G.R. No. 193677; September 6, 2011
LUCIANO VELOSO, ABRAHAM CABOCHAN, JOCELYN DAWIS-ASUNCION and MARLON M. LACSON, Petitioners, vs. COMMISSION ON AUDIT, Respondent.

FACTS

On December 7, 2000, the City Council of Manila enacted Ordinance No. 8040, authorizing the conferment of an Exemplary Public Service Award (EPSA) to elective local officials of Manila who have been elected for three consecutive terms in the same position. The award consisted of a plaque and a monetary reward equivalent to “retirement and gratuity pay remuneration” for the actual time served. The ordinance was deemed approved on August 23, 2002. Pursuant to this, the City of Manila made partial payments totaling ₱9,923,257.00 to several former councilors (including the petitioners) in June 2005. The Supervising Auditor of Manila issued an Audit Observation Memorandum, stating that the payment was without legal basis, excessive, tantamount to double compensation, and improperly classified. This led to the issuance of Notice of Disallowance (ND) No. 06-010-100-05 dated May 24, 2006. The petitioners and other city officials filed a motion to lift the ND, which was initially granted by the COA’s Legal and Adjudication Office-Local. However, upon review, the Commission on Audit (COA) proper issued Decision No. 2008-088 dated September 26, 2008, sustaining the disallowance. The COA held that the monetary reward was a form of compensation not authorized by the Salary Standardization Law or any specific law from Congress. The motion for reconsideration was denied in Decision No. 2010-077 dated August 23, 2010. The petitioners then filed this special civil action for certiorari, alleging grave abuse of discretion by the COA.

ISSUE

1. Whether the COA has the authority to disallow the disbursement of local government funds.
2. Whether the COA committed grave abuse of discretion in affirming the disallowance of the ₱9,923,257.00 covering the EPSA authorized by City Ordinance No. 8040.

RULING

1. Yes, the COA has the authority. The Court ruled that under the 1987 Constitution, the COA is vested with the authority to determine whether government entities, including local government units, comply with laws and regulations in disbursing government funds and to disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. This power is broader than under the 1935 Constitution, overturning the precedent in Guevara v. Gimenez cited by petitioners. The COA’s power to disallow is part of its constitutional mandate to audit all government revenues and expenditures.
2. No, the COA did not commit grave abuse of discretion. The Court sustained the COA’s disallowance. The monetary reward under the EPSA ordinance was correctly characterized as additional compensation, not a gratuity. A gratuity is a voluntary gift granted purely out of generosity, without a legal obligation. Here, the award was given by virtue of an ordinance creating a legal entitlement for services already compensated by regular salaries. The grant violated the constitutional and statutory prohibitions against double compensation (Article IX-B, Section 8 of the Constitution and Section 470 of the Local Government Code). Furthermore, the grant was not authorized by the Salary Standardization Law or any other specific law enacted by Congress, which is required for LGUs to grant additional compensation beyond what is prescribed by law. The principle of local autonomy does not allow LGUs to contravene existing general laws. The COA acted within its jurisdiction and did not arrogate judicial functions; it merely performed its constitutional duty to ensure the legality of disbursements.