G.R. No. 217285 , November 10, 2020
Department of Agrarian Reform Employees Association, represented by its President, Luthgarda S. Sibbaluca, Petitioner, vs. Commission on Audit, Respondent.

FACTS

The Department of Agrarian Reform Employees Association (DAREA) filed a Petition for Certiorari to reverse the Commission on Audit’s (COA) Decision No. 2014-388 dated December 17, 2014, which upheld three Notices of Disallowance (NDs). The NDs disallowed a total of ₱6,598,000.00 paid as Collective Negotiation Agreement (CNA) Incentives to officials and employees of the DAR Regional Office No. 02 (DAR-R02) for the periods January-June 2008, January-June 2009, and October-December 2009. The COA Audit Team found the disbursements illegal because the CNA Incentives were charged against the Comprehensive Agrarian Reform Program (CARP) Fund (Fund 158), violating Section 4(3) of Presidential Decree No. 1445 (the Government Auditing Code), which mandates that trust funds be spent only for their specific purpose. The Audit Team stated the CARP Fund, created under Republic Act No. 6657 (the CARP Law), was for a specific purpose and its use must be strictly scrutinized. DAR-R02 appealed, arguing the CARP Fund was a special fund, not a trust fund, and that DBM Budget Circular 2006-1 did not specify which savings could be used for CNA Incentives, thus allowing the use of CARP Fund savings. The COA Regional Office No. 2 affirmed the NDs, ruling the CARP Fund was a special fund under Executive Order No. 229, limiting its use to its specific purpose, and that DBM Budget Circular No. 2006-1 required CNA Incentives to be sourced solely from Maintenance and Other Operating Expenses (MOOE) allotment savings released under the General Appropriations Act. The COA Proper, in a consolidated decision, denied DAR-R02’s petitions for review, affirming the CARP Fund as a special fund similar to a trust fund that must be used solely for its created purpose, with any unused balance transmitted to the general funds. It held the CNA Incentives could not be directly sourced from the CARP Fund. The COA held the approving and releasing officers solidarily liable to return the amounts, while other recipients were liable only for the amounts they received under the principle of solutio indebiti. DAREA, representing rank-and-file employees, then filed this petition, arguing the CNA Incentives could be derived from CARP Fund savings based on DBM letters stating the CARP Fund was considered “consolidated and operationally one” with the DAR’s general fund for CARP objectives, and that requiring refund from members who received the benefits in good faith was grossly unfair.

ISSUE

Whether the Commission on Audit committed grave abuse of discretion in upholding the disallowance of the CNA Incentives paid from the CARP Fund and in holding the recipients liable for refund.

RULING

The Supreme Court denied the petition, ruling that the COA did not commit grave abuse of discretion. The disbursements were properly disallowed for being illegally sourced from the CARP Fund. The Court cited its settled rulings in Dubongco v. Commission on Audit and Department of Public Works and Highways, Region IV-A v. Commission on Audit, which held that the CARP Fund, as a special fund, could not be legally used to finance CNA Incentives. The CNA Incentive may only be awarded from savings in the agency’s MOOE allotment as required by DBM Budget Circular No. 2006-1. The CARP Fund is intended for agrarian reform beneficiaries, and its use for employee incentives disregards its specific purpose. The Court rejected DAREA’s argument based on DBM letters, as the character and legal restrictions on the CARP Fund as a special fund prevail. On the liability for refund, the Court affirmed the application of the principle of solutio indebiti, making each payee liable for the amount received, while approving officers are solidarily liable. The Court noted that exceptions to this refund rule may be recognized in bona fide situations where the disallowed benefits were given in consideration of services rendered, negating unjust enrichment, or where undue prejudice, social justice, or humanitarian considerations warrant excusing the return. However, such exceptions were not sufficiently established in this case to override the general rule.