Metropolitan Naga Water District v. Commission on Audit
REITERATIONFacts
The Antecedents: This case concerns the disallowed payment of accrued Cost of Living Allowance (COLA) from 1992 to 1999, totaling P1,428,166.26, to employees of the Metropolitan Naga Water District (MNWD). The disallowance was based on the premise that under Republic Act No. 6758, the Salary Standardization Law, such allowances are considered integrated into the basic salary, and any disbursement to the contrary is improper. The core of the dispute lies in whether MNWD employees were legally entitled to receive this COLA during the specified period, and consequently, whether the payments made were valid or constituted illegal disbursement of public funds. Procedural History: The Commission on Audit (COA), through its Supervising Auditor and Audit Team Leader, issued a Notice of Disallowance on December 28, 2010, disallowing the P1,428,166.26 payment of accrued COLA. The MNWD General Manager appealed this notice on February 9, 2011, arguing entitlement based on prior rulings and a COA Memorandum. The COA Regional Director denied this appeal on August 30, 2012. Subsequently, MNWD filed a Petition for Review with the COA, which was denied on August 15, 2014, and a subsequent Motion for Reconsideration was also denied on March 9, 2015. This led to the filing of the present Petition for Review on Certiorari before the Supreme Court. The Petition: The petitioners, MNWD and its officers, seek review of the COA's decisions through a Petition for Review on Certiorari under Rule 64. They argue that the COA gravely abused its discretion by failing to recognize their entitlement to COLA from 1992 to 1999 as a matter of right, citing Letter of Implementation No. 97 and invoking the equal protection clause. They contend that local water districts became covered by Letter of Implementation No. 97 only in 1992, after the Supreme Court's decision in Davao City Water District, et al v. Civil Service Commission became final. Petitioners also invoke prior rulings suggesting that even if disallowed, refunds might not be necessary due to good faith. The respondent, the Commission on Audit, counters that Letter of Implementation No. 97 does not explicitly include local water districts and that COLA is integrated into basic salary under Republic Act No. 6758, requiring proof of prior entitlement to COLA as of July 1, 1989.
Issue(s)
Whether or not employees of petitioner Metropolitan Naga Water District were entitled to accrued Cost of Living Allowance (COLA) from 1992 to 1999. Whether or not the certifying/approving officers and payees should refund the disallowed amounts.
Ruling
The Petition is DISMISSED. The August 15, 2014 Decision and March 9, 2015 Resolution of the Commission on Audit are AFFIRMED with MODIFICATION in that Certifying/Approving Officers Engr. Rey C. Reyes, Emma A. Cuyo, and Belen A. Alma, and the payees are ABSOLVED from refunding the amount of P1,428,166.26 in Notice of Disallowance (ND) 10-008-101(08).
Ratio Decidendi
On the entitlement to accrued COLA from 1992 to 1999: The Supreme Court reiterated its ruling in Metropolitan Naga Water District v. Commission on Audit (782 Phil. 281 (2016)) that local water districts are indeed covered by Letter of Implementation (LOI) No. 97. However, this inclusion does not automatically grant entitlement to accrued COLA. The Court emphasized that Republic Act No. 6758 (Salary Standardization Law) mandates the integration of all allowances, except those specifically enumerated in Section 12, into the basic salary. Numerous prior cases, including Maritime Industry Authority v. Commission on Audit (750 Phil. 288 (2015)), Zamboanga City Water District v. Commission on Audit (779 Phil. 225 (2016)), and Balayan Water District v. Commission on Audit (G.R. No. 229780, January 22, 2019), have consistently held that COLA is deemed integrated into the standardized salary rates following the enactment of RA 6758. The Court clarified that the "legal limbo" period between July 1, 1989, and March 16, 1999, as discussed in Philippine Ports Authority Employees Hired After July 1, 1989 v. Commission on Audit (506 Phil. 382 (2005)), does not grant a blanket entitlement to COLA back pay. For such entitlement to exist, it must be proven that employees were receiving COLA on top of their salaries prior to July 1, 1989, and that its discontinuation resulted in a diminution of pay or a lesser compensation package. The MNWD failed to establish a practice of paying COLA in addition to standardized salaries prior to the effectivity of RA 6758. Therefore, the accrued COLA payments were correctly disallowed. On the refund of disallowed amounts: The Court applied the rules on return of disallowed amounts as clarified in Madera v. Commission on Audit (G.R. No. 244128, September 8, 2020). While the general rule is that disallowed amounts must be refunded, exceptions exist. The payees, being passive recipients, are generally absolved if they received the amounts in good faith. However, the Madera ruling clarified that good faith of payees is not determinative of their liability to return, and the Court may excuse return based on undue prejudice, social justice, or other bona fide exceptions. In this case, the payments were made between 2002 and 2007, and the Notice of Disallowance was issued in 2010, more than three years later. Many payees had already retired or resigned. Requiring them to return the amounts after such a protracted period would cause undue prejudice. Furthermore, the certifying/approving officers may also be absolved if they acted in good faith, in the regular performance of official functions, and with the diligence of a good father of the family. The Court considered the prevailing confusion regarding COLA integration following RA 6758 and prior conflicting jurisprudence, such as De Jesus v. Commission on Audit (355 Phil. 584 (1998)) and Philippine Ports Authority Employees Hired After July 1, 1989, as badges of good faith. The payments were made pursuant to a Board Resolution and prior to the issuance of Department of Budget and Management (DBM) Circular No. 2005-002, which clarified the prohibition on COLA payments. Therefore, the certifying/approving officers and the payees were absolved from refunding the disallowed amounts.
Main Doctrine
The Cost of Living Allowance (COLA) for employees of local water districts, including the Metropolitan Naga Water District (MNWD), is deemed integrated into their basic salary under Republic Act No. 6758 (Salary Standardization Law), and therefore, any claim for accrued COLA from 1992 to 1999 is without legal basis and should be disallowed. However, certifying/approving officers and payees may be absolved from refunding the disallowed amounts if they acted in good faith, considering the prevailing confusion and lack of definitive jurisprudence at the time of payment.