DECISION NO.

2018-170
January 29, 2018

Subject: Petition for Review of Philippine Health Insurance Corporation (PHIC), through Mr.
Ramon F. Ariztoza, Jr., Officer-in-Charge President and Chief Executive Officer, of
Commission on Audit Corporate Government Sector-Cluster 6 Decision No. 2015-019
dated September 10, 2015, which affirmed Notice of Disallowance Nos. H.O. 2015-001-
COB (14) dated January 21, 2015 and NCR 2015-003 COB (14) dated April 29, 2015, on
the payment of Educational Assistance Allowance and Birthday Gift in the year 2014, in
the total amount of P83,062,385.27

DECISION

FACTS OF THE CASE

1
Before this Commission is the Petition for Review filed by Philippine Health Insurance Corporation (PHIC), through Mr.
Ramon F. Ariztoza, Jr., Officer-in-Charge (OIC) President and Chief Executive Officer, of Commission on Audit (COA) Corporate
Government Sector (CGS)-Cluster 6 Decision No. 2015-019 dated September 10, 2015. The decision affirmed Notice of
Disallowance (ND) Nos. H.O. 2015-001-COB (14) dated January 21, 2015 and NCR 2015-003 COB (14) dated April 29, 2015,
disallowing the Educational Assistance Allowance (EEA) and Birthday Gift paid to the officials and employees of PHIC Head
Office (HO) and Regional Offices (RO), National Capital Region (NCR) and Rizal, in the year 2014, in the total amount of
P83,062,385.27, summarized as follows:

Benefits/Allowances Amount
Educational Assistance (HO) P51,529,824.29
Educational Assistance (RO 27,837,560.98
NCR and Rizal)
Birthday Gift 3,695,000.00
Total P83,062,385.27

2
This Petition for Review was filed within the reglementary period of 180 days prescribed under Section 3, Rule VII of the
2009 Revised Rules of Procedure of the COA, as shown below:

ND No. H.O. 2015-001-COB (14) NCR 2015-003-COB (14)

3 4
Date of receipt of the ND January 22, 2015 April 30, 2015
5 6
Date of filing of the July 1, 2015 June 19, 2015
Appeal
Days elapsed 159 days 49 days
Date of receipt of CGS- September 15, 2015 September 15, 2015
7
Cluster 6 decision
Date of filing of petition October 5, 2015 October 5, 2015
Days elapsed 20 days 20 days
Total days elapsed 179 days 69 days

Records show that the OIC - Supervising Auditor and the Audit Team Leader issued the NDs because the grant of the
benefits/allowances was not authorized and approved by the President, thus, repugnant to the following laws, rules and
regulations:

1. Sections 5 and 6 of Presidential Decree (PD) No. 1597;

2. Section 12 of Republic Act (RA) No. 6758;

3. Section 3, Memorandum Order (MO) No. 20 dated June 25, 2001;

4. Section 3(b) of Administrative Order (AO) No. 103 dated August 31, 2004;

5. Section 9 of Executive Order (EO) No. 7 dated September 8, 2010; and

Section 8, RA No. 10149.

6. Section 8, RA No. 10149.

Petitioners filed their appeal before the Cluster Director (CD). Their appeal was denied in the assailed decision. Hence, this
Petition for Review based on the following grounds:

1. AO No. 103, PD No. 1597, and Public Sector Labor Management Council (PSLMC) Resolution No. 2 are not applicable
and have been superseded by the PHIC Charter or RA No. 7875, as amended;

2. The PHIC Charter explicitly bestowed upon the corporation fiscal autonomy to fix the compensation of its personnel;

3. The fiscal authority of PHIC under Section 16(n), Article IV of RA No. 7875, as amended, had been confirmed twice
by then President Gloria Macapagal-Arroyo, first in 2006 and second in 2008;

4. The payment of the benefits is covered by the term “compensation” under Section 16(n), Article IV of RA No. 7875;
and

5. The PHIC officials and employees received the allowances and benefits in good faith, and, therefore, they are not
liable for the refund.

In his Answer dated November 10, 2015, the CD prayed for the dismissal of the petition as the allowances and benefits
were granted without the requisite recommendation of the Department of Budget and Management (DBM) and approval of the
President. Hence, the payment was unauthorized and irregular as defined under Section 3.1 of COA Circular No. 85-55-A dated
September 8, 1985.

ISSUE

The issue to be resolved is whether or not the Petition for Review is meritorious.

DISCUSSION

This Commission finds the Petition for Review devoid of merit.

The coverage of RA No. 6758 is comprehensive. It applies to the entire government without qualification. Since it became
effective on July 1, 1989, laws have been passed exempting some government entities from the Salary Standardization Law. These
8
entities were allowed to create their own compensation and position classification systems that apply to their respective offices.
9
As enumerated by the Supreme Court (SC) in the case of Mendoza vs. COA, the charters of these exempt entities explicitly
provide their exemption from the rules on compensation, position classification and qualification standards. The same exemption
is not provided for in PHIC’s Charter.
10
Section 16(n) of RA No. 7875, which provides the power of the Corporation to fix the compensation of, and appoint
personnel, among others, does not state nor indicate any grant of fiscal autonomy. The Board of Directors (BOD) may have
authority to determine and fix their own compensation and classification system. However, such authority is not absolute and is at
11
all times subject to existing rules and regulations. This limitation is explicitly stated in Section 26(a) of RA No. 7875, that all
funds under the management and control of PHIC shall be subject to all rules and regulations applicable to public funds.
12
I n Intia vs. COA, the SC held that the power of the Board, granted by its Charter in fixing the compensation of the
employees, is not absolute, thus:

To sustain petitioners claim that it is the PPC and PPC alone that should ensure that its compensation system
conforms as closely as possible with that of R.A. No. 6758 will result in an invalid delegation of legislative
power. If such interpretation is adopted, the law would, in effect, be granting PPC unfettered discretion to fix its
compensation structure, something the legislature could not have intended.

xxx

In other words, the general rule is that the PPC is covered by the Civil Service Law as regards all personnel
matters except those affecting the compensation structure and position classification in the corporation which
are left to the PPC Board of Directors to formulate in accordance with law. It must be stressed that the Boards
discretion on the matter of personnel compensation is not absolute as the same must be exercised in
accordance with the standard laid down by law, that is, its compensation system, including the allowances
granted by the Board to PPC employees, must strictly conform with that provided for other government
agencies under R.A. No. 6758 (Salary Standardization Law) in relation to the General Appropriations Act.
To ensure such compliance, the resolutions of the Board affecting such matters should first be reviewed and
approved by the Department of Budget and Management pursuant to Section 6 of P.D. No. 1597. (Underscoring
in the original) (Emphasis supplied)

Further, even granting that PHIC is an exempt entity, it is still subject to the rules and regulations that 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. Section 6 of PD No. 1597 reads:

Section 6. Exemption from OCPC Rules and Regulations. Agencies, positions or groups of officials and
employees of the national government, including government-owned and 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. Exemptions notwithstanding,
agencies shall report to the President, through the Budget Commission, on their position classification and
compensation plans, policies, rates and other related details, following such specifications as may be prescribed
 compensation plans, policies, rates and other related details, following such specifications as may be prescribed
by the President.

Thus, even if PHIC has its own position classification and compensation plans, it is still required to report the same to the
President of the Philippines, through the DBM.
13
Moreover, Section 9 of Congress Joint Resolution No. 4 dated June 17, 2009 explicitly provides that any increase in the
existing salary rates as well as the grant of new allowances, benefits and incentives, or any increase thereof, shall be subject to the
approval of the President, upon recommendation of the DBM.

Similarly, petitioner’s allegation that the grant of EEA and Birthday Gift is valid, as it is covered by the Collective
Negotiation Agreements (CNA) duly executed between PHIC Management and its rank-and-file employees, through the PHIC
Employees Association, must likewise fail.

The CNA is a contract negotiated between an accredited employees’ organization as the negotiating unit and the
employer/management on the terms and conditions of employment and its improvements that are not fixed by law. Further, a CNA
Incentive is a cash incentive in whatever form provided for in the CNA and its supplement, which is granted in PSLMC Resolution
No. 04, s. 2002 and PSLMC Resolution No. 02, s. 2003, or the rationalized cash incentive granted to the government employees
who have contributed either in productivity or cost savings in an agency, in fulfillment of the commitments in the CNAs or
supplements thereto. It excludes, among others, non-negotiable concerns such as the EAA and Birthday Gift, specified in PSLMC
Resolution No. 04, s. 2002, PSLMC Resolution No. 02, s. 2003, and DBM Budget Circular No. 2006-1 dated February 1, 2006, as
14
payment of these benefits are regulated by law.

Petitioner further asserts that since it is a government financial institution (GFI), it must be accorded fiscal autonomy
enjoyed by other GFIs such as the Bangko Sentral ng Pilipinas. Being a GFI, it claims that its Board has the exclusive authority to
approve the PHIC’s internal operating budget, which does not require budgetary support from the national government. Thus,
petitioner alleges that its internal operating budget consisting of premium contributions and investment earnings, as authorized
15
under Section 26(b) of RA No. 7875, was the source of funds used in the disbursement of the subject benefits and allowances
granted in calendar years 2009 and 2010. Thus, the review and approval of the subject benefits and allowances was within the
exclusive and absolute authority of PHIC BOD.

This argument is likewise untenable.

The main source of PHIC’s operating budget is the contributions of its members. Like any other social insurance, the
members’ contributions are treated as a trust fund, and thus, should be managed and protected with utmost integrity. Since the
funds are imbued with public interest, the formulation of PHIC’s operating budget should strictly conform to laws and regulations
governing public expenditures. Instructive is the case of Social Security System vs. COA,16 where the SC held:

The funds contributed to the Social Security System (SSS) are not only imbued with public interest, they are
part and parcel of the fruits of the workers labors pooled into one enormous trust fund under the administration
of the System designed to insure against the vicissitudes and hazards of their working lives. In a very real
sense, the trust funds are the workers property which they could turn to when necessity beckons and are thus
more personal to them than the taxes they pay. It is therefore only fair and proper that charges against the trust
fund be strictly scrutinized for every lawful and judicious opportunity to keep it intact and viable in the interest
of enhancing the welfare of their true and ultimate beneficiaries.

Thus, the resolutions passed by the PHIC, in the exercise of its fiscal autonomy, granting the benefits and allowances, no
matter how long practiced, if the same were given in violation of existing rules and regulations, are still considered unauthorized
and should be disallowed. It has been consistently held that no vested or acquired right can arise from acts or omissions which are
against the law.17

Likewise, the argument that the BOD’s authority to fix the compensation framework of PHIC as provided under Section
16(n) of RA No. 7875, was confirmed twice by President Arroyo in her letters dated September 18, 2006 and March 7, 2008, is
untenable. Clearly, only the PHIC Rationalization Plan or Reengineered Organization and its corresponding specific plantilla
positions were approved by the former President.

Anent the issue of good faith, the officials who authorized/approved/ certified the grants or payments and the recipient-
employees cannot be deemed in good faith. The laws and rules requiring prior approval of the Office of the President and the
DBM were already existing prior to the grant and receipt of the allowances and benefits. In fact, several audit disallowances have
been previously issued against PHIC which should have made petitioner more conscious and mindful in disbursing funds for
allowances and benefits.

Thus, the officials who authorized/approved/certified the grant or payments are solidarily liable for the total disallowed
18
amount, pursuant to Sections 16.1, 16.1.2, 16.1.3 and 16.3 of the 2009 Rules and Regulations on the Settlement of Accounts,
which provide:

16.1 The Liability of public officers and other persons for audit disallowances shall be determined on the basis
of: (a) the nature of the disallowance; (b) the duties, responsibilities or obligations of officers/employees
concerned; (c) the extent of their participation in the disallowed/charged transaction; and (d) the amount
of damage or losses to the government, thus:

xxx

16.1.2 Public officers who certify as to the necessity, legality and availability of funds or adequacy of
documents shall be liable according to their respective certifications.

16.1.3 Public officers who approve or authorize expenditures shall be liable for losses arising out of
their negligence or failure to exercise the diligence of a good father of a family.

xxx
 16.3 The liability of persons determined to be liable under an ND/NC shall be solidary and the Commission
may go against any person liable without prejudice to the latter's claim against the rest of the persons
liable.

Good faith should not prevent the government from recovering what has been unduly given, lest it would result in unjust
enrichment against the government. Section 43, Chapter 5, Book VI of EO No. 292, otherwise known as the Administrative
Code of 1987, mandates:

Every expenditure or obligation authorized or incurred in violation of the provisions of this Code or of the
general and special provisions contained in the annual General or other Appropriations Act shall be void. Every
payment made in violation of said provisions shall be illegal and every official or employee authorizing
payment or making such payment, or taking part therein, and every person receiving such payment shall be
jointly and severally liable to the Government for the full amount so paid or received.(Underscoring supplied)

All told, there is no reason to reverse the assailed decision, as it is clear from the foregoing that the benefits granted by
PHIC were not in conformity with the laws and regulations.

RULING

WHEREFORE, premises considered, the Petition for Review of Philippine Health Insurance Corporation (PHIC), through
Mr. Ramon F. Ariztoza, Jr., Officer-in-Charge, President and Chief Executive Officer, of Commission on Audit Corporate
Government Sector-Cluster 6 Decision No. 2015-019 dated September 10, 2015, is hereby DENIED for lack of merit.
Accordingly, Notice of Disallowance Nos. H.O. 2015-001-COB (14) dated January 21, 2015 and NCR 2015-003 COB (14) dated
April 29, 2015, on the payment of Educational Assistance Allowance and Birthday Gift in the year 2014 to the officials and
employees of PHIC Head Office and Regional Offices, National Capital Region and Rizal, in the total amount of P83,062,385.27,
are AFFIRMED.

(SGD.) MICHAEL G. AGUINALDO

Chairperson

(SGD.) JOSE A. FABIA (SGD.) ISABEL D. AGITO

Commissioner Commissioner

Attested by:

(SGD.) NILDA B. PLARAS

Director IV
Commission Secretariat

Copy furnished:

Mr. Ramon F. Aristoza, Jr.

Officer-in-Charge – President and Chief Executive Officer
Executive Vice President and Chief Operating Officer
Philippine Health Insurance Corporation
Citystate Center, 709 Shaw Boulevard
Barangay Oranbo, Pasig City
The Accountant
Philippine Health Insurance Corporation
Citystate Center, 709 Shaw Boulevard
Barangay Oranbo, Pasig City

The Audit Team Leader

The Supervising Auditor
Philippine Health Insurance Corporation
Citystate Center, 709 Shaw Boulevard
Barangay Oranbo, Pasig City

The Directors
Cluster 6, Corporate Government Sector
Information Technology Office, Systems and Technical Services Sector
Claims and Adjudication Office-Corporate, Commission Proper Adjudication
and Secretariat Support Services Sector

The Assistant Commissioners

Corporate Government Sector
Commission Proper Adjudication and Secretariat Support Services Sector

All of this Commission

All of this Commission

ESZ/EDS/DVG/ASV
CMIS 2016-379
CPCN 2015-0683

1 Pursuant to Rule VII of the 2009 Revised Rules of Procedure of the Commission on Audit.
2 Section 3. Period of Appeal. — The appeal shall be taken within the time remaining of the six (6) months period under Section 4, Rule V, taking into account the
suspension of the running thereof under Section 5 of the same Rule in case of appeals from the Director's decision, or under Sections 9 and 10 of Rule VI in case of
decision of the ASB.
3 Rollo, p. 272.
4 Rollo, p. 48.
5 Rollo, p. 295.
6 Rollo, p. 224.
7 Rollo, p. 41.
8 Mendoza vs. Commission on Audit, G.R. No. 195395, September 10, 2013.
9 Ibid.
10 n) to organize its office, fix the compensation of and appoint personnel as may be deemed necessary and upon the recommendation of the president of the Corporation;
xxx.
11 SEC. 26. Financial Management - The use, disposition, investment, disbursement, administration and management of the National Health Insurance Fund, including
any subsidy, grant or donation received for program operations shall be governed by resolution of the Board of Directors of the Corporation, subject to the following
limitations:

a) All funds under the management and control of the Corporation shall be subject to all rules and regulations applicable to public funds.
12 G.R. No. 131529, April 30, 1999.
13 (9) Exempt Entities – Government agencies which by specific provision/s of laws are authorized to have their own compensation and position classification system
shall not be entitled to the salary adjustments provided herein. Exempt entities shall be governed by their respective Compensation and Position Classification Systems:
Provided, That such entities shall observe the policies, parameters and guidelines governing position classification, salary rates, categories and rates of allowances,
benefits and incentives, prescribed by the President: Provided, further, That any increase in the existing salary rates as well as the grant of new allowances, benefits and
incentives, or an increase in the rates thereof shall be subject to the approval by the President, upon recommendation of the DBM: Provided, finally, That exempt entities
which still follow the salary rates for positions covered by Republic Act No. 6758, as amended, are entitled to the salary adjustments due to the implementation of this
Joint Resolution, until such time that they have implemented their own compensation and position classification system.
14 Civil Service Commission Primer on Collective Negotiation Agreement.
15 SEC. 26. Financial Management. - The use, disposition, investment, disbursement, administration and management of the National Health Insurance Fund, including
any subsidy, grant or donation received for program operations shall be governed by resolution of the Board of Directors of the Corporation, subject to the following
limitations:
xxx
b) The Corporation is authorized to charge the various funds under its control for the costs of administering the Program. Such costs may include administration,
monitoring, marketing and promotion, research and development, audit and evaluation, information services, and other necessary activities for the effective management
of the Program. The total annual costs for these shall not exceed twelve percent (12%) of the total contributions, including government contributions to the Program and
not more than three (3%) of the investment earnings collected during the immediately preceding year.
16 G.R. No. 149240, July 11, 2002.
17 Article 2254 of the New Civil Code of the Philippines.
18 Commission on Audit Circular No. 2009-006 dated September 15, 2009.