G.R. No. 244336 - Social Security System vs. Commission on Audit

Case Summary (G.R. No. 244336)

Factual Background

During calendar years 2005, 2006, 2007, and 2008, the Western Mindanao Division of the Social Security System granted and released Collective Negotiation Agreement (CNA) cash incentives in the amount of P20,000.00 each to its rank and file employees. The total disbursed amounted to P9,333,319.66. The SSS defended the grants as having been authorized by a Supplemental CNA allegedly embodied in Social Security Commission Resolution No. 183 and as resulting from consultations with employee representatives and relevant agencies.

Notice of Disallowance

On March 26, 2012, State Auditor IV Annabellea Uy issued Notice of Disallowance No. 2012-03 in the amount of P9,333,319.66. The Notice identified multiple infirmities: absence of the alleged SSC Resolution No. 183; absence of any provision in the duly executed CNA between SSS management and the employees' organization authorizing the cash incentives; failure to meet the operating income condition in the Corporate Operating Budget for certain years; use of excessive accruals and improper apportionment of savings; and lack of evidence that the incentives were sourced from savings generated by cost-cutting measures as required by DBM Budget Circular No. 2006-1 and PSLMC Resolution No. 2, Series of 2003. The Notice named certain approving and certifying officers and the payees as liable.

COA Regional Office Decision

On appeal, the COA Regional Director affirmed the disallowance by Decision dated November 26, 2013. The regional tribunal verified with the COA-SSS Head Office that no SSC Resolution No. 183 existed. It found no authority in the executed CNAs to support the cash payments, concluding that payment without such authority violated Section 5.1 of DBM Budget Circular No. 2006-1. The Regional Office further held that the fixed P20,000.00 grant contravened Section 5.6.1 of the same Circular, that the use of eighty percent of savings for the CNA incentives breached the required apportionment under Section 6.1.3, and that petitioner failed to show that the sums came from savings generated by identified cost-cutting measures as required by Section 7.1.1.

COA-Commission Proper Proceedings and Decision

The COA-Commission Proper initially dismissed the petition for late filing by Decision No. 2015-045 dated February 23, 2015. On reconsideration, the COA-CP resolved the petition on the merits in Decision No. 2018-305 dated March 15, 2018. The Commission Proper sustained the Regional Office's findings that SSC Resolution No. 183 was non-existent, that the P20,000.00 grant violated Sections 5.6.1 and 5.7 of DBM Budget Circular No. 2006-1, and that petitioner failed to prove compliance with Section 3 of PSLMC Resolution No. 2, Series of 2003. The COA-CP modified the liability finding by absolving passive recipients from refund due to lack of knowledge but sustained the liability of approving and certifying officers for the disallowed amounts.

Present Petition and Parties' Contentions

The Social Security System filed a Petition for Review on Certiorari before the Court seeking nullification of COA-CP Decision No. 2018-305 insofar as it affirmed the disallowance and held approving and certifying officers jointly and solidarily liable, while absolving employees from return. Petitioner asserted that negotiations and consultations occurred with the employee union, DBM, and PSLMC; that SSC had previously authorized similar grants; and that the officers acted in good faith in performing official duties. Petitioner also argued that, under the principle against unjust enrichment, passive recipients should return the amounts. The Commission on Audit, through the Solicitor General and COA counsel, defended the COA-CP rulings. COA argued that violation of DBM Budget Circular No. 2006-1 and PSLMC Resolution No. 2 warranted disallowance, that approving and certifying officers acted in bad faith or with gross negligence, and that payees lacked knowledge of irregularity and therefore should not be held liable to refund.

Issues Presented

The Court framed the principal issues as: (1) whether the COA-CP gravely abused its discretion in affirming the disallowance of the CNA incentives for 2005 to 2008; and (2) whether the approving and certifying officers and the employee recipients are liable to return the disallowed amounts.

Supreme Court Ruling — Liability of the CNA Grants

The Court affirmed with modification the COA-CP Decision No. 2018-305. It held that the CNA incentives for 2005, 2006, 2007, and 2008 lacked legal basis and violated auditing rules and regulations. The Court found that PSLMC Resolution No. 2, Series of 2003 permits CNA incentives only upon compliance with stated conditions, and that A.O. 135 and DBM Budget Circular No. 2006-1 set mandatory sourcing, apportionment, timing, and procedural requirements. The Court sustained COA's findings that SSC Resolution No. 183 was inexistent, that the executed CNAs did not provide for cash incentives for the years involved, that the fixed amount of P20,000.00 pre-determined each recipient's share in contravention of Section 5.6.1, and that petitioner failed to show that payments were sourced from savings generated by identified cost-cutting measures or that the conditions of Section 3 of PSLMC Resolution No. 2 were satisfied. The Court concluded that COA did not commit grave abuse of discretion in disallowing the payments.

Legal Basis and Reasoning on Liability

The Court applied statutory and precedential standards governing unlawful public expenditures and officer liability. It cited Section 43, Chapter V, Book VI of the 1987 Administrative Code and related provisions that make illegal payments void and impose joint liability on officials authorizing or making such payments and on recipients. The Court relied on its recent elucidation in Madera, et. al. v. Commission on Audit, G.R. No. 244128, September 18, 2020, which clarified the interplay between Sections 38 and 39 of the Administrative Code, Section 43, and solutio indebiti and unjust enrichment principles. The Court emphasized that the presumption of good faith for public officers yields when explicit rules are violated. It noted jurisprudence holding that deliberate disregard of explicit issuances amounts to gross negligence or bad faith.

Liability of Approving and Certifying Officers

Applying the established badges of bad faith and gross negligence, the Court found that the approving and certifying officers of SSS-Western Mindanao Division acted with gross negligence amounting to bad faith. The Court recited several attendant circumstances that defeated claims of good faith: approval and certification despite the nonexistence of SSC Resolution No. 183; absence of any CNA provision authorizing the incentives for 2005 to 2008; predetermination of the amount in violation of Section 5.6.1 of DBM Budget Circular No. 2006-1; improper use of eighty percent of savings contrary to Section 6.1.3; lack of evidence that amounts paid were sourced from savings generated by identified cost-cutting measures; and failure to establish compliance with the conditions

Case Syllabus (G.R. No. 244336)

Parties and Procedural Posture

Petitioner Social Security System (SSS) appealed from the Commission on Audit's disallowance of CNA incentives granted to SSS-Western Mindanao Division employees.
Respondent Commission on Audit (COA) issued Notice of Disallowance No. 2012-03 on March 26, 2012 for P9,333,319.66.
The COA Regional Office affirmed the disallowance by Decision dated November 26, 2013.
The COA-Commission Proper initially dismissed the petition for late filing in Decision No. 2015-045 dated February 23, 2015 but on reconsideration resolved the petition on the merits in Decision No. 2018-305 dated March 15, 2018.
Petitioner filed a Petition for Review on Certiorari before the Supreme Court seeking nullification of Decision No. 2018-305 insofar as it affirmed the disallowance and fixed liability.
The Supreme Court affirmed the COA decisions with modification and ordered restitution by both recipients and approving/certifying officers.

Key Factual Allegations

Petitioner granted cash CNA incentives of P20,000.00 each to rank-and-file employees of SSS-Western Mindanao Division (SSS-WMD) for calendar years 2005, 2006, 2007, and 2008 totaling P9,333,319.66.
Petitioner relied on a purported Supplemental CNA in the form of Social Security Commission Resolution No. 183 as authority for the grant.
COA found that SSC Resolution No. 183 did not exist in petitioner’s records and that petitioner failed to attach the resolution to its COA pleadings.
COA found no provision in the duly executed CNAs between SSS management and the employees’ organization (ACCES) that authorized the CNA incentives for the years in question.
COA also found that the P20,000.00 per-employee grant was predetermined and that petitioner used up to 80% of identified savings for CNA incentives in certain years.
COA determined that petitioner failed to show that the incentives were sourced from savings generated by cost-cutting measures and that petitioner did not meet financial conditions required by applicable rules for some years.

Statutory Framework

PSLMC Resolution No. 2, Series of 2003 prescribes the conditions for grant of CNA incentives, including meeting targeted operating income, reduced operating expenses, and remittance of dividends where applicable.
DBM Budget Circular No. 2006-1 governs CNA incentives and contains key provisions on authority to grant incentives, prohibition on predetermining amounts, timing of payment, apportionment of savings, and sourcing from MOOE savings.
A.O. 135 affirmed the grant of CNA incentives subject to compliance with PSLMC Resolution No. 2 and sourcing from savings generated by identified cost-cutting measures.
Section 43, Chapter V, Book VI of the 1987 Administrative Code prescribes joint and several liability for illegal expenditures.
Sections 38 and 39, Chapter 9, Book I of the 1987 Administrative Code provide the presumption of good faith for public officers and conditions for civil liability.
Section 52, Chapter 9, Title I-B, Book V of the 1987 Administrative Code and Sections 102 and 103 of the Government Auditing Code reiterate personal liability for unlawful expenditures.
Section 49 of PD 1177 and Section 19 of the Manual on Certificate of Settlement and Balances inform COA practice on disallowances and assignment of liability.
The Court applied controlling jurisprudence including Madera, et. al. v. COA and related precedents on return of disallowed amounts and the scope of officer and payee liability.

Issues

Whether the COA-Commission Proper gravely abused its discretion when it affirmed the disallowance of the 2005–2008 CNA incentives.
Whether the approving and certifying officers and the individual employee recipients are liable to return the disallowed amounts.

Ruling and Disposition

The Supreme Court held that