Title
Small Business Corp. vs. Commission on Audit
Case
G.R. No. 230628
Decision Date
Oct 3, 2017
SB Corp. granted merit increases to officers post-EO No. 7 moratorium; COA disallowed, upheld by Supreme Court, citing lack of GCG approval.
appeal
dismissal
merit increase

Case Summary (G.R. No. 230628)

Factual Background

Small Business Corporation is a GOCC created under RA No. 6977, providing financing services to micro, small and medium enterprises. On June 1, 2009, its Board of Directors approved BR No. 1610 establishing a revised organizational structure, staffing pattern, qualification standards and salary structure. On October 28, 2011, the Board issued BR No. 1863 to set guidelines for implementing that salary structure, including step increments granted either for merit or for length of service.

Merit Increases and Administrative Requests

On April 12, 2013, SB Corp. granted and paid merit increases to five officers occupying Job Level 6. On June 25, 2014, SB Corp.’s President and CEO sought confirmation from the Governance Commission for GOCCs (GCG) to proceed with implementation. On July 8, 2014, the GCG denied the request, citing Sec. 9 of EO No. 7 and the moratorium on salary increases.

Notice of Disallowance and COA Cluster Ruling

On August 27, 2014, the State Auditor issued Notice of Disallowance No. 14-001-401000-(13) disallowing the payments of merit increases and related payroll adjustments totaling P759,042.41 and advising discontinuance. SB Corp. appealed to the COA Cluster Director, who in a Decision dated April 29, 2015, denied the appeal and affirmed the ND on grounds including estoppel, reasoning that SB Corp. sought GCG confirmation and thereby acknowledged GCG authority.

COA En Banc Decision

SB Corp. filed a Petition for Review to the COA En Banc. In the Decision dated February 16, 2017, the COA En Banc denied the petition and sustained the ND. The COA En Banc held that SB Corp.’s charter exemption from the Salary Standardization Law did not confer absolute financial independence and that Sec. 9 of EO No. 7 applied because the EO was in effect when the merit increases were granted. The COA En Banc also treated SB Corp.’s June 25, 2014 letter to GCG as an acknowledgment of GCG jurisdiction and SB Corp.’s lack of unilateral authority to implement the increases.

Procedural Posture Before the Supreme Court

Petitioner filed a Petition for Certiorari under Rule 64 in relation to Rule 65, challenging the COA En Banc Decision as a grave abuse of discretion. The COA, through the Office of the Solicitor General, filed a Comment asserting estoppel and defending COA’s application of EO No. 7 to the April 12, 2013 merit increases.

Issues Presented to the Court

Petitioner framed the issues as whether COA gravely abused its discretion in holding that SB Corp.’s Board lacked authority to grant the merit increases; whether EO No. 7 was applied retroactively thereby impairing vested or contractual rights; whether EO No. 7 must be applied prospectively under RA No. 10149; and whether prior approvals by the Civil Service Commission or the Secretary of Trade and Industry validated the increases.

Parties’ Contentions

Petitioner contended that its Board had authority under Sec. 11-A(f) of RA No. 6977 to set compensation and that the merit increases were part of a salary structure approved as early as June 1, 2009; thus the increases were not barred by EO No. 7 and did not constitute a retroactive application. Petitioner also argued that approvals by the CSC and endorsements by certain officials validated the grant. Respondent COA argued that SB Corp. sought GCG confirmation, thereby recognizing GCG jurisdiction, that EO No. 7 was in effect when the merit increases were paid on April 12, 2013, and that the moratorium covered actual increases in salary rates regardless of the date of the salary-structure approval.

Standard of Review and Availability of Certiorari

The Court reiterated that decisions of the Commission on Audit may be reviewed by the Supreme Court only on certiorari for grave abuse of discretion amounting to lack or excess of jurisdiction, in line with Article IX-A, Sec. 7 of the Constitution and Rule 64 jurisprudence. The petitioner bore the burden to show such grave abuse and could not remedy mere errors of judgment through certiorari.

Court’s Conclusion on Applicability of EO No. 7

The Court examined the nature of the challenged merit increases and BR No. 1863’s definitions. It concluded that merit increases constituted step increments that increased the recipients’ basic salary and thus were increases in salary rates. The Court read Sec. 9 of EO No. 7 as imposing a broad moratorium on increases in rates of salaries and on new increases in allowances, incentives and other benefits, subject only to limited exceptions relating to specific tranches of the Salary Standardization Law implemented by EO Nos. 811 and 900. Because SB Corp. was exempt from the SSL, the limited exception did not apply.

Court’s Rejection of Retroactivity Argument

The Court rejected petitioner’s argument that application of EO No. 7 was retroactive because the salary structure predated the EO. The Court held that the moratorium prohibited the actual grant of increased salary rates, not merely approval of salary structures, and therefore the relevant date for application was the date on which the increases were actually given (April 12, 2013), a date after the moratorium took effect. T

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