The Officers and Employees of Iloilo Provincial Government vs. The Commission on Audit

The grant of a benefit more than five (5) times the amount given by other government offices without ensuring compliance with budgetary rules constitutes gross negligence characterized by want of the slightest care and conscious indifference to consequences, making approving and certifying officers solidarity liable for the disallowed amounts under Section 43 of the Administrative Code. Passive recipients of disallowed benefits are liable to return the amounts they received under the principle of solutio indebiti, unless they fall under the exceptions recognized in Madera vs. Commission on Audit, which were not established in this case.

The Province of Iloilo, a first-class province, is subject to the Personal Services (PS) limitation under Section 325(a) of Republic Act No. 7160 (Local Government Code), which caps total appropriations for personal services at forty-five percent (45%) of the total annual income from regular sources realized in the next preceding fiscal year. Administrative Order No. 276 dated 15 December 2009 authorized the grant of Productivity Enhancement Incentive (PEI) to government employees, including those in local government units, for calendar year 2009, subject to the PS limitation. DBM Local Budget Circular No. 2009-93 clarified that the respective sanggunian may grant PEI to local government personnel depending on the financial capability of the LGU, chargeable to LGU funds subject to budgetary conditions and PS limitation.

In December 2009, the Sangguniang Panlalawigan of Iloilo enacted Appropriation Ordinance No. 2009-06 allowing the request for additional funds to cover the grant of PEI amounting to ₱50,000.00 per employee, or a total disbursement of ₱102.7 million. On post-audit, the Audit Team Leader and the Supervising Auditor of the Province of Iloilo disallowed the payment of the PEI through ND Nos. 2010-06-101(09) to 2010-85-101(09) for the total amount disbursed, on the ground that the payment was irregular and illegal for violating Section 325(a) of RA 7160 on the Personal Services limitation and DBM Local Budget Circular No. 2009-03 dated 17 December 2009.

Based on post-audit computations, the Province of Iloilo had already exceeded its Personal Services limitation by ₱38,701,198.90 even prior to the grant of the PEI benefit. The following were held liable under the NDs: Niel D. Tupas, Sr. (Provincial Governor) for approving payment; Rolex T. Suplico (Provincial Vice Governor/SP Presiding Officer) and various SP Members for passing the appropriation despite excess in PS limitation; Lyd P. Tupas (Provincial Accountant) for certifying as to completeness of documents; Corazon Estelita S. Beloria (Asst. Prov. Treasurer) for certifying as to availability of funds; Elena D. Lim (Budget Officer) for certifying as to availability of appropriation; Salvador P. Cabaluna, III (Provincial Legal Officer) for certifying that the officials and employees are entitled to PEI; and all other payees as stated in the NDs for being recipients of the disallowed benefits.

Petitioners appealed the disallowance before the COA Regional Office, arguing that the Provincial Government acted in good faith in implementing the appropriation ordinance and that recipients who received the benefit in good faith should not be compelled to refund the same. They also argued that waived items (leave credits, terminal leaves and subsistence allowance) must be considered in computing the PS limitation. The COA Regional Office denied the appeal, noting that even if the waived items were taken into account, the excess in PS limitation would still be ₱21,983,964.56. The COA Proper affirmed, and petitioners moved for reconsideration, which was denied.

Petitioners received the COA Proper Decision on 26 September 2014. They filed a motion for reconsideration on 08 October 2014, taking twelve (12) days, and received its denial on 21 May 2015. They filed their petition before the Supreme Court on 18 June 2015, on the mistaken belief they had thirty (30) days from 21 May 2015.

• Legality of the Grant: Petitioners asserted the legality of the grant of PEI to the officials and employees of the Province of Iloilo by virtue of a validly passed appropriations ordinance.
• Good Faith of Recipients: Petitioners claimed good faith in the receipt of the benefit to avoid liability for the refund of the disallowed amounts.
• Waived Items in Computation: Petitioners argued that the COA gravely erred in disallowing the full amount without considering the amount in excess and the waived items (leave credits, terminal leaves and subsistence allowance) in computing the Personal Services limitation.

• Procedural Bar: Respondents, through the Office of the Solicitor General, argued that the present petition should be dismissed for being filed out of time.
• Violation of Law: Respondents maintained that the payment of PEI to the employees of the Province of Iloilo violated the law and applicable rules and regulations.
• Solutio Indebiti: Respondents argued that petitioners cannot invoke good faith to avoid the refund of the disallowed amounts since an order of refund is supported by the principle of solutio indebiti.

• Timeliness of Petition: Whether the petition for certiorari was filed within the reglementary period under Rule 64, Section 3 of the Rules of Court.
• Grave Abuse of Discretion: Whether the COA committed grave abuse of discretion in affirming the disallowance of the PEI payment for violating the Personal Services limitation under Section 325(a) of RA 7160.
• Liability of Approving and Certifying Officers: Whether the approving and certifying officers are solidarity liable for the disallowed amounts for gross negligence.
• Liability of Payees: Whether the payees are liable to return the amounts they received under the principle of solutio indebiti.

• Timeliness of Petition: No. The petition was filed out of time. Under Rule 64, Section 3, the thirty-day reglementary period is merely interrupted by the filing of a motion for reconsideration, and after receipt of the denial, the petitioner is allowed to file within the remaining period, which shall not be less than five (5) days in any event. Petitioners had only eighteen (18) days from 21 May 2015, or until 08 June 2015, to file the petition, but they filed only on 18 June 2015.
• Grave Abuse of Discretion: No. The COA did not commit grave abuse of discretion in disallowing the PEI payment. The Province of Iloilo had already exceeded its Personal Services limitation by ₱38,701,198.90 even before the grant, and even deducting the waived items, the excess would still be ₱21,983,964.56.
• Liability of Approving and Certifying Officers: Yes. The approving and certifying officers were grossly negligent in allowing the disbursement of a higher amount of PEI despite exceeding the province's Personal Services limitation, making them solidarity liable under Section 43 of the Administrative Code.
• Liability of Payees: Yes. The payees are liable to return the amounts they personally received pursuant to the principle of solutio indebiti, as the receipt of PEI was truly by mistake and the exceptions under Madera do not apply.

• Timeliness of Petition: Rule 64, Section 3 of the Rules of Court provides that the petition shall be filed within thirty (30) days from notice of the judgment or final order or resolution sought to be reviewed. The filing of a motion for reconsideration interrupts the period, but if the motion is denied, the aggrieved party may file the petition within the remaining period, which shall not be less than five (5) days in any event, reckoned from notice of denial. Petitioners received the COA Proper Decision on 26 September 2014, took twelve (12) days to file a motion for reconsideration on 08 October 2014, and received its denial on 21 May 2015. That gave them only eighteen (18) days, or until 08 June 2015, to file the petition. They filed only on 18 June 2015 on the mistaken belief they had thirty (30) days from 21 May 2015. Procedural rules should be treated with utmost regard and respect as they are designed to facilitate the adjudication of cases and de-clog the dockets.

• Grave Abuse of Discretion: The Court generally sustains the decisions of administrative authorities, especially one which is constitutionally-created, not only on the basis of the doctrine of separation of powers but also for their presumed expertise in the laws they are entrusted to enforce. There is grave abuse of discretion when there is an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act in contemplation of law, as when the judgment rendered is not based on law and evidence but on caprice, whim, and despotism. Administrative Order No. 276 dated 15 December 2009 authorized the grant of PEI to government employees, including those in the LGUs, for CY 2009. DBM Local Budget Circular No. 2009-93 clarified that the respective sanggunian may grant PEI depending on the financial capability of the LGU, subject to the budgetary conditions and PS limitation in LGU budgets pursuant to Sections 325(a) and 331(b) of RA 7160. Section 325(a) provides that the total appropriations for personal services of a local government unit for one fiscal year shall not exceed forty-five percent (45%) in the case of first to third class provinces of the total annual income from regular sources realized in the next preceding fiscal year. The Province of Iloilo had already exceeded its PS limitation by ₱38,701,198.90 even before the grant of PEI. Even if the waived items of ₱16,717,234.34 are deducted, the adjusted actual cost still exceeds by ₱21,983,964.56 the allowable PS of ₱464,153,247.41. The factual findings of administrative bodies charged with their specific field of expertise are afforded great weight by the courts and are conclusive in the absence of substantial showing that such findings were made from an erroneous estimation of the evidence presented.

• Liability of Approving and Certifying Officers: In Madera vs. Commission on Audit, the Court harmonized previous conflicting rulings on liability to return disallowed amounts. Approving and certifying officers who acted in good faith, in regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return consistent with Section 38 of the Administrative Code of 1987. However, approving and certifying officers who are clearly shown to have acted in bad faith, malice, or gross negligence are, pursuant to Section 43 of the Administrative Code of 1987, solidarity liable to return only the net disallowed amount. Gross negligence has been defined as negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected. The approving and certifying officials of the Province of Iloilo should have been more cautious and meticulous in making sure the province had sufficient budget for the disbursement of ₱102.7 million PEI considering they wanted to give out an amount five (5) times more than that granted to all other government branches and offices, which were only granted PEI amounting to ₱10,000.00. A prior disallowance based on the same cause should have drawn the attention of the approving and certifying officers to be more vigilant and circumspect. The patent disregard of the issuance by the DBM on the Personal Services limitation constitutes gross negligence, making them liable for the refund thereof.

• Liability of Payees: In Madera, the Court reverted to the basic standpoint of applying the principles of solutio indebiti and unjust enrichment, regardless of good faith of passive recipients, in determining liability for disallowed amounts. Article 2154 of the Civil Code provides that if something is received and unduly delivered through mistake when there is no right to demand it, the obligation to return the thing arises. The Court carved out exceptions to the general application of solutio indebiti when applied to passive recipients: (1) when the amount disbursed was genuinely given in consideration of services rendered; (2) when undue prejudice will result from requiring payees to return; (3) where social justice or humanitarian considerations are attendant; and (4) other bona fide exceptions as may be determined on a case to case basis. In Abellanosa vs. Commission on Audit, the Court refined the first exception, requiring: (a) the personnel incentive or benefit has proper basis in law but is only disallowed due to irregularities that are merely procedural in nature; and (b) the personnel incentive or benefit must have a clear, direct, and reasonable connection to the actual performance of the payee-recipient's official work and functions. Here, there is no evidence or proof on record to serve as foundation for a factual determination of whether the PEI benefit given to the employees of the province has a clear, direct and reasonable connection to the actual performance of the recipients' work and functions. More importantly, the grant of PEI was actually unauthorized for non-compliance with a legal condition, i.e., financial capability of the LGU to grant PEI to its personnel. The Province of Iloilo did not have the required financial capability to grant PEI in an amount five (5) times more than the standard. The funding source of the benefit had already been depleted even before granting the subject benefit. Hence, the disbursement is deemed unauthorized and illegal, and the receipt of PEI by the payees was truly by mistake, requiring them to return the amounts they personally received.

• Madera Rules on Return — When a Notice of Disallowance is upheld, the rules on return are: (a) approving and certifying officers who acted in good faith, in regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return consistent with Section 38 of the Administrative Code of 1987; (b) approving and certifying officers who are clearly shown to have acted in bad faith, malice, or gross negligence are, pursuant to Section 43 of the Administrative Code of 1987, solidarity liable to return only the net disallowed amount; (c) recipients — whether approving or certifying officers or mere passive recipients — are liable to return the disallowed amounts respectively received by them, unless they are able to show that the amounts they received were genuinely given in consideration of services rendered; and (d) the Court may likewise excuse the return of recipients based on undue prejudice, social justice considerations, and other bona fide exceptions as it may determine on a case to case basis. The Court applied these rules in determining the liability of the approving and certifying officers and the payees in this case.

• Solutio Indebiti — Under Article 2154 of the Civil Code, if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. The Court applied this principle to hold the payees liable to return the amounts they received, since the receipt of PEI was truly by mistake given the province's lack of financial capability to grant the benefit.

• Gross Negligence — Gross negligence is characterized by the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected. The Court found that the approving and certifying officers' failure to observe the province's Personal Services limitation cap, despite a prior disallowance based on the same cause, constituted gross negligence.

• Abellanosa Refinement of Rule 2c — To fall under Rule 2c of the Madera Rules on Return (amounts genuinely given in consideration of services rendered), the following requisites must concur: (a) the personnel incentive or benefit has proper basis in law but is only disallowed due to irregularities that are merely procedural in nature; and (b) the personnel incentive or benefit must have a clear, direct, and reasonable connection to the actual performance of the payee-recipient's official work and functions for which the benefit or incentive was intended as further compensation. The Court applied this refinement to determine that the PEI grant did not fall under the exception because it was unauthorized for non-compliance with the financial capability condition.

• "Officials and employees should endeavor to keep abreast of laws, rules and regulations, as well as all disallowed transactions received by their office, to avoid illegal, irregular, unnecessary, excessive, extravagant or unconscionable transactions. The grant and approval of a benefit more than five (5) times the amount given by other government offices without ensuring compliance with budgetary rules is a clear showing of gross negligence characterized by having a want of the slightest care and a conscious indifference to the consequences of his or her acts." — This opening statement articulates the core principle of the decision regarding the duty of public officials to stay informed of laws and regulations and the standard for gross negligence.

• "Clearly, the thirty-day reglementary period to assail the decision of COA Proper is merely interrupted by the filing of a motion for reconsideration. After receipt of the denial of the motion, petitioners are not given a fresh period of thirty (30) days but are allowed to file the petition within the remaining period, which shall not be less than five (5) days in any event." — This passage states the controlling interpretation of Rule 64, Section 3 regarding the computation of the reglementary period for filing a petition for certiorari against COA decisions.

• "The approving and certifying officials of the Province of Iloilo in the instant petition should have been more cautious and meticulous in making sure the province had sufficient budget for the disbursement of Php 102.7 million PEI considering they wanted to give out an amount five (5) times more than that granted to all other government branches and offices." — This passage explains why the Court found gross negligence on the part of the approving and certifying officers, emphasizing the excessive amount of the benefit compared to the standard.

• "Otherwise stated, if the approving and certifying officers diligently followed the law and computed for their Personal Services limitation, they would not have granted the subject benefit and the payees would not have received the disallowed amounts. Following such premise, the receipt of PEI by the payees herein was truly by mistake, and they are, therefore, required to return the amounts they personally received in accordance with the principle of solutio indebiti." — This passage articulates the Court's reasoning for applying solutio indebiti to require the payees to return the amounts they received.

• Madera vs. Commission on Audit, G.R. No. 244128, 08 September 2020 — Controlling precedent that harmonized previous conflicting rulings on liability to return disallowed amounts, establishing the Madera Rules on Return. The Court applied these rules to determine the liability of the approving and certifying officers and the payees in this case.

• Abellanosa vs. Commission on Audit, G.R. No. 185806, 17 November 2020 (Resolution) — Followed, refining the details of Rule 2c of the Madera Rules on Return, requiring that the personnel incentive or benefit has proper basis in law but is only disallowed due to irregularities that are merely procedural in nature, and that the benefit has a clear, direct, and reasonable connection to the actual performance of the payee-recipient's official work and functions.

• Lumayna vs. Commission on Audit, 616 Phil. 929 (2009) — Cited for the proposition that factual findings of administrative bodies are afforded great weight by the courts, and for the disallowance of salary increases where the municipality had already exceeded its Personal Services limitation.

• Casal vs. Commission on Audit, 538 Phil. 634 (2006) — Cited as an example of how the patent disregard of existing law or rules overcomes the presumption of good faith and necessitates the officers to return the disallowed amount.

• Silang vs. Commission on Audit, 769 Phil. 327 (2015) — Cited for the proposition that local government officials are accountable for the proper monitoring and maintenance of the financial affairs of their LGU and knowledge of basic procedure forms part of their shared fiscal responsibility.

• Technical Education and Skills Development Authority vs. Commission on Audit, 729 Phil. 60 (2014) — Cited for the proposition that blatant violation of clear provisions of the Constitution, GAAs and COA circulars is equivalent to gross negligence amounting to bad faith.

• Manila International Airport Authority vs. Commission on Audit, 681 Phil. 644 (2012) — Cited as an example of how the patent disregard of existing law or rules overcomes the presumption of good faith and necessitates the officers to return the disallowed amount.

• Rotoras vs. COA, G.R. No. 211999, 20 August 2019 — Cited for the proposition that officials and officers who disbursed the disallowed amounts are liable to refund when they patently disregarded existing rules in granting the benefits to be disbursed, amounting to gross negligence.

• Lazaro vs. Commission on Audit, G.R. Nos. 213323 & 213324, 22 January 2019 — Cited for the proposition that it is not the Court's duty to construe incomplete submissions and vague narrations to determine merit in assertions.

• Section 325(a), Republic Act No. 7160 (Local Government Code) — Provides that the total appropriations for personal services of a local government unit for one fiscal year shall not exceed forty-five percent (45%) in the case of first to third class provinces of the total annual income from regular sources realized in the next preceding fiscal year. The Court applied this provision to determine that the Province of Iloilo had already exceeded its PS limitation even before the grant of PEI.

• Section 43, Chapter 5, Book IV, Administrative Code of 1987 (Executive Order No. 292) — Provides that every expenditure or obligation authorized or incurred in violation of the provisions of the Code shall be void, and every official or employee authorizing or making such payment, or taking part therein, and every person receiving such payment shall be jointly and severally liable to the Government for the full amount so paid or received. The Court applied this provision to hold the approving and certifying officers solidarity liable for the disallowed amounts.

• Section 38, Administrative Code of 1987 — Provides that a public officer shall not be civilly liable for acts done in the performance of his official duties, unless there is a clear showing of bad faith, malice or gross negligence. The Court cited this provision in the context of the Madera Rules on Return.

• Article 2154, Civil Code — Provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. The Court applied this provision to require the payees to return the amounts they received under the principle of solutio indebiti.

• Rule 64, Section 3, Rules of Court — Provides that the petition shall be filed within thirty (30) days from notice of the judgment or final order or resolution sought to be reviewed, and that the filing of a motion for reconsideration interrupts the period, but if the motion is denied, the aggrieved party may file the petition within the remaining period, which shall not be less than five (5) days in any event. The Court applied this provision to dismiss the petition for being filed out of time.

• DBM Local Budget Circular No. 2009-93 dated 17 December 2009 — Clarified the guidelines in granting PEI to local government personnel, providing that the respective sanggunian may grant PEI depending on the financial capability of the LGU, subject to the budgetary conditions and PS limitation in LGU budgets pursuant to Sections 325(a) and 331(b) of RA 7160. The Court applied this circular to determine that the Province of Iloilo did not have the required financial capability to grant PEI.

• Administrative Order No. 276 dated 15 December 2009 — Authorized the grant of PEI to government employees, including those in the LGUs, for CY 2009, subject to the PS limitation in their respective local government budgets under RA 7160. The Court applied this order to determine the standard amount of PEI (₱10,000.00) granted to other government branches and offices.

• COA Circular No. 2009-006 dated 15 September 2009 — Articulates the liability of all persons identified in NDs, providing that the payee of an expenditure shall be personally liable for a disallowance and that the liability of persons determined to be liable under an ND shall be solidary. The Court cited this circular to reinforce the extent of the payees' liability to return.

Peralta, CJ, Perlas-Bernabe, Leonen, Caguioa, Gesmundo, Hernando, Carandang, Lazaro-Javier, Inting, Lopez, Delos Santos, Gaerlan, and Rosario, JJ., concurred.