Rice Allowance in GOCCs: When Employee Benefits Are Disallowed by COA

The Supreme Court recently settled important questions about employee benefits in government-owned and controlled corporations (GOCCs), specifically the payment of rice allowance and the liability of those who receive and approve such benefits. The case of Hagonoy Water District v. Commission on Audit (G.R. No. 247228, March 2, 2021) reminds government agencies that long-standing practice cannot override clear legal limits on benefits, and that recipients of disallowed amounts may still have to return them.

The Case: Hagonoy Water District's Rice Allowance

Hagonoy Water District (HWD), a GOCC organized under Presidential Decree No. 198, granted rice allowance to its officials and employees in 2012 pursuant to a board resolution from 1992. The Commission on Audit (COA) disallowed the payments made to employees hired after July 1, 1989, citing Section 12 of Republic Act No. 6758 (the Salary Standardization Law) and COA Resolution No. 2004-006.

The COA also disallowed the excess anniversary bonus paid to employees (beyond the P3,000 limit under Administrative Order No. 263) and additional allowances given to the Board of Directors without the required approval of the Local Water Utilities Administration.

The Legal Framework: Section 12 of RA No. 6758

Section 12 of RA No. 6758 provides that all allowances are deemed included in the standardized salary rates prescribed by law, except for specific items such as representation and transportation allowances, clothing and laundry allowances, hazard pay, and others. The law states that additional compensation "being received by incumbents only as of July 1, 1989 not integrated into the standardized salary rates shall continue to be authorized."

The Department of Budget and Management's Corporate Compensation Circular No. 10 similarly allows the continued grant of certain benefits—including rice subsidy—but only to incumbents as of June 30, 1989 who were actually receiving them as of that date. The Supreme Court has consistently interpreted the qualifying date as July 1, 1989, the effectivity of RA No. 6758.

The Ruling: Practice Cannot Override Law

The Court ruled that HWD's grant of rice allowance to all employees, regardless of their incumbency before July 1, 1989, was a patent violation of Section 12 of RA No. 6758 and DBM CCC No. 10. The Court rejected HWD's argument that the grant had been an established practice since 1993.

Citing Kapisanan ng mga Manggagawa sa Government Service Insurance System v. COA, the Court emphasized that "practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law." The erroneous application of law by public officers does not stop the government from correcting such errors.

Who Must Refund: The Madera Doctrine

The Court also addressed the liability for refunding the disallowed amounts. Applying the doctrine in Madera v. COA, the Court clarified:

• Approving and certifying officers are solidarily liable if they acted with manifest bad faith, malice, or gross negligence
• Recipients are liable based on the civil law principles of solutio indebiti (return of something unduly received) and unjust enrichment

Significantly, the Court held that good faith may excuse officers from liability but does not automatically absolve recipients. Mere receipt of public funds without valid basis, regardless of good faith, creates an obligation to return what was unduly received. Recipients may only be excused if the benefits were genuinely given in consideration of services rendered, or if the Court finds other bona fide exceptions based on undue prejudice or social justice considerations.

In this case, the Court found that the HWD Board and officers acted with gross negligence. The Salary Standardization Law had been in effect since 1989, and the original DBM CCC No. 10 categorically stated that payment of allowances on top of basic salary after November 1, 1989 would be considered illegal disbursement of public funds. The Board's reliance on a 1992 resolution fell short of the standard of good faith and diligence required.

Practical Takeaways

• GOCCs must strictly observe the incumbency rule: Benefits like rice allowance can only be continuously given to employees who were incumbents as of July 1, 1989 and were actually receiving such benefits as of that date. Employees hired after this date are not entitled to these non-integrated benefits.
• Long practice does not legalize unauthorized benefits: A long-standing practice of granting a benefit cannot override clear statutory limits. Government agencies should regularly review their benefit programs against current laws and regulations.
• COA disallowances can reach individual recipients: Employees who receive disallowed benefits may be required to return the amounts they received, even if they acted in good faith.
• Officers must exercise diligence beyond board resolutions: Approving and certifying officers cannot simply rely on existing board resolutions or practices. They must verify that benefit grants comply with current laws, especially when those laws have been in effect for many years.
• Seek legal guidance before granting benefits: Given the complexity of compensation rules for GOCCs, agencies should consult with legal counsel or the DBM before implementing or continuing any benefit program.

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