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, emphasizing that while the PCSO Board of Directors has the power to fix salaries, this power is not absolute and must comply with pertinent laws and regulations. The Court underscored that unauthorized allowances and incentives, even if continuously granted, do not create vested rights and that both approving officers and recipients are liable for the return of illegally disbursed public funds. This ruling ensures fiscal responsibility and adherence to legal standards in government-owned and controlled corporations.

PCSO’s Generosity Under Scrutiny: Can Board Discretion Override National Compensation Laws?

The Philippine Charity Sweepstakes Office (PCSO) found itself in the legal spotlight when the Commission on Audit (COA) disallowed several benefits it had been providing its officials and employees. These benefits, amounting to Php2,744,654.73, included Productivity Incentive Bonuses, Cost of Living Allowances (COLA), Anniversary Cash Gifts, Hazard Duty Pay, Christmas Bonuses, Grocery Allowances, and Staple Food Allowances for Calendar Years 2008 and 2009. The core legal question revolved around whether the PCSO Board of Directors had the authority to grant these benefits, especially in light of existing compensation laws and regulations governing government-owned and controlled corporations (GOCCs). The COA argued that many of these benefits either lacked legal basis or exceeded the amounts authorized by law. PCSO, on the other hand, contended that its Board had the power to fix salaries and benefits, and that the employees had come to rely on these benefits as part of their compensation.

The Supreme Court began its analysis by addressing the scope of the PCSO Board’s authority. It firmly rejected the notion that the Board’s power to fix salaries was unrestricted. Quoting PCSO v. COA, the Court reiterated that the PCSO Charter does not grant the Board “the unbridled authority to fix salaries and allowances of its officials and employees.” Instead, PCSO remains bound by pertinent laws and regulations concerning allowances, benefits, incentives, and other forms of compensation. This principle underscores that while GOCCs may have some autonomy in managing their affairs, they are still accountable to the broader legal framework governing public funds.

The Court then delved into the specific benefits that had been disallowed. With regard to the Cost of Living Allowance (COLA), Grocery Allowance, and Staple Food Allowance, the Court pointed to Section 12 of Republic Act No. 6758 (RA 6758), also known as the Compensation and Position Classification Act of 1989. This section provides that, as a general rule, allowances are deemed integrated into the standardized salary rate, except for certain enumerated exceptions such as representation and transportation allowances, clothing and laundry allowances, and hazard pay. Crucially, COLA, Grocery Allowance, and Staple Food Allowance are not among these exceptions. In addition, DBM BC No. 16, s. 1998 prohibits the grant of food, rice, gift checks, or any other form of incentives/allowances, except those authorized via Administrative Order by the Office of the President.

The PCSO attempted to justify these allowances by claiming that they had received presidential approval. They presented letters and memoranda from previous administrations that appeared to authorize certain benefits. However, the Court sided with COA’s observation, these documents “should not be interpreted as an unqualified and continuing right to grant myriads of financial benefits to PCSO officials and employees.” The marginal approvals related to past benefits and did not extend to subsequent years. Moreover, some of the benefits disallowed in the present case were not even covered by these prior approvals. The Court found that the PCSO had failed to demonstrate a clear legal basis for the continued grant of these allowances.

The Court next considered the Productivity Incentive Benefit, Anniversary Bonus, and Christmas Bonus. It found that the amounts granted by PCSO exceeded those authorized by the relevant laws, rules, and regulations. Administrative Order No. 161, s. 1994 authorized a Productivity Incentive Bonus not exceeding Php2,000.00, while the PCSO had granted Php10,000.00. Similarly, Resolution No. 1352, s. 2009 granted an Anniversary Bonus of Php25,000.00, exceeding the Php3,000.00 limit set by Administrative Order No. 263, s. 1996. Finally, Resolution No. 2166 granted a Christmas Bonus equivalent to three months of basic salary, in violation of RA 6686 as amended by RA 8441, which provides for a Christmas Bonus of only one month’s salary plus a Php5,000.00 cash gift. The Court also upheld the disallowance of Hazard Duty Pay, finding that the PCSO had failed to demonstrate compliance with the requirements set forth by the DBM. The across-the-board grant of hazard pay, without qualifications, lacked legal basis.

Addressing the PCSO’s argument that its officials and employees had acquired vested rights to these benefits due to their continuous grant over time, the Court firmly rejected this claim. Citing Metropolitan Waterworks and Sewerage System v. Commission on Audit, the Court stated that customs, practices, and traditions, regardless of their duration, cannot create vested rights if they lack a legal anchor. Furthermore, the Court found no evidence that the disallowance of these benefits diminished the existing benefits of PCSO employees, as there was no proof that they were incumbents receiving these benefits as of July 1, 1989, as required by RA 6758. It is important to note that mere allegations are not enough to establish a vested right; concrete evidence is required.

Finally, the Court addressed the PCSO’s contention that the disallowed benefits were sourced from the 15% built-in restriction for operating expenses and capital expenditures, as well as from PCSO’s savings. The Court agreed with the COA that this fact did not excuse the disbursements’ non-compliance with relevant laws and regulations. Quoting PCSO v. COA, the Court clarified that the 15% allocation is specifically for operating expenses and capital expenditures, and that any balances revert to the Charity Fund, not to be reallocated as benefits to employees. The Court emphasized that the funds were not meant to be distributed in whatever form PCSO deemed convenient and pointed to where these savings are supposed to go and how they should be utilized.

Having established the illegality of the disbursements, the Court turned to the question of liability. Citing Madera v. COA, the Court reiterated the rules for determining the liability of government officers and employees in cases of disallowed benefits. 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 disallowed amounts. As for recipients, whether approving or certifying officers or mere passive recipients, they are liable to return the disallowed amounts they received, unless they can show that the amounts were genuinely given in consideration of services rendered. The Court has also reserved the right to excuse the return of recipients based on undue prejudice, social justice considerations, and other bona fide exceptions.

The Court found that the approving and certifying officers in this case had been grossly negligent in failing to observe the clear and unequivocal provisions of laws and rules applicable to the disbursement of the disallowed benefits. Reference to The Officers and Employees of Iloilo Provincial Government v. COA, the Court held that failure to follow a clear and straightforward legal provision constitutes gross negligence. The Court emphasized that Section 12 of RA 6758 and DBM CCC-10 are clear about what benefits, allowances, and incentives are not included in the standardized salary rates. The laws governing the other benefits were also unequivocal as to the authorized amounts. Therefore, any interpretation permitting higher amounts could not be countenanced. Due to their gross negligence, the approving and certifying officers were held solidarily liable for the disallowed amounts.

The Court then addressed the liability of the payees. It emphasized that the receipt of disallowed benefits is viewed as a mistake, creating an obligation to return the amounts received. However, the Court acknowledged that there are exceptions to this rule. As articulated in Abellanosa v. COA, in order to fall under the exception for amounts genuinely given in consideration of services rendered, the personnel incentive or benefit must have a proper basis in law but be disallowed only due to irregularities that are merely procedural. Additionally, the benefit must have a clear, direct, and reasonable connection to the actual performance of the payee-recipient’s official work and functions.

The Court found that these exceptions did not apply in this case. The benefits lacked a proper legal basis, and there was no clear, direct, and reasonable connection between the benefits received and the work performed by the individual recipients. The Court also found no grounds for exonerating the passive recipients based on undue prejudice, social justice, humanitarian considerations, or other bona fide exceptions. Consequently, the payees were held liable to return the amounts they received.

The Court clarified that this ruling, emphasizing the need for presidential or DBM approval for new or additional monetary benefits, applies specifically to government agencies whose power to fix compensation and allowances is subject to certain limitations provided by law and budgetary issuances. It does not extend to agencies enjoying fiscal autonomy under the 1987 Constitution, such as the Judiciary, the Civil Service Commission, the Commission on Audit, the Commission on Elections, and the Office of the Ombudsman, as these bodies require fiscal flexibility to discharge their constitutional duties, as stated in Bengzon v. Drilon.

FAQs

What was the central issue in this case?	The central issue was whether the PCSO Board of Directors had the authority to grant certain benefits to its employees, given existing compensation laws and regulations.
Why were the benefits disallowed by the COA?	The COA disallowed the benefits because they either lacked legal basis or exceeded the amounts authorized by law.
Did the PCSO Board have unlimited power to fix salaries and benefits?	No, the Supreme Court clarified that the PCSO Board’s power to fix salaries and benefits is not absolute and must comply with pertinent laws and regulations.
What is the effect of Section 12 of RA 6758 on allowances?	Section 12 of RA 6758 generally integrates allowances into the standardized salary rate, except for certain enumerated exceptions.
Did prior presidential approvals justify the continued grant of the benefits?	No, the Court found that the prior presidential approvals related to past benefits and did not authorize the continued grant of the benefits in subsequent years.
Were the PCSO employees entitled to the benefits as a matter of vested right?	No, the Court rejected the argument that the PCSO employees had acquired vested rights to the benefits, as such rights cannot arise from practices lacking a legal anchor.
Who is liable to return the disallowed amounts?	The approving and certifying officers are solidarily liable, while the payees are individually liable for the amounts they received.
Are there any exceptions to the rule requiring payees to return disallowed amounts?	Yes, exceptions exist when the amounts were genuinely given in consideration of services rendered, or when undue prejudice, social justice considerations, or other bona fide circumstances are present.
Does this ruling apply to all government agencies?	No, the Court clarified that this ruling applies to government agencies whose power to fix compensation is subject to limitations, not to agencies with fiscal autonomy.

This case serves as a crucial reminder that government-owned and controlled corporations, while possessing some autonomy, must still adhere to the laws and regulations governing the disbursement of public funds. The Supreme Court’s decision underscores the importance of fiscal responsibility and accountability in the public sector. The Court will continue to be consistent in protecting the public funds.

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