Title
Small Business Corp. vs. Commission on Audit
Case
G.R. No. 251178
Decision Date
Apr 27, 2021
SBC granted salary increases during EO No. 7 moratorium; COA disallowed payments, holding officers and recipients liable for refund. SC upheld COA, citing violation of moratorium and solutio indebiti principle.
salary increases
disallowances
violation
A

Case Digest (G.R. No. 251178)

Facts:

  • Background and Legislative Framework
    • The Small Business Corporation (SBC) is a government financial institution created under Republic Act No. 6977, as amended, with the power to set its own salary structure.
    • SBC’s authority to set compensation was further supported by enabling laws and relevant administrative orders, subject to later limitations imposed by the President.
  • Adoption of a Revised Salary Structure
    • On June 1, 2009, the SBC Board of Directors issued Board Resolution No. 1610 approving a revised organizational structure, staffing pattern, qualification standards, and salary structure.
    • The resolution underscored that the proposed salary structure was to be implemented after review and recommendations by Management and the Consultant.
    • In compliance with administrative regulations, SBC secured confirmation on its revised salary structure from the former DTI Secretary, Peter B. Favila, on February 8, 2010.
  • Presidential Limitation on Salary Increases
    • On September 8, 2010, then-President Benigno S. Aquino III issued Executive Order (EO) No. 7, which imposed a moratorium on increases in the rates of salaries and the granting of new increases in allowances, incentives, and other benefits for GOCCs and government financial institutions.
    • EO No. 7 expressly excepted only certain salary adjustments under EO No. 811 and EO No. 900, leaving the newly granted increases subject to the moratorium.
  • Implementation of the Revised Salary Structure
    • Despite the moratorium, on October 28, 2011, the SBC Board of Directors, through Board Resolution No. 1863, approved guidelines and procedures for administering the revised salary structure.
    • The guidelines provided for step increments based on either merit or length of service, with the actual increase being subject to recommendations of a Performance Evaluation Review Committee (PERC).
  • Granting of Salary Increases
    • Based on PERC’s recommendations, SBC approved salary increases in the aggregate amount of P4,489,002.09 for qualified personnel.
    • The salary increases were disbursed on varied dates within the period from September 1, 2012 to September 30, 2014.
    • In a subsequent action, SBC sought confirmation from the Governance Commission for GOCCs (GCG) regarding the payment of salary increases for 2013, but the request was denied on July 8, 2014, due to the continued effectivity of EO No. 7.
  • COA’s Audit and Disallowance
    • Between October 9 and October 14, 2014, the COA’s Audit Team issued a series of six notices of disallowance covering different components (merit increase, step increments, and adjustments) against the salary increases.
    • The disallowed amounts, aggregating to P4,489,002.09, were attributed to violations of EO No. 7.
    • The individuals held liable included the approving officers (e.g., SBC President and Chief Operating Officer; Strategy, Policy and Communications Office Head), certifying officers (e.g., the Controllership Group Head), as well as the payee-recipients of the disallowed amounts.
  • Administrative and Judicial Proceedings
    • SBC appealed the disallowances with the COA Cluster Director, who in Decision No. 2015-007 (dated May 18, 2015) affirmed the disallowances, citing the clear directive of EO No. 7 and the ultimate presidential authority over salary increases.
    • The matter was elevated to the COA Proper, which similarly affirmed the disallowances in its Decision dated December 29, 2017.
    • A motion for reconsideration was subsequently filed but denied by Resolution dated September 27, 2018.
    • SBC eventually petitioned for certiorari under Rule 64 in relation to Rule 65 of the Rules of Court challenging the COA’s rulings.

Issues:

  • Whether the COA gravely abused its discretion in affirming the disallowances of the salary increases granted by SBC.
    • The petition raised the question of whether the COA’s actions were in proper exercise of its audit power.
    • SBC contended that the salary increases were valid as they were paid pursuant to its revised salary structure approved before EO No. 7 took effect.
  • Whether the grants of increases, despite being based on a salary structure approved by the DTI Secretary, should be subject to the moratorium imposed by EO No. 7.
    • SBC argued that having fixed its salary framework under RA 6977, it was empowered to grant salary increases autonomously.
    • The issue also probed the implications of the retroactive application—SBC contended EO No. 7 should not affect salary increases granted after the approval of the salary structure.
  • The determination of civil liability of the various individuals involved with respect to the disallowed funds.
    • Whether approving/certifying officers and payee-recipients could claim exemption due to good faith or other exceptions under existing jurisprudence (particularly under the Madera Rules on Return).
    • How the principles of unjust enrichment and solutio indebiti apply in the context of improperly disbursed public funds.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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