Navigating Compensation in GOCCs: PCSO COLA Disallowance and the Limits of Board Authority

The Supreme Court's 2016 decision in Philippine Charity Sweepstakes Office v. Commission on Audit (G.R. No. 216776) serves as an important reminder to government-owned and controlled corporations (GOCCs) that their power to grant employee benefits is not absolute. The case arose from the disallowance of a cost of living allowance (COLA) paid to PCSO employees in 2010, which the Commission on Audit (COA) found to be illegal. The ruling clarifies the boundaries of board authority over compensation and the liability of officials who approve unauthorized benefits.

The Facts of the Case

In March 2008, the PCSO Board of Directors approved Resolution No. 135, authorizing the payment of a monthly COLA to its officials and employees for three years, pursuant to a Collective Negotiation Agreement. In 2010, the PCSO released P381,545.43 to employees of its Nueva Ecija Provincial District Office.

During post-audit, COA issued a Notice of Disallowance, ruling that the payment violated Department of Budget and Management (DBM) Circular No. 2001-03 and amounted to double compensation prohibited under the 1987 Constitution. The PCSO appealed, but COA affirmed the disallowance. The PCSO then filed a petition with the Supreme Court, arguing that its Board had authority under its charter to fix salaries and determine allowances.

The Issue

The central question was whether the PCSO Board of Directors had the authority to grant the COLA, and if not, who should be held liable for the disallowed amount.

The Ruling: Board Authority Is Not Absolute

The Supreme Court denied the PCSO's petition and affirmed the disallowance with modification. The Court held that while Sections 6 and 9 of Republic Act No. 1169 (the PCSO charter) grant the Board power to fix salaries and determine allowances, this power is subject to pertinent civil service and compensation laws.

The Court emphasized that GOCCs like PCSO are covered by the compensation standardization framework under Presidential Decree No. 985 and P.D. No. 1597, as well as Republic Act No. 6758 (the Compensation and Position Classification Act of 1989). Any compensation plan must conform with the standardized system for government employees and is subject to DBM review.

COLA Is Integrated into Standardized Salaries

Applying Section 12 of R.A. No. 6758, the Court ruled that all allowances are deemed included in standardized salary rates, except for specifically enumerated exclusions such as representation and transportation allowances, clothing and laundry allowances, and hazard pay. Since COLA is not among these exclusions, it is integrated into the standardized salary.

The Court distinguished COLA from other allowances: it is not intended to reimburse expenses incurred in performing official duties. Rather, it is a financial assistance benefit meant to address increases in the cost of living. As such, it falls under the general rule of integration.

No Post Facto Approval, No Vested Rights

The PCSO claimed that Executive Secretary Paquito Ochoa Jr. had approved the benefits, but the Court noted that the PCSO failed to present documentary evidence of such approval. Even if it existed, an executive act cannot override express legal prohibitions.

The Court also rejected the non-diminution argument, noting that the PCSO failed to prove its employees were incumbents receiving the COLA as of July 1, 1989, which is the relevant date under R.A. No. 6758. The Court reiterated that "practice, without more—no matter how long continued—cannot give rise to any vested right if it is contrary to law."

Liability for Refund

The Court ordered the PCSO Board members who approved Resolution No. 135 and the five PCSO officials found liable by COA to refund the P381,545.43. These officials were deemed to have acted in bad faith or with gross negligence because they should have known that the COLA was not among the allowances allowed under DBM and Public Sector Labor-Management Council issuances.

However, the Court excused the ordinary employees who received the COLA, holding that they acted in good faith and could rely on the presumption that the Board acted regularly. They were not required to refund the amounts received.

Practical Takeaways

• Board authority over compensation is limited. GOCC boards cannot grant allowances or benefits outside the standardized compensation system without DBM approval or statutory authority.
• COLA is not a negotiable benefit. Under R.A. No. 6758, COLA is integrated into standardized salaries and cannot be granted on top of basic pay without specific legal basis.
• Approving officers bear responsibility. Officials who approve or certify illegal disbursements may be held solidarity liable for refunds, even if they did not personally receive the funds.
• Good faith protects ordinary recipients. Employees who receive disallowed benefits without participation in the approval process are generally not required to refund them, absent proof of bad faith.
• Vested rights cannot arise from illegal practice. Long-standing payment of an unauthorized benefit does not create a legal right to continue receiving it.

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