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Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 193677               September 6, 2011

LUCIANO VELOSO, ABRAHAM CABOCHAN, JOCELYN DAWIS-ASUNCION and MARLON M. LACSON, Petitioners,
vs.
COMMISSION ON AUDIT, Respondent.

D E C I S I O N

PERALTA, J.:

This is a Petition for Review on Certiorari under Rule 65 of the Rules of Court assailing Decision No. 2008-088¹ dated September 26, 2008 and Decision No. 2010-077² dated August 23, 2010 of the Commission on Audit (COA) sustaining Notice of Disallowance (ND) No. 06-010-100-05³ dated May 24, 2006 disallowing the payment of monetary reward as part of the Exemplary Public Service Award (EPSA) to former three-term councilors of the City of Manila authorized by City Ordinance No. 8040.

The facts of the case are as follows:

On December 7, 2000, the City Council of Manila enacted Ordinance No. 8040 entitled An Ordinance Authorizing the Conferment of Exemplary Public Service Award to Elective Local Officials of Manila Who Have Been Elected for Three (3) Consecutive Terms in the Same Position. Section 2 thereof provides:

SEC. 2. The EPSA shall consist of a Plaque of Appreciation, retirement and gratuity pay remuneration equivalent to the actual time served in the position for three (3) consecutive terms, subject to the availability of funds as certified by the City Treasurer. PROVIDED, That [it] shall be accorded to qualified elected City Officials on or before the first day of service in an appropriated public ceremony to be conducted for the purpose. PROVIDED FURTHER, That this Ordinance shall only cover the Position of Mayor, Vice-Mayor and Councilor: PROVIDED FURTHERMORE, That those who were elected for this term and run for higher elective position thereafter, after being elected shall still be eligible for this award for the actual time served: PROVIDED FINALLY That the necessary and incidental expenses needed to implement the provisions of this Ordinance shall be appropriated and be included in the executive budget for the year when any city official will qualify for the Award.⁴

The ordinance was deemed approved on August 23, 2002.

Pursuant to the ordinance, the City made partial payments in favor of the following former councilors:

Councilor/Recipients	Check	Date	Amount
Abraham C. Cabochan	353010	06/07/05	₱1,658,989.09
Julio E. Logarta, Jr.	353156	06/14/05	₱1,658,989.08
Luciano M. Veloso	353778	06/30/05	₱1,658,989.08
Jocelyn Dawis-Asuncion	353155	06/14/05	₱1,658,989.08
Marlon M. Lacson	353157	06/14/05	₱1,658,989.08
Heirs of Hilarion C. Silva	353093	06/09/05	₱1,628,311.59
TOTAL			₱9,923,257.00	5

On August 8, 2005, Atty. Gabriel J. Espina (Atty. Espina), Supervising Auditor of the City of Manila, issued Audit Observation Memorandum (AOM) No. 2005-100(05)07(05)⁶ with the following observations:

1. The initial payment of monetary reward as part of Exemplary Public Service Award (EPSA) amounting to ₱9,923,257.00 to former councilors of the City Government of Manila who have been elected for three (3) consecutive terms to the same position as authorized by City Ordinance No. 8040 is without legal basis.

2. The amount granted as monetary reward is excessive and tantamount to double compensation in contravention to Article 170 (c) of the IRR of RA 7160 which provides that no elective or appointive local official shall receive additional, double or indirect compensation unless specifically authorized by law.

3. The appropriations for retirement gratuity to implement EPSA ordinance was classified as Maintenance and Other Operating Expenses instead of Personal Services contrary to Section 7, Volume III of the Manual on the New Government Accounting System (NGAS) for local government units and COA Circular No. 2004-008 dated September 20, 2004 which provide the updated description of accounts under the NGAS.⁷

After evaluation of the AOM, the Director, Legal and Adjudication Office (LAO)-Local of the COA issued ND No. 06-010-100-05⁸ dated May 24, 2006.

On November 9, 2006, former councilors Jocelyn Dawis-Asuncion (Dawis-Asuncion), Luciano M. Veloso (Veloso), Abraham C. Cabochan (Cabochan), Marlon M. Lacson (Lacson), Julio E. Logarta, Jr., and Monina U. Silva, City Accountant Gloria C. Quilantang, City Budget Officer Alicia Moscaya and then Vice Mayor and Presiding Officer Danilo B. Lacuna filed a Motion to Lift the Notice of Disallowance.⁹ In its Decision No. 2007-171¹⁰ dated November 29, 2007, the LAO-Local decided in favor of the movants, the pertinent portion of which reads:

WHEREFORE, premises considered, the motion of former Vice- Mayor Danilo B. Lacuna, et al., is GRANTED and ND No. 06-010-100-05 dated May 24, 2006 is hereby ordered lifted as the reasons for the disallowance have been sufficiently explained. This decision, however, should not be taken as precedence (sic) to other or similar personal benefits that a local government unit may extend which should be appreciated based on their separate and peculiar circumstances.¹¹

Citing Article 170 of the Implementing Rules and Regulations (IRR) of Republic Act (RA) No. 7160, the LAO-Local held that the monetary reward given to the former councilors can be one of gratuity and, therefore, cannot be considered as additional, double or indirect compensation. Giving importance to the principle of local autonomy, the LAO-local upheld the power of local government units (LGUs) to grant allowances. More importantly, it emphasized that the Department of Budget and Management (DBM) did not disapprove the appropriation for the EPSA of the City which indicate that the same is valid.¹²

Upon review, the COA rendered the assailed Decision No. 2008-088 sustaining ND No. 06-010-100-05.¹³ The motion for reconsideration was likewise denied in Decision No. 2010-077.¹⁴ The COA opined that the monetary reward under the EPSA is covered by the term "compensation." Though it recognizes the local autonomy of LGUs, it emphasized the limitations thereof set forth in the Salary Standardization Law (SSL). It explained that the SSL does not authorize the grant of such monetary reward or gratuity. It also stressed the absence of a specific law passed by Congress which ordains the conferment of such monetary reward or gratuity to the former councilors.¹⁵ In Decision No. 2010-077, in response to the question on its jurisdiction to rule on the legality of the disbursement, the COA held that it is vested by the Constitution the power to determine whether government entities comply with laws and regulations in disbursing government funds and to disallow irregular disbursements.¹⁶

Aggrieved, petitioners Veloso, Cabochan, Dawis-Asuncion and Lacson come before the Court in this special civil action for certiorari alleging grave abuse of discretion on the part of the COA. Specifically, petitioners claim that:

The respondent Commission on Audit did not only commit a reversible error but was, in fact, guilty of grave abuse of discretion amounting to lack or excess of jurisdiction when it ruled that the monetary award given under the EPSA partakes of the nature of an additional compensation prohibited under the Salary Standardization Law, and other existing laws, rules and regulations, and not a GRATUITY "voluntarily given in return for a favor or services rendered purely out of generosity of the giver or grantor." (Plastic Tower Corporation vs. NLRC, 172 SCRA 580-581).

Apart from being totally oblivious of the fact that the monetary award given under the EPSA was intended or given in return for the exemplary service rendered by its recipient(s), the respondent COA further committed grave abuse of discretion when it effectively nullified a duly-enacted ordinance which is essentially a judicial function. In other words, in the guise of disallowing the disbursement in question, the respondent Commission arrogated unto itself an authority it did not possess, and a prerogative it did not have.¹⁷

On November 30, 2010, the Court issued a Status Quo Ante Order¹⁸ requiring the parties to maintain the status quo prevailing before the implementation of the assailed COA decisions.

There are two issues for resolution: (1) whether the COA has the authority to disallow the disbursement of local government funds; and (2) whether the COA committed grave abuse of discretion in affirming the disallowance of ₱9,923,257.00 covering the EPSA of former three-term councilors of the City of Manila authorized by Ordinance No. 8040.

In their Reply,¹⁹ petitioners insist that the power and authority of the COA to audit government funds and accounts does not carry with it in all instances the power to disallow a particular disbursement.²⁰ Citing Guevara v. Gimenez,²¹ petitioners claim that the COA has no discretion or authority to disapprove payments on the ground that the same was unwise or that the amount is unreasonable. The COA's remedy, according to petitioners, is to bring to the attention of the proper administrative officer such expenditures that, in its opinion, are irregular, unnecessary, excessive or extravagant.²² While admitting that the cited case was decided by the Court under the 1935 Constitution, petitioners submit that the same principle applies in the present case.

We do not agree.

As held in National Electrification Administration v. Commission on Audit,²³ the ruling in Guevara cited by petitioners has already been overturned by the Court in Caltex Philippines, Inc. v. Commission on Audit.²⁴ The Court explained²⁵ that under the 1935 Constitution, the Auditor General could not correct irregular, unnecessary, excessive or extravagant expenditures of public funds, but could only bring the matter to the attention of the proper administrative officer. Under the 1987 Constitution, however, the COA is vested with the authority to determine whether government entities, including LGUs, comply with laws and regulations in disbursing government funds, and to disallow illegal or irregular disbursements of these funds.

Section 2, Article IX-D of the Constitution gives a broad outline of the powers and functions of the COA, to wit:

Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties.²⁶

Section 11, Chapter 4, Subtitle B, Title I, Book V of the Administrative Code of 1987 echoes this constitutional mandate to COA.

Under the first paragraph of the above provision, the COA's audit jurisdiction extends to the government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters. Its jurisdiction likewise covers, albeit on a post-audit basis, the constitutional bodies, commissions and offices that have been granted fiscal autonomy, autonomous state colleges and universities, other government-owned or controlled corporations and their subsidiaries, and such non-governmental entities receiving subsidy or equity from or through the government. The power of the COA to examine and audit government agencies cannot be taken away from it as Section 3, Article IX-D of the Constitution mandates that "no law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any investment of public funds, from the jurisdiction of the [COA]."

Pursuant to its mandate as the guardian of public funds, the COA is vested with broad powers over all accounts pertaining to government revenue and expenditures and the uses of public funds and property.²⁷ This includes the exclusive authority to define the scope of its audit and examination, establish the techniques and methods for such review, and promulgate accounting and auditing rules and regulations.²⁸ The COA is endowed with enough latitude to determine, prevent and disallow irregular, unnecessary, excessive, extravagant or unconscionable expenditures of government funds.²⁹ It is tasked to be vigilant and conscientious in safeguarding the proper use of the government's, and ultimately the people's, property.³⁰ The exercise of its general audit power is among the constitutional mechanisms that gives life to the check and balance system inherent in our form of government.³¹

The Court had therefore previously upheld the authority of the COA to disapprove payments which it finds excessive and disadvantageous to the Government; to determine the meaning of "public bidding" and when there is failure in the bidding; to disallow expenditures which it finds unnecessary according to its rules even if disallowance will mean discontinuance of foreign aid; to disallow a contract even after it has been executed and goods have been delivered.³²

Thus, LGUs, though granted local fiscal autonomy, are still within the audit jurisdiction of the COA.

Now on the more important issue of whether the COA properly exercised its jurisdiction in disallowing the disbursement of the City of Manila's funds for the EPSA of its former three-term councilors.

It is the general policy of the Court to sustain the decisions of administrative authorities, especially one which is constitutionally-created not only on the basis of the doctrine of separation of powers but also for their presumed expertise in the laws they are entrusted to enforce. Findings of administrative agencies are accorded not only respect but also finality when the decision and order are not tainted with unfairness or arbitrariness that would amount to grave abuse of discretion.³³ It is only when the COA has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, that this Court entertains a petition questioning its rulings.³⁴ There is grave abuse of discretion when there is an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law or to act in contemplation of law as when the judgment rendered is not based on law and evidence but on caprice, whim and despotism.³⁵

In this case, we find no grave abuse of discretion on the part of the COA in issuing the assailed decisions as will be discussed below.

Petitioners claim that the grant of the retirement and gratuity pay remuneration is a valid exercise of the powers of the Sangguniang Panlungsod set forth in RA 7160.

We disagree.

Indeed, Section 458 of RA 7160 defines the power, duties, functions and compensation of the Sangguniang Panlungsod, to wit:

SEC. 458. Powers, Duties, Functions and Compensation. - (a) The Sangguniang Panlungsod, as the legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the city as provided for under Section 22 of this Code, and shall:

x x x x

(viii) Determine the positions and salaries, wages, allowances and other emoluments and benefits of officials and employees paid wholly or mainly from city funds and provide for expenditures necessary for the proper conduct of programs, projects, services, and activities of the city government.

In the exercise of the above power, the City Council of Manila enacted on December 7, 2000 Ordinance No. 8040, but the same was deemed approved on August 23, 2002. The ordinance authorized the conferment of the EPSA to the former three-term councilors and, as part of the award, the qualified city officials were to be given "retirement and gratuity pay remuneration." We believe that the award is a "gratuity" which is a free gift, a present, or benefit of pecuniary value bestowed without claim or demand, or without consideration.³⁶

However, as correctly held by the COA, the above power is not without limitations. These limitations are embodied in Section 81 of RA 7160, to wit:

SEC. 81. Compensation of Local Officials and Employees. The compensation of local officials and personnel shall be determined by the sanggunian concerned: Provided, That the increase in compensation of elective local officials shall take effect only after the terms of office of those approving such increase shall have expired: Provided, further, That the increase in compensation of the appointive officials and employees shall take effect as provided in the ordinance authorizing such increase; Provided however, That said increases shall not exceed the limitations on budgetary allocations for personal services provided under Title Five, Book II of this Code: Provided finally, That such compensation may be based upon the pertinent provisions of Republic Act Numbered Sixty-seven fifty-eight (R.A. No. 6758), otherwise known as the "Compensation and Position Classification Act of 1989.

Moreover, the IRR of RA 7160 reproduced the Constitutional provision that "no elective or appointive local official or employee shall receive additional, double, or indirect compensation, unless specifically authorized by law, nor accept without the consent of the Congress, any present, emoluments, office, or title of any kind from any foreign government." Section 325 of the law limit the total appropriations for personal services³⁷ of a local government unit to not more than 45% of its total annual income from regular sources realized in the next preceding fiscal year.

While it may be true that the above appropriation did not exceed the budgetary limitation set by RA 7160, we find that the COA is correct in sustaining ND No. 06-010-100-05.

Section 2 of Ordinance No. 8040 provides for the payment of "retirement and gratuity pay remuneration equivalent to the actual time served in the position for three (3) consecutive terms" as part of the EPSA. The recomputation of the award disclosed that it is equivalent to the total compensation received by each awardee for nine years that includes basic salary, additional compensation, Personnel Economic Relief Allowance, representation and transportation allowance, rice allowance, financial assistance, clothing allowance, 13th month pay and cash gift.³⁸ This is not disputed by petitioners. There is nothing wrong with the local government granting additional benefits to the officials and employees. The laws even encourage the granting of incentive benefits aimed at improving the services of these employees. Considering, however, that the payment of these benefits constitute disbursement of public funds, it must not contravene the law on disbursement of public funds.³⁹ lawphi1

As clearly explained by the Court in Yap v. Commission on Audit,⁴⁰ the disbursement of public funds, salaries and benefits of government officers and employees should be granted to compensate them for valuable public services rendered, and the salaries or benefits paid to such officers or employees must be commensurate with services rendered. In the same vein, additional allowances and benefits must be shown to be necessary or relevant to the fulfillment of the official duties and functions of the government officers and employees. Without this limitation, government officers and employees may be paid enormous sums without limit or without justification necessary other than that such sums are being paid to someone employed by the government. Public funds are the property of the people and must be used prudently at all times with a view to prevent dissipation and waste.⁴¹

Undoubtedly, the above computation of the awardees' reward is excessive and tantamount to double and additional compensation. This cannot be justified by the mere fact that the awardees have been elected for three (3) consecutive terms in the same position. Neither can it be justified that the reward is given as a gratuity at the end of the last term of the qualified elective official. The fact remains that the remuneration is equivalent to everything that the awardees received during the entire period that he served as such official. Indirectly, their salaries and benefits are doubled, only that they receive half of them at the end of their last term.

The purpose of the prohibition against additional or double compensation is best expressed in Peralta v. Auditor General,⁴² to wit:

This is to manifest a commitment to the fundamental principle that a public office is a public trust. It is expected of a government official or employee that he keeps uppermost in mind the demands of public welfare. He is there to render public service. He is of course entitled to be rewarded for the performance of the functions entrusted to him, but that should not be the overriding consideration. The intrusion of the thought of private gain should be unwelcome. The temptation to further personal ends, public employment as a means for the acquisition of wealth, is to be resisted. That at least is the idea. There is then to be an awareness on the part of the officer or employee of the government that he is to receive only such compensation as may be fixed by law. With such a realization, he is expected not to avail himself of devious or circuitous means to increase the remuneration attached to his position.⁴³

Verily, the COA's assailed decisions were made in faithful compliance with its mandate and in judicious exercise of its general audit power as conferred on it by the Constitution.⁴⁴ The COA adheres to the policy that government funds and property should be fully protected and conserved and that irregular, unnecessary, excessive or extravagant expenditures or uses of such funds and property should be prevented.⁴⁵

However, in line with existing jurisprudence,⁴⁶ we need not require the refund of the disallowed amount because all the parties acted in good faith. In this case, the questioned disbursement was made pursuant to an ordinance enacted as early as December 7, 2000 although deemed approved only on August 22, 2002. The city officials disbursed the retirement and gratuity pay remuneration in the honest belief that the amounts given were due to the recipients and the latter accepted the same with gratitude, confident that they richly deserve such reward.

WHEREFORE, the petition is DISMISSED. Decision No. 2008-088 dated September 26, 2008 and Decision No. 2010-077 dated August 23, 2010 of the Commission on Audit, are AFFIRMED WITH MODIFICATION. The recipients need not refund the retirement and gratuity pay remuneration that they already received.

Accordingly, the Status Quo Ante Order issued by the Court on November 30, 2010 is hereby RECALLED. In view, however, of this Court's decision not to require the refund of the amounts already received, the Commission on Audit is ORDERED to cease and desist from enforcing the Notice of Finality of Decision⁴⁷ dated October 5, 2010.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice

ANTONIO T. CARPIO Associate Justice	PRESBITERO J. VELASCO, JR. Associate Justice
TERESITA J. LEONARDO-DE CASTRO Associate Justice	ARTURO D. BRION Associate Justice
LUCAS P. BERSAMIN Associate Justice	MARIANO C. DEL CASTILLO Associate Justice
ROBERTO A. ABAD Associate Justice	MARTIN S. VILLARAMA, JR. Associate Justice
JOSE PORTUGAL PEREZ Associate Justice	JOSE CATRAL MENDOZA Associate Justice
On leave MARIA LOURDES P. A. SERENO* Associate Justice	On official leave BIENVENIDO L. REYES** Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

RENATO C. CORONA
Chief Justice

Footnotes

* On leave.

** On official leave.

¹ Rollo, pp. 21-25.

² Id. at 26-30.

³ Id. at 35-38.

⁴ Id. at 31. (Emphasis supplied.)

⁵ Id. at 32.

⁶ Id. at 32-34.

⁷ Id. at 32-33.

⁸ Id. at 35-38.

⁹ Id. at 39-41.

¹⁰ Id. at 42-44.

¹¹ Id. at 44.

¹² Id. at 43-44.

¹³ Supra note 1.

¹⁴ Supra note 2.

¹⁵ Rollo, pp. 22-24.

¹⁶ Id. at 28-29.

¹⁷ Id. at 9.

¹⁸ Id. at 79-81.

¹⁹ Id. at 117-127.

²⁰ Id. at 120.

²¹ No. L-17115, November 30, 1962, 6 SCRA 807.

²² Rollo, p. 121.

²³ 427 Phil. 464, 481 (2002).

²⁴ G.R. No. 92585, May 8, 1992, 208 SCRA 726.

²⁵ Id. at 746, citing the observations of one of the Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas.

²⁶ Emphasis supplied.

²⁷ Yap v. Commission on Audit, G.R. No. 158562, April 23, 2010, 619 SCRA 154, 167-168; Sanchez v. Commission on Audit, G.R. No. 127545, April 23, 2008, 552 SCRA 471, 477.

²⁸ Id. at 168; Id.

²⁹ Sanchez v. Commission on Audit, supra note 27, at 487.

³⁰ Barbo v. Commission on Audit, G.R. No. 157542, October 10, 2008, 568 SCRA 302, 310.

³¹ Yap v. Commission on Audit, supra note 27, at 169.

³² Sanchez v. Commission on Audit, supra note 27, at 488.

³³ Id. at 489.

³⁴ Id.

³⁵ Yap v. Commission on Audit, supra note 27, at 174.

³⁶ Cajiuat v. Mathay, 209 Phil. 579, 582 (1983).

³⁷ Personal services include the payment of salaries and wages; per diem compensation; social security insurance premium; overtime pay; and commutable allowances.

³⁸ Rollo, p. 33.

³⁹ Yap v. Commission on Audit, supra note 27, at 164.

⁴⁰ Id. at 154.

⁴¹ Id. at 166-167.

⁴² 148 Phil. 261 (1971), cited in the separate opinion of Justice Arturo D. Brion in Herrera v. National Power Corporation, G.R. No. 166570, December 18, 2009, 608 SCRA 475,504.

⁴³ Peralta v. Auditor General Mathay, 148 Phil. 261, 265-266 (1971). (Emphasis supplied.)

⁴⁴ Yap v. Commission on Audit, supra note 27, at 174-175.

⁴⁵ Sambeli v. Province of Isabela, G.R. No. 92279, June 18, 1992, 210 SCRA 80, 84.

⁴⁶ Singson v. Commission on Audit, G.R. No. 159355, August 9, 2010, 627 SCRA 36, citing Molen, Jr. v. Commission on Audit, 493 Phil. 874 (2005); Querubin v. Regional Cluster Director, Legal and Adjudication Office, COA Regional Office VI, Pavia, Iloilo City, G.R. No. 159299, July 7, 2004, 433 SCRA 769; De Jesus v. Commission on Audit, 466 Phil. 912 (2004); Philippine International Trading Corporation v. Commission on Audit, 461 Phil. 737 (2003).

⁴⁷ Rollo, pp. 71-76.

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