The Supreme Court has affirmed that Collective Negotiation Agreement (CNA) incentives for government employees must be sourced solely from savings in an agency’s Maintenance and Other Operating Expenses (MOOE), not from special funds like the Comprehensive Agrarian Reform Program (CARP) Fund. This ruling underscores the principle that public funds allocated for specific purposes cannot be diverted for other uses, even if those uses benefit government employees. The decision clarifies the scope and limitations of CNA incentives, ensuring that these benefits are funded in accordance with established regulations and budgetary guidelines. It sets a clear precedent for government agencies, emphasizing fiscal responsibility and adherence to the proper allocation of public resources.

CARP Funds vs. Employee Incentives: When Savings are Not Created Equal

The Department of Agrarian Reform Provincial Office (DARPO) in Cavite granted CNA incentives to its employees in 2009 and 2010, sourcing the funds from the Comprehensive Agrarian Reform Program (CARP) Fund. The Commission on Audit (COA) disallowed these incentives, arguing that the CARP Fund, a special fund, could only be used for CARP-related projects. DARPO-Cavite argued that the CARP fund was under its control and it relied on a Department of Budget and Management (DBM) opinion allowing such use. The legal question before the Supreme Court was whether the CARP Fund could be a valid source for CNA incentives and whether the recipients could be held liable for refunding the disallowed amounts.

The Supreme Court held that the use of the CARP Fund for CNA incentives was illegal. The court based its decision on Public Sector Labor Management Council (PSLMC) Resolution No. 4, Series of 2002, Administrative Order (A.O.) No. 135, Series of 2005, and DBM Budget Circular No. 2006-1, which explicitly state that CNA incentives must be sourced solely from savings from released Maintenance and Other Operating Expenses (MOOE). The court emphasized the mandatory nature of these provisions, noting that the word “shall” indicates that the source of funds for CNA incentives is strictly limited to MOOE savings. The court invoked the plain meaning rule, stating that when the law is clear and unambiguous, it must be applied as written, without interpretation.

Building on this principle, the Court further emphasized that the CARP Fund is a special fund created for a specific purpose: to implement the agrarian reform program. Citing Executive Order (E.O.) No. 229, Series of 1987 and Republic Act (R.A.) No. 6657, the Court reiterated that special funds must be used exclusively for their designated purposes. The Court quoted Confederation of Coconut Farmers Organizations of the Philippines, Inc. v. Aquino III, stating:

The revenue collected for a special purpose shall be treated as a special fund to be used exclusively for the stated purpose. This serves as a deterrent for abuse in the disposition of special funds.

This principle ensures that funds intended for a specific public benefit are not diverted for other uses, no matter how seemingly beneficial.

The Court rejected DARPO-Cavite’s reliance on the opinion of the former DBM Secretary, stating that it could not override the clear provisions of PSLMC Resolution No. 4, A.O. No. 135, and DBM Budget Circular No. 2006-1. Furthermore, the Court dismissed the argument that the purpose of the CARP Fund could be broadened to include employee incentives. While acknowledging the importance of employees in implementing agrarian reform, the Court emphasized that incentives must be funded from the correct source to prevent arbitrary allocation of public funds.

The Court also addressed the issue of liability for the disallowed incentives. It ruled that all recipients of the CNA incentives were liable to return the amounts received, citing Article 22 of the Civil Code, which states that:

Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

The Court explained that the recipients were unjustly enriched because they received benefits without a valid legal basis, given that the CARP Fund was an improper source.

Moreover, the Court invoked Section 103 of Presidential Decree (P.D.) No. 1445, the Government Auditing Code of the Philippines, which holds officials and employees personally liable for unlawful expenditures of government funds. In addition, the Court characterized the recipients as trustees of an implied trust, as defined in Article 1456 of the Civil Code, because it would be inequitable for them to retain benefits obtained through a mistake of law. This legal reasoning ensures that those who receive government funds without a valid basis are held accountable for their return.

FAQs

What was the key issue in this case?	The key issue was whether the Department of Agrarian Reform Provincial Office (DARPO) could legally use funds from the Comprehensive Agrarian Reform Program (CARP) Fund to pay for Collective Negotiation Agreement (CNA) incentives for its employees. The Commission on Audit (COA) disallowed the use of the CARP Fund for this purpose, leading to a legal challenge.
What is a CNA incentive?	A CNA incentive is a benefit granted to government employees as a result of a Collective Negotiation Agreement between the government agency and its employees’ union. These incentives are intended to recognize the joint efforts of labor and management in achieving planned targets and improving efficiency.
Where should CNA incentives come from?	According to the Supreme Court’s decision, CNA incentives must be sourced solely from savings from released Maintenance and Other Operating Expenses (MOOE) allotments for the year under review. This is in line with PSLMC Resolution No. 4, A.O. No. 135, and DBM Budget Circular No. 2006-1.
Why couldn’t the CARP Fund be used?	The CARP Fund is a special fund created for a specific purpose: to implement the agrarian reform program. Special funds, by law, must be used exclusively for their designated purposes, and using them for CNA incentives would be a violation of this principle.
What happens if CNA incentives are paid from the wrong source?	If CNA incentives are paid from an unauthorized source, such as the CARP Fund, the Commission on Audit (COA) can disallow the expenditure. In this case, the recipients of the incentives are liable to return the amounts they received.
Are employees who received the incentives required to return them?	Yes, the Supreme Court ruled that all recipients of the disallowed CNA incentives are liable to return the amounts they received. This is based on the principle of unjust enrichment and Section 103 of the Government Auditing Code.
What is the significance of this ruling?	This ruling reinforces the principle that public funds must be used strictly for their intended purposes. It also highlights the importance of adhering to budgetary regulations and guidelines when granting employee benefits.
What is unjust enrichment?	Unjust enrichment occurs when a person benefits at the expense of another without just or legal ground. In this context, the employees were unjustly enriched because they received CNA incentives from a fund that was not authorized for that purpose.

This case clarifies the permissible sources of funds for CNA incentives, ensuring that government agencies adhere to proper budgetary practices and that public funds are used for their intended purposes. It sets a precedent that reinforces fiscal responsibility and accountability in government spending.

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: JAMES ARTHUR T. DUBONGCO vs. COMMISSION ON AUDIT, G.R. No. 237813, March 05, 2019