PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES, PETITIONER, V. COMMISSION ON AUDIT, RESPONDENT.

Philippine Institute for Development Studies versus Commission on Audit

The Case

This is a petition for certiorari under Rule 64 of the Rules of Court, brought by the Philippine Institute for Development Studies against the Commission on Audit. The Institute asks the Supreme Court to annul the Commission's decision upholding a notice of disallowance that struck down its procurement of group healthcare maintenance from private health maintenance organizations, amounting to 1,647,235.06 pesos. The case matters because it draws the boundary between two things that look alike: a valid presidential approval of a benefit, and an invalid attempt to exempt an agency from the very administrative order that regulates that benefit. It also settles who may speak for the President in granting such approval, and whether a disallowed benefit may still be defended on equal protection or good faith.

Procedural History

The audit trail began with an audit observation memorandum, followed by a notice of disallowance issued by the Legal and Adjudication Office-Corporate, which the Institute appealed to the Commission on Audit. The Commission denied the appeal, and the Institute elevated the matter to the Supreme Court in an earlier petition, which the Court denied in an unsigned resolution in April 2015. That earlier ruling concerned the first disallowance, covering the 2005 membership fees.

For the later procurements from 2006 to 2010, the audit team leader and supervising auditor issued a second notice of disallowance. The Institute appealed to the Corporate Government Sector Cluster C, which granted the appeal and lifted the notice. On automatic review, the Commission on Audit Proper set that decision aside and upheld the disallowance in March 2014. The Institute then filed this petition for certiorari under Rule 64, and the Court issued a temporary restraining order enjoining enforcement of the Commission's decision while the case was pending.

Facts

Presidential Decree No. 1597, issued in June 1978, provided that allowances, honoraria, and other fringe benefits granted to government employees shall be subject to the approval of the President. Pursuant to this, President Fidel V. Ramos issued Administrative Order No. 402, authorizing an annual medical checkup program for government officials and employees, implemented through a joint circular of the Department of Health, the Department of Budget and Management, and PhilHealth, which enumerated the diagnostic examinations covered.

In 1999, the Institute asked to be allowed to establish a health maintenance program through membership in a private health maintenance organization, in lieu of the annual medical checkup under the administrative order. The Health Secretary, PhilHealth, and the Budget Secretary all interposed no objection, but the Institute was advised that since the program was created by presidential issuance, it must seek exemption from the Office of the President. In March 2000, the Office of the President, through the Senior Deputy Executive Secretary, approved the request, subject to the usual accounting and auditing rules and regulations. The Institute then executed a health care agreement with PhilamCare covering 54 employees.

Upon post-audit, the first disallowance was issued and eventually upheld by the Supreme Court in 2015. Meanwhile, the Institute again wrote the Office of the President in March 2007, seeking authority to continue the program from 2005 onwards. The Health Secretary and the Budget Secretary recommended approval. In July 2007, the Office of the President, this time through Executive Secretary Eduardo Ermita, granted the request to continue implementing the program through accredited health maintenance organizations, again subject to the usual accounting and auditing rules and regulations. The Institute continued the program and entered into healthcare agreements from 2006 to 2010, totaling 1,647,235.06 pesos. On audit, this amount was disallowed for violating Commission on Audit Resolution No. 2005-001, which prohibits the procurement of healthcare insurance from private agencies.

Issues

• Whether or not the Commission on Audit erred in upholding the validity of the notice of disallowance.
• Whether or not the earlier cases invoked by the Institute, namely the Province of Negros Occidental case and the Commission's 2002 decision, apply to its situation.
• Whether or not the approval by the Executive Secretary validly exempted the Institute from Administrative Order No. 402.
• Whether or not the disallowance violates the Institute's constitutional right to equal protection.
• Whether or not the Institute's officers and employees may be absolved of liability on the ground of good faith.

Applicable Provisions

Section 5 of Presidential Decree No. 1597 provides:

Section 5. Allowances, Honoraria, and Other Fringe Benefits. Allowances, honoraria and other fringe benefits which may be granted to government employees, whether payable by their respective offices or by other agencies of government, shall be subject to the approval of the President upon recommendation of the Commissioner of the Budget.

This is the source of the President's authority over fringe benefits, and it is the authority the Institute invokes.

Section 1 of Administrative Order No. 402 provides:

Section 1. Establishment of the Annual Medical Check-up Program. An annual medical check-up for government officials and employees is hereby authorized to be established starting this year, in the meantime that this benefit is not yet integrated under the National Health Insurance Program being administered by the Philippine Health Insurance Corporation (PHIC).

This defines the benefit actually authorized, which the Commission found to be limited to diagnostic procedures.

Section 27 of the Administrative Code of 1987 provides:

SECTION 27. Functions of the Executive Secretary. — The Executive Secretary shall, subject to the control and supervision of the President, carry out the functions assigned by law to the Executive Office and shall perform such other duties as may be delegated to him. He shall: (1) Directly assist the President in the management of the affairs pertaining to the Government of the Republic of the Philippines; (10) Exercise primary authority to sign papers "By authority of the President", attest executive orders and other presidential issuances unless attestation is specifically delegated to other officials by him or by the President; (18) Perform such other functions as the President may direct.

This is the basis for the doctrine of qualified political agency, under which the Executive Secretary may act for the President.

Ruling

On the first issue, the Court held that the Commission did not err. The cited cases do not apply. In the Province of Negros Occidental case, the entity was a local government unit, and the ruling there was that the requirement of presidential approval applies only to departments, bureaus, offices, and government-owned and controlled corporations under the Executive branch. The Institute is a government-owned and controlled corporation that in fact sought presidential approval, so the analogy fails. The Commission's 2002 decision likewise cannot apply, because the resolution prohibiting procurement of healthcare insurance from private agencies did not yet exist when that decision was issued.

On the second issue, the Court distinguished its earlier 2015 ruling. There, the approval came from the Senior Deputy Executive Secretary, who had no power to declare an agency exempt from an administrative order. Here, the Executive Secretary himself signed the approval. Under the doctrine of qualified political agency, the Executive Secretary may act on behalf of the President, subject to the President's disapproval or reversal. The Court nevertheless held that the approval was conditioned on compliance with the usual accounting and auditing rules and regulations, and so it did not excuse the Institute from the Commission's resolution.

On equal protection, the Court held that the Institute's employees are not similarly situated with the employees in the earlier cases, because the basis for the present disallowance did not exist when those cases were decided. On good faith, the Court found the defense unavailing.

Doctrine

First, the doctrine of qualified political agency means that, unless the Constitution or law provides otherwise, Cabinet members, including the Executive Secretary, may exercise the President's authority over the offices under their jurisdiction, subject to the President's disapproval or reversal. Second, a presidential approval of a fringe benefit that is expressly made subject to the usual accounting and auditing rules and regulations does not operate as an exemption from those rules. Third, equal protection is not violated where the persons invoking it are not similarly situated, as where the legal basis for the disallowance did not yet exist when the comparison case was decided.

Disposition

The petition was denied, and the Commission on Audit's decision upholding the notice of disallowance was affirmed.

Remember This

Memorize this line: a presidential approval conditioned on compliance with accounting and auditing rules is not an exemption from them. Examiners use this case to test the doctrine of qualified political agency and the limits of a Cabinet member's authority to exempt an agency from a presidential issuance.