EN BANC
G.R. No. 210571, September 19, 2017
ORESTES S. MIRALLES, Petitioner, v. COMMISSION ON AUDIT, Respondent.
D E C I S I O N
BERSAMIN, J.:
The power of the Commission on Audit (COA) to disallow expenditures or uses of government funds can only be exercised as to transactions thereon that are deemed irregular, unnecessary, excessive, extravagant, illegal, or unconscionable. Otherwise, the disallowance is whimsical, capricious, or arbitrary. A disallowance based solely on the delinquency of loans extended by the Quedan and Rural Credit Guarantee Corporation (QUEDANCOR) to boost countryside investments and credit resources constitutes grave abuse of discretion amounting to lack or excess of jurisdiction.
WHEREFORE, in view of the foregoing, the instant Request for Exclusion from Liability is hereby DENIED for lack of merit. Accordingly, Notice of Disallowance Nos. RLAO-2005-52 dated April 7, 2005 and RLAO-2005-55 dated June 6, 2005, are hereby AFFIRMED.15The petitioner further appealed to the COA Proper, which denied the recourse through the now-assailed decision issued on November 20, 2013, disposing thusly:
WHEREFORE, in view of the foregoing, the request for exclusion from liability is hereby DENIED. Accordingly, Legal Services Sector Decision No. 2010-022 dated June 4, 2010 sustaining Notice of Disallowance No. RLAO-2005-055 dated June 6, 2005 in the amount of F4,450,000.00 and Notice of Disallowance No. RLAO-2005-052 dated April 7, 2005 in the amount of P3,092,900.00 is hereby AFFIRMED.16Hence, this review by petition for certiorari under Rule 64, in relation to Rule 65, both of the Rules of Court.
In short, the Court has now to determine whether or not the COA gravely abused its discretion-amounting to lack or excess of jurisdiction in affirming ND No. RLAO-2005-052 and ND No. RLAO-2005-055, and in holding the petitioner personally liable for the disallowances.I
The Commission on Audit gravely abused its discretion amounting to lack or excess of jurisdiction when it upheld the ruling of its subordinates by refusing to reconsider the finding and conclusion that the "Management granted loans to borrowers without adequately verifying the existence of viable businesses, projects that were validly covered by the Food and Agricultural Retail Enterprises (FARE) Program."II
The Commission on Audit gravely abused its discretion amounting to lack or excess of jurisdiction by ultimately upholding the Notice of Disallowance coded as ND-RLAO 205-055 (sic) dated June 6, 2005 with respect to nine borrowers in Bataan under the FARE program.III
The Commission on Audit gravely abused its discretion amounting to lack or excess of jurisdiction by ultimately upholding the Notice of Disallowance coded as ND-RLAO-2005-052 dated April 7, 2005 with respect to two borrowers in Tarlac under the SFM program.IV
The Commission on Audit gravely abused its discretion amounting to lack or excess of jurisdiction when it stubbornly refused to absolve herein petitioner from civil liability under the principle of ARIAS DOCTRINE.17
Section 2.(1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters, and on a post-audit basis: fa) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries: and (d) such nongovernmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.In furtherance of the exercise of the COA's power, authority and duty, Section 4 of Presidential Decree No. 1445 (Government Auditing Code of the Philippines) lays down the fundamental principles to guide the COA in discharging its power, authority and duty, viz.:
(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties.20
Section 4. Fundamental Principles. — Financial transactions and operations of any government agency shall be governed by the fundamental principles set forth hereunder, to wit:Accordingly, the COA's power and authority to disallow upon audit can only be exercised over transactions deemed as irregular, unnecessary, excessive, extravagant, illegal or unconscionable expenditures or uses of government funds and property. Otherwise put, NDs should issue only for these kinds of transactions.
(1) No money shall be paid out of any public treasury of depository except in pursuance of an appropriation law or other specific statutory authority.
(2) Government funds or property shall be spent or used solely for public purposes.
(3) Trust funds shall be available and may be spent only for the specific purpose for which the trust was created or the funds received.
(4) Fiscal responsibility shall, to the greatest extent, be shared by all those exercising authority over the financial affairs, transactions, and operations of the government agency.
(5) Disbursements or disposition of government funds or property shall invariably bear the approval of the proper officials.
(6) Claims against government funds shall be supported with complete documentation.
(7) All laws and regulations applicable to financial transactions shall be faithfully adhered to.
(8) Generally accepted principles and practices of accounting as well as of sound management and fiscal administration shall be observed, provided that they do not contravene existing laws and regulations.
"IRREGULAR" EXPENDITURES
The term "irregular expenditure" signifies an expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in laws. Irregular expenditures are incurred if funds are disbursed without conforming with prescribed usages and rules of disciplines. There is no observance of an established pattern, course, mode of action, behavior, or conduct in the incurrence of an irregular expenditure. A transaction conducted in a manner that deviates or departs from, or which does not comply with standards set is deemed irregular. A transaction which fails to follow or violates appropriate rules of procedure is, likewise, irregular.23
"UNNECESSARY" EXPENDITURES
The term pertains to expenditures which could not pass the test of prudence or the diligence of a good father of a family, thereby denoting non-responsiveness to the exigencies of the service. Unnecessary expenditures are those not supportive of the implementation of the objectives and mission of the agency relative to the nature of its operation. This would also include incurrence of expenditure not dictated by the demands of good government, and those the utility of which cannot be ascertained at a specific time. An expenditure that is not essential or that which can be dispensed with without loss or damage to property is considered unnecessary. The mission and thrusts of the agency incurring the expenditures must be considered in determining whether or not an expenditure is necessary.24
"EXCESSIVE" EXPENDITURES
The term "excessive expenditures" signifies unreasonable expense or expenses incurred at an immoderate quantity and exorbitant price. It also includes expenses which exceed what is usual or proper, as well as expenses which are unreasonably high and beyond just measure or amount. They also include expenses in excess of reasonable limits.25
"EXTRAVAGANT" EXPENDITURES
The term "extravagant expenditure" signifies those incurred without restraint, judiciousness and economy. Extravagant expenditures exceed the bound of propriety. These expenditures are immoderate, prodigal, lavish, luxurious, grossly excessive, and injudicious.26
"UNCONSCIONABLE" EXPENDITURES
The term "unconscionable expenditures" pertains to expenditures which are unreasonable and immoderate, and which no man in his right sense would make, nor a fair and honest man would accept as reasonable, and those incurred in violation of ethical and moral standards.27
Considering that the loans remained unsettled and/or unpaid despite numerous demands, QUEDANCOR Management should now foreclose the equipment attached as collateral/security for these loans, and in case the collateral is not enough to satisfy the indebtedness, to enforce the stipulation of the contract, as stated above.Thus, it is clear that the disallowance was issued by the COA only because of its concern about the failure of the QUEDANCOR Management to take appropriate legal action for the collection of the delinquent accounts. Such ground could not validly justify the disallowance, however, considering that the NDs were not meant to be tools "to insure compliance" with the COA's directives, and further considering that there was no antecedent finding that the disallowed transactions had been irregular, unnecessary, excessive, extravagant, illegal or unconscionable. In short, the basis for the issuance of ND No. RLAO-2005-052 did not fall within the recognized grounds for a valid disallowance.
To insure compliance with the preceding, we are issuing this Notice of Disallowance (ND) on the unpaid balance of the loan releases, granted to Mr. Severo Robles and Atty. Gaudencio Dizon, with the condition that the same may be lifted if and when QUEDANCOR Management shall take appropriate action to collect the deficiency by means of a collection suit filed in an appropriate court.30 (Bold underscoring supplied for emphasis)
The impression is that there was lack of clarity even on the part of the COA on the cause underlying the disallowances - whether it was the approval of the loans or the non-collection of the delinquent accounts. Such impression could not be entirely dismissed because the following pronouncements of the COA itself, through its responsible officials, were revealing enough, thus:
PAYEE AMOUNT DISALLOWED AUDIT REMARKS AND/OR REQUIREMENTS PERSONS LIABLE Mr. Severo Robles Php 1,641,900.00 -See attached RLAO 2nd Indorsement dated April 5, 2005. Mr. Orestes S. Miralles - for approving the loan transactions.
Ms. Eliza Nefulda-Tayag and Mr. Arnold B. Lumibao - for failing to verify the veracity of the submitted financial documents of Mr. Robles during review and evaluation
-all those who has direct participation/involvement in the granting of the said Loans. Mr. Gaudencio Dizon Php 1,451,000.00 -See attached RLAO 2nd Indorsement dated April 5, 2005. Mr. Orestes S. Miralles - for approving the loan transaction
-all those who had direct participation/involvement in the granting of the said Loans.
a) Letter dated November 7, 2005 issued by the COA in response to the petitioner's letter-appeal dated September 27, 2005 appealing ND No. RLAO-2005-052:Given the foregoing, the Court is easily justified in holding that the COA effectively denied to the petitioner the opportunity to be informed precisely on the issue being raised against him regarding the issuance of ND No.RLAO-2005-052, and thus be enabled to meet the issue fully. For sure, the denial was a serious matter if it deprived him of his right to administrative due process, whose essence was the opportunity to be heard. It cannot be gainsaid that one is heard in administrative proceedings only when he is accorded a fair and reasonable opportunity to explain his case or is given the chance to have the ruling complained of reconsidered.35 That chance was not extended to him herein.This Office may reconsider its earlier disallowance, provided that QUEDANCOR Legal Division should have filed the civil cases for collection in the appropriate judicial court.32 (Bold underscoring for emphasis)b) LSS Decision No. 2010-022 dated June 4, 2010:The issue in point is whether or not the appellant may be held liable based on the extent of his participation as then RVP QUEDANCOR who approved the loan applications subject of the assailed NDs.33 (Bold underscoring for emphasis)c) COA Proper Decision No. 2013-207 dated November 20, 2013:Records show that the Regional Cluster Director (RCD), Regional Legal and Adjudication Office (RLAO), COA R.O. No. Ill, City of San Fernando, Pampanga, issued ND No. RLAO-2005-052 dated April 7, 2005 in the total amount of P3,092,900.00 in connection with the loans granted under QUEDANCOR's Sugar Farm Modernization Program (SFMP). Said ND was issued on the finding that the security arrangements for certain loans granted under this program were grossly disadvantageous to the government The persons named liable were the Petitioner, for approving the loans transactions, and Ms. Eliza N. Tayag and Mr. Arnold Lumibao, for failing to verify the veracity of the financial documents submitted by the loan applicants.
x x x x
Anent the issue on ND No.RLAO-2005-052 dated April 7, 2005, a careful reading of the reference of the disallowance, which is the 2nd Indorsement letter dated April 5, 2005 of LAO-Region 3, shows that the core reason for the disallowance is the seemingly inaction of QUEDANCOR management in pursuing the collection of the unpaid loans of Mr. Severo P. Robles and Arty. Gaudencio Dizon in the total amount of P3,092,900.00. The Management failed to institute a foreclosure proceeding on the mortgaged property and the appropriate collection suit for the deficiency. The Petitioner, in the instant appeal, did not present any statement or documentation to show that QUEDANCOR had already taken action on the matter.34 (Bold underscoring supplied for emphasis)
On the other hand, the invocation of Mr. Mirlles of the Arias Doctrine to avoid liability cannot hold water. Contrary to the assertion of Mr. Miralles that he had no iota of doubt as to the actual existence of the businesses, it is very unlikely for a supervisor like him not to know of the anomalous activities that were happening in the area under his responsibility. A reading of the OAD Investigation Report showed that it was of public knowledge in Bataan that delinquent borrower Rowena Fernandez served as a "processor" of loan applications due to her close connections with the officials of QUEDANCOR. As reported, Rowena Fernandez had been collecting the amount ranging from P6,000.00 to P8,000.00 as "processing fee" per loan applicant with the promise that she will facilitate the release of their loans. Considering the fact that ordinary people knew about this lending scheme, it would seem highly improbable that a regional supervisor like Mr. Miralles had no knowledge about such activity. In fact, the statement of QOO Manahan in his affidavit confirmed that Mr. Miralles was aware of the illegal activities in Bataan. xxxThe COA's refusal to apply the Arias doctrine was arbitrary because the refusal stood on highly speculative grounds. First of all, the COA made no definitive finding about the petitioner having been aware of the illegal activities involving the loan applications committed by his subordinates in the area under his responsibility. And, secondly, even QOO Manahan's affidavit,49 which the COA cited as its basis for stating the petitioner's awareness of the illegal activities going on in Bataan, did not at all show that the petitioner had been aware of such activities as to have been prompted to go beyond the recommendations of his subordinates, and to inquire more deeply into the borrowers' applications and supporting documents.
Mr. Miralles cannot escape liability by taking refuge in the Arias Doctrine and passing the blame to his QOOs. The Arias Doctrine cannot be made to apply to him because he had foreknowledge of facts and circumstances that suggested irregularity pertaining to the transactions. xxx (Bold underscoring supplied for emphasis)48
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.WHEREFORE, the Court PARTLY GRANTS the petition for certiorari NULLIFIES and SETS ASIDE Notice of Disallowance No. RLAO-2005-052 dated April 7, 2005 for being issued with grave abuse of discretion; and AFFIRMS Notice of Disallowance No. RLAO-2005-055 dated June 6, 2005 subject to the MODIFICATION that petitioner Orestes S. Miralles is not personally liable for the disallowed amount.
x x x x
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. If a department secretary entertains important visitors, the auditor is not ordinarily expected to call the restaurant about the amount of the bill, question each guest whether he was present at the luncheon, inquire whether the correct amount of food was served, and otherwise personally look into the reimbursement voucher's accuracy, propriety, and sufficiency. There has to be some added reason why he should examine each voucher in such detail. Any executive head of even small government agencies or commissions can attest to the volume of papers that must be signed. There are hundreds of documents, letters, memoranda, vouchers, and supporting papers that routinely pass through his hands. The number in bigger offices or departments is even more appalling.52
Endnotes:
** Acting Chief Justice per Special Order No. 2483 dated September 14, 2017.
1Rollo, pp. 348-359.
2 Entitled Quedan and Rural Credit Guarantee Corporation Act, enacted on April 13, 1992.
3Rollo, p. 398-A-399.
4 Id. at 399.
5 Entitled AMENDED DA-OUEDANCOR-SRA AGRIKULTURANG MakaMASA SUGAR FARM MODERNIZATION PROGRAM.
6Rollo, p. 191.
7 Id. at 79-97.
8 Id. at 80-81.
9 Id. at 399.
10 Id. at. 300.
11 Id. at 253-269.
12 Id. at 251-252.
13 Id. at 349.
14 Id. at 300-305.
15 Id. at 305.
16 Id. at 353.
17 Id. at 25-26.
18 Section 2(2), Commission on Audit, Article IX, 1987 Constitution.
19Development Bank of the Philippines v. Commission on Audit, G.R. Nos. 216538 & 216954, April 18, 2017; citing Technical Education and Skills Development Authority (TESDA) v. Commission on Audit, G.R. No. 204869, March 11, 2014, 718 SCRA 402, 437.
20 Section 1, Rule IE of the 1997 Revised Rules of Procedure of the Commission on Audit reiterates the COA's exclusive authority to disallow "expenditures or uses of government funds and properties found to be irregular, unnecessary, excessive, extravagant or unconscionable."
21 Section 3.1, COA Circular No. 85-55-A dated September 8, 1985; Section 10.1.1, Chapter III, COA Circular No. 2009-006 (Prescribing the Use of the Rules and Regulations on Settlement of Accounts).
22 The COA has referred to these classifications of disallowable transactions by the acronym "IUEEU".
23 Section 3.1, COA Circular No. 85-55-A dated September 8, 1985; Section 3.1, COA Circular No. 2012-003 dated October 29, 2012.
24 Section 3.2, COA Circular No. 85-55-A dated September 8, 1985; Section 4.1, COA Circular No. 2012-003 dated October 29, 2012.
25 Section 3.3, COA Circular No. 85-55-A dated September 8, 1985; Section 5.1, COA Circular No. 2012-003 dated October 29, 2012.
26 Section 3.4, COA Circular No. 85-55-A dated September 8, 1985; Section 6.1, COA Circular No. 2012- 003 dated October 29, 2012.
27 Section 7.1, COA Circular No. 2012-003 dated October 29, 2012.
28Rollo, pp. 51-55.
29 Id. at 249.
30 Certified Copy on File, COA Decision 13-207, Vol. 4 of 4, 2nd Indorsement dated April 5, 2005, Annex C.
31 Certified Copy on File, COA Decision 13-207. Vol. 1 of 4, Notice of Disallowance dated April 7, 2007, Annex C.
32 Certified Copy on File, COA Decision 13-207. Vol. 1 of 4, Annex E.
33Rollo, p. 303.
34 Id. at 348 and 352.
35Fontanilla v. The Commissioner Proper, Commission on Audit, G.R. No. 209714, June 21, 2016, 794 SCRA 213, 226; Besaga v. Acosta, G.R. No. 194061, April 20, 2015, 756 SCRA 93; Vivo v. Philippine Amusement and Gaming Corporation (PAGCOR), G.R. No. 187854, November 12, 2013, 709 SCRA 276, 281.
36Rollo, pp. 35-36, 323.
37 Id. at 36, 362, 366.
38Certified Copy on File, COA Decision 13-207, Vol. 1 of 4, Annex E.
39Rollo, pp. 76-77.
40 Section 4, 1997 Revised Rules of Procedure of the Commission on Audit.
41 Section 19, Manual on Certificate of Settlement and Balance (Revised 1993).
42Rollo, pp. 59-60.
43 Id. at 419-422.
44 Id. at 350.
45 Id. at 261.
46 Id. at 233.
47 G.R. No. 81563 and G.R. No. 82512, December 19, 1989, 180 SCRA 309.
48Rollo, pp. 351-352.
49 Id. at 358.
50 Id. at 81,
51Albert v. Gangan, G.R. No. 126557, March 6, 2001, 353 SCRA 673, 684-685.
52 Supra note 47, at 315-316.