G.R. No. 248977 - Mabilog vs. Commission on Audit

The Sangguniang Panlungsod of Iloilo City enacted Ordinance Nos. 2009-095 and 2009-096 on December 16, 2009, which paved the way for the payment of the Productivity Enhancement Incentive (PEI) to city officials and employees.
Ordinance No. 2009-095 approved Supplemental Budget No. 9 of CY 2009, appropriating a total of ₱43,465,085.68, which included a reverted amount from the Calamity Fund intended for the PEI; from this, ₱20,001,679.00 was appropriated for the PEI payment.
Ordinance No. 2009-096 authorized the realignment of ₱31,028,321.00 from Personal Services (PS) Savings to further augment the payment of the PEI.
As a result, officials and employees received a PEI of ₱30,000.00 each, though the total disbursed amounted to ₱46,424,328.24.

Upon audit, the Audit Team Leader and Supervising Auditor issued Notice of Disallowance (ND) No. 10-001-100-(09) on August 12, 2010, disallowing the total PEI payment on several grounds:

Only ₱3,228,671.76 was available under the PS limitation pursuant to Section 325(a) of RA 7160 and DBM Local Budget Circular No. 2009-93.
The reversion of ₱31,431,648.00 from the Calamity Fund back to the unappropriated surplus was contrary to the Implementing Rules and Regulations (IRR) of RA 8185.

Specific officials, including then City Mayor Hon. Jerry P. TreAas (also a petitioner later) and other officers (city administrator, treasurer, accountant, budget officers, members of the Sangguniang Panlungsod), were held liable based on their participation in the relevant transactions.
The fundamental issue was the alleged breach of budgetary rules and the PS limitation causing the disbursement to far exceed what the city was legally allowed to expend under the approved PS allocation.

Mayor Jed Patrick E. Mabilog, acting on behalf of the rank-and-file employees, initially appealed the disallowance before the COA Regional Office arguing that the grant of PEI was motivated by good faith, generosity, and that funds were derived partly from PS Savings and MOOE.
The COA Regional Office, supported by Director Alfonso B. Bedonia, Jr. of the DBM, ruled that the PEI was subject to the PS limitation and the disallowance was proper.
On December 13, 2017, the COA Proper affirmed the decision of the regional office.
Following this, the petitioners further elevated the matter before the Court via a petition for certiorari challenging the COA decisions on several grounds, including allegations of grave abuse of discretion.

The PEI should not be subjected to the PS limitation.
There was an error in the computation of the PS limitation.
The reversion of the Calamity Fund for the purpose of funding the PEI was valid.
There existed a legal basis for granting the PEI.
The officials and employees received the benefit in good faith.

They further argued that the good intentions (benevolence, magnanimity, and a motivational incentive) should mitigate the strict application of budgetary rules.

The COA and relevant issuances (including AO 276, DBM Budget Circular No. 2009-5, and DBM LBC No. 2009-93) clearly mandated that any disbursement for the PEI be subject to the PS limitation under RA 7160.
The fact that Iloilo City had exceeded its PS allocation, having only ₱3,228,671.76 available compared to the ₱46,424,328.24 appropriated for PEI, rendered the disbursement unauthorized.
Based on findings that the approving and certifying officers acted with gross negligence, they and the recipients (as payees) were held solidarily liable under the principles of solutio indebiti and the Madera rules on return.

Whether the Commission on Audit (COA) committed grave abuse of discretion in holding that the PEI granted by Iloilo City Government was subject to the Personal Services limitation provided under Section 325(a) of RA 7160.

Issue on whether the application of the PS limitation was correct in computing the available funds for the PEI.
Whether the disallowance of the PEI was proper despite the alleged good faith with which it was granted.

Whether the reversion of the Calamity Fund to the unappropriated surplus for funding the PEI was valid and in accordance with the IRR of RA 8185.
Whether there is a legal basis for the City of Iloilo in granting the PEI for CY 2009 (and by extension for subsequent years).
Whether the government employees and officials who received the PEI acted in good faith, thereby exonerating them from the liability to return the disallowed funds.