The Importance of Adhering to Legal Guidelines in Granting Collective Negotiation Agreement Incentives

Bernadette Lourdes B. Abejo v. Commission on Audit, G.R. No. 254570, June 29, 2021

Imagine a government agency, diligently working to improve the lives of its employees through incentives, only to find itself entangled in a legal battle over the proper implementation of these benefits. This scenario is not uncommon, as evidenced by the case of the Inter-Country Adoption Board (ICAB) and its struggle with the Commission on Audit (COA) over the disallowance of Collective Negotiation Agreement (CNA) incentives. The central question in this case was whether the ICAB’s distribution of CNA incentives complied with the relevant Department of Budget and Management (DBM) circulars and, if not, who should bear the responsibility for the disallowed amounts.

The ICAB had been granting CNA incentives to its employees from 2008 to 2011, based on the guidelines set forth in DBM Budget Circular (BC) No. 2006-1. However, the COA disallowed a portion of these incentives for 2011, citing violations of the circulars, particularly the timing and amount of the payments. This case delves into the intricacies of legal compliance and the repercussions of non-adherence, shedding light on the responsibilities of approving officers and the rights of recipients.

Legal Context: Understanding CNA Incentives and DBM Guidelines

CNA incentives are benefits granted to government employees as part of a collective negotiation agreement between the agency and its employees’ association. These incentives are intended to reward employees for their contributions to the agency’s performance and efficiency. However, the granting of such incentives is governed by strict guidelines issued by the DBM.

DBM BC No. 2006-1 stipulates that CNA incentives should be a one-time benefit paid after the end of the year, contingent upon the completion of planned programs and activities. Section 5.7 of the circular reads: “The CNA Incentive for the year shall be paid as a one-time benefit after the end of the year, provided that the planned programs/activities/projects have been implemented and completed in accordance with the performance targets of the year.” This provision ensures that incentives are tied to performance and fiscal responsibility.

In 2011, DBM BC No. 2011-5 introduced a cap of P25,000.00 per qualified employee for CNA incentives. This new regulation aimed to standardize the amount of incentives across government agencies, preventing excessive payouts that could strain public funds.

These legal frameworks are crucial for maintaining the integrity of government spending and ensuring that incentives are awarded fairly and responsibly. For instance, if an agency prematurely disburses incentives before the end of the year, it risks violating these guidelines and facing disallowance from the COA.

Case Breakdown: The Journey of ICAB’s CNA Incentives

The ICAB’s journey began with the granting of CNA incentives to its employees in 2011, which were disbursed in two tranches: P20,000.00 on November 28, 2011, and additional payments, including SM Gift Passes valued at P23,800.00, on December 23, 2011. These payments were made before the end of the fiscal year, contravening the requirement of DBM BC No. 2006-1 for a one-time payment after the year’s end.

Upon post-audit, the COA issued a Notice of Disallowance (ND) No. 2012-002-101-(11) on February 28, 2012, disallowing the excess amount of P236,500.00. The COA argued that the ICAB had violated the DBM circulars by paying incentives twice and exceeding the P25,000.00 cap set by DBM BC No. 2011-5.

The ICAB, led by its Executive Director, Bernadette Lourdes B. Abejo, appealed the disallowance, arguing that the payments were made in good faith and in compliance with the guidelines known at the time. However, the COA upheld the disallowance, emphasizing the clear violations of the DBM circulars.

The case eventually reached the Supreme Court, which upheld the validity of the disallowance but modified the liability of the approving officer. The Court noted that while the ICAB’s actions were non-compliant, the approving officer, Abejo, could not be held solidarily liable for the entire disallowed amount without evidence of bad faith, malice, or gross negligence.

Key quotes from the Court’s decision include:

• “Petitioner’s erroneous interpretation of the DBM circular aside, the action of petitioner was indicative of good faith because she acted in an honest belief that the grant of the CNA Incentives had legal bases.”
• “If bad faith, malice, or gross negligence is not shown, then the presumption of regularity stands, negating petitioner’s solidary liability.”

The Court also clarified the liability of recipients, stating that they are not liable to return the excess amount received if the incentives were genuinely given in consideration of services rendered and had a proper basis in law.

Practical Implications: Navigating CNA Incentives in the Future

This ruling serves as a crucial reminder for government agencies to strictly adhere to the guidelines set by the DBM when granting CNA incentives. Agencies must ensure that payments are made only after the end of the fiscal year and within the prescribed limits to avoid disallowance and potential liability.

For businesses and individuals involved in government contracts or employment, understanding these regulations can help in planning and negotiating incentives. It is essential to document compliance with all relevant circulars and maintain clear records of performance and savings to justify incentive payments.

Key Lessons:

• Ensure that CNA incentives are paid as a one-time benefit after the end of the fiscal year.
• Adhere to the P25,000.00 cap per qualified employee as set by DBM BC No. 2011-5.
• Maintain thorough documentation of performance targets and savings to support incentive payments.
• Understand the liability rules under the Madera and Abellanosa cases to navigate disallowances effectively.

Frequently Asked Questions

What are Collective Negotiation Agreement (CNA) incentives?
CNA incentives are benefits granted to government employees based on a collective negotiation agreement between the agency and its employees’ association, intended to reward their contributions to the agency’s performance.

Why was the ICAB’s CNA incentive disallowed?
The ICAB’s CNA incentive was disallowed because it was paid twice before the end of the fiscal year and exceeded the P25,000.00 cap set by DBM BC No. 2011-5.

Can an approving officer be held liable for disallowed incentives?
An approving officer can be held liable for disallowed incentives only if they acted with bad faith, malice, or gross negligence. Otherwise, the presumption of regularity applies.

Are recipients of disallowed incentives required to return the excess amounts?
Recipients are not required to return excess amounts if the incentives were genuinely given in consideration of services rendered and had a proper basis in law.

What should agencies do to ensure compliance with DBM guidelines?
Agencies should ensure that CNA incentives are paid as a one-time benefit after the fiscal year, within the prescribed limits, and supported by documentation of performance and savings.

How can businesses and individuals benefit from understanding these regulations?
Understanding these regulations can help businesses and individuals involved in government contracts or employment to plan and negotiate incentives effectively, avoiding potential legal issues.

ASG Law specializes in government contracts and employment law. Contact us or email hello@asglawpartners.com to schedule a consultation.