The Supreme Court ruled that the Philippine Charity Sweepstakes Office (PCSO) Board’s authority to fix employee salaries and benefits is not absolute and must comply with civil service and compensation laws. Disallowed benefits, lacking proper legal basis, must be returned by approving officers found to be grossly negligent. This decision underscores the importance of adhering to established legal frameworks in granting employee benefits within government agencies, ensuring responsible use of public funds.

PCSO Benefits Under Scrutiny: Can Employee Perks Override Compensation Laws?

This case revolves around the Commission on Audit’s (COA) disallowance of certain benefits granted to the personnel of the Laguna Provincial District Office (LPDO) of the Philippine Charity Sweepstakes Office (PCSO). These benefits, including Christmas bonuses, weekly draw allowances, staple food allowances, hazard pay, cost of living allowances (COLA), and medicine allowances, amounted to P1,601,067.49. The COA argued that these benefits lacked legal basis and violated existing compensation laws, specifically Republic Act No. 6758, also known as the Salary Standardization Law (SSL).

The PCSO, however, contended that the PCSO Board has the power to grant such benefits under Republic Act No. 1169, the PCSO Charter. They also argued that a letter from the Office of the President, through then Executive Secretary Paquito N. Ochoa, Jr., constituted post facto approval of these benefits. Furthermore, the PCSO claimed that disallowing these benefits would violate the principle of non-diminution of benefits, as they formed part of the employees’ compensation. The central legal question is whether the PCSO Board’s authority to grant employee benefits is absolute, or whether it is subject to existing compensation laws and regulations.

The Supreme Court sided with the COA, emphasizing that the PCSO Board’s power to fix salaries and benefits is not unrestricted. As the Court held in Philippine Charity Sweepstakes Office v. Commission on Audit, G.R. No. 243607, 09 December 2020:

The Court already ruled that R.A. 1169 or the PCSO Charter, does not grant its Board the unbridled authority to fix salaries and allowances of its officials and employees. PCSO is still duty bound to observe pertinent laws and regulations on the grant of allowances, benefits, incentives and other forms of compensation. The power of the Board to fix the salaries and determine the reasonable allowances, bonuses and other incentives are still subject to the review of the DBM.

Building on this principle, the Court clarified that the PCSO must adhere to pertinent budgetary legislation, laws, and rules when exercising its power to determine employee compensation. The PCSO cannot grant additional salaries, incentives, and benefits unless all the laws relating to these disbursements are complied with. This underscores the importance of aligning agency practices with established legal frameworks to ensure proper use of public funds.

The Court also addressed the PCSO’s reliance on the alleged post facto approval from the Office of the President. However, the Court rejected this argument, citing previous rulings that invalidated such approvals when they contravene existing laws. Moreover, the Court noted that the letter from Executive Secretary Ochoa only approved benefits given prior to September 7, 2010, while the disallowed benefits were granted starting November 2010. This highlights the necessity of obtaining proper authorization prior to granting benefits and ensuring that any approvals are consistent with existing legal requirements.

Regarding the specific benefits in question, the Court found that the Weekly Draw Allowance, Staple Food Allowance, COLA, and Medicine Allowance were already deemed integrated into the new standardized salary rate under Section 12 of RA 6758. This section provides that allowances due to government employees are generally included in the standardized salary, with specific exceptions. The disallowed benefits did not fall under these exceptions, and the PCSO failed to demonstrate that their separate grant was sanctioned by the Department of Budget and Management (DBM) or authorized by the President. Therefore, the separate grant of these benefits lacked legal basis.

The Christmas Bonus, which exceeded the amount authorized by RA 6686, as amended by RA 8441, was also deemed invalid. While these laws allow for a Christmas Bonus equivalent to one month’s salary plus an additional cash gift of P5,000.00, the PCSO Board authorized a bonus equivalent to three months’ salary. As the Court stated, the disallowance should be limited to the excess amount. Similarly, the Hazard Pay was disallowed because the PCSO failed to establish that the recipients met the requirements set forth by the DBM, which include being assigned to and performing duties in strife-torn areas.

Finally, the Court dismissed the PCSO’s argument that the disallowance violated the principle of non-diminution of benefits. The Court emphasized that the PCSO failed to provide sufficient evidence that the employees actually suffered a diminution in pay as a result of the disallowance. As stated in Pulido-Tan, G.R. No. 243607, 09 December 2020:

The Court has steadily held that, in accordance with second sentence (first paragraph) of Section 12 of R.A. No. 6758, allowances, fringe benefits or any additional financial incentives, whether or not integrated into the standardized salaries prescribed by R.A. No. 6758, should continue to be enjoyed by employees who were incumbents and were actually receiving those benefits as of July 1, 1989. Here, the PCSO failed to establish that its officials and employees who were recipients of the disallowed COLA actually suffered a diminution in pay as a result of its consolidation into their standardized salary rates. It was not demonstrated that such officials and employees were incumbents and already receiving the COLA as of July 1, 1989. Therefore, the principle of non-diminution of benefits finds no application to them.

Because the PCSO could only proffer allegations lacking evidence to support their claim of diminished benefits, the Court found no merit in their argument. The Court then addressed the liability of the approving/certifying officers for the disallowed benefits, citing the Madera Rules to determine their responsibility.

While the COA Proper had exonerated the payees on the ground of good faith, the Court found that the approving/certifying officers, including the individually named petitioners, were grossly negligent in approving the disallowed benefits. They failed to observe the clear and unequivocal provisions of laws and rules applicable to the disbursement of these benefits. As a result, the Court held them solidarily liable for the net disallowed amount, pursuant to Section 43, Chapter 5, Book VI of the Administrative Code.

The Court clarified that ignorance of the law is not an excuse for public officials, who are expected to be familiar with the laws and regulations governing their actions. The approving/certifying officers could not claim that they were merely following orders from the PCSO Board, as their acts were discretionary and essential to the grant of the disallowed benefits. As stated in The Officers and Employees of Iloilo Provincial Government v. Commission on Audit, G.R. No. 218383, 05 January 2021:

Gross negligence has been defined as negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected. As discussed by Senior Associate Justice Perlas-Bernabe, “[g]ross negligence may become evident through the non-compliance of an approving/authorizing officer of clear and straightforward requirements of an appropriation law, or budgetary rule or regulation, which because of their clarity and straightforwardness only call for one [reasonable] interpretation.”

For their gross negligence, the Court found the approving/certifying officers solidarily liable for the disallowed amount, emphasizing their responsibility to ensure compliance with relevant laws and regulations.

FAQs

What was the central issue in this case?	The central issue was whether the PCSO Board’s authority to fix employee salaries and benefits is absolute or subject to existing compensation laws and regulations. The Court ultimately ruled that the PCSO must comply with pertinent budgetary legislation and rules.
What benefits were disallowed by the COA?	The COA disallowed Christmas bonuses, weekly draw allowances, staple food allowances, hazard pay, cost of living allowances (COLA), and medicine allowances, totaling P1,601,067.49. These benefits were deemed to lack legal basis and violate existing compensation laws.
Did the Office of the President’s letter validate the disallowed benefits?	No, the Court rejected the PCSO’s argument that a letter from the Office of the President constituted post facto approval. The Court noted that the letter only approved benefits given prior to September 7, 2010, while the disallowed benefits were granted starting November 2010.
Why were the COLA and other allowances disallowed?	The Court found that the Weekly Draw Allowance, Staple Food Allowance, COLA, and Medicine Allowance were already deemed integrated into the new standardized salary rate under Section 12 of RA 6758. Since these benefits did not fall under the exceptions outlined in the law, their separate grant lacked legal basis.
What was the basis for disallowing the Christmas Bonus?	The Christmas Bonus was disallowed because the PCSO Board authorized a bonus equivalent to three months’ salary, exceeding the amount authorized by RA 6686, as amended by RA 8441. The Court clarified that the disallowance should be limited to the excess amount.
Who is liable to return the disallowed amounts?	The Court held the approving/certifying officers solidarily liable for the net disallowed amount due to their gross negligence in approving the benefits. While the payees were exonerated, the approving officers must still return the funds.
What constitutes gross negligence in this context?	Gross negligence is defined as the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences. In this case, it involved failing to observe clear and straightforward legal provisions.
What is the significance of the Madera Rules?	The Madera Rules provide a definitive set of guidelines to determine the liability of government officers and employees being made to return employee benefits that were disallowed in audit. They outline the conditions under which approving officers, certifying officers, and recipients may be held liable.

This case serves as a reminder that government agencies must adhere to existing laws and regulations when granting employee benefits. The PCSO Board’s authority is not absolute, and officials must exercise due diligence in ensuring compliance with budgetary legislation and rules. The consequences of failing to do so can include personal liability for the disallowed amounts. This case reinforces the importance of transparency, accountability, and responsible use of public funds within government agencies.

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. 246313, February 15, 2022