The Supreme Court has affirmed the Commission on Audit’s (COA) decision, holding National Housing Authority (NHA) officials and employees liable for the return of disallowed benefits. The court emphasized that good faith cannot be claimed when approving officers are aware of the illegality of disbursements, and recipients are bound to return amounts unduly received, especially when they’ve acknowledged this obligation. This ruling underscores the importance of due diligence and adherence to legal regulations in the handling of public funds, promoting accountability within government agencies.

NHA Under Scrutiny: Can Good Intentions Excuse Illegal Bonuses?

The National Housing Authority (NHA) found itself in legal crosshairs following a Commission on Audit (COA) investigation into the allowances, bonuses, and other emoluments granted to its officers and employees from 2008 to 2009. The COA issued several Notices of Disallowance (NDs) totaling P367,844,754.36, questioning the legal basis for these disbursements. The NHA, in defense, argued that these grants were made in good faith and in accordance with existing policies and collective bargaining agreements. This case brought to the forefront the critical question of whether good faith can excuse government officials from liability when public funds are disbursed without proper legal basis, and the extent to which recipients of these funds are obligated to return them.

The core of the dispute stemmed from the NHA’s grant of various incentives, including Cash Incentive Awards, Economic Subsidies, Christmas Bonuses, Citation Bonuses, Mid-Year Financial Assistance (MYFA), meal subsidies, children’s allowances, rice subsidies, and Representation and Transportation Allowances (RATA). The COA challenged these disbursements, citing violations of Republic Act (R.A.) No. 6758, which mandates a standardized compensation and position classification system in the government. The COA argued that these allowances and bonuses were inconsistent with the standardized salary system and lacked proper legal authorization. Specifically, Section 12 of R.A. No. 6758 was cited, along with Memorandum Order (MO) No. 20, and Sections 45 of R.A. Nos. 9498 and 9524, highlighting the lack of legal basis for these disbursements.

The NHA countered that the grants were authorized under Letter of Implementation (LOI) No. 97 and Section 10 of Presidential Decree (PD) No. 757, which empower the General Manager, subject to the Board of Directors (BOD) approval, to determine allowances and compensation. They also argued that the incentives were given in recognition of the employees’ contributions and to help them cope with financial difficulties. However, the COA maintained that these justifications were insufficient, as R.A. No. 6758 had already repealed the earlier provisions, and no specific approval from the Department of Budget and Management (DBM) or the President was obtained for the said grants.

The Supreme Court, in its analysis, sided with the COA, emphasizing that R.A. No. 6758 aimed to standardize compensation across government-owned and controlled corporations (GOCCs) and eliminate multi-level allowances. The court affirmed that any provisions of law inconsistent with this standardization were effectively repealed. The court also noted that the authority to determine which allowances or benefits could continue rested with the DBM, and most of the allowances in question were not excluded from integration into the standardized salary rates.

A crucial aspect of the case revolved around the issue of good faith. The NHA argued that its officials and employees acted in good faith and should not be held liable to refund the disallowed benefits. However, the court found that good faith could not be appreciated in this case. The Supreme Court has consistently ruled that good faith does not apply when the approving officers had knowledge of facts or circumstances which would render the disbursements illegal. In this case, the NHA Board of Directors, composed largely of Cabinet Secretaries, should have been aware of the limitations imposed by R.A. No. 6758 and the need for specific approval from the DBM or the President.

Furthermore, the court highlighted the significance of the notarized Deeds of Undertaking signed by the recipient-employees.

These documents acknowledged the possibility of a refund and authorized the NHA to deduct the equivalent amount from their salaries or benefits. The court interpreted this as an indication that the employees were aware of the potential illegality of the allowances and benefits they received.

The Court also invoked Section 103 of PD No. 1445 which states, “Expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor.” The court made a distinction between approving/certifying officers and the recipient-employees. It emphasized that the approving and certifying officers were solidarily liable for the total disallowed amount, while the recipient-employees were individually liable for the amounts they actually received.

The Supreme Court referenced its prior ruling in Madera v. COA, which established guidelines for the refund of disallowed amounts. However, the Court also addressed the applicability of the 3-year prescriptive period established in the case of Cagayan de Oro City Water District v. COA. The Court found that the 3-year prescriptive period does not apply to the present case, considering the employees’ execution of notarized Deeds of Undertaking. The Court reasoned that although it took more than three years before the COA issued the NDs, the NHA employees who were passive recipients are still liable to refund the disallowed amounts because the notarized Deeds of Undertaking gave them sufficient notice of the illegality and irregularity of the allowances and benefits.

The Supreme Court ultimately dismissed the consolidated petitions, affirming the COA’s decision in its entirety. The Court held the approving and certifying officers solidarily liable for the return of the disallowed amounts, while the recipient-employees were individually liable for the amounts they received. The decision underscores the importance of adhering to legal regulations and exercising due diligence in handling public funds. It also reinforces the principle that good intentions cannot excuse illegal disbursements, and recipients of such funds have a duty to return them, particularly when they have acknowledged the potential for a refund.

FAQs

What was the key issue in this case?	The key issue was whether the COA acted with grave abuse of discretion in affirming the disallowance of certain benefits granted to NHA officers and employees, and whether these individuals should be held liable to return the disallowed amounts.
What benefits were disallowed by the COA?	The disallowed benefits included Cash Incentive Awards, Economic Subsidies, Christmas Bonuses, Citation Bonuses, Mid-Year Financial Assistance, meal subsidies, children’s allowances, rice subsidies, and Representation and Transportation Allowances (RATA).
What law did the COA cite in disallowing the benefits?	The COA primarily cited Republic Act (R.A.) No. 6758, which prescribes a revised compensation and position classification system in the government, aiming to standardize salaries and eliminate unauthorized allowances.
What was the NHA’s main argument in defending the grants?	The NHA argued that the grants were made in good faith, based on existing policies, collective bargaining agreements, and the employees’ contributions to the agency.
Why did the Supreme Court reject the NHA’s good faith argument?	The Court found that the NHA officials, particularly the Board of Directors, should have been aware of the limitations imposed by R.A. No. 6758 and the need for specific approval from the DBM or the President for such allowances.
What was the significance of the Deeds of Undertaking signed by the employees?	The Deeds of Undertaking acknowledged the possibility of a refund and authorized deductions from their salaries, indicating that the employees were aware of the potential illegality of the benefits.
Who is liable to refund the disallowed amounts?	The approving and certifying officers are solidarily liable for the total disallowed amount, while the recipient-employees are individually liable for the amounts they actually received.
Does the 3-year prescriptive period apply to excuse recipients from refunding the amounts they received?	No, the 3-year prescriptive period does not apply to the present case considering the NHA employees’ execution of notarized Deeds of Undertaking which gave them sufficient notice of the illegality and irregularity of the allowances and benefits.

The Supreme Court’s decision serves as a reminder to government agencies and officials to exercise caution and due diligence in the disbursement of public funds. Compliance with legal regulations and obtaining proper authorization are essential to avoid disallowances and personal liability. The ruling underscores the importance of transparency and accountability in governance, ensuring that public resources are used responsibly and in accordance with the law.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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: National Housing Authority vs. Commission on Audit, G.R. No. 239936, June 21, 2022