FACTS:

On March 25, 1995, the HDMF entered into a Contract for Manpower Services with DBPSC for a period starting 1 January 1995 to 31 December 1995. The HDMF renewed the Contract for another year under the same terms and conditions. The HDMF again renewed the Contract for 1997.

On June 2, 1997, the HDMF Board of Trustees resolved to grant amelioration allowance to its employees, including the DBPSC personnel assigned to its head office. The grant covered DBPSC personnel as of 31 December 1996 and chargeable against HDMF’s 1996 approved budget. The amelioration allowance was released on 24 June 1997.

The amelioration allowance to the DBPSC personnel was disallowed in audit because the grant is contrary to Section 2 of Administrative Order No. 365 which states that all Heads of NGA’s, LGU’s including GOCC’s and GFI’s as well as their governing boards are enjoined and prohibited from authorizing/granting amelioration assistance or any other similar benefit without prior approval and authorization as specifically provided by the Office of the President.

HDMF pointed out that it paid the amelioration allowance on 24 June 1997 but AO 365 was issued only on 10 October 1997. Hence, AO cannot apply retroactively to the payment of amelioration allowance in 1996. HDMF further asserted that the payment of amelioration allowance to DBPSC personnel was part of its contractual obligation in the 1997 contract.

HDMF also invokes Section 12 of its charter, PD 1752, which provides that the Board shall authorize expenditures of the Fund in the interest of effective administration and operations, to adopt from time to time the budget for said purposes.

ISSUES:

1. Whether AO 365 issued on October 10, 1997, which expressly prohibits the payment of amelioration allowance to those serving under service contract, has retroactive effect to the payment made on June 24, 1997;

2. Whether the payment made in 1997 of the amelioration allowance for 1996, based on the stipulation for such benefit in the 1997 contract, is valid;

3. Assuming that the COA correctly disallowed the amelioration for lack of legal basis, whether COA should nevertheless allow such payment in audit since HDMF paid the amelioration allowance to the employees in good faith.

RULING:

The petition is partly meritorious. The COA correctly ruled that the grant of amelioration allowance to DBPSC personnel has no legal basis, however, the personnel should no longer refund the amelioration allowances they received.

1. AO 365 authorized the grant of amelioration assistance to all government personnel for the fiscal year 1997, and prohibited payments of similar benefits in future years unless authorized by the President. AO 365 does not provide for any retroactive effect, thus, it cannot apply to 1996 and prior years.

2. Moreover, the 1996 Contract does not obligate HDMF to pay amelioration allowance which is not a mandated wage increase. The use of the word "may" in contrast to "shall" used in the other provisions of the contract show that the grant of additional benefits, emoluments or bonuses is not a mandatory obligation of HDMF.

3. HDMF Board acted in good faith. The HDMF trustees did not act with malice or in bad faith in making such payment. They acted in the honest but mistaken belief that the DBPSC personnel may be granted the same benefits accruing to regular HDMF employees. The DBPSC personnel also acted in good faith. They received the amelioration allowances believing that they deserved the benefit. Hence, the DBPSC personnel should no longer refund the amelioration allowances they received from HDMF.

4. The power of the HDMF Board "to authorize expenditures of the Fund in the interest of effective administration and operations, to adopt from time to time the budget for said purposes" is subject to existing laws and does not give the HDMF Board blanket authority to adopt budgets and authorize payments contrary to law. The HDMF Board does not have the authority, except for 1997, to grant amelioration allowance to its own employees. Nothing in any existing law or presidential issuance grants authority to the HDMF Board to pay amelioration allowance to private employees of HDMF’s service contractors.