NHA Incentive Allowances Disallowed: When Government Compensation Rationalization Prevails

The Supreme Court has affirmed the Commission on Audit's (COA) disallowance of incentive allowances paid to employees of the National Housing Authority (NHA). In Abellanosa v. Commission on Audit (G.R. No. 185806, July 24, 2012), the Court ruled that the NHA Board's Resolution No. 464, which granted incentive allowances to project personnel, had no legal basis because the power to grant such allowances had already been repealed by presidential decrees and later by Republic Act No. 6758. The decision clarifies the limits of government-owned and controlled corporations (GOCCs) in granting additional compensation to their employees.

Background of the Case

In 1982, the NHA Board issued Resolution No. 464, granting incentive allowances to project personnel—20% of basic pay for those assigned outside their home region, and 10% for those assigned to projects within their region. The resolution was implemented through an internal memorandum issued by the NHA General Manager in 1984.

The legal landscape changed with the enactment of several compensation rationalization laws. Presidential Decree No. 1597 (1978) repealed all laws and issuances that exempted agencies from the National Compensation and Position Classification System. Then in 1989, Republic Act No. 6758 (the Compensation and Position Classification Act) consolidated all allowances into standardized salary rates, with only specific exceptions.

Despite these laws, the NHA resumed paying the incentive allowance from February 1994 to December 1999, totaling P808,645.90. The COA later disallowed P401,284.39 of these payments, holding the employees liable for refund.

The Legal Issues

The petitioners raised several arguments: that Resolution No. 464 was valid under the NHA's charter (PD 757); that PD 985's exception for government corporations preserved their power to grant incentives; and that PD 1597 only repealed Section 4 of PD 985, not the exception in Section 2.

The Court rejected all these arguments. It held that Section 3 of PD 1597 expressly repealed all inconsistent laws and issuances, not just those mentioned in Section 2. The NHA Board's power to determine allowances under its charter was therefore already revoked by 1978, four years before Resolution No. 464 was issued.

The Court's Ruling

The Court emphasized that RA 6758 further reinforced the compensation rationalization policy. Section 12 of RA 6758 provides that all allowances are deemed included in standardized salary rates, except for a limited list: representation and transportation allowances, clothing and laundry allowances, subsistence allowances for specific personnel, hazard pay, and allowances for foreign service personnel.

The incentive allowances under Resolution No. 464 were not among these exceptions. Neither was there any showing that the DBM had determined them to be allowable additional compensation. The Court also rejected the argument that the allowances were merely temporary or given only to a few employees, noting that RA 6758 does not make such distinctions.

Finally, the Court applied the principle from Baybay Water District v. Commission on Audit: public officers' erroneous application of the law does not estop the government from correcting those errors. Practice, no matter how long continued, cannot give rise to a vested right if it is contrary to law.

Practical Takeaways

• Board resolutions cannot override compensation laws. GOCC boards must verify that their power to grant allowances has not been repealed by subsequent compensation rationalization laws.
• RA 6758 is the governing framework. After July 1, 1989, all allowances not expressly exempted or determined by the DBM are deemed integrated into standardized salaries.
• COA is not estopped by prior audit errors. The government can correct erroneous payments even if they were previously passed in audit.
• Employees may be held liable for refunds. Payees and officers who approved or certified unlawful disbursements can be required to return the amounts.
• Check DBM authorization before granting benefits. Without appropriate authorization from the DBM or the Office of the President, payments of allowances may be considered illegal disbursements of public funds.

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