Category: Government Audit

Accountability in Governance: Good Faith and the Duty to Return Illegally Granted Benefits in the NHA

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

June 21, 2022

Per Diem vs. Honoraria: Defining Compensation Limits for Government Board Members

The Supreme Court has ruled that government officials cannot receive additional compensation in the form of honoraria if they are already receiving a per diem allowance, as this would violate established laws and regulations. This decision clarifies the boundaries of permissible compensation for members of government boards, emphasizing adherence to prescribed limits and preventing unauthorized financial benefits. It reinforces the importance of transparency and accountability in public service, ensuring that government funds are used appropriately and in accordance with legal provisions.

ICAB’s Extra Pay: Was Reviewing Adoption Files Beyond the Call of Duty?

This case revolves around the Inter-Country Adoption Board (ICAB), the central authority in the Philippines for inter-country adoptions. In this case, Bernadette Lourdes B. Abejo, the Executive Director of the ICAB, challenged the Commission on Audit’s (COA) disallowance of additional remuneration paid to ICAB members. The COA disallowed the payments, arguing they lacked legal basis and violated existing regulations. The core legal question is whether ICAB members, who already receive a per diem, could also be paid honoraria for reviewing prospective adoptive parents’ (PAPs) dossiers, a task they undertook to address a heavy workload. The Supreme Court was asked to determine if this additional compensation was justified or if it ran afoul of the laws governing compensation for government officials.

The ICAB was created under Republic Act No. 8043 (RA 8043), also known as the “Inter-Country Adoption Act of 1995.” Its members include the Secretary of the Department of Social Welfare and Development (DSWD) as ex-officio Chairman, along with six other members appointed by the President. An Inter-Country Adoption Placement Committee (ICPC) operates under the Board’s direction, managing the selection and matching of applicants and children. From 2008 to 2010, the ICAB experienced a surge in applications, prompting its members to assist the ICPC with reviewing PAPs Dossiers. In response to this increased workload, Undersecretary Luwalhati F. Pablo authorized additional remuneration for ICAB members: P250.00 for each reviewed application, later increased to P500.00.

However, after an audit, the COA issued a Notice of Disallowance (ND) for P162,855.00, citing the lack of legal basis, conflict with Department of Budget and Management (DBM) Budget Circular (BC) No. 2003-5, and Section 49 of RA 9970. The COA also pointed out that the DSWD Legal Service had denied the grant of honoraria to ICAB members and that Section 5 of RA 8043 limited compensation to a per diem of P1,500.00 per meeting. Abejo, as the Executive Director and approving officer, was identified as liable for the disallowed amount. The COA Proper affirmed the disallowance, stating that the additional remuneration violated Section 5 of RA 8043 and DBM BC No. 2003-5, which prohibits honoraria for those already receiving per diem.

A key procedural point arose: Abejo did not file a motion for reconsideration of the COA Proper’s decision before filing a certiorari petition with the Supreme Court. Generally, failure to move for reconsideration is fatal to a certiorari petition because it deprives the tribunal of the opportunity to correct its errors. However, the Supreme Court recognized an exception: when the issues raised in the certiorari proceedings have already been addressed by the lower court. Because Abejo raised the same issues before the COA Proper, the Court proceeded to resolve the petition on its merits.

The Supreme Court emphasized that while government employees may be compensated for work outside their regular functions, such compensation must comply with applicable laws and rules. The Court quoted Sison v. Tablang, which states that while honoraria are given in appreciation for services, their payment must be circumscribed by the DBM’s rules and guidelines. In this case, RA 8043 and DBM BC No. 2003-5 prevented the ICAB members from receiving additional compensation. Section 5 of RA 8043 limits the per diem ICAB members can receive, and Item 4.3 of DBM BC 2003-5 prohibits honoraria for officers already receiving per diem.

The Court rejected the argument that the Intercountry Adoption Board Manual of Operation authorized the honoraria because Section 5 of the manual applied only to members of the ICPC, not the ICAB. Further, the manual itself was subordinate to express provisions of law and auditing rules. It states: “A Committee member shall receive an honorarium which shall be determined by the Board subject to usual accounting and auditing rules and regulations.” The Court also dismissed the claim that the ICAB members’ work constituted a “special project” compensable under Section 49 of RA 9970. To qualify as a special project, the undertaking must be a duly authorized inter-office or intra-office endeavor outside the regular functions of the agency, reform-oriented or developmental in nature, and contributory to improved service delivery.

In Ngalob v. Commission on Audit, the Supreme Court laid out specific requirements for a “special project,” including an approved project plan with defined objectives, outputs, timelines, and cost estimates. Abejo failed to demonstrate any approved special project plan, leaving the Court without a basis to determine if the ICAB members’ dossier review qualified as such.

Paragraph 4.3 of DBM Circular No. 2007-2 is explicit in requiring that a special project plan should be “prepared in consultation with all personnel assigned to a project and approved by the department/agency/lead agency head,” containing the following:

title of the project;

objectives of the project, including the benefits to be derived therefrom;

outputs or deliverables per project component;

project timetable;

skills and expertise required;

personnel assigned to the project and the duties and responsibilities of each;

expected deliverables per personnel assigned to the project per project component at specified timeframes; and

cost by project component, including the estimated cost for honoraria for each personnel based on man-hours to be spent in the project beyond the regular work hours; personnel efficiency should be a prime consideration in determining the man-hours required.

Despite upholding the disallowance, the Supreme Court absolved Abejo from liability to return the disallowed amount. The Court applied the Madera v. Commission on Audit rules, which provide that approving and certifying officers are not civilly liable if they acted in good faith, in the regular performance of official functions, and with the diligence of a good father of the family. The Madera ruling provides a definitive set of rules in determining the liability of government officers and employees:

Approving and certifying officers who acted in good faith, in regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return consistent with Section 38 of the Administrative Code of 1987.

The Court found that Abejo had acted in good faith because there was no prior disallowance of the same benefit against ICAB, and no precedent disallowing a similar case in jurisprudence. This decision underscores the importance of adhering to compensation limits for government officials, while also protecting those who act in good faith from personal liability. Lastly, the Court noted that the individual ICAB members who received the additional remuneration were not held liable in the ND, and this determination had already attained finality. The Court stated, “To disturb their exoneration is to violate the doctrine of immutability of final orders or judgments.”

FAQs

What was the key issue in this case?	The key issue was whether members of the Inter-Country Adoption Board (ICAB), who already received a per diem, could also be paid honoraria for reviewing applications, and whether the Executive Director could be held liable for the disallowed amounts.
What is a per diem?	A per diem is a daily allowance given to government officials to cover expenses incurred while performing official duties, such as attending meetings. It is meant to cover costs like transportation, meals, and lodging.
What are honoraria?	Honoraria are payments given as a token of appreciation for services rendered, typically for special or additional tasks. They are not considered a salary but rather a voluntary donation in consideration of services.
Why did the COA disallow the additional remuneration?	The COA disallowed the payments because they lacked legal basis, conflicted with Department of Budget and Management (DBM) Budget Circular No. 2003-5, and violated Section 5 of RA 8043, which limits compensation to a per diem.
What is the significance of DBM Budget Circular No. 2003-5?	DBM Budget Circular No. 2003-5 provides guidelines on the payment of honoraria and stipulates that individuals already receiving a per diem are not eligible to receive honoraria for the same services.
What did the Supreme Court rule regarding the disallowance?	The Supreme Court affirmed the COA’s decision, ruling that the additional remuneration was correctly disallowed because it violated RA 8043 and DBM BC No. 2003-5. The Court emphasized that the existing laws prevent the ICAB member from receiving additional compensation for the work they have done reviewing the PAPs Dossiers.
Why was the Executive Director absolved from liability?	The Executive Director, Bernadette Lourdes B. Abejo, was absolved from liability because the Court found that she had acted in good faith, with no prior disallowance of the same benefit and no precedent disallowing a similar case in jurisprudence.
What are the Madera Rules mentioned in the decision?	The Madera Rules, established in Madera v. Commission on Audit, provide a framework for determining the liability of government officers and employees in cases of disallowed benefits. They specify that those who act in good faith and with due diligence are not held civilly liable.
What was the Court’s ruling about the ICAB members who received the money?	The individual ICAB members who received the additional remuneration were not held liable in the ND, and this determination had already attained finality. To disturb their exoneration is to violate the doctrine of immutability of final orders or judgments

This case clarifies the importance of adhering to prescribed compensation limits for government officials. While acknowledging that additional responsibilities may warrant additional compensation, the ruling emphasizes that such compensation must be within the bounds of existing laws and regulations. The absolution of the Executive Director from personal liability underscores the protection afforded to public officials who act in good faith, even when errors in judgment occur.

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: BERNADETTE LOURDES B. ABEJO VS. COMMISSION ON AUDIT, G.R. No. 251967, June 14, 2022

June 14, 2022

Navigating Government Benefits: The Limits of Board Authority and the Duty to Refund

The Supreme Court clarified the responsibilities of government employees regarding disallowed benefits, emphasizing that even with good faith, recipients must return amounts unduly received. This decision underscores the limits of a government board’s authority to grant benefits without proper legal basis and highlights the individual responsibility of public servants to ensure compliance with compensation laws. The ruling also provides a framework for determining liability among approving and certifying officers in cases of disallowed disbursements, offering a practical guide for those involved in government financial management.

Meal Allowances Under Scrutiny: Who Pays When Government Perks Exceed Legal Limits?

This case revolves around the disallowance of meal allowances granted to officials and employees of the Metropolitan Waterworks and Sewerage System (MWSS)-Corporate Office (CO) for the calendar years 2012 and 2013. The Commission on Audit (COA) flagged these allowances, totaling P8,173,730.00, asserting that they lacked proper legal foundation. The core legal question is whether the COA committed grave abuse of discretion in denying the appeal of Ronald S. Abrigo, et al., who were officers and employees of MWSS-CO, challenging the disallowance of these allowances. The petitioners argued that the MWSS Board of Trustees had the authority to grant these benefits, but the COA maintained that such power was subject to existing compensation laws and regulations.

The COA’s decision hinged on the premise that the grant and increase of meal allowances lacked a valid legal basis. Specifically, the COA pointed out that the allowances exceeded the amount authorized in the Corporate Operating Budget (COB) approved by the Department of Budget and Management (DBM) for incumbents as of June 30, 1989. The COA further emphasized that non-incumbents as of that date were not entitled to any meal allowance at all. This sparked a legal battle that ultimately reached the Supreme Court, forcing a reevaluation of the roles and responsibilities of public officials in managing government funds.

The Supreme Court, while acknowledging the procedural lapse in the filing of the petition, opted to address the substantive issues raised. This decision highlights the court’s willingness to relax procedural rules when strong considerations of substantive justice are at stake. The court emphasized that grave abuse of discretion requires proof of capricious and whimsical exercise of judgment, not mere reversible error. While the COA’s decision was upheld, the Court modified certain aspects of the Notices of Disallowance (NDs) to align with existing jurisprudence. This adjustment reflected the evolving understanding of liability and return requirements in disallowed amounts.

At the heart of the matter is the authority of the MWSS Board to grant employee benefits. The Court referenced the case of Metropolitan Waterworks and Sewerage System v. Commission on Audit, emphasizing that the MWSS is covered by Republic Act No. 6758 (RA 6758), which repealed all charters exempting agencies from the coverage of the compensation and position classification system. As such, the grant of additional benefits by the MWSS Board is considered an ultra vires act. The Court’s decision reinforced the principle that government agencies must adhere to standardized compensation systems unless specifically exempted by law.

Section 12 of RA 6758 further clarifies this point, stating:

SECTION 12. Consolidation of Allowances and Compensation. — All allowances, except for representation and transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers and crew on board government vessels and hospital personnel; hazard pay; allowances of foreign service personnel stationed abroad; and such other additional compensation not otherwise specified herein as may be determined by the DBM, shall be deemed included in the standardized salary rates herein prescribed. Such other additional compensation, whether in cash or in kind, being received by incumbents only as of July 1, 1989 not integrated into the standardized salary rates shall continue to be authorized.

The Court interpreted this to mean that benefits granted to MWSS employees were integrated into the standardized salaries, and the receipt of the disallowed benefits and allowances constituted double compensation. This ruling is a powerful reminder that public funds must be managed with utmost prudence and adherence to legal guidelines. It also serves as a guide to government employees to always perform due diligence to ensure compliance with laws and regulations. Further, the court rejected the petitioner’s reliance on the Concession Agreements, stating that these agreements could not override the provisions of RA 6758.

The Supreme Court also delved into the responsibility of those who received the disallowed amounts. Citing Madera v. Commission on Audit, the Court emphasized the principle of solutio indebiti, which obligates individuals to return what they have received in error. This applies to both approving and certifying officers, as well as passive recipients. Even with the existence of good faith, if the grant of allowance has no legal basis, the recipients are duty bound to return what they received. This underscores the importance of accountability in the disbursement of public funds and the necessity for government employees to ensure that all financial transactions comply with the law.

The Court, however, clarified the extent of liability for approving and certifying officers. Those who certified that the expenses were necessary and lawful, approved the payments, or approved the COB were held solidarily liable for the disallowed amounts. On the other hand, officers who only certified the completeness of supporting documents and the availability of funds were absolved from liability. This distinction recognizes the different roles and responsibilities within the disbursement process and ensures that liability is assigned based on the specific nature of an officer’s participation.

The Court pointed out that the MWSS officials had already been apprised of the limits of the MWSS Board’s authority to approve the benefit. The Supreme Court found that the approving and certifying officials did not act in good faith when they continuously granted the meal allowance, knowing that its legal basis was questionable and may be disapproved by higher authorities. The court ruled that sheer reliance upon a board resolution does not satisfy the standard of good faith and diligence required by law, especially when the resolution itself reveals the impropriety of the benefits given. This decision reiterates the importance of due diligence and accountability in the handling of public funds.

To summarize, only those approving and certifying officers who certified the legality and necessity of the expenses, and those who approved the payments, are solidarily liable. Those whose only participation was to certify the completeness of the supporting documents and the availability of funds are absolved from liability. Passive recipients, including approving/certifying officers who also received the meal allowance as payees, are liable only for the amounts they personally received.

FAQs

What was the key issue in this case?	The key issue was whether the Commission on Audit (COA) correctly disallowed the meal allowances granted to Metropolitan Waterworks and Sewerage System (MWSS) employees and officials, and who should be held liable for the disallowed amounts.
Why were the meal allowances disallowed?	The meal allowances were disallowed because they exceeded the amount authorized in the Corporate Operating Budget (COB) approved by the Department of Budget and Management (DBM) for incumbents as of July 1, 1989, and were granted to non-incumbents without legal basis.
*What is the principle of solutio indebiti?*	The principle of solutio indebiti obligates individuals to return something that has been unduly delivered through mistake. In this case, it requires recipients of the disallowed meal allowances to return the amounts they received in error.
Who is liable to return the disallowed meal allowances?	Passive recipients of the disallowed meal allowances, including approving/certifying officers who received the amounts, are liable only for the amounts they personally received. Approving and certifying officers who certified the legality and necessity of the expenses and approved the payments are solidarily liable for the total disallowed amount.
What is the effect of RA 6758 on the MWSS’s authority to grant benefits?	RA 6758, the Compensation and Position Classification Act of 1989, repealed all charters exempting government agencies from the standardized compensation system. This means the MWSS Board’s authority to grant additional benefits is limited and subject to existing compensation laws and regulations.
When is a government employee considered an ‘incumbent’ for allowance purposes?	For the purpose of determining eligibility for allowances, an employee is considered an incumbent if they held the position as of July 1, 1989, and were actually receiving the allowance as of that date.
*What is the significance of the Madera* ruling in this case?**	The Madera ruling provided the framework for determining the liability of individuals for disallowed amounts. It harmonized conflicting jurisprudence and established clear rules for the return of disallowed funds.
What does it mean for approving/certifying officers to be ‘solidarily liable’?	Solidary liability means that each approving/certifying officer is individually responsible for the entire disallowed amount. The COA can pursue any one of them for the full amount, regardless of their individual participation or the specific amount they certified.

This case serves as a crucial reminder of the importance of adhering to legal frameworks in government financial management. It emphasizes the need for public officials to exercise due diligence and accountability in disbursing public funds, even when acting in good faith. The decision provides clear guidelines on liability and the responsibility to return disallowed amounts, ultimately promoting transparency and integrity in government operations.

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: Ronald S. Abrigo, et al. vs. Commission on Audit, G.R. No. 253117, March 29, 2022

March 29, 2022

Upholding Fiscal Responsibility: The Limits of PCSO’s Authority in Granting Employee Benefits

The Supreme Court affirmed the Commission on Audit’s (COA) disallowance of certain allowances granted to the Philippine Charity Sweepstakes Office (PCSO) Laguna Provincial District Office (LPDO) personnel. The Court reiterated that while the PCSO Board has the power to fix salaries and benefits, this power is not absolute and is subject to pertinent civil service and compensation laws. This decision underscores the importance of adhering to established legal and budgetary regulations in the disbursement of public funds, even in government-owned and controlled corporations like PCSO.

PCSO’s Discretion vs. Fiscal Prudence: Can Employee Benefits Exceed Legal Boundaries?

This case arose from Notices of Disallowance (NDs) issued by the COA against PCSO-LPDO for the payment of unauthorized benefits to its personnel, totaling P1,601,067.49. These benefits included a Christmas Bonus exceeding the legally prescribed amount, a Weekly Draw Allowance, Staple Food Allowance, Hazard Pay, Cost of Living Allowance (COLA), and Medicine Allowance. The COA grounded its disallowance on the lack of legal basis for these benefits, citing that they were merely based on the PCSO-Sweepstakes Employees Union (SEU) Collective Negotiation Agreement (CNA) and PCSO Resolution No. A-0103, series of 2010.

PCSO argued that the grant of these benefits was within the power of its Board under Republic Act (RA) No. 1169, its charter, and that it had received post facto approval from the Office of the President. They also contended that disallowing the benefits would violate the principle of non-diminution of benefits. The Supreme Court, however, found these arguments unconvincing. It emphasized that the PCSO Board’s authority to fix salaries and benefits is not unfettered. As the Court stated in Philippine Charity Sweepstakes Office v. Commission on Audit:

The Court already ruled that R.A. 1169 or the PCSO Charter, does not grant its Board the unbridled authority to fix salaries and allowances of its officials and employees. PCSO is still duty bound to observe pertinent laws and regulations on the grant of allowances, benefits, incentives and other forms of compensation. The power of the Board to fix the salaries and determine the reasonable allowances, bonuses and other incentives are still subject to the review of the DBM.

Building on this principle, the Court highlighted that PCSO must ensure compliance with relevant budgetary legislation laws and rules when exercising its power to fix employee compensation. This means that any additional salaries, incentives, and benefits must adhere to all applicable laws regarding these disbursements.

The Court also addressed the specific allowances in question. It noted that Section 12 of RA 6758 provides that, as a rule, allowances due to government employees are deemed integrated into the new standardized salary rate save for some specific exceptions. Since the disallowed Weekly Draw Allowance, Staple Food Allowance, COLA, and Medicine Allowance are not among the enumerated exceptions, they are considered included in the standardized salary. For these allowances to be granted separately, they would need to be sanctioned by the Department of Budget and Management (DBM) or authorized by the President. Furthermore, Department of Budget and Management (DBM) Budget Circular (BC) No. 16, s. 1998 prohibits the grant of food, rice, gift checks, or any other form of incentives/allowances, except those authorized by an Administrative Order from the Office of the President.

PCSO relied on a letter from the Executive Secretary as post facto approval for these benefits. However, the Court has consistently rejected this argument, emphasizing that where there is an express provision of the law prohibiting the grant of certain benefits, the law must be enforced. Even an executive act shall be valid only when it is not contrary to the laws or the Constitution. Furthermore, the Court pointed out that the letter only approved benefits given prior to 07 September 2010, while the disallowed benefits were granted starting November 2010, with no proof that the authority was extended.

Regarding the Christmas Bonus, RA 6686, as amended, allows a Christmas Bonus equivalent to one month’s salary plus a cash gift of P5,000.00. The Christmas Bonus authorized by the PCSO Board exceeded this amount, leading the Court to affirm its disallowance, but only to the extent of the excess. The Hazard Pay was also disallowed because PCSO failed to demonstrate that the recipients met the requirements of being assigned to and performing duties in strife-torn or embattled areas.

The Court dismissed PCSO’s argument that the disallowance violated the principle of non-diminution of benefits. The Court emphasized that PCSO failed to establish that its officials and employees actually suffered a diminution in pay as a result of the disallowance. Mere allegations without supporting evidence are insufficient to prove such a claim. In light of the foregoing, the Court ruled that the COA did not commit grave abuse of discretion in upholding the validity of the NDs.

Turning to the liability for the disallowed amounts, the Court applied the rules established in Madera v. Commission on Audit. These rules dictate that approving and certifying officers who acted in good faith, in the regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return the disallowed amounts. However, those who acted in bad faith, with malice, or with gross negligence are solidarily liable to return the net disallowed amount. Recipients, whether approving officers or mere passive recipients, are liable to return the amounts they received, unless they can show that the amounts were genuinely given in consideration of services rendered or that other equitable considerations apply.

While the COA Proper had exonerated the payees on the ground of good faith, the Court found that the approving and certifying officers in this case were grossly negligent. They failed to observe the clear and unequivocal provisions of laws and rules applicable to the disbursement of the disallowed benefits. Specifically, the Court held that failure to follow a clear and straightforward legal provision constitutes gross negligence. As the Supreme Court emphasized in The Officers and Employees of Iloilo Provincial Government v. Commission on Audit, “Gross negligence has been defined as negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected.”

The officers’ reliance on the PCSO Board’s directives was not a valid excuse. The Court clarified that while it considers the nature and extent of participation of officers, those performing discretionary duties cannot be exonerated simply by claiming they were following orders. Ultimately, the approving and certifying officers were held solidarily liable for the net disallowed amount, which is the total disallowed amount minus the amounts excused to be returned by the payees. The Court directed the COA to compute the correct amount of the disallowed benefits to be returned.

FAQs

What was the key issue in this case?	The central issue was whether the Commission on Audit (COA) correctly disallowed certain allowances and benefits granted to the Philippine Charity Sweepstakes Office (PCSO) employees due to lack of legal basis and non-compliance with existing laws and regulations.
What benefits were disallowed by the COA?	The disallowed benefits included a Christmas Bonus exceeding the legally prescribed amount, a Weekly Draw Allowance, Staple Food Allowance, Hazard Pay, Cost of Living Allowance (COLA), and Medicine Allowance.
Did the PCSO have the authority to grant these benefits?	While the PCSO Board has the power to fix salaries and benefits, this power is not absolute. It is subject to pertinent civil service and compensation laws, meaning that all disbursements must comply with existing legal and budgetary regulations.
What is the significance of RA 6758 in this case?	RA 6758 standardizes salary rates and provides that certain allowances are deemed integrated into the new standardized salary. The disallowed allowances in this case were not among the exceptions and therefore should have been integrated unless specifically authorized by the DBM or the President.
*What did the Supreme Court say about the post facto* approval from the Office of the President?**	The Court rejected the argument of post facto approval, stating that it cannot validate benefits that are in clear violation of existing budgetary and auditing laws. Furthermore, the specific letter presented as evidence only approved benefits granted prior to a certain date.
Who is liable to return the disallowed amounts?	The approving and certifying officers were held solidarily liable for the net disallowed amount because they were found to be grossly negligent in approving the benefits. The payees were initially exonerated by COA, and this was not appealed.
What does gross negligence mean in this context?	Gross negligence is defined as negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected.
Can the approving officers claim they were just following orders?	No, the approving officers cannot simply claim they were following orders. The Court clarified that those performing discretionary duties cannot be exonerated simply by claiming they were following orders, especially when they failed to exercise due diligence in ensuring compliance with the law.

This case serves as a crucial reminder to government agencies and GOCCs to exercise fiscal responsibility and adhere to established legal and budgetary regulations when granting employee benefits. The ruling reinforces the principle that public funds must be disbursed in accordance with the law, and that those responsible for authorizing illegal expenditures will be held accountable.

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: Philippine Charity Sweepstakes Office vs. Commission on Audit, G.R. No. 246313, February 15, 2022

February 15, 2022

PCSO Benefits Disallowed: Navigating Compensation Laws and the Limits of Corporate Authority

The Supreme Court affirmed the Commission on Audit’s (COA) decision disallowing certain benefits granted by the Philippine Charity Sweepstakes Office (PCSO) to its employees. This ruling clarifies that while the PCSO Board of Directors has the power to fix salaries and benefits, this power is not absolute and must comply with existing laws and regulations. The Court emphasized that unauthorized allowances and benefits are considered illegal disbursements, for which both approving officers and recipients can be held liable, ensuring accountability in the use of public funds.

Beyond the Jackpot: Can PCSO’s Board Bypass National Compensation Laws?

The case revolves around the Philippine Charity Sweepstakes Office (PCSO) and the Commission on Audit (COA), specifically regarding the disallowance of certain benefits that PCSO had granted to its officials and employees. For calendar years 2008 and 2009, the COA flagged several benefits, including Productivity Incentive Bonus (PIB), Cost of Living Allowance (COLA), Anniversary Cash Gift, Hazard Duty Pay, Christmas Bonus, Grocery Allowance, and Staple Food Allowance, totaling Php2,744,654.73. The central legal question is whether the PCSO Board of Directors has unrestricted authority under its charter, Republic Act (RA) No. 1169, to fix the salaries and benefits of its employees, even if those benefits exceed or contravene national compensation laws and regulations.

The PCSO argued that R.A. No. 1169 grants its Board the power to fix salaries, and that the benefits had been previously authorized by former presidents, becoming part of the employees’ compensation package. They also claimed that the benefits were sourced from the 15% operating fund and PCSO savings, thus not dependent on the national government’s budget. The COA, however, maintained that the PCSO’s power is subject to pertinent civil service and compensation laws, and that the benefits lacked legal basis or exceeded authorized amounts.

The Supreme Court sided with the COA, holding that the PCSO Board’s authority is not absolute. “The Court already ruled that R.A. 1169 or the PCSO Charter, does not grant its Board the unbridled authority to fix salaries and allowances of its officials and employees,” the Court stated in PCSO v. COA. The PCSO must comply with budgetary legislation and rules when granting salaries, incentives, and benefits. The Court then examined each disallowed benefit against relevant laws and regulations.

Regarding the Cost of Living Allowance (COLA), Grocery Allowance, and Staple Food Allowance, the Court noted that Section 12 of RA 6758 (the Salary Standardization Law) generally includes allowances in the standardized salary rate, with specific exceptions. These allowances were not among the exceptions. DBM BC No. 16, s. 1998, further prohibits the grant of food, rice, gift checks, or other incentives/allowances unless authorized by the President through an Administrative Order.

The PCSO presented documents purporting to show presidential approval, including a 1997 letter with a marginal approval, and memoranda from 2000 and 2001. However, the Court agreed with the COA that these documents did not constitute unqualified and continuing authority to grant the benefits. The approvals related to past benefits and did not extend to subsequent years or cover all the disallowed items. Moreover, Administrative Order No. 103, s. 2004, suspended the grant of new or additional benefits except for Collective Negotiation Agreement (CNA) incentives or those expressly provided by presidential issuance, superseding any prior authorization.

The Court also found that the Productivity Incentive Benefit, Anniversary Bonus, and Christmas Bonus exceeded the amounts authorized by applicable laws and regulations. Administrative Order No. 161, s. 1994, authorized a Productivity Incentive Bonus up to Php2,000.00, while PCSO granted Php10,000.00. Administrative Order No. 263, s. 1996, limited the Anniversary Bonus to Php3,000.00, but PCSO granted Php25,000.00. Republic Act 6686, as amended by RA 8441, provided for a Christmas Bonus equivalent to one month’s salary plus a Php5,000.00 cash gift, but PCSO granted three months’ salary.

The Hazard Duty Pay was also disallowed because the PCSO failed to show compliance with DBM CCC-10, which requires proof that recipient-employees were assigned to and performing duties in strife-torn areas for a certain period. The PCSO’s across-the-board grant of hazard pay lacked this qualification. The Court rejected the argument that the employees had acquired vested rights to the benefits due to their continuous grant over time. Citing Metropolitan Waterworks and Sewerage System v. Commission on Audit, the Court stated that customs, practice, and tradition, regardless of length, cannot create vested rights if they lack legal basis.

Further, the Court clarified that it’s ruling on the need to secure Presidential or DBM approval does not cover agencies enjoying fiscal autonomy under the 1987 Constitution, such as the Judiciary or the Commission on Audit, as such bodies require fiscal flexibility in discharging their constitutional duties. The Court then addressed the liability of the PCSO officials and employees. Referring to Madera v. COA, the Court outlined rules for determining liability for disallowed amounts, stating that approving and certifying officers acting in bad faith, malice, or gross negligence are solidarily liable, while recipients are liable to return the amounts they received unless they can show the amounts were genuinely given in consideration of services rendered. In this case, the approving and certifying officers were deemed grossly negligent for failing to observe clear legal provisions. Failure to follow a clear and straightforward legal provision constitutes gross negligence, as held in The Officers and Employees of Iloilo Provincial Government v. COA.

The payees were held liable to return the amounts they received based on the principle of solutio indebiti, as receiving something by mistake creates an obligation to return it. The Court clarified that in order to fall under the exception that amounts were genuinely given in consideration of services rendered, as specified in the case of Abellanosa v. COA (Abellanosa), that both the personnel incentive or benefit must have a proper basis in law but is only disallowed due to irregularities that are merely procedural in nature, and the personnel incentive or benefit must have a clear, direct, and reasonable connection to the actual performance of the payee-recipient’s official work and functions for which the benefit or incentive was intended as further compensation, are met.

FAQs

What was the key issue in this case?	The key issue was whether the PCSO Board of Directors had the authority to grant certain benefits to its employees that exceeded or contravened national compensation laws and regulations.
What is the Salary Standardization Law?	The Salary Standardization Law (RA 6758) aims to standardize the salary rates of government employees. Section 12 consolidates allowances into the standardized salary, with specific exceptions.
What is Administrative Order No. 103?	Administrative Order No. 103, s. 2004, directed the continued adoption of austerity measures in government, suspending the grant of new or additional benefits to officials and employees of GOCCs, with limited exceptions.
What is the significance of the Madera ruling?	The Madera ruling (Madera v. COA) established definitive rules for determining the liability of government officers and employees for disallowed amounts, including the liability of approving officers and recipients.
*What is solutio indebiti?*	Solutio indebiti is a principle in civil law stating that if someone receives something by mistake, they have an obligation to return it. This principle was applied to the payees of the disallowed benefits.
Who is liable for returning the disallowed amounts?	The approving and certifying officers who acted with gross negligence are solidarily liable for the disallowed amount. The payees, whether approving officers or mere recipients, are individually liable for the amounts they personally received.
What constitutes gross negligence in this context?	Gross negligence is defined as the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences.
Are there any exceptions to the requirement to return disallowed amounts?	Yes, recipients may be excused from returning disallowed amounts if the amounts were genuinely given in consideration of services rendered, or if undue prejudice, social justice considerations, or other bona fide exceptions are present.
What must recipients show to be excused from returning the amounts?	As specified in the case of Abellanosa v. COA (Abellanosa), to prove that amounts were genuinely given in consideration of services rendered, recipients must show that the incentive or benefit has a proper basis in law but is only disallowed due to irregularities that are merely procedural in nature, and the incentive or benefit must have a clear, direct, and reasonable connection to the actual performance of the payee-recipient’s official work and functions.

This case serves as a reminder to government-owned and controlled corporations (GOCCs) to adhere strictly to national compensation laws and regulations when granting benefits to their employees. While GOCCs may have some autonomy, their authority is not unlimited and must be exercised within the bounds of the law. The decision also reinforces the importance of due diligence and good faith on the part of approving and certifying officers to avoid personal liability for disallowed expenses.

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: Philippine Charity Sweepstakes Office vs. Commission on Audit, G.R No. 218124, October 05, 2021

October 5, 2021

Good Faith vs. Gross Negligence: Defining Liability in Government Benefit Disallowances

This Supreme Court case clarifies when government officials and employees must return disallowed benefits. The Court ruled that anniversary bonuses received in good faith need not be refunded, while extra cash gifts and honoraria, lacking proper legal basis, must be returned by approving officers who acted with gross negligence. This decision underscores the importance of adhering to specific legal and regulatory requirements when disbursing public funds.

Celebrating Milestones or Misspending Funds? Unpacking Anniversary Bonuses and COA Disallowances

The case of Nayong Pilipino Foundation, Inc. v. Chairperson Ma. Gracia M. Pulido Tan, et al. (G.R. No. 213200, September 19, 2017) revolves around the Commission on Audit’s (COA) disallowance of certain benefits granted by the Nayong Pilipino Foundation, Inc. (NPFI) to its employees. These benefits included anniversary bonuses, extra cash gifts, and honoraria paid to members of the Bids and Awards Committee (BAC) and Technical Working Group (TWG). The central legal question is whether the COA correctly disallowed these payments, and if so, who should be held liable for their refund.

The facts show that NPFI, in commemoration of its 30th and 35th founding anniversaries, granted anniversary bonuses to its officers and employees. Additionally, an extra cash gift was given in 2004. The COA issued Audit Observation Memoranda (AOMs), questioning the legal basis of these grants. The Department of Budget and Management (DBM) later opined that the anniversary bonus was unauthorized because NPFI’s anniversary should be reckoned from its incorporation as a public corporation in 1972, not its initial incorporation as a private entity. This raised questions about the validity of payments made based on the earlier date.

In response to the AOMs, NPFI sought approval from the Office of the President (OP) and DBM, arguing that Administrative Order (A.O.) No. 263 and DBM National Budget Circular No. 452 authorized the anniversary bonus. They also cited DBM Budget Circular No. 2002-04 for the extra cash gift. However, the DBM found the payments improper, leading to a Notice of Disallowance (ND) issued by the COA Legal and Adjudication Office (LAO)-Corporate. The NPFI appealed, but the disallowance was upheld by the Adjudication and Settlement Board (ASB) and eventually by the COA itself.

NPFI then elevated the matter to the Supreme Court, arguing that the COA gravely abused its discretion. They contended that the anniversary bonus was authorized by A.O. No. 263 and DBM National Budget Circular No. 452, and the extra cash gift was supported by DBM Budget Circular No. 2002-04. They also argued that the COA should have considered the pending motion for reconsideration before the OP. As for the honoraria, NPFI claimed that the COA failed to prove that the payments exceeded the 25% ceiling set by Republic Act (R.A.) No. 9184. Finally, NPFI invoked good faith, urging the Court to rule in its favor.

The Supreme Court partly granted the petition, distinguishing between the anniversary bonus and the extra cash gift and honoraria. The Court emphasized the COA’s constitutional mandate as the guardian of public funds, with broad powers over government revenue and expenditures. This includes the authority to prevent irregular, unnecessary, excessive, extravagant, or unconscionable expenditures.

However, the Court also acknowledged the principle of good faith. It found that NPFI had acted in good faith when granting the anniversary bonus, relying on the honest belief that its founding anniversary was in 1969. Citing precedents like Blaquera v. Alcala (356 Phil. 678 (1998)) and De Jesus v. Commission on Audit (451 Phil. 814 (2003)), the Court held that recipients of the anniversary bonus need not refund the amounts received.

However, this finding of good faith did not extend to the extra cash gift and honoraria. The Court noted that DBM Budget Circular 2002-4 explicitly authorized the extra cash gift only for the year 2002. Therefore, NPFI could not reasonably rely on it as a basis for granting the benefit in 2004 without further approval. This represents a clear violation of existing regulations.

Regarding the honoraria, the Court cited Sison, et al. v. Tablang, et al. (606 Phil. 740 (2009)), which held that Section 15 of R.A. No. 9184 alone is insufficient to justify the payment of honoraria to BAC members without enabling guidelines from the DBM. As the payments in this case were made before the issuance of DBM Circular No. 2004-5, which set forth the guidelines, the disallowance was proper. The Supreme Court emphasized that compliance with the DBM guidelines is a necessary condition for the right to the honoraria to accrue.

The Court then addressed the issue of liability for the refund of the disallowed amounts. Citing Section 103 of Presidential Decree No. 1445 and Section 19 of the Manual of Certificate of Settlement and Balances, COA Circular No. 94-001, the Court reiterated that public officials directly responsible for unlawful expenditures are personally liable. While recipients who received the benefits in good faith are not required to refund, officers who approved the disallowed allowances or benefits in bad faith or with gross negligence must do so. This liability exists regardless of whether they personally received the disallowed benefit.

The Court clarified that NPFI’s Board of Trustees and officers, despite the presumption of regularity in the performance of their duties, could not claim good faith in this instance. They were aware of the limitations of DBM Budget Circular 2002-4 and the need for DBM guidelines under R.A. No. 9184. Therefore, the Court held that NPFI’s Board of Trustees and officers who participated in the approval and authorized the release of the disallowed extra cash gift and honorarium were solidarily liable for their refund. This means that they are jointly and individually responsible for the entire amount.

The decision underscores the importance of due diligence and adherence to legal and regulatory requirements in the disbursement of public funds. Public officials are expected to be knowledgeable about the laws and regulations governing their actions and cannot claim good faith when they knowingly violate those provisions. This ruling serves as a reminder that public office is a public trust, and those who wield it are accountable for their actions.

FAQs

What was the key issue in this case?	The key issue was whether the COA correctly disallowed the payment of anniversary bonuses, extra cash gifts, and honoraria by NPFI, and who should be liable for refunding these amounts. The court distinguished between benefits received in good faith and those disbursed in violation of clear legal guidelines.
Why was the anniversary bonus initially disallowed?	The anniversary bonus was initially disallowed because COA determined that NPFI calculated its anniversary from the wrong date. COA said NPFI should have used the date it was incorporated as a public corporation, not when it was initially a private entity.
Why did the Supreme Court allow the recipients to keep the anniversary bonus?	The Supreme Court allowed the recipients to keep the anniversary bonus because they received it in good faith, believing the initial anniversary calculation was correct. The Court applied the principle that benefits received in good faith need not be refunded.
Why was the extra cash gift disallowed?	The extra cash gift was disallowed because NPFI based its grant on a DBM circular that only authorized the gift for a specific year (2002). Extending the benefit without further approval was deemed a violation of existing regulations.
What was the issue with the honoraria payments?	The honoraria payments were disallowed because they were made before the DBM issued the necessary guidelines for such payments. The Supreme Court emphasized that the guidelines were a prerequisite for the legality of the honoraria.
Who is liable for refunding the disallowed extra cash gift and honoraria?	NPFI’s Board of Trustees and officers who participated in the approval and authorization of the extra cash gift and honoraria are solidarily liable for the refund. The Court found they could not claim good faith due to their awareness of the relevant legal limitations.
What does “solidarily liable” mean?	“Solidarily liable” means that each of the responsible individuals is liable for the entire amount of the disallowed payments. The government can recover the full amount from any one of them, or from all of them collectively.
What is the significance of “good faith” in this case?	“Good faith” is crucial because it determines whether recipients of disallowed benefits must return the money. If the benefits were received in good faith, recipients are typically not required to refund them, but those who authorized the payment without legal basis can still be liable.
What is the role of the Commission on Audit (COA)?	The COA is the government’s audit body responsible for ensuring accountability and transparency in the use of public funds. It has the power to disallow irregular, unnecessary, or excessive expenditures.
What is Administrative Order (A.O.) No. 263 and DBM National Budget Circular No. 452?	Administrative Order No. 263 authorizes government entities to grant anniversary bonuses. DBM National Budget Circular No. 452 clarifies the implementation, specifying eligibility and funding requirements for anniversary bonuses.

In conclusion, this case illustrates the delicate balance between granting employee benefits and adhering to strict legal and regulatory requirements. The Supreme Court’s decision underscores that public officials must exercise due diligence and ensure a solid legal basis for all expenditures. Good faith can protect recipients, but it does not absolve approving officers from liability when they act with gross negligence or in violation of explicit legal provisions.

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: Nayong Pilipino Foundation, Inc. v. COA, G.R. No. 213200, September 19, 2017

September 19, 2017

Negligence in Handling Public Funds: An Accountable Officer’s Duty of Care

In Rosemarie B. Bintudan v. The Commission on Audit, the Supreme Court held that an accountable officer is liable for the loss of public funds if their negligence contributed to the loss, even if the direct cause was theft. The Court emphasized that posting the combination to a safety vault constitutes negligence. This ruling underscores the high standard of care expected from those entrusted with public funds, reinforcing the principle that negligence in safekeeping can lead to personal liability, regardless of whether they directly participated in the theft.

When a Posted Combination Leads to Public Funds Loss: Who Pays?

Rosemarie Bintudan, a Disbursing Officer II at the Department of Interior and Local Government-Cordillera Administrative Region (DILG-CAR), faced a challenging situation. In March 2005, the DILG-CAR Provincial Office in Lagawe, Ifugao, was robbed. The culprits carted away P114,907.30 from the office vault. The Commission on Audit (COA) found Bintudan accountable due to negligence. The core issue was whether Bintudan’s actions, particularly tolerating the posting of the vault’s combination, contributed to the loss, thereby warranting the denial of her request for relief from accountability.

The COA based its decision on an investigation report. It revealed that the vault was easily opened because the combination was posted on the door. Further, an early withdrawal of salaries and failure to inform security exacerbated the risk. Bintudan argued that she wasn’t the one who posted the combination and that early withdrawals were standard practice. The COA Legal Services Sector (LSS) and later the Commission Proper denied her request. The COA held that her actions constituted contributory negligence.

The Supreme Court affirmed the COA’s decision, emphasizing that Bintudan’s recourse should have been a petition for certiorari under Rule 64, not a petition for review on certiorari under Rule 45. More significantly, the Court addressed the substantive issue of negligence. The Court highlighted the constitutional mandate of the COA as “the guardian of public funds.” It stressed that the COA’s decisions should only be disturbed if there is a clear showing of grave abuse of discretion, acting without or in excess of jurisdiction.

The Supreme Court defined negligence as the failure to exercise the care that a reasonable person would under similar circumstances. This definition is crucial, because it frames the standard against which Bintudan’s actions were assessed. The Court found that Bintudan’s actions fell short of this standard. She failed to safeguard public funds properly. Allowing the combination to remain posted on the vault door, withdrawing salaries early, and not informing security personnel of the large amount of cash were all acts of negligence.

Presidential Decree No. 1445, also known as The Government Auditing Code of the Philippines, outlines the responsibilities of accountable officers. Several sections of this decree are particularly relevant. Section 73 addresses losses due to theft or force majeure, requiring immediate notification to the COA. Section 101 emphasizes the accountability of officers for government funds and property. Most critically, Section 105 details the measure of liability, stating:

Section 105. Measure of liability of accountable officers.

(1) Every officer accountable for government property shall be liable for its money value in case or improper or unauthorized use or misapplication thereof, by himself or any person for whose acts he may be responsible. We shall likewise be liable for all losses, damages, or deterioration occasioned by negligence in the keeping or use of the property, whether or not it be at the time in his actual custody.

(2) Every officer accountable for government funds shall be liable for all losses resulting from the unlawful deposit, use, or application thereof and for all losses attributable to negligence in the keeping of the funds.

The Court emphasized that the loss of funds was directly linked to Bintudan’s negligence. The robbers could easily access the funds due to the posted combination, effectively rendering the vault useless. Bintudan’s failure to remove the combination was a critical oversight. It eliminated the need for the robbers to use force, thereby facilitating the theft. The Court rejected the argument that the robbery might have occurred regardless, stating that Bintudan’s negligence directly enabled the loss.

Even if Bintudan hadn’t personally posted the combination, her failure to remove it was a significant breach of her duty. The Court highlighted the principle that an accountable officer is responsible for the safekeeping of funds. They can only be relieved if the loss wasn’t due to their negligence. The Court found that Bintudan’s failure to exercise simple prudence by removing the combination constituted negligence.

The practical implications of this ruling are far-reaching. It establishes a clear precedent for holding accountable officers liable for negligence in handling public funds. It emphasizes the need for strict adherence to security protocols and reinforces the importance of due diligence in safekeeping government assets. This case serves as a stark reminder that even indirect contributions to a loss can result in personal liability for those entrusted with public funds. The standard of care expected is high, and any deviation can have severe consequences.

FAQs

What was the key issue in this case?	The key issue was whether Rosemarie Bintudan was negligent in her duty as a disbursing officer, leading to the loss of public funds, and if she should be relieved from accountability.
What was the finding of the Commission on Audit (COA)?	The COA found Bintudan negligent for tolerating the posting of the safety vault combination, early withdrawal of funds, and failure to inform security, thus denying her request for relief from accountability.
What did the Supreme Court rule?	The Supreme Court affirmed the COA’s decision, emphasizing that Bintudan’s negligence directly contributed to the loss of funds, making her liable.
What is the standard of care expected from accountable officers?	Accountable officers are expected to exercise the care that a reasonable person would under similar circumstances to safeguard public funds and property.
What is the legal basis for holding accountable officers liable?	Presidential Decree No. 1445, particularly Section 105, outlines the liability of accountable officers for losses resulting from negligence in the keeping of government funds.
What constitutes negligence in handling public funds?	Negligence includes failing to secure funds properly, such as posting the combination to a safety vault, early withdrawal of funds without justification, and not informing security personnel about significant amounts of cash.
Can an accountable officer be relieved from liability in cases of theft?	Yes, if the officer can prove that the loss was not due to their negligence and that they took reasonable precautions to prevent the theft.
What is the proper remedy for appealing a COA decision to the Supreme Court?	The proper remedy is a petition for certiorari under Rule 64 of the Rules of Court, not a petition for review on certiorari under Rule 45.

This case underscores the critical importance of diligence and prudence in handling public funds. Accountable officers must take all reasonable steps to secure funds under their custody. They must ensure that security protocols are strictly followed. This ruling serves as a strong deterrent against negligence. It highlights the potential for personal liability when entrusted with public 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: Rosemarie B. Bintudan v. COA, G.R. No. 211937, March 21, 2017

March 21, 2017

Accountability in Public Service: Internal Auditors’ Duty to Prevent Misuse of Funds

The Supreme Court has ruled that internal auditors bear a significant responsibility in preventing the misuse of public funds. In this case, the Court emphasized that merely relying on subordinates’ post-audit reports, without conducting thorough personal verification, does not fulfill the required diligence expected of an internal auditor. This decision underscores the importance of proactive and independent oversight in safeguarding government assets and ensuring accountability in public service.

AFP-RSBS Land Deal Gone Wrong: Can an Internal Auditor Pass the Blame?

This case revolves around a controversial land purchase made by the Armed Forces of the Philippines Retirement and Separation Benefits System (AFP-RSBS) in Calamba, Laguna. The Commission on Audit (COA) found that the AFP-RSBS paid an inflated price for the land, resulting in a significant loss of public funds. Alma G. Paraiso-Aban, the Acting Head of the Office of Internal Auditor of the AFP-RSBS, was implicated in the disallowance due to her role in verifying the correctness of the payment. The central legal question is whether Paraiso-Aban exercised sufficient diligence in her duties to avoid liability for the disallowed amount.

The COA’s audit revealed a discrepancy between the deed of sale registered with the Register of Deeds (RD) and the deed of sale found in the AFP-RSBS records. The registered deed indicated a total price of P91,024,800.00, while the AFP-RSBS records showed an actual payment of P341,343,000.00, a difference of P250,318,200.00. This discrepancy led to the issuance of a Notice of Disallowance (ND) holding several individuals liable, including Paraiso-Aban. She argued that she had no prior knowledge of the discrepancy and that she relied on the completeness of the supporting documents and the post-audit conducted by her staff.

The Supreme Court, however, sided with the COA, emphasizing the constitutional mandate and broad authority of the COA as stated in Article IX-D, Section 2(1) of the 1987 Constitution, which states that the COA has:

“the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters.”

The Court underscored the importance of internal control within government agencies, referencing Presidential Decree (P.D.) No. 1445, Section 123, which defines internal control as:

“the plan of organization and all the coordinate methods and measures adopted within an organization or agency to safeguard its assets, check the accuracy and reliability of its accounting data, and encourage adherence to prescribed managerial policies.”</blockquote

The Court found that Paraiso-Aban’s actions fell short of the required standard of care. Her verification process relied solely on comparing the transaction against approved planned purchases and budgets, without seeking independent confirmation of the land’s value or scrutinizing the details of the sale. The Supreme Court emphasized that administrative agencies possess specialized knowledge in their respective domains, and their factual findings are generally accorded great respect by the courts. The Court noted that reliance solely on post-audit reports from subordinates, who are presumed to be less experienced and responsible, does not satisfy the diligence required of a head of internal audit.

The Court highlighted the crucial role of internal auditors in safeguarding government assets. Despite Paraiso-Aban’s claims of lacking prior knowledge, the Court emphasized that as head of internal audit, she should have been informed of significant transactions beforehand. Given the substantial amount involved, it was reasonable to expect her to verify the correctness of the amounts against documents submitted to the Bureau of Internal Revenue (BIR) and the RD. Had she done so, she would have likely discovered the discrepancies in the deeds of sale.

In its decision, the Court referred to Section 16 of the 2009 Rules and Regulations on Settlement of Accounts, as prescribed in COA Circular No. 2009-006, regarding liability for audit disallowances:

Section 16.1 The Liability of public officers and other persons for audit disallowances/charges shall be determined on the basis of (a) the nature of the disallowance/charge; (b) the duties and responsibilities or obligations of officers/employees concerned; (c) the extent of their participation in the disallowed/charged transaction; and (d) the amount of damage or loss to the government…

The court’s decision reinforces the principle that public officials, particularly those in positions of financial oversight, must exercise a high degree of diligence in their duties. Certifying the correctness of transactions based solely on internal documents, without conducting independent verification, is insufficient to protect public funds. In effect, the court stresses that the responsibility extends beyond mere compliance with internal procedures. It necessitates a proactive approach to detecting and preventing irregularities.

This ruling serves as a reminder that the COA’s mandate is to protect government resources, and the courts will generally uphold its decisions unless there is a clear showing of grave abuse of discretion. Moreover, it emphasizes the importance of a robust system of internal control within government agencies. This requires not only the establishment of appropriate procedures but also the active and diligent implementation of those procedures by responsible officials.

FAQs

What was the key issue in this case? The key issue was whether the petitioner, as the Acting Head of the Office of Internal Auditor, exercised sufficient diligence in verifying the correctness of a land purchase transaction, thereby avoiding liability for the disallowed amount.

What was the discrepancy discovered by the COA? The COA found that the AFP-RSBS paid P341,343,000.00 for the land, while the deed of sale registered with the Register of Deeds indicated a price of only P91,024,800.00, resulting in a difference of P250,318,200.00.

What was the petitioner’s defense? The petitioner argued that she had no prior knowledge of the discrepancy, relied on the completeness of the supporting documents, and conducted a post-audit through her staff.

What did the Supreme Court rule? The Supreme Court ruled against the petitioner, finding that she failed to exercise the required diligence in her duties as head of internal audit, and therefore, was liable for the disallowed amount.

What is the role of internal control in government agencies? Internal control is a system of policies and procedures designed to safeguard assets, ensure the accuracy of accounting data, and promote adherence to managerial policies within an organization.

What is the significance of COA Circular No. 2009-006? COA Circular No. 2009-006 provides the rules and regulations on the settlement of accounts and outlines the basis for determining the liability of public officers and other persons for audit disallowances.

What does the Court say about public officials’ responsibility? The Court emphasized that public officials in positions of financial oversight must exercise a high degree of diligence in their duties to protect public funds.

What did the Court mean by performing “appropriate additional internal audit procedures”? The court held that comparing the purchase against approved budgets without verifying the “true amounts involved” made her “lend approval to the anomalous purchase”. Additional procedures would have been to check the actual prices of the land with the Bureau of Internal Revenue (BIR) and the Registry of Deeds (RD).

What is the implication of this case for other internal auditors? This case serves as a reminder to internal auditors that they cannot simply rely on the work of their subordinates. They are expected to conduct independent verification and exercise a high degree of professional skepticism.

In conclusion, the Supreme Court’s decision in Paraiso-Aban v. COA underscores the critical role of internal auditors in safeguarding public funds and ensuring accountability in government transactions. This ruling serves as a potent reminder for internal auditors to exercise diligence, conduct independent verification, and proactively detect and prevent irregularities in financial transactions. This vigilance is crucial for maintaining public trust and preventing the misuse 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: Alma G. Paraiso-Aban v. Commission on Audit, G.R. No. 217948, January 12, 2016

January 12, 2016

Is Your Organization Subject to Government Audit? Understanding COA Jurisdiction in the Philippines
Navigating Government Audit: Key Takeaways on COA Jurisdiction Over Publicly-Purposed Organizations

Does your organization operate for public benefit? Be aware: even without direct government funding, you might still fall under the Commission on Audit’s (COA) scrutiny. This landmark case clarifies that organizations with public purposes, created by law, and attached to government agencies are considered public corporations subject to COA audit, regardless of private funding sources or reduced government control in governance.

Boy Scouts of the Philippines vs. Commission on Audit, G.R. No. 177131, June 07, 2011

INTRODUCTION

Imagine your non-profit organization dedicated to youth development suddenly facing a comprehensive audit by the government. This isn’t just a hypothetical scenario; it’s the reality faced by the Boy Scouts of the Philippines (BSP). In a case that reached the Supreme Court, the BSP challenged the Commission on Audit’s (COA) jurisdiction, arguing that despite its historical ties to the government, recent changes had transformed it into a private entity. The central question: Does COA’s mandate extend to organizations like the BSP, which serve a public purpose but operate with significant private characteristics?

LEGAL CONTEXT: UNPACKING COA’S AUDIT POWER AND PUBLIC CORPORATIONS

The bedrock of COA’s authority lies in the Philippine Constitution, specifically Article IX-D, Section 2(1). This provision empowers COA to “examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters…” Understanding the scope of “government instrumentalities” and “government-owned or controlled corporations” is crucial to grasping COA’s reach.

The Administrative Code of 1987 defines a “government instrumentality” as: “any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations.” This definition is broad, encompassing entities with diverse characteristics but united by their connection to the state and public function.

Philippine jurisprudence further distinguishes between public and private corporations. Article 44 of the Civil Code categorizes juridical persons, with paragraph 2 including “Other corporations, institutions and entities for public interest or purpose created by law…” These “public corporations,” governed by the laws creating them (Article 45), stand apart from private corporations formed for private interests under general laws like the Corporation Code. The Supreme Court in previous cases, such as Philippine Society for the Prevention of Cruelty to Animals v. Commission on Audit, emphasized that the defining factor isn’t just public purpose but the “totality of the relation of the corporation to the State.”

CASE BREAKDOWN: THE SCOUTS VERSUS THE AUDITORS

The controversy began when COA issued Resolution No. 99-011, asserting its authority to conduct annual financial audits of the BSP. COA based its claim on the BSP’s charter (Commonwealth Act No. 111, as amended), its classification as a “public corporation,” and a previous Supreme Court ruling (Boy Scouts of the Philippines v. National Labor Relations Commission) which deemed BSP a “government-controlled corporation.”

The BSP vehemently contested COA’s jurisdiction. Key arguments raised by the BSP included:
1. Reduced Government Control: Republic Act No. 7278 significantly amended the BSP charter, drastically reducing government representation in its National Executive Board. BSP argued this removed the “government-controlled” aspect, rendering the previous Supreme Court ruling obsolete.
2. Private Funds: BSP asserted its operations were primarily funded by membership dues and property rentals, not government appropriations. They highlighted that government funds were not invested in BSP assets.
3. Not a Government Instrumentality: BSP argued it did not administer “special funds” nor was it a typical government “agency” or “instrumentality” as defined by the Administrative Code.
COA countered, emphasizing:
1. Public Corporation Status: BSP was explicitly created as a “public corporation” by Commonwealth Act No. 111, tasked with promoting public virtues and patriotism among youth – inherently governmental functions.
2. Constitutional Mandate: COA cited its constitutional duty to audit entities holding property or funds pertaining to the government or its instrumentalities.
3. RA 7278 Did Not Alter Public Character: COA maintained that despite amendments, BSP remained a public corporation and government instrumentality due to its public purpose and charter.
The Supreme Court sided with COA, dismissing the BSP’s petition. The Court’s reasoning hinged on several key points:
1. Statutory Designation as Public Corporation: The Court stressed that Commonwealth Act No. 111 explicitly created the BSP as a “public corporation.” This designation carries significant legal weight.
2. Public Purpose and Constitutional Mandate: The BSP’s purpose – to train youth in scoutcraft and instill patriotism, civic consciousness, and moral values – directly aligns with the State policy declared in Article II, Section 13 of the Constitution regarding the vital role of youth in nation-building. The Court stated, “Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a constitutional mandate, comes within the class of ‘public corporations’…”
3. Attachment to DECS (now DepEd): The Administrative Code classifies BSP as an attached agency of the Department of Education, Culture and Sports. The Court noted, “As an attached agency, the BSP enjoys operational autonomy, as long as policy and program coordination is achieved by having at least one representative of government in its governing board, which in the case of the BSP is the DECS Secretary.”
Crucially, the Court clarified that the “economic viability” test for GOCCs under Section 16, Article XII of the Constitution does not apply to public corporations like BSP that perform governmental functions. Quoting the deliberations of the Constitutional Commission, the Court highlighted the distinction between government corporations involved in “governmental functions” and those in “business functions.” The economic viability test is pertinent to the latter, not the former.

The Court concluded, “Since the BSP, under its amended charter, continues to be a public corporation or a government instrumentality, we come to the inevitable conclusion that it is subject to the exercise by the COA of its audit jurisdiction…”

PRACTICAL IMPLICATIONS: WHAT THIS MEANS FOR ORGANIZATIONS AND PUBLIC ACCOUNTABILITY

This decision reinforces COA’s broad audit mandate and provides critical guidance for organizations operating in the Philippines. It clarifies that the label “public corporation” given by law, coupled with a demonstrable public purpose and attachment to a government department, are strong indicators of COA auditability, even if government control is diluted or funding is primarily private.

For non-profits, NGOs, and other chartered institutions, this case serves as a cautionary tale. Simply operating on private funds or having reduced government representation in governance does not automatically exempt an organization from COA’s oversight. The crucial factors are the organization’s legal creation, stated public purpose, and structural relationship with government agencies.

Organizations in similar positions to BSP should proactively:
- Review their Charters: Understand their legal basis and whether they are designated as “public corporations” or “government instrumentalities” by law.
- Assess Public Purpose: Evaluate if their functions are aligned with government policies or constitutional mandates, particularly in areas like education, social welfare, or national development.
- Examine Government Ties: Analyze their administrative relationships with government departments, including board representation and reporting requirements.
- Ensure Financial Transparency: Maintain meticulous financial records and consider voluntary external audits to ensure accountability and prepare for potential COA audits.
Key Lessons:
- Public Purpose Trumps Private Funding: Organizations serving a clear public purpose, even with private funding, can be considered within COA’s audit jurisdiction.
- Charter Matters: Legal designation as a “public corporation” in a charter carries significant weight in determining COA auditability.
- Attachment Indicates Oversight: Being an attached agency to a government department strengthens the likelihood of COA jurisdiction, even with operational autonomy.
- Proactive Compliance is Key: Organizations should proactively assess their status and ensure financial transparency to navigate potential COA audits effectively.
FREQUENTLY ASKED QUESTIONS (FAQs)

Q: Does this mean all non-profit organizations in the Philippines are subject to COA audit?

A: No. This ruling primarily concerns organizations created by special law (chartered) with a clear public purpose and government linkages. Purely private non-profits registered under the Corporation Code and without these characteristics are generally not under COA’s direct audit jurisdiction unless they receive government subsidies or equity.

Q: What if our organization’s charter is old and predates the current Constitution?

A: The age of the charter doesn’t automatically exempt an organization. The Supreme Court will look at the current legal framework and the organization’s present characteristics to determine COA jurisdiction.

Q: We receive donations from the government for specific projects. Does this trigger COA audit for our entire organization?

A: Potentially, yes. Receiving government funds, even for specific projects, can strengthen COA’s claim to audit at least the funds related to those projects, and possibly the organization as a whole, depending on the terms of the grant and the organization’s overall structure.

Q: Our organization is operationally autonomous. Does that protect us from COA audit?

A: Operational autonomy, as highlighted in the BSP case, does not necessarily negate COA jurisdiction if other factors like public purpose, charter, and government attachment are present. COA’s mandate focuses on accountability for public-interest entities, regardless of day-to-day operational control.

Q: What is the difference between pre-audit and post-audit by COA?

A: Pre-audit involves COA reviewing transactions *before* they are finalized, while post-audit occurs *after* transactions are completed. The BSP case primarily concerns post-audit jurisdiction. Pre-audit is generally more intrusive and reserved for specific circumstances, while post-audit is a broader oversight function.

Q: How can we determine definitively if our organization is subject to COA audit?

A: The best course of action is to seek legal advice. A legal expert can analyze your organization’s charter, purpose, operations, and relationship with the government to provide a definitive opinion on COA jurisdiction.

ASG Law specializes in Government Audit and Corporate Law in the Philippines. Contact us or email hello@asglawpartners.com to schedule a consultation.
June 7, 2011

What was the key issue in this case?	The key issue was whether the petitioner, as the Acting Head of the Office of Internal Auditor, exercised sufficient diligence in verifying the correctness of a land purchase transaction, thereby avoiding liability for the disallowed amount.
What was the discrepancy discovered by the COA?	The COA found that the AFP-RSBS paid P341,343,000.00 for the land, while the deed of sale registered with the Register of Deeds indicated a price of only P91,024,800.00, resulting in a difference of P250,318,200.00.
What was the petitioner’s defense?	The petitioner argued that she had no prior knowledge of the discrepancy, relied on the completeness of the supporting documents, and conducted a post-audit through her staff.
What did the Supreme Court rule?	The Supreme Court ruled against the petitioner, finding that she failed to exercise the required diligence in her duties as head of internal audit, and therefore, was liable for the disallowed amount.
What is the role of internal control in government agencies?	Internal control is a system of policies and procedures designed to safeguard assets, ensure the accuracy of accounting data, and promote adherence to managerial policies within an organization.
What is the significance of COA Circular No. 2009-006?	COA Circular No. 2009-006 provides the rules and regulations on the settlement of accounts and outlines the basis for determining the liability of public officers and other persons for audit disallowances.
What does the Court say about public officials’ responsibility?	The Court emphasized that public officials in positions of financial oversight must exercise a high degree of diligence in their duties to protect public funds.
What did the Court mean by performing “appropriate additional internal audit procedures”?	The court held that comparing the purchase against approved budgets without verifying the “true amounts involved” made her “lend approval to the anomalous purchase”. Additional procedures would have been to check the actual prices of the land with the Bureau of Internal Revenue (BIR) and the Registry of Deeds (RD).
What is the implication of this case for other internal auditors?	This case serves as a reminder to internal auditors that they cannot simply rely on the work of their subordinates. They are expected to conduct independent verification and exercise a high degree of professional skepticism.

Category: Government Audit

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Boy Scouts of the Philippines vs. Commission on Audit, G.R. No. 177131, June 07, 2011