Dear Atty. Gab,

Musta Atty! I’m Mario Rivera, an employee at a regional office of the Department of Agriculture here in Cebu. I’m writing because I and several colleagues are quite worried about a recent notice we received from the Commission on Audit (COA). It concerns the Hazard Pay and Subsistence Allowance we received for the entire year of 2021, amounting to roughly P45,000 each.

Apparently, the COA auditor disallowed these payments because the funds used came from our office’s savings from vacant positions and unimplemented projects that year. The notice stated there was no specific line item in the 2021 budget (General Appropriations Act) for these specific benefits, even though our own agency charter mentions them.

What confuses us is that our Regional Director secured an authorization memo from the Office of the Executive Secretary back in early 2019 allowing the use of savings for these exact benefits for CY 2018, 2019, and 2020. We continued receiving them in 2021 based on that practice. We honestly believed everything was in order because of the previous authorization and the fact that these benefits are part of our agency’s supposed incentives.

Now, COA is saying the 2019 memo didn’t cover 2021, and we might have to refund the entire amount. This is a significant sum for us, and we’ve already spent it, believing we were entitled to it. Is the COA correct? And even if the payment was technically disallowed, do we really have to return the money if we received it in good faith, relying on our Director and past approvals? We hope you can shed some light on this, Atty. Salamat po.

Sincerely,
Mario Rivera

Dear Mario,

Thank you for reaching out. I understand your concern regarding the disallowed benefits and the potential requirement to refund the amount received. This is indeed a stressful situation for many government employees who rely on expected compensation and benefits.

The core issue revolves around fundamental principles of Philippine budget law. Essentially, government funds cannot be spent without a specific appropriation or authorization mandated by law, usually through the General Appropriations Act (GAA). While certain laws might grant benefits, the funding source must be explicitly provided each year. Using ‘savings’ requires specific conditions and authorization, which are often time-bound. However, the principle of good faith can be a crucial factor when determining if recipients need to refund disallowed payments, even if the disbursement itself is ultimately deemed improper.

Navigating Government Benefits and Disallowances: When Good Faith Matters

The situation you described highlights a critical aspect of public finance management in the Philippines. The foundation rests on a constitutional mandate designed to ensure accountability and proper allocation of public resources. This principle is enshrined in the Constitution:

“No money shall be paid out of the Treasury except in pursuance of an appropriation made by law.” (Article VI, Section 29(1), 1987 Philippine Constitution)

This means that even if a separate law, like your agency’s charter or a specific ‘Magna Carta’ for certain personnel, grants benefits, the actual funds for payment must be allocated in the annual national budget, the General Appropriations Act (GAA). Without this specific appropriation, paying these benefits becomes legally questionable.

The use of ‘savings’ to cover expenditures not originally budgeted is strictly regulated. The Constitution allows certain high-ranking officials (like the President) to be authorized by law (usually the GAA itself) to use savings, but only under specific conditions. This process is called augmentation. The GAA typically defines what constitutes ‘savings’ and restricts augmentation:

“Savings refer to portions or balances of any programmed appropriation in this Act free of any obligation or encumbrance still available after the completion or final discontinuance or abandonment of the work, activity or purpose for which the appropriation is authorized, or arising from unpaid compensation and related costs pertaining to vacant positions and leaves of absence without pay.” (Typical GAA Provision, e.g., Sec. 55, GAA 2000)

“Augmentation implies the existence in this Act of an item, project, activity or purpose with an appropriation which upon implementation or subsequent evaluation of needed resources is determined to be deficient. In no case, therefore, shall a non-existent item, project, activity, purpose or object of expenditure be funded by augmentation from savings…” (Typical GAA Provision, e.g., Sec. 55, GAA 2000)

Critically, augmentation requires two things: actual savings must exist, and there must be an existing budget item that is deficient, which the savings will supplement. Savings cannot be used to fund an item that has no appropriation at all in the current GAA. Furthermore, any authorization granted, like the memo from the Executive Secretary you mentioned, is generally construed strictly and applies only to the period specified or reasonably implied. A memo authorizing the use of savings for CY 2018-2020 does not automatically extend to CY 2021 unless explicitly stated. Each GAA cycle is typically treated independently regarding the use of savings.

Therefore, based on these principles, the COA’s initial finding that the payments for 2021 were improper, lacking both specific appropriation in the 2021 GAA and valid authorization to use savings for that specific year, appears to have a strong legal basis.

However, the issue of refund involves another important legal principle: good faith. The Supreme Court has consistently ruled in several cases that even if a disbursement is properly disallowed, recipients who received the benefits in good faith may not be required to refund the amounts. Good faith is presumed when officials and employees disbursed and received benefits under the honest belief that they were entitled to them and there was a legal basis for the payment, especially if there was no prior notice or ruling declaring such payments illegal at the time they were made.

“Considering, however, that all the parties here acted in good faith, we cannot countenance the refund of subject incentive benefits… which amounts the petitioners have already received. Indeed, no indicia of bad faith can be detected under the attendant facts and circumstances. The officials and chiefs of offices concerned disbursed such incentive benefits in the honest belief that the amounts given were due to the recipients and the latter accepted the same with gratitude, confident that they richly deserve such benefits.” (Principle reiterated in jurisprudence)

In your case, reliance on the past authorization memo (even if technically expired for 2021) and the continued disbursement by your office head could be presented as evidence of good faith for both the approving officials and the recipients like yourself. The fact that you were unaware of the lack of specific legal cover for CY 2021 when you received the payments strengthens this argument.

Practical Advice for Your Situation

• Review the Notice of Disallowance (ND): Carefully examine the specific reasons stated by COA for the disallowance. Confirm it cites the lack of appropriation in the 2021 GAA and the absence of valid authorization to use savings for that year.
• Gather Evidence of Good Faith: Collect documents supporting your claim of good faith. This includes the 2019 memo (to show the basis of your belief), payroll slips, and any internal memos regarding the release of these benefits.
• Distinguish Disallowance from Refund Liability: Understand that the finding of disallowance (meaning the payment was improper) is separate from the liability to refund. Your main argument now might be focused on why you, as recipients in good faith, should not be required to return the money.
• Coordinate with Colleagues and Management: Discuss this issue with your colleagues who also received the ND and with your Regional Director or agency’s legal/administrative unit. A collective response or appeal might be more effective.
• Check COA Appeal Procedures: Familiarize yourself with the COA’s rules for appealing a Notice of Disallowance if your agency decides to contest it, or specifically regarding the refund requirement based on good faith.
• Highlight Reliance on Authority: Emphasize that you relied on the actions and presumed authority of your superiors who approved and released the benefits, and the established practice from previous years based on the earlier OP memo.
• Prepare for Possible Outcome: While the good faith argument is strong regarding the refund, be aware that the disallowance itself (making the payment technically illegal) might be upheld if the legal basis was indeed lacking for 2021. The approving/certifying officials might still face liability.

Dealing with COA disallowances can be complex. While the payment itself might have lacked the necessary legal footing for 2021 due to strict appropriation rules, the jurisprudence on good faith provides a strong basis to argue against the requirement for recipients like you to refund the benefits already received and spent, assuming you genuinely believed you were entitled to them at the time.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

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Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.