DEPARTMENT OF ENERGY, PETITIONER, VS. COMMISSION ON AUDIT, RESPONDENT.

This is an original action for certiorari from Commission on
Audit (COA) Decision No. 94-004, dated January 11, 1994,^[1] which
affirmed the disallowance by its resident auditor of the amount of
P1,860,000.00 representing the grant of loyalty awards to the employees of
petitioner Department of Energy.

The Department of Energy was formerly known as the Office of
Energy Affairs (OEA). On April 4, 1990,
the OEA Awards Committee was created by said office under Special Order No.
90-04-16^[2]
pursuant to Civil Service Commission (CSC) Memorandum Circular No. 56, series
of 1989, providing the Implementing Guidelines of the Incentives and Rewards
System under Republic Act No. 6713.

On May 20, 1992, the OEA Awards Committee favorably endorsed the
grant of loyalty and retirement awards to deserving OEA officials and employees
who had rendered at least 10, 15 and 20 years of service^[3]
pursuant to Section 7(e), Rule X of the Omnibus Rules Implementing Book V of
Executive Order No. 292, otherwise known as the Administrative Code of
1987. The amount of P3,000.00 was
awarded to each employee who had rendered at least 10 years of service;
P4,500.00 to employees who had rendered service of at least 15 years; and
P6,000.00 to those with at least 20 years of service, or a total of
P396,000.00. The second installment of
the cash awards in the amount of P288,000.00 was granted on October 3, 1992.

On November 3, 1992, additional loyalty awards were granted at
the rate of P1,500.00, P1,600.00 and P1,700.00 for every year of service to
those who had rendered 10, 15, and 20 years of service, respectively. The additional cash awards totalled
P1,310,000.00. The amounts granted were
based on Department Order No. 92-10, dated October 1, 1992, issued by the
Department of Budget and Management (DBM).^[4]

It is posited that the grant of such awards would encourage
creativity, innovativeness, efficiency, integrity and productivity in the
public service by recognizing and rewarding officials and employees for their
suggestions, inventions, superior accomplishments, and other personal efforts
which contribute to the efficiency, economy, or other improvement in the
government operations, or for other extraordinary acts or services in the
public interest.

As shown in the Schedule of Loyalty Awards received by OEA
employees for 1992,^[5]
a total of 127 employees received the amount of P1,994,000.00. However, only P134,000.00 of this amount was
approved by the Resident COA Auditor, while the balance of P1,860,000.00 was
disallowed pursuant to Certificate of Settlement and Balances (CSB) Nos.
92-0009-­101, 92-0010-101, and 93-0002-101.

Under CSB No. 92-009-101, dated November 24, 1992,^[6]
covering the first cash award of P396,000.00, the amount of P366,000.00 was
disallowed, subject to the approval by the Civil Service Commission of
petitioner’s Employees Suggestion and Incentive Award System (ESIAS). The second cash installment of P288,000.00
was disallowed under CSB No. 92-0010-101, also dated November 24, 1992,^[7]
on the ground that DBM Department Order No. 92-10 should be made to apply only
to the employees of the Department of Budget and Management and cannot,
therefore, be used as a basis by petitioner in giving out cash awards to its
employees. The additional cash award of
P1,310,000.00 was likewise not totally approved pursuant to CSB No.
93-0002-101, dated March 1, 1993,^[8] for
the reason that Section 7(e) of petitioner’s ESIAS should be modified to
conform with CSC Memorandum Circular No. 42, series of 1992.

It appears that it was only on November 12, 1992 when herein
petitioner submitted its ESIAS to the Civil Service Commission^[9]
and the same was approved on November 23, 1992, subject to the condition that
Section 7(e) of the OEA-ESIAS on the grant of loyalty award be modified to
conform with the aforesaid CSC Memorandum Circular No. 42.^[10]

Petitioner appealed to respondent Commission on Audit which,
however, affirmed the disallowance on the ground that loyalty awards cannot be
granted where a department or agency has not yet submitted its ESIAS to, and
the same has not been approved by, the Civil Service Commission; that although
CSC Memorandum Circular No. 42 cannot be given retroactive effect, in the same
manner, petitioner’s ESIAS may also not be given retroactive effect; and that
DBM Department Order No. 92-10, applies exclusively to DBM employees.

Hence this petition which hinges on the asseverations that
respondent Commission erred:

1. In not holding that
under Section 5 of Rule X of the Omnibus Rules Implementing Book V of the Administrative Code of 1987, the OEA
employees are entitled to loyalty awards corresponding to the amount they
respectively received in the total sum of P1,994,000.00;

2. In ruling that the amounts of the loyalty
awards to OEA employees in 1992 were limited by CSC MC No. 42, series of
1992, and in not holding that said employees are entitled to loyalty awards
under Section 7(e) of Rule X of the Omnibus Rules implementing Book V of
Executive Order No. 292; and

3. In holding that before a loyalty award may
be granted, the department/agency
concerned must have an ESIAS submitted and duly approved by the Civil Service
Commission.

We repeat, for easy reference, that the OEA Awards Committee was
created on April 4, 1990 under Special Order No. 90-04-16 of the Office of
Energy Affairs pursuant to CSC Memorandum Circular No. 56, which provided for
the implementing guidelines of the Incentives and Awards System under Republic
Act No. 6713. The basic function of the
committee is to screen all nominations for the Outstanding Officials and
Employees Awards, as well as the employees deserving of the Annual OEA Honor
Awards, and to recommend the chosen nominees to the management for its final
decision.

Republic Act No. 6713, which
is the basis for the creation of the OEA Awards Committee, is an act
establishing a code of conduct and ethical standards for public officials and
employees, and this took effect on March 25, 1989. Section 6 thereof provides for the establishment of a system of
annual incentives and rewards in order to motivate and inspire public servants
to uphold the highest standards of ethics. It further provides that such incentives and rewards to government
officials and employees of the year, to be announced in public ceremonies
honoring them, may take the form of bonuses, citations, directorships in
government owned or controlled corporations, local and foreign scholarship
grants, paid vacations and the like, or automatic promotions.

On April 21, 1989, the Civil Service Commission issued Memorandum
Circular No. 56, series of 1989, providing for the guidelines in the
implementation of Section 6 of Republic Act No. 6713. Section 2 of said circular states that the award under the system
shall be known as the Outstanding Public Officials and Employees Award. Section 3 thereof enumerates the eight norms
of conduct as bases for the award; Section 4 explains the nomination criteria
and percentage weight; and Section 5 provides for the forms of incentives and
rewards which are similar to those stated in Section 6 of Republic Act No.
6713. Section 7 of the circular
constituted the basis for the creation of the OEA Awards Committee.

It can be gleaned from the foregoing, therefore, that the sole
and primary purpose and function of the OEA Awards Committee was to screen
officials and employees of the Office of Energy Affairs who may be nominated for
the Outstanding Public Officials and Employees Award. The award provided for in Republic Act No. 6713, however,
pertains to an honor award which is different from the loyalty and retirement award granted by the OEA Awards
Committee, as we shall hereinafter explain.

The Omnibus Rules Implementing Book V of Executive Order No. 292,
specifically Rule X thereof, prescribes rules, regulations and standards in the
administration of the Employees Suggestions and Incentive Awards System (ESIAS)
established under Section 35, Book V of Executive Order No. 292. Section 5 of Rule X states that the awards
under the ESIAS shall consist of honor and incentive awards. The honor awards are enumerated in Section 6
thereof, paragraph (d) of which reads as follows:

“Sec. 6. Honor awards shall consist of the following:

x x x

(d) Outstanding
Public Official/Employee Award or Dangal ng Bayan Award which shall be granted
to officials and employees in the government who have demonstrated exemplary
service and conduct on the basis of their observance of the eight (8) norms of
behavior as provided for under Republic Act No. 6713. Administration of this Award and the procedures of nomination
shall be governed by Republic Act No. 6713 and its Implementing Rules.”

Essentially, therefore, the OEA Awards Committee was authorized
to grant only honor awards, specifically the Outstanding Public
Official/Employee Award or the Dangal
ng Bayan Award, pursuant to Section 6(d), Rule X of the Omnibus Rules and Republic Act
No. 6713. It did not have the power to
grant loyalty and retirement awards granted in Section 7, paragraphs (e) and
(f), Rule X of the Omnibus Rules which provide that:

“Sec. 7. The incentive
awards shall consist of, though not limited to, the following:

x x x

(e) Loyalty Award
which shall be granted to an employee who has completed at least ten (10) years
of continuous and satisfactory service in the government. This service award shall consist of cash
bonus and a lapel emblem or loyalty pin, x x x.

The cash bonus shall, upon the recommendation of the Agency SIAC,
be not less than One Hundred Pesos (P100.00) per year, chargeable against the
Agency’s savings, Provided however: That those who have received the cash award during their first ten (10)
years shall, upon reaching fifteen (15), only receive the cash award for the
succeeding five (5) years and so on.

(f) Retirement Award
which shall be given to a retiree who had rendered at least fifteen (15) years
of satisfactory government service. This award shall be in the form of a plaque of appreciation, the design
and citation of which shall be determined by the office concerned.”

The crux of the matter now is whether or not the subsequent
establishment and approval of petitioner’s ESIAS legalized the loyalty and
retirement awards granted prior thereto. Petitioner contends that there can be retroactive application;
respondent believes otherwise.

On October 15, 1992, Memorandum Circular No. 42, series of 1992^[11]
was issued by CSC Chairman Patricia A. Sto. Tomas, amendatory of paragraph (e),
Section 7 of Rule X of the
Omnibus Rules and now requiring, among others, that the grant of an award,
monetary or otherwise, by any government agency to its employees shall be
subject to the establishment of a Department or Agency ESIAS and the subsequent
approval of said system by the Civil Service Commission. It likewise limits the amount of cash gift
to not more than P100.00 per year of service. This circular took effect on November 7, 1992, fifteen (15) days after
its publication in a newspaper of general circulation.^[12]
The subject loyalty awards were given out on May 20, October 3, and November 3,
1992. Consequently, the circular cannot
be given retroactive effect. In other
words, the system requirement and the cash limit provided for in said
memorandum circular cannot be made to apply to the cash awards which had been
paid out to petitioner’s employees.

It is true that the OEA Awards Committee is not authorized to
grant loyalty awards. It appears,
however, that petitioner submitted its ESIAS and the same was approved by the
CSC on November 23, 1992, after the cash awards had been paid to the
employees. This fact notwithstanding,
we are inclined to uphold the cash awards granted to them by giving
petitioner’s ESIAS retroactive effect in the interest of substantial justice,
especially since the disallowances were issued by respondent’s resident auditor
only after petitioner’s ESIAS had already been duly approved by the CSC.

Besides, the cash awards were taken from petitioner’s savings
which is allowed under the law. Finally, we do not find anything irregular or illegal in using DBM
Department Order No. 92-10 as the basis for the computation of said cash
awards. On these confluent
considerations, said awards should be considered as having been validly
granted.

ACCORDINGLY, the instant petition, being
meritorious, respondent’s impugned Decision No. 94-004 should be, as it is
hereby, REVERSED and SET ASIDE.

SO ORDERED.

Narvasa, C.J., Padilla, Bidin, Davide, Jr., Romero, Bellosillo,
Melo, Quiason, Puno, Vitug, Kapunan, and
Mendoza, JJ., concur.

Feliciano, J., on leave.

^[1]
Annex A, Petition; Rollo, 37.

^[2]
Annex B, id.; ibid., 40.

^[3]
Annex C, id.; ibid., 42

^[4]
Annex I, id.; ibid., 67.

^[5]
Annex D, id.; ibid., 50.

^[6]
Annex F, id.; ibid., 59.

^[7]
Annex G, id.; ibid., 62.

^[8]
Annex H, id.; ibid., 65.

^[9]
Annex J, id.; ibid., 70.

^[10]
Annex L, id.; ibid., 78.

^[11]
Annex K, id.; ibid., 77.

^[12]
Rollo, 77. This was published on October 23, 1992 in
the Philippine Daily Inquirer.