PHILIPPINE HEALTH INSURANCE CORPORATION, PETITIONER, VS. COMMISSION ON AUDIT, GAMALIEL A. CORDOBA, CHAIRPERSON, RESPONDENTS.

Philippine Health Insurance Corporation versus Commission on Audit

The Case

This is a petition for certiorari brought by the Philippine Health Insurance Corporation, known as PhilHealth, against the Commission on Audit, or COA, and its chairperson. PhilHealth asks the Supreme Court to reverse the COA's affirmance of a notice of disallowance against the collective negotiation agreement bonus it paid its officials and employees for calendar year 2012. The case matters because it draws the outer limits of a government-owned corporation's fiscal autonomy: PhilHealth may fix its personnel's compensation, but only within the bounds of the Salary Standardization Law, Presidential Decree No. 1597, Executive Order No. 80, and the guidelines of the Governance Commission for Government Owned and Controlled Corporations. It also shows how the Court treats the finality of COA rulings when public funds are at stake.

Procedural History

The COA's Audit Team Leader and Supervising Auditor post-audited PhilHealth's 2012 payments and issued Notice of Disallowance No. NCR-2014-001-COB(12) for the total productivity incentive bonus of 36,467,475.60 pesos. PhilHealth appealed to the COA Cluster A Director, who denied the appeal and affirmed the disallowance. PhilHealth then elevated the matter to the COA Proper through a petition for review. The COA Proper partially granted the petition: it lifted the disallowance on the organizational and individual performance incentive bonuses amounting to 16,141,834.88 pesos, but affirmed the disallowance of the collective negotiation agreement bonus of 11,192,500.00 pesos, reducing the notice of disallowance accordingly. PhilHealth moved for partial reconsideration, which the COA denied in a resolution that affirmed its earlier decision with modification, clarifying that recipients refund what they received while the approving, authorizing, and certifying officers are solidarily liable for the total disallowance less refunds. PhilHealth then came to the Supreme Court by petition for certiorari.

Facts

PhilHealth's Board of Directors passed Board Resolution No. 581 granting a productivity incentive bonus for calendar year 2002, and later Board Resolution No. 667, which institutionalized the grant to regular personnel and approved a scheme with three components: an organization performance incentive bonus, an individual performance incentive bonus, and a 30,000 peso collective negotiation agreement bonus. Under Office Order No. 0059-2013, PhilHealth paid the performance-based bonus and the collective negotiation agreement bonus for calendar year 2012, computing the bonuses on the basis of basic salary plus several allowances and benefits, and adding a fixed 30,000 peso amount.

For 2012, the total paid was 36,467,475.60 pesos, made up of 16,141,834.88 pesos in organizational and individual performance incentive bonuses, 11,192,500.00 pesos in collective negotiation agreement bonus, and 9,133,140.72 pesos in tax. On post-audit, the audit team found that PhilHealth erroneously granted the bonuses, for lack of the executive approval required under Administrative Order No. 103 of the Office of the President and for being excessive and violative of Executive Order No. 80. A notice of disallowance was issued, naming the approving and certifying officers, in addition to the payees, as persons liable.

PhilHealth appealed through the COA, which ultimately sustained the disallowance of the collective negotiation agreement bonus while allowing the two performance incentive bonuses in audit. PhilHealth brought the matter to the Supreme Court, insisting that the collective negotiation agreement bonus is a valid incentive allowance and that its certifying officers, who merely confirmed the availability of funds and the completeness of documents, should not be held liable.

Issues

• Whether or not the COA committed grave abuse of discretion in disallowing the collective negotiation agreement bonus as a component of PhilHealth's productivity incentive bonus.
• Whether or not PhilHealth's officers and employees should be held liable to return the disallowed benefit.

Applicable Provisions

Section 3 of Public Sector Labor-Management Council Resolution No. 02, series of 2003, provides:

Section 3. The Collective negotiation agreement Incentive may be granted if all the following conditions are met by the GOCC/GFI: a) Actual operating income at least meets the targeted operating income in the Corporate Operating Budget (COB) approved by the Department of Budget and Management (DBM)/Office of the President for the year; For GOCCs/GFIs, which by the nature of their functions consistently incur operating losses, the current year's operating loss should have been minimized or reduced compared to or at most equal that of prior year's level; b) Actual operating expenses are less than the DBM approved level of operating expenses in the COB as to generate sufficient source of funds for the payment of CNA Incentive; and c) For income generating GOCCs/GFIs, dividends amounting to at least 50% of their annual earnings have been remitted to the National Treasury in accordance with the provisions of Republic Act No. 7656 dated November 9, 1993.

This provision fixes the conditions that must all be met before a collective negotiation agreement incentive may be granted, and the Court found PhilHealth failed to show compliance with any of them.

Ruling

On the first issue, the Court held that PhilHealth does not have unbridled authority to grant benefits and allowances. Its Board's power to fix compensation is subject to compensation laws and regulations, including the Salary Standardization Law, Presidential Decree No. 1597, and the prevailing rules of the Office of the President and the Department of Budget and Management. Under Executive Order No. 80 and GCG Memorandum Circular No. 2012-11 (Re-Issued), the productivity-based bonus must be computed on the officer's or employee's basic monthly salary multiplied by the applicable rate of incentive. PhilHealth's Office Order No. 0059-2013 instead included allowances and benefits, and added a fixed 30,000 peso amount, for which there is no basis.

The Court rejected PhilHealth's claim that the 30,000 peso component was a collective negotiation agreement bonus. Executive Order No. 80 and the GCG circular make no mention of a collective negotiation agreement bonus in the productivity-based bonus, and the Office Order itself referred to the third component only as an additional incentive. Even if it were treated as a collective negotiation agreement bonus, it must still be disallowed, because PhilHealth failed to present evidence of compliance with the conditions of Public Sector Labor-Management Council Resolution No. 02, series of 2003, and did not show that the incentive came from savings in operating expenses. Mere allegations, the Court held, are not proof.

On the second issue, the Court sustained the COA's ruling on liability: the recipients are liable to refund the amounts they received, while the approving, authorizing, and certifying officers are solidarily liable for the total disallowance less the amounts refunded by the recipients.

The Court also corrected the COA's own error. Although the COA lifted the disallowance on the two performance incentive bonuses, the Court found that those bonuses, insofar as they included benefits and allowances beyond basic salary, should likewise be disallowed. Relaxing the rule on finality in the interest of substantial justice, since public funds are involved, the Court modified the COA decision accordingly.

Doctrine

A government-owned and controlled corporation like PhilHealth has no unbridled discretion to grant allowances and benefits; its power to fix compensation is circumscribed by the Salary Standardization Law, Presidential Decree No. 1597, Executive Order No. 80, and the guidelines of the Governance Commission. A productivity-based bonus must be computed on basic monthly salary multiplied by the applicable rate of incentive, and any inclusion of allowances and benefits is disallowed in audit. A collective negotiation agreement incentive may be granted only upon compliance with all the conditions of Public Sector Labor-Management Council Resolution No. 02, series of 2003, and must be sourced only from savings in operating expenses. Finally, the finality of a COA decision may be relaxed in the interest of substantial justice where public funds are involved.

Disposition

The petition was partly granted: the Court modified the COA decision by disallowing the benefits and allowances included in the computation of the performance incentive bonuses and the 30,000 peso additional bonus, while sustaining the disallowance of the collective negotiation agreement bonus and the liability of the recipients and the approving, authorizing, and certifying officers.

Remember This

The one line to memorize: PhilHealth's fiscal autonomy is not unbridled, and a productivity bonus computed beyond basic salary, or a collective negotiation agreement bonus unsupported by savings and the required conditions, is disallowed in audit. Examiners use this case on the limits of the compensation-fixing power of government-owned corporations and on the relaxation of the finality rule when public funds are at stake.