Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

162372 October 19, 2011

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), HERMOGENES D. CONCEPCION, JR., WINSTON F. GARCIA, REYNALDO P. PALMIERY, LEOVIGILDO P. ARRELLANO, ELMER T. BAUTISTA, LEONORA V. DE JESUS, FULGENCIO S. FACTORAN, FLORINO O. IBAEZ, AIDA C. NOCETE, AURORA P. MATHAY, ENRIQUETA DISUANCO, AMALIO MALLARI, LOURDES PATAG, RICHARD M. MARTINEZ, ASUNCION C. SINDAC, GLORIA D. CAEDO, ROMEO C. QUILATAN, ESPERANZA FALLORINA, LOLITA BACANI, ARNULFO MADRIAGA, LEOCADIA S. FAJARDO, BENIGNO BULAONG, SHIRLEY D. FLORENTINO, and LEA M. MENDIOLA, Petitioners, vs. COMMISSION ON AUDIT (COA), AMORSONIA B. ESCARDA, MA. CRISTINA D. DIMAGIBA, and REYNALDO P. VENTURA, Respondents. DECISION LEONARDO-DE CASTRO, J.: This is a petition for review on certiorari under Rule 64 in relation to Rule 65 of the 1997 Rules of Court to annul and set aside the Commission on Audits Decision Nos. 2003-062 and 2004-004 dated March 18, 2003 and January 27, 2004, respectively, for having been made without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction. The Government Service Insurance System (GSIS) is joined by its Board of Trustees and officials, namely: Chairman Hermogenes D. Concepcion, Jr.; Vice-Chairman and President and General Manager Winston F. Garcia (Garcia); Executive Vice President and Chief Operating Officer Reynaldo P. Palmiery; Trustees Leovigildo P. Arrellano, Elmer T. Bautista, Leonora V. de Jesus, Fulgencio S. Factoran, Florino O. Ibaez, and Aida C. Nocete; Senior Vice Presidents Aurora Mathay, Enriqueta Disuangco, Amalio Mallari, Lourdes Patag, and Asuncion C. Sindac; Vice Presidents Richard Martinez, Romeo C. Quilatan, and Gloria D. Caedo; and Managers Esperanza Fallorina, Lolita Bacani, Arnulfo Madriaga, Leocadia S. Fajardo, Benigno Bulaong, Shirley D. Florentino, and Lea M. Mendiola, together with all other officials and employees held liable by the Commission on Audit (COA) as petitioners in this case.1 The respondents in this petition are: the COA; its Director of Corporate Audit Office (CAO) I, Amorsonia B. Escarda (Escarda), who rendered CAO I Decision No. 2002-009 dated May 27, 2002; the former Corporate Auditor of GSIS, Ma. Cristina D. Dimagiba (Dimagiba), who issued the Notices of Disallowance subject of CAO I Decision No. 2002-009; and the incumbent GSIS Corporate Auditor Reynaldo P. Ventura (Ventura).2 The facts are as follows: On May 30, 1997, Republic Act No. 8291, otherwise known as "The Government Service Insurance System Act of 1997" (the GSIS Act) was enacted and approved, amending Presidential Decree No. 1146, as amended, expanding and increasing the coverage and benefits of the GSIS, and instituting reforms therein.

On October 17, 2000, pursuant to the powers granted to it under Section 41(n) of the said law, the GSIS Board of Trustees, upon the recommendation of the Management-Employee Relations Committee (MERCOM), approved Board Resolution No. 326 wherein they adopted the GSIS Employees Loyalty Incentive Plan (ELIP),3 to wit: GSIS EMPLOYEES LOYALTY INCENTIVE PLAN (Pursuant to Sec. 41(n) of R.A. No. 8291) I OBJECTIVE : To motivate and reward employees for meritorious, faithful and satisfactory service II COVERAGE : The GSIS Employees Loyalty Incentive Plan shall cover all present permanent employees and members of the Board and those who may hereafter be appointed. III SPECIFIC BENEFIT : LI = TGS* MULTIPLIED BY HS MINUS 5yLS/BPRCP Where : LI = loyalty incentive TGS = total government service HS = highest monthly salary/benefit received 5yLS = 5 year lump sum under RA 660, RA 910, PD 1146 or RA 8291 BPRCP = retirement benefit previously received plus cash payment for employees no longer qualified to 5yLS *Determined as follows: **For positions salary grade 1-26 For positions SG 27 up 1 - 20 yrs x 1.5 1 - 20 yrs x 1.25 21 - 30 yrs x 2.0 21 - 30 yrs x 1.75 31 yrs above x 2.5 31 yrs above x 2.00 **Subject to review. Applicable only to present salary structure. IV IMPLEMENTING POLICIES: 1. To be entitled to the plan, the employee must be qualified to retire with 5 year lump sum under RA 660 or RA 8291 or had previously retired under applicable retirement laws 2. The loyalty incentive benefit shall be computed based on both total government service and highest monthly salary/benefit received from GSIS 3. Employees with pending administrative and/or criminal case may apply but processing and payment of loyalty incentive shall be held in abeyance until final decision on their cases

4. GSIS loyalty incentive plan can only be availed once and employees who retired under GERSIP97 are no longer qualified 5. There shall be no refund of retirement premiums in all cases 6. Application is subject to approval by the President and General Manager PROCEDURE: 1. Employees availing of the Employee Loyalty Incentive Plan must file his/her application under RA 6604 or RA 8291 for the five (5) year lump sum, with HRS for indorsement to SIG 2. Option 2 under RA 8291 may be allowed but the loyalty incentive shall be computed based on 5 year lump sum 3. The loyalty incentive shall only be paid after deducting the lump sum under RA 660, RA 910,5 PD 11466 or RA 8291 or retirement benefit previously received plus cash payment 4. Government service of previously retired employees shall be considered in computing the loyalty incentive 5. For expediency, the processing of the plan shall be done by the Social Insurance Group EFFECTIVITY DATE: The Plan shall take effect August, 2000. (Emphases supplied.) On November 21, 2000, Board Resolution No. 326 was amended by Board Resolution No. 360,7 which provided for a single rate for all positions, regardless of salary grade, in the computation of creditable service, viz: 1-20 years x 1.5 21-30 years x 2.0 31 years above x 2.5 Except as herein amended, Resolution No. 326 dated October 17, 2000 shall remain to have full force and effect. Dimagiba, the corporate auditor of GSIS, communicated to the President and General Manager of GSIS that the GSIS RFP was contrary to law. However, the GSIS Legal Services Group opined that the GSIS Board was legally authorized to adopt the plan since Section 28(b) of Commonwealth Act No. 186 as amended by Republic Act No. 4968 has been repealed by Sections 3 and 41(n) of Republic Act No. 8291.8 On January 16, 2001, Board Resolution No. 69 was approved, wherein ELIP was renamed GSIS Retirement/Financial Plan (RFP) to conform strictly to the wordings of Section 41(n) of Republic Act No. 8291.

Upon Garcias assumption of office as President and General Manager, Dimagiba requested to again review the GSIS RFP. This was denied by Garcia.10 Believing that the GSIS RFP was "morally indefensible,"11 Dimagiba sought the assistance of COA "in determining the legality and/or morality of the said Plan in so far as it has adopted the best features of the two retirement schemes, the 5year lump sum payment under [Republic Act No.] 1616 and the monthly pension of [Republic Act No.] 660 based on the creditable service computed at 150%."12 On August 7, 2001, COAs General Counsel Santos M. Alquizalas (Alquizalas) issued a Memorandum to COA Commissioner Raul C. Flores regarding the GSIS RFP. Alquizalas opined that the GSIS RFP is a supplementary retirement plan, which is prohibited under Republic Act No. 4968, or the "Teves Retirement Law." He also said that since there is no provision in the new Republic Act No. 8291 expressly repealing the Teves Retirement Law, the two laws must be harmonized absent an irreconcilable inconsistency. Alquizalas pronounced that Board Resolution Nos. 360 and 6 are null and void for being violative of Section 28(b) of Commonwealth Act No. 186 as amended by Republic Act No. 4968, which bars the creation of a supplemental retirement scheme; and Section 41(n) of Republic Act No. 8291, which speaks of an early retirement plan or financial assistance.13 On August 14, 2001,14 Commissioner Flores forwarded this Memorandum to Dimagiba, who in turn forwarded it to Garcia on August 23, 2001. Dimagiba, in her letter attached to Alquizalass Memorandum, added that for lack of legal basis, her office was disallowing in audit the portion of retirement benefits granted under the GSIS RFP, or the excess of the benefits due the retirees. She also said that GSIS could avail of the appeal process provided for under Sections 48 to 50 of Presidential Decree No. 1445 and Section 37.1 of the Manual on Certificate of Settlement and Balances.15 On August 27, 2001, Garcia responded16to Dimagiba, taking exception to the notice of disallowance for being "highly irregular and precipitate" as it was based on a mere opinion of COAs counsel who had no authority to declare the resolution of the GSIS Board of Trustees as null and void. Moreover, Garcia asseverated that COA had neither power nor authority to declare as null and void certain resolutions approved by the Board of Government Corporations, as the power to do so was exclusively lodged before the courts. He also argued that the notice of disallowance was premature, and was tantamount to a pre-audit activity, as it should refer only to a particular or specific disbursement of public funds and not against a general activity or transaction. Garcia averred that the GSIS RFP was part and parcel of the compensation package that GSIS may provide for its personnel, by virtue of the powers granted to its Board of Trustees under Section 41(m) and (n) of Republic Act No. 8291. Garcia said that the appeal process would commence only upon GSISs receipt of the particulars of the disallowances.17 Finally, Garcia requested Dimagiba to withdraw the notices of disallowance "in the interest of industrial peace in the GSIS."18 Without responding to Garcias August 27, 2001 Memorandum, Dimagiba issued the following Notices of Disallowance on the grounds that: Pursuant to legal opinion of the General Counsel dated August 7, 2001, Board Resolution No. 360 dated Nov. 21, 2000 as amended by No. 6 dated Jan. 16, 2001 approving the Employees Loyalty Incentive Plan (ELIP) is null and void for being directly in conflict with Section 28(b) of CA No. 186 as amended by RA 4968 which bars the creation of supplemental retirement scheme and of Section 41 (n) of RA 8291 which speaks of an early retirement plan or financial assistance.19 Notices of Disallowance dated September 19, 200120 Notice of Payee Amount Persons Liable:

Disallowance No./Period covered:

Disallowed Board of Trustees; Lourdes Patag (SVP), Gloria Caedo (VP-SIAMS II), the payee, and the following officers: Marina Santamaria P 6,895,545.84 Richard Martinez Lea M. Mendiola

2001-01-412/ December 2000 2001-02-412/ December 2000 2001-03-412/ January 2001

Rosita N. Lim

P 2,281,005.52

Manuel G. Ojeda

P 1,201,581.29

Daniel Mijares Romeo Quilatan Richard Martinez Benigno Bulaong Winston F. Garcia Esperanza Fallorina Lea M. Mendiola Winston F. Garcia Esperanza Fallorina Lea M. Mendiola Shirley Florentino Enriqueta Disuanco Aurora P. Mathay Lea M. Mendiola

2001-04-412/ March 2001 2001-05-412/ March 2001

Federico Pascual

P 11,444,957.32 P 332,035.79

Juanito Gamier, Sr.

2001-06-412/ May 2001

Vicente Villegas

P 4,792,260.17

Notices of Disallowance dated October 22, 200121 Persons Liable: Board of Trustees; Gloria Caedo (VP-SIAMS II); Asuncion Sindac (VP); Richard M. Martinez (VP & Controller); Lea M. Mendiola (Manager, HRSD); the payee; and the following officers: Reynaldo Palmiery Reynaldo Palmiery Amalio A. Mallari Lolita B. Bacani

Notice of Disallowance No./Period covered: July 24, 2001

Payee

Amount Disallowed

2001-07-412 2001-08-412 2001-09-412

Rustico G. Delos Angeles Lourdes Delos Angeles Gloria L. Anonuevo

P 1,968,516.01 P 4,320,567.99 P 1,308,705.75

2001-10-412 2001-11-412

Elvira J. Agcaoili Segundina S. Dionisio

P 2,313,729.41 P 743,877.21

Reynaldo Palmiery Amalio A. Mallari (except Richard Martinez and Lea M. Mendiola)

Notices of Disallowance dated October 23, 200122 Persons Liable: Board of Trustees; Gloria Caedo (VP-SIAMS II); Asuncion Sindac (VP); Lea M. Mendiola (Manager, HRSD); the payee; and the following officers: Reynaldo Palmiery Richard Martinez Reynaldo Palmiery Richard Martinez Manuel P. Bausa Enriqueta Disuanco Arnulfo Madriaga Reynaldo Palmiery Richard Martinez Lourdes A. Delos Angeles

Notice of Disallowance No./Period covered: July 24, 2001 2001-12-412 2001-13-412

Payee

Amount Disallowed

Daniel N. Mijares Melinda A. Flores

P 7,148,031.17 P 1,459,974.12 P 532,869.65 P 1,955,561.67

2001-14-412 2001-15-412

Democrito M. Silang Manuel P. Bausa

Notices of Disallowance dated November 9, 200123 Persons Liable: Board of Trustees; Winston F. Garcia (PGM); Asuncion Sindac (SVP); Gloria Caedo (VP); the payee; and the following officers: Enriquita Disuanco Lea M. Mendiola Richard Martinez

Notice of Disallowance No./Period covered:

Payee

Amount Disallowed

2001-16-412/ June 28, 2001 2001-17-412/ July 17, 2001

Lourdes G. Patag

P 7,883,629.28 P 5,648,739.26

Elvira U. Geronimo

Notices of Disallowance dated November 13, 200124 Notice of Disallowance No./Period covered:

Payee

Amount Disallowed