DECISION NO.

2017-500
December 29, 2017

Subject: Automatic Review of Commission on Audit Regional Office No. VI Decision No.
2016-011 dated April 11, 2016, on the appeal of the officers and employees of the
Provincial Government of Iloilo, represented by its Attorney-in-Fact, Atty. Edgar
Claudio O. Sumido, from Notice of Disallowance Nos. 2015-001-101(2013) to
2015-006-101(2013) dated July 3, 2015 and 2015-007-101(2013) to 2015-014-
101(2013) dated July 13, 2015, on the excessive payment of calendar year 2013
Productivity Enhancement Incentive to the officers and employees of the province,
amounting to P63,045,500.00

DECISION

FACTS OF THE CASE

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For automatic review is Commission on Audit (COA) Regional Office (RO) No. VI Decision No. 2016-011 dated April 11,
2016, which affirmed with modification Notice of Disallowance (ND) Nos. 2015-001-101(2013) to 2015-006-101(2013) dated
July 3, 2015 and 2015-007-101(2013) to 2015-014-101(2013) dated July 13, 2015, on the excessive payment of calendar year
(CY) 2013 Productivity Enhancement Incentive (PEI) to the officers and employees of the Provincial Government of Iloilo,
amounting to P63,045,500.00. The decision affirmed all NDs but modified the amount of the disallowance by ordering the
deduction of taxes withheld.

Appellants are the approving and certifying officers and the payees of the subject PEI. For purposes of this appeal, they are
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represented by their Attorney-in-Fact, Atty. Edgar Claudio O. Sumido. Appellees are the Audit Team Leader (ATL) and the
Supervising Auditor (SA) who issued the subject NDs.

Records show that the Sangguniang Panlalawigan (SP) of Iloilo, through Appropriation Ordinance No. 2013-022, granted
PEI to its officials and employees in the amount of P35,000.00 each. The grant amounting to P63,045,500.00 was disallowed in
audit for the reason that the rate was in excess of the P5,000.00 per person pursuant to Executive Order (EO) No. 80 and
Department of Budget and Management (DBM) Budget Circular (BC) No. 2013-3 dated November 21, 2013.

The details of the NDs are as follows:

ND No. Amount Disallowed

2015-001-100(2013) P1,110,000.00
2015-002-100(2013) 1,593,000.00
2015-003-100(2013) 1,389,000.00
2015-004-100(2013) 1,200,000.00
2015-005-100(2013) 2,469,000.00
2015-006-100(2013) 2,175,000.00
2015-007-100(2013) 2,355,000.00
2015-008-100(2013) 2,025,000.00
2015-009-100(2013) 1,869,000.00
2015-010-100(2013) 2,160,000.00
2015-011-100(2013) 1,590,000.00
2015-012-100(2013) 4,620,000.00
2015-013-100(2013) 441,000.00
2015-014-100(2013) 38,049,500.00
Total P63,045,500.00

In their appeal, the persons liable posited that:

1. EO No. 80 is not applicable to local government units (LGUs) and cannot be used as a legal basis for
disallowing the payment of the PEI;3

2. LGUs enjoy fiscal autonomy and the DBM is authorized to provide criteria and guidelines in the grant of
allowances and additional compensation to local government employees;

3. The P5,000.00 cap does not apply to LGUs;

4. It was erroneous to hold the approving officers of the vouchers and payrolls jointly and severally liable; and
 5. A finding of good faith should be made in favor of the officials and employees who relied on DBM BC No.
2013-3 in granting the PEI at the given rate.

In their Answer to the Appeal Memorandum, the ATL and the SA averred:

1. Section 1(a) of EO No. 80 does not use words of exclusivity that would limit its scope or application but,
rather, uses the term “across the board”, which has been defined as embracing all classes or categories,
including LGUs;

2. LGUs’ fiscal autonomy is not absolute. It is tempered by existing laws, rules and regulations, including EO
No. 80;

3. The P5,000.00 cap is applicable to LGUs;

4. Approving officers are personally liable for the amounts disallowed; and

5. The officers and employees cannot invoke good faith since prior to the payment of CY 2013 PEI, a similar
finding on the excessiveness of PEI was already communicated to them through an Audit Observation
Memorandum (AOM) and an ND relative to CY 2012 PEI.

The Regional Director (RD), COA RO No. VI, found the appeal unmeritorious, saying that:

1. The authority of the DBM to provide criteria and guidelines for the payment of PEI is circumscribed by the
provisions of the law it seeks to implement. The DBM has no power to broaden the law;

2. Appellants’ claim that EO No. 80 is not applicable to LGUs is untenable. Therefore, the P5,000.00 PEI cap
mandated in EO No. 80 applies to the province;

3. The fiscal autonomy being enjoyed by LGUs is not absolute;

4. The approving officers are jointly and severally liable for the full amount paid out as PEI, as per the ruling
of the Supreme Court (SC) in Maritime Industry Authority vs. Commission on Audit;4 and

5. A finding of good faith cannot be made in favor of appellants for they were already privy to the irregularity
that attended the payment of PEI at such rate.

Thereupon, the RD disposed the appeal in this wise:

[T]his Office AFFIRMS Notice of Disallowance Nos. 2015-001-101(2013) to 2015-006-101(2013) dated July
3, 2015 and 2015-007-101(2013) to 2015-014-101(2013) dated July 13, 2015 on the payment of CY 2013
Productivity Enhancement Incentive (PEI) to the officers and employees of the Iloilo Provincial Government,
with modification that the amount of the disallowance be reduced by the taxes withheld.

Accordingly, the concerned Audit Team Leader is instructed to recompute the amount of the disallowance to
consider the abovementioned deduction.

ISSUE

The issue to be resolved is whether or not COA RO No. VI Decision No. 2016-011 dated April 11, 2016 is proper.

DISCUSSION

There are two legislative bases for the subject PEI. First is Section 458 (a)(1)(viii) of RA No. 7160, otherwise known as the
Local Government Code, which states:

Section 458. Powers, Duties, Functions and Compensation.

(a) The sangguniang panlungsod, as the legislative body of the city, shall enact ordinances, approve resolutions
and appropriate funds for the general welfare of the city and its inhabitants pursuant to Section 16 of this
Code and in the proper exercise of the corporate powers of the city as provided for under Section 22 of this
Code, and shall:

(1) Approve ordinances and pass resolutions necessary for an efficient and effective city government, and
in this connection, shall:
 in this connection, shall:

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(viii) Determine the positions and the salaries, wages, allowances and other emoluments and benefits of
officials and employees paid wholly or mainly from city funds and provide for expenditures
necessary for the proper conduct of programs, projects, services, and activities of the city
government;

Second is Philippine Congress’ Joint Resolution (JR) No. 4, series of 2009, authorizing the President of the Philippines to
modify the compensation and position classification system of civilian personnel, particularly Section 4 (h)(ii)(bb) thereof, which
provides:

Productivity Enhancement Incentive – This may be authorized by the President of the Philippines for the
Executive Branch and LGUs, the Senate President and the Speaker of the House of Representatives for the
Legislative Branch, the Chief Justice of the Supreme Court for the Judicial Branch, the Ombudsman for the
Office of the Ombudsman and the Heads of Constitutional Commissions for Constitutional Offices vested
with fiscal autonomy at the end of the year. Such productivity enhancement incentive shall be funded from
the annual general appropriations;

The issue boils down to whether or not the rate of P5,000.00 per official/employee set as a maximum limit for PEI in EO No.
80 applies to LGUs.

Section 458 (a)(1)(viii) of RA No. 7160 makes no mention of a uniform maximum limit of PEI for LGU personnel. Neither
does JR No. 4. Thus, in line with the local fiscal autonomy of LGUs, the President, through EO No. 80, cannot legally impose a
limit.

This is apparent in DBM BC No. 2013-3 wherein it is stated:

1.3 Section 1 of EO No. 80 directed the adoption of the Performance Based Incentive System (PBIS) for
government personnel. Said System consists of the following:

1.3.1 The Productivity Enhancement Incentive (PEI), in the amount of P5,000.00 which shall
continually be granted across-the-board, in accordance with the guidelines to be issued by the
Department of Budget and Management (DBM).

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5.0 Grant of PEI to Employees in the Executive Branch

5.1 Civilian employees in national government agencies (NGAs) in the executive Branch, including
those in GOCCs covered by Republic Act No. 6758, “Compensation and Position Classification
Act of 1989,” as amended, and which remain under the jurisdiction of the DBM, and military and
uniformed personnel shall be entitled to the one-time PEI for FY 2013 at the maximum amount of
P5,000.00 each.

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6.0 Grant of PEI to Employees in the Legislative and Judicial Branches, and Other Offices Vested with Fiscal
Autonomy

Pursuant to item (4)(h)(ii)(bb) of JR No. 4, employees in the Senate, House of Representatives, Judiciary,
Office of the Ombudsman, and Constitutional Offices vested with fiscal autonomy, may also be granted
the one-time PEI by their respective heads of offices, at rates not exceeding P5,000.00 each, subject to
the conditions/guidelines under sub-item 5.2 of this Circular.

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8.0 Grant of PEI to employees in GOCCs and GFIs Under the Jurisdiction of the GCG.

In line with Section 7 of EO No. 80, employees in GOCCs and GFIs under the jurisdiction of the GCG
may also be granted the one-time PEI for FY 2013 at rates not exceeding P5,000.00, subject to GCG
guidelines.

9.0 Grant of PEI to Employees in LGUs

LGU employees, including those in barangay government who are compensated through monthly
honoraria, may be granted the one-time PEI for FY 2013, at rates to be determined by the respective
sanggunian, depending on the LGU financial capability, and subject to the following conditions:

9.1 The PEI shall be charged against LGU funds for FY 2013, subject to the Personal Services
limitation in LGU budgets pursuant to Sections 325 (a) and 331 (b) of R.A. No. 7160.
 9.2 The conditions/guidelines on the grant of the PEI under sub-item 5.2 of this Circular shall be
adhered to.

An LGU shall exercise prudence in the use of local funds. In determining the amount of the PEI, the
sanggunian shall ensure that the same is reasonable and that the expenditure will not, in any way,
adversely affect the delivery of services to the public. (Underscoring supplied)

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It is clear from the aforequoted provisions that employees of LGUs have been singled out from the rest of government
employees insofar as the cap is concerned. It is evident that the P5,000.00 limit does not apply to them. It only applies to
employees in the national government, i.e., the executive, legislative and judicial branches, in other offices vested with fiscal
autonomy, and in Government-Owned and Controlled Corporations (GOCCs), as well as in Government Financial Institutions
under the jurisdiction of the Governance Commission for GOCCs.

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As to the local fiscal autonomy of LGUs, the case of Dadole vs. Commission on Audit is elucidating. In the Dadole case,
the DBM, through Local Budget Circular (LBC) No. 55, fixed an amount that a local government unit can disburse as additional
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allowances to judges stationed in their LGUs. In deciding the case, the SC emphasized the concept of fiscal autonomy of local
government units and hinged the resolution of the case on the issue of whether or not LBC No. 55 is void for going beyond the
supervisory powers of the President. The SC ruled in favor of the petitioner-judges, disallowing the cap set by LBC No. 55 on the
additional allowances given by the city to them and declaring it null and void. It ratiocinated in this wise:

Does LBC 55 go beyond the law it seeks to implement? Yes.

LBC 55 provides that the additional monthly allowances to be given by a local government unit should not
exceed P1,000 in provinces and cities and P700 in municipalities. Section 458, par. (a)(1)(xi), of RA 7160, the
law that supposedly serves as the legal basis of LBC 55, allows the grant of additional allowances to judges
"when the finances of the city government allow." The said provision does not authorize setting a definite
maximum limit to the additional allowances granted to judges. Thus, we need not belabor the point that the
finances of a city government may allow the grant of additional allowances higher than P1,000 if the revenues
of the said city government exceed its annual expenditures. Thus, to illustrate, a city government with locally
generated annual revenues of P40 million and expenditures of P35 million can afford to grant additional
allowances of more than P1,000 each to, say, ten judges inasmuch as the finances of the city can afford it.

Setting a uniform amount for the grant of additional allowances is an inappropriate way of enforcing the
criterion found in Section 458, par. (a)(1)(xi), of RA 7160. The DBM over-stepped its power of supervision
over local government units by imposing a prohibition that did not correspond with the law it sought to
implement. In other words, the prohibitory nature of the circular had no legal basis. (Underscoring supplied)

If at all, the disallowed amount should be on account of non-compliance with Item 9.0, DBM BC No. 2013-3, not because
of the excess of the P5,000.00 limit set in EO No. 80.

RULING

WHEREFORE, premises considered, Commission on Audit (COA) Regional Office (RO) No. VI Decision No. 2016-011
dated April 11, 2016 is hereby SET ASIDE and the case is remanded, through the Regional Director, COA RO No. VI, to the Audit
Team Leader (ATL) concerned who is hereby directed to determine whether or not, in granting the Productivity Enhancement
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Incentive for calendar year 2013, the province had exceeded its Personal Services limitation under Section 325(a) of Republic
Act No. 7160; and thereupon, to issue a Notice of Disallowance (ND), if warranted.

The ATL shall submit to the Commission Secretary, within 15 days from receipt of this decision, a report on the results of
the verification, together with the copy of the ND, if any.

(SGD.) MICHAEL G. AGUINALDO

Chairperson

(SGD.) JOSE A. FABIA (SGD.) ISABEL D. AGITO

Commissioner Commissioner

Attested by:

(SGD.) NILDA B. PLARAS

Director IV
Commission Secretariat
Copy furnished:

Atty. Edgar Claudio O. Sumido

Iloilo Provincial Capitol
Bonifacio Drive, Iloilo City

The Audit Team Leader

Provincial Government of Iloilo
Iloilo Provincial Capitol
Bonifacio Drive, Iloilo City

The Regional Director

Commission on Audit Regional Office No. VI
Pavia, Iloilo

The Director
Information Technology Office
Systems and Technical Services Sector

The Assistant Commissioners

Local Government Sector
Commission Proper Adjudication and
Secretariat Support Services Sector

All of this Commission

ESZ/LED/ERD/VBL/PVV
CMIS 2016-0411

1 Pursuant to Section 7, Rule V of the 2009 Revised Rules of Procedure of the Commission on Audit.
2 Rollo, pp. 935-1103.
3 Rollo, p. 114.
4 G.R. No. 185812, January 13, 2015.
5 G.R. No. 125350, December 3, 2002.
6 The Local Government Code had placed within the penumbra of the powers of local legislature the provision of additional allowances to judges stationed in their local
government units. In particular, Republic Act No. 7160 states:
Section 458. Powers, Duties, Functions and Compensation.
(a) The sangguniang panlungsod, as the legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of
the city and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the city as provided for under Section 22
of this Code, and shall:
(1) Approve ordinances and pass resolutions necessary for an efficient and effective city government, and in this connection, shall:
(xi) When the finances of the city government allow, provide for additional allowances and other benefits to judges, prosecutors, public
elementary and high school teachers, and other national government officials stationed in or assigned to the city;
7 Section 325. General Limitations. - The use of the provincial, city, and municipal funds shall be subject to the following limitations:(a) The total appropriations, whether
annual or supplemental, for personal services of a local government unit for one (1) fiscal year shall not exceed forty-five percent (45%) in the case of first to third class
provinces, cities and municipalities, and fifty-five percent (55%) in the case of fourth class or lower, of the total annual income from regular sources realized in the next
preceding fiscal year. The appropriations for salaries, wages, representation and transportation allowances of officials and employees of the public utilities and economic
enterprises owned, operated, and maintained by the local government unit concerned shall not be included in the annual budget or in the computation of the maximum
amount for personal services. The appropriations for the personal services of such economic enterprises shall be charged to their respective budgets.