Small Business Corporation v. Commission on Audit
REITERATIONFacts
The Antecedents: The Small Business Corporation (SBC), a government financial institution (GFI), approved a revised organizational structure, staffing pattern, qualification standards, and salary structure in 2009. The revised salary structure was approved by the Department of Trade and Industry (DTI) Secretary in 2010. On September 8, 2010, President Benigno S. Aquino III issued Executive Order (EO) No. 7, imposing a moratorium on increases in salaries, allowances, incentives, and other benefits of GOCCs and GFIs until specifically authorized by the President. Despite the moratorium, SBC's Board of Directors approved guidelines for its revised salary structure in 2011, allowing for step increments based on merit and length of service. Consequently, salary increases totaling P4,489,002.09 were paid to SBC personnel between September 1, 2012, and September 30, 2014. Procedural History: The Commission on Audit (COA) issued notices of disallowance against these salary increases, holding approving and certifying officers, as well as payee-recipients, liable. SBC appealed to the COA Cluster Director, arguing the increases were lawful as they were pursuant to a pre-EO No. 7 approved salary structure. The COA Cluster Director affirmed the disallowances. The COA Proper also affirmed the ruling, finding the disbursements violated EO No. 7. SBC's motion for reconsideration was denied. The Petition: SBC filed a petition for certiorari with the Supreme Court, assailing the COA's decision and resolution. SBC argued that the salary increases were valid because they were paid pursuant to its revised salary structure approved prior to EO No. 7, that SBC was empowered by its charter to fix salaries, and that officers and recipients acted in good faith.
Issue(s)
Whether the Commission on Audit (COA) gravely abused its discretion in affirming the disallowances of salary increases granted by the Small Business Corporation (SBC) to its personnel, and whether the salary increases granted by SBC violated the moratorium imposed by Executive Order No. 7. Whether SBC had the authority to fix salaries, considering the GOCC Governance Act of 2011 (RA 10149). Whether the approving and certifying officers, as well as the payee-recipients, are civilly liable for the return of the disallowed amounts.
Ruling
The petition is dismissed. The Supreme Court affirmed the Decision No. 2017-494 dated December 29, 2017, and the Resolution dated September 27, 2018, of the Commission on Audit. The approving and certifying officers are held solidarity liable for the return of the disallowed amounts, while the payee-recipients are held individually liable for the return of the disallowed amounts they respectively received.
Ratio Decidendi
On the propriety of the disallowances and violation of EO No. 7: The Court held that the COA did not commit grave abuse of discretion in affirming the disallowances. The salary increases were illegally disbursed in violation of the moratorium imposed by Section 9 of EO No. 7. Although SBC's revised salary structure was approved prior to EO No. 7, its implementation commenced only in October 2011, and the actual increases were granted between September 1, 2012, and September 30, 2014. Therefore, these increases fall within the ambit of EO No. 7, as they were implemented, approved, and granted during its effectivity. The Court reiterated that EO No. 7 imposed a moratorium on the actual grant of increased salary rates, irrespective of when the salary structure was approved, citing the previous ruling in SBC v. COA (G.R. No. 230628). On the authority of SBC to fix salaries: The Court clarified that even if SBC was empowered by RA 6977, as amended, to fix its salary structure, this power is subject to applicable laws, including the GOCC Governance Act of 2011 (RA 10149). Under RA 10149, the Governance Commission for GOCCs (GCG), attached to the Office of the President, is authorized to fix the compensation frameworks of all GOCCs and GFIs to prevent unconscionable remuneration packages. The Court noted that SBC itself recognized the GCG's authority by requesting confirmation of its salary increases. On the civil liability of approving and certifying officers and payee-recipients: The Court found that the approving and certifying officers acted with gross negligence. They proceeded to implement, approve, and grant the disallowed amounts despite the clear moratorium imposed by EO No. 7, which made no exception for salary increases stemming from prior reorganizations. Consequently, pursuant to Sections 38 and 43 of the Administrative Code of 1987, these officers are solidarity liable for the return of the disallowed amounts. The Court held that the payee-recipients are individually liable for the return of the disallowed amounts based on the principle of solutio indebiti. The salary increases lacked proper legal basis and were not disallowed due to mere procedural infirmities, thus not qualifying for the exception under Rule 2c of the Madera Rules on Return (genuinely given in consideration of services rendered). Furthermore, no exceptional grounds of undue prejudice or social justice were established to warrant excusing their return under Rule 2d. Therefore, following the general rule, recipients are liable to return the amounts they individually received, regardless of good faith.
Main Doctrine
Salary increases granted to government-owned or controlled corporations (GOCCs) and government financial institutions (GFIs) during the effectivity of Executive Order No. 7, which imposed a moratorium on such increases, are illegal and subject to disallowance by the Commission on Audit (COA), regardless of when the salary structure was approved. Approving and certifying officers who acted with gross negligence are solidarity liable for the return of disallowed amounts, while payee-recipients are individually liable based on solutio indebiti, unless exceptions under the Madera Rules on Return apply.