies under R.A. No. 6758 in relation to the General Appropriations Act.

This approach contrasts with PhilHealth CARAGA’s interpretation, which suggested it had unlimited authority to unilaterally fix its compensation structure. The Supreme Court rejected this interpretation, stating that it would result in an invalid delegation of legislative power. Instead, the Court emphasized the need for GOCCs to observe the policies and guidelines issued by the President and to submit reports to the Budget Commission on matters concerning position classification and compensation plans.

However, the Court also addressed the issue of good faith. It acknowledged that the recipients of the disallowed benefits acted in good faith, believing they were entitled to the grants. PhilHealth CARAGA had requested the opinion of the Office of Government Corporate Counsel (OGCC), which opined that PhilHealth CARAGA was legally authorized to increase the compensation of its officials and employees. Furthermore, the birthday gifts and educational assistance allowance were granted pursuant to PhilHealth CARAGA’s Board Resolutions. Given these circumstances, the Court ruled that the officers, employees, and contractors of PhilHealth CARAGA need not refund the amounts they received. This reflects a balancing of interests, protecting public funds while acknowledging the reasonable reliance of individuals on the actions of their employer.

FAQs

What was the key issue in this case?	The key issue was whether the Commission on Audit (COA) committed grave abuse of discretion in disallowing various benefits granted by PhilHealth CARAGA to its officers, employees, and contractors. The case also examined the extent of PhilHealth CARAGA’s fiscal autonomy in fixing compensation.
What benefits were disallowed by the COA?	The disallowed benefits included contractor’s gifts, special events gifts, project completion incentives, nominal gifts, and birthday gifts, totaling P49,874,228.02. These benefits were considered irregular because they lacked approval from the Office of the President (OP) through the Department of Budget and Management (DBM).
Why did the COA disallow these benefits?	The COA disallowed the benefits due to the lack of approval from the Office of the President (OP) through the Department of Budget and Management (DBM), as required under Section 6 of P.D. No. 1597, M.O. No. 20, and A.O. No. 103. These laws mandate that additional compensation packages in GOCCs should be reviewed and approved by the OP.
What was PhilHealth CARAGA’s argument?	PhilHealth CARAGA argued that the laws cited by the COA infringed upon its Board of Directors’ power to fix compensation, as granted by its charter, and that the benefits were received in good faith. They claimed fiscal autonomy allowed them to determine employee compensation.
Did the Supreme Court agree with PhilHealth CARAGA’s argument?	No, the Supreme Court did not fully agree. While it acknowledged PhilHealth CARAGA’s fiscal autonomy, it clarified that this autonomy is not absolute. GOCCs must still adhere to standards set by laws and presidential directives, ensuring that compensation aligns with government policies.
What was the Court’s ruling on the refund of the disallowed benefits?	The Court ruled that the officers, employees, and contractors of PhilHealth CARAGA need not refund the amounts they received. The Court found that the recipients acted in good faith, believing they were entitled to the benefits.
What does this case say about the power of GOCCs to fix employee compensation?	This case clarifies that while GOCCs have the power to fix employee compensation, this power is not unlimited. It is subject to review and approval by the DBM and must comply with relevant laws and presidential directives.
What is the significance of this case for other government-owned corporations?	The case serves as a reminder to other GOCCs that their fiscal autonomy is not absolute and that they must adhere to the government’s compensation policies. It reinforces the COA’s authority to disallow irregular, unnecessary, or excessive expenditures, ensuring accountability in the use of public funds.

In conclusion, the Supreme Court’s decision in this case provides important guidance on the balance between fiscal autonomy and accountability in government-owned and controlled corporations. While these corporations have the power to manage their finances and determine employee compensation, they must exercise this power responsibly and in accordance with the law. This decision underscores the COA’s crucial role in safeguarding public funds and ensuring that government resources are used efficiently and effectively.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PHILIPPINE HEALTH INSURANCE CORPORATION REGIONAL OFFICE- CARAGA, ET AL. VS. COMMISSION ON AUDIT, G.R. No. 230218, August 14, 2018