G.R. No. 216776. April 19, 2016.
PHILIPPINE CHARITY SWEEPSTAKES OFFICE (PCSO), PETITIONER, VS. CHAIRPERSON MA. GRACIA M. PULIDO-TAN, COMMISSIONER HEIDI L. MENDOZA, COMMISSIONER ROWENA V. GUANZON, THE COMMISSIONERS, COMMISSION ON AUDIT (COA), RESPONDENTS.

FACTS

The Philippine Charity Sweepstakes Office (PCSO) Board of Directors, through Resolution No. 135 dated March 4, 2008, approved the payment of monthly Cost of Living Allowance (COLA) to its officials and employees for three years pursuant to a Collective Negotiation Agreement. In 2010, PCSO released ₱381,545.43 to qualified officials and employees of its Nueva Ecija Provincial District Office. On March 19, 2011, Executive Secretary Paquito N. Ochoa, Jr. confirmed the benefits but directed PCSO to strictly abide by Executive Order No. 7, which imposed a moratorium on new or increased salaries and incentives. On post-audit, the COA, through a Notice of Disallowance dated May 16, 2011, invalidated the payment for being contrary to DBM Circular No. 2001-03 and for constituting double compensation prohibited under the Constitution. The disallowance named liable officials, including the Department Manager as Approving Officer and the Cashier. PCSO’s appeals to the COA Regional Director and the COA Commission Proper were denied. PCSO filed this petition, arguing its Board had authority under its charter, the grant was ratified by the Executive Secretary, disallowance violated non-diminution of benefits, and recipients need not refund as they acted in good faith. During the case, COA issued an Order of Execution to withhold salaries of the named officials.

ISSUE

Whether the Commission on Audit committed grave abuse of discretion in affirming the disallowance of the Cost of Living Allowance granted by PCSO to its officials and employees.

RULING

No. The Supreme Court denied the petition, ruling that the Commission on Audit did not commit grave abuse of discretion. The Court held that the PCSO Board’s authority to fix salaries and allowances under its charter (R.A. No. 1169, as amended) is not absolute and is subject to pertinent compensation laws, requiring compliance with the standardized compensation system under P.D. No. 985, P.D. No. 1597, and R.A. No. 6758. The power is subject to review by the Department of Budget and Management to ensure conformity with government compensation policies. The Court further ruled that the subsequent confirmation by the Executive Secretary did not cure the illegality of the grant, as the allowance was issued without the required DBM approval and violated the moratorium under E.O. No. 7. The principle of non-diminution of benefits does not apply because the allowance was granted without legal basis. Regarding refund, the approving and certifying officers are solidarily liable to return the disallowed amounts. However, the rank-and-file employees who received the allowance in good faith, having no knowledge of its illegality, are not liable to refund, following the principle of solutio indebiti.