G.R. No. 149633 ; November 30, 2006
Executive Director Gabriel S. Casal, Acting Director Cecilio Salcedo and Luzviminda B. Herrera, et al., Petitioners, vs. The Commission on Audit, Respondents.

FACTS

In December 1993, the National Museum granted a ₱4,000 incentive award to each of its officials and employees, totaling ₱1,162,333.35, pursuant to its CSC-approved Employees Suggestions and Incentive Awards System (ESIAS). The COA Resident Auditor subsequently disallowed this expenditure through Notice of Disallowance No. 94-02-101 P(93), citing violations of Section 7 of Administrative Order (A.O.) No. 268 and Section 2 of A.O. No. 29, which prohibited such grants without prior authorization from the Office of the President or the Department of Budget and Management (DBM). The DBM confirmed it had not authorized the grant. The disallowance held approving/certifying officers and all recipient employees liable for reimbursement.
Petitioners appealed to the COA, which denied the appeal and subsequent motion for reconsideration, affirming the liability of both the officers who approved/certified the disbursement and all personnel who received the award. Petitioners then filed this petition, arguing the COA gravely abused its discretion by ordering refunds despite the absence of bad faith among the recipients, and by failing to apply the precedent set in Blaquera v. Alcala.

ISSUE

Whether the Commission on Audit committed grave abuse of discretion in ordering the refund of the disallowed incentive awards by all recipient employees and the approving officers.

RULING

Yes, the COA committed grave abuse of discretion. The Supreme Court granted the petition, setting aside the COA resolutions and lifting the disallowance as to the liability of the recipient employees. The Court applied the doctrine of good faith established in Blaquera v. Alcala. The legal logic is that while the disbursement was correctly disallowed for lack of the required presidential or DBM authorization under A.O. Nos. 268 and 29, the recipients—the rank-and-file employees—cannot be compelled to refund the amounts they received in good faith. There was no showing that these employees participated in the approval process or were aware of the procedural infirmities; they accepted the benefits believing them to be legitimate compensation. The Court distinguished the recipients’ passive receipt from the active, discretionary roles of the approving officers. Consequently, the liability for the disallowed amount rests solely with the approving officers who authorized the illegal expenditure. The officers, having acted beyond their authority, are personally liable to refund the total disallowed amount, as their actions directly caused the government loss. This ruling balances accountability for unlawful disbursements with equity for innocent recipients, preventing undue hardship on employees who acted without malice or bad faith.