The practical answer is usually no, not as a rule of enforcement, at least not merely because a Notice of Disallowance (ND) has been issued. In Philippine law, a disallowance becomes enforceable for collection after it becomes final and executory, and that normally happens only after the available remedies within the Commission on Audit (COA) have been exhausted or the period to appeal has lapsed.

But the subject is more nuanced than a simple yes-or-no. In actual government practice, several different things get lumped together:

Stopping future payment of a questioned benefit
Recovering money already paid through salary deduction or offset
Withholding salary differentials or other receivables to satisfy a supposed disallowance
Implementing a payroll deduction based on a signed authority, settlement, or final COA ruling

Those are not the same. Whether a deduction is lawful depends on what exactly is being deducted, why it is being deducted, whether the ND is already final, whether the employee is personally liable, and whether there is a separate legal basis for withholding or set-off.

The strongest general position in Philippine administrative law is this:

While an ND is still under appeal, the government may stop the continuation of the questioned payment, but it ordinarily should not enforce collection of the disallowed amount by deducting salaries, salary differentials, or similar receivables unless there is a distinct legal basis independent of the still-pending ND.

That is the core principle. The rest of the analysis explains why.

I. What a Notice of Disallowance is

A Notice of Disallowance is COA’s formal audit action declaring that a payment or expenditure of government funds is irregular, unnecessary, excessive, extravagant, or unconscionable, or otherwise not in accordance with law, rules, or regulations. It is not just an internal comment. It is a formal determination that a transaction is disallowed and identifies persons who may be liable.

However, an ND is also appealable. It is not automatically beyond review upon issuance. Under the COA framework, parties adversely affected may seek reconsideration and pursue the available administrative appeals within COA. Until the disallowance attains finality, it remains contested.

That matters because collection is a coercive act. In law, the existence of an audit disallowance is not exactly the same thing as a final, enforceable adjudication of liability.

II. The constitutional and statutory setting

The issue sits at the intersection of several legal principles:

1. COA’s constitutional power

COA has broad constitutional authority to examine, audit, and settle government accounts and to disallow illegal or irregular expenditures.

2. Due process in administrative liability

Even in audit matters, persons named in an ND are entitled to procedural fairness. They must be informed of the basis of liability and given an opportunity to challenge the disallowance through the remedies provided by COA rules.

3. Finality before execution

As a rule in adjudicative systems, execution follows finality. An appeal is not supposed to be meaningless. If the government could fully collect a disallowance while the appeal remains unresolved, the right to appeal would be reduced to a formality.

4. Salary protection principles

Public salaries are not lightly subject to withholding or deduction. Even when the government is the employer, deductions from pay usually need:

clear statutory or regulatory authority,
the employee’s consent, or
a final and enforceable obligation.

5. Rules on return of disallowed amounts

Philippine jurisprudence on COA disallowances developed significantly, especially in later Supreme Court cases discussing who must return disallowed amounts and under what conditions. Those rules reinforce that personal liability and actual recovery are legal questions that often require case-specific determination, not automatic payroll collection upon the mere issuance of an ND.

III. The central distinction: stopping future payments versus collecting past payments

This is the most important distinction on the topic.

A. The government may stop future release of the questioned benefit

If COA questions a particular salary differential, allowance, incentive, or benefit, the agency generally may stop paying it going forward while the matter is being reviewed. That is different from collection.

Reason: government agencies are expected not to continue releasing public funds under a cloud of illegality after the expenditure has been flagged. Preventing further payment is a protective measure.

So if the question is:

“Can the agency stop paying the salary differential prospectively while the ND is under appeal?”

The answer is often yes.

But if the question is:

“Can the agency recover amounts already paid by deducting them from payroll or from accrued salary differentials while the ND is still under appeal?”

The answer is usually not yet, unless there is another valid legal basis.

B. Recovery of past payments is different

Recovering what was allegedly overpaid or illegally paid is an act of execution or collection. That generally presupposes that liability has already matured into an enforceable obligation.

A pending appeal means that:

the validity of the disallowance is still under review,
the persons liable may still be reclassified or exonerated,
the amount recoverable may still change,
defenses such as good faith, lack of unjust enrichment, lack of participation, or improper inclusion may still succeed.

That is why payroll deduction while appeal is pending is ordinarily vulnerable to challenge.

IV. Can salary differentials be withheld or applied as set-off while the ND is on appeal?

A. General rule: not as ordinary enforcement of the ND

A government employee who is due a salary differential is due a lawful compensation adjustment or back pay under a separate entitlement. If the agency withholds that amount solely to satisfy a still-contested ND, the withholding looks like premature execution.

That is generally problematic for several reasons:

The employee’s liability is not yet final.
The amount may still be reversed or reduced on appeal.
The employee may ultimately be found not personally liable to return anything.
The source being withheld is a lawful compensation entitlement, not a fund automatically impressed with a trust in favor of the agency.

In that setting, withholding salary differentials is functionally the same as deducting salary: it is a collection device. And collection ordinarily follows finality.

B. Why agencies still attempt it

In practice, agencies sometimes justify withholding on one of these theories:

the government may protect public funds,
the employee owes the government money,
it is merely an offset between mutual obligations,
COA has already declared the payment illegal,
the employee may later become difficult to collect from.

Those arguments are not always enough. A still-appealed ND is not the clean equivalent of an admitted, liquidated, and demandable debt that may automatically be offset against salary-related claims.

C. Set-off or compensation is not automatic in government cases

Some invoke the Civil Code concept of legal compensation or set-off. But government obligations and public funds are not treated as ordinary private debts. A few cautionary points matter:

Not every government claim is immediately demandable. If liability is still on appeal, it is not yet settled in the sense ordinarily required for compulsory offset.
Public compensation has protective features. Wages and salary equivalents are not typically withheld on mere accusation or provisional audit finding.
A government agency cannot casually create its own shortcut to execution. The collection process must still respect the legal regime governing COA disallowances.

So while there are circumstances where offset may later be allowed, a pending appeal weakens the case for immediate offset.

V. What changes once the ND becomes final and executory

Once the ND becomes final and executory, the legal picture changes materially.

At that point:

the disallowance is no longer merely provisional,
the liability fixed by the final COA action may be enforced,
collection methods may include demand, withholding of money claims, set-off against receivables, and other lawful enforcement mechanisms.

After finality, the government’s position is far stronger if it withholds salary differentials, terminal leave, retirement claims, or similar receivables to answer for the final disallowance, subject still to whatever limits the law places on the particular receivable and on who is actually liable.

The key point is that finality is the normal threshold for coercive recovery.

VI. The effect of modern jurisprudence on disallowance liability

Philippine Supreme Court doctrine on COA disallowances evolved significantly. The important modern trend is that liability to return disallowed amounts is not automatic for every recipient in every case.

In broad terms, the later cases teach these points:

Not all persons named in the ND bear the same liability.
Approving and certifying officers may be liable when their participation is marked by bad faith, malice, or gross negligence, or under the applicable rules governing accountable officers.
Recipients are not automatically required to return everything in all cases.
The analysis may consider good faith, the nature of the benefit received, whether the employee actually retained something not due, and equitable considerations tied to unjust enrichment and solutio indebiti.

That matters directly to the topic. If the law itself now requires a more careful, calibrated determination of who should return what, then the agency has even less basis to impose blunt payroll deductions before the appeal is resolved.

A pending appeal may still alter:

whether the ND stands at all,
who is liable,
whether liability is full, partial, or none,
whether rank-and-file recipients must return,
whether only approving officers are accountable,
whether the amount should be net or adjusted.

That is exactly why premature deduction is risky and often legally unsound.

VII. Is there any situation where deduction while appeal is pending may still happen lawfully?

Yes, but these are exceptions or special situations, not the ordinary rule.

1. The employee expressly authorized the deduction

If the employee signed a valid, informed written authority allowing deductions from salary or receivables to answer for potential liability, the agency may argue there is an independent contractual basis. Even then, the authority may still be questioned if it is overbroad, coerced, contrary to law, or invoked despite the non-final nature of the claim.

2. There is a separate final adjudication or settlement

If apart from the still-pending ND there is:

a final administrative determination,
a compromise or settlement,
an admission of liability,
or another enforceable basis,

then the withholding may rest on that separate basis rather than on the non-final ND alone.

3. The withheld amount is itself part of the same questioned transaction and never matured into a vested receivable

For example, if the “salary differential” has not yet been finally approved for release and the agency concludes that the legal basis for the differential is exactly what COA has disallowed, the agency may characterize the act not as “deduction” but as non-release of a disputed claim.

That can be lawful in some situations. But that is conceptually different from taking money already earned and payable under a separate entitlement and applying it against a still-contested ND.

4. A specific law or regulation clearly authorizes withholding pending resolution

If a special statute, budget rule, or regulation clearly mandates withholding in a specific context, that could change the analysis. But absent such a specific rule, the safer legal view remains that pending appeal does not authorize ordinary collection by payroll deduction.

VIII. Why withholding salary differentials during appeal is often challengeable

An employee contesting the withholding usually has several strong arguments.

1. Premature execution

The cleanest argument is that the withholding is execution before finality. If appeal rights remain live, collection should wait.

2. Denial of due process

If the agency withheld amounts without a separate notice, explanation, or opportunity to contest the payroll action, the employee may raise due process concerns.

3. No final and demandable debt yet

A pending ND is still subject to reversal, modification, or reassignment of liability. Hence there is no settled debt ripe for enforced offset.

4. Distinction between audit finding and collection authority

COA’s issuance of an ND establishes an audit position, but the step from audit finding to actual collection must still follow the procedural and substantive rules governing enforcement.

5. The employee may not ultimately be liable at all

Later jurisprudence makes that especially important. Rank-and-file recipients in good faith may not always be bound to return the amount. Deducting first and sorting liability later puts the burden on the wrong side of the process.

6. Salary and lawful compensation are not a collection free-for-all

Compensation and back pay claims are protected entitlements. Agencies should not use them as easy reservoirs for contested liabilities.

IX. What if the “salary differential” being withheld is not current salary but back pay, CNA differential, step increment differential, or other money claim?

The legal label changes, but the core principles are similar.

Whether the withheld item is:

current salary,
salary differential,
back wages,
step increment differential,
longevity differential,
retirement differential,
terminal leave benefits,
cash conversion claims,
or other money claims,

the main question remains:

Is the agency enforcing collection of a still non-final ND?

If yes, the withholding is generally vulnerable unless supported by another clear legal basis.

That said, some receivables are more easily reached after finality than others. For example, a final money claim in favor of the employee may later be subject to lawful offset once the government’s claim is already fixed and enforceable. But pending appeal is the weak point.

X. A useful framework for analyzing real cases

When facing this issue in Philippine government service, ask the following in order:

1. Is the ND already final and executory?

If no, ordinary collection is generally premature.

2. Is the agency merely stopping future payment of the questioned item, or is it recovering prior payments?

Stopping future payment is easier to justify. Recovery is harder before finality.

3. Is the withheld amount part of the very same disputed claim, or is it a separate salary-related receivable?

A separate lawful receivable is harder to withhold based only on a pending ND.

4. Has the employee actually been finally determined to be personally liable?

If not, withholding is much harder to defend.

5. Is there a written authority, settlement, or separate final basis for deduction?

If none, the deduction rests almost entirely on the still-pending ND, which is weak.

6. Does later jurisprudence potentially excuse the recipient from return?

If yes, withholding before appeal resolution becomes even more questionable.

XI. How this plays out procedurally inside government

A common sequence looks like this:

COA issues an ND.
The agency stops further payment of the questioned benefit.
The persons named in the ND appeal.
While appeal is pending, the agency considers deducting from payroll or withholding salary differentials.
The employee objects, arguing that collection must await finality.

On a sound legal approach, the agency should usually do this instead:

stop future releases of the questioned item if warranted,
allow the COA appeal process to run,
refrain from coercive recovery until the ND becomes final,
then enforce only against those finally determined liable, and only in the amount properly due under the controlling COA and Supreme Court rules.

That sequence respects both audit discipline and due process.

XII. The employee’s strongest legal position

In Philippine legal terms, the strongest concise argument is:

A Notice of Disallowance under appeal is not yet a final, executory basis for enforced recovery. Therefore, deducting salary differentials or withholding other money claims solely to satisfy the disputed disallowance is ordinarily premature, denies the practical value of the appeal, and may violate due process, unless there is an independent legal basis such as consent, settlement, or another final determination.

That is the position most consistent with the structure of audit appeals and with modern doctrine on disallowance liability.

XIII. The government’s strongest counter-position

To be fair, the government’s best argument is:

Public funds must be protected, and a disallowance already reflects COA’s formal finding that the payment lacked legal basis. If the amount to be withheld is still under the agency’s control and has not yet been released, the agency may suspend or retain the amount pending resolution to avoid further dissipation of public funds.

That argument has some force, but it is strongest only where the agency is suspending an unreleased disputed benefit, not where it is executing collection against a separate vested receivable.

That is the line that usually decides the case.

XIV. Important caution: “Deduction” and “non-release” are not always the same

Agencies sometimes frame the act as a “hold” rather than a “deduction.” Legally, that distinction matters.

Likely more defensible:

“We will not release the questioned salary differential because its legal basis is itself under audit challenge.”

Likely less defensible:

“We acknowledge you are entitled to this salary differential, but we are applying it against a disallowance that is still on appeal.”

The first is about whether the benefit may be released at all. The second is about using an admitted receivable to collect a disputed debt.

The second is far more open to challenge.

XV. Interaction with good faith and recipient liability

A major reason deductions during appeal are dangerous is that final review may show the employee is a mere passive recipient in good faith.

In many disallowance controversies, rank-and-file employees:

did not approve the benefit,
did not craft the legal basis,
simply received what payroll released,
had no reason to suspect invalidity.

Under modern jurisprudence, those facts matter. If the final ruling later excuses the recipient from return, then deductions made during appeal become not just premature but substantively wrong.

That is why agencies should be cautious about automatic withholding from employees while the appeal remains unresolved.

XVI. Practical conclusions for Philippine government offices

For agencies, the safer approach is:

Stop future release of the questioned benefit if the legal basis is doubtful.
Do not automatically deduct from current salaries, salary differentials, or other employee receivables while the ND is still on appeal.
Wait for finality of the COA process before undertaking collection measures.
Determine actual liability carefully under current jurisprudence.
Differentiate officers from recipients, and bad faith from good faith.
Document any voluntary authority or settlement if deductions are to be made before finality.

For employees, the key objection is:

a pending ND is not yet a final collectible liability,
salary differentials cannot ordinarily be taken as though the case were already over,
any withholding should be challenged if it operates as premature execution.

XVII. Bottom-line answer

Can the government deduct salary differentials while a Notice of Disallowance is still on appeal?

Generally, no. In the Philippine setting, a Notice of Disallowance that is still under appeal is ordinarily not yet a proper basis for enforced collection, including deduction from salary differentials or withholding of other employee money claims, unless there is a separate and valid legal basis such as:

the employee’s written and valid authorization,
a compromise or settlement,
a distinct final adjudication,
or a specific rule clearly allowing the withholding.

What the government may usually do while the appeal is pending is stop the continued payment of the questioned benefit prospectively. But recovering past amounts or offsetting them against salary differentials before the ND becomes final and executory is ordinarily premature.

That is the most defensible statement of Philippine law on the issue.