Ancheta vs. Commission on Audit

A local water district, as a GOCC with an original charter under PD No. 198, has been covered by RA No. 6758 since the law's effectivity on July 1, 1989, and only employees who were incumbents and actually receiving non-integrated additional compensation as of that date may continue to receive such benefits; DBM advisory letters prescribing a different reckoning date cannot override the statutory incumbency requirement.

The Subic Water District (SWD) is a government-owned and controlled corporation (GOCC) organized under Presidential Decree No. 198, as amended, which took effect in 1973. Republic Act No. 6758, the Salary Standardization Law, took effect on July 1, 1989, and applied to all positions in government including GOCCs, consolidating allowances into standardized salary rates except for specific excluded benefits and non-integrated compensation being received by incumbents as of that date. The DBM issued Corporate Compensation Circular No. 10 on February 15, 1999 to implement RA No. 6758, enumerating additional allowances not integrated into the standardized salary and allowed to be continuously given only to incumbents as of June 30, 1989. The relationship between water districts and the Salary Standardization Law had been settled in a line of cases beginning with Baguio Water District vs. Trajano (1984) and Davao City Water District vs. Civil Service Commission and Commission on Audit (1991), which declared water districts as GOCCs with original charters subject to COA and CSC jurisdiction.

The Subic Water District (SWD) is a government-owned and controlled corporation created and organized pursuant to Presidential Decree No. 198, as amended, which took effect in 1973. In 2010, SWD released an aggregate amount of ₱3,354,123.50 worth of benefits to its officers and employees, including rice allowance, medical allowance, Christmas groceries, year-end financial assistance, mid-year bonus, and year-end bonus. Christmas groceries were also granted to its Board of Directors. These benefits were granted pursuant to previous board resolutions dating from 1995 to 1999.

On August 22, 2011, the COA Audit Team issued Notice of Disallowance No. 2011-002, disallowing the total amount of ₱3,354,123.50 because the benefits were granted to persons employed after June 30, 1989, in violation of DBM Corporate Compensation Circular No. 10 dated February 15, 1999. The COA Audit Team cited paragraph 5.5 of DBM CCC No. 10, which enumerated additional allowances not integrated in the standardized salary rate and allowed to be continuously given only to incumbent employees actually receiving such benefits as of June 30, 1989. Since the SWD officers and employees who received the additional benefits in 2010 were employed after that date, the grants were deemed unauthorized. The persons charged responsible to settle the disallowed amounts were Ancheta as General Manager who approved the transaction, Rapsing as Corporate Budget Specialist who certified the expenses, Corpuz as Cashier and disbursing officer, and the other officers and employees who received the benefits, except those incumbents as of June 30, 1989.

Ancheta appealed to the COA Regional Office No. 3, which denied the appeal on March 28, 2012, declaring the benefits illegal for violating Section 12 of RA No. 6758. Ancheta then filed a Petition for Review with the COA Proper, which affirmed the COA-R03 ruling on December 28, 2016. Ancheta belatedly moved for reconsideration, and on December 27, 2017, the COA Proper partially granted the motion: it sustained the disallowance but exempted the regular, casual, and contractual employees from refund as passive recipients, excluded Corpuz from solidary liability, and directed the Audit Team Leader to issue a Supplemental ND to include the SWD Board of Directors as solidarily liable.

Petitioners elevated the matter to the Supreme Court, relying primarily on two DBM Letters — one dated November 8, 2000 from Secretary Diokno and another dated April 27, 2001 from Secretary Boncodin — which opined that local water districts (LWDs) operated as private corporations before the Supreme Court's 1992 ruling in Davao City Water District vs. Civil Service Commission and Commission on Audit, and that the grant of allowances and fringe benefits had long been an established practice. These Letters authorized the continuous grant of allowances found to be an established practice as of December 31, 1999, subject to certain conditions, and confirmed allowances already granted as of that date. Petitioners contended that the benefits were authorized by these DBM opinions and that, assuming the disallowance was sustained, they should not be held liable for refund given their good faith in relying on those Letters and board resolutions.

• Authority of DBM Letters: Petitioners maintained that the DBM Letters dated November 8, 2000 and April 27, 2001, issued by Secretaries Diokno and Boncodin respectively, authorized the continuous grant of allowances and fringe benefits found to be an established practice of LWDs as of December 31, 1999, despite the effectivity of RA No. 6758 on July 1, 1989.
• GOCC Status and Coverage: Petitioners argued that LWDs became GOCCs only on March 12, 1992 upon the finality of the Court's decision in Davao City Water District vs. Civil Service Commission and Commission on Audit, and were not formally placed under the coverage of RA No. 6758 as of January 1, 1997.
• Good Faith: Petitioners contended that, assuming the disallowance is sustained, they should not be held liable for the refund because they acted in good faith, relying on the DBM Letters and board resolutions which they implemented as a matter of duty.
• Board's Inherent Power: Petitioners argued that the power to grant allowances resides with the Board of Directors, and the approving and certifying officers merely implemented the board resolutions as a matter of duty.
• Prior DBM Authority: Petitioners invoked the authority given by the DBM to SWD's former general manager, Vindua, to continue payment of specific allowances or fringe benefits in 2002 and 2003.

• GOCC Status Upon Creation: The COA maintained that LWDs are GOCCs upon their creation under PD No. 198, and therefore have been covered by RA No. 6758 since its effectivity on July 1, 1989.
• Statutory Incumbency Requirement: The COA stood firm that only additional compensations given to incumbents as of July 1, 1989 shall be allowed in accordance with RA No. 6758, and that the DBM Letters prescribing December 31, 1999 as the reckoning date cannot override the statutory date.
• Solidary Liability: The COA argued that the violation of RA No. 6758 renders the approving and certifying officers solidarily liable to settle the disallowed amounts.

• Coverage of RA No. 6758: Whether SWD was already covered by RA No. 6758 when the 2010 benefits were granted.
• Propriety of Disallowance: Whether the disallowance of the 2010 benefits was proper.
• Liability for Refund: Whether petitioners should be held liable for the refund of the disallowed amounts.

• Coverage of RA No. 6758: Yes. SWD was already a GOCC covered by RA No. 6758 effective July 1, 1989, having been created under PD No. 198 which took effect in 1973; the Court's 1992 ruling in Davao City Water District merely interpreted PD No. 198 and did not create the GOCC status prospectively.
• Propriety of Disallowance: Yes, the disallowance was proper. The benefits granted to SWD officers and employees were unauthorized because the recipients were not incumbents as of July 1, 1989, and the DBM Letters prescribing December 31, 1999 as the reckoning date cannot override the statutory incumbency requirement; the Christmas groceries granted to the Board of Directors were also unauthorized for lack of the required board resolution and LWUA approval under PD No. 198, as amended by RA No. 9286.
• Liability for Refund: Yes, but limited to the net disallowed amounts. Ancheta and Rapsing, as approving and certifying officers, were held solidarily liable to return only the net disallowed amounts — the total disallowed amount less the amounts excused to be returned by the other recipients — because their gross negligence in disregarding clear statutory provisions and prevailing jurisprudence negated the presumption of good faith.

• Coverage of RA No. 6758: Section 4 of RA No. 6758 expressly provides that its provisions apply to all positions in government, including GOCCs and government financial institutions. SWD is a GOCC with a special charter, created and organized pursuant to PD No. 198, which took effect in 1973. This was confirmed in Davao City Water District vs. Civil Service Commission and Commission on Audit (1991), citing Baguio Water District vs. Trajano (1984) and Tanjay Water District vs. Gabaton (1989), which declared water districts as GOCCs with original charters. The Court's interpretation in Davao City Water District constitutes part of the law, effective from the date the law was originally passed, because it merely established the contemporaneous legislative intent. Accordingly, upon its creation by PD No. 198, SWD was already a GOCC covered by RA No. 6758 effective July 1, 1989. The only exception to the extensive coverage of the Salary Standardization Law is when the GOCC's charter specifically exempts the corporation from it, and no such exemption exists in PD No. 198. However, RA No. 6758 does not apply to LWD board of directors, as explained in Baybay Water District vs. Commission on Audit (2002), because their functions are limited to policy-making under Section 18 of PD No. 198 and they receive per diems rather than salaries.

• Propriety of Disallowance: For the benefits granted to SWD officers and employees, DBM CCC No. 10, issued pursuant to the authority given to the DBM under the first sentence of Section 12 of RA No. 6758, allowed the grant of certain benefits conditioned upon the incumbency requirement — that the recipients were incumbents as of July 1, 1989 and actually receiving such benefits as of that date. Petitioners were not incumbents as of that date. The DBM Letters, which authorized the grant of these benefits as an established practice since December 31, 1999, were erroneous and cannot be relied upon because they prescribed a different reckoning date than that fixed by the legislature. In Torcuator vs. Commission on Audit, the Court ruled that these Letters cannot validly replace the specific date provided by law, and in Agra vs. Commission on Audit, it was held that if a benefit was not yet existing when the law took effect on July 1, 1989, there is nothing to continue and no basis for applying the policy of non-diminution of pay. The Christmas groceries, year-end financial assistance, mid-year bonus, and year-end bonus are not excluded from the standardized salary under Section 12 or any DBM issuance, and the DBM Letters are merely advisory opinions that do not have the force and effect of a valid rule or law, having gone beyond the scope of their statutory authority by arbitrarily prescribing a different date. For the Christmas groceries granted to the Board of Directors, while RA No. 6758 does not apply to LWD directors, Section 13 of PD No. 198, as amended by RA No. 9286, allows the grant of allowances and benefits to directors subject to the board's prescription and LWUA approval; no board resolution or LWUA approval was alleged or proved, rendering the grant unauthorized.

• Liability for Refund: The civil liability of approving or certifying officers under Sections 38 and 39, Chapter 9, Book I of the Administrative Code of 1987, treated as solidary under Section 43, Chapter 5, Book VI, is grounded upon manifest bad faith, malice, or gross negligence, against the backdrop of the presumption of good faith and regularity. Ancheta and Rapsing utterly neglected existing factual, legal, and jurisprudential circumstances: first, SWD's own charter explicitly required board resolution and LWUA approval before additional benefits could be granted to directors, yet Christmas groceries were released without these; second, well-established case law — including De Jesus vs. Commission on Audit (2005), which settled that Section 12 of RA No. 6758 applies to LWDs — was prevailing at the time of the 2010 disbursements; and third, the 2010 benefits were based on board resolutions dating back to 1995–1999, the DBM opinions were issued in 2000–2001 in response to inquiries from other LWDs, the authority given to former general manager Vindua was specific to 2002 and 2003, and some benefits (Christmas groceries and additional year-end bonus) were not supported by any board resolution. The palpable disregard of laws, prevailing jurisprudence, and applicable directives amounts to gross negligence, which negates the presumption of good faith. However, their solidary liability was limited to the net disallowed amounts — the total disallowed amount less the amounts excused to be returned by other recipients — to avoid imposing an inequitable burden on the approving and certifying officers.

• Coverage of RA No. 6758 over GOCCs with Original Charter — RA No. 6758 applies to all positions in government, including GOCCs and government financial institutions, from its effectivity on July 1, 1989. A GOCC created by special law (such as a water district under PD No. 198) is covered by RA No. 6758 unless its charter specifically exempts it. The Court's judicial interpretation of a statute constitutes part of the law and is effective from the date the law was originally passed, as it merely establishes contemporaneous legislative intent.

• Non-Diminution of Pay under Sections 12 and 17 of RA No. 6758 — The second sentence of Section 12 allows government workers to continue receiving non-integrated remuneration and benefits provided that: (1) they were incumbents when RA No. 6758 took effect on July 1, 1989; (2) they were actually receiving such benefits as of that date; and (3) such additional compensation is distinct and separate from the specific allowances enumerated in the first sentence of Section 12. If a benefit was not yet existing when the law took effect, there is nothing to continue and no basis for applying the policy of non-diminution of pay.

• Inefficacy of DBM Advisory Letters to Override Statutory Provisions — DBM advisory letters or opinions that prescribe a reckoning date different from that fixed by the legislature cannot be validly invoked to replace the specific date provided by law. Such letters are merely advisory and do not have the force and effect of a valid rule or law when they go beyond the scope of their statutory authority by arbitrarily prescribing a different date.

• RA No. 6758 Does Not Apply to LWD Board of Directors — RA No. 6758 does not apply to directors of water districts because their functions are limited to policy-making under Section 18 of PD No. 198 and they receive per diems rather than salaries. Their compensation and benefits are governed by PD No. 198, as amended, specifically Section 13 as amended by RA No. 9286, which allows additional allowances subject to board prescription and LWUA approval.

• Liability of Approving and Certifying Officers in COA Disallowance Cases — Under Sections 38 and 39, Chapter 9, Book I of the Administrative Code of 1987, and Section 43, Chapter 5, Book VI, approving and certifying officers are solidarily liable for disallowed amounts when they acted with manifest bad faith, malice, or gross negligence. The presumption of good faith and regularity in the performance of official duty is negated by gross negligence, defined as the palpable disregard of laws, prevailing jurisprudence, and applicable directives. Good faith requires honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry.

• Net Disallowed Amount Rule — The solidary liability of approving and certifying officers found to have acted in bad faith, with malice, or with gross negligence is limited to the net disallowed amount — the total disallowed amount minus the amounts excused to be returned by payees who were absolved of liability. This prevents an inequitable burden on the officers of shouldering the entire amount disbursed when some recipients were allowed to retain what they received.

• "The Court's interpretation constitutes part of the law, effective from the date it was originally passed, because it merely established the contemporaneous legislative intent that the interpreted law carried into effect." — This passage articulates the doctrine that judicial interpretation of a statute is part of the law from its original enactment, establishing that SWD was a GOCC covered by RA No. 6758 from July 1, 1989, not merely from the date of the Davao City Water District ruling.

• "the DBM Letters, which authorized the grant of these disallowed benefits as an established practice since December 31, 1999 were erroneous and cannot be relied upon. Petitioners cannot, by their own interpretation, change the meaning and intent of the law." — This passage establishes the principle that DBM advisory opinions cannot override statutory provisions, specifically the July 1, 1989 incumbency requirement fixed by the legislature in RA No. 6758.

• "the palpable disregard of laws, prevailing jurisprudence, and other applicable directives amounts to gross negligence which betrays the presumption of good faith and regularity in the performance of official functions enjoyed by public officers." — This passage defines the standard for negating the presumption of good faith in disallowance cases, establishing that disregard of clear legal provisions and settled jurisprudence constitutes gross negligence sufficient to trigger solidary liability.

• "any amounts allowed to be retained by payees shall reduce the solidary liability of officers found to have acted in bad faith, malice, and gross negligence." — This passage, quoting Madera vs. Commission on Audit, articulates the net disallowed amount rule that limits the solidary liability of approving and certifying officers to the total disallowed amount less amounts excused to be returned by absolved recipients.

• Davao City Water District vs. Civil Service Commission and Commission on Audit, 278 Phil. 605 (1991) — Controlling precedent confirming that water districts are GOCCs with original charters under PD No. 198, subject to CSC and COA jurisdiction. The Court relied on this case to establish that SWD was a GOCC from its creation, not merely from the date of this ruling.

• Baguio Water District vs. Trajano, 212 Phil. 674 (1984) — Earlier precedent cited in Davao City Water District establishing that a water district is a corporation created pursuant to a special law and its officers and employees are covered by the Civil Service Law.

• Baybay Water District vs. Commission on Audit, 425 Phil. 326 (2002) — Controlling precedent holding that RA No. 6758 does not apply to LWD board of directors because their functions are limited to policy-making and they receive per diems rather than salaries; their compensation is governed by PD No. 198, as amended.

• De Jesus vs. Commission on Audit, 451 Phil. 812 (2003) / 497 Phil. 675 (2005) — Precedent settling that Section 12 of RA No. 6758 applies to LWDs, and that additional allowances may be continuously given only to incumbents as of July 1, 1989. The Court relied on this case to show that the legal issues were already settled before the 2010 disbursements.

• Torcuator vs. Commission on Audit, G.R. No. 210631, March 12, 2019 — Controlling precedent ruling that DBM Letters prescribing December 31, 1999 as the reckoning date cannot validly replace the July 1, 1989 date provided by law.

• Agra vs. Commission on Audit, 677 Phil. 608 (2011) — Precedent holding that if a benefit was not yet existing when RA No. 6758 took effect on July 1, 1989, there is nothing to continue and no basis for applying the policy of non-diminution of pay.

• Madera vs. Commission on Audit, G.R. No. 244128, September 8, 2020 — Controlling precedent on the civil liability of approving and certifying officers in disallowance cases, defining the net disallowed amount rule and the badges of good faith and diligence.

• Philippine Ports Authority vs. Commission on Audit, 289 Phil. 266 (1992) — Earlier precedent cited in De Jesus supporting the rule that additional allowances may be continuously given only to incumbents as of July 1, 1989.

• Philippine International Trading Corp. vs. Commission on Audit, 401 Phil. 737 (2003) / 368 Phil. 478 (1999) — Precedent cited for the overarching rule that all allowances are deemed included in the standardized salary rate unless excluded by law or DBM issuance.

• Section 12, RA No. 6758 (Salary Standardization Law) — Consolidates all allowances into the standardized salary rate, except for specifically enumerated benefits (representation and transportation allowances, clothing and laundry allowances, subsistence allowance, hazard pay, foreign service allowances, and others as determined by DBM). The second sentence allows non-integrated additional compensation being received by incumbents only as of July 1, 1989 to continue. Applied to hold that SWD employees not incumbents as of that date were not entitled to the disallowed benefits.

• Section 17, RA No. 6758 — Provides that incumbents receiving salaries and additional compensation exceeding the standardized rate shall continue to receive the excess as a transition allowance, reduced by future salary adjustments. Cited as part of the legislative policy of non-diminution of pay cushioning the effect of salary standardization on incumbents.

• Section 4, RA No. 6758 — Provides that the Compensation and Position Classification System applies to all positions in government, including GOCCs and government financial institutions. Applied to establish SWD's coverage under RA No. 6758 as a GOCC.

• DBM CCC No. 10, dated February 15, 1999 — Implements RA No. 6758; paragraph 5.5 enumerates additional allowances (including rice subsidy and medical/dental/optical allowances) not integrated into basic salary, allowed to be continued only for incumbents as of June 30, 1989. Applied to disallow the rice allowance and medical allowance granted to non-incumbent SWD employees.

• Section 13, PD No. 198, as amended by RA No. 9286 — Governs compensation of LWD board of directors, allowing per diems and additional allowances and benefits as the board may prescribe, subject to LWUA approval. Applied to hold that the Christmas groceries granted to the SWD Board were unauthorized for lack of the required board resolution and LWUA approval.

• Section 18, PD No. 198, as amended — Limits the function of the board of directors to policy-making, prohibiting engagement in detailed management. Cited in Baybay Water District to explain why RA No. 6758 does not apply to LWD directors.

• Sections 38 and 39, Chapter 9, Book I, Administrative Code of 1987 — Govern the civil liability of superior and subordinate officers, providing that public officers are not civilly liable for acts done in performance of official duties unless there is bad faith, malice, or gross negligence. Applied to determine the liability of Ancheta and Rapsing.

• Section 43, Chapter 5, Book VI, Administrative Code of 1987 — Provides that every expenditure or obligation incurred in violation of law is void, and every official authorizing or making such payment and every person receiving such payment shall be jointly and severally liable to the government. Applied to establish the solidary liability of the approving and certifying officers.

Peralta, C.J., Perlas-Bernabe, Leonen, Caguioa, Gesmundo, Hernando, Carandang, Lazaro-Javier, Inting, Zalameda, Delos Santos, Gaerlan, Rosario, and Lopez, JJ., concurred. No separate concurring opinions were noted in the text.