In the case of Secretary Mario G. Montejo v. Commission on Audit, the Supreme Court addressed the disallowance of Collective Negotiation Agreement (CNA) incentives granted to employees of the Department of Science and Technology (DOST). The Court upheld the disallowance of the incentives because they did not fully comply with budgetary regulations. However, in a significant win for government employees, the Court ruled that the DOST employees who received the disallowed CNA incentives in good faith were not required to refund the amounts. This decision underscores the importance of good faith as a defense in cases involving disallowed benefits, providing a measure of protection for public servants who act honestly and without malicious intent.

Navigating the Labyrinth: DOST’s CNA Incentives and the Good Faith Exception

The Department of Science and Technology (DOST) granted Collective Negotiation Agreement (CNA) incentives to its employees for the calendar years 2010 and 2011. These incentives, intended to reward cost-cutting measures and improved efficiency, were later flagged by the Commission on Audit (COA). The COA issued Notices of Disallowance (NDs) asserting that the incentives did not comply with the stringent requirements set forth in Department of Budget and Management (DBM) Budget Circular No. 2006-1. This circular outlines the rules and regulations for granting CNA incentives to government employees, emphasizing the need for strict adherence to guidelines regarding cost-cutting measures and the timing of incentive payments.

Specifically, the COA found that the DOST had violated several key provisions of DBM Budget Circular No. 2006-1. One major issue was the timing of the incentive payments. According to Item 5.7 of the circular, CNA incentives should be paid as a one-time benefit after the end of the year, provided that the planned programs and activities have been implemented and completed according to the year’s performance targets. In this case, the DOST made mid-year payments in both 2010 and 2011, a clear deviation from the prescribed guidelines. Furthermore, Item 7.1 states that CNA incentives must be sourced solely from savings from released MOOE allotments for the year under review, and these savings must be generated from cost-cutting measures identified in the CNA.

The COA argued that the DOST failed to provide sufficient proof that the CNA incentives were indeed sourced from actual savings resulting from cost-cutting measures. The required comparative statement of DBM-approved operating expenses and actual operating expenses was not adequately presented. Secretary Montejo, representing the DOST, appealed the disallowance, arguing that the agency had substantially complied with the requirements of DBM Circular No. 2006-1. He contended that the incentives were based on identified cost-cutting measures and sourced from generated savings, and that the payments were made in good faith.

The Supreme Court, in its analysis, acknowledged the COA’s authority to interpret its own auditing rules and regulations. Quoting Espinas, et al. v. COA, the Court emphasized that the COA’s decisions should be accorded great weight and respect, given its constitutional mandate to prevent irregular, unnecessary, excessive, extravagant, or unconscionable expenditures of government funds. However, the Court also recognized the importance of considering the good faith of public officials in cases involving disallowed benefits. Jurisprudence has established that recipients who receive disallowed amounts in good faith should not be required to refund them. This principle is rooted in fairness and equity, acknowledging that public servants should not be penalized for honest mistakes or misinterpretations of complex regulations.

The Court then delved into the concept of good faith, defining it as “honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even though technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious.” In this case, the Court found that Secretary Montejo and the other DOST officials had acted in good faith, believing that the grant of the CNA incentives had a legal basis. Their interpretation of the DBM circular, while ultimately deemed erroneous, was not indicative of any malicious intent or disregard for proper procedures. The Court noted that it would be unfair to penalize public officials based on overly stretched interpretations of rules that were not readily understandable at the time of the disbursement. To support its ruling, the Court cited several landmark cases where good faith was appreciated as a valid defense against refund liability. These included:

• PEZA v. Commission on Audit: Good faith absolved responsible officers from liability when they acted in accordance with their understanding of their authority, even if that understanding was later found to be inconsistent with COA’s interpretation.
• Development Bank of the Philippines v. Commission on Audit: Good faith was appreciated because the approving officers did not have knowledge of any circumstance or information that would render the expenditure illegal or unconscientious.
• Veloso, et al. v. COA: Refund was not required when all parties acted in good faith, disbursing funds pursuant to an ordinance enacted in the honest belief that the amounts were due to the recipients.

The Court distinguished the present case from others where bad faith was evident, such as Silang v. COA, where the incentives were negotiated by a collective bargaining representative despite non-accreditation with the Civil Service Commission (CSC). In such instances, the approving officers were found to be in bad faith and ordered to refund the disbursed amounts. The absence of such circumstances in the DOST case weighed heavily in favor of absolving the responsible officers and employees from personal liability.

In conclusion, the Supreme Court, while upholding the disallowance of the CNA incentives due to non-compliance with DBM Budget Circular No. 2006-1, recognized the good faith of the DOST officials and employees involved. This recognition provided a significant exception to the general rule of refund, underscoring the importance of equitable considerations in auditing cases. The decision serves as a reminder that public officials should not be penalized for honest mistakes or reasonable interpretations of complex regulations, provided they act without malice or intent to defraud.

FAQs

What was the key issue in this case?	The key issue was whether the Department of Science and Technology’s (DOST) grant of Collective Negotiation Agreement (CNA) incentives to its employees was compliant with budgetary regulations and whether the recipients should be required to refund the disallowed amounts.
Why were the CNA incentives disallowed?	The CNA incentives were disallowed because the DOST did not strictly adhere to the guidelines set forth in Department of Budget and Management (DBM) Budget Circular No. 2006-1, particularly regarding the timing of payments and the sourcing of funds from actual cost-cutting measures.
What is the significance of “good faith” in this case?	The Supreme Court recognized that the DOST officials and employees acted in good faith, believing that the grant of the CNA incentives had a legal basis. This good faith served as an exception to the general rule of refund, absolving the recipients from personal liability.
What is DBM Budget Circular No. 2006-1?	DBM Budget Circular No. 2006-1 outlines the rules and regulations for granting CNA incentives to government employees. It specifies requirements for cost-cutting measures, savings generation, and the timing of incentive payments.
What does it mean to be “solidarily liable”?	“Solidarily liable” means that each person involved is individually responsible for the entire amount of the debt or obligation. In this case, the COA initially held the officers who approved the grant of CNA incentives solidarily liable for the total disbursement.
What is the principle of solutio indebiti?	Solutio indebiti is a legal principle that arises when someone receives something without any right to demand it, and it was unduly delivered to them through mistake. It creates an obligation to return the payment.
Who is responsible for determining whether an expenditure is legal?	The Commission on Audit (COA) is responsible for auditing government expenditures and determining whether they comply with applicable laws and regulations.
Can government employees ever keep disallowed benefits?	Yes, government employees can keep disallowed benefits if they received them in good faith, meaning they had an honest belief that they were entitled to the benefits and there was no clear indication that the disbursement was illegal.

The Supreme Court’s decision in Secretary Mario G. Montejo v. Commission on Audit offers important guidance on the application of budgetary rules and the protection of public servants who act in good faith. While strict compliance with regulations is essential, the Court’s emphasis on equitable considerations provides a crucial safeguard against penalizing honest mistakes. This ruling clarifies the circumstances under which government employees can be shielded from personal liability for disallowed benefits, fostering a more just and reasonable approach to auditing practices.

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: SECRETARY MARIO G. MONTEJO VS. COMMISSION ON AUDIT, G.R. No. 232272, July 24, 2018