Government Employees Strict Adherence TO Budgetary Laws Required FOR Salary Increases

The Supreme Court has affirmed that government agencies, including government-owned and controlled corporations (GOCCs), must strictly follow the schedules and procedures prescribed by law when implementing salary increases. In National Electrification Administration v. Commission on Audit (G.R. No. 143481, February 15, 2002), the Court held that an agency cannot accelerate salary payments simply because funds are available, absent prior approval from the Department of Budget and Management (DBM) or the President.

The Case

The National Electrification Administration (NEA), a GOCC created under Presidential Decree No. 269, implemented in January 1997 the salary increases authorized under Joint Resolution No. 01, which adjusted the salary schedule of all government employees effective January 1, 1994, to be implemented within four years.

However, Executive Order No. 389, issued by President Fidel V. Ramos on December 28, 1996, directed that the fourth and final year of salary increases be paid in two tranches: the first effective January 1, 1997, and the second effective November 1, 1997. The DBM reiterated this schedule in National Budget Circular No. 458.

Instead of following this two-tranche schedule, NEA paid the entire salary increase in one lump sum beginning January 1, 1997, effectively advancing the second tranche by ten months. The Commission on Audit's resident auditor disallowed the premature payments totaling P14,155,342.00, and ordered NEA officials and employees who received the accelerated increases to refund them.

The Issue

The central question was whether NEA could validly accelerate the implementation of the salary increases for 1997 despite the explicit two-tranche schedule prescribed by EO 389 and NBC No. 458, on the ground that funds were available.

The Ruling

The Supreme Court dismissed NEA's petition and affirmed the COA decision, holding that NEA's accelerated implementation was not in accordance with law.

Appropriations are not self-executory. The Court rejected NEA's argument that the General Appropriations Act of 1997 (R.A. 8250) served as legal authority for the accelerated payments. While the 1997 GAA contained a lump sum appropriation of P210,766,000.00 for NEA's Personal Services, the Court explained that budgetary appropriations do not constitute unbridled authority to spend as an agency wishes.

Under the Revised Administrative Code of 1987, the itemization of Personal Services must be prepared by the DBM Secretary and approved by the President. The Court cited the provision stating that the General Appropriations Act "shall not contain any itemization of personal services, which shall be prepared by the Secretary after enactment of the General Appropriations Act, for consideration and approval of the President." The Court also cited the provision requiring an approved program of expenditure as the basis for fund releases during the fiscal period. Critically, the Court cited the Administrative Code provision stating that "no portion of the appropriations in the General Appropriations Act shall be used for payment of any salary increase or adjustment unless specifically authorized by law or appropriate budget circular."

The Presidential Memorandum did not authorize acceleration. NEA cited a November 7, 1995 Memorandum from the Office of the President allowing GOCCs to accelerate implementation of salary increases. The Court noted, however, that the Memorandum expressly required prior approval from the DBM, subject to nine enumerated terms and conditions, including financial viability, remittance of dividends, and no outstanding government subsidies. NEA failed to secure such approval.

The President's power of control. The Court emphasized that under Article VII, Section 17 of the Constitution, the President has control of all executive departments, bureaus, and offices. Executive officials must implement in good faith the President's directives and orders. NEA's disregard of EO 389, the Court stated, "cannot be countenanced as it will result in chaos and disorder in the executive branch to the detriment of public service."

COA's broad audit powers. The Court also rejected NEA's argument that COA exceeded its authority by determining whether NEA violated the law. Under Article IX-D of the 1987 Constitution, COA has the power to disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures of government funds. The Court noted that this power is broader than that under the 1935 Constitution, citing Caltex Philippines, Inc. v. Commission on Audit (208 SCRA 726, 1992), which overturned the earlier ruling in Guevara v. Gimenez (6 SCRA 813, 1962).

Practical Takeaways

• Follow prescribed schedules strictly. Government agencies cannot deviate from the effectivity dates and payment schedules prescribed by law, executive orders, or budget circulars, even when funds are available.
• Appropriations are not automatic spending authority. The GAA provides lump sum appropriations; actual disbursement requires itemization of Personal Services and an approved program of expenditure.
• Prior DBM approval is mandatory. GOCCs seeking to accelerate salary increases must secure prior approval from the DBM and comply with all prescribed terms and conditions.
• COA has broad power to disallow. The Commission on Audit can disallow payments that violate laws and regulations, and can order refunds from officials and employees who received unauthorized amounts.
• Presidential directives bind all executive agencies. Subordinate executive officials must implement the President's orders in good faith; failure to do so may result in personal liability for refunds.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.