G.R. No. 199439 - City of General Santos vs. Commission on Audit

The City of General Santos enacted Ordinance No. 08, series of 2009, known as the "GenSan Scheme on Early Retirement for Valued Employees Security (GenSan SERVES)" on August 13, 2009, to provide an early retirement incentive program.
This ordinance followed an organizational development initiative beginning with Executive Order No. 40, series of 2008, creating management teams to streamline the local government services. It was part of a broader organizational masterplan adopted through Executive Order No. 13, series of 2009.
The ordinance aimed to entice employees, particularly those unproductive due to health reasons, to voluntarily retire early.

Qualified employees include those below 60 years but not less than 50 years of age, and sickly employees 40 to below 50 years of age, with a minimum continuous service of 15 years.
Section 5 provides an early retirement incentive of 1.5 months’ latest basic salary for every year of service, on top of applicable GSIS or PAG-IBIG benefits (as amended to exclude payments passed on to the employer).
Section 6 provides post-retirement incentives such as a cash gift for sickly employees (₱50,000), lifetime free medical consultation at General Santos City Hospital, annual hospital aid (up to ₱5,000), and a 14-karat gold ring.
The program was a one-time offer with a two-month availment period from its effectivity. Out of 1,361 regular employees, 50 applied, and 39 qualified and received benefits in two tranches (January and July 2010).

The City’s audit team inquired COA about the legality of Ordinance No. 08, leading COA’s Regional Director to opine that the ordinance lacked legal basis and was contrary to the GSIS Act.
COA’s Office of General Counsel issued Opinion No. 2010-021 declaring the ordinance a prohibited supplementary retirement benefit scheme under Section 28, paragraph (b) of Commonwealth Act No. 186, as amended.
COA applied jurisprudence from *Conte v. Commission on Audit* and *Larao v. Commission on Audit* concluding that early retirement schemes require a law authorizing them for validity.
The city’s motions for reconsideration and appeals were denied by COA in decisions dated January 20, 2011, and October 17, 2011. COA directed issuance of a Notice of Disallowance on the disbursements under GenSan SERVES.
COA emphasized that the ordinance was not based on a law passed by Congress, and local government units have no express power under the Local Government Code to create early retirement programs.
The city cited other LGUs’ early retirement ordinances, such as Cebu’s, but COA noted amendments to laws like Republic Act No. 6683 affected their applicability.

The City of General Santos filed a special civil action for certiorari asking the Supreme Court to review COA’s rulings and declare COA’s findings as grave abuse of discretion.
The city argued that Ordinance No. 08 provided lawful severance pay and separation benefits, with the early retirement program aligned with lawful reorganization powers under Sections 16 and 76 of the Local Government Code and subject to Republic Act No. 6656.
The City contended COA’s findings were overly broad, that Section 6 post-retirement incentives were valid, and that the ordinance was enacted in good faith and as part of genuine reorganization and streamlining efforts.

Whether the Commission on Audit committed grave abuse of discretion in declaring Ordinance No. 08, series of 2009 (GenSan SERVES), a prohibited supplementary retirement benefit plan under Section 28, paragraph (b) of Commonwealth Act No. 186, as amended, and thus invalid for lack of a law authorizing it.
Whether the local government unit has the authority under the Local Government Code and other applicable laws to enact an early retirement or severance benefit program in the context of reorganization.
Whether Section 6 of Ordinance No. 08, providing post-retirement benefits (such as cash gifts and free medical consultations), is valid and not proscribed by existing laws.