G.R. No. 230628 October 3, 2017
SMALL BUSINESS CORPORATION, Petitioner vs. COMMISSION ON AUDIT, Respondent

FACTS

Petitioner Small Business Corporation (SB Corp.), a government-owned and controlled corporation (GOCC), granted merit increases to five of its officers in April 2013 pursuant to its Board Resolution No. 1863. This resolution implemented a revised salary structure authorized under Section 14(f) of Republic Act No. 9501 (Magna Carta for MSMEs), which exempted SB Corp. from the Salary Standardization Law and allowed its Board to grant compensation similar to other government financial institutions. However, prior to this grant, President Benigno Aquino III had issued Executive Order No. 7 in 2010, imposing a moratorium on salary and allowance increases for GOCC personnel unless specifically authorized by the President.
The Commission on Audit (COA) disallowed the payments through a Notice of Disallowance, citing the moratorium under EO No. 7. SB Corp. argued that its charter exemption under RA 9501 empowered its Board to grant such increases independently. The Governance Commission for GOCCs (GCG), to which SB Corp. had belatedly sought confirmation in 2014, denied the request, upholding the moratorium. SB Corp. elevated the matter to the COA Commission Proper, which affirmed the disallowance, leading to this petition.

ISSUE

Whether the COA committed grave abuse of discretion in affirming the disallowance of the merit increases granted by SB Corp. to its officers.

RULING

The Supreme Court dismissed the petition and upheld the COA’s decision. The Court ruled that no grave abuse of discretion attended COA’s affirmance of the disallowance. The legal logic centered on the hierarchy of laws and the specific temporal application of the presidential moratorium. While RA 9501 granted SB Corp.’s Board authority over compensation, this statutory grant did not operate in a vacuum. Executive Order No. 7, issued by the President pursuant to his residual administrative powers, imposed a clear and specific prohibition on new increases for GOCCs. This moratorium, being a valid exercise of executive power to ensure fiscal discipline, served as a qualifying condition to the general authority provided by statute.
The Court emphasized that the moratorium under EO No. 7 was a direct and superior prohibition that SB Corp. was obligated to follow at the time of the grant in 2013. The exemption in RA 9501 could not be interpreted as a blanket authority to disregard contemporaneous executive directives aimed at controlling government expenditure. Furthermore, SB Corp.’s act of seeking GCG confirmation only in 2014, after the disallowed payments had been made, demonstrated a disregard for established rules. Consequently, the merit increases were illegally granted in violation of a standing executive order, making the COA’s disallowance perfectly valid and within its constitutional mandate to prevent irregular, unnecessary, or extravagant disbursements of public funds.