TL;DR

In a case between the Social Security System (SSS) and the Commission on Audit (COA), the Supreme Court upheld the COA’s disallowance of over P71 million in allowances and benefits paid by SSS to its National Capital Region (NCR) branch employees. The Court clarified that while SSS has the power to fix employee compensation, this authority remains subject to the President’s supervisory control. Even though SSS is exempt from the Salary Standardization Law, it must still secure Presidential approval, through the Department of Budget and Management (DBM), for benefits exceeding its corporate operating budget. However, recognizing the SSS officers’ good faith reliance on their perceived autonomy and the delayed DBM response, the Court excused them and the board members from personally returning the disallowed amounts. This ruling underscores that government-owned and controlled corporations (GOCCs), despite their charters, are not entirely free from executive oversight in compensation matters.

When Autonomy Meets Authority: SSS Benefit Disallowance and the Limits of Corporate Discretion

Can a government-owned and controlled corporation (GOCC), specifically the Social Security System (SSS), autonomously determine and disburse employee benefits, or does the long arm of Presidential control still reach into its financial decisions? This question lies at the heart of Social Security System v. Commission on Audit, a case stemming from the COA’s disallowance of benefits and allowances granted by SSS to its NCR branch employees amounting to P71,612,873.00. The disallowance was based on the premise that these payments exceeded the approved SSS Corporate Operating Budget (COB) for 2010 and lacked the requisite Presidential approval. The SSS, arguing its charter grants it the power to fix employee compensation and exempts it from the Salary Standardization Law (SSL), contested the COA’s decision, claiming it acted within its legal mandate.

The Supreme Court, however, sided with the COA, albeit with a crucial modification regarding liability. The Court firmly established that GOCCs, even those with fiscal autonomy and SSL exemptions, are not beyond the President’s power of control. This power, constitutionally vested in the President, mandates executive oversight over all executive departments, bureaus, and offices, ensuring faithful execution of laws. The Court cited numerous precedents, including Philippine Economic Zone Authority (PEZA) v. COA and Philippine Health Insurance Corporation v. Commission on Audit, to reinforce this principle. These cases consistently affirm that even when GOCC charters grant the power to fix compensation, this power is not absolute but subject to the standards and limitations set by applicable laws and presidential directives.

The SSS based its defense on Section 3(c) of Republic Act No. 8282, the Social Security Law, which empowers the Social Security Commission to “fix their reasonable compensation, allowances and other benefits” for SSS personnel and explicitly exempts SSS from the SSL. However, the Court clarified that this provision does not negate the necessity of Presidential approval for benefits not aligned with the SSL or exceeding the approved budget. The Court emphasized that exemption from the SSL does not equate to exemption from all forms of executive supervision, especially concerning financial matters. Pertinent laws and regulations like Presidential Decree No. 1597, Memorandum Order No. 20, s. 2001, Joint Resolution No. 4, s. 2009, and Executive Order No. 7, s. 2010, all reinforce the requirement for Presidential approval for compensation and benefit increases in GOCCs, irrespective of SSL exemptions.

Section 5 of P.D. 1597 explicitly states: “Allowances, honoraria, and other fringe benefits which may be granted to government employees, whether payable by their offices or by other agencies of government, shall be subject to the approval of the President upon recommendation of the Commissioner of the Budget.”

Despite upholding the disallowance, the Supreme Court tempered its ruling with considerations of good faith. Recognizing that at the time of disbursement, no definitive ruling existed specifically clarifying the SSS’s need for Presidential approval in this context, the Court applied the principle of good faith to excuse the approving and certifying SSS officers, including the Board of Trustees, from personal liability for the disallowed amounts. This echoes the Court’s stance in cases like PEZA v. COA, where good faith served as a valid defense for public officials acting on their understanding of their authority, even if later deemed legally incorrect. The Court also noted mitigating circumstances such as the delayed DBM response to the SSS budget proposal and the SSS’s reliance on previous years’ budget levels, further supporting the officers’ good faith.

Furthermore, the Court referenced Madera v. Commission on Audit, which outlined badges of good faith for approving and certifying officers, including the presence of Certificates of Availability of Funds, reliance on legal opinions, absence of jurisprudential precedent disallowing similar cases, traditional agency practice without prior disallowance, and reasonable textual interpretation of law. While not explicitly stating which badges were present, the Court’s emphasis on the lack of clear precedent and the SSS’s reliance on its charter suggests these factors weighed in favor of good faith. Consequently, while the disallowance of the benefits remained, the officers and board members were absolved of civil liability, preventing them from having to personally reimburse the government. Passive recipients of the benefits were already excused by the COA itself due to good faith, a decision the Supreme Court did not disturb.

This case serves as a crucial reminder that GOCC autonomy, particularly in financial matters, operates within the framework of Presidential control and executive oversight. While GOCCs may possess the power to set compensation structures, this power is not unfettered. Presidential approval remains a necessary check, ensuring alignment with broader government policies and fiscal responsibility. However, the Court’s invocation of good faith offers a layer of protection for public officials who act honestly and diligently, even if their actions are later deemed to be in technical violation of regulations. This balancing act between accountability and fairness is a hallmark of Philippine jurisprudence, seeking to uphold the rule of law while recognizing the human element in governance.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: SOCIAL SECURITY SYSTEM VS. COMMISSION ON AUDIT, G.R. No. 243278, November 03, 2020