G.R. No. 247228 , March 02, 2021.
Hagonoy Water District, Celestino S. Vengco, and Remedios M. Osorio, Petitioners, vs. Commission on Audit (COA), Respondent.

FACTS

Petitioner Hagonoy Water District (HWD), a government-owned and controlled corporation, along with its General Manager Celestino S. Vengco, Jr. and Finance Division Manager Remedios R. Osorio, granted a rice allowance to its officials and employees in 2012 pursuant to Board Resolution No. 016 dated October 13, 1992. The Commission on Audit (COA) issued a Notice of Disallowance (ND No. 2013-001-HWD(2012)) disallowing, among other items, the P408,000.00 worth of rice allowance paid to employees hired after July 1, 1989. The disallowance was based on Section 12 of Republic Act No. 6758 (the Compensation Standardization Law) and COA Resolution No. 2004-006, which allow the grant of non-integrated benefits only to incumbents as of July 1, 1989. Petitioners appealed, arguing good faith as the grant had been an established practice since 1993 and was immediately discontinued upon receipt of the ND. The COA Regional Office and the COA Proper sustained the disallowance. The COA Proper, in Decision No. 2017-486, affirmed the ND but ruled that passive recipients who received the benefits in good faith need not refund them. However, it held the members of the HWD Board of Directors solidarily liable to refund the disallowed amounts. Petitioners filed this Petition for Certiorari, challenging the disallowance of the rice subsidy and the liability to refund.

ISSUE

1. Whether the COA gravely abused its discretion in sustaining the disallowance of the rice subsidy.
2. Whether the COA gravely abused its discretion on its disposition with regard to the liability to refund the disallowed rice subsidy.

RULING

1. The COA did not commit grave abuse of discretion in sustaining the disallowance. Section 12 of RA 6758 provides that all allowances are deemed included in standardized salary rates except those specifically enumerated. The second sentence of Section 12 allows additional compensation not integrated into the standardized rates to continue only for incumbents as of July 1, 1989 who were actually receiving them as of that date. The rice allowance is not among the excluded allowances. DBM Corporate Compensation Circular No. 10 also explicitly states that such benefits may be continued only for incumbents as of June 30, 1989. Therefore, the grant of rice allowance to employees hired after July 1, 1989 was correctly disallowed for being contrary to law. The principle of non-diminution of pay does not apply as it only protects benefits received by incumbents as of the law’s effectivity.
2. The COA did not commit grave abuse of discretion in its ruling on liability. The Court affirmed the COA’s finding that the approving and certifying officers (the HWD Board of Directors and the General Manager) acted in good faith but were negligent in the performance of their duties. Good faith does not absolve them of liability for refund under the doctrine of solutio indebiti, as they authorized and made the illegal payments. However, following jurisprudence, liability for refund is based on the nature of participation, degree of responsibility, and good faith. The passive recipients (the employees who merely received the allowance) were correctly exempted from refund as they received the benefits in good faith. The approving officers, while in good faith, are not similarly situated to passive recipients; their approval and certification were direct causes of the illegal disbursement. Therefore, they are liable to refund the disallowed amounts solidarily. The Court modified the COA ruling to clarify that the solidary liability extends to all approving/certifying officers involved, not just the Board of Directors.