EN BANC

G.R. No. 213453, November 29, 2016

PHILIPPINE HEALTH INSURANCE CORPORATION, Petitioner, v. COMMISSION ON AUDIT,

MA. GRACIA PULIDO TAN, CHAIRPERSON; AND JANET D. NACION, DIRECTOR
IV, Respondents.

DECISION

PERALTA, J.:

Before the Court is a special civil action for certiorari under Rule 64, in relation to Rule 65 of the
1997 Rules of Civil Procedure, as amended, seeking to reverse and set aside the Decision No.
2013-2081 dated November 20, 2013 and Resolution dated April 4, 2014 of the Commission on
Audit (COA), which affirmed the Notice of Disallowance (ND) Philippine Health Insurance
Corporation (PHIC) 2008-003 (2004)2 dated February 7, 2008 of the COA Legal Service.

The antecedent facts are as follows:cralawlawlibrary

The instant case stems from petitioner PHIC's grant of several allowances to its officers and
employees that were subsequently disallowed by respondent COA. In its PHIC Board
Resolution No. 406, s. 20013dated May 31, 2001, for one, petitioner granted the payment of the
Collective Negotiation Agreement Signing Bonus (CNASB) of P5,000.00 each to all qualified
employees due to the extension of the then existing CNA between the PHIC management and
the PhilHealth Employees Association (PHICEA) for the period of another three (3) years
beginning April of 2001. For another, in its PHIC Board Resolution No. 385, s. 20014 effective
January 1, 2001, petitioner approved. the payment of the Welfare Support Assistance (WESA)
of P4,000.00 each, in lieu of the subsistence and laundry allowances paid to public health
workers under Republic Act (R.A.) No. 7305, otherwise known as the Magna Carta of Public
Health Workers. Petitioner then resolved to approve the grant of the Labor Management
Relations Gratuity (LMRG) by virtue of its PHIC Board Resolution No. 717, s. 20045 dated July
22, 2004, in recognition of harmonious labor-management relations of its employees with the
management. Finally, for the services rendered during the period beginning July 1989 until
January 1995, petitioner paid the Cost of Living Allowance (COLA) to personnel it had absorbed
from the Philippine Medical Care Commission (PMCC) by virtue of Section 516 of R.A. No.
7875, otherwise known as The National Health Insurance Act of 1995.7

On February 7, 2008, however, pursuant to the recommendations of the Supervising Auditor of

the PHIC in various Audit Observation Memoranda (AOM),8 respondent Janet D. Nacion,
Director IV of the Legal and Adjudication Office - Corporate of the COA, issued ND PHIC 2008-
003 (2004), disallowing the payment of the aforementioned allowances granted to PHIC officers
and employees in the total amount of P87,699,144.00.9 According to respondent Nacion, the
payment of the CNASB was contrary to the doctrine enunciated in Social Security System
(SSS) v. COA10 wherein the Court expressly invalidated the payment of the same. With respect
to the WESA, Nacion maintained that its payment was made without legal basis in the absence
of approval from the Office of the President.11 As for the payment of the LMRG, Nacion found
that it was merely a duplication of the Performance Incentive Bonus (PIB) which was granted to
employees based on their good performance, increased efficiency and productivity. Lastly,
Nacion disallowed the payment of back COLA to PHIC personnel ratiocinating that it should be
collected not from petitioner PHIC but from the government agency where the services have
been rendered prior to its creation in January 1995.12

Petitioner filed its motion for reconsideration which was, however, denied by the COA Legal
Services Sector (LSS) in its Decision No. 2010-02013 issued on May 21, 2010. On appeal, the
COA Commission Proper (CP) sustained the disallowance in its Decision No. 2013-208 dated
November 20, 2013.14Thereafter, in a Resolution15 dated April 4, 2014, the COA CP en
banc further denied petitioner's motion for reconsideration.

Aggrieved, petitioner filed the instant petition before the Court raising the following
issues:chanRoblesvirtualLawlibrary

I.

WHETHER THE COA GRAVELY ABUSED ITS DISCRETION, AMOUNTING TO LACK OR

EXCESS OF JURISDICTION, IN ISSUING THE ASSAILED DECISION AND
RESOLUTION.chanroblesvirtuallawlibrary

II.

WHETHER THE COA DISREGARDED THE FISCAL AUTONOMY GRANTED TO PHIC

UNDER SECTION 16 (N), R.A. 7875, AS AMENDED, AS WELL AS EXISTING AND
RELEVANT JURISPRUDENCE, IN AFFIRMING THE ND PHIC 2008-003
(2004).chanroblesvirtuallawlibrary

III.

WHETHER PHIC'S PAYMENTS OF THE CNASB, LMRG, WESA, AND BACK COLA IN
FAVOR OF ITS OFFICERS AND EMPLOYEES AMOUNTING TO PHP87,699,144.00 WAS
PROPER.chanroblesvirtuallawlibrary

IV.

GRANTING THAT THE PAYMENTS WERE NOT PROPER, WHETHER THE PHIC OFFICERS
AND EMPLOYEES CAN BE REQUIRED TO REFUND THE AMOUNTS RECEIVED.
Petitioner PHIC raises several infirmities attendant in respondent COA's disallowance. First,
contrary to respondent's findings, petitioner paid the CNASB to its regular plantilla personnel in
2001 and not in 2004 as evinced by the Certification and payrolls it duly presented.16 During
said year, such grant was expressly sanctioned by Budget Circular No. 2000-19 issued by the
Department of Budget and Management (DBM) on December 15, 2000 which authorizes the
payment of the signing bonus to each entitled rank-and-file personnel. During said year,
moreover, the ruling in SSS v. COA17 had not yet been laid down by the Court, which was
actually promulgated on July 11, 2002, or more than a year after the payment of the subject
CNASB. Thus, on the basis of the established principle of prospective application of laws, the
invalidation of the CNASB enunciated in the SSS case cannot be used as legal basis in
disallowing the issuance of said bonus.18

Second, petitioner asserts that the WESA was duly granted in compliance with applicable law,
particularly R.A. No. 7305 or the Magna Carta of Public Health Workers (PHW). According to
petitioners, the WESA was issued in lieu of the subsistence and laundry allowance due to
PHWs under Section 22 of the Magna Carta, which provides that said subsistence allowance
shall be "computed in accordance with prevailing circumstances as determined by the Health
Secretary in consultation with the Management Health Worker's Consultative Councils."
Petitioner explains that respondent COA's assertion that the WESA should be disallowed
because it was granted without the participation of the Health Secretary is not entirely accurate.
Under Section 18 (a) of R.A. No. 7875, the Board of Directors of the PHIC is composed of
eleven (11) members (which was increased to sixteen (16) members under R.A. No. 10606
passed in June 2013) with the Health Secretary sitting as the Ex-Officio19 As part of said PHIC
board, its unanimous passage of PHIC Board Resolution No. 385, s. 2001 granting the subject
WESA was compliantly the positive act of then Health Secretary Dr. Alberto G. Romualdez, Jr.
required under the law.20 Any official act of the PHIC Board, with the Health Secretary sitting
as Ex-Officio Chairperson, cannot be considered as an exclusive act of the board, but also as
an act of the Health Secretary in his primary capacity as such.

Third, petitioner contends that contrary to respondent's allegation, the LMRG is not merely a
duplicate of the PIB. The LMRG was passed in the exercise of the PHIC Board of its "fiscal
autonomy" to fix compensation and benefits of its personnel under Section 16 (n) of R.A. No.
7875 in recognition of notable labor-management relations, while the PIB was granted as a
performance-based incentive under Executive Order (E.O.) No. 486, entitled Establishing a
Performance-Based Incentive System for Government-Owned or Controlled Corporations and
for Other Purposes.21 In addition, the two (2) grants not only have different requirements for
entitlement but also differ in their amounts and manner of computation.

Fourth, with respect to the grant of the COLA back pay, petitioner posits that while it agrees with
the position taken by respondent COA Director Nacion that the Court, in De Jesus v. COA,22 has
given imprimatur on the propriety of the said COLA during the time when the DBM Corporate
Compensation Circular (CCC) 10 was in legal limbo, it, nevertheless, disagrees with her view
that the PHIC is not legally bound to pay the same to its absorbed personnel for their services
were not rendered to PHIC but to another government agency prior to PHIC's
creation.23 Petitioner recounts that the COLA back pay was for services rendered between July
1989 and January 1995 when the payment of the same had been discontinued by reason of
DBM CCC 10 issued in July 1995, pursuant to R.A. No. 6758, or the Salary Standardization
Law (SSL). But the failure to publish the DBM CCC 10 integrating COLA into the standardized
salary rates meant that the COLA was not effectively integrated as of July 1989 but only on
March 16, 1999 when the circular was published as required by law. Thus, in between those two
dates, the employees were still entitled to receive the COLA. But unlike respondent Nacion, who
opined that petitioner PHIC has no business to settle the obligations of other government
entities having a separate and distinct legal personality therefrom, petitioner PHIC invokes
Section 51 of R.A. No. 7875 which transfers all the functions and assets of the defunct PMCC to
PHIC. According to petitioner, the term "functions" necessarily means to include then PMCC's
obligation to pay the benefits due to its employees who have been absorbed by PHIC such as
the COLA that was unduly withdrawn from their salaries after the issuance of DBM CCC 10 in
1989.24 This is in keeping with the principle of equal protection of laws guaranteed under the
Constitution. In the end, petitioner posits that since PHIC personnel received the CNASB,
WESA, LMRG and back COLA in good faith, they should not be required to refund
them.25cralawred

For its part, respondent COA initially raised certain procedural defects in petitioner's action. For
one, it is alleged that petitioner PHIC is not the real party-in-interest and, therefore, has no locus
standi to file the instant petition.26 This is because the parties who benefitted and who will be
injured by the disallowance are the officers and employees of PHIC, and not PHIC itself. For
another, the special civil action for certiorari under Rule 65 is improper as it was not shown that
respondent COA acted without jurisdiction or with grave abuse of discretion amounting to lack
or excess of jurisdiction.

Substantially, moreover, respondent COA asseverates that PHIC's socalled "fiscal autonomy"
does not preclude the COA's power to disallow the grant of allowances.27 In the exercise of said
power, respondent COA claims that petitioner, in granting the subject allowances, cannot rely
on Section 16 (n)28 of R.A. No. 7875. This is because as held in Government Service Insurance
System (GSIS) v. Civil Service Commission,29 the term "compensation" "excludes all bonuses,
per diems, allowances and overtime pay, or salary pay or compensation given in addition to the
base pay of the position or rank as fixed by law or regulations."

Respondent COA further insists that with respect to the CNASB, the payment of the same was
made not in 2001, as petitioner claims, but on June 11, 2004, based on an Automatic Debit
Advice "dated 6-11-2004."30 Consequently, SSS v. COA31 is applicable. In fact, in a letter dated
October 18, 2004, the DBM reminded the PHIC of the said ruling. Thus, respondent COA posits
that while it is true that the payment of the CNASB was allowed under DBM Budget Circular No.
2000-19, dated December 15, 2000, which was the basis of PHIC Board Resolution No. 406, s.
2001 approving said grant, actual payment thereof by petitioner PHIC, however, was made only
on June 11, 2004, or after the pronouncement in SSS v. COA. Moreover, said Board Resolution
has already been made ineffective by Resolution No. 04, s. 2002 and Resolution No. 02, s.
2003 of the Public Sector LaborManagement Council (PSLMC), which allows the grant of the
CNA Incentive but declares the CNASB illegal as a form of additional
compensation.32Respondent adds that the pieces of evidence submitted by petitioner consisting
of the Certification and payrolls are self-serving for they were made out of court, the COA
having no opportunity to impugn the same in open court.33

Respondent COA also rejects petitioner's assertions on the validity of the grant of the WESA
claiming that the act of the PHIC Board is not the act of the individual composing the Board in
view of the settled rule that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it.34 Thus, the act of the PHIC Board of which the
Health Secretary is the ex-officio chair is separate and distinct from the Health Secretary.
Consequently, the benefit given as WESA is invalid because the rate thereof was not
determined by the Health Secretary as mandated by the Magna Carta of PHWs.

As regards the LMRG, respondent maintains that it is exactly the same as the PIB earlier
granted to PHIC employees based on their good performance, increased productivity and
efficiency, for good performance is the result of a harmonious relationship between the
employees and the management.35 Even assuming that the LMRG does not partake of the
nature of the PIB, the former nonetheless remains an additional benefit that requires prior
approval of the Office of the President (OP) as mandated by Memorandum Order (MO) No. 20
dated June 25, 2001. Said MO requires presidential approval, for any increases in salary or
compensation of Government-Owned and Controlled Corporations (GOCCs) that are not in
accordance with the SSL.

As for the COLA back pay, respondent reiterates Nacion's view that petitioner PHIC is
unauthorized to settle the obligations PMCC had because it is not one of the powers and
functions enumerated in its charter, particularly Section 16 of R.A. 7875. Said functions do not
include the obligation to pay the benefits due to the employees of PMCC or other employees of
the government who have been absorbed by the PHIC. Respondent adds that at the time
covering the period of July 1989 to January 1995, PHIC had no legal personality yet, for it was
created only in 1995.36

Thus, the obligation to pay the COLA commenced only from that time. Prior to 1995, the COLA
of PMCC employees should have been collected from the PMCC where they rendered their
services.

The petition is partly meritorious.

At the outset, the Court rejects the alleged procedural barriers that supposedly prevent it from
entertaining the instant petition. Respondent claims that petitioner PHIC is not the proper
"aggrieved party" to file the petition because the parties who actually received and who will be
injured by the disallowance are the officers and employees of PHIC, and not PHIC itself. Time
and again, the Court has defined locus standi or legal standing as a personal and substantial
interest in the case such that the party has sustained or will sustain direct injury as a result of
the governmental act that is being challenged. The gist of the question of standing is whether a
party alleges such a personal stake in the outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation of issues upon which the court depends for
illumination of difficult constitutional questions.37

In this regard, the Court. finds that petitioner PHIC certainly possesses the legal standing to file
the instant action. Petitioner comes before the Court invoking its power to fix the compensation
of its employees and personnel enunciated under the National Health Insurance Act.
Accordingly, when respondent disallowed petitioner's grant of certain allowances in its exercise
of said power, it effectively and directly challenged petitioner's authority to grant the same.
Thus, petitioner must be granted the opportunity to justify its issuances by presenting the basis
on which they were made. As petitioner pointed out, whatever benefit received by the personnel
as a consequence of PHIC's exercise of its alleged authority is merely incidental to the main
issue, which is the validity of PHIC's grant of allowances and benefits.38 In fact, in light of
numerous disallowances being made by the COA, it is rather typical for a government entity to
come before the Court and challenge the COA's decision invalidating such entity's disbursement
of funds.39 The nonparticipation of the particular employees who actually received the
disallowed benefits does not prevent the Court from determining the issue of whether the COA
gravely abused its discretion in declaring the entity's issuance as illegal. In Maritime Industry
Authority v. COA,40We explained:chanRoblesvirtualLawlibrary
The burden of proving the validity or legality of the grant of allowance or benefits is with
the government agency or entity granting the allowance or benefit, or the employee
claiming the same. After the Resident Auditor issues a notice of disallowance, the aggrieved
party may appeal the disallowance to the Director within six (6) months from receipt of the
decision. At this point, the government agency or employee has the chance to prove the
validity of the grant of allowance or benefit. If the appeal is denied, a petition for review may
be filed before the Commission on Audit Commission Proper. Finally, the aggrieved party
may file a petition for certiorari before this court to assail the decision of the Commission
on Audit Commission Proper.

Our laws and procedure have provided the aggrieved party several chances to prove the
validity of the grant of the allowance or benefit.41
As Article IX-A, Section 7 of the 1987 Constitution expressly provides, "unless otherwise
provided by this Constitution or by law, any decision, order, or ruling of each Commission may
be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from
receipt of a copy thereof." In like manner, Rule 64, Section 2 of the Revised Rules of Civil
Procedure also provides that "a judgment or final order or resolution of the Commission on
Elections and the Commission on Audit may be brought by the aggrieved party to the Supreme
Court on certiorari under Rule 65, except as hereinafter provided." Thus, while findings of
administrative agencies, such as the COA herein, are generally respected, when it is shown to
have been tainted with unfairness amounting to grave abuse of discretion, the aggrieved party
can assail the COA decision in special civil action for certiorari under Rule 64 in relation to Rule
65, an extraordinary remedy, the purpose of which is to keep the public respondent within the
bounds of its jurisdiction, relieving the petitioner from the public respondent's arbitrary acts.42

The Court shall now proceed to determine the propriety of respondent COA's disallowance. In
support of its grant of the subject allowances and benefits, petitioner PHIC persistently invokes
its 'fiscal autonomy' enunciated under Section 16(n) of R.A. 7875 "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." It argued that unlike in Intia, Jr. v.
COA43 cited by respondent COA where the charter of the Philippine Postal Corporation
expressly stated that it shall ensure that its compensation system conforms closely to the
provisions of the SSL, the PHIC charter does not contain a similar limitation thereby removing
the PHIC from the ambit thereof.44 Moreover, had the legislature intended to subject its power to
fix its personnel's compensation to the approval of the DBM or the Office of the President (OP),
its charter should have expressly provided as it did in Section 19(d) thereof which states that
"the President shall receive a salary to be fixed by the Board, with the approval of the President
of the Philippines, payable from the funds of the Corporation." In further support thereof,
petitioner cites certain opinions of the Office of Government Corporate Counsel (OGCC) dated
December 21, 1999 and March 31, 2004 upholding PHIC's unrestricted 'fiscal autonomy' to fix
the compensation of its personnel.45

Petitioner adds that in any event, its power to fix its personnel compensation is still subject to
certain limitations such as Section 26(b) of R.A. 7875 providing that it may charge various funds
under its control for costs of administering the Program for as long as they shall not exceed the
twelve percent (12%) of the total contributions to the Program and three percent (3%) of the
investment earnings collected during the immediately preceding year.46 Thus, petitioner posits
that it is the intent of the legislature to limit the determination and approval of allowances to the
PHIC Board alone, subject only to the 12%-13% limitation.47 In the end, petitioner emphasizes
that it enjoys an unmistakeable authority to exclusively approve its own, internal operating
budget for prior DBM approval is only required when national budgetary support is needed.48

Petitioner's contentions are devoid of merit.

The extent of the power of GOCCs to fix compensation and determine the reasonable
allowances of its officers and employees had already been conclusively laid down in Philippine
Charity Sweepstakes Office (PCSO) v. COA,49 to wit:chanRoblesvirtualLawlibrary
The PCSO stresses that it is a self-sustaining government instrumentality which generates its
own fund to support its operations and does not depend on the national government for its
budgetary support. Thus, it enjoys certain latitude to establish and grant allowances and
incentives to its officers and employees.

We do not agree. Sections 6 and 9 of R.A. No. 1169, as amended, cannot be relied upon by the
PCSO to grant the COLA. Section 6 merely states, among others, that fifteen percent (15%) of
the net receipts from the sale of sweepstakes tickets (whether for sweepstakes races, lotteries,
or other similar activities) shall be set aside as contributions to the operating expenses and
capital expenditures of the PCSO. Also, Section 9 loosely provides that among the powers and
functions of the PCSO Board of Directors is "to fix the salaries and determine the reasonable
allowances, bonuses and other incentives of its officers and employees as may be
recommended by the General Manager x x x subject to pertinent civil service and compensation
laws." The PCSO charter evidently does not grant its Board the unbridled authority to set
salaries and allowances of officials and employees. On the contrary, as a government
owned and/or controlled corporation (GOCC), it was expressly covered by P.D. No. 985 or
"The Budgetary Reform Decree on Compensation and Position Classification of 1976,"
and its 1978 amendment, P.D. No. 1597 (Further Rationalizing the System of
Compensation and Position Classification in the National Government), and mandated to
comply with the rules of then Office of Compensation and Position Classification (OCPC)
under the DBM.

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. In Intia,
Jr. v. COA, the Court stressed that the discretion of the Board of Philippine Postal
Corporation on the matter of personnel compensation is not absolute as the same must
be exercised in accordance with the standard laid down by law, i.e., its compensation
system, including the allowances granted by the Board, must strictly conform with that
provided for other government agencies under R.A. No. 6758 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 DBM pursuant to Section 6 of P.D. No.
1597.
The Court, in the same case, further elaborated on the rule that notwithstanding any exemption
granted under their charters, the power of GOCCs to fix salaries and allowances must still
conform to compensation and position classification standards laid down by applicable law.
Citing Philippine Retirement Authority (PRA) v. Buñag,50 We said:chanRoblesvirtualLawlibrary
In accordance with the ruling of this Court in Intia, we agree with petitioner PRA that these
provisions should be read together with P.D. No. 985 and P.D. No. 1597, particularly Section 6
of P.D. No. 1597. Thus, notwithstanding exemptions from the authority of the Office of
Compensation and Position Classification granted to PRA under its charter, PRA is still
required to 1) observe the policies and guidelines issued by the President with respect to
position classification, salary rates, levels of allowances, project and other honoraria,
overtime rates, and other forms of compensation and fringe benefits and 2) 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 by the President.

Despite the power granted to the Board of Directors of PRA to establish and fix a compensation
and benefits scheme for its employees, the same is subject to the review of the Department of
Budget and Management. x x x x

The rationale for the review authority of the Department of Budget and Management is
obvious. Even prior to R.A. No. 6758, the declared policy of the. national government is
to provide "equal pay for substantially equal work and to base differences in pay upon
substantive differences in duties and responsibilities, and qualification requirements of
the positions." To implement this policy, P.D. No. 985 provided for the standardized
compensation of government employees and officials, including those in government-owned
and controlled corporations. Subsequently, P.D. No. 1597 was enacted prescribing the duties to
be followed by agencies and offices exempt from coverage of the rules and regulations of the
Office of Compensation and Position Classification. The intention, therefore, was to provide a
compensation standardization scheme such that notwithstanding any exemptions from
the coverage of the Office of Compensation and Position Classification, the exempt
government entity or office is still required to observe the policies and guidelines issued
by the President and to submit a report to the Budget Commission on matters
concerning position classification and compensation plans, policies, rates and other
related details. This ought to be the interpretation if the avowed policy of compensation
standardization in government is to be given full effect. The policy of "equal pay for
substantially equal work" will be an empty directive if government entities exempt from
the coverage of the Office of Compensation and Position Classification may freely
impose any type of salary scheme, benefit or monetary incentive to its employees in any
amount, without regard to the compensation plan implemented in the other government
agencies or entities.Thus, even prior to the passage of R.A No. 6758, consistent with the
salary standardization laws in effect, the compensation and benefits scheme of PRA is subject
to the review of the Department of Budget and Management.51
Accordingly, that Section 16(n) of R.A. 7875 granting PHIC's power to fix the compensation of
its personnel does not explicitly provide that the same shall be subject to the approval of the
OBM or the OP as in Section 19(d) thereof does not necessarily mean that the PHIC has
unbridled discretion to issue any and all kinds of allowances, limited only by the provisions of its
charter. As clearly expressed in PCSO v. COA, even if it is assumed that there is an explicit
provision exempting a GOCC from the rules of the then Office of Compensation and Position
Classification (OCPC) under the OBM, the power of its Board to fix the salaries and determine
the reasonable allowances, bonuses and other incentives was still subject to the standards laid
down by applicable laws: P.O. No. 985,52 its 1978 amendment, P.O. No. 1597,53 the SSL, and at
present, R.A. 10149.54 To sustain petitioners' claim that it is the PHIC, and PHIC alone, that will
ensure that its compensation system conforms with applicable law will result in an invalid
delegation of legislative power, granting the PHIC unlimited authority to unilaterally fix its
compensation structure.55Certainly, such effect could not have been the intent of the legislature.

It must be noted, though, that the power of review granted to the OMB is simply to ensure that
the proposed compensation and benefit schemes of the GOCCs comply with the requirements
of applicable laws, rules and regulations. PRA v. Buñag56 clarifies:chanRoblesvirtualLawlibrary
However, in view of the express powers granted to PRA under its charter, the extent of the
review authority of the Department of Budget and Management is limited. As stated in Intia, the
task of the Department of Budget and Management is simply to review the compensation and
benefits plan of the government agency or entity concerned and determine if the same complies
with the prescribed policies and guidelines issued in this regard. The role of the Department of
Budget and Management is supervisorial in nature, its main duty being to ascertain that
the proposed compensation, benefits and other incentives to be given to PRA officials
and employees adhere to the policies and guidelines issued in accordance with
applicable laws.
The rule, therefore, is that for as long as the allowances and benefits granted by petitioner PHIC
are in accordance with and authorized by prevailing law, the same shall be upheld by the
DBM.57 As Section 29(1), Article VI of the 1987 Constitution provides, "[n]o money shall be paid
out of the Treasury except in pursuance of an appropriation made by law." Accordingly, in order
to determine the validity of PHIC's issuances, the Court must give due regard to the following
Section 12 of the SSL in force at the time of the subject grants:chanRoblesvirtualLawlibrary
Section 12. Consolidation of Allowances and Compensation. - All allowances, except
forrepresentation and transportation allowances; clothing
and laundry allowances; subsistence allowance of marine officers and crew on board
government vessels and hospital personnel; hazard pay; allowances of foreign service
personnel stationed abroad; and such other additional compensation not otherwise
specified herein as may be determined by the DBM, shall be deemed included in the
standardized salary rates herein prescribed. Such other additional compensation, whether in
cash or in kind, being received by incumbents only as of July 1, 1989 not integrated into the
standardized salary rates shall continue to be authorized.

Existing additional compensation of any national government official or employee paid from
local funds of a local government unit shall be absorbed into the basic salary of said official or
employee and shall be paid by the National Government. (Emphasis supplied)
Thus, the general rule is that all allowances are deemed included in the standardized salary
except for the following: (1) representation and transportation allowances; (2) clothing and
laundry allowances; (3) subsistence allowance of marine officers and crew on board
government vessels and hospital personnel; (4) hazard pay; (5) allowances of foreign service
personnel stationed abroad; and (6) such other additional compensation not otherwise specified
herein as may be determined by the DBM.

Time and again, the Court has ruled that Section 12 of the SSL is self-executing. This means
that even without DBM action, the standardized salaries of government employees are already
inclusive of all allowances, save for those expressly identified in said section.58 It is only when
additional non-integrated allowances will be identified that an issuance of the DBM is required.
Thus, until and unless the DBM issues rules and regulations identifying those excluded benefits,
the enumerated nonintegrated allowances in Section 12 remain exclusive.59 When a grant of an
allowance, therefore, is not among those excluded in the Section 12 enumeration or expressly
excluded by law or DBM issuance, such allowance is deemed already given to its recipient in
their basic salary. As a result, the unauthorized issuance and receipt of said allowance is
tantamount to double compensation justifying COA disallowance.60

Prescinding from the foregoing, the Court had consistently ruled that not being an enumerated
exclusion, the COLA is deemed already incorporated in the standardized salary rates of
government employees under the general rule of integration of the SSL.61 Petitioner's argument
that the failure to publish the DBM-CCC No. 10 integrating COLA into the standardized salary
rates meant that the COLA was not effectively integrated as of July 1989 but only on March 16,
1999 when the circular was published as required by law has already been definitively
addressed in Maritime Industry Authority v. COA,62viz.:chanRoblesvirtualLawlibrary
We cannot subscribe to petitioner Maritime Industry Authority's contention that due to the non-
publication of the Department of Budget and Management's National Compensation Circular
No. 59, it is considered invalid that results in the non-integration of allowances in the
standardized salary.

xxxx

As held in Philippine International Trading Corporation v. Commission on Audit, the non-

publication of the Department of Budget and Management's issuance enumerating
allowances that are deemed integrated in the standardized salary will not affect the
execution of Section 12 of Republic Act No. 6758. Thus:chanRoblesvirtualLawlibrary
There is no merit in the claim of PITC that R.A. No. 6758, particularly Section 12 thereof is
void because DBM-Corporate Compensation Circular No. 10, its implementing rules, was
nullified in the case of De Jesus v. Commission on Audit, for lack of publication. The
basis of COA in disallowing the grant of SFI was Section 12 of R.A. No. 6758 and not
DBM-CCC No. 10. Moreover, the nullity of DBM-CCC No. 10 will not affect the validity of
R.A. No. 6758. It is a cardinal rule in statutory construction that statutory provisions
control the rules and regulations which may be issued pursuant thereto. Such rules and
regulations must be consistent with and must not defeat the purpose of the statute. The
validity of R.A. No. 6758 should not be made to depend on the validity of its
implementing rules.
In Gutierrez v. Department of Budget and Management, this court held
that:chanRoblesvirtualLawlibrary
xxxx

In this case, the DBM promulgated NCC 59 [and CCC 10]. But, instead of identifying some of
the additional exclusions that Section 12 of R.A. 6758 permits it to make, the DBM made a list of
what allowances and benefits are deemed integrated into the standardized salary rates. More
specifically, NCC 59 identified the following allowances/additional compensation that are
deemed integrated:cralawlawlibrary

xxxx

The drawing up of the above list is consistent with Section 12 above. R.A. 6758 did not
prohibit the DBM from identifying for the purpose of implementation what fell into the
class of "all allowances." With respect to what employees' benefits fell outside the term
apart from those that the law specified, the DBM, said this Court in a case, needed to
promulgate rules and regulations identifying those excluded benefits. This leads to the
inevitable conclusion that until and unless the DBM issues such rules and regulations, the
enumerated exclusions in items (1) to (6) remain exclusive. Thus so, not being an
enumerated exclusion, COLA is deemed already incorporated in the standardized salary
rates of government employees under the general rule of integration.63
In certain instances, however, the Court had opted to sustain the continued grant of allowances,
whether or not integrated into the standardized salaries, but only to those incumbent
government employees who were actually receiving said allowances before and as of July 1,
1989.64 This is in consonance with the second sentence of the first paragraph of Section 12 of
the SSL which states that: "such other additional compensation, whether in cash or in kind,
being received by incumbents only as of July 1, 1989 not integrated into the standardized salary
rates shall continue to be authorized." But unfortunately, petitioner failed to prove such
exception. To recall, petitioner merely asserted, as basis for its issuance of the COLA, the
ineffectivity of DBM CCC 10 as well as its obligation towards the employees it had absorbed
from its predecessor, Philippine Medical Care Commission. While petitioner loosely mentioned
that the COLA back pay was for services rendered between July 1989 and January 1995 when
the payment of the same had been "discontinued" and "unduly withdrawn," it failed to present
any sort of proof, documentary or otherwise, to sufficiently establish that those COLA recipients
were, indeed, incumbent government employees who were actually receiving the same as of
July 1, 1989. In fact, nowhere in its pleadings filed before the Court was it even invoked that the
PHIC officers and employees actually suffered a diminution in pay as a result of the
consolidation of the COLA back pay into their standardized salary rates. Petitioner cannot,
therefore, rely on Our ruling in Philipgine Ports Authority (PPA) Employees Hired After July 1,
1989 v. COA.65 As the Court elucidated in NAPOCOR Employees Consolidated Union (NEU) v.
National Power Corporation (NPC):66chanroblesvirtuallawlibrary
The Court has, to be sure, taken stock of its recent ruling in Philippine Ports Authority (PPA)
Employees Hired After July 1, 1989 vs. Commission on Audit. Sadly, however, our
pronouncement therein is not on all fours applicable owing to the differing factual milieu. There,
the Commission on Audit allowed the payment of back cost of living allowance (COLA) and
amelioration allowance previously withheld from PPA employees pursuant to the heretofore
ineffective DBM CCC No. 10, but limited the back payment only to incumbents as of July 1,
1989 who were already then receiving both allowances. COA considered the COLA and
amelioration allowance of PPA employees as "not integrated" within the purview of the second
sentence of Section 12 of Rep. Act No. 6758, which, according to COA confines the payment of
"not integrated" benefits only to July 1, 1989 incumbents already enjoying the allowances.

In setting aside COA's ruling, we held in PPA Employees that there was no basis to use the
elements of incumbency and prior receipt as standards to discriminate against the
petitioners therein. For, DBM-CCC No. 10, upon which the incumbency and prior receipt
requirements are contextually predicated, was in legal limbo from July 1, 1989 (effective date of
the unpublished DBM-CCC No. 10) to March 16, 1999 (date of effectivity of the heretofore
unpublished DBM circular). And being in legal limbo, the benefits otherwise covered by the
circular, if properly published, were likewise in legal limbo as they cannot be classified either as
effectively integrated or not integrated benefits.

There lies the difference.

Here, the employee welfare allowance was, as above demonstrated, integrated by NPC into the
employees' standardized salary rates effective July 1, 1989 pursuant to Rep. Act No.
6758. Unlike in PPA Employees, the element of discrimination between incumbents as of
July 1, 1989 and those joining the force thereafter is not obtaining in this case. And while
after July 1, 1989, PPA employees can rightfully complain about the discontinuance of payment
of COLA and amelioration allowance effected due to the incumbency and prior receipt
requirements set forth in DBM-CCC No, 10, NPC cannot do likewise with respect to their
welfare allowance since NPC has, for all intents and purposes, never really discontinued the
payment thereof.

To stress, herein petitioners failed to establish that they suffered a diminution in pay as a
consequence of the consolidation of the employee welfare allowance into their
standardized salary. There is thus nothing in this case which can be the subject of a back
pay since the amount corresponding to the employee welfare allowance was never in the
first place withheld from the petitioners.67
Here, petitioner's constant invocation of the equal protection clause is misleading. In its petition,
petitioner PHIC insists that all its employees should be treated equally, regardless of whether
they rendered their service to the PHIC or to its predecessor, PMCC.68 Without delving into the
matter of whether said employees were employed before or after July 1, 1989, it then concluded
that all employees must be paid their back COLA that was unduly withdrawn from them after the
issuance of the DBM CCC 10, and for the entire duration that the circular was in legal limbo.69 It
bears stressing, however, that the Court, in PPA, accorded equal treatment to all PPA
employees whether they were incumbents as of July 1, 1989, the time of effectivity of the SSL,
or employed thereafter. Hence, to successfully invoke the guarantee of equal protection clause
under the PPA doctrine, petitioner needed to prove, to the Court's satisfaction, not a
discrimination between the current PHIC employees and those absorbed from PMCC, but
rather, a discrimination between incumbent PHIC employees as of July 1, 1989 and those
employed thereafter, who, as addressed by the second sentence of Section 12 of the SSL,
suffered a diminution in pay. But as previously observed, petitioner never even alleged the
same. Resultantly, petitioner can neither invoke the guarantee of equal protection of laws nor
the principle of non-diminution ofbenefits to sustain its grant of the COLA.

For parallel reasons, the Court finds that the PHIC's issuance of the LMRG must suffer the
same fate. In defending the validity thereof, petitioner PHIC merely asserted, in its petition, its
'fiscal autonomy' to fix compensation and benefits of its personnel under Section 16 (n) of R.A.
No. 7875 and the argument that the LMRG is not merely a duplicate of the PIB. Seemingly
realizing the insufficiency thereof, petitioner, in its Reply, attempted to provide the Court with
additional legal basis by citing certain OGCC opinions and jurisprudence reiterating its "fiscal
autonomy" and averring that Section 19, Chapter 3, Book VI of E.O. 292, otherwise known as
the 1987 Administrative Code of the Philippines, clearly provides that internal operating budgets
of GOCCs are generally subject only of their respective governing boards, and the only
exception thereto requiring DBM approval is when national government budgetary support is
used. Thus, it waalleged that since the funds used in the disbursement of the LMRG were
sourced from PHIC's internal operating budget, DBM approval is unnecessary.70

Petitioner fails to persuade.

PCSO v. COA has already established, in no uncertain terms, that the fact that a GOCC is a
self-sustaining government instrumentality which does not depend on the national government
for its budgetary support does not automatically mean that its discretion on the matter of
compensation is absolute. As elucidated above, regardless of any exemption granted under
their charters, the power of GOCCs to fix salaries and allowances must still conform to
compensation and position classification standards laid down by applicable law, which, in this
case, is the SSL. In view of petitioner's failure to present any statutory authority or DBM
issuance expressly authorizing the grant of the LMRG, the same must be deemed incorporated
in the standardized salaries of the PHIC employees. Accordingly, the Court must necessarily
strike its unauthorized issuance as invalid for the receipt by the PifiC employees thereof was
tantamount to double compensation.

With respect to the CNASB, however, it is undisputed that the same momentarily had DBM
approvaL Let it be remembered that on December 15, 2000, the DBM issued Budget Circular
No. 2000-19 explicitly authorizing the payment of the signing bonus to each entitled rank-and-
file personnel. But on July 11, 2002, the Court, in SSS v. COA, declared as invalid said signing
bonus for being inconsistent with the rule of salary integration under the SSL and for not being
"a truly reasonable compensation" due to the fact that peaceful collective negotiations "should
not come with a price tag." Thus, while respondent COA admits that the payment of the CNASB
was allowed under the DBM Circular, it contends that actual payment thereof was made only on
June 11, 2004, or after the pronouncement in SSS v. COA, and as a consequence, petitioner
PHIC's payment thereof is invalid.

Nevertheless, based on the records of the case, the Court is inclined to give more credence to
petitioner PHIC's allegations on the allowance's validity than to the apparently unsubstantiated
contentions of respondent COA. In disallowing the grant of the CNASB, respondent COA
primarily anchored its decision on a certain "Automatic Debit Advice dated 6-11-2004."71 Relying
solely on the basis thereof, respondent summarily concluded that the actual payment of the
CNASB was made only on June 11, 2004 or after the pronouncement in SSS v. COA.72 The
Court, however, is unconvinced. Nowhere in the records was the source of said "Automatic
Debit Advice" shown. The initial Audit Observation Memorandum, which was the basis of
respondent COA's disallowance, simply indicated "ADA No. 01-06-028 dtd. 6/11/2004"73 and
"ADA No. 01-05-029 dtd. 6/11/2004"74 without even explaining what such code represents.
Moreover, as aptly pointed out by petitioner, respondent COA automatically insisted that the
CNASB was granted after the promulgation of SSS v. COA, merely mentioning, for the first time
in its Comment before the Court, its basis as the "Automatic Debit Advice." Said advice,
however, was never shown to petitioner for validation. Worse, it was not even presented before
the Court to support the COA disallowance.

Thus, as between petitioner PHIC's allegations together with its corresponding documentary
evidence consisting of certifications and employee payrolls on the one hand, and respondent
COA's plain assertions, unsubstantiated by any sort of proof on the other, the Court finds that
the former deserves to be given more weight and credence. Remember that the power granted
to the DBM is simply to ensure that the proposed compensation, benefits and other incentives
given to GOCC officials and employees adhere to the policies and guidelines issued in
accordance with applicable laws.75 It is only just that the extent of its reviewing authority be
sufficiently supported by reasonable proof. Considering, therefore, that the records of the case,
taken in conjunction with the circumstances surrounding their issuance, supports a reasonable
conclusion that the CNASB was, indeed, paid in 2001 and not in 2004, at the time when the
payment thereof was expressly sanctioned by DBM Budget Circular No. 2000-19, the Court
holds that respondent COA carelessly and whimsically issued its disallowance in absence of
any sufficient basis in support of the same.

In a similar manner, the Court finds that the PHIC's grant of the WESA was aptly sanctioned not
only by Section 1276 of the SSL but also by statutory authority. PHIC Board Resolution No. 385,
s. 200177 states that the WESA of P4,000.00 each shall be paid to public health workers under
the Magna Carta of PHWs in lieu of the subsistence and laundry allowances. Respondent COA
contested the same not so much on the propriety of the subsistence and laundry allowances in
the form of the WESA, but that the Secretary of Health prescribed the rates thereof not in
accordance with the Magna Carta of PHWs. According to respondent COA, the WESA is invalid
because the act of the PHIC Board, of which the Health Secretary is the Ex-Officio Chairperson,
in approving the allowance is not the same as the act of the Secretary himself. In this regard,
Section 22 and 24 of the Magna Carta pertinently provides:chanRoblesvirtualLawlibrary
Section 22. Subsistence Allowance. - Public health workers who are required to render service
within the premises of hospitals, sanitaria, health infirmaries, main health centers, rural health
units and barangay health stations, or clinics, and other health-related establishments in order
to make their services available at any and all times, shall be entitled to full subsistence
allowance of three (3) meals which may be computed in accordance with prevailing
circumstances as determined by the Secretary of Health in consultation with the
Management-Health Worker's Consultative Councils, as established under Section 33 of this
Act: Provided, That representation and travel allowance shall be given to rural health physicians
as enjoyed by municipal agriculturists, municipal planning and development officers and budget
officers.

xxxx

SEC. 24. Laundry Allowance. - All public health workers who are required to wear uniforms
regularly shall be entitled to laundry allowance equivalent to one hundred twenty-five pesos
(P125.00) per month: Provided, That this rate shall be reviewed periodically and increased
accordingly by the Secretary of Health in consultation with the appropriate government
agencies concerned taking into account existing laws and prevailing practices.
(Emphases ours)
Moreover, the Magna Carta's Revised Implementing Rules and Regulations (IRR) issued by the
Secretary of Health in November 1999 similarly provide:chanRoblesvirtualLawlibrary
7.2. Subsistence Allowance

    7.2.1. Eligibility for Subsistence Allowance

a. All public health workers covered under RA 7305 are eligible to receive full subsistence
allowance as long as they render actual duty.

b. Public Health Workers shall be entitled to full Subsistence Allowance of three (3) meals which
may be computed in accordance with prevailing circumstances as determined by the
Secretary of Health in consultation with the Management Health Workers Consultative Council,
as established under Section 33 of the Act.

c. Those public health workers who are out of station shall be entitled to per diems in place of
Subsistence Allowance. Subsistence Allowance may also be commuted.

    7.2.2. Basis for Granting Subsistence Allowance

Public health workers shall be granted subsistence allowance based on the number of
meals/days included in the duration when they rendered actual work including their regular
duties, overtime work or on-call duty as defined in this revised IRR.

Public health workers who are on the following official situations are not entitled to
collect/receive this benefit:

a. Those on vacation/sick leave and special privilege leave with or without pay;

b. Those on terminal leave and commutation;

c. Those on official travel and are receiving per diem regardless of the amount; and

d. Those on maternity/paternity leave.

    7.2.3. Rates of Subsistence Allowance

a. Subsistence allowance shall be implemented at not less than PhP50.00 per day or
PhP1,500.00 per month as certified by head of agency.

b. Non-health agency workers detailed in health and health related institutions/establishments

are entitled to subsistence allowance and shall be funded by the agency where service is
rendered.

c. Subsistence allowance of public health workers on full-time and part-time detail in other
agency shall be paid by the agency where service is rendered.

d. Part-time public health workers/consultants are entitled to one-half (1/2) of the prescribed
rates received by full-time public health workers.

7.3. Laundry Allowance

    7.3.1. Eligibility for Laundry Allowance

All public health workers covered under RA 7305 are eligible to receive laundry allowance if
they are required to wear uniforms regularly.

    7.3.2. Rate of Laundry Allowance

The laundry allowance shall be P150.00 per month. This shall be paid on a monthly basis
regardless of the actual work rendered by a public health worker.
It may be observed, however, that the foregoing excerpts do not prescribe a specific form or
process by which the Secretary of Health must compute the rates of the subsistence and
laundry allowances. The law simply states that the Health Secretary shall compute said rates "in
accordance with prevailing circumstances" and "in consultation with the Management Health
Workers Consultative Council." But nowhere in the law was it required that the Secretary of
Health, in determining the allowances due to PHWs, must be acting alone. Neither has
respondent COA presented any provision of law, rule, or other similar authority to that effect.

Instead, respondent COA insists that since the Health Secretary actually approved the issuance
of the WESA by virtue of a resolution of the PHIC Board, such approval is invalid for the act of
the PHIC Board is not the act of the individual composing the Board in view of the rule that a
corporation is invested by law with a personality separate and distinct from those of the persons
composing it. The Court, however, cannot subscribe to such argument. It is true that a
corporation is a juridical entity with legal personality separate and distinct from those acting for
and in its behalf and, in general, from the people comprising it. Resultantly, obligations incurred
by the corporation, acting through its .directors, officers and employees, are its sole
liabilities.78 Moreover, when said corporation's corporate legal entity is used as a cloak for fraud
or illegality, the law will regard it as an association of persons or, in case of two corporations,
merge them into one.79 It must be clarified, however, that these principles of separate juridical
personalities as well as the piercing of its veil of corporate fiction essentially apply only in
determining established liabilities.80 It is but a legal fiction introduced for purposes of
convenience and to subserve the ends of justice.81 But the issue in the instant case is far from
holding a director liable for the obligations of the corporation insofar as claims of third persons
are concerned. The issue here, instead, is merely whether the Secretary of Health duly
complied with prevalent law in determining the rates of allowances to be granted to qualified
PHWs. In this regard, the Court rules in the affirmative.

To repeat, the law does not prescribe a particular fonn nor restrict to a specific mode of action
by which the Secretary of Health must determine the subject rates of subsistence and laundry
allowance. That the Health Secretary approved the grant of the WESA together with ten (10)
other members of the Board does not make the act any short of the approval required under the
law. As far as the Magna Carta and its Revised IRR are concerned, the then Health Secretary
Dr. Alberto G. Romualdez, Jr. voted in favor of the WESA's issuance, and for as long as there
exists no deception or coercion that may vitiate his consent, the concurring votes of his fellow
Board members does not change the fact of his approval. To rule otherwise would create
additional constraints that were not expressly provided for by law.

Nevertheless, even assuming the invalidity of the WESA due to the inegular manner by which
the Health Secretary determined its rates, the Court does not find that the PHIC Board of
Directors, other responsible officers, and recipients thereof should be ordered to refund the
same. On this matter, PCSO v. COA82 summarized the rules as
follows:chanRoblesvirtualLawlibrary
Recipients or payees need not refund disallowed benefits or allowances when it was received in
good faith and there is no finding of bad faith or malice. On the other hand, officers who
participated in the approval of such disallowed amount are required to refund only those
received if they are found to be in bad faith or grossly negligent amounting to bad faith. Public
officials who are directly responsible for, or participated in making the illegal expenditures, as
well as those who actually received the amounts therefrom shall be solidarity liable for their
reimbursement. The receipt or non-receipt of illegally disbursed funds is immaterial to the
solidary liability of government officials directly responsible.
As previously discussed, PHIC's grant of the WESA was aptly sanctioned not only by Section 12
of the SSL which explicitly identifies laundry and subsistence allowance as excluded from the
integrated salary, but also by statutory authority, particularly, Section 22 and 24 of the Magna
Carta. In view of such fact, the PHIC officers cannot be found to have approved the issuance of
the same in bad faith or in gross negligence amounting to bad faith for it was well within the
parameters set by law. Thus, the WESA need not be refunded.

Neither must the concerned PHIC officers and employees be ordered to refund the CNAB
because, as previously mentioned, the same was expressly authorized by DBM Budget Circular
No. 2000-19. Contrary to respondent COA's unsubstantiated assertion, the Court is convinced
that the CNAB was paid in 2001, before the payment ofthe same was invalidated by Our ruling
in SSS v. COA. The PHIC approving officers, therefore, had no knowledge of the fact that the
payment of the CNAB was contrary to the SSL for the same was actually authorized by the
DBM itself.

Similarly, there is no showing that the PHIC officers approved the issuance and payment of the
back COLA in bad faith. From the very beginning, petitioner had been invoking, albeit
enoneously, Our ruling in PPA Employees Hired After July 1, 1989 v. COA, wherein We granted
the payment of the COLA back pay to PPA employees for the period beginning July 1, 1989
until March 16, 1999, during the time the DBM-CCC No. 10 was in legal limbo, seemingly
believing, in good faith, that on the basis thereof, the PHIC employees could likewise be granted
the same. In fact, even respondent COA Director Janet Nacion was under the same impression
when she conceded that "no less than the SC has made an imprimatur regarding the
employee's entitlement to COLA" during the time the circular was in legal limbo.83 It is therefore
apparent that during such time, there were differing opinions regarding the true interpretation of
a technicality of law. Thus, before the Court was able to clarify that the ruling in PPA
Employees was limited to distinguishing the benefits that may be received by government
employees who were hired before and after the effectivity of the SSL,84 there was yet no
absolute and clear-cut rule regarding the entitlement to the COLA during the period when the
DBM circular was in legal limbo. Hence, it might seem rather severe to hold the concerned
PHIC officers personally liable to refund the COLA back pay in view of the fact that they may
have honestly believed in the propriety of the same. In fact, just recently, We held that since
certain officers who authorized the back payment of the COLA were oblivious that said
payments were improper, the same need not be refunded.85 This is because absent any
showing of bad faith or malice, public officers are not personally liable for damages resulting
from the performance of official duties.86 As the Court explained in Philippine Economic Zone
Authority (PEZA) v. COA:87chanroblesvirtuallawlibrary
x x x x It is unfair to penalize public officials based on overly stretched and strained
interpretations of rules which were not that readily capable of being understood at the time such
functionaries acted in good faith. If there is any ambiguity, which is actually clarified years later,
then it should only be applied prospectively. A contrary rule would be counterproductive. It could
result in paralysis, or lack of innovative ideas getting tried. In addition, it could dissuade others
from joining the government. When the government service becomes unattractive, it could only
have adverse consequences for society.88
Thus, the fact that the PHIC officers had an unclear knowledge of a ruling by this Court
categorically prohibiting the particular disbursement herein is a badge of good faith,89 especially
in light of the COA's failure to overturn the presumption of regularity in the performance of their
official duties.

The same does not hold true, however, with respect to the LMRG. Unlike the issuances of the
WESA, CNAB, and COLA, which need not be refunded either for being expressly sanctioned by
law or for being issued in an honest belief that the same was authorized by recent
jurisprudence, petitioner's issuance of the LMRG cannot be said to have been done in good
faith. Time and again, the Court has defined good faith as "a state of mind denoting honesty of
intention, and freedom from knowledge of circumstances which ought to put the holder upon
inquiry; an honest intention to abstain from taking any unconscientious advantage of another,
even though technicalities of law, together with absence of all information, notice, or benefit or
belief of facts which render transactions unconscientious."90

As previously mentioned, the PHIC Board members and officers approved the issuance of the
LMRG in sheer and utter absence of the requisite law or DBM authority, the basis thereof being
merely PHIC's alleged "fiscal autonomy" under Section 16(n) of RA 7875.91 But again, its
authority thereunder to fix its personnel's compensation is not, and has never been, absolute.
As previously discussed, in order to uphold the validity of a grant of an allowance, it must not
merely rest on an agency's "fiscal autonomy" alone, but must expressly be part of the
enumeration under Section 12 of the SSL, or expressly authorized by law or DBM issuance.
This directive was definitively established by the Court as early as 1999 in National Tobacco
Administration v. Commission on Audit,92 which was even subsequently affirmed in Philippine
International Trading Corporation v. Commission on Audit93 in 2003. Thus, at the time of the
passage of PHIC Board Resolution No. 717, s. 2004 on July 22, 2004 by virtue of which the
PHIC Board resolved to approve the LMRG's issuance, the PHIC Board members and officers
had an entire five (5)-year period to be acquainted with the proper rules insofar as the issuance
of certain allowances is concerned. They cannot, therefore, be allowed to feign ignorance to
such rulings for they are, in fact, duty-bound to know and understand the relevant rules they are
tasked to implement.94Thus, even if We assume the absence of bad faith, the fact that said
officials recklessly granted the LMRG not only without authority of law, but even contrary
thereto, is tantamount to gross negligence amounting to bad faith. Good faith dictates that
before they approved and released said allowance, they should have initially determined the
existence of the particular rule of law authorizing them to issue the same.

In view of the foregoing, the Court holds that the PHIC Board members who approved PHIC
Board Resolution No. 717, series of2004 and the PHIC officials who authorized its release are
bound to refund the LMRG. It is unclear, however, from a review of the records of the case,
which of the PHIC Board members and officials named in the COA's Notice of Disallowance
were the ones responsible for the issuance of the LMRG, considering that what was listed
therein were the "Persons Liable" for the grant and release of all four (4) allowances lumped
together as subject of the instant case, without any distinction as to the particular set of officers
responsible for the approval of a respective type of allowance as well as its corresponding
amount.95 Hence, for the proper implementation of this judgment, the COA is hereby ordered to
identify, in a clear and certain manner, the specific PHIC Board members and officials who
approved the grant of the LMRG and authorized its release as well as to compute the exact
amount they received.

With respect to the PHIC officials and employees, however, who merely received the subject
LMRG but had no participation in the approval and release thereof, the Court deems them to
have acted in good faith, honestly believing that the PHIC Board Resolution was issued in the
Board's valid exercise of its power. Thus, they are absolved from refunding the LMRG they
received.

WHEREFORE, premises considered, the instant petition is PARTLY GRANTED. The

November 20, 2013 Decision and April 4, 2014 Resolution of the COA Commission Proper,
which affirmed the Notice of Disallowance PHIC 2008-003 (2004) dated February 7, 2008,
are AFFIRMED WITH MODIFICATION. The recipients and officers who authorized the following
disbursements need not refund the amounts paid in connection therewith: (1) the Collective
Negotiation Agreement Signing Bonus; (2) the Welfare Support Assistance; and (3) the back
payment of Cost of Living Allowance. As for the Labor Management Relations Gratuity, only the
PHIC Board members who approved PHIC Board Resolution No. 717, series of 2004 and the
PHIC officials who authorized its release are bound to refund the same. For this purpose, the
COA is hereby ordered to: (1) particularly identify the PHIC Board members and officials
responsible for the approval and release of the LMRG; and (2) compute the exact amount of the
LMRG that said officers and employees respectively received.

SO ORDERED.ChanRoblesVirtualawlibrary

Sereno, C.J., Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Bersamin, Del Castillo, Perez,
Mendoza, Reyes, Perlas-Bernabe, Leonen, Jardeleza, and Caguioa, JJ., concur.

Endnotes:

1
 Signed by Commissioner Ma. Gracia M. Pulido Tan, Chairperson, with Commissioners Heidi L.
Mendoza and Rowena V. Guanzon, concurring; rollo, pp. 47-56.
2
ld. at 119-123.
3
Id. at 96.
4
Id. at 109-111.
5
Id. at 112-114.
6
 Section 51 of R.A. No. 7875 provides:cralawlawlibrary

SECTION 51. Merger. - Within sixty (60) days from the promulgation of the implementing rules
and regulations, all functions and assets ofthe Philippine Medical Care Commission shall be
merged with those of the Corporation (PHILHEALTH) without need of conveyance, transfer or
assignment. The PMCC shall thereafter cease to exist.

The liabilities of the PMCC shall be treated in accordance with existing laws and pertinent rules
and regulations.
7
Rollo, p. 7.
8
Id. at 47.
9
Id. at 119.
10
 433 Phil. 946 (2002).
11
Id. at 120.
12
Id.
13
Id. at 124.
14
Id. at 47-56.
15
Id. at 57.
16
Id. at 11.
17
Supra note 10.
18
Id. at 14.
19
Id. at 16.
20
Id. at 17
21
Id. at 18-19.
22
 355 Phil. 584 (1998).
23
Rollo, p. 21.
24
Id. at 23.
25
Id. at 25.
26
Id. at 169.
27
Id. at 175-176.
28
 Section 16 (n) of R.A. No. 7875 provides:cralawlawlibrary

Section 16. Powers and Functions - The Corporation shall have the following powers and
functions:cralawlawlibrary

xxxx

n) to organize its office, fix the compensation of and appoint personnel as may be deemed
necessary and upon the recommendation ofthe president of the Corporation; x x x
29
 G.R. No. 98395, October 28, 1994, 237 SCRA 809, 816.
30
Rollo, pp. 166 and 184.
31
Supra note 10.
32
Id. at 186.
33
Id. at 187.
34
Id. at 180.
35
Id. at 188.
36
Id. at 183-184.
37
Francisco, Jr. v. The House of Representatives, 460 Phil. 830, 893 (2003).
38
Rollo, p. 307.
39
Maritime Industry Authority v. COA, G.R. No. 185812, January 13, 2015, 745 SCRA
300; Manila International Airport Authority v. COA, 681 Phil. 644 (2012).
40
Supra.
41
Id. at 340. (Emphasis ours)
42
Id. at 312-313.
43
 366 Phil. 273 (1999).
44
Rollo, pp. 312-313.
45
Id. at 318-319.
46
 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:cralawlawlibrary

xxxx

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.
47
Rollo, p. 320.
48
Id. at 322.
49
 G.R. No. 216776, April 19, 2016. (Emphasis ours)
50
 444 Phil. 859 (2003).
51
Philippine Retirement Authority (PRA) v. Buñag, supra, at 869-870. (Emphases ours)
52
 Entitled "The Budgetary Reform Decree on Compensation and Position Classification of
1976."
53
 Entitled "Further Rationalizing the System of Compensation and Position Classification in the
National Government."
54
 Entitled "GOCC Governance Act of 2011."
55
Intia, Jr. v. COA, supra note 43, at 291.
56
Supra note 50, at 869-870.
57
Yap v. Commission on Audit, 633 Phil. 174, 193-194 (2010).
58
Maritime Industry Authority v. Commission on Audit, supra note 39, at 321.
59
Id. at 322.
60
Id. at 342.
61
Philippine Charity Sweepstakes of Office (PCSO) v. COA, supra note 49; Gutierrez, et al. v.
Dept. of Budget and Mgt., et al., 630 Phil. 1, 14 (2010); Maynilad Water Supervisors Association
v. Maynilad Water Services, Inc., G.R. No. 198935, November 27, 2013, 711 SCRA 110,
119; Land Bank of the Philippines v. Naval, G.R. No. 195687, April 14, 2014.
62
Supra note 39.
63
Maritime Industry Authority v. COA, supra note 39, at 323-326. (Emphases ours)
64
PCSO v. COA, supra note 49.
65
 506 Phil. 382 (2005).
66
 519 Phil. 372 (2006).
67
NAPOCOR Employees Consolidated Union v. National Power Corporation, supra, at 388-389.
(Emphases ours)
68
Rollo, p. 25.
69
Id. at 23.
70
Id. at 323.
71
Id. at 166 and 184.
72
Id. at 186.
73
Id. at 116.
74
Id. at 117.
75
PRA v. Buñag, supra note 50, at 870.
76
 Section 12 of R.A. No. 6758 provides:cralawlawlibrary

Section 12. Consolidation of Allowances and Compensation. - All allowances, except for
representation and transportation allowances; clothing
and laundry allowances; subsistence allowance of marine officers and crew on board
government vessels and hospital personnel; hazard pay; allowances of foreign service
personnel stationed abroad; and such other additional compensation not otherwise specified
herein as may be determined by the DBM, shall be deemed included in the standardized salary
rates herein prescribed. Such other additional compensation, whether in cash or in kind, being
received by incumbents only as of July 1, 1989 not integrated into the standardized salary rates
shall continue to be authorized. x x x x (Emphases ours)
77
Rollo, pp. 109-111.
78
Francisco v. Mallen, Jr., 645 Phil. 369, 374 (2010).
79
Id. at 376.
80
Kukan International Corporation v. Honorable Reyes, 646 Phil. 221, 234 (2010).
81
Garcia v. Social Security Commission Legal and Collection, Social Security System, 565 Phil.
193, 214 (2007).
82
Supra note 49.
83
Rollo, p. 132.
84
Maritime Industry Authority v. COA, supra note 39, at 326.
85
Zamboanga City Water District (ZCWD) v. COA, G.R. No. 213472, January 26, 2016.
86
Id.
87
 G.R. No. 210903, October 11, 2016.
88
Id.
89
Id.
90
Id.
91
Rollo, p. 112.
92
 370 Phil. 793 (1999).
93
 461 Phil. 737 (2003).
94
PCSO v. COA, supra note 49.
95
Rollo, pp. 119-123.