The Supreme Court has ruled that while rank-and-file employees who unknowingly receive disallowed Collective Negotiation Agreement (CNA) incentives are not required to return them if they acted in good faith, those who approved the incentives or actively participated in their negotiation despite knowing the union lacked proper accreditation are solidarily liable for the reimbursement. This means that public officials cannot claim ignorance of the law as a defense, emphasizing the shared fiscal responsibility in local government units and the importance of due diligence in handling public funds.

Accreditation Denied: Who Pays the Price for Disallowed CNA Incentives?

This case revolves around the disallowance of CNA incentives granted to employees of the local government unit (LGU) of Tayabas, Quezon, for the years 2008 and 2009. The Commission on Audit (COA) disallowed these incentives because the employees’ union, Unyon ng mga Kawani ng Pamahalaang Lokal ng Tayabas (UNGKAT), was not accredited by the Civil Service Commission (CSC) at the time the Collective Negotiation Agreements (CNAs) were executed. This lack of accreditation violated Department of Budget and Management (DBM) Budget Circular No. 2006-01, which requires such accreditation for the valid grant of CNA incentives. The central legal question is whether the recipients of these disallowed incentives, including both rank-and-file employees and approving officials, should be required to reimburse the government.

The Supreme Court, in analyzing the case, emphasized that the requirement for CSC accreditation is clearly outlined in Item No. 5.1 of DBM Budget Circular No. 2006-01, which states that CNA incentives may be granted to employees if the CNAs are executed between management and an employees’ organization accredited by the CSC as the sole and exclusive negotiating agent. In this instance, UNGKAT lacked the necessary accreditation when the CNAs were signed in 2007 and 2008; their accreditation only came in 2009. Consequently, the Court upheld the disallowance of the 2008 and 2009 CNA incentives.

Furthermore, the Court noted that the MOOE savings used to fund the 2008 CNA incentive were computed from September 2007, predating the signing of the first CNA in November 2007. This violated Item 7.1.2 of DBM Budget Circular No. 2006-01, which stipulates that savings shall be reckoned from the date of signing of the CNA and supplements thereto. This highlights the importance of adhering to the specific guidelines for sourcing funds for CNA incentives.

However, the Court also addressed the issue of good faith. As a general rule, public officials directly responsible for illegal expenditures of public funds are personally liable. This principle is enshrined in several key legal provisions, including Section 52 of the Administrative Code of 1987, Section 351 of the Local Government Code of 1991, and Section 103 of the Government Auditing Code of the Philippines. These provisions underscore the accountability of public officials in managing government funds. Section 43 of the Administrative Code further clarifies that officials authorizing or making illegal payments, along with those receiving such payments, are jointly and severally liable to the government for the full amount paid or received. This highlights the shared responsibility in ensuring lawful expenditures.

Despite these strict liability rules, the Court recognized an exception for passive recipients who received the disallowed funds in good faith. Citing precedent from cases like Lumayna v. COA and Querubin v. Regional Cluster Director, the Court acknowledged that government officials and employees who unwittingly received disallowed benefits or allowances are not liable for reimbursement if there is no finding of bad faith. Good faith, in this context, is anchored on an honest belief that one is legally entitled to the benefit. Therefore, rank-and-file employees who believed UNGKAT was authorized to represent them were deemed to have acted in good faith and were not required to refund the incentives.

This protection, however, did not extend to UNGKAT officers who participated in the CNA negotiations or the local Sanggunian members and the City Mayor who approved the ordinances authorizing the payments. The Court reasoned that these individuals should have been aware of the requirement for UNGKAT’s CSC accreditation. As individuals directly involved in the negotiation and approval process, they cannot claim ignorance of the law or the applicable regulations.

The Court emphasized that knowledge of basic procedure is part and parcel of their shared fiscal responsibility under Section 305 (1) of the Local Government Code. This provision states that fiscal responsibility shall be shared by all those exercising authority over the financial affairs, transactions, and operations of the local government units. Furthermore, the Court noted that the disallowance of the 2008 CNA incentive prior to the approval of the 2009 incentive should have put these officials on notice of the potential illegality of the payments. Their continued approval, despite this warning, undermined their claim of good faith.

The Court also rejected the argument that non-receipt of the disallowed benefits excused the approving officers from liability. The receipt or non-receipt of illegally disbursed funds is immaterial to the solidary liability of the government officials directly responsible therefor. This principle was affirmed in Maritime Industry Authority v. COA, where approving officers who acted in bad faith were held solidarity liable to return the disallowed funds, even if they never received them.

The Court ultimately concluded that the City Mayor, local Sanggunian members, and UNGKAT officers who actively participated in the negotiations despite knowledge of UNGKAT’s non-accreditation were solidarity liable to refund the disallowed benefits. This ruling reinforces the principle that public officials must exercise due diligence in ensuring compliance with applicable laws and regulations when disbursing public funds. The decision serves as a cautionary tale for local government officials, highlighting the importance of adhering to established procedures and exercising fiscal responsibility in managing public resources.

FAQs

What was the key issue in this case?	The key issue was whether public officials and employees should be held liable for the reimbursement of CNA incentives that were disallowed due to non-compliance with accreditation requirements. The Court clarified the extent to which good faith could shield recipients from liability.
Why were the CNA incentives disallowed?	The CNA incentives were disallowed because the employees’ union, UNGKAT, was not accredited by the CSC at the time the Collective Negotiation Agreements (CNAs) were executed, violating DBM Budget Circular No. 2006-01.
Who is required to refund the disallowed amounts?	The City Mayor, local Sanggunian members who approved the ordinances, and UNGKAT officers and Board of Directors who actively participated in the negotiations are solidarity liable to refund the disallowed amounts.
Are rank-and-file employees required to refund the incentives?	Rank-and-file employees who received the incentives in good faith, believing that the union was properly authorized, are not required to refund the disallowed amounts.
What does “good faith” mean in this context?	“Good faith” means an honest belief that one is legally entitled to the benefit received. It implies a lack of knowledge of any irregularity or illegality surrounding the disbursement.
Why were the approving officers not considered to have acted in good faith?	The approving officers were not considered to have acted in good faith because they were presumed to have knowledge of the requirement for UNGKAT’s CSC accreditation and failed to ensure compliance.
Is receipt of the funds necessary for liability?	No, receipt of the funds is not necessary for liability. Approving officers can be held solidarity liable even if they did not personally receive any of the disallowed amounts.
What is the significance of DBM Budget Circular No. 2006-01?	DBM Budget Circular No. 2006-01 sets the guidelines for the grant of CNA incentives, including the requirement for the employees’ union to be accredited by the CSC. Compliance is essential for the validity of the incentives.
What is the role of the Commission on Audit (COA) in this case?	The COA is the government agency responsible for auditing government funds and ensuring that expenditures are lawful. It disallowed the CNA incentives in this case after finding that they violated DBM regulations.

In conclusion, the Supreme Court’s decision serves as a reminder of the importance of due diligence and adherence to regulations in the handling of public funds. It underscores the principle of accountability for public officials and the need for transparency in the disbursement of government resources.

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: Faustino A. Silang, et al. v. Commission on Audit, G.R. No. 213189, September 08, 2015