In the Philippine legal system, the principle of standardized salaries for government employees aims to ensure equity and consistency in compensation. However, exceptions exist for specific allowances or additional compensation warranted by the unique nature of certain offices or the work performed. In a pivotal case, the Supreme Court addressed the legality of a Financial Performance Award granted by the Development Academy of the Philippines (DAP) to its employees, ultimately disallowing the award due to the absence of legal basis and the failure to demonstrate any unique circumstances justifying the additional compensation. Despite the disallowance, the Court absolved the approving officers and recipients from personal liability to refund the amounts, provided they acted in good faith, underscoring a critical balance between accountability and equitable treatment in public service.

Financial Awards: Legitimate Compensation or Unauthorized Disbursement?

The Development Academy of the Philippines (DAP) granted a Financial Performance Award to its employees in 2002. However, the Commission on Audit (COA) disallowed the award due to the lack of legal basis. The COA argued that the award did not fall under the exceptions to standardized salaries provided under Republic Act No. 6758, also known as the Compensation and Position Classification Act of 1989. This case examines whether the COA acted with grave abuse of discretion in disallowing the award and whether the DAP had the legal authority to grant the Financial Performance Award to its employees.

Building on this principle, the central question before the Supreme Court was whether the COA acted with grave abuse of discretion in sustaining the disallowance of the Financial Performance Award. This stemmed from the premise that no legal authority existed for the DAP’s payment of the award to its employees. The DAP contended that its Employee Suggestions and Incentive Award System, drafted in 1993 and approved by the Civil Service Commission, provided a legal basis for the award. The DAP also asserted that the CSC is the competent authority and the CSC’s acquiescence validated the award. However, the COA countered that the Financial Performance Award did not fall under the exceptions listed in Section 12 of Republic Act No. 6758, which allows specific allowances to be given on top of standardized salary rates.

To address this legal challenge, the Court examined the provisions of Republic Act No. 6758, emphasizing its purpose to standardize salary rates among government personnel and eliminate multiple allowances and incentive packages. This standardization aimed to create uniformity in compensation across different government entities. Section 12 of R.A. No. 6758 consolidates allowances into standardized salary rates with specific exceptions. These exceptions include representation and transportation allowances, clothing and laundry allowances, subsistence allowance of marine officers and crew, hazard pay, and allowances of foreign service personnel. The Court clarified that additional compensation is permitted only if it is determined by the Department of Budget and Management (DBM) and not otherwise specified in the Act.

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 [Department of Budget and Management], shall be deemed included in the standardized salary rates herein prescribed.

The Court emphasized that for allowances or incentive packages to be considered exceptional and permissible under Section 12, it must be shown that they are given to government employees due to the unique nature of their office or the work they perform. The DAP failed to demonstrate that its Financial Performance Award met this criterion. It neither alleged nor established that the nature of its office or the work of its employees was so unique that a deviation from Republic Act No. 6758’s standardization was necessary. The DAP’s justification of the award based on employees’ collective effort undermined its claim that the award was justified under the Employee Suggestions and Incentive Award System.

The Court contrasted the DAP’s claims with the very nature of the Employee Suggestions and Incentive Award System, which is designed to recognize exemplary personal effort. The Court cited Bureau of Fisheries and Aquatic Resources Employees Union v. Commission on Audit, which disallowed the indiscriminate grant of a Food Basket Allowance to all employees without distinction. This ruling underscored that incentive awards must be tied to specific contributions or accomplishments, not granted en masse. The Court underscored that contributions beyond the ordinary are the essence of the Employee Suggestions and Incentive Award System.

The decree speaks of suggestions, inventions, superior accomplishments, and other personal efforts contributed by an employee to the efficiency, economy, or other improvement of government operations, or other extraordinary acts or services performed by an employee in the public interest in connection with, or in relation to, his official employment. In the instant case, the Food Basket Allowance was granted to all BFAR employees, without distinction. It was not granted due to any extraordinary contribution or exceptional accomplishment by an employee.

Given these considerations, the Supreme Court sided with the COA, upholding the disallowance of the Financial Performance Award. However, in addressing the matter of liability for the unlawful expenditures, the Court considered the principle of good faith. While Section 103 of the Government Auditing Code of the Philippines generally holds officials and employees personally liable for unlawful expenditures, jurisprudence has established an exception for recipients of disallowed salaries, emoluments, benefits, and allowances who acted in good faith. The Court recognized that the DAP and its officers had reasonably relied on the Civil Service Commission’s approval of its Employee Suggestions and Incentive Award System. It was reasonable for them to conclude that the Financial Performance Award, as part of the approved system, could be enforced and disbursed.

The Court emphasized that good faith, defined as honesty of intention and freedom from knowledge of circumstances that should prompt inquiry, was evident in the DAP’s actions. Thus, the Court relieved the individuals named in the Notice of Disallowance from any personal liability to refund the disallowed amount. This decision underscored the importance of balancing accountability with fairness and equitable treatment in the context of public service.

FAQs

What was the key issue in this case?	The key issue was whether the Commission on Audit (COA) acted with grave abuse of discretion in disallowing the Financial Performance Award granted by the Development Academy of the Philippines (DAP) to its employees. This hinged on whether there was a legal basis for the award.
What is the Compensation and Position Classification Act of 1989?	The Compensation and Position Classification Act of 1989, also known as Republic Act No. 6758, aims to standardize salary rates among government personnel and eliminate multiple allowances and incentive packages. The law seeks to ensure equity and consistency in compensation across different government entities.
What allowances are considered exceptions to standardized salary rates?	Exceptions to standardized salary rates include representation and transportation allowances, clothing and laundry allowances, subsistence allowance of marine officers and crew on board government vessels and hospital personnel, hazard pay, and allowances of foreign service personnel stationed abroad. These are specified in Section 12 of Republic Act No. 6758.
What is the Employee Suggestions and Incentive Award System?	The Employee Suggestions and Incentive Award System is designed to recognize and reward government officials and employees for their suggestions, inventions, superior accomplishments, and other personal efforts that contribute to the efficiency, economy, or improvement of government operations. It is governed by Section 33 of the Civil Service Decree and Rule X of the Omnibus Rules Implementing Book V of the Administrative Code.
Why was the Financial Performance Award disallowed in this case?	The Financial Performance Award was disallowed because the DAP failed to demonstrate that it met the criteria for an exception to standardized salary rates. The award was not tied to any unique nature of the office or specific contributions by individual employees, and it was granted en masse.
What does good faith mean in the context of disallowed benefits?	In the context of disallowed benefits, good faith refers to honesty of intention and freedom from knowledge of circumstances that should prompt inquiry. It implies an honest intention to abstain from taking any unconscientious advantage and the absence of information or belief of facts that render a transaction unconscientious.
Are recipients of disallowed benefits always required to refund the amounts?	No, recipients of disallowed benefits are not always required to refund the amounts if they acted in good faith. The Supreme Court has established an exception for those who received the benefits under the honest belief that they were entitled to them and without knowledge of any legal basis for disallowance.
What is the liability of approving officers in cases of disallowed expenditures?	Approving officers may be required to refund disallowed amounts if they are found to have acted in bad faith or were grossly negligent amounting to bad faith. However, if they acted in good faith and with reasonable reliance on existing regulations or approvals, they may be relieved of personal liability.

The Supreme Court’s decision in this case provides valuable guidance on the application of standardized salary laws and the limits of additional compensation in government. It underscores the importance of adhering to legal frameworks while also considering equitable principles and good faith in public service. The ruling clarifies the circumstances under which financial awards and incentives may be granted and the extent to which public officers and employees may be held liable for disallowed expenditures.

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: DEVELOPMENT ACADEMY OF THE PHILIPPINES VS. COMMISSION ON AUDIT, G.R. No. 203072, October 18, 2016