G.R. No. 213472 , January 26, 2016
Zamboanga City Water District, et al. vs. Commission on Audit

FACTS

Petitioner Zamboanga City Water District (ZCWD), a government-owned and controlled corporation (GOCC), was issued several Notices of Disallowance (NDs) by the Commission on Audit (COA) for various disbursements made in 2005. The disallowed payments included salary increases, representation and transportation allowances (RATA), monetization of leave credits, back payment of Cost of Living Allowance (COLA) and Amelioration Allowance (AA), mid-year and 14th-month incentives, Collective Negotiation Agreement (CNA) incentives, excessive per diems for board members, and payments for a separate life insurance program. ZCWD argued that its Board of Directors had the authority to fix compensation under its charter and that certain benefits were granted under its approved Program on Awards and Incentives for Service Excellence (PRAISE).
ZCWD appealed the NDs to the COA Legal and Adjudication Office, which affirmed the disallowances. The COA Commission Proper subsequently denied ZCWD’s petition for review. The COA held that ZCWD’s compensation and benefits were governed by the Salary Standardization Law (SSL) and relevant budget circulars, and that the disbursements lacked the required legal basis or approvals from the Department of Budget and Management (DBM). ZCWD then filed this petition for certiorari before the Supreme Court.

ISSUE

Whether the COA committed grave abuse of discretion in affirming the disallowance of the various allowances and benefits granted by ZCWD to its officials and employees.

RULING

The Supreme Court partially granted the petition. The Court upheld the COA’s disallowances but modified the ruling on the liability for refund. The legal logic is anchored on the principle that GOCCs like ZCWD are subject to compensation and benefit rules set by national agencies. The Court ruled that ZCWD’s charter under P.D. No. 198, as amended, did not exempt it from the SSL ( R.A. No. 6758 ) and DBM circulars. Salary increases and allowances like RATA require DBM approval, which ZCWD failed to secure. The mid-year and 14th-month incentives were correctly disallowed as the Civil Service Commission’s approval of the PRAISE program could not supersede the DBM’s exclusive authority to set compensation rates.
However, the Court applied the doctrine of good faith to limit liability for refund. Recipients of the disallowed mid-year incentive, who received it based on the CSC-approved PRAISE program in good faith, are not required to refund the amounts. For all other disallowed items, only the approving officers who authorized the illegal disbursements are liable to refund. The passive employee-recipients, who merely received the benefits, are absolved from refund, provided they received the amounts in good faith. The Court found no grave abuse of discretion by the COA, as its decisions were grounded in applicable laws and jurisprudence governing public fund expenditures.