The Supreme Court has definitively ruled that government-owned and controlled corporations (GOCCs) cannot grant incentive allowances to their employees without proper legal basis. This decision reinforces the principle that standardized salary rates, as determined by law, take precedence over internal resolutions that authorize additional compensation. Ultimately, the ruling ensures fiscal responsibility and equal treatment of government employees by preventing unauthorized disbursement of public funds.

National Housing Authority’s Incentive Pay: Is Board Discretion Unlimited?

This case revolves around the disallowance of incentive allowances paid to employees of the National Housing Authority (NHA). These allowances were authorized by NHA Board Resolution No. 464. The Commission on Audit (COA) questioned the legality of these payments, leading to a legal battle that reached the Supreme Court. The core issue is whether the NHA Board had the authority to grant these allowances, despite laws standardizing compensation across government agencies. The petitioners argued that the incentive allowances were justified under Presidential Decree No. 757, which created the NHA and granted it certain flexibilities in determining employee compensation.

However, the COA contended that subsequent laws, particularly Presidential Decree No. 1597 and Republic Act No. 6758, had effectively repealed the NHA’s special compensation powers. These laws aimed to rationalize the compensation system in the national government and prevent inconsistencies in pay rates. The legal framework at play includes a series of presidential decrees and republic acts designed to standardize and regulate compensation within the government sector. Presidential Decree No. 757, enacted in 1975, established the NHA and granted its General Manager the power to determine rates of allowances subject to Board approval, exempting its personnel from Wage and Position Classification Office rules. Conversely, Presidential Decree No. 985, enacted in 1976, sought to standardize compensation across the national government, but allowed additional financial incentives for government corporations. Furthermore, Presidential Decree No. 1597, enacted in 1978, repealed laws exempting agencies from the national compensation system.

The pivotal law in this case is Republic Act No. 6758, also known as the Compensation and Position Classification Act of 1989. Section 12 of R.A. 6758 explicitly states that all allowances, except for a specific list of allowances (RATA, clothing allowance, etc.) and those determined by the DBM, are deemed included in the standardized salary rates.

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.

This provision effectively eliminated the authority of GOCCs to grant additional allowances without explicit legal basis.

The Supreme Court sided with the COA, emphasizing that the NHA’s Resolution No. 464 lacked legal basis. The Court noted that P.D. 1597 had already repealed laws authorizing the grant of allowances inconsistent with the national compensation plan. R.A. 6758 further reinforced this policy by decreeing that allowances not specifically mentioned or determined by the DBM were included in standardized salary rates. The court rejected the petitioners’ argument that the incentive allowances were necessary for the NHA to fulfill its mandate, stating that the law must prevail even in pursuit of noteworthy objectives.

The Court also addressed the petitioners’ argument that R.A. 6758 did not apply to temporary allowances granted to a few employees. It clarified that the law makes no distinction between permanent and temporary allowances. Furthermore, the Court reiterated the principle that erroneous application of the law by public officers does not prevent the government from correcting those errors. This aligns with the established doctrine that public funds must be managed with utmost responsibility and in accordance with the law. The disallowance of these incentives by the COA underscores its role as a watchdog over government spending.

The case has significant implications for government employees and GOCCs. It clarifies that GOCCs cannot rely on their charters or internal resolutions to justify the grant of allowances not authorized by law. Employees receiving such allowances may be required to return the funds, as in this case. Public officials who approve such payments may also be held liable. Moreover, this ruling underscores the importance of transparency and accountability in the management of public funds.

In Baybay Water District v. Commission on Audit, the Supreme Court also stated:

public officers’ erroneous application and enforcement of the law do not estop the government from making a subsequent correction of those errors. Where there is an express provision of law prohibiting the grant of cetiain benefits, the law must be enforced even if it prejudices certain parties on account of an error committed by public officials in granting the benefit. Practice, without more -no matter how long continued -cannot give rise to any vested right if it is contrary to law.

This principle reinforces the COA’s authority to disallow illegal or unauthorized disbursements, even if previously approved.

The Court’s decision ensures the consistent application of compensation laws and prevents the erosion of the standardized salary system. By upholding the COA’s disallowance, the Supreme Court reinforced the principle of fiscal responsibility and adherence to the law in the disbursement of public funds. This is further bolstered by Section 16 of R.A. 6758 which states:

All laws, decrees, executive orders, corporate charters, and other issuances or parts thereof, that exempt agencies from the coverage of the System, or that authorize and fix position classification, salaries, pay rates or allowances of specified positions, or groups of officials and employees or of agencies, which are inconsistent with the System, including the proviso under Section 2, and Section 16 of Presidential Decree No. 985 are hereby repealed.

The ruling does not prevent GOCCs from providing legitimate benefits to their employees, but it emphasizes that such benefits must be authorized by law or approved by the DBM. GOCCs must review their compensation policies to ensure compliance with existing laws and regulations. Government employees should also be aware of their rights and entitlements under the law.

FAQs

What was the key issue in this case?	The key issue was whether the National Housing Authority (NHA) had the authority to grant incentive allowances to its employees, given existing laws standardizing government compensation. The Commission on Audit (COA) disallowed the payments, arguing they lacked legal basis.
What is Republic Act No. 6758?	Republic Act No. 6758, also known as the Compensation and Position Classification Act of 1989, is a law that aims to standardize the salaries of government employees. It consolidates most allowances into the standardized salary rates, with certain exceptions.
What did the Commission on Audit (COA) do in this case?	The COA disallowed the incentive allowances paid to the NHA employees, arguing that the NHA lacked the legal authority to grant them. This disallowance was based on the COA’s interpretation of Republic Act No. 6758 and related laws.
What was the NHA’s argument for granting the allowances?	The NHA argued that its Board Resolution No. 464, which authorized the incentive allowances, was valid. They said it was based on Presidential Decree No. 757, which created the NHA and granted it certain flexibilities in determining employee compensation.
Did the Supreme Court agree with the NHA?	No, the Supreme Court sided with the COA and ruled that the NHA lacked the legal authority to grant the incentive allowances. The Court found that subsequent laws had repealed the NHA’s special compensation powers.
What happens to the employees who received the disallowed allowances?	The employees who received the disallowed allowances may be required to return the funds to the government. Additionally, public officials who approved the payments may be held liable.
What are GOCCs?	GOCCs stand for government-owned or -controlled corporations. These are corporations that are owned or controlled by the government.
What is the role of the Department of Budget and Management (DBM) in determining allowances?	Under Republic Act No. 6758, the DBM has the authority to determine which additional compensation benefits, beyond those specifically listed in the law, may be allowed. This ensures consistency and prevents unauthorized allowances.

In conclusion, this case serves as a crucial reminder that government entities must adhere to established laws and regulations when disbursing public funds. The Supreme Court’s decision reinforces the importance of fiscal responsibility and accountability in government service, promoting fairness and transparency in employee compensation.

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: GENEROSO ABELLANOSA, ET AL. VS. COMMISSION ON AUDIT AND NATIONAL HOUSING AUTHORITY, G.R. No. 185806, July 24, 2012