Limits of University Board Powers: Disallowed Benefits and Good Faith

The Supreme Court recently clarified the limits of the power of university governing boards to disburse funds, and the circumstances under which approving officers may be excused from refunding disallowed benefits. In Velasquez v. Commission on Audit (G.R. No. 243503, September 15, 2020), the Court ruled that a university board acted beyond its authority in granting a quarterly rice subsidy and a performance award to employees, but nonetheless excused the officers and recipients from returning the amounts on the ground of good faith.

The Case

The Board of Regents (BOR) of Cebu Normal University (CNU) approved, through Board Resolutions in 2003 and 2004, the grant of a quarterly rice allowance to CNU employees, COA resident auditors, and BOR members. The BOR likewise granted a P20,000.00 "Kalampusan Award" to each employee in recognition of the exemplary performance of CNU graduates in licensure examinations.

The Commission on Audit (COA) disallowed the disbursements, totaling P4,985,240.00, for lack of legal basis. The COA held the BOR members solidarily liable for the refund, ruling that they acted in bad faith. The BOR members appealed, arguing that they acted in good faith because at the time the resolutions were issued, there was no definitive ruling on the benefits a governing board could legally grant.

The Issue

Two issues were presented to the Court: (1) whether the COA correctly disallowed the rice subsidy and the Kalampusan Award; and (2) whether the BOR members were solidarily liable to refund the disallowed amounts.

The Ruling

1. The disallowance was proper. The Court upheld the COA's disallowance. The authority of a university board to disburse funds is found in Section 4(d) of Republic Act No. 8292, which provides that income generated by a university may be disbursed by the Board of Regents for "instruction, research, extension, or other programs/projects of the university or college."

In the earlier case of Benguet State University v. Commission on Audit (551 Phil. 878 [2007]), the Court construed this provision using the doctrine of ejusdem generis: "other programs or projects" must be of a similar nature to instruction, research, and extension. The rice subsidy and the Kalampusan Award, not being academic in nature, fell outside this authority.

The BOR members argued that Benguet State University should only apply prospectively since it was decided in 2007, after the resolutions were issued. The Court rejected this argument. Citing Castro v. Deloria (597 Phil. 18 [2009]), the Court explained that a judicial interpretation of a statute forms part of the law as of the date of its original passage, unless it abandons an existing doctrine. Since Benguet State University did not overturn a prior ruling, its interpretation of R.A. No. 8292 retroacted to the law's enactment in 1997.

2. The officers and recipients were excused from refunding. Although the disallowance was upheld, the Court modified the COA's ruling on liability. Applying the Rules on Return laid down in Madera v. Commission on Audit (G.R. No. 244128, September 8, 2020), the Court found that the BOR members acted in good faith. Before Benguet State University was decided in 2007, there was no precedent clarifying the scope of the board's power to grant incentives. The officers were "utterly convinced" that the grants were lawful.

The Court likewise excused the recipients from returning the amounts. The rice subsidy was a reasonable financial assistance that could be excused under the Madera rules, while the Kalampusan Award was given in consideration of services rendered. Requiring return of amounts received 16 years earlier would cause undue prejudice.

Practical Takeaways

• University boards must ensure that any benefit or incentive granted to employees is tied to instruction, research, extension, or similar academic programs. Employee perks unrelated to these purposes risk disallowance.
• A judicial interpretation of a statute generally applies retroactively. Boards cannot rely on the absence of a ruling to justify questionable disbursements.
• Good faith remains a defense for approving officers, but it must be demonstrated. The absence of a precedent, as in this case, is a strong indicator of good faith.
• Recipients of disallowed benefits may be excused from refunding amounts received in good faith, especially where services were rendered or where repayment would cause undue prejudice.
• The Madera Rules on Return now govern the liability of both approving officers and recipients in disallowance cases, and should be consulted in any COA audit dispute.

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