Abella vs. Commission on Audit Proper

EME appropriations are treated as discretionary funds under Section 325(h) of the Local Government Code; hence, a separate EME appropriation is prohibited, and recipients of disallowed EME are liable to refund despite good faith. A delay in COA proceedings does not violate the right to speedy disposition absent vexatious, capricious, or oppressive delay, timely assertion of the right, and actual prejudice.

Petitioners are officials or employees of the City Government of Butuan who received extraordinary and miscellaneous expenses (EME) under SP Ordinance No. 2557-2004, while respondents are the Commission on Audit Proper and COA Regional Office No. XIII, Butuan City. Section 325(h) of Republic Act No. 7160, the Local Government Code of 1991, limits the annual appropriation for discretionary purposes of the local chief executive to two percent of actual receipts from basic real property tax in the preceding calendar year and prohibits any amount for the same purpose except as authorized. The Department of Budget and Management had earlier taken the position that EME is part of the discretionary expenses of the local chief executive and cannot be a separate item of appropriation. The dispute concerns the COA's disallowance of EME disbursements made by the City Government of Butuan for calendar years 2004 to 2009.

The City Government of Butuan, through its Sangguniang Panlungsod, sought to provide extraordinary and miscellaneous expenses (EME) to certain local officials. The Department of Budget and Management (DBM) Regional Office No. XIII disapproved a separate item for EME appropriation in the City's annual budget for fiscal year 2000 because it violated Section 325(h) of Republic Act No. 7160, which prohibits appropriations with the same purpose as discretionary funds. The DBM explained that EME is deemed part of the discretionary expenses of the local chief executive and cannot be a separate item of appropriation. The Sangguniang Panlungsod sought reconsideration, but the DBM affirmed the disapproval in Legal Opinion No. L-B-2001-10.

Notwithstanding that opinion, the Sangguniang Panlungsod enacted SP Ordinance No. 2557-2004, granting EME allowances to certain officials. By virtue of the ordinance, a series of EME disbursements were made. On January 12, 2006, the Regional Legal and Adjudication Office, COA Regional Office No. XIII, issued Notice of Disallowance (ND) No. 2006-001 (2004), disallowing EMEs paid in June and July 2004 in the total amount of P973,409.09 for lack of legal basis. No appeal was taken within the reglementary period, rendering the ND final; a Notice of Finality of Decision and Final Order of Adjudication, now COA Order of Execution, were issued on October 26, 2009.

The City Government continued to appropriate and grant EME to its officials until 2010. In March 2009, eight more NDs, the 2009 NDs, were issued, disallowing EMEs paid in 2008 for a total of P2,177,463.16. An appeal was filed but denied in COA Regional Office XIII Decision No. 2011-046. On January 24, 2012, 87 more NDs, the 2012 NDs, were issued, disallowing all other EMEs paid from 2004 to 2009. Petitioners, as recipients held liable to settle the disallowances, appealed all 2012 NDs and seven of the 2009 NDs to COA Regional Office XIII on July 31, 2012.

The COA found that the consolidated appeals covered 94 disallowances, requiring review of 94 sets of records dating back to 2004 to 2009, with each ND involving several transactions, responsible individuals, and disbursement vouchers. Records pertinent to 87 of the 94 NDs had already been destroyed when the COA office caught fire on February 4, 2011, so that signatories of some disbursement vouchers or payrolls could not be ascertained because the original payrolls bearing their names were among the burned documents. The COA also found no vouchers or similar supporting documents to substantiate the EME reimbursements.

• Speedy Disposition: Petitioners invoked their right to speedy disposition because the proceedings before COA Regional Office XIII took more than one year and four months from issuance of the NDs on January 24, 2012, to Decision No. 2013-007, and the COA Proper took another three years and seven months to resolve the appeal.
• DBM Legal Opinion: Petitioners argued they are not legally bound by DBM Legal Opinion No. L-B-2001-10 because it was issued as a response to the Sangguniang Panlungsod's query, to which they were not signatories.
• Fiscal Autonomy: Petitioners claimed the EME disallowances are anathema to the city government's constitutionally guaranteed fiscal autonomy.
• Good Faith: Petitioners invoked good faith as passive recipients of the disallowed EMEs to exculpate them from liability to refund.

• Speedy Disposition: The COA Proper maintained that the period dedicated to resolution did not exceed reasonable limits for the work involved and that no showing existed that the apparent delay was vexatious, capricious, and oppressive as to violate the right.
• DBM Legal Opinion: The COA Proper contended that DBM Legal Opinion No. L-B-2001-10 was issued upon the City of Butuan's request, thus binding upon the city and all its officials and employees.
• Fiscal Autonomy: The COA Proper explained that the disallowances did not subvert fiscal autonomy because local government units are still bound by the state policy of judicious utilization of public funds and properties.
• Refund: The COA Proper argued that petitioners must refund the EME they received for being given without legal basis.

• Speedy Disposition: Whether there was a violation of the right to speedy disposition of cases.
• Propriety of Disallowance: Whether the issuance of the NDs was proper.
• Good Faith and Refund: Whether good faith can exonerate petitioners' liability to settle the disallowances.

• Speedy Disposition: No. The delay was not attended by vexatious, capricious, or oppressive circumstances; petitioners failed to seasonably assert the right and showed no actual prejudice.
• Propriety of Disallowance: Yes. EME appropriations and discretionary funds have the same purpose, so a separate EME appropriation contravened Section 325(h) of the Local Government Code and the GAAs; the COA properly disallowed the disbursements.
• Good Faith and Refund: No. Good faith or bad faith is inconsequential in disallowed transactions; recipients must refund absent any recognized exception, none of which applied.

• Speedy Disposition: The constitutional guarantee under Section 16, Article III requires expeditious action, but not every delay violates it. A violation occurs only when proceedings are attended by vexatious, capricious, and oppressive delays, unjustified postponements, or a long period allowed to elapse without cause. Under the balancing test, the length of delay, reason for delay, defendant's assertion or non-assertion of the right, and prejudice are weighed. Cagang vs. Sandiganbayan further instructs that inordinate delay is not determined by mathematical reckoning; courts should appraise a reasonable period from the standpoint of a competent and independent public officer given the complexity of the case, and if delay occurred beyond prescribed periods, the prosecution must explain the reason and show no prejudice. Here, although the COA did not refute the substantial period, the consolidated appeals covered 94 disallowances, each involving several transactions, responsible individuals, and numerous disbursement vouchers, and the records dated back to 2004 to 2009. The COA had to conduct a thorough audit and research applicable laws and jurisprudence. Records for 87 of the 94 NDs were destroyed in the February 4, 2011 fire, preventing ascertainment of some signatories. These circumstances negated capriciousness or oppressiveness. Petitioners also never asserted the right before the COA Regional Office or COA Proper; they could have filed a manifestation or motion for early resolution but raised the issue only in the petition. The sheer length of time, without allegation and proof of actual, specific, and real injury, did not establish inordinate delay. Thus, no violation.

• Propriety of Disallowance: Government officials may incur EME, but such expenditures are subject to limitations. Section 325(h) of the LGC caps annual appropriations for discretionary purposes of the local chief executive at two percent of actual receipts from basic real property tax in the preceding calendar year, requires disbursement only for public purposes supported by appropriate vouchers, and prohibits any amount appropriated for the same purpose except as authorized. The DBM, as adopted by the COA, opined that EME and discretionary funds have the same purpose and cannot be separate items. COA Circular No. 85-55A, Item 4.7 states EME appropriations were formerly denominated as discretionary funds; COA Circular Nos. 2006-001, 89-300, and 2012-001 likewise characterize EME with discretionary expenses. SP Ordinance No. 2557-2004 already had an appropriation for the Office of the City Mayor's discretionary expenses, so the separate EME amounts were patent circumventions of Section 325(h). Additionally, the Sangguniang Panlungsod designated the Mayor, Vice Mayor, and SP/Government Department Heads as equal in rank to Department Secretary, Department Assistant Secretary, and Assistant Bureau/Director under the GAAs of 2004 to 2009 without DBM authorization. The GAAs allowed EME only to officials named therein, officers of equivalent rank as the DBM authorized, and offices under them. Local autonomy and fiscal decentralization do not authorize violations of law; local appropriations and expenditures remain under the supervision of the President through the DBM and the COA's plenary auditing power, including authority to disallow disbursements contravening established laws. Thus, the NDs were proper.

• Good Faith and Refund: Good faith as passive recipients does not exonerate liability to refund. Madera vs. Commission on Audit clarified that recipients' good or bad faith is inconsequential in disallowed transactions, applying solutio indebiti and unjust enrichment. No legal right is conferred on a recipient of public funds without legal basis. The responsibility to return may be excused only (1) upon a showing that the questioned benefits or incentives were genuinely given in consideration of services rendered, or (2) when excused by the Court on grounds of undue prejudice, social justice considerations, and other bona fide exceptions depending on the purpose, nature, and amount of the disallowed benefit or incentive relative to the circumstances. Abellanosa vs. Commission on Audit limited such exceptions to disbursements adequately supported by factual and legal bases but validly disallowed on procedural infirmities, and factors such as ostensible statutory or legal cover and a clear, direct, and reasonable connection to actual performance of official work must be considered. Cagayan De Oro City Water District vs. Commission on Audit allows absolution when three years have lapsed from receipt before an ND or similar notice indicating illegality was issued. Here, the EME grants were solely hinged on the local ordinance; no vouchers or similar supporting documents required under the LGC and COA rules were presented; records were bereft of proof that the amounts were genuinely used in consideration of or in connection with recipients' services; and no bona fide equitable consideration warranted absolution. The three-year rule could not apply to the 2012 NDs because sufficient notice of illegality was already available before their issuance, given the similar disallowances in 2006 and 2009. Petitioners must therefore return the amounts individually received without legal basis.

• Right to speedy disposition of cases — A constitutional guarantee under Section 16, Article III, but not every delay violates it. A violation exists only when proceedings are attended by vexatious, capricious, and oppressive delays, unjustified postponements, or a long period allowed to elapse without cause. The balancing test weighs length of delay, reason for delay, assertion or non-assertion of the right, and prejudice. Inordinate delay is not mathematical; it is measured by what a competent and independent public officer would need given the case's complexity. In this case, the claim was rejected because the COA reviewed 94 disallowances, records were destroyed by fire, petitioners never seasonably asserted the right, and no actual prejudice was shown.
• EME as discretionary funds under Section 325(h), LGC — Extraordinary and miscellaneous expenses and discretionary funds share the same purpose: providing funds for expenses related to official functions not covered by regular budget allocations. Section 325(h) prohibits a separate appropriation for the same purpose as the local chief executive's discretionary fund, which is capped at two percent of actual receipts from basic real property tax. The disallowance was upheld because SP Ordinance No. 2557-2004's separate EME appropriation was a patent circumvention and the disbursements were properly disallowed.
• Local fiscal autonomy is not absolute — Fiscal decentralization does not give local government units absolute freedom to create revenue sources and spend unrestrictedly. Local appropriations and expenditures remain subject to presidential supervision through the DBM and the COA's plenary auditing power, including authority to disallow disbursements contrary to law. The fiscal autonomy argument was rejected because local autonomy does not authorize violations of the LGC and GAAs.
• GAA rank equivalency requires DBM authorization — Under the applicable GAAs, only officials named in the GAA, officers of equivalent rank as the DBM authorized, and offices under them are entitled to EME. The SP designations were invalid because the Sangguniang Panlungsod designated local officials as equivalent in rank to national officials without DBM authorization.
• Solutio indebiti and unjust enrichment in disallowed disbursements — A recipient of public funds without legal basis has no legal right to retain them and must return them under Articles 2154 and 22 of the New Civil Code. Good faith or bad faith is inconsequential. Exceptions are limited to benefits genuinely given for services rendered or when equity, social justice, or other bona fide considerations excuse return; Abellanosa limits exceptions to disbursements with factual and legal bases but disallowed on procedural infirmities. Refund was required because no exception applied.
• Three-year rule for excusing refund — Recent jurisprudence allows absolution from refund when three years have lapsed from receipt of disallowed allowances or benefits before an ND or similar notice indicating illegality was issued. The rule did not cover the 2012 NDs because prior 2006 and 2009 disallowances already gave sufficient notice of illegality.

• "The right to a speedy disposition of a case, like the right to a speedy trial, is deemed violated only when the proceeding is attended by vexatious, capricious, and oppressive delays; or when unjustified postponements of the trial are asked for and secured, or when without cause or justifiable motive, a long period of time is allowed to elapse without the party having his case tried." — States the controlling standard for determining whether the right to speedy disposition has been violated; the Court used it to reject petitioners' claim.
• "Undeniably, EME appropriations and discretionary funds have the same purpose, i.e., to have an available source of funds for certain expenses in relation to the discharge of official functions which are not covered by the regular budget allocation." — Articulates the core basis for disallowing the separate EME appropriation under Section 325(h) of the Local Government Code.
• "Petitioners' invocation of good faith as passive recipients cannot exonerate their liability to refund." — States the ratio decidendi on refund liability, rejecting good faith as a defense in disallowed transactions.
• "Certainly, no legal right is conferred to a recipient of any amount sourced from the public coffers without legal basis." — Defines the solutio indebiti and unjust enrichment principle applied to require recipients to return disallowed public funds.

• Cagang vs. Sandiganbayan, 837 Phil. 815 (2018) — Laid down definitive guidelines on inordinate delay and the burden of proof for speedy disposition claims; applied to reject petitioners' claim.
• Remulla vs. Sandiganbayan, 808 Phil. 739 (2017) — Stated the balancing test factors for speedy disposition; relied on in evaluating the delay.
• Madera vs. Commission on Audit, G.R. No. 244128, September 8, 2020 — Clarified that good faith or bad faith is inconsequential in disallowed transactions; applied to require refund.
• Abellanosa vs. Commission on Audit, G.R. No. 185806, November 17, 2020 — Limited exceptions to refund to disbursements adequately supported by factual and legal bases but disallowed on procedural infirmities; applied to deny exception.
• Cagayan De Oro City Water District vs. Commission on Audit, G.R. No. 213789, April 27, 2021 — Allowed absolution when three years lapsed from receipt before notice of illegality; distinguished because prior disallowances gave notice.
• Technical Education and Skills Development Authority (TESDA) vs. The Commission on Audit, 729 Phil. 60 (2014) — Held that only officials named in the GAA, officers of equivalent rank as the DBM authorized, and offices under them are entitled to EME; applied to the SP designations.
• Mandanas vs. Ochoa, Jr., 835 Phil. 97 (2018) — Stated that fiscal decentralization does not signify absolute freedom of local government units; applied to reject the fiscal autonomy argument.
• Veloso vs. Commission on Audit, 672 Phil. 419 (2011) — Recognized the COA's authority to disallow disbursements contravening established laws; applied in upholding the disallowances.
• Republic vs. Sandiganbayan (Special Second Division), G.R. No. 231144, February 19, 2020 — Held that the right to speedy disposition is not a last line of remedy and requires actual prejudice; applied to reject petitioners' claim.

• Section 16, Article III, 1987 Constitution — Guarantees the right to a speedy disposition of cases before judicial, quasi-judicial, or administrative bodies; applied to the COA proceedings and found not violated.
• Section 325(h), Republic Act No. 7160 (Local Government Code of 1991) — Limits annual appropriations for discretionary purposes of the local chief executive to two percent of actual receipts from basic real property tax; requires public purpose and appropriate vouchers; prohibits appropriation for the same purpose except as authorized. Basis for the disallowance.
• Section 326, Republic Act No. 7160 — Provides for DBM review of appropriation ordinances of provinces, highly urbanized cities, independent component cities, and municipalities within Metro Manila; cited in the COA Regional Office ruling that the DBM is empowered to review appropriation ordinances.
• Article 2154, New Civil Code — Solutio indebiti: the obligation to return arises when something is received when there is no right to demand it and it was unduly delivered through mistake; applied to require refund.
• Article 22, New Civil Code — Unjust enrichment: every person who acquires or possesses something at the expense of another without just or legal ground shall return the same; applied to require refund.
• COA Circular No. 85-55A, Item 4.7 — States that EME appropriations were formerly denominated as discretionary funds and lists covered expenses; used to show EME and discretionary funds share the same purpose.
• COA Circular No. 2006-001 — Characterizes EME as similar to discretionary expenses for government-owned and controlled corporations, government financial institutions, and their subsidiaries; cited as consistent characterization.
• COA Circular No. 89-300 — Describes the general nature and purpose of EME for national government agencies; cited in the disallowance analysis.
• COA Circular No. 2012-001, Item 7.0 — Categorizes EME with discretionary expenses for local government units and requires supporting documents; cited in the disallowance analysis.
• General Appropriations Acts for 2004 to 2009 (RA Nos. 9206, 9336, 9401, 9498, and 9524) — Provided EME entitlements only to officials named therein, officers of equivalent rank as the DBM authorized, and offices under them; applied to invalidate the SP designations.

Gesmundo, C.J., Perlas-Bernabe, S.A.J., Leonen, Caguioa, Hernando, Lazaro-Javier, Inting, Zalameda, Rosario, J. Lopez, Dimaampao, Marquez, and Kho, Jr., JJ., concur. Gaerlan, J., on official leave.