G.R. Nos. 210965 & 217623. March 22, 2022.
Development Bank of the Philippines, Petitioner, vs. Commission on Audit, Respondent.

FACTS

These are consolidated petitions filed by the Development Bank of the Philippines (DBP) seeking to annul Notices of Disallowance (NDs) issued by the Commission on Audit (COA) concerning allowances and benefits granted to DBP officers and employees.
In G.R. No. 210965, COA, through its Supervising Auditor, issued Audit Observation Memoranda (AOMs) and subsequently ND No. SUB-2006-11 (06) dated May 29, 2007, disallowing the total amount of P1,629,303.34. This amount represented allowances, per diems, and honoraria (including director’s, representation, transportation, reimbursable promotional allowances, and gift certificates) paid in 2006 to DBP officers who were also serving as officers of DBP subsidiaries (DBP Management Corporation, DBP Data Center, Inc., and Industrial Guarantee Loan Fund). COA ruled these payments constituted prohibited double compensation. DBP argued its Charter exempted it from laws on compensation and that the payments were not double compensation but reimbursements for services rendered to the subsidiaries. DBP also later claimed the disallowance was moot due to a subsequent approval by then President Gloria Macapagal-Arroyo. COA denied DBP’s appeal.
In G.R. No. 217623, COA issued NDs disallowing a total of P106,599,716.93 for the years 2005 and 2006. The disallowed amounts covered: (1) the integration of officers’ allowance into basic pay (P38,260,000.00); (2) economic assistance granted to cope with rising costs (P54,154,230.00); and (3) merit increases (P14,185,486.93). COA based the disallowance on the lack of prior approval from the President of the Philippines as required by Presidential Decree No. 1597 and other issuances. DBP argued its Charter granted its Board of Directors autonomous authority over compensation and that it subsequently obtained presidential approval for the grants. COA denied DBP’s petition for review.

ISSUE

The core issue is whether the allowances, benefits, and salary adjustments granted by DBP to its officers and employees, without prior presidential approval, are valid and not subject to disallowance by COA.

RULING

The Supreme Court DENIED the petitions and AFFIRMED the assailed COA Decisions and Resolutions, with MODIFICATION regarding the return of the disallowed amounts.
The Court ruled that DBP is NOT exempt from the requirement of presidential approval for the grant of additional compensation under P.D. No. 1597. While Section 5 of the DBP Charter (E.O. No. 81, as amended by R.A. No. 8523) grants DBP autonomy to establish its compensation system, it must still conform as closely as possible with the principles of the Compensation and Position Classification Act of 1989 (R.A. No. 6758). More importantly, P.D. No. 1597 is a general law requiring presidential approval for allowances, honoraria, and fringe benefits granted to government employees, which includes DBP as a government-owned and controlled corporation (GOCC). The DBP Charter’s grant of autonomy does not expressly repeal P.D. No. 1597. Therefore, the requirement for presidential approval stands.
The Court also held that the allowances and per diems received by DBP officers from DBP subsidiaries constituted prohibited double compensation under Section 8, Article IX-B of the Constitution and relevant laws. The officers were already receiving full compensation from their primary positions in DBP. Serving in the subsidiaries was incidental to their DBP functions, and receiving additional compensation for such service, without a law expressly authorizing it, is prohibited.
Regarding the subsequent presidential approval obtained by DBP, the Court ruled it was INVALID. The approval for the 2006 benefits was granted on April 22, 2010, which was within the 45-day prohibited period before the May 10, 2010 elections, in violation of Section 261(g) of the Omnibus Election Code. An approval made in violation of law is void.
On the liability of the approving and payee officials, the Court applied the rules on return based on good faith. Following the doctrine in Madera v. Commission on Audit, recipients who received the disallowed amounts in good faith and without knowledge of the irregularities are not liable to return them. The approving officers, however, are presumed to have knowledge of the law and acted in bad faith in approving the disbursements without the required presidential approval. They are solidarily liable to return the disallowed amounts. The Court modified the COA rulings to reflect that passive recipients (payees) need not return the amounts if they received them in good faith.