Lumauan vs. Commission on Audit

Cost of Living Allowance is deemed integrated into the standardized salary rates of government employees under Section 12 of Republic Act No. 6758, and its payment remains prohibited absent law or Supreme Court ruling to the contrary; a passive recipient remains liable to return the amount actually received unless genuinely given in consideration of services rendered or another bona fide exception applies.

Ninia P. Lumauan served as Acting General Manager of Metropolitan Tuguegarao Water District (MTWD), a government-owned and controlled corporation created pursuant to Presidential Decree No. 198 as amended by Republic Act No. 9286. Compensation of government personnel is governed by Republic Act No. 6758, Section 12 of which deems all allowances, save specified exclusions, consolidated into standardized salary rates, implemented through Department of Budget and Management Corporate Compensation Circular No. 10 and clarified by National Budget Circular No. 2005-502.

Ninia P. Lumauan was the Acting General Manager of Metropolitan Tuguegarao Water District, a government-owned and controlled corporation. In 2009, the Board of Directors of MTWD issued Board Resolution Nos. 2009-0053 and 2009-0122 approving payment of accrued Cost of Living Allowance to qualified MTWD employees for calendar years 1992 to 1997 in the aggregate amount of P1,689,750.00.

Thereafter, after post-audit, Supervising Auditor Floricen T. Unida and Audit Team Leader Basilisa T. Garcia issued Notice of Disallowance No. 10-003-101-(09) dated November 22, 2010, disallowing the P1,689,750.00 payment for lack of legal basis since COLA was already deemed integrated into basic salary pursuant to Section 12 of Republic Act No. 6758 and Department of Budget and Management Corporate Compensation Circular No. 10. Held liable were petitioner, Division Manager-Administrative Visitacion M. Rimando, Cashier Marcela Siddayao, and the MTWD employees as payees. Petitioner appealed to the COA Regional Director, citing Philippine Ports Authority (PPA) Employees Hired After July 1, 1989 vs. Commission on Audit as upholding COLA claims until March 16, 1999.

The Regional Director denied the appeal on November 23, 2011, affirming the disallowance as prohibited integration and rejecting good faith in view of National Budget Circular No. 2005-502 dated October 26, 2005. Petitioner elevated the matter to the COA-Commission Proper, stating the Decision was received on November 25, 2011 and the Appeal Memorandum was filed by registered mail on the same date, as shown by the registry receipt and receipt stamp. The COA-Commission Proper nevertheless denied the appeal on June 4, 2014 for belated filing, counted as 12 days from receipt, and for lack of merit, reiterating integration and solutio indebiti, and denied reconsideration on February 27, 2015, leading to the petition before the Supreme Court.

• Timeliness of Appeal: Petitioner argued that the appeal was timely filed because the Appeal Memorandum was filed on November 25, 2011, the same day the Decision of the Regional Director was received.
• Entitlement to COLA: Petitioner maintained that payment of COLA should not have been disallowed because employees of government-owned and controlled corporations, whether incumbent or not, are entitled to COLA from 1989 to 1999 as a matter of right, citing Metropolitan Waterworks and Sewerage System vs. Bautista.
• Good Faith: Petitioner argued that even if the payment was correctly disallowed, she cannot be made liable to refund since the disbursement was made in good faith.

• Validity of Disallowance: Respondent countered that the disallowance was proper because it was made pursuant to law and prevailing jurisprudence upholding inclusion of COLA in standardized salary rates.
• Self-Executing Statute and Publication Cure: Respondent argued that the non-publication of DBM Circular No. 10 did not render ineffective Section 12 of Republic Act No. 6758, and that petitioner could no longer rely on Metropolitan Waterworks and Sewerage System vs. Bautista because the circular had been reissued and published.
• Absence of Good Faith: Respondent maintained that petitioner cannot avail of good faith because at the time COLA was given, DBM Circular No. 10 had already been reissued and published.

• Timeliness: Whether the Appeal Memorandum from the Regional Director's Decision was belatedly filed rendering the disallowance final and executory.
• Validity of Disallowance: Whether respondent committed grave abuse of discretion in disallowing payment of accrued COLA for CYs 1992 to 1997 as integrated into standardized salaries under Section 12 of Republic Act No. 6758.
• Liability to Return: Whether petitioner, as Acting General Manager and payee, may be excused from returning the disallowed amount on ground of good faith.

• Timeliness: Yes, timely. The Appeal Memorandum was filed on November 25, 2011, the same day the Regional Director's Decision was received, so denial for late filing was unwarranted.
• Validity of Disallowance: No grave abuse. The accrued COLA for CYs 1992-1997 was correctly disallowed, COLA being deemed integrated under Section 12 of Republic Act No. 6758 which is self-executory.
• Liability to Return: Not excused generally. As mere passive recipient, petitioner is liable to return only the amount she actually and individually received, no bona fide exception having been shown.

• Timeliness: Registry receipt, petitioner's statement in the Appeal Memorandum, and the receipt stamp on the Regional Director's Decision all showed receipt and filing by registered mail on November 25, 2011. Filing on the same day of receipt meant the appeal was on time, leaving no basis for denial on procedural finality.
• Validity of Disallowance: The general rule under Section 12 is that all allowances are deemed included in standardized salary, except representation and transportation, clothing and laundry, subsistence of specified personnel, hazard pay, foreign service allowances, and such other compensation as the Department of Budget and Management may determine. COLA, not being an enumerated exclusion and being intended to cover increases in cost of living rather than reimbursement for official functions, falls under integration by legal fiction. Reliance on Philippine Ports Authority (PPA) Employees Hired After July 1, 1989 vs. Commission on Audit and Metropolitan Waterworks and Sewerage System vs. Bautista was misplaced, as clarified in Maritime Industry Authority vs. Commission on Audit and Republic vs. Judge Cortez, since that line applies only where compensation actually decreased or a lesser package resulted from COLA deduction, which was not shown here.
• Liability to Return: Petitioner did not approve the grant nor certify funding availability; approval was by the Board through Resolutions Nos. 2009-0053 and 2009-0122, placing her under recipient liability under Madera vs. Commission on Audit. Recipients are liable to return amounts respectively received unless shown to be genuinely given in consideration of services rendered, with possible excuse only for undue prejudice, social justice, humanitarian, or other bona fide exceptions. No such entitlement, prejudice, or humanitarian circumstance was established for accrued COLA already integrated into salary, so return was required but limited to the amount actually and individually received.

• General Rule of Integration under Section 12 of Republic Act No. 6758 — All allowances of government officials and employees are deemed included in standardized salary rates, except representation and transportation allowances, clothing and laundry allowances, subsistence allowances of marine officers and crew and hospital personnel, hazard pay, allowances of foreign service personnel stationed abroad, and such other additional compensation as may be determined by the Department of Budget and Management. Applied here, COLA, not being an enumerated exclusion, was deemed incorporated and its separate payment prohibited.
• Self-Executing Character of Section 12 — Section 12 is valid and operative even without implementing rules, so nullification of Department of Budget and Management Corporate Compensation Circular No. 10 for non-publication did not suspend the statute, and its later republication merely cured the circular's defect. Applied here, absence of a valid circular during 1992-1997 did not entitle MTWD employees to separate COLA.
• Solutio Indebiti and Unjust Enrichment in Disallowances — Responsibility to return a properly disallowed benefit is a civil obligation founded on solutio indebiti and unjust enrichment, preventing fiscal leakage when the government cannot otherwise recover from passive recipients. Applied here, MTWD payees were obliged to return accrued COLA despite claimed good faith because the payment was undue.
• Madera Rules on Return of Disallowed Amounts — If disallowance is upheld: (a) approving/certifying officers acting in good faith with diligence are not civilly liable; (b) those acting in bad faith, malice, or gross negligence are solidarily liable for the net disallowed amount; (c) recipients, whether officers or passive payees, are liable to return amounts respectively received unless genuinely given in consideration of services rendered; (d) return may be excused for undue prejudice, social justice, or other bona fide exceptions. Applied here, petitioner as passive recipient fell under (c) with no exception established, hence liable only for what she actually received.

• "payment of allowances and other benefits, such as COLA, which are already integrated in the basic salary, remains prohibited unless otherwise provided by law or ruled by the Supreme Court." — States the clarification in National Budget Circular No. 2005-502 relied upon to reject continued COLA payment after integration.
• "The clear policy of Section 12 is "to standardize salary rates among government personnel and do away with multiple allowances and other incentive packages and the resulting differences in compensation among them."" — Defines the statutory purpose supporting the general rule that all allowances are deemed included in standardized salary.
• "payees who receive undue payment, regardless of good faith, are liable for the return of the amounts they received." — Articulates the Madera emphasis that recipient liability rests on solutio indebiti rather than good faith.

• Torcuator vs. Commission on Audit, G.R. No. 210631 (Resolution), March 12, 2019 — Followed as involving the same COLA issue; upheld disallowance as integrated under Section 12 which was held self-executory.
• Maritime Industry Authority vs. Commission on Audit, 750 Phil. 288 (2015) — Followed to explain Section 12 integration by legal fiction and to limit Philippine Ports Authority (PPA) Employees Hired After July 1, 1989 vs. Commission on Audit to a distinction between hires before and after Republic Act No. 6758.
• Philippine Ports Authority (PPA) Employees Hired After July 1, 1989 vs. Commission on Audit, 506 Phil. 382 (2005) — Distinguished; held inapplicable absent proof that compensation decreased or a lesser package resulted from COLA deduction, as clarified in Republic vs. Judge Cortez.
• Metropolitan Waterworks and Sewerage System vs. Bautista, 572 Phil. 383 (2008) — Rejected as basis for entitlement; petitioner's reliance held misplaced in light of integration doctrine and republication of the circular.
• Madera vs. Commission on Audit, G.R. No. 244128, September 8, 2020 — Applied as controlling on return; petitioner classified as passive recipient liable only for amount actually and individually received.

• Section 12, Republic Act No. 6758 — Provides consolidation of allowances into standardized salary rates with specified exclusions; applied to deem COLA integrated and render its separate payment without legal basis.
• Department of Budget and Management Corporate Compensation Circular No. 10 — Provided discontinuance of allowances including COLA over and above basic salary; applied as implementation of Section 12, initially ineffective for non-publication but reissued in 1999.
• National Budget Circular No. 2005-502 dated October 26, 2005 — Clarified continued prohibition on integrated allowances absent law or Supreme Court ruling; applied to negate good faith for the 2009 payment.
• Sections 38 and 43, Administrative Code of 1987 — Govern civil liability of approving and certifying officers for good-faith performance versus bad faith, malice, or gross negligence; referenced in the Madera framework limiting petitioner's liability as non-approving recipient.

Peralta, C.J., Perlas-Bernabe, Leonen, Caguioa, Gesmundo, Carandang, Lazaro-Javier, Inting, Zalameda, Lopez, Delos Santos, Gaerlan, and Rosario, JJ., concur.