G.R. No. 127515 & G.R. No. 127544 ; May 10, 2005
RODOLFO DE JESUS, ET AL. and ANTONIO R. DE VERA, ET AL., petitioners, vs. COMMISSION ON AUDIT, respondent.

FACTS

Petitioners are officials and employees of the Local Water Utilities Administration (LWUA). Since 1982, they had been receiving a rice allowance pursuant to LWUA board resolutions. In 1988, President Corazon Aquino issued Memorandum Order No. 177, directing the rationalization of compensation in government corporations and providing for a “transition allowance.” The Department of Budget and Management (DBM) issued Corporate Budget Circular No. 15 to implement this order. Subsequently, Republic Act No. 6758 , the Salary Standardization Law, took effect on July 1, 1989. Section 12 of the law integrated all allowances into the standardized salary, with certain exceptions. To implement R.A. 6758 for government corporations, the DBM issued Corporate Compensation Circular No. 10 (DBM-CCC No. 10), which listed a rice subsidy as a benefit that could continue for incumbents as of June 30, 1989, provided there was prior authorization.
Despite the new law, LWUA continued and even increased the rice allowance in 1991. The COA Auditor disallowed these payments from 1991 to 1994, citing R.A. 6758, DBM-CCC No. 10, and the LWUA’s alleged non-compliance with the submission requirements under M.O. No. 177 and DBM-CBC No. 15. Petitioners appealed to the Commission on Audit, arguing that DBM-CCC No. 10 was ineffective for lack of publication and that the rice allowance was authorized under R.A. 6758. The COA denied the appeals, prompting these consolidated petitions.

ISSUE

Whether the Commission on Audit correctly disallowed the payment of rice allowances to LWUA officials and employees for the period 1991 to 1994.

RULING

No. The Supreme Court granted the petitions and set aside the COA decision. The legal logic proceeds from the primacy of the statute, R.A. 6758, over administrative issuances. The Court had previously ruled in De Jesus v. Commission on Audit that DBM-CCC No. 10 was ineffective due to its non-publication. Therefore, it could not serve as a valid basis for disallowance. The governing provision is Section 12 of R.A. 6758, which explicitly allows the continued grant of allowances and fringe benefits that are not integrated into the standardized salary, provided the recipient was an incumbent as of July 1, 1989. The LWUA rice allowance, having been granted since 1982, clearly falls under this exception.
The COA’s alternative basis—non-compliance with the procedural requirements of the earlier M.O. No. 177 and DBM-CBC No. 15—was also erroneous. With the effectivity of R.A. 6758 in 1989, these prior executive issuances were superseded. The requirements for submitting a list of allowances under these old rules were rendered irrelevant for disbursements made from 1991 onwards. The only pertinent conditions were those set by the law itself: incumbency as of the cutoff date and non-integration of the benefit. Both conditions were met. Consequently, the disallowance had no legal foundation.