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Facts:Development Bank of the Philippines

(DBP) seeks to set aside COA Decision
which disallowed in audit the dividends distributed under the Special Loan Program
(SLP) to the members of the DBP
Gratuity Plan.The DBP is a government financial institution with an original charter, ExecutiveOrder No.
81, as amended by Republic Act No. 8
523 (DBP Charter).
In 1983, the Bank established a Special Loan Program availed thru the facilitiesof the DBP Provident
Fund and funded by placements from the Gratuity Plan Fund.
This Special Loan Program was adopted as part of the benefit program o
f the Bank toprovide financial assistance to qualified members to enhance and protect the value of
their gratuity benefits because Philippine retirement laws and the Gratuity Plan do notallow partial
payment of retirement benefits. The program was su
spended in 1986 butwas revived in 1991 thru DBP Board Resolution No. 066 dated January 5,
1991.Under the Special Loan Program, a prospective retiree is allowed the option to
utilize in the form of a loan a portion of his outstanding equity in the gratuity fund and
to invest it in a profitable investment or undertaking. The earnings of the investmentshall then be
applied to pay for the interest due on the gratuity loan which was initiallyset at 9% per annum subject to
the minimum investment rate resulting from the updatedactuarial study. The excess or balance of the
interest earnings shall then be distributedto the investor-members.Pursuant to the investment scheme,
DBP-TSD paid to the investor-members atotal of P11,626,414.25 representing the net earnings of the
investments for the years1991 and 1992. The payments were disallowed by the Auditor under Audit
ObservationMemorandum No. 93-2 dated March 1, 1993, on the ground that the distribution ofincome
of the Gratuity Plan Fund (GPF) to future retirees of DBP is irregular andconstituted the use of public
funds for private purposes which is specifically proscribedunder Section 4 of P.D. 1445.

Chairman Antonio of DBP also asked COA to lift the disallowance of theP11,626,414.25 distributed as
dividends under the SLP on the ground that the latter

was simply a normal loan transaction.Issues:Whether or not the distribution of dividends under the SLP
is valid.Decision:

NO. The beneficiaries or
cestui que trust
of the Fund are the DBP officials and
employees who will retire. Retirement benefits can only be demanded and enjoyed
when the employee shall have met the last requisite, that is, actual retirement under the
Gratuity Plan. In this case, dividends were di
stributed to employees even beforeretirement.As Chairman Zalamea himself noted, neither the Gratuity
Plan nor our laws onretirement allow the partial payment of retirement benefits ahead of actual
retirement. Itappears that DBP sought to circumvent these restrictions through the SLP, which
released a portion of an employees retirement benefits to him in the form of a loan.
Severance of employment is a condition
sine qua non
for the release ofretirement benefits. Retirement benefits are not meant to recompense employees
whoare still in the employ of the government. That is the function of salaries and otheremoluments.
Retirement benefits are in the nature of a reward granted by the State to agovernment employee who
has given the best years of his life to the service of hiscountry.
Case: DBP v COA (2006)

Facts:In 1988, DBP purchased 5 Mitsubishi L-300 vans and 14 Mitsubishi Lancer carsworth a total of
P5,525,000 for its 5 regional offices and 14 branches pursuant to itsmodernization program. During this
period, DBP was undergoing a process ofrehabilitation and the vehicles were utilized to bolster its
efforts at fund generation whichrequired the mobilization of its personnel in order to reach out to a
wider base ofclientele.In its 1992 Annual Audit Report, COA included these transactions among its
adverse audit findings alleging DBPs non
-compliance with Letter of Instruction No. 667and Letter of Implementation No. 29 which require
Presidential approval for purchase oftransport. The auditor recommended the filing of administrative
charges against theresponsible officers but it was never effected for the responsible officers later ceased
tobe connected with the agency.In 1998, the COA Auditor issued a Notice of Disallowance on the subject
transaction. This impelled DBP, through their President and CEOs letter, to move for
the lifting of the disallowance of P5,525,000.00. The purchase was justified asnecessary for its
modernization program since it was undergoing a process ofrehabilitation at the time and that their
branches were in dire need of additional vehiclesfor improved mobility to support its thrust of providing
financial assistance to small andmedium enterprises in the countryside to generate employment and
spur economicdevelopment.The COA Auditor recommended the lifting of the audit disallowance. But
contrarythereto, the Director, Corporate Audit Office I, issued a Memorandum finding DBPwantonly
disregarded the requirement of Presidential approval which is a condition sine

qua non for the purchase of vehicles under Letter of Instruction No. 667 which provides,inter alia,
that:When authorized to purchase motor vehicles pursuant to Letter ofImplementation No. 29 dated
December 5, 1975, national government agencies,including government-owned and controlled
corporations and state colleges anduniversities shall observe the following maximum standard
specifications:x x x x x x x x x5.0 Exceptions may be allowed only as specifically authorized by the
President.Letter of Implementation No. 29 provides:Pursuant to Presidential Decree No. 830, dated
November 27, 1975 and inconnection with Letter of Implementation No. 28 placing the Budget
Commissionimmediately under the President of the Philippines, the Commissioner of theBudget is
hereby delegated authority to take final action on the followingbudgetary matters heretofore referred
by this Commission to the ExecutiveSecretary:x x x x x x x x xThe following, among others, shall continue
to be referred to the President forpersonal consideration and action:x x x x x x x x x5. Purchase of
transport and construction equipment, books, drugs andmedicines, and other items.DBP assailed COA
Decision No. 2001-151 which denied its motion for the lifting of thedisallowance. The Commission
affirmed the subject disallowance for want of priorPresidential approval contrary to Letter of
Implementation No. 29 and LOI No. 667.Issue:Whether or not COA committed GADALEJ in disallowing
the purchase of motorvehicles by DBPDecision:COA did not commit grave abuse of discretion in
disallowing the purchase ofmotor vehicles by DBP.Based on Letter of Instruction No. 667 and Letter of
Implementation No. 29, priorPresidential authorization is required before DBP, being a government-
owned andcontrolled corporation, could purchase the subject vehicles. Verily, Letter of InstructionNo.
667 is not a "mere technicality" as DBP contends, otherwise, administrativeagencies would be free to
utilize such funds freely as long as they can justify their usethrough the mere invocation of laudable
purposes. Since the disallowance was made

pursuant to the applicable law, it cannot be assailed as an act of grave abuse ofdiscretion