EN BANC

G.R. No. 210903, October 11, 2016

PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA), Petitioner, v. COMMISSION ON AUDIT

(COA) AND HON. MA. GRACIA M. PULIDO TAN, CHAIRPERSON, COMMISION ON AUDIT,
Respondent.

DECISION

PERALTA, J.:

In much of law, as in life, there is a constant need to balance competing values, interests and other
considerations. In a free society, there is a need to carefully calibrate the proper balance between
liberty and authority, between peace and order and privacy, and, between responsible public service
and unreasonable or arbitrary rules retroactively applied to public officials and employees. To allow
one value to dominate the counterpart could lead to undesirable consequences. 1chanrobleslaw

In the present case, the Court is confronted with the need to provide for an equitable and acceptable
equilibrium between accountability of public officials and the degree of responsibility and diligence
by which they are to be adjudged. While it is a basic postulate of the republican form of government
that we have that public office is a public trust2 - that individuals who join the government are
expected to abide by the guiding principles and policies by which public service is to be performed -
it also values the dignity of every human person.3 It should ever be kept in mind that the people are
not mere creatures of the State. They should not be considered as mere automatons, unthinking
individuals who are not to experiment, or innovate, lest they may be made to shoulder the monetary
cost of such endeavors if subsequently found to be in violation of rules which were not clearly
established or understood at the time the action was performed.

Government employment should be seen as an opportunity for individuals of good will to render
honest-to-goodness public service, not a trap for the unwary. It should be an attractive alternative to
private employment, not an undesirable undertaking grudgingly accepted, to therefore regret. It
should present a fulfilling environment where those who enter could realize their potentials, and the
public could benefit from their contributions.

For this Court's consideration is the Petition for Certiorari,4 under Rule 64, in relation to Rule 65, of the
Rules of Court, dated February 6, 2014 of petitioner Philippine Economic Zone Authority (PEZA),
seeking the annulment of Commission on Audit (COA) Decision No. 2013-231 dated December 23,
2013 which affirmed Corporate Government Sector-B Decision No. 2011-008 dated August 31, 2011
and Notice of Disallowance No. 10-001-101-(05-08) dated May 27, 2010 disallowing the payment of
additional Christmas bonus/cash gifts to PEZA officers and employees for Calendar Years (CY) 2005
to 2008.

The facts follow.

The PEZA Charter, Republic Act (R.A.) No. 7916, was amended by R.A. No. 8748 in 1999 exempting
PEZA from existing laws, rules and regulations on compensation, position classification and
qualification standards. Section 16 of R.A. No. 7916, as amended, reads as
follows:ChanRoblesVirtualawlibrary
Sec. 16. Personnel. - The PEZA Board of Directors shall provide for an organization and staff of officers
and employees of the PEZA, and upon recommendation of the director general with the approval of
the secretary of the Department of Trade and Industry, appoint and fix the remunerations and other
emoluments: Provided, The the Board shall have exclusive and final authority to promote, transfer,
assign and reassign officers of the PEZA, any provision of existing law to the contrary
notwithstanding: Provided, further, That the director general may carry out removal of such officers
and employees.

All positions in the PEZA shall be governed by a compensation, position classification system and
qualification standards approved by the director general with the concurrence of the Board of
Directors based on a comprehensive job analysis and audit of actual duties and responsibilities. The
compensation plan shall be comparable with the prevailing compensation plans in the Subic Bay
Metropolitan Authority (SBMA), Clark Development Corporation (BCDA) and the private sector and
shall be subject to the periodic review by the Board no more than once every two (2) years without
prejudice to yearly merit reviews or increases based on productivity and profitability. The PEZA
shall therefore be exempt from existing laws, rules and regulations on compensation, position
classification and qualification standards. It shall however endeavor to make its systems conform
as closely as possible with the principles under Republic Act No. 6758. 5chanroblesvirtuallawlibrary
The PEZA Board in Resolution No. M-99-266 dated October 29, 1999, adjusted PEZA's compensation
plan and included in the said compensation plan is the grant of Christmas bonus in such amount as
may be fixed by the Board and such other emoluments.

Petitioner PEZA had been granting Christmas bonus in the amount of Fifty Thousand Pesos
(P50,000.00) to each of its officers and employees for CY 2000 to 2004, however, for the years 2005 to
2008, the Christmas bonus was gradually increased per PEZA Board Resolution Nos. 05-450 and 06-
462 dated November 28, 2005 and September 26, 2006, respectively. For 2005, the Christmas bonus
was increased to P60,000.00 and was again increased to P70,000.00 in 2006 and 2007. In 2008, the
Christmas bonus was increased to P75,000.00 per PEZA officer/employee.

State Auditor V Aurora Liveta-Funa, on May 27, 2010, issued Notice of Disallowance (ND) No. 10-
001-101-(05-08)6 that was received by PEZA on May 31, 2010. The ND stated that the payment of
additional Christmas bonus to PEZA officers and employees for calendar years 2005-2008 violated
Section 3 of Memorandum Order (M.O.) No. 20 dated June 25, 2001 which provides that any increase
in salary or compensation of government-owned and controlled corporations (GOCCs) and
government financial institutions (GFIs) that is not in accordance with the Salary Standardization Law
shall be subject to the approval of the President.

The matter was brought to the Corporate Government Sector-B which later on rendered the Decision
No. 2011-0087 dated August 31, 2011 not giving credence to the arguments of petitioner and affirmed
the Notice of Disallowance No. 10-001-101-(05-08) dated May 27, 2010 in the aggregate amount of
Php20,438,750.00. Thereafter, pursuant to Rules V and VII of the 2009 Revised Rules of Procedure of
the COA, petitioner filed the Petition for Review with respondent COA.

The COA in its Decision No. 2013-2318 dated December 23, 2013 ruled that notwithstanding Section
16 of the PEZA Charter, petitioner is still duty-bound to observe the guidelines and policies as may be
issued by the President citing Intia, Jr. v. COA9 where this Court ruled that the power of the board to
fix the compensation of the employees is not absolute. The COA further cited Section 6 of Presidential
Decree (P.D.) No. 1597 which mandates presidential review and approval, through the Department of
Budget and Management (DBM), of the position classification and compensation plan of an agency
exempt from the Office of Compensation and Position Classification (OCPC) coverage.

Furthermore, according to the COA, M.O. No. 20 requires presidential approval on salary increases,
while Administrative Order (A.O.) No. 103 suspends the grant of new or additional benefits in line
with the austerity measures of the government. The COA added that these presidential issuances are
not abhorrent to the authority of the PEZA Board of Directors to fix the remuneration of PEZA
officers and employees. It stated that the requirement of presidential approval does not remove from
the board the power to fix the compensation and allowances of PEZA officers and employees but is
meant to determine whether or not the standards set by law have been complied with.

Hence, petitioner filed the present petition assigning the following error:ChanRoblesVirtualawlibrary
RESPONDENT ERRED WHEN IT RULED THAT THE GRANT OF ADDITIONAL CHRISTMAS
BONUS TO PEZA OFFICERS AND EMPLOYEES NEEDS THE APPROVAL OF THE OFFICE OF
THE PRESIDENT BECAUSE REPUBLIC ACT NO. 7916, AS AMENDED BY REPUBLIC ACT NO.
8748, AUTHORIZES THE PEZA BOARD OF DIRECTORS TO FIX THE REMUNERATIONS AND
OTHER EMOLUMENTS OF PEZA OFFICERS AND EMPLOYEES.
Petitioner argues that it is not covered by P.D. No. 1597 because its provisions are inconsistent with
R.A. No. 7916, as amended, which authorizes the PEZA Board to determine the compensation of its
officers and employees and that even assuming without admitting that it is covered by P.D. No. 1597,
the law mentions of reporting to the President through the Budget Commission and does not say that
the approval of the President, through the Budget Commission, should be secured.

The Office of the Solicitor General (OSG),10 on the other hand, claims that despite the exception clause
in Section 16 of R.A. No. 7916, as amended, said provision should nonetheless be read in conjunction
with the existing laws pertaining to compensation among government agencies, as it is undoubtedly a
GOCC over which the President exercises his power of control, through the DBM, aside from the
parameter set by the provision itself, i.e., that PEZA "shall, however, endeavor to make its system
conform as closely as possible with the principles under Republic Act. No. 6758."

In its Reply11 dated October 22, 2014, petitioner reiterated its earlier arguments.

After a careful study of the arguments of both petitioner and respondent, this Court finds no merit to
the petition.

It is not disputed that after the enactment of the Salary Standardization Law (Republic Act No. 6758
became effective on July 1, 1989), laws have been passed exempting some government entities from
its coverage. The said government entities were allowed to create their own compensation and
position classification systems that apply to their respective offices, usually through their Board of
Directors. In Engr. Mendoza v. Commission on Audit,12 this Court mentioned several of those
government entities that are now exempt from the salary standardization law, to
wit:ChanRoblesVirtualawlibrary
1. Philippine Postal Corporation

Sections 22 and 25 of Republic Act No. 7354 or the "Postal Service Act of 1992"
state:ChanRoblesVirtualawlibrary
Sec. 22. Merit System. — The Corporation shall establish a human resources management system
which shall govern the selection, hiring, appointment, transfer, promotion, or dismissal of all
personnel. Such system shall aim to establish professionalism and excellence at all levels of the postal
organization in accordance with sound principles of management.

A progressive compensation structure, which shall be based on job evaluation studies and wage
surveys and subject to the Board's approval, shall be instituted as an integral component of the
Corporation's human resources development program. The Corporation, however, may grant across-
the-board salary increase or modify its compensation structure as to result in higher salaries, subject
to either of the following conditions:

chanRoblesvirtualLawlibrary(a) there are evidences of prior improvement in employee productivity,

measured by such quantitative indicators as mail volume per employee and delivery times.

(b) a law raising the minimum wage has been enacted with application to all government employees
or has the effect of classifying some positions in the postal service as below the floor wage.
xxxx

Sec. 25. Exemption from Rules and Regulations of the Compensation and Position Classification
Office. — All personnel and positions of the Corporation shall be governed by Section 22 hereof, and
as such shall be exempt from the coverage of the rules and regulations of the Compensation and
Position Classification Office. The Corporation, however, shall see to it that its own system conforms
as closely as possible with that provided for under Republic Act No. 6758.
In Intia, Jr. v. Commission on Audit,13 this Court affirmed the Philippine Postal Corporation's exemption
from the Salary Standardization Law. However, the corporation should report the details of its salary
and compensation system to the Department of Budget and Management.

xxxx

2. Trade and Investment Development Corporation of the Philippines

The Trade and Investment Development Corporation of the Philippines is also exempted from the
Salary Standardization Law as provided in Section 7 of Republic Act No. 8494: 14
Sec. 7. The Board of Directors shall provide for an organizational structure and staffing pattern for
officers and employees of the Trade and Investment Development Corporation of the Philippines
(TIDCORP) and upon recommendation of its President, appoint and fix their remuneration,
emoluments and fringe benefits: Provided, That the Board shall have exclusive and final authority to
appoint, promote, transfer, assign and re-assign personnel of the TIDCORP, any provision of existing
law to the contrary notwithstanding.

All positions in TIDCORP shall be governed by a compensation and position classification system
and qualification standards approved by TIDCORP's Board of Directors based on a comprehensive
job analysis and audit of actual duties and responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans in the private sector and shall be subject to
periodic review by the Board no more than once every four (4) years without prejudice to yearly merit
reviews or increases based on productivity and profitability. TIDCORP shall be exempt from existing
laws, rules and regulations on compensation, position classification and qualification standards. It
shall, however, endeavor to make the system to conform as closely as possible to the principles and
modes provided in Republic Act No. 6758.

xxxx
3. Land Bank of the Philippines, Social Security System, Small Business Guarantee and Finance
Corporation, Government Service Insurance System, Development Bank of the Philippines, Home
Guaranty Corporation, and the Philippine Deposit Insurance Corporation

From 1995 to 2004, laws were passed exempting several government financial institutions from the
Salary Standardization Law. Among these financial institutions are the Land Bank of the Philippines,
Social Security System, Small Business Guarantee and Finance Corporation, Government Service
Insurance System, Development Bank of the Philippines, Home Guaranty Corporation, and the
Philippine Deposit Insurance Corporation.

This Court has taken judicial notice of this development in Central Bank (now Bangko Sentral ng
Pilipinas) Employees Association, Inc. v. Bangko Sentral ng Pilipinas:15
Indeed, we take judicial notice that after the new BSP charter was enacted in 1993, Congress also
undertook the amendment of the charters of the GSIS, LBP, DBP and SSS, and three other GFIs, from
1995 to 2004, viz.:ChanRoblesVirtualawlibrary
1. R.A. No. 7907 (1995) for Land Bank of the Philippines (LBP);

2. R.A. No. 8282 (1997) for Social Security System (SSS);

3. R.A. No. 8289 (1997) for Small Business Guarantee and Finance Corporation, (SBGFC);

4. R.A. No. 8291 (1997) for Government Service Insurance System (GSIS);

5. R.A. No. 8523 (1998) for Development Bank of the Philippines (DBP);

6. R.A. No. 8763 (2000) for Home Guaranty Corporation (HGC); and cralawlawlibrary

7. R.A. No. 9302 (2004) for Philippine Deposit Insurance Corporation (PDIC).
It is noteworthy, as petitioner points out, that the subsequent charters of the seven other GFIs share
this common proviso: a blanket exemption of all their employees from' the coverage of the SSL,
expressly or impliedly, as illustrated below:

chanRoblesvirtualLawlibrary1. Land Bank of the Philippines (Republic Act No. 7907)

Section 10. Section 90 of [Republic Act No. 3844] is hereby amended to read as follows:

chanRoblesvirtualLawlibrarySection 90. Personnel. —

xxx xxx xxx

All positions in the Bank shall be governed by a compensation, position classification system and
qualification standards approved by the Bank's Board of Directors based on a comprehensive job
analysis and audit of actual duties and responsibilities. The compensation plan shall be comparable
with the prevailing compensation plans in the private sector and shall be subject to periodic review
by the Board no more than once every two (2) years without prejudice to yearly merit reviews or
increases based on productivity and profitability. The Bank shall therefore be exempt from existing
laws, rules and regulations on compensation, position classification and qualification standards. It
shall however endeavor to make its system conform as closely as possible with the principles under
Republic Act No. 6758.

xxx xxx xxx

2. Social Security System (Republic Act No. 8282)
Section 1. [Amending Republic Act No. 1161, Section 3(c)]:

chanRoblesvirtualLawlibrary
xxx xxx xxx

(c) The Commission, upon the recommendation of the SSS President, shall appoint an actuary and
such other personnel as may [be] deemed necessary; fix their reasonable compensation, allowances
and other benefits; prescribe their duties and establish such methods and procedures as may be
necessary to insure the efficient, honest and economical administration of the provisions and
purposes of this Act: Provided, however, That the personnel of the SSS below the rank of Vice
President shall be appointed by the SSS President: Provided, further, That the personnel appointed by
the SSS President, except those below the rank of assistant manager, shall be subject to the
confirmation by the Commission; Provided further, That the personnel of the SSS shall be selected
only from civil service eligibles and be subject to civil service rules and regulations: Provided, finally,
That the SSS shall be exempt from the provisions of Republic Act No. 6758 and Republic Act No. 7430.
3. Small Business Guarantee and Finance Corporation (Republic Act No. 8289)
Section 8. [Amending Republic Act No. 6977, Section 11]:

chanRoblesvirtualLawlibrary(e) notwithstanding the provisions of Republic Act No. 6758, and

Compensation Circular No. 10, series of 1989 issued by the Department of Budget and Management,
the Board of Directors of [the Small Business Guarantee and Finance Corporation] shall have the
authority to extend to the employees and personnel thereof the allowance and fringe benefits similar
to those extended to and currently enjoyed by the employees and personnel of other government
financial institutions.
4. Government Service Insurance System (Republic Act No. 8291)
Section 1. [Amending Section 43(d) of Presidential Decree No. 1146].

xxx xxx xxx

Sec. 43. Powers and Functions of the Board of Trustees. — The Board of Trustees shall have the following
powers and functions:

chanRoblesvirtualLawlibrary
xxx xxx xxx

(d) upon the recommendation of the President and General Manager, to approve the GSIS'
organizational and administrative structures and staffing pattern, and to establish, fix, review, revise
and adjust the appropriate compensation package for the officers and employees of the GSIS with
reasonable allowances, incentives, bonuses, privileges and other benefits as may be necessary or
proper for the effective management, operation and administration of the GSIS, which shall be
exempt from Republic Act No. 6758, otherwise known as the Salary Standardization Law and
Republic Act No. 7430, otherwise known as the Attrition Law.

xxx xxx xxx

5. Development Bank of the Philippines (Republic Act No. 8523)
Section 6. [Amending Executive Order No. 81, Section 13]:

chanRoblesvirtualLawlibrarySection 13. Other Officers and Employees. — The Board of Directors shall
provide for an organization and staff of officers and employees of the Bank and upon
recommendation of the President of the Bank, fix their remunerations and other emoluments. All
positions in the Bank shall be governed by the compensation, position classification system and
qualification standards approved by the Board of Directors based on a comprehensive job analysis of
actual duties and responsibilities. The compensation plan shall be comparable with the prevailing
compensation plans in the private sector and shall be subject to periodic review by the Board of
Directors once every two (2) years, without prejudice to yearly merit or increases based on the Bank's
productivity and profitability. The Bank shall, therefore, be exempt from existing laws, rules, and
regulations on compensation, position classification and qualification standards. The Bank shall
however, endeavor to make its system conform as closely as possible with the principles under
Compensation and Position Classification Act of 1989 (Republic Act No. 6758, as amended).
6. Home Guaranty Corporation (Republic Act No. 8763)
Section 9. Powers, Functions and Duties of the Board of Directors. — The Board shall have the following
powers, functions and duties:

chanRoblesvirtualLawlibrary
xxx xxx xxx

(e) To create offices or positions necessary for the efficient management, operation and administration
of the Corporation: Provided, That all positions in the Home Guaranty Corporation (HGC) shall be
governed by a compensation and position classification system and qualifications standards
approved by the Corporation's Board of Directors based on a comprehensive job analysis and audit of
actual duties and responsibilities: Provided, further, That the compensation plan shall be comparable
with the prevailing compensation plans in the private sector and which shall be exempt from
Republic Act No. 6758, otherwise known as the Salary Standardization Law, and from other laws,
rules and regulations on salaries and compensations; and to establish a Provident Fund and
determine the Corporation's and the employee's contributions to the Fund;
xxx xxx xxx
7. Philippine Deposit Insurance Corporation (Republic Act No. 9302)
Section 2. Section 2 of [Republic Act No. 3591, as amended] is hereby further amended to read:

chanRoblesvirtualLawlibrary
xxx xxx xxx

3.

xxx xxx xxx

x x x Provided, That all positions in the Corporation shall be governed by a compensation, position
classification system and qualification standards approved by the Board based on a comprehensive
job analysis and audit of actual duties and responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans of other government financial institutions and
shall be subject to review by the Board no more than once every two (2) years without prejudice to
yearly merit reviews or increases based on productivity and profitability. The Corporation shall
therefore be exempt from existing laws, rules and regulations on compensation, position classification
and qualification standards. It shall however endeavor to make its system conform as closely as
possible with the principles under Republic Act No. 6758, as amended. 16chanroblesvirtuallawlibrary
Petitioner's Charter is no different from those mentioned above. Again, Section 16 of R.A. No. 7916, as
amended, provides:ChanRoblesVirtualawlibrary
Sec. 16. Personnel. - The PEZA Board of Directors shall provide for an organization and staff of officers
and employees of the PEZA, and upon recommendation of the director general with the approval of
the secretary of the Department of Trade and Industry, appoint and fix the remunerations and other
emoluments: Provided, The the Board shall have exclusive and final authority to promote, transfer,
assign and reassign officers of the PEZA, any provision of existing law to the contrary
notwithstanding: Provided, further, That the director general may carry out removal of such officers
and employees.

All positions in the PEZA shall be governed by a compensation, position classification system and
qualification standards approved by the director general with the concurrence of the Board of
Directors based on a comprehensive job analysis and audit of actual duties and responsibilities. The
compensation plan shall be comparable with the prevailing compensation plans in the Subic Bay
Metropolitan Authority (SBMA), Clark Development Corporation (BCDA) and the private sector and
shall be subject to the periodic review by the Board no more than once every two (2) years without
prejudice to yearly merit reviews or increases based on productivity and profitability. The PEZA
shall therefore be exempt from existing laws, rules and regulations on compensation, position
classification and qualification standards. It shall however endeavor to make its systems conform
as closely as possible with the principles under Republic Act No.
6758.17chanroblesvirtuallawlibrary
The COA, in disallowing the increase in the Christmas bonus implemented by petitioner, insists that
despite the provisions of Section 16 of R.A. No. 7916, as amended, petitioner is still bound to observe
the guidelines and policies issued by the Office of the President citing this Court's ruling in Intia, Jr. v.
COA18 where it was ruled that the power of the board of directors to fix the compensation of the
employees is not absolute, thus:ChanRoblesVirtualawlibrary
x x x the Board's discretion on the matter of personnel compensation is not absolute as the same must
be exercised in accordance with the standard laid down by law, that is, its compensation system,
including the allowances granted by the Board to PPC employees, must strictly conform with that
provided for other government agencies under R.A. No. 6758 (Salary Standardization Law) in relation
to the General Appropriations Act. To ensure such compliance, the resolutions of the Board affecting
such matters should first be reviewed and approved by the Department of Budget and Management
pursuant to Section 6 of P.D. 1597.19chanroblesvirtuallawlibrary
In addition, the COA cited Section 6 of P.D. No. 1597 which provides the requisite Presidential
review, through the DBM, of the position classification and compensation plan of an agency exempt
from the Office of Compensation and Position Classification (OCPC) coverage, which reads as
follows:ChanRoblesVirtualawlibrary
Section 6. Exemptions from OCPC Rules and Regulations. Agencies positions and groups of officials and
employees of the national government, including government owned or controlled corporations, who
are hereafter exempted by law from OCPC coverage, shall observe such guidelines and policies as
may be issued by the President governing position classification, salary rates, levels of allowances,
project and other honoraria, overtime rates, and other forms of compensation and fringe benefits.
Exemptions notwithstanding, agencies shall report to the President, through the Budget
Commission, on their position classification and compensation plans, policies, rates and other
related details following such specifications as may be prescribed by the
President.20chanroblesvirtuallawlibrary
It is true that in Intia, Jr. v. COA, this Court affirmed the Philippine Postal Corporation's exemption
from the Salary Standardization Law, this Court also ruled that the corporation should report the
details of its salary and compensation system to the DBM, thus:ChanRoblesVirtualawlibrary
First, it is conceded that the PPC, by virtue of its charter, R. A. No. 7354, has the power to fix the
salaries and emoluments of its employees. This function, being lodged in the Postmaster General, the
same must be exercised with the approval of the Board of Directors. This is clear from Sections 21 and
22 of said charter.

Petitioners correctly noted that since the PPC Board of Directors are authorized to approve the
Corporation's compensation structure, it is also within the Board's power to grant or increase the
allowances of PPC officials or employees. As can be gleaned from Sections 10 and 17 of P.D. No. 985
(A Decree Revising the Position Classification and Compensation System in the National
Government, and Integrating the Same), the term "compensation" includes salaries, wages,
allowances, and other benefits.

xxxx

While the PPC Board of Directors admittedly acted within its powers when it granted the RATA
increases in question, the same should have first been reviewed by the DBM before they were
implemented Sections 21, 22, and 25 of the PPC charter should be read in conjunction with Section 6
of P.D. No. 1597:ChanRoblesVirtualawlibrary
Sec. 6. Exemption from OCPC Rules and Regulations. — Agencies, positions or groups of officials and
employees of the national government, including government-owned and controlled corporations,
who are hereafter exempted by law from OCPC coverage, shall observe such guidelines and policies
as may be issued by the President governing position classification, salary rates, levels of allowances,
project and other honoraria, overtime rates, and other forms of compensation and fringe benefits.
Exemptions notwithstanding, agencies shall report to the President, through the Budget Commission,
on their position classification and compensation plans, policies, rates and other related details,
following such specifications as may be prescribed by the President.
xxxx

As the Solicitor General correctly observed, there is no express repeal of Section 6, P.D. No. 1597 by
RA No. 7354. Neither is there an implied repeal thereof because there is no irreconcilable conflict
between the two laws. On the one hand, Section 25 of R.A. No. 7354 provides for the exemption of
PPC from the rules and regulations of the CPCO. On the other hand, Section 6 of P.D. 1597 requires
PPC to report to the President, through the DBM, the details of its salary and compensation system.
Thus, while the PPC is allowed to fix its own personnel compensation structure through its Board
of Directors, the latter is required to follow certain standards in formulating said compensation
system. One such standard is specifically stated in Section 25 of R.A. No.
7354[.]21chanroblesvirtuallawlibrary
The ruling in Intia, Jr. v. COA and the provisions of Section 6 of P.D. No. 1597 can thus be reconciled
as both emphasized that these exempted government entities are required to report to the President,
through the DBM, the details of its salary and compensation system. Reporting, however, is different
from approval. Section 6 of P.D. No. 1597 specifically requires the exempted government agencies to
report to the President, through the DBM, on their position classification and compensation plans,
policies, rates and other related details following such specifications as may be prescribed by the
President.

In fact, a close reading of the charters of those other government entities exempted from the Salary
Standardization Law shows a common provision stating that although the board of directors of the
said entities has the power to set a compensation, position classification system and qualification
standards, the same entities shall also endeavor to make the system to conform as closely as possible
to the principles and modes provided in R.A. No. 6758. This Court, in Trade and Investment
Development Corporation of the Philippines v. Civil Service Commission,22 recognized the Trade and
Investment Development Corporation's exemption from the Salary Standardization Law. However,
this Court ruled that the said Corporation should, however, "endeavor" to conform to the principles
and modes of the Salary Standardization Law in making its own system of compensation and
position classification. The phrase "to endeavor" means "to devote serious and sustained effort" and
"to make an effort to do." It is synonymous with the words to strive, to struggle and to seek. The use
of "to endeavor" in the context of Section 7 of R.A. No. 8494 means that despite TIDCORP's exemption
from laws involving compensation, position classification and qualification standards, it should still
strive to conform as closely as possible with the principles and modes provided in R.A. No. 6758. The
phrase "as closely as possible," which qualifies TIDCORP's duty "to endeavor to conform," recognizes
that the law allows TIDCORP to deviate from R.A. No. 6758, but it should still try to hew closely with
its principles and modes. Had the intent of Congress been to require TIDCORP to fully, exactly and
strictly comply with R.A. No. 6758, it would have so stated in unequivocal terms. Instead, the
mandate it gave TIDCORP was to endeavor to conform to the principles and modes of R.A. No. 6758,
and not to the entirety of this law.23chanrobleslaw

Thus, the charters of those government entities exempt from the Salary Standardization Law is not
without any form of restriction. They are still required to report to the Office of the President, through
the DBM the details of their salary and compensation system and to endeavor to make the system to
conform as closely as possible to the principles and modes provided in Republic Act No. 6758. Such
restriction is the most apparent indication that the legislature did not divest the President, as Chief
Executive of his power of control over the said government entities. In National Electrification
Administration v. COA,24 this Court explained the nature of presidential power of control, and held
that the constitutional vesture of this power in the President is self-executing and does not require
statutory implementation, nor may its exercise be limited, much less withdrawn, by the legislature.

It must always be remembered that under our system of government all executive departments,
bureaus and offices are under the control of the President of the Philippines. This precept is embodied
in Section 17, Article VII of the Constitution which provides as follows:ChanRoblesVirtualawlibrary
Sec. 17. The President shall have control of all the executive departments, bureaus and offices. He
shall ensure that the laws be faithfully executed.
Thus, respondent COA was correct in claiming that petitioner has to comply with Section
325cralawred of M.O. No. 20 dated June 25, 2001 which provides that any increase in salary or
compensation of GOCCs/GFIs that is not in accordance with the Salary Standardization Law shall be
subject to the approval of the President. The said M.O. No. 20 is merely a reiteration of the President's
power of control over the GOCCs/CFIs notwithstanding the power granted to the Board of Directors
of the latter to establish and fix a compensation and benefits scheme for its employees.

Aside from the M.O. No. 20, respondent COA also aptly cited in its Decision No. 2013-231, P.D. No.
1597 and A.O. No. 103, which directed austerity measures in government,
thus:ChanRoblesVirtualawlibrary
MO No. 20 likewise requires Presidential approval on salary increases while AO No. 103 suspends
the grant of new or additional benefits in line with the austerity measures of the government. These
executive issuances may not be simply dismissed as inutile as long as they are not inconsistent with
the special law, the PEZA Charter. Administrative issuances partake of the nature of a statute and
have in their favor a presumption of legality. As such, courts cannot ignore administrative issuances x
x x. Unless an administrative order is declared invalid, courts have no option but to apply the same.

The abovementioned Presidential issuances are not abhorrent to the authority of the BOD to fix the
remuneration of the PEZA officers and employees. The requirement of President's approval does not
remove from the BOD the power to fix the compensation and allowances of PEZA but merely
requires the same to be submitted to the President, through the DBM, in order to determine whether
or not the standards set by law have been complied with.

Moreover, the DBM Footnotes/Restrictions on the corporation's Corporate Operating Budget (COB)
for calendar years 2005-2008 explicitly mentioned laws which PEZA is enjoined to strictly comply,
namely, Section 6 of PD No. 1597, Section 3 of MO No. 20, and AO No. 103 dated August 31, 2004.
Further, the DBM, in its confirmation letter dated December 3, 2008 on PEZA's CY 2007 COB, states
that "This confirmation, however, should not be construed as approval of any unauthorized
expenditures, particularly for Personal Services. New/additional benefits or salary increases granted
should be supported by appropriate legal basis and approval from the Office of the
President.26chanroblesvirtuallawlibrary
The affirmation of the disallowance of the payment of additional Christmas bonus/cash gifts to PEZA
officers and employees for CY 2005 to 2008, however, does not automatically cast liability on the
responsible officers.

The question to be resolved is: To what extent may accountability and responsibility be ascribed to
public officials who may have acted in good faith, and in accordance with their understanding of
their authority which did not appear clearly to be in conflict with other laws? Otherwise put, should
public officials be held financially accountable for the adoption of certain policies or programs which
are found to be not in accordance with the understanding by the Commission on Audit several years
after the fact, which understanding is only one of several ways of looking at the legal provisions?

Good faith has always been a valid defense of public officials that has been considered by this Court
in several cases. Good faith is a state of mind denoting "honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to
abstain from taking any unconcientious advantage of another, even though technicalities of law,
together with absence of all information, notice, or benefit or belief of facts which render transaction
unconscientious.27chanrobleslaw

In Arias v. Sandiganbayan,28 this Court placed significance on the good faith of heads of offices having
to rely to a reasonable extent on their subordinates and on the good faith of those who prepare bids,
purchase supplies or enter into negotiations, thus:ChanRoblesVirtualawlibrary
There is no question about the need to ferret out and convict public officers whose acts have made the
bidding out and construction of public works and highways synonymous with graft or criminal
inefficiency in the public eye. However, the remedy is not to indict and jail every person who may
have ordered the project, who signed a document incident to its construction, or who had a hand
somewhere in its implementation. The careless use of the conspiracy theory may sweep into jail even
innocent persons who may have been made unwitting tools by the criminal minds who engineered
the defraudation.

xxxx

We would be setting a bad precedent if a head of office plagued by all too common problems -
dishonest or negligent subordinates, overwork, multiple assignments or positions, or plain
incompetence - is suddenly swept into a conspiracy conviction simply because he did not personally
examine every single detail, painstakingly trace every step from inception, and investigate the
motives of every person involved in a transaction before affixing his signature as the final approving
authority.

xxxx
We can, in retrospect, argue that Arias should have probed records, inspected documents, received
procedures, and questioned persons. It is doubtful if any auditor for a fairly sized office could
personally do all these things in all vouchers presented for his signature. The Court would be asking
for the impossible. All heads of offices have to rely to a reasonable extent on their subordinates and
on the good faith of those who prepare bids, purchase supplies or enter into negotiations. x x
x.29chanroblesvirtuallawlibrary
Similarly, good faith has also been appreciated in Sistoza v. Desierto,30
thus:ChanRoblesVirtualawlibrary
There is no question on the need to ferret out and expel public officers whose acts make bureaucracy
synonymous with graft in the public eye, and to eliminate systems of government acquisition
procedures which covertly ease corrupt practices. But the remedy is not to indict and jail every person
who happens to have signed a piece of document or had a hand in implementing routine government
procurement, nor does the solution fester in the indiscriminate use of the conspiracy theory which
may sweep into jail even the most innocent ones. To say the least, this response is excessive and
would simply engender catastrophic consequences since prosecution will likely not end with just one
civil servant but must, logically, include like an unsteady streak of dominoes the department
secretary, bureau chief, commission chairman, agency head, and all chief auditors who, if the flawed
reasoning were followed, are equally culpable for every crime arising from disbursements they
sanction.

Stretching the argument further, if a public officer were to personally examine every single detail,
painstakingly trace every step from inception, and investigate the motives of every person involved
in a transaction before affixing his signature as the final approving authority, if only to avoid
prosecution, our bureaucracy would end up with public managers doing nothing else but
superintending minute details in the acts of their subordinates.

Stated otherwise, in situations of fallible discretion, good faith is nonetheless appreciated when the
document relied upon and signed shows no palpable nor patent, no definite nor certain defects or
when the public officer's trust and confidence in his subordinates upon whom the duty primarily lies
are within parameters of tolerable judgment and permissible margins of error. As we have
consistently held, evidence of guilt must be premised upon a more knowing, personal and deliberate
participation of each individual who is charged with others as part of a
conspiracy.31chanroblesvirtuallawlibrary
And recently in Social Security System v. Commission on Audit,32 this Court ruled that good faith
absolves liable officers from refund, thus:ChanRoblesVirtualawlibrary
Notwithstanding the disallowance of the questioned disbursements, the Court rules that the
responsible officers under the ND need not refund the same on the basis of good faith. In relation to
the requirement of refund of disallowed benefits or allowances, good faith is a state of mind denoting
honesty of intention, and freedom from knowledge of circumstances which ought to put the holder
upon inquiry; an honest intention to abstain from taking any unconcientious advantage of another,
even though technicalities of law, together with absence of all information, notice, or benefit or belief
of facts which render transaction unconscientious.33chanrobleslaw

In Mendoza v. COA,34 the Court held that the lack of a similar ruling is a basis of good faith. Thus,
good faith may be appreciated in the case at bench as there is no jurisprudence yet ruling that the
benefits which may be received by members of the SSC are limited to those enumerated under Section
3 (a) of the SS Law.
It is the same good faith, therefore, that will absolve the responsible officers of PEZA from liability
from refund.

In conclusion, it is unfair to penalize public officials based on overly stretched and strained
interpretations of rules which were not that readily capable of being understood at the time such
functionaries acted in good faith. If there is any ambiguity, which is actually clarified years later, then
it should only be applied prospectively. A contrary rule would be counterproductive. It could result
in paralysis, or lack of innovative ideas getting tried. In addition, it could dissuade others from
joining the government. When government service becomes unattractive, it could only have adverse
consequences for society.

WHEREFORE, the Petition dated February 6, 2014 of petitioner Philippine Economic Zone Authority
(PEZA) is DISMISSED. Consequently, Commission on Audit Decision No. 2013-231 dated December
23, 2013, which affirmed Corporate Government Sector-B Decision No. 2011-008 dated August 31,
2011 and Notice of Disallowance No. 10-001-101-(05-08) dated May 27, 2010, disallowing the payment
of additional Christmas bonus/cash gifts to PEZA officers and employees for Calendar Years (CY)
2005 to 2008 is AFFIRMED. However, PEZA and its officers are absolved from refunding the amount
covered by the same notice of disallowance.

SO ORDERED.chanroblesvirtuallawlibrary

Sereno, C.J., on official leave.

Carpio,**Leonardo-De Castro, Brion, Bersamin, Del Castillo, Perez, Mendoza, Reyes, Perlas-Bernabe, and
Caguioa, JJ., concur.
Velasco, Jr., J., on leave.
Leonen, J., on official leave.
Jardeleza, J., no part.