TL;DR

The Supreme Court upheld the Commission on Audit’s (COA) disallowance of additional allowances and benefits granted by the Development Bank of the Philippines (DBP) to its officers and employees. The Court ruled that these benefits constituted double compensation, violating the constitutional prohibition against receiving additional pay without specific legal authorization. While DBP argued that its charter and presidential approval justified the benefits, the Court clarified that GOCC autonomy in setting compensation is not absolute and requires adherence to the principles of the Salary Standardization Law and presidential approvals. DBP officers and employees who received the disallowed amounts must refund them, but officials who approved the benefits in good faith are not held personally liable.

The Tightrope Walk: Balancing DBP Charter and Double Compensation Prohibition

This case, Development Bank of the Philippines v. Commission on Audit, revolves around the perennial tension between the operational autonomy granted to Government-Owned and Controlled Corporations (GOCCs) and the constitutional limitations on public spending, particularly the prohibition against double compensation. At its heart, the Supreme Court grapples with Notices of Disallowance (NDs) issued by the Commission on Audit (COA) against DBP for various allowances and benefits granted to its officers and employees. These NDs questioned additional compensation received by DBP officers serving in subsidiary boards and various economic benefits granted to all DBP personnel, arguing they lacked proper authorization and constituted double compensation.

DBP contested the disallowances across two consolidated cases, primarily arguing that its Revised Charter exempted it from general compensation laws, granting its Board of Directors (BOD) the authority to set compensation. DBP further claimed that a subsequent letter from then President Arroyo confirmed the BOD’s authority, thus validating the compensation plan. However, COA maintained that despite DBP’s charter, presidential approval was still necessary for such benefits, citing Presidential Decree No. (PD) 1597 and Memorandum Order (MO) No. 20. COA also argued that the benefits constituted double compensation, prohibited by Section 8, Article IX(B) of the 1987 Constitution, which states: “No elective or appointive public officer or employee shall receive additional, double, or indirect compensation, unless specifically authorized by law…” The COA decisions affirmed the NDs, prompting DBP to elevate the matter to the Supreme Court.

The Supreme Court’s analysis hinged on whether COA committed grave abuse of discretion in upholding the NDs. The Court systematically addressed DBP’s arguments, starting with the claim of presidential approval. While acknowledging the letter from President Arroyo, the Court sided with COA, declaring the approval invalid. A critical factor was the timing of the approval – April 22, 2010 – which fell within the 45-day prohibited period before the May 10, 2010 elections, as stipulated by the Omnibus Election Code. The Court stated that Section 261 of the Omnibus Election Code prohibits any government official from increasing salaries or remuneration during this period. Consequently, the presidential approval, intended to validate the compensation plan, was deemed void and ineffective.

Building on this point, the Court addressed DBP’s reliance on its charter. While Section 13 of the Revised DBP Charter does exempt DBP from the Salary Standardization Law (SSL), the Court emphasized that this exemption is not absolute. Citing precedent, the Court reiterated that GOCC compensation systems must still adhere to the principles of the SSL and are subject to presidential control. The Court quoted Philippine Economic Zone Authority v. Commission on Audit, highlighting that “[T]he charters of those government entities exempt from the Salary Standardization Law is not without any form of restriction. They are still required to report to the Office of the President… the details of their salary and compensation system and to endeavor to make the system to conform as closely as possible to the principles and modes provided in Republic Act No. 6758.” This underscores the President’s power of control over GOCCs, even those with fiscal autonomy.

The Court then tackled the core issue of double compensation. It affirmed COA’s finding that the allowances and benefits granted to DBP officers serving in subsidiary boards and the economic assistance and merit increases constituted prohibited double compensation. The Court referenced Peralta v. Mathay, explaining the purpose of the constitutional prohibition: to prevent public office from becoming a means for personal enrichment beyond legally fixed compensation. The disallowed benefits, such as director’s allowances, representation allowances, transportation allowances, honoraria, gift certificates, economic assistance, and merit increases, were deemed additional compensation because DBP officers already received similar benefits from DBP itself. The Court provided detailed tables from the NDs illustrating the parallel benefits received from both DBP and its subsidiaries, clearly demonstrating the double compensation.

However, in a significant modification based on the Madera v. Commission on Audit ruling, the Court exonerated the approving and certifying officers from personal liability for the disallowed amounts. Applying the Madera guidelines, the Court found badges of good faith in their actions. These included the belief that the benefits were authorized under DBP’s charter and long-standing practice, and the absence of prior jurisprudence disallowing similar benefits at the time of grant. The Court acknowledged that while good faith does not legalize the disallowed benefits, it shields the approving officers from personal financial responsibility. Conversely, the Court firmly ordered the recipients, including approving officers who were also payees, to refund the amounts they received, based on the principles of solutio indebiti and unjust enrichment. The Court clarified that while good faith is no longer a defense for recipients, no exceptions like “genuinely given for services rendered,” “undue prejudice,” or “social justice considerations” applied in this case to excuse the return.

Ultimately, this decision serves as a crucial reminder that while GOCCs may possess certain flexibilities in compensation matters, they are not entirely untethered from overarching constitutional and statutory limitations. Presidential approval remains a vital checkpoint for compensation plans outside the SSL framework, and the prohibition against double compensation is a bedrock principle safeguarding public funds. The DBP v. COA case reinforces the COA’s role as a fiscal watchdog and clarifies the liabilities of both approving officers and recipients in disallowance cases, aligning with the refined principles established in Madera.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Development Bank of the Philippines v. Commission on Audit, G.R. Nos. 210965 & 217623, March 22, 2022