Development Bank Of The Philippines v. Commission On Audit

ZALAMEDA, J.:

Before this Court are the consolidated cases1 filed by petitioner Development Bank of the Philippines (DBP) against respondent Commission on Audit (COA) regarding the Notices of Disallowance (NDs) issued by COA. G.R. No. 210965 is a Petition for Certiorari2 seeking to annul COA Decision No. 2012-0303 dated 13 March 2012 and COA Resolution4 dated 06 December 2013, while in G.R. No. 217623,5 petitioner seeks to set aside COA Decision No. 2013-216 dated 03 December 2013,6 and COA Resolution dated 17 March 2015.7 These cases were consolidated, since they pertain to COA's issuance of NDs regarding the allowances and benefits received by DBP's officers and employees. Antecedents G.R. No. 210965 On 23 April 2007, DBP received from COA, through its Supervising Auditor, Hilconeda P. Abril (Auditor Abril), four Audit Observation Memoranda (AOM)8 relative to the grant of additional allowances and fringe benefits to DBP officers acting as officers of DBP Subsidiaries in 2006.

The AOM stated that the allowances and benefits constitute double compensation to DBP officers, since they receive the same type of benefits from DBP where they hold permanent plantilla positions. Auditor Abril directed DBP to cause the immediate refund of all additional allowances granted to the officers in compliance with laws on double compensation.9 To support its position, Auditor Abril quoted DBM Circular Letter No. 2003-10 dated 10 October 2003 on the grant of additional bonuses in any form, which provides: 2.1 Unless authorized by Law or the President, the grant of additional bonuses in the form of cash groceries, gift certificates and other goods to officials and employees is strictly prohibited. 2.3 Any grant of the above-mentioned bonuses without the approval of the President shall be illegal disbursement of public funds.

Anyone found violating this directive shall be dealt with in accordance with the applicable provisions of existing administrative and penal laws. The AOM also cited Section 5 of Presidential Decree No. (PD) 1597,10 which states that "[a]llowances, honoraria[,] and other fringe benefits which may be granted to government employees, whether payable by their respective offices or by other agencies of government, shall be subject to the approval of the President upon recommendation of the Commissioner of the Budget." In reply11 to the AOM, DBP requested for the reversal of the AOM recommendations, arguing that DBM Circular Letter No. 2003-10 and PD 1597 do not apply to DBP, since under its Charter, it is exempt from existing laws, rules, and regulations on compensation, position, and qualification standards.

DBP insists that the amounts received as allowances, per diems, and/or honoraria by DBP officers from its subsidiaries where they perform services connected with or directly related to their functions as officers/employees of DBP should not be considered as double compensation. Subsequently, Auditor Abril issued ND No. SUB-2006-11 (06)12 dated 29 May 2007, informing DBP that the payment of additional allowances/fringe benefits to DBP officers acting as officers of DBP subsidiaries (namely, DBP Management Corporation [DBPMC], DBP Data Center, Inc. [DBPDCI], and Industrial Guarantee Loan Fund [IGLF]) had been disallowed in audit, and directing the persons named therein to settle immediately the aforesaid disallowance. ND No.

SUB-2006-11 (06) disallowed the total amount of P1,629,303.34, broken down as follows:13 DBPDCI Director's Allowance P 349,375.00 Representation Allowance 95,000.00 Transportation Allowance 6,000.00 Sub Total P 450,375.0014 DBPMC Reimbursable Promotional Allowance P 360,000.00 Sub Total P 360,000.0015 IGLF Honoraria P 398,928.34 Gift Certificate 420,000.00 Sub Total P 818,928.3416 Grand Total P 1,629,303.3417 DBP filed a Notice of Appeal18 dated 05 October 2007, which was denied for lack of merit by COA's Legal Services Sector (LSS) in LSS Decision No. 2009-14119 dated 18 March 2009, which affirmed ND No. SUB-2006-11 (06). On 24 August 2009, DBP filed a Memorandum of Appeal20. Subsequently, DBP filed a Manifestation and Motion21 dated 08 July 2010, stating that then President Gloria Macapagal-Arroyo (President Arroyo) has confirmed the power and authority of the DBP Board of Directors (BOD), independently of Memorandum Order (MO) No. 20, s.

2001,22 to approve and allow the implementation and subsequent refinements of DBP's Compensation Plan, including the grant of allowances and other benefits from DBP subsidiaries to DBP officers serving in such subsidiaries. Thus, DBP claimed that the approval of the Office of the President made the subject disallowance moot and academic.23 On 13 March 2012, COA rendered a Decision24, denying DBP's appeal for lack of merit. COA affirmed LSS Decision No. 2009-141, sustaining ND No. SUB-2006-11 (6), disallowing the amount of P1,629,303.34.

DBP moved for reconsideration, which COA denied in its Resolution25 dated 06 December 2013. G.R. No. 217623 On 25 May 1999, the DBP BOD approved Board Resolution No. 0254, putting in place a system of rewards for its officers and employees.26 For the years 2005 and 2006, DBP granted its officers and employees an additional bonus of P1,200.00 per month to help employees cope with the economic difficulties brought about by the sharp increase in the price of oil and other petroleum-based products. In 2006, DBP also gave its officers and employees P4,000.00 (net of tax) economic assistance to enable them to cope with the increasing cost of prime commodities.27 On 07 September 2005, the DBP BOD issued Executive Committee Resolution No. 0097,28 approving the integration of the officers' allowance to the basic pay to rationalize the compensation structure and make it consistent with the total compensation concept adopted in DBP's compensation strategy.

In addition, for the calendar year 2006, the DBP BOD granted a 5.85% average merit increase to its officers and employees under Board Resolution No. 0114.29 Consequently, in 2007, Auditor Abril issued two AOMs requiring the refund of the Economic Assistance given in 2005 and 2006.30 In another AOM dated 19 February 2007, Auditor Abril recommended discontinuing the implementation of the integration of the officers' allowance to basic pay and for management to obtain approval from the Office of the President.31 Subsequently, on 30 March 2007, Auditor Abril issued another AOM, recommending the following to DBP Management: (1) request for the approval from the Office of the President for the increase of salaries granted to DBP officials and employees effective March 2006; (2) stop the grant of the step increment; and (3) require the immediate refund of the released benefit from concerned DBP officials and employees.32 The AOMs were issued in line with MO No. 20, Administrative Order (AO) No. 103, s.

2003,33 PD 1597, and other related issuances that require, among others, the approval of the President of the Philippines before any increase in salaries, allowances, and other benefit may be granted by government entities including government-owned and controlled corporations (GOCCs). DBP submitted its comments on the AOMs. Not satisfied with DBP's justifications, Auditor Abril issued the following NDs: Date ND No.

Particulars Amount 17 May 2007 OA-2006-006 (06) Officers' Allowance (OA) P 38,260,000.00 17 May 2007 EA-2006-005 (05 and 06) Economic Assistance (EA) P 54,154,230.00 21 May 2007 Merit-2006-008 (06) Merit Increase P 14,185,486.93 Total P 106,599,716.9334 On 08 October 2007, DBP appealed the NDs to COA Cluster Director, Cluster A, Corporate Government Sector (CGS-A)35. On 09 July 2010, while the appeal was pending, DBP submitted a Manifestation and Motion informing the cluster director that it was able to procure approval from President Arroyo on the merit increases and other benefits it granted to its officers and employees. Hence, the principal issue of its failure to procure such approval was already cured.

Notwithstanding the manifestation and motion, the cluster director of CGS-A denied the appeal, prompting DBP to file before COA a Petition for Review dated 16 February 2011. DBP prayed for the reversal of CGS-A Decision No. 2010-004 dated 28 December 2010, which affirmed the NDs on merit increase, economic assistance, and integration of officers' allowance. Subsequently, COA rendered Decision No. 2013-216,36 denying DBP's petition for review for lack of merit.

COA affirmed ND Nos. OA-2006-006 (06), EA-2006-005 (05 and 06) and Merit-2006-008 (06), disallowing the total amount of P106,599,716.93. Ruling of the COA G.R. No. 210965 COA affirmed LSS Decision No. 2009-141, sustaining ND No. SUB-2006-11 (6) and disallowing the amount of P1,629,303.34.37 It ruled that the DBP officers are covered by the constitutional prohibition provided under Section 8, Article IX (B), which prohibits appointive public officers or employee from receiving additional, double, or indirect compensation unless authorized by law. The authorization by the respective boards of DBPDCI and DBPMC granting additional compensation to DBP officers who were designated as members of the Board is not a law.

Likewise, DBP officers who are members of the Review Committee and Technical Advisory Group of IGLF in ex-officio capacity are also prohibited from receiving any extra compensation.38 Further, COA found unacceptable DBP's claim that the amounts disallowed were not in the concept of a fixed salary but were in the form of reimbursement of expenses for attendance of meetings and performance of duties. DBP's claim lacked documentary support and its claims are bare allegations without any probative value.39 class="i"G.R. No. 217623 COA affirmed ND Nos. OA-2006-006 (06), EA-2006-005 (05 and 06) and Merit-2006-008 (06), disallowing the total amount of P106,599,716.93. It cited Section 16 of the General Appropriations Act (GAA) of 2005, which prohibits expenditures for allowances and other forms of compensation not specifically authorized by law.

COA held that the grant of additional compensation to DBP officers and employees lacked legal basis, since these were granted merely through the resolutions of DBP BOD, and not specifically authorized by existing laws. Although the DBP BOD is authorized by the Revised DBP Charter to adopt and fix additional compensation, the grant of the disallowed benefits did not have the requisite approval of the President as sanctioned by PD 1597 and MO 20.40 As to the subsequent confirmation by the president on the BOD's authority to formulate and adopt a compensation plan, COA countered that what is required under PD 1597 and MO 20 is the approval of the president on the grant of additional compensation or allowance, which DBP seeks to implement and not merely the authority of its BOD to fix the compensation. Besides, COA pointed out that President Arroyo's approval fell within the election period ban since it was made 17 days before the 10 May 2010 elections.

Section 261, Article XXII of the Omnibus Election Code prohibits any government official from giving any increase of salary or remuneration to any government official or employee during the period of 45 days before a regular election and 30 days before a special election.

COA concluded that President Arroyo's approval of the grant of additional compensation or allowances was illegal and amounts to no approval at all.41 Issue For the Court's resolution is whether COA committed grave abuse of discretion in affirming the NDs. Ruling of the Court The Court partially grants the petitions in G.R. Nos. 210965 and 217623. In both its petitions, DBP relies heavily on the alleged subsequent approval by President Arroyo of DBP's Compensation Plan for 1999, and insists that said approval has rendered the subject disallowances moot and academic.

The Letter42 dated 22 April 2010 addressed to President Arroyo on the subject of the president's confirmation of DBP BODs authority to approve a compensation plan for DBP personnel states: FOR : HER EXCELLENCY GLORIA MACAPAGAL ARROYO PRESIDENT, REPUBLIC OF THE PHILIPPINES From : The DBP Chairman The DBP President and Chief Executive Officer Subject : Confirmation by her Excellency of the DBP Board's Authority to Approve a Compensation Plan for DBP Personnel Date : April 22, 2010