POEA v. Commission on Audit

Collection of contributions to the Welfare Fund for Overseas Workers is part of the statutory mandate of the POEA, inherited from its predecessor agencies, and any additional compensation paid to POEA employees for performing that function constitutes unauthorized double compensation unless specifically authorized by law or executive issuance.

The Welfare Fund for Overseas Workers was created on May 1, 1977 pursuant to Letter of Instruction No. 537, with the Overseas Employment Development Board, the National Seamen Board, and the Bureau of Employment Services directed to collect contributions therefor. The POEA was created on May 1, 1982 under E.O. No. 797 as the successor agency of the Overseas Employment Development Board, the National Seamen Board, and the overseas employment functions of the Bureau of Employment Services, absorbing their applicable functions, appropriations, records, and personnel. The administration of the Welfare Fund was reorganized into the OWWA on January 30, 1987 under E.O. No. 126. Both agencies share the essential mandate of promoting the welfare and protecting the rights of overseas Filipino workers, with POEA focusing on pre-employment matters and OWWA on employment and post-employment matters. In 2016, R.A. No. 10801, the OWWA Act, was enacted, further defining the mandate and powers of OWWA and renaming the Welfare Fund as the OWWA Fund.

On May 1, 1977, the Welfare Fund for Overseas Workers was created pursuant to Letter of Instruction No. 537, which directed the Overseas Employment Development Board, the National Seamen Board, and the Bureau of Employment Services to collect contributions for the Fund in accordance with rules and regulations promulgated by the Secretary of Labor. The Fund was to be financed from the earnings and collections of these agencies, donations from employers, and other sources determined by the Board of Trustees. The administration of the Fund was reorganized twice through Presidential Decree Nos. 1694 and 1809, promulgated on May 1, 1980 and January 16, 1981, respectively, both of which provided that all contributions collected pursuant to LOI No. 537 shall be transferred to the Welfund.

On May 1, 1982, the POEA was created under E.O. No. 797 as the "lead government agency responsible for the formulation and implementation of policies and programs for the overseas employment of Filipino workers." Section 4 of E.O. No. 797 provided that POEA shall assume the functions of the Overseas Employment Development Board, the National Seamen Board, and the overseas employment functions of the Bureau of Employment Services, absorbing their applicable functions, appropriations, records, equipment, property, and personnel. On November 10, 1982, the Welfare Fund's Board of Trustees enacted Resolution No. 35, authorizing the Welfare Fund to pay POEA a service fee equivalent to 2% of total collections beginning in CY 1983, payable on a six-month basis, the disposition of which shall be subject to the POEA Governing Board. On January 30, 1987, the administration of the Fund was reorganized into the OWWA pursuant to E.O. No. 126. On July 24, 1987, the POEA was reorganized under E.O. No. 247.

On November 21, 2001, the OWWA Board of Trustees approved the grant of an Incentive Allowance to POEA employees equivalent to 1% of OWWA fees collected through the POEA, retroactive to July 1, 2001, subject to periodic review by the Board. The minutes of that meeting reflect a lengthy debate among Board members, with some questioning why OWWA should give one percent to POEA when the latter receives no funds from the government, and with the Administrator presenting figures showing expected losses versus revenues from the arrangement. The collection of OWWA fees through the POEA was further formalized in a Joint Memorandum dated November 28, 2001, issued by the Administrators of POEA and OWWA, providing that payments of Welfare Fund/OWWA contributions shall be made each time a contract is submitted to POEA for processing, and that POEA shall issue the Overseas Employment Certificate to a departing OFW only upon presentation of proof of membership and/or payment of the contribution.

On May 31, 2004, the Office of the COA Chairperson received an anonymous letter from an OWWA employee reporting that 1% of all collections made by OWWA collection officers assigned at the POEA were being paid to POEA officials and employees. POEA resident auditors investigated and, on July 29, 2004, the POEA Audit Team Leader issued Audit Observation Memorandum No. 2004-018, holding that the payment of the incentive allowance in the amount of ₱19,356,934.18 contravened Section 12 of R.A. No. 6758 and Article IX, Section 8 of the Constitution. The audit team found that OWWA collection officers were deployed to POEA premises and performed the actual task of collection, with no POEA employees involved in the collection of OWWA dues. COA thereupon issued Notice of Disallowance No. 2005-015 on April 5, 2005. The COA Legal and Adjudication Office-National denied POEA's motion for reconsideration in a Decision dated August 16, 2005, with the qualification that the disallowed payments need not be refunded; POEA's subsequent motion for reconsideration was denied in a Decision dated April 4, 2008. POEA then elevated the matter to the COA proper, which denied the petition in Decision No. 2011-023 dated January 31, 2011, and denied the motion for reconsideration in Decision No. 2013-226 dated December 23, 2013, ordering the POEA employees and officials to refund the total amount of ₱19,356,934.18.

• Statutory Basis for Incentive Allowance: Petitioners argued that the grant of the incentive allowance to POEA employees from OWWA funds is supported by Section 64 of P.D. No. 1177, which authorizes government agencies to enter into service contracts with other public entities, and by OWWA Board Resolution No. 35.
• Vested Right and Practice of Tradition: Petitioners maintained that the incentive allowance has existed since 1982 and is therefore authorized under E.O. No. 110, series of 1986, which allowed certain national government agencies to continue paying existing allowances, and has ripened into "a practice of tradition which can neither be abandoned nor diminished."
• Necessity of POEA's Services: Petitioners argued that OWWA's lack of manpower and information system capabilities necessitated the tapping of POEA's services to increase collections, and that the cooperation between the two agencies was institutionalized by their Joint Memorandum and integrated into the POEA contract processing system, resulting in a tremendous increase in OWWA fee collection.
• Non-Applicability of R.A. No. 6758: Petitioners contended that Section 12 of R.A. No. 6758 does not apply because the benefit existed long before the enactment of said law and has ripened into a vested right which cannot be prejudiced by retroactive application.
• No Double Compensation: Petitioners argued that the incentive allowance does not violate the constitutional prohibition on double compensation because the benefit is in the nature of a gratuity voluntarily granted by the OWWA Board within its statutory powers, and the amount does not come directly from the Welfare Fund but forms part of OWWA's operating expenses.

• Collection as Part of POEA's Mandate: Respondent countered that while POEA and OWWA have separate functions under their charters, they nevertheless have the same essential mandate of ensuring OFW welfare; hence, POEA employees cannot receive allowances for performing services that are part of the essential mandate of their agency.
• No Justification for Contracting Out: Respondent argued that, assuming arguendo that collection of Welfare Fund contributions is not a function of POEA, the contracting-out of such service to POEA is not justified under Section 64 of P.D. No. 1177, since it was proven in the POEA audit that OWWA employees did the actual task of collection, with POEA merely serving as a collection facility without any service rendered by its employees.
• Failure to Prove Integration: Respondent maintained that petitioners failed to prove that the incentive allowance was integrated into the basic pay of POEA employees, and that it cannot be classified as an exempt allowance under Section 12 of R.A. No. 6758 because it is in the nature of compensation for services rendered, as opposed to allowances given to defray expenses in relation to the jobs of POEA employees.

• Statutory Mandate: Whether the collection of OWWA Fund contributions is part of POEA's statutory mandate, such that POEA employees are not entitled to additional compensation for performing that function.
• Double Compensation and Allowance Integration: Whether the incentive allowance payments to POEA employees violate the constitutional prohibition on double compensation and the allowance integration rule under Section 12 of R.A. No. 6758.
• Refund of Disallowed Amounts: Whether the POEA officials who approved the payments and the employees who received the incentive allowance must refund the disallowed amounts.

• Statutory Mandate: Yes. The collection of Welfare Fund contributions is part of POEA's statutory mandate, inherited from its predecessor agencies under LOI No. 537, and POEA employees are not entitled to additional compensation for performing that function.
• Double Compensation and Allowance Integration: Yes. The incentive allowance payments violated both the allowance integration rule under Section 12 of R.A. No. 6758 and the constitutional prohibition on double compensation under Article IX-B, Section 8, there being no law or executive issuance authorizing such additional compensation.
• Refund of Disallowed Amounts: Yes. The approving and certifying officers are solidarily liable for the entire disallowed amount on account of gross negligence, and all recipients must return the amounts they respectively received, no excusable amounts being available under the Madera guidelines.

• Statutory Mandate: LOI No. 537, which created the Welfare Fund, expressly directed the Overseas Employment Development Board, the National Seamen Board, and the Bureau of Employment Services to collect contributions for the Fund. E.O. No. 797, which created the POEA, provided that POEA shall assume the functions of those abolished agencies, including their applicable functions, appropriations, records, equipment, property, and personnel. As the successor agency, POEA clearly inherited the mandate to collect contributions for the Welfare Fund. This mandate was not removed by P.D. Nos. 1694 and 1809, which both stated that all contributions collected pursuant to LOI No. 537 shall be transferred to the Welfund. It was only in 2016, upon the passage of R.A. No. 10801, that the Legislature explicitly authorized OWWA to collect for the OWWA Fund. Section 64 of P.D. No. 1177 does not apply because the service sought to be contracted out — collection of Welfare Fund contributions — is part of the purported contractor's own statutory mandate. Even assuming that R.A. No. 10801 empowered OWWA to collect contributions, OWWA cannot contract out such function because it is not only a regular and recurring agency activity but also a core part of its statutory mandate. The charters of OWWA and POEA are statutes in pari materia and must be construed together, revealing the legislature's intent to have two separate but complementary entities working together to promote overseas labor policies and ensure OFW welfare, with POEA focusing on pre-employment matters and OWWA on employment and post-employment matters. The complementary nature of their functions is further manifested in the new OWWA charter, which institutionalizes the integration of OWWA dues collection into the POEA contract processing system and makes the POEA Administrator an ex officio member of the OWWA Board of Trustees. While POEA employees may be deputized by OWWA under Section 13 of R.A. No. 10801 to serve as collecting agents, they are not entitled to receive allowances for such deputation because assistance and facilitation of Welfare Fund collection remains part and parcel of POEA's mandate.

• Double Compensation and Allowance Integration: The general rule under Section 12 of R.A. No. 6758 is that all allowances received by incumbent government employees must be integrated into the standardized salary rate. The exceptions are: (1) allowances granted to defray or reimburse expenses incurred in the performance of official functions, as enumerated in Section 12; (2) existing additional compensation received by incumbents before the effectivity of R.A. No. 6758 on July 1, 1989; and (3) additional compensation as determined by the DBM or the President. Petitioners invoked the second exception, claiming the allowance was authorized in 1982 and paid continuously since. However, they failed to show that the officers and employees who received the payments covered by Notice of Disallowance No. 2005-015 were incumbents receiving the incentive allowance as of July 1, 1989. The minutes of the November 21, 2001 OWWA Board meeting referred to the "proposed POEA incentive," the grant of which was debated — indicating that the allowance had ceased or been stopped at some point between 1982 and 2001, otherwise the Board would not have denominated it as "proposed." As for double compensation, Article IX-B, Section 8 of the Constitution prohibits additional, double, or indirect compensation unless specifically authorized by law. Since collection of OWWA dues is within POEA's statutory mandate and part of the job description of its employees, any compensation or benefits received for that function must be integrated into their basic salaries unless a law or executive issuance specifically authorizes additional compensation. Petitioners failed to demonstrate that the incentive allowance was authorized by any statute or executive pronouncement apart from the erroneous 1982 OWWA Board Resolution No. 35.

• Refund of Disallowed Amounts: Under the Madera guidelines, approving and certifying officers who acted in good faith are not civilly liable, but those clearly shown to have acted in bad faith, malice, or gross negligence are solidarily liable to return the net disallowed amount. Recipients are liable to return the amounts they received unless they show the amounts were genuinely given in consideration of services rendered. In this case, the approving officers were guilty of gross negligence for failing to realize that Welfare Fund collection is part of their agency's functions, as the provisions of LOI No. 537 and E.O. No. 797 clearly and categorically state that such collection is a mandate of the POEA. Additionally, the sourcing of additional compensation from the Welfare Fund was prohibited as early as 1981 by Item 4.5 of MOB-MOF-COA Joint Circular No. 9-81, which prohibits the use of trust receipt funds for payment of additional compensation. The Welfare Fund constitutes trust receipts under the Joint Circular's definition, being collections from non-income sources authorized by law for specific purposes and collected by agencies acting as trustees. Even assuming the payments were sourced from OWWA's operating budget rather than the Welfare Fund itself, they were nevertheless illegal because the POEA officials and employees did not render any service entitling them to such payments, as the audit found that the actual task of collection was performed by OWWA employees stationed at POEA offices. Accordingly, the certifying and approving officials are solidarily liable for the total amount of the disallowance, there being no excusable amounts under the Madera guidelines.

• In Pari Materia Doctrine — Statutes that pertain to the same subject matter must be read and construed together because enactments of the same legislature on the same subject are supposed to form part of one uniform system; later statutes are supplementary or complementary to earlier enactments. The Court applied this doctrine to the charters of OWWA and POEA, holding that being statutes relating to the same subject matter of overseas Filipino labor regulation and promotion, they must be construed together, revealing the legislature's intent to have POEA and OWWA as two separate but complementary entities working together to promote the government's overseas labor policies and ensure the welfare of OFWs.

• Allowance Integration Rule (Section 12, R.A. No. 6758) — The general rule is that all allowances being received by incumbent government employees must be integrated into the standard salary. The exceptions are: (1) allowances granted for the purpose of defraying or reimbursing expenses incurred in the performance of official functions, as enumerated in Section 12 (representation and transportation allowances, clothing and laundry allowances, subsistence allowance of marine officers and crew, subsistence allowance of hospital personnel, hazard pay, allowances of foreign service personnel stationed abroad, and such other additional compensation as may be determined by the DBM); (2) existing additional compensation received by incumbents as of July 1, 1989, when R.A. No. 6758 took effect; and (3) additional compensation as determined by the DBM or the President. The Court held that the incentive allowance did not fall under any exception because petitioners failed to prove the recipients were incumbents receiving the allowance as of July 1, 1989, and the allowance was in the nature of compensation for services rendered rather than an allowance to defray expenses.

• Prohibition on Double Compensation (Article IX-B, Section 8, Constitution) — No elective or appointive public officer or employee shall receive additional, double, or indirect compensation unless specifically authorized by law. Pensions or gratuities shall not be considered as additional, double, or indirect compensation. The Court held that because collection of OWWA dues is within POEA's statutory mandate and part of the job description of its employees, any compensation or benefits received for that function must be integrated into their basic salaries unless a law or executive issuance specifically authorizes additional compensation. The incentive allowance was not authorized by any statute or executive pronouncement apart from the erroneous OWWA Board Resolution No. 35.

• Contracting Out of Government Services (Section 64, P.D. No. 1177) — Government agencies may enter into contracts with other public or private entities subject to the following conditions: (1) the contract shall be subject to law and applicable guidelines approved by the President; (2) the contract shall be for a specific service which cannot be provided by the regular staff of the agency; (3) the contract must be for a specific duration of time; (4) the contract must set forth definite expected outputs; and (5) the contract cost shall not exceed the cost of the same service had it been performed by regular employees. The provision prohibits contracting out implementing, monitoring, and other regular and recurring agency activities. The Court held that Section 64 does not apply where the service sought to be contracted out is part of the purported contractor's own statutory mandate, and that even assuming OWWA was authorized to collect contributions, it could not contract out such function because it is a regular and recurring agency activity and a core part of its statutory mandate.

• Madera Guidelines on Return of Disallowed Amounts — (1) If a Notice of Disallowance is set aside, no return is required. (2) If upheld: (a) approving and certifying officers who acted in good faith, in regular performance of official functions, and with diligence of a good father of the family are not civilly liable; (b) approving and certifying officers who acted in bad faith, malice, or gross negligence are solidarily liable to return only the net disallowed amount; (c) recipients are liable to return the amounts respectively received unless they show the amounts were genuinely given in consideration of services rendered; (d) the Court may excuse return based on undue prejudice, social justice considerations, and other bona fide exceptions. Badges of good faith include: (1) Certificate of Availability of Funds, (2) in-house or DOJ legal opinion, (3) no precedent disallowing a similar case, (4) traditionally practiced within the agency with no prior disallowance, and (5) reasonable textual interpretation on legality. The Court applied these guidelines to hold the approving officers solidarily liable for gross negligence and ordered all recipients to return the amounts received, as no services were rendered entitling them to payment.

• "As the successor agency of the Overseas Employment Development Board and the National Seamen Board, POEA clearly inherited these agencies' mandate under LOI No. 537 to collect contributions for the Welfare Fund." — This passage establishes the ratio decidendi on the first issue, articulating the chain of statutory succession by which POEA inherited the mandate to collect Welfare Fund contributions from its predecessor agencies.

• "The general rule discernible from these cases is that all allowances being received by incumbent government employees must be integrated into the standard salary." — This formulation synthesizes the Court's jurisprudence on Section 12 of R.A. No. 6758 and states the controlling rule on allowance integration, with its three enumerated exceptions, as applied to disallowed incentive payments.

• "Section 64 specifically regulates government spending on contracting-out of services. x x x Therefore, to determine if a service may be properly contracted out by a government agency, the first step is to ascertain the nature of the service sought to be contracted out. If the service is an implementation, monitoring, or other regular and recurring activity of the agency, it cannot be contracted out." — This passage defines the analytical framework for applying Section 64 of P.D. No. 1177, establishing the threshold inquiry into the nature of the service as the first step in determining whether contracting out is permissible.

• "Being statutes relating to the same subject matter of overseas Filipino labor regulation and promotion, the charters of the OWWA and the POEA must be construed together." — This statement applies the in pari materia doctrine to the specific context of the POEA and OWWA charters, providing the interpretive basis for harmonizing the two agencies' complementary mandates.

• National Tobacco Administration vs. COA, 370 Phil. 793 (1999) — Applied in interpreting Section 12 of R.A. No. 6758. The Court relied on this case for the principle that the "catch-all proviso" in the first sentence of Section 12 covers only fringe benefits in the nature of allowances granted to defray or reimburse expenses, and that the second sentence's grandfather clause applies only to incumbents receiving non-integrated benefits as of July 1, 1989.

• Phil. International Trading Corp. vs. COA, 461 Phil. 737 (2003) — Followed in applying the allowance integration rule. The Court cited this case for the holding that the Staple Food Incentive was a financial assistance falling under the second sentence of Section 12 rather than an allowance to defray expenses, and for the requirement that recipients must be shown to have been incumbents receiving the benefit as of July 1, 1989.

• Phil. International Trading Corp. vs. COA, 368 Phil. 478 (1999) — Followed on the Car Plan program benefits disallowance. The Court relied on this case for the principle that the second exception under Section 12 (grandfather clause) only covers incumbents receiving non-integrated allowances at the time R.A. No. 6758 took effect, and that the legislative intent was to gradually phase out the privilege without upsetting the policy of non-diminution of pay.

• Maritime Industry Authority vs. Commission on Audit, 750 Phil. 288 (2015) — Followed. The Court cited this case for the principle that the clear policy of Section 12 is to standardize salary rates among government personnel, that the enumerated non-integrated allowances in Section 12 are exclusive, and that DBM action is required only if additional non-integrated allowances will be identified.

• Blaquera vs. Alcala, 356 Phil. 678 (1998) — Distinguished and effectively superseded by Madera. The Court noted that Blaquera carved out a limited exception to the general rule of personal liability for unlawful expenditures in cases of disallowed benefits, but applied the more recent and definitive Madera guidelines instead.

• Madera vs. Commission on Audit, G.R. No. 244128, September 8, 2020 — Applied as the controlling framework. The Court relied on Madera for the definitive rules governing the return of COA-disallowed benefit payments, including the distinction between approving/certifying officers and passive recipients, the badges of good faith, and the grounds for excusing return.

• Peralta vs. Auditor General Mathay, 148 Phil. 261 (1971) — Applied on the constitutional prohibition on double compensation. The Court cited Chief Justice Fernando's exposition that a bonus partakes of additional remuneration or compensation and that public officers are expected to receive only such compensation as may be fixed by law.

• Philippine Ports Authority vs. Commission on Audit — Cited for the rationale that allowances are consolidated with the standardized rate to avoid compelling government officials or employees to spend personal funds in attending to their duties, and that the purpose of allowances is to defray or reimburse expenses incurred in the performance of official functions.

• Social Security System vs. Commission on Audit, 433 Phil. 946 (2002) — Followed. The COA relied on this ruling for the principle that the OWWA Fund is in the nature of a private fund held in trust by OWWA for OFWs, and proceeds therefrom cannot be used to pay the questioned incentive allowance.

• Office of the Solicitor General vs. Court of Appeals, 735 Phil. 622 (2014) — Cited for the in pari materia doctrine, specifically the maxim "interpretare et concordare legibus est optimus interpretandi" — every statute must be construed and harmonized with other statutes to form a uniform system of jurisprudence.

• Article IX-B, Section 8, 1987 Constitution — Prohibits additional, double, or indirect compensation to public officers or employees unless specifically authorized by law. The Court applied this provision to hold that the incentive allowance constituted unauthorized additional compensation for services within POEA's statutory mandate, there being no law or executive issuance authorizing such payment.

• Section 12, Republic Act No. 6758 (Compensation and Position Classification Act) — Requires that all allowances, except those specifically enumerated, be deemed included in the standardized salary rates. The Court applied this provision to hold that the incentive allowance was not among the enumerated exceptions, was not shown to have been received by incumbents as of July 1, 1989, and was not authorized by the DBM, thus violating the allowance integration rule.

• Section 64, Presidential Decree No. 1177 (Budget Reform Decree of 1977) — Authorizes government agencies to enter into service contracts with other public or private entities for specific services which cannot be provided by the regular staff, subject to conditions. The Court held that this provision does not apply because the service sought to be contracted out — collection of Welfare Fund contributions — is part of POEA's own statutory mandate, and even assuming it were OWWA's function, it is a regular and recurring agency activity that cannot be contracted out.

• Letter of Instruction No. 537 — Created the Welfare Fund for Overseas Workers and directed the Overseas Employment Development Board, the National Seamen Board, and the Bureau of Employment Services to collect contributions therefor. The Court relied on this issuance to establish that collection of Welfare Fund contributions was a mandate of POEA's predecessor agencies, inherited by POEA upon its creation.

• Executive Order No. 797 — Created the POEA and provided that it shall assume the functions of the Overseas Employment Development Board, the National Seamen Board, and the overseas employment functions of the Bureau of Employment Services. The Court used this provision to establish the chain of statutory succession by which POEA inherited the mandate to collect Welfare Fund contributions.

• Presidential Decree Nos. 1694 and 1809 — Reorganized the administration of the Welfare Fund and provided that all contributions collected pursuant to LOI No. 537 shall be transferred to the Welfund. The Court cited these decrees to show that POEA's mandate to collect Welfare Fund contributions was not removed by the reorganization of the Fund's administration.

• Executive Order No. 247 — Reorganized the POEA on July 24, 1987. The Court cited Section 3(n) thereof, which authorizes POEA to enter into joint projects with other relevant government entities, as evidence of the shared responsibility between POEA and OWWA in promoting OFW welfare.

• Republic Act No. 10801 (OWWA Act of 2016) — Renamed the Welfare Fund as the OWWA Fund, defined it as a private fund held in trust by OWWA, and explicitly authorized OWWA to collect contributions to the OWWA Fund. The Court noted that it was only upon the passage of this law that the Legislature explicitly authorized OWWA to collect for the Fund, and that the law institutionalized the integration of OWWA dues collection into the POEA contract processing system.

• MOB-MOF-COA Joint Circular No. 9-81, Item 4.5 — Prohibits the use of trust receipt funds for payment of additional compensation to employees in the form of allowances, incentive pay, bonuses, or other forms of additional compensation. The Court applied this circular to hold that the sourcing of additional compensation from the Welfare Fund — a trust fund — was prohibited as early as 1981.

• Section 38, Administrative Code of 1987 — Provides that officers acting in good faith, in the regular performance of official functions, and with the diligence of a good father of the family are not civilly liable for disallowed expenditures. The Court referenced this provision through the Madera guidelines.

• Section 43, Administrative Code of 1987 — Provides that officers who acted in bad faith, malice, or gross negligence are solidarily liable to return disallowed amounts. The Court applied this provision through the Madera guidelines to hold the approving officers solidarily liable.

Peralta, C.J., Perlas-Bernabe, Leonen, Caguioa, Gesmundo, Hernando, Inting, Zalameda, Lopez, Delos Santos, and Rosario, JJ., concurred. Carandang and Lazaro-Javier, JJ., were on official leave.