G.R. No. 230218 EN BANC August 14, 2018
PHILIPPINE HEALTH INSURANCE CORPORATION REGIONAL OFFICE – CARAGA, ET AL., Petitioners vs. COMMISSION ON AUDIT, ET AL., Respondents

FACTS

In 2008, the Philippine Health Insurance Corporation Regional Office – Caraga (PhilHealth Caraga) granted various benefits, including contractor’s gifts, special events gifts, project completion incentives, nominal gifts, and birthday gifts, to its officers, employees, and contractors, totaling ₱49,874,228.02. In 2009, the COA Audit Team Leader issued Notices of Disallowance (NDs) against these payments. The disallowance was grounded on the lack of prior approval from the Office of the President (OP) through the Department of Budget and Management (DBM), as required by Section 6 of Presidential Decree No. 1597, Memorandum Order No. 20, and Administrative Order No. 103. The audit team maintained that while PhilHealth, as a government-owned and controlled corporation (GOCC), is exempt from the Salary Standardization Law ( Republic Act No. 6758 ), such exemption does not absolve it from the requirement to secure OP approval for additional compensation benefits under the cited issuances.
PhilHealth Caraga appealed the disallowance to the COA Regional Office and subsequently to the COA Commission Proper. It argued that as a GOCC created under Republic Act No. 7875 , it possesses fiscal autonomy and the corporate power to fix compensation under its charter. It contended that this power exempts it from the OP approval requirement. The COA Commission Proper denied the appeal and affirmed the NDs in its Decision No. 2014-250, a ruling later upheld in Resolution No. 2016-029. The COA ruled that the power to fix compensation under RA 7875 is not absolute and remains subject to the overarching policy-setting authority of the President under PD 1597 and other relevant laws.

ISSUE

Whether the COA committed grave abuse of discretion in affirming the disallowance of the benefits granted by PhilHealth Caraga for lack of prior approval from the Office of the President.

RULING

The Supreme Court DISMISSED the petition and AFFIRMED the assailed COA rulings. The Court found no grave abuse of discretion, holding that the disallowance was in accordance with law and jurisprudence. The legal logic centers on the hierarchy of laws governing GOCC compensation. While PhilHealth’s charter (RA 7875) grants it the power to organize its office and fix personnel compensation, this grant is not unbridled. Section 6 of PD 1597 explicitly provides that GOCCs exempt from the Salary Standardization Law must still observe guidelines issued by the President regarding allowances and other benefits. Memorandum Order No. 20 and Administrative Order No. 103 are precisely such guidelines, requiring OP approval through the DBM for the grant of additional compensation.
The Court emphasized that the President, as Chief Executive, possesses the constitutional authority to exercise control over all executive departments, bureaus, and offices. This control extends to ensuring fiscal discipline and a standardized compensation framework across all government entities, including exempt GOCCs. The power of the corporate board to fix compensation under its charter is thus subject to this superior regulatory power of the President. Consequently, PhilHealth Caraga’s failure to secure the required OP approval rendered the grant of the subject benefits illegal and properly disallowed. The Court also noted that the recipients are liable to return the disallowed amounts, consistent with the principle of solutio indebiti, as they received payments without a lawful basis.