“Fairness is what justice really is,” said the late former Justice Potter Stewart of the United States Supreme Court.
Justice Stewart’s famous quote aptly described how the Philippine Supreme Court (SC) resolved the dispute between the Securities and Exchange Commission (SEC) and the Commission on Audit (COA) involving the use of the former’s retained earnings for the provident fund of its officials and employees.
In 2010, SEC disbursed P19.72 million out of its retained earnings – derived from service fees and rebates – as its contribution to the provident fund wherein officials and employees would shell out three percent of their monthly salaries as their counterpart fund.
SEC said that in 2004 it set up a provident fund to provide supplementary benefits to, and improve the quality of life, work, and general welfare of the employees.
It said that since 2004, it has been sourcing funds from its retained income to finance the provident fund as it has been guided by the Department of Budget and Management (DBM) which advised that “the utilization of the retained income is left to the discretion of the Commission subject to the usual accounting and auditing rules and regulations."
In 2011, however, the COA assigned at SEC (COA-SEC) issued a notice of disallowance on the P19.72 million disbursed out of the latter’s retained earnings.
The COA-SEC ruled that the retained earnings may only be used for maintenance and other operating expenses (MOOE) and capital outlay (CO) and not for other purposes as specified in the laws, particularly the 2010 General Appropriations Act (GAA).
Consequently, the commissioners at that time – Ma. Juanita E. Cueto, Manuel Huberto B. Gaite, Eladio M. Jala – and Director Adelaida C. Navarro Banaria and Assistant Directors Thoureth I. dela Cruz, Renato A. Santos, and all payees of the provident fund were ordered to settle immediately the disallowed amount.
SEC appealed to the COA-National Government Sector (COA-NGS).
In its memorandum dated June 22, 2012, SEC, among other arguments, that its retained earnings or income is a fund within the 2010 GAA; retained income is an “off-budget” account; and COA can only disallow the use of retained income if it were used contrary to the provisions of the Securities Regulations Act (SRA) under Republic Act No. 8799.
It said that the maintenance of a provident fund has been authorized since 1992 through the GAAs; and there was denial of due process because COA-SEC's notice of disallowance is bereft of factual basis.
It pointed out that the “officers and employees of the SEC acted in good faith when they authorized, or benefitted from, the disallowed payments, thus, they cannot be compelled to return the amounts they received under the provident fund.”
On April 1, 2013, the COA-NGS modified the COA-SEC’s ruling. The SEC approving officers and employees were all absolved of the obligation to refund the disallowed amount “on account of their honest belief that they were entitled to the said amount.”
But on Jan. 17, 2018, the COA en banc (full commission) affirmed the notice of disallowance but ordered that the approving, certifying, authorizing SEC officers are solidarily liable for the total amount of disallowance.
SEC elevated the case to the SC. Two issues were presented for resolution – did COA validly disallow the disbursement of P19.72 million for provident fund, and are the approving, certifying, and authorizing officials liable to refund the disallowed amount?
In a unanimous, full court decision written by Associate Amy C. Lazaro Javier, the SC affirmed with modification the COA’s ruling.
The SC ruled that “the disallowance of the P19.72 million disbursement is valid. It said “the SEC failed to comply with the plain letter of Special Provision No. 1 (of GAA 2010) when it used its retained income to pay for its counterpart contribution to the provident fund, which is neither an MOOE nor a CO item.”
GAA 2010’s provision stated that “in addition to the amounts appropriated herein, One Hundred Million Pesos (Pl 00,000,000) sourced from registration and filing fees collected by the Commission pursuant to Section 75 of R.A. 8799 shall be used to augment the MOOE and Capital Outlay requirements of the Commission.”
The SC said: “This provision clearly limits the use of income for augmenting only the MOOE and CO allocations of the SEC. Special Provision No. 1 did not repeal Section 75 of the SRC (Securities Regulation Code), but simply imposed a limitation on how the SEC could use its retained income. The two provisions are, therefore, supplementary; not contradictory.”
It ruled that the “approving, certifying, and authorizing officers are not liable to return the entire disapproved amount in the absence of malice, bad faith or gross negligence.”
“The validity of the notice of disallowance does not automatically entail a corresponding liability on the part of the approving, certifying, and authorizing officers to return the disallowed amount,” it said.
It then cited a long line of decisions on the return of amounts declared disallowed by COA.
The SC said:
“Here, there is no showing, as none was shown, that the approving, certifying, and authorizing officers of the SEC acted with malice or bad faith or gross negligence in approving the payment of its counterpart contribution to the provident fund using its retained income. On the contrary, their actions invariably carry the badge of good faith.
“True, it may be argued that the COA En Banc had already absolved all the payees-recipients, except the concerned SEC officers, and the only remaining point to be resolved is whether said SEC officials should be held civilly liable.
“But, again, to order the SEC officers to return will result in an inequitable and unjust situation where the SEC officers, who are also payees-recipients, have a different civil liability while the rest of the payees-recipients are forgiven. To sanction such course of action would violate their right to equal protection.
“All told, the SEC officers would suffer undue prejudice should they be compelled to return the amounts paid under their names in the provident fund using SEC's retained earnings. At any rate, it could also disrupt the provident fund system and cause unforeseen damage and complications to its finances.
“ACCORDINGLY, Decision No. 2018-010 dated January 17, 2018 and Resolution No. 2020-180 dated January 29, 2020 of the Commission on Audit -En Banc are AFFIRMED with MODIFICATION. The approving, certifying, and authorizing officers of the Securities and Exchange Commission are absolved from refunding the disallowed amount solidarily and individually under Notice of Disallowance No. 11-003-101-(10) dated December 10, 2011. SO ORDERED.”