Understanding the Rules on Returning Disallowed Government Employee Benefits

Omercaliph M. Tiblani, Criselle S. Sune, Maria Genelin L. Licos, Quintin Dwight G. De Luna, Marie Christine G. Danao and Other National Economic Development Authority Central Office Non-Managerial and/or Rank and File Employees Listed in Annex “A” [of the Petition] vs. Commission on Audit (COA), G.R. No. 263155, November 05, 2024

Imagine receiving a bonus at work, only to be told years later that you have to return it. This is the reality faced by many government employees when the Commission on Audit (COA) disallows certain benefits. But when exactly can the COA demand a refund, and what recourse do employees have? This recent Supreme Court decision involving employees of the National Economic Development Authority (NEDA) sheds light on this complex issue.

In this case, NEDA employees received a Cost Economy Measure Award (CEMA) from 2010 to 2012. Years later, the COA disallowed the CEMA and demanded that the employees return the money. The Supreme Court ultimately ruled that while the COA’s disallowance was correct, the employees were excused from returning the benefits under certain exceptions.

The Legal Framework: Allowances, Incentives, and COA’s Authority

Philippine law strictly regulates the use of government funds, especially regarding employee benefits. Several key provisions govern this area:

• General Appropriations Act (GAA): The GAA for each fiscal year often includes restrictions on the use of government funds for allowances and benefits not specifically authorized by law.
• Presidential Decree (PD) No. 1597: This decree requires presidential approval for additional allowances, honoraria, and other fringe benefits for government employees, upon recommendation by the Department of Budget and Management (DBM).
• Civil Service Commission (CSC) Memorandum Circular No. 1, s. 2001: This circular establishes the Program on Awards and Incentives for Service Excellence (PRAISE) in the government, requiring agencies to establish their own employee suggestion and incentive awards systems. However, these systems must comply with existing laws and regulations on government spending.

These legal provisions exist to ensure responsible use of taxpayer money and to prevent unauthorized or excessive benefits for government employees.

The power of the COA to audit government spending and disallow illegal or irregular expenditures is rooted in the Constitution. This authority allows the COA to ensure accountability and transparency in the use of public funds.

Example: If a government agency creates a new allowance for its employees without specific authorization from the GAA or presidential approval, the COA can disallow the expenditure and demand a refund.

The NEDA Case: CEMA Disallowance and the Road to the Supreme Court

The NEDA employees received CEMA under the agency’s Awards and Incentives System (NAIS), established pursuant to CSC guidelines. However, the COA disallowed the CEMA for several reasons:

• Lack of legal basis: CEMA was not specifically authorized by law or the GAA.
• Lack of presidential approval: NEDA did not obtain presidential approval for the CEMA, as required by PD No. 1597.
• Insufficient standards: There were no clear and quantifiable standards for determining who was eligible for CEMA and how their contributions resulted in savings or extraordinary performance.

The case went through several stages:

1. Audit Observation Memorandum (AOM): The COA issued an AOM requiring the refund of the CEMA.
2. Notice of Disallowance (ND): The COA issued an ND against the CEMA payments.
3. Appeal to COA National Government Sector (NGS): The NEDA employees and officials appealed the ND, but the COA-NGS affirmed the disallowance, initially exempting employees.
4. Automatic Review by COA Commission Proper (CP): The COA-CP affirmed the ND, reiterating the lack of legal basis and sufficient standards for the CEMA. It excused the employees.
5. Motion for Reconsideration (MR): The NEDA officials filed an MR, which the COA-CP partly granted, excusing the officers, but reinstating the liability of the employees.
6. Petition to the Supreme Court: The NEDA employees then elevated the case to the Supreme Court.

The Supreme Court acknowledged the COA’s disallowance was correct, as the CEMA lacked a proper legal basis and presidential approval. However, the Court focused on whether the employees should be required to return the money they had received.

The Supreme Court cited Madera v. Commission on Audit, which provides the rules on the civil liability of recipients of disallowed amounts.

The Takeaway: While the COA’s decision to disallow the CEMA was upheld, the Supreme Court ultimately sided with the employees, stating:

“[T]he Court finds that there are exceptional circumstances in this case that warrant excusing petitioners from the liability to refund the amounts they respectively received.”

“[T]o insist on returning the CEMA would send a message to government employees that their productivity and efforts are not valued and would effectively be penalized years after the fact.”

Practical Implications: When Can Employees Be Excused from Refunds?

The Supreme Court emphasized that requiring refunds should be the exception rather than the rule. It laid out several factors to consider when determining whether to excuse the return of disallowed amounts:

• The nature and purpose of the disallowed allowances and benefits.
• The lapse of time between the receipt of the allowances and benefits and the issuance of the notice of disallowance.
• Whether the employees acted in good faith and relied on the actions of their superiors.
• Whether requiring a refund would cause undue prejudice or create an unjust situation.

In the NEDA case, the Court considered the following:

• More than 10 years had passed since the employees received the CEMA.
• The employees had likely already spent the money on their families’ needs.
• The employees were rank-and-file employees who relied on the actions of their superiors.
• NEDA achieved excellent results during the years in question, at least in part due to the performance of its personnel.

Key Lessons:

• Government employees should be aware that benefits received may be subject to disallowance by the COA.
• Even if a benefit is disallowed, employees may be excused from returning the money if certain conditions are met.
• The Supreme Court will consider the specific circumstances of each case when determining whether to require a refund.

Hypothetical Example: A government agency provides its employees with a rice subsidy, which is later disallowed by the COA. If the employees received the subsidy in good faith and a significant amount of time has passed, the Court may excuse them from returning the money, especially if they are low-income earners.

Frequently Asked Questions (FAQ)

Q: What is a Notice of Disallowance (ND)?

A: A Notice of Disallowance is a written notice issued by the COA informing a government agency or official that certain expenditures have been disallowed due to legal or procedural deficiencies.

Q: What should I do if I receive a Notice of Disallowance?

A: Consult with a lawyer immediately to understand your rights and options. You may be able to appeal the disallowance or argue that you should be excused from returning the money.

Q: What does “good faith” mean in the context of COA disallowances?

A: Good faith generally means that you acted honestly and reasonably, without knowledge of any wrongdoing or irregularity. If you relied on the actions of your superiors and had no reason to believe that the benefit was illegal, you may be considered to have acted in good faith.

Q: What is solutio indebiti?

A: Solutio indebiti is a legal principle that arises when someone receives something without a right to demand it, creating an obligation to return it. This principle is often cited in COA cases to justify requiring the return of disallowed amounts.

Q: How long does the COA have to issue a Notice of Disallowance?

A: The Supreme Court has considered the lapse of time between the receipt of the allowances and benefits and the issuance of the notice of disallowance or any similar notice indicating its possible illegality or irregularity in excusing recipients from making a refund.

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