THE CASE OF MADERA, ET AL. VS. COMMISSION ON AUDIT, G.R. NO. 244128 (28 SEPTEMBER 2020)
UNIFORM RULES ON RETURN IN CASES OF NOTICE OF DISALLOWANCE
In this time of pandemic, Local Government Units (LGUs) usually grant hazard pay and extra allowances to government personnel, especially the frontliners. But LGUs should be mindful and ensure that the grant of these extra pay and allowances has solid legal basis. Last 28 September 2020, the Supreme Court En Banc or sitting on full court (fifteen Justices), issued a ruling in G.R. No. 244128 entitled “Mario M. Madera, et al. vs. Commission on Audit”. In the case of Madera, the Supreme Court found the opportunity to reconcile conflicting case laws and make uniform the rules on return of government funds by virtue of a Notice of Disallowance issued by the Commission on Audit.
The case is about the allowances and benefits given by the Municipal Local Government Unit of Mondragon, Northern Samar in the aftermath of the strongest typhoon to have hit the land, Typhoon Yolanda. Sometime in December 2013, the Municipality passed and approved Sangguniang Bayan Ordinance Nos. 08, 41, 42, 43 and 48, all series of 2013, granting various allowances to its officials and employees, both regular and casuals, as well as job orders and contractual employees: 1) Economic Crisis Assistance (ECA); 2) Monetary Augmentation of Municipal Agency (MAMA); 3) Agricultural Crisis Assistance (ACA); and 4) Mitigation Allowance to Municipal Employees (MAME).
The Audit Team Leader and Supervising Auditor from the Commission on Audit (COA) issued a total of eleven (11) Notices of Disallowance dated 20 February 2014 on these allowances in the total amount of Php7,706,253.10. The following grounds cited by the auditors as follows: 1) Section 12 of Republic Act No. 6758 already consolidated allowances and compensation; 2) Item II of COA Circular No. 2013-003 dated 30 January 2013 excluded the subject allowances among the list of authorized allowances, incentives, and benefits; and 3) Items 4 and 5 of Section 1.a of Civil Service Resolution No. 02-0790 dated 05 June 2002 provides that employees under contract or job order not enjoy the benefits enjoyed by the government employees, such as the Personnel Economic Relief Allowance (PERA), Additional Compensation Allowance (ACA), or Representation Allowance and Transportation Allowance (RATA). Held liable under these Notices of Disallowance were Mayor Mario M. Madera, the Municipal Accountant, Municipal Treasurer, Municipal Budget Officer, and all the payees thereof.
The COA Regional Director denied the appeal of the Mayor Madera, et al. so they brought the matter on further appeal before COA Commission Proper. COA affirmed the ruling of COA Regional Office, with modification in that the officials and employees who unwittingly received the disallowed benefits or allowances should not be held liable for their reimbursement since they are recipient-payees in good faith. However, COA held that “the municipal officials who passed and approved the Sangguniang Bayan Ordinance and Resolutions authorizing the grant of subject allowances, including those who approved/certified the payment thereof, are made to refund the entire disallowed benefits or allowances.
Mayor Madera et al. raised the matter before the Supreme Court. The Court started with a disquisition of a long line of cases of similar nature. In several cases, the Supreme Court generally ruled that the approving officer and each employee who received the disallowed benefit or allowance are obligated, jointly and severally, to return the amount received. Exempted from the obligation to return are those who received these disallowed benefits in good faith. In this case of Madera, et al., the Supreme Court abandoned this principle stating that this exception is not consistent with the Civil Code principle of solutio indebiti, i.e. those who received something to which he or she is not entitled to has the obligation to return the same; and the principle of unjust enrichment, or unduly enriching the employee at the expense of the government.
Thus, the Supreme Court now laid down the general rule that even if the recipients enjoy the presumption or presented proof having acted in good faith, or acted in the regular performance of their official duties, and with the diligence of a good father of a family, payees of disallowed benefits remain liable unless the Court excuses the return. The Court effectively abandoned the so-called “passive recipient in good faith” principle. The Court opined, “To a certain extent, therefore, payees always do have an indirect ‘involvement’ and ‘participation’ in the transaction where the benefits they received are disallowed because the accounting recognition of the release of funds and their mere receipt thereof results in the debit against government funds in the agency’s account and credit in the payees’ favor.”
The Supreme Court thus summarized the Rules on Return as follows:
- If a Notice of Disallowance is set aside by the Court, no return shall be required from any of the persons held liable therein;
- If a Notice of Disallowance is upheld, the rules on return are as follows:
- 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;
- 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, solidarily liable to return only the net disallowed amount which, as discussed herein, excludes amounts excused under the following sections 2c and 2d;
- 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
- 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.
Applying the foregoing principles, the Supreme Court absolved Mayor Madera, et al. because they were acted in good faith in relying on the Sangguniang Bayan Ordinances as bases of these benefits and allowances. The Court held that these Ordinances were not invalidated by the Sangguniang Panlalawigan or COA, so the municipal officials had a reason to believe in good faith that they are justified in giving these allowances and benefits which purpose is to help alleviate the suffering of the employees reeling from the aftermath of Typhoon Yolanda. The Court also sustained the municipality’s justification that it was customary for them to grant yearend bonuses and there was no single Notice of Disallowance issued. When the subject Notices of Disallowance, they immediately complied and stopped such practice.