G.R. No. 205490 - Power Sector Assets and Liabilities Management Corp. vs. Commission on Audit

PSALM, a government-owned and controlled corporation, implemented a Health Maintenance Program for its employees based on existing government issuances such as Administrative Order No. 402 (AO 402) of 1998 and Civil Service Commission Memorandum Circular No. 33 (s. 1997).
AO 402 was promulgated to establish an annual medical check-up program limited to diagnostic procedures for government personnel. Its scope was confined to physical examinations, chest X-rays, routine laboratory tests, and related diagnostic services.

Initially, PSALM’s health program was approved through Board Resolution No. 06-46 (2006) which confirmed the basic diagnostic benefits as allowed under AO 402.
Subsequently, further board resolutions, namely Resolution No. 07-67 (October 31, 2007) and Board Resolution No. 2008-1124-004 (November 24, 2008), expanded the program.

The expansion purportedly included additional benefits such as the purchase of over-the-counter drugs, prescription drugs, reimbursement for dental, optometric, and even certain aesthetic and specialized medical services.
The coverage was also broadened to include the dependents of employees and the members of the Board of Directors and Board Review Committee, in addition to the regular plantilla personnel.

PSALM submitted the additional medical benefits (referred to as the 2008 and 2009 expanded Medical Assistance Benefits or MABs) claiming they were provided in accordance with the directive of AO 402 which allowed an increase of benefits “upon availability of funds.”

The State Auditor, through Audit Observation Memorandum No. 2008-06 and subsequent Notices of Disallowance (ND No. 2008-002 for 2008 and ND No. 10-001-(2009) for 2009), challenged the expanded benefits on the ground that they lacked legal and factual basis.
Evidence showed that the disbursed amounts for the MABs exceeded the approved Corporate Operating Budget (e.g., a budget allocation of P3,350,000.00 was surpassed by actual disbursements reaching P5,702,517.42 for 2008).
The Commission on Audit (COA) at two levels—first by the COA-Cluster Director and then by the COA-Commission Proper (COA-CP)—affirmed the disallowance of the 2008 and 2009 expanded MABs.

The COA findings noted that the additional benefits departed from the strictly diagnostic procedures mandated by AO 402.
The benefits extended to persons (such as dependents) who were not meant to be covered, thereby violating the intended scope of AO 402.

PSALM, represented by its President/Officer-in-Charge and supported by its employees, argued that the expanded benefits were authorized by AO 402 and CSC Memorandum Circular No. 33 and were further validated by an alleged retroactive approval of the President.
Petitioners also contended that the beneficiaries acted in good faith and that the doctrine of operative fact should protect the validity of the benefits granted before the disallowance was pronounced.
In contrast, the COA and State Auditor maintained that the expanded benefits exceeded both the scope of AO 402 and the available budget, thereby constituting an unauthorized expenditure.

Various statutory provisions, including sections of the Administrative Code and related Government Auditing Codes, indicate that any expenditure lacking legal basis renders all participating officials and recipients liable for the full disallowed amount.
The issue of liability encompasses:

The PSALM employees who received the benefits in violation of the prescribed diagnostic limitations.
The board members and officers who authorized the expanded benefits, particularly as they are held accountable under doctrines of gross negligence, bad faith, or, if applicable, the principles of unjust enrichment and solutio indebiti.

Whether the COA-CP committed grave abuse of discretion amounting to lack or excess of jurisdiction by affirming the disallowance of the 2008 and 2009 expanded Medical Assistance Benefits (MABs) paid to PSALM officers, employees, and their dependents.

This includes whether the expanded benefits, which exceeded the diagnostic procedures allowed by AO 402, were legally authorized.
It also involves examining if the alleged retroactive granting by the President or the doctrine of operative fact offer any protection to the expanded benefits.

Whether the PSALM officials and board members who authorized these expanded benefits are jointly and severally liable due to their gross negligence or bad faith.
Whether the employees (and by extension, their dependents) who received the expanded benefits should be held liable to return the amounts received, notwithstanding their assertion of acting in good faith.