Maritime Industry Authority vs. Commission on Audit

Section 12 of Republic Act No. 6758 is self-executing: all allowances are deemed integrated into the standardized salary except those expressly enumerated and those the Department of Budget and Management determines, so additional allowances granted without such determination or other legal authority are unauthorized and constitute double compensation.

Maritime Industry Authority is an attached agency of the Department of Transportation and Communication created under Presidential Decree No. 474. Republic Act No. 6758, effective July 1, 1989, prescribes a revised compensation and position classification system and standardizes the salary rates of government officials and employees. Section 12 of that law consolidates allowances into the standardized salary except specified allowances and such other additional compensation as may be determined by the Department of Budget and Management. The Department of Budget and Management issued National Compensation Circular Nos. 56 and 59 to implement the law.

Maritime Industry Authority, an attached agency of the Department of Transportation and Communication created under Presidential Decree No. 474, sought to restore financial incentives, benefits, or allowances for its officers and employees after it had discontinued several of them allegedly due to National Compensation Circular Nos. 56 and 59. In a memorandum dated February 10, 2000, its Administrator recommended to then President Joseph Ejercito Estrada the approval and/or restoration of those financial incentives, benefits, or allowances. The allowances and incentives received by its officers and employees as of the date of the memorandum and needing the President’s approval were per diems and commutable allowance for members of the Board of Maritime Industry Authority, rice subsidy allowance, and medical allowance. The allowances and incentives sought to be restored were reimbursable representation allowance for members of the Board, performance incentives allowance, economic/efficiency/financial assistance/benefit, hearing allowance, and birthday month/off month/employment date anniversary allowances.

The request was premised on “inflation-caused difficulties resulting to [sic] the exodus of technically/specially trained personnel into the private sector or abroad who shall carry on the delicate and unique functions of the agency and in consideration of the additional functions of the agency.” It was also made to “further enhance/provide/promote employees’ welfare/productivity and deter graft and corruption activities.” The memorandum was allegedly stamped “approved” on October 16, 2000 with the signature of the President of the Philippines below the stamp. Relying on the alleged approval, Maritime Industry Authority granted the allowances and incentives to its officers and employees starting January 2001.

The Resident Auditor of Maritime Industry Authority then issued notices of disallowance with a total amount of ₱5,565,445.02 for the allowances or benefits received by the officers or employees from January to May 2001. The notices covered rice and medical allowance, allowances of Board members and Secretary, representation allowance of Board members and Secretary, performance incentive allowance, birthday and employment anniversary bonus, and anniversary allowance. The Resident Auditor disallowed the grant on the ground that it constituted double compensation to public officers and employees proscribed by Article IX(b) of the 1987 Constitution, in relation to Section 229 of the Government Accounting and Auditing Manual or GAAM Volume 1. Further, the President’s approval of the memorandum was not the law contemplated by the Constitution as an exception to the prohibition on double compensation.

The records do not show the reason why Erlinda Baltazar, Maritime Industry Authority’s cashier, received high amounts for the allowances as shown in the notices of disallowance. The amount given to Erlinda Baltazar was exorbitant especially when contrasted with the other officers and employees of Maritime Industry Authority receiving the same allowance. The disparity in the amounts given to Erlinda Baltazar compared to the other officers and employees was too substantial to consider her and the approving officers to be in good faith when Erlinda Baltazar received the amounts. The checks for the disallowed benefits and allowances were issued prior to April 4, 2001. It does not appear that Maritime Industry Authority’s directors and officers were informed prior to the disbursement of the amounts disallowed that these allowances and benefits were in violation of existing law, and rules and regulations.

• Integration of Allowances: Petitioner argued that the allowances and incentives granted to its officers and employees were not integrated in the standardized salary; it relied on the last clause of the first sentence of Section 12 of Republic Act No. 6758 and insisted that a circular must be issued by the Department of Budget and Management for a specific allowance to be deemed integrated. It argued that since National Compensation Circular No. 59 was not published, no allowance could be deemed integrated in the standardized salary rates.
• Non-Publication of NCC No. 59: Petitioner maintained that the lack of publication of National Compensation Circular No. 59 rendered it ineffectual, relying on Philippine Ports Authority Employees Hired After July 1, 1989 vs. Commission on Audit.
• Double Compensation: Petitioner argued that the rule against double compensation does not apply because National Compensation Circular No. 59 is ineffectual due to its non-publication.
• Presidential Approval: Petitioner relied on the alleged approval by then President Estrada of its February 10, 2000 memorandum, presenting a photocopy bearing an “approved” stamp and the President’s signature, to justify the grant.
• Due Process: Petitioner argued that it was denied administrative due process because the Commission on Audit affirmed the notices of disallowance on the basis of provisions of law different from the bases cited in the notices of disallowance.

• Integration of Allowances: Respondent countered that all allowances are deemed included in the standardized salary except those specifically enumerated in Section 12 of Republic Act No. 6758; a Department of Budget and Management circular is necessary only for the grant of an allowance other than those enumerated in addition to the standardized salary. It relied on PPA Employees Hired After 01 July 1989 vs. COA and NAPOCOR Employees Consolidated Union vs. National Power Corporation.
• Non-Publication of NCC No. 59: Respondent argued that the alleged lack of publication of National Compensation Circular No. 59 does not affect the integration of allowances into the standardized salary because Section 12 is in itself executory and the nature of the allowances and incentives is not similar to the enumerated exceptions.
• No Legal Authority: Respondent pointed out that there is no law authorizing the grant of the allowances and incentives in addition to the salaries of Maritime Industry Authority’s officers and employees.
• Authenticity of Presidential Approval: Respondent argued that the alleged approval of the President was contained in a mere photocopy of the February 10, 2000 memorandum; the original was not presented during the proceedings.
• Double Compensation: Respondent countered that the disallowed allowances are tantamount to additional compensation proscribed by Article IX(B), Section 8 of the 1987 Constitution because they are not authorized by law.
• Due Process: Respondent argued that it may rely on other grounds in affirming the disallowance pursuant to its mandate under Article IX(D), Section 2 of the 1987 Constitution and Rule II, Section 4 of the 1997 COA Revised Rules of Procedure.

• Legal Basis for Allowances: Whether the allowances and incentives granted by Maritime Industry Authority to its officers and employees have legal basis.
• Grave Abuse of Discretion: Whether the Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in affirming the notices of disallowance.
• Integration of Allowances: Whether the disallowed allowances and incentives are deemed integrated into the standardized salary under Section 12 of Republic Act No. 6758 despite the non-publication of National Compensation Circular No. 59.
• Presidential Approval: Whether the alleged approval by the President of Maritime Industry Authority’s February 10, 2000 memorandum validly authorized the grant of the allowances and incentives.
• Fiscal Autonomy: Whether the grant of allowances may be justified under the fiscal autonomy granted to the Constitutional and Fiscal Autonomy Group.
• Double Compensation: Whether the grant of the disallowed allowances and incentives constitutes double compensation proscribed by Article IX(B), Section 8 of the 1987 Constitution.
• Due Process: Whether Maritime Industry Authority was denied administrative due process when the Commission on Audit affirmed the disallowances on grounds different from those cited in the notices of disallowance.
• Refund and Liability: Whether the recipients and approving officers are liable to refund the disallowed amounts.

• Legal Basis for Allowances: No. The allowances and incentives had no legal basis; Section 12 of Republic Act No. 6758 deems all allowances integrated into the standardized salary except those enumerated and those determined by the Department of Budget and Management, and no such determination or law authorized the grant.
• Grave Abuse of Discretion: No. The Commission on Audit did not commit grave abuse of discretion; its findings are respected absent caprice, whim, or despotism, and it acted within its constitutional audit power.
• Integration of Allowances: Yes. Section 12 is self-executing; the non-publication of National Compensation Circular No. 59 did not prevent integration, and the disallowed allowances were not among the enumerated exceptions.
• Presidential Approval: No. The alleged approval was not proven; only a photocopy was presented and no copy was in the Malacañang Records Office, and any identification of non-integrated allowances must conform to Republic Act No. 6758.
• Fiscal Autonomy: No. The fiscal-autonomy exception covers the judiciary, Civil Service Commission, Commission on Audit, Commission on Elections, and Office of the Ombudsman; Maritime Industry Authority is an attached agency of the Department of Transportation and Communication and does not fall within that group.
• Double Compensation: Yes. Because the disallowed benefits were not excluded by law or a Department of Budget and Management issuance, they were deemed already included in the basic salary; receiving them was double compensation.
• Due Process: No. The Commission on Audit may rely on grounds other than those in the auditor’s notices in exercising its general audit power and appellate jurisdiction.
• Refund and Liability: Modified. The approving officers and Erlinda Baltazar are solidarily liable to refund the disallowed amounts received by Erlinda Baltazar due to bad faith; the other payees need not refund the amounts received in good faith.

• Legal Basis for Allowances: The SC began with Section 12 of Republic Act No. 6758, which lays down the general rule that all allowances of state workers are included in their standardized salary rates. The exceptions are representation and transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers and crew on board government vessels; subsistence allowance of hospital personnel; hazard pay; allowances of foreign service personnel stationed abroad; and such other additional compensation not otherwise specified as may be determined by the Department of Budget and Management. The SC held that DBM action is not required to implement the integration; an issuance is required only if additional non-integrated allowances will be identified. Without that issuance, the enumerated non-integrated allowances remain exclusive. The disallowed allowances—rice and medical allowance, representation allowance, performance incentive allowance, birthday and employment anniversary bonus, and anniversary allowance—were not among the enumerated exceptions and no DBM issuance identified them as non-integrated. The SC also noted that additional non-integrated allowances must be similar to the enumerated ones, meaning amounts needed to defray or reimburse expenses incurred in the performance of official functions, not financial assistance or incentives. Since no law or DBM determination authorized the grant, the allowances had no legal basis.
• Grave Abuse of Discretion: A petition under Rule 64 may prosper only after a finding that the administrative agency committed grave abuse of discretion amounting to lack or excess of jurisdiction. Not all errors of the COA are reviewable; the SC confines itself to questions of jurisdiction and grave abuse. Administrative findings are generally respected unless tainted with unfairness or arbitrariness. Grave abuse exists when there is evasion of a positive duty, virtual refusal to perform a duty enjoined by law, or judgment based on caprice, whim, and despotism. The SC found no such abuse: the COA applied Section 12 and the relevant jurisprudence, and its disallowance was within its constitutional duty to audit and disallow illegal disbursements.
• Integration of Allowances: The SC held that Section 12 is self-executing, as held in NAPOCOR Employees Consolidated Union vs. National Power Corporation; it does not require the DBM first to define the allowances to be integrated. National Compensation Circular No. 59 enumerated allowances deemed integrated; it did not identify an allowance that should not be deemed integrated. Following Philippine International Trading Corporation vs. Commission on Audit, the non-publication of a DBM issuance enumerating integrated allowances does not affect the execution of Section 12. The SC distinguished Philippine Ports Authority Employees Hired After July 1, 1989 vs. Commission on Audit: that ruling was limited to distinguishing benefits of employees hired before and after the effectivity of Republic Act No. 6758 and to the legal limbo of DBM-CCC No. 10; the second sentence of the first paragraph of Section 12 was not in issue. The disallowed benefits were not similar to the enumerated exceptions; following Bureau of Fisheries and Aquatic Resources Employees Union vs. Commission on Audit, excluded benefits are allowances to defray or reimburse expenses, not financial assistance. Thus they were integrated.
• Presidential Approval: The SC noted Article VI, Section 29 of the 1987 Constitution: no money shall be paid out of the Treasury except in pursuance of an appropriation made by law. Before public funds may be disbursed for salaries and benefits, it must be shown that these are commensurate to services rendered and necessary or relevant to the functions of the office. In Yap vs. Commission on Audit, the SC laid down two requisites: the allowances and benefits were authorized by law, and there was a direct and substantial relationship between the performance of public functions and the grant of the disputed allowances. The burden of proving validity is with the government agency or entity granting the allowance or benefit, or the employee claiming the same. The SC also explained that Section 12 does not require a law to exclude benefits; what is required is a determination by the DBM, and the President may identify excluded allowances as the DBM Secretary’s alter ego under the President’s power of control, provided the parameters of Republic Act No. 6758 are followed. Here, Maritime Industry Authority presented only a photocopy of the memorandum with an “approved” stamp and the signature of then President Estrada; the original was not presented, and a copy was not in the Malacañang Records Office. The SC could not rule on the validity of the alleged approval because its existence was not proven.
• Fiscal Autonomy: The SC differentiated the guidelines for the Constitutional and Fiscal Autonomy Group. The judiciary, Civil Service Commission, Commission on Audit, Commission on Elections, and Office of the Ombudsman are granted fiscal autonomy by the Constitution, which is an aspect of their independence. For them, an issuance by the DBM or any other agency is not necessary to exclude an allowance or benefit from the standardized salary; they may determine the allowances and benefits that suit the functions of the office, subject to COA post-audit. The SC explained that allowing the President or his or her alter ego to dictate the allowances for these bodies would undermine their independence. This separate rule was stated for the Constitutional and Fiscal Autonomy Group; Maritime Industry Authority, an attached agency of the Department of Transportation and Communication, is not among those constitutional bodies.
• Double Compensation: Article IX(B), Section 8 of the 1987 Constitution prohibits elective or appointive public officers or employees from receiving additional, double, or indirect compensation unless specifically authorized by law. Republic Act No. 6758 deems all allowances and benefits received by government officials and employees as incorporated in the standardized salary unless excluded by law or a DBM issuance. The integration is by legal fiction. The disallowed benefits and allowances of Maritime Industry Authority’s officials and employees were not excluded by law or a DBM issuance; thus they were deemed already given when the officials and employees received their basic salaries. Their receipt of the disallowed benefits and allowances was tantamount to double compensation.
• Due Process: The SC held that the COA is not required to limit its review only to the grounds relied upon by the government agency’s auditor in disallowing disbursements. In consonance with its general audit power, the COA is not merely legally permitted but duty-bound to make its own assessment of the merits of the disallowed disbursement and not simply restrict itself to reviewing the validity of the ground relied upon by the auditor. To hold otherwise would render the COA’s vital constitutional power unduly limited and useless. This is supported by Article IX(D), Section 2 of the 1987 Constitution and Rule II, Section 4 of the 1997 COA Revised Rules of Procedure. Thus, no administrative due process violation.
• Refund and Liability: Presidential Decree No. 1445, Section 103 provides that expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible. Section 19.1 of the Manual of Certificate of Settlement and Balances, COA Circular No. 94-001, determines liability based on the nature of the disallowance, duties and responsibilities, extent of participation, and amount of losses. Generally, a public officer’s good faith does not excuse personal liability over unauthorized disbursement. However, prevailing jurisprudence provides that recipients or payees need not refund disallowed salaries, emoluments, benefits, and allowances when they received them in good faith; officials who participated in the approval are required to refund only the amounts received when found in bad faith or grossly negligent amounting to bad faith. The SC found that Erlinda Baltazar received exorbitant amounts compared to other officers and employees, and the disparity was too substantial to consider her and the approving officers in good faith. Thus, Baltazar and the approving officers are solidarily liable to refund all amounts received by Baltazar based on the disallowances, under Book VI, Chapter V, Section 43 of the Administrative Code. For the directors, officers, and other employees who received the disallowed benefits, they are presumed to have acted in good faith; the COA failed to show bad faith on the part of the approving officers in disbursing the disallowed benefits, and the officers relied on the alleged presidential approval; the checks were issued prior to April 4, 2001, and it did not appear that they were informed prior to disbursement that the allowances violated existing law. Thus, other payees need not refund.

• Section 12 integration and self-execution — Under Section 12 of Republic Act No. 6758, all allowances are deemed included in the standardized salary except representation and transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers and crew on board government vessels; subsistence allowance of hospital personnel; hazard pay; allowances of foreign service personnel stationed abroad; and such other additional compensation not otherwise specified as may be determined by the Department of Budget and Management. The DBM need not first issue rules to integrate allowances; its issuance is required only to identify additional non-integrated allowances. Applied: the disallowed allowances were not enumerated and no DBM issuance identified them as non-integrated, so they were integrated.
• Nature of non-integrated allowances — Benefits excluded from the standardized salary are allowances usually granted to defray or reimburse expenses incurred in the performance of official functions; they are not financial assistance or incentives. Applied: rice and medical allowance, performance incentive allowance, birthday and employment anniversary bonus, and anniversary allowance were not similar to the enumerated exceptions.
• Presidential power of control and alter ego — The President may identify excluded allowances or benefits through the DBM Secretary as alter ego, but the determination must conform to Republic Act No. 6758. Applied: the alleged presidential approval was not proven, and no valid determination was shown.
• Fiscal autonomy of the Constitutional and Fiscal Autonomy Group — The judiciary, Civil Service Commission, Commission on Audit, Commission on Elections, and Office of the Ombudsman have fiscal autonomy; a DBM or other agency issuance is not necessary to exclude an allowance or benefit from the standardized salary, and their expenditures remain subject to COA post-audit. Applied: this separate rule was recognized but did not apply to Maritime Industry Authority, an attached agency of the Department of Transportation and Communication.
• Double compensation — No elective or appointive public officer or employee shall receive additional, double, or indirect compensation unless specifically authorized by law. Integration under Section 12 is by legal fiction; receipt of integrated allowances in addition to basic salary is double compensation. Applied: the disallowed benefits were not excluded, so receiving them was double compensation.
• COA general audit power and appellate review — The COA is not limited to the grounds relied upon by the auditor; it is duty-bound to make its own assessment of the disallowed disbursement under its general audit power and appellate jurisdiction. Applied: the COA could affirm on grounds different from those in the notices of disallowance.
• Good faith and refund of disallowed benefits — Recipients or payees who received disallowed benefits in good faith need not refund; approving officers are liable only when found in bad faith or grossly negligent amounting to bad faith. Applied: Baltazar and the approving officers were in bad faith due to the exorbitant amounts Baltazar received; other payees were presumed in good faith.
• Burden of proving validity of allowances — The government agency or employee claiming the allowance must prove that it was authorized by law and that there is a direct and substantial relationship between the performance of public functions and the grant. Applied: Maritime Industry Authority failed to prove the alleged presidential approval and legal basis.

• “Action by the Department of Budget and Management is not required to implement Section 12 integrating allowances into the standardized salary.” — This establishes that Section 12 is self-executing and that DBM action is needed only to identify additional non-integrated allowances.
• “The integration of the benefits and allowances is by legal fiction.” — This explains why the disallowed benefits were deemed already included in the basic salary, making their separate receipt double compensation.
• “The burden of proving the validity or legality of the grant of allowance or benefits is with the government agency or entity granting the allowance or benefit, or the employee claiming the same.” — This places the burden on Maritime Industry Authority, which failed to prove the alleged presidential approval.
• “Government officials and employees who received benefits or allowances, which were disallowed, may keep the amounts received if there is no finding of bad faith and the disbursement was made in good faith.” — This is the basis for exempting the other payees from refund while holding Baltazar and the approving officers liable.

• NAPOCOR Employees Consolidated Union vs. National Power Corporation, 519 Phil. 372 (2006) — Controlling precedent; held Section 12 self-executing and that the DBM need not first define integrated allowances.
• Philippine Ports Authority Employees Hired After July 1, 1989 vs. Commission on Audit, 506 Phil. 382 (2005) — Distinguished; its ruling on non-publication of DBM-CCC No. 10 and incumbency was limited to benefits in legal limbo and not applicable here.
• Philippine International Trading Corporation vs. Commission on Audit, 461 Phil. 737 (2003) — Followed; non-publication of a DBM issuance enumerating integrated allowances does not affect execution of Section 12.
• Benguet State University vs. Commission on Audit, 551 Phil. 878 (2007) — Followed; rice subsidy and health care allowance are not among the Section 12 exceptions.
• Bureau of Fisheries and Aquatic Resources Employees Union vs. Commission on Audit, 584 Phil. 132 (2008) — Followed; excluded benefits are allowances to defray or reimburse expenses, not financial assistance.
• Yap vs. Commission on Audit, 633 Phil. 174 (2010) — Followed; allowances must be authorized by law and directly and substantially related to public functions; the COA may make its own assessment.
• Chavez vs. Romulo, G.R. No. 157036, June 9, 2004 — Cited for the President’s power of control and the DBM Secretary as alter ego.
• Philippine Economic Zone Authority vs. Commission on Audit, G.R. No. 189767, July 3, 2012 — Cited for the definition of good faith in refund of disallowed benefits.

• Section 12, Republic Act No. 6758 — Consolidates allowances into the standardized salary except enumerated allowances and such other additional compensation as may be determined by the DBM; applied to deem the disallowed allowances integrated.
• Article IX(B), Section 8, 1987 Constitution — Prohibits additional, double, or indirect compensation unless specifically authorized by law; applied because the disallowed allowances were not excluded and not authorized, making their receipt double compensation.
• Article VI, Section 29, 1987 Constitution — No money shall be paid out of the Treasury except in pursuance of an appropriation made by law; applied to require legal basis for the disbursement.
• Article IX(D), Section 2, 1987 Constitution — Grants the COA power to examine, audit, and settle accounts and to disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures; applied to uphold the COA’s authority and its reliance on grounds other than the auditor’s.
• Presidential Decree No. 1445, Section 103 — Makes expenditures of government funds in violation of law or regulations a personal liability of the official or employee directly responsible; applied to the approving officers and Baltazar.
• Book VI, Chapter V, Section 43, Administrative Code — Makes every official or employee authorizing or making an illegal payment, and every person receiving it, jointly and severally liable to the Government for the full amount paid or received; applied to hold the approving officers and Baltazar solidarily liable.
• Section 19.1, COA Circular No. 94-001 — Determines liability for audit disallowances based on the nature of the disallowance, duties and responsibilities, extent of participation, and amount of losses; applied to assess liability.
• Rule 64, Rules of Court — Governs the petition for certiorari assailing COA decisions; applied through the grave abuse of discretion standard.
• Rule II, Section 4, 1997 COA Revised Rules of Procedure — Grants the COA Commission Proper appellate jurisdiction to review, reverse, modify, alter, or affirm reports, resolutions, orders, decisions, and other dispositions of Auditors or Directors; applied to allow the COA to affirm on other grounds.

• Justice Brion (Concurring) — Separate opinion; its text is not included.