The Supreme Court ruled that the Commission on Audit (COA) erred in disallowing payments made by Land Bank of the Philippines (LBP) for a refresher course and travel expenses of its employees. The Court held that the training program, aimed at enhancing employee skills and preparing them for eligibility exams, ultimately benefited both the employees and the bank, making the expenditure necessary and reasonable. This decision clarifies that government agencies can invest in employee development programs that serve both individual career advancement and organizational goals.

LBP’s Investment in Employee Advancement: A Case of Necessary Expenditure?

This case revolves around the Commission on Audit’s (COA) disallowance of Land Bank of the Philippines’ (LBP) payments to MSA Academic Advancement Institute (MSA) for a Professional Advancement Refresher Course (PARC), as well as the travel expenses incurred by bank officers attending the course. The COA argued that the refresher course, designed to prepare LBP officers for the Career Service Executive Eligibility/Management Aptitude Test Battery (CSEE/MATB) examination, was primarily for personal enhancement and therefore an unnecessary expense. This raised the central legal question: Can government funds be used for training programs that enhance employee skills and prepare them for eligibility exams, or are such expenditures considered unnecessary?

The facts of the case reveal that LBP engaged MSA to conduct the PARC in response to Civil Service Commission (CSC) Memorandum Circular No. 20, series of 2002 (CSC MC No. 20), which addressed temporary appointments. CSC MC No. 20 emphasized that permanent appointments in government service should only be issued to those who meet all requirements, including appropriate eligibility. Facing pressure from this policy and its impact on employee morale, LBP sought to prepare its officers for the CSEE/MATB examination through the PARC. The CSEE/MATB examination is required for third-level positions in the career service. The training was conducted in two batches across multiple locations, with a total of 314 bank officers attending.

Following the training, LBP’s Supervising Auditor issued an Audit Observations Memorandum (AOM), questioning the attendance of 51 officers who took the refresher course for a second time after failing the initial CSEE/MATB examination. The auditor viewed this as an unwarranted government expense and a personal undertaking. Consequently, the COA Legal and Adjudication Office-Corporate (COA LAO-C) issued a Notice of Disallowance (ND) disallowing all review fees and expenses paid by LBP to MSA, totaling P1,778,100.51, and later, travel expenses amounting to P98,562.00. LBP appealed the disallowance, arguing that the refresher course was a legitimate undertaking in pursuit of its mandate and in compliance with CSC requirements. The COA, however, maintained that the refresher course primarily benefited the LBP officers and was therefore an unnecessary expense.

In its decision, the Supreme Court emphasized that findings of administrative agencies like the COA are generally accorded respect, unless tainted with unfairness or arbitrariness. However, the Court also clarified that it can intervene when the COA acts without or in excess of its jurisdiction, or with grave abuse of discretion. The Court noted that the main issue was the propriety of allowing some bank officers to undergo the refresher course for a second time at the bank’s expense. While the COA LAO-C considered the second attendance as an undue privilege, the disallowance covered all expenses incurred for both the first and second refresher courses.

The Supreme Court found the disallowance erroneous, citing Sections 1 and 2, Rule VIII of the Omnibus Rules Implementing Book V of E.O. 292, which highlight the importance of developing and utilizing government employees. These rules mandate agencies to establish continuing programs for career and personnel development, fostering a work climate conducive to skill development. The Court noted that LBP’s Human Resources Development Department (HRDD) recommended the PARC to enhance managerial, verbal, and analytical skills of its officers, aligning with LBP’s mandate to provide continuous career development. The refresher course aimed to improve the officers’ abilities to carry out their duties and enhance LBP’s service delivery.

The Court highlighted that the refresher course was intended to achieve several objectives, including assessing bank officers’ analytical abilities, enhancing their analytical skills, improving their communication skills, and refreshing concepts in management and leadership. It was also designed to prepare officers for the career service executive examination. The Court emphasized that these objectives were clearly in line with LBP’s mandate to provide a continuing program for career development, as laid down in civil service rules. Even the COA LAO-C had acknowledged the importance of the refresher course for LBP’s bank officers. The Court referenced COA LAO-C’s decision, stating that “x x x the conduct of the refresher course finds legal basis as provided in the above­stated CSC rules and regulations the same being intended for the career advancement of, and most importantly, to protect the security of tenure accorded by the Constitution to the government employees.”

Addressing the COA’s concerns about officers attending the review classes twice, the Court acknowledged that LBP’s Management Committee approved their second attendance due to changes in the CSEE examination content. The Head of LBP HRDD explained that the unified third-level examination system, called the Career Executive Officer (CEO) Examination, had added and deleted subjects compared to previous CSEE examinations. Therefore, the Management Committee agreed to offer the training course to those who had already availed of the first course. The Court found support for LBP’s decision in Section 5, Rule VIII of the Omnibus Rules, which states that if performance appraisal indicates development needs, individuals should undergo training or other appropriate human resource development interventions to improve their performance and productivity.

The Court emphasized that LBP provided assistance and further training to improve the officers’ performance and job competency and prevent the loss of competent officers. There was no evidence that the Management Committee approved the training program solely for the personal interests of select officers. In addition to the 51 officers, 141 other bank officers benefited from the second refresher course. The Supreme Court acknowledged that LBP has its own Organization Development Department (ODD) which provides training and development programs. However, the Court clarified that LBP is not constrained to provide training solely in-house. Section 7(d) of the same rules allows agencies to provide other human resource development opportunities and activities, including training and scholarship grants, and to utilize alternative strategies for improving job performance, such as coaching, counseling, job rotation, and on-the-job training.

Ultimately, the Supreme Court determined that the Professional Advancement Refresher Course conducted by MSA was a human resource development opportunity and an alternative approach to improving job performance, which is permitted under civil service rules. The Court rejected COA’s argument that the costs incurred were unnecessary expenses in violation of COA Circular No. 85-55-A. The Court cited Item 3.2 of the circular, which defines unnecessary expenditures as those that do not pass the test of prudence or the diligence of a good father of a family and are not supportive of the agency’s objectives and mission. The Court reasoned that the refresher course aimed to train and enhance the skills of the bank’s officers and prepare them for eligibility exams, benefiting both the officers and the bank.

The Court concluded that LBP gained a workforce with more knowledge and skills, increasing their efficiency, regardless of whether the officers passed the eligibility examination. The refresher course was a necessary and reasonable expenditure for the bank. Consequently, the Court declared the Notice of Disallowance (ND) No. LBP-001-(2005) and other Notices of Disallowance referring to travel expenses as erroneously issued by the COA, finding that the COA had committed grave abuse of discretion in affirming the LAO-C Decision.

FAQs

In conclusion, the Supreme Court’s decision in this case provides valuable guidance on the permissible scope of government expenditures for employee training and development. It underscores that investments in employee skills and qualifications can be justified when they serve both individual career advancement and the broader interests of the government agency.

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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: LAND BANK OF THE PHILIPPINES vs. COMMISSION ON AUDIT (COA), G.R. No. 213424, July 11, 2017