G.R. No. 253127 . November 29, 2022
LUCILO R. BAYRON, CITY MAYOR, JIMMY L. CARBONELL, HENRY A. GADIANO, FELIBERTO S. OLIVEROS III, ROBERTO D. HERREA, AND MYLENE J. ATIENZA, ALL OF THE CITY GOVERNMENT OF PUERTO PRINCESA, PETITIONERS, VS. COMMISSION ON AUDIT, RESPONDENT.

FACTS

The Sangguniang Panlungsod of Puerto Princesa City enacted Ordinance No. 438 in 2010, establishing an Early and Voluntary Separation Incentive Program (EVSIP) for city government employees. The ordinance appropriated at least ₱50 million annually from the city budget, granting substantial separation incentives computed as multiples of the basic monthly salary and years of service, in addition to other statutory benefits. The program aimed to streamline the city’s organizational structure and reward employee loyalty. The Commission on Audit (COA) subsequently issued multiple Notices of Disallowance (NDs) covering payments made under the EVSIP from 2011 to 2012, totaling ₱89,672,400.74. The COA Regional Office affirmed the disallowances, prompting the city officials to elevate the matter to the COA Commission Proper.
The COA Commission Proper, in its assailed Decision, denied the petitioners’ appeal and affirmed the disallowances. It ruled that the EVSIP was essentially a supplementary retirement plan not authorized by the Government Service Insurance Act (GSIS Act), as amended. It further found that the program was not enacted pursuant to a valid reorganization under the Local Government Code or other pertinent laws. The petitioners filed this Petition for Certiorari, arguing that the COA committed grave abuse of discretion.

ISSUE

Whether the Commission on Audit committed grave abuse of discretion in affirming the disallowance of the payments made under Puerto Princesa City’s Early and Voluntary Separation Incentive Program.

RULING

No, the COA did not commit grave abuse of discretion. The Supreme Court upheld the COA’s decision, emphasizing its constitutional mandate to ensure public funds are spent legally. The legal logic rests on the absence of statutory authority for the local government unit to create such a program. The Court clarified that while the Local Government Code grants fiscal autonomy, this does not include the power to establish a supplementary retirement benefit scheme. Retirement benefits for government employees are exclusively governed by the GSIS Act, as amended by Republic Act No. 4968 . Section 28 of the GSIS Act explicitly prohibits government agencies from adopting any supplementary retirement or pension plan without prior approval from the President, which was not secured here.
The Court rejected the argument that the EVSIP was a valid early retirement incentive tied to reorganization or redundancy. For such a program to be legal, it must be implemented pursuant to a bona fide reorganization under a specific law, such as the Local Government Code or the Attrition Law. The ordinance did not stem from an actual reorganization plan aimed at reducing personnel or improving efficiency as defined by law; it was a general incentive program. Consequently, the disbursements lacked legal basis and constituted irregular expenditures. The petitioners, as approving officers who acted in good faith but were negligent in ascertaining the legal basis of the ordinance, were held solidarily liable to return the disallowed amounts, consistent with the Court’s prevailing jurisprudence on return of disallowed funds.