Philippine Supreme Court Disallows SEC Procurement of Medicard Insurance Premiums

MANILA, Philippines, Dec. 17 -- The Supreme Court of the Philippines issued the following news release:

The Supreme Court has disallowed payments made by the Securities and Exchange Commission (SEC) to cover health care insurance premiums of its personnel for being illegally sourced from SEC's retained income.

This was the ruling of the Supreme Court En Banc in a Resolution partly granting the petition for certiorari under Rule 64 in relation to Rule 65 of the Rules of Court filed by the SEC. The petition challenged the rulings of the Commission on Audit (COA) affirming the disallowances of health care insurance premiums in the aggregate amount of PhP13,775,406.25 for the benefit of SEC personnel.

In 2010 and 2011, the SEC issued resolutions appropriating funds sourced from its retained earnings to cover the cost of health care insurance benefits of its officials and employees. The funds were subsequently disbursed to the SEC Employees Association Inc. (SECEAI), which, on behalf of the SC personnel, applied the same as payment for health care insurance premiums paid to Medicard Philippines, Inc. (Medicard), a private health maintenance organization.

Under the Securities Regulation Code (SRC), the SEC is authorized to retain and utilize PhP100,000,000 from its income, subject to the auditing requirements, standards, and procedures under existing laws.

However, SEC received from the Audit Team Leader and Supervising Auditor of the COA notices of disallowances on the said disbursements for being an improper use of the SEC's retained income, which, by virtue of Item I of the Special Provisions for the SEC of the 2010 and 2011 General Appropriations Act (GAA), should have been used to augment the agency's maintenance and other operating expenses (MOOE) and capital outlay requirements. This was affirmed by the COA Cluster Director and the COA Proper, prompting the present petition before the Court.

In resolving the petition, the Court stressed that pursuant to Section 75 of the SRC, the use of income generated by the SEC is subject to auditing requirements, standards, and procedures under existing laws.

Such "existing laws" include the Special Provisions for the SEC in the 2010 and 2011 GAAs, which explicitly direct that income generated pursuant to Section 75 of the SRC "shall be used to augment the MOOE and Capital Outlay requirements of the [COA]."

Thus, the SEC should have strictly followed the plain letter of the law and refrained from using its retained income for purposes other than the augmentation of its MOOE and capital outlay items, as in the case of the disallowed health care insurance payments.

The Court added that the disallowed payments to Medicard cannot be considered as having been made for the purpose of SEC's MOOE, which are "expenses necessary for the regular operations of an agency like, among others, traveling expenses, training and seminar expenses, water, electricity, supplies expense, maintenance of property, plant and equipment, and other maintenance and operating expenses."

Neither can the disallowed payments be deemed a form of capital outlay since they were not spent for the "purchase of goods and services, the benefits of which extend beyond the fiscal year and which add to the assets of Government," said the Court.

The Court further ruled that the disallowed health care insurance payments, being a form of personnel benefit, aptly fall within the ambit of "personal services" which is an expense category for "basic pay, all authorized allowances, bonus, cash gifts, incentives and other personnel benefits of officials and employees of the government." "Personal services" is an expense category separate and distinct from MOOE and capital outlays, stressed the Court.

As to who are civilly liable for the disallowance, the Court referred to the rules of return laid down in its 2020 Decision Madera v. COA, which state that approving and certifying officers who acted in good faith are absolved from civil liability, while those in bad faith are civilly liable. The rules also state that all recipients, whether approving or certifying officers or mere passive recipients, are liable to return the disallowed amounts received by them.

In the present case, however, the payees who received the health care benefits in good faith were absolved by the COA and their liability was no longer raised as an issue before the Court. As to the approving and certifying officers, the Court found that the factual circumstances support a finding that they acted in good faith in authorizing or taking part in the authorization of the disallowed health care insurance benefits. Hence, they are also absolved from civil liability. (Courtesy of the Supreme Court Public Information Office)

Full text of G.R. No. 251615 (SEC v. COA) at: https://sc.judiciary.gov.ph/251615-securities-and-exchange-commission-vs-commission-on-audit/

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Original text here: https://sc.judiciary.gov.ph/sc-disallows-sec-procurement-of-medicard-insurance-premiums/