Ablong vs. Commission on Audit

Service of Notice of Disallowance upon all persons liable is mandatory under Section 10.2 of COA Circular No. 2009-006, and constructive notice through service upon an accountant under Section 12.1 does not satisfy due process requirements where the accountant fails to actually inform the payees; consequently, the resulting Notices of Finality of Decision and Orders of Execution are jurisdictionally defective and must be set aside.

In calendar years 2008 to 2010, the Board of Regents of Negros Oriental State University (NORSU) passed resolutions granting Economic Relief Allowance (ERA) to university personnel, including the petitioners who were regular faculty members. The amounts—P25,000.00 for 2008 and P30,000.00 each for 2009 and 2010—were disbursed from tuition fees and other school charges. On January 27, 2011, the COA Audit Team issued Notice of Disallowance (ND) Nos. 2011-001-164(2008) to 2011-013-164(2010), disallowing the ERA payments on the grounds that the expenditure lacked presidential approval and was illegally debited from school charges. The NDs and transmittal letter were delivered to NORSU Acting Chief Accountant Liwayway G. Alba on February 16, 2011, but were not furnished to the individual payees. No appeal was filed from the NDs, leading to the issuance of a Notice of Finality of Decision on August 31, 2011, and a Commission on Audit Order of Execution on November 23, 2011. The petitioners learned of the disallowance only in November or December 2011 when copies of the NFD were provided by the Office of the Dean of the College of Arts and Sciences.

• Nature: The petitioners are regular, casual, temporary, or part-time teachers and officials of Negros Oriental State University (NORSU) who received Economic Relief Allowance (ERA) in calendar years 2008 (P25,000.00), 2009 (P30,000.00), and 2010 (P30,000.00) pursuant to Board Resolution No. 28, Series of 2008, and subsequent resolutions passed by the NORSU Board of Regents.

• The Notice of Disallowance: On January 27, 2011, the COA Audit Team issued Notice of Disallowance (ND) Nos. 2011-001-164(2008) to 2011-013-164(2010) disallowing the ERA payments on two grounds: (1) the expenditure did not carry the approval of the President of the Philippines, and (2) the same was illegally debited from tuition fees and other school charges. The NDs and accompanying letter-transmittal were delivered to and received by NORSU Acting Chief Accountant Liwayway G. Alba on February 16, 2011. The letter-transmittal contained a reminder that service to the accountant constitutes service to all payees listed in the payroll.

• Failure of Service: Despite the transmittal to the Chief Accountant, the petitioners were not informed of the issuance of the NDs. Petitioner Ablong alleged that NORSU's former president, Dr. Henry A. Sojor, had requested that copies of the NDs be furnished to the individuals determined to be liable, but the Supervising Auditor denied this request. The petitioners learned of the disallowance only in November or December 2011 when they were given copies of the Notice of Finality of Decision (NFD) by the Office of the Dean of the College of Arts and Sciences of NORSU.

• Finality and Execution: No appeal having been filed from the NDs within the reglementary period, the COA issued a Notice of Finality of Decision on August 31, 2011, and a Commission on Audit Order of Execution on November 23, 2011, directing the enforcement of the disallowance and the refund of the total amount of P20,237,850.00.

• Administrative Appeals: On January 18, 2012, petitioner Ablong, as a member of the Faculty and Academic Staff Association/All NORSU Faculty Union, wrote to COA Regional Director Delfin P. Aguilar requesting reconsideration of the COE and alleging lack of notice. The Regional Director denied the request on February 7, 2012, stating that enforcement could no longer be deferred because NFDs had already issued and any appeal would violate COA Circular No. 2009-006. The petitioners subsequently filed a Petition for Review with the COA Proper, which dismissed the petition on July 28, 2016, finding that the six-month appeal period under Section 48 of Presidential Decree No. 1445 and Section 33 of the Administrative Code of 1987 had expired, and that the petition for review was an improper remedy as it sought to appeal a letter-reply enforcing COEs rather than a decision on the ND itself.

• Due Process: Petitioners maintained that they were denied due process because they were not informed by NORSU's Acting Chief Accountant that NDs had been issued on the ERA. They alleged that the Supervising Auditor refused the request of then NORSU President Dr. Henry A. Sojor to furnish copies of the NDs to the individuals determined to be liable. Consequently, they should not be faulted for failing to timely appeal the NDs as they were unaware of the same.

• Good Faith: Petitioners contended that, even if the NDs were sustained, they should not be held accountable for the disallowed amounts because they were not part of the decision-making process to grant the ERA. They received the allowance on the assumption that the NORSU Board of Regents' grant was in accord with law, and they had no authority to review and pass upon the resolutions of the Board.

• Hierarchy of Rights: Petitioners argued that their constitutional right to due process must prevail over Section 12.1 of COA Circular No. 2009-006, which provides for constructive notice through service upon an accountant.

• Access to Information: Petitioners asserted that Audit Observation Memoranda (AOMs) and Annual Audit Reports were addressed only to NORSU's administration and were not provided to them; expecting them to sift through these documents was beyond their mandate as teachers.

• Constructive Notice: COA countered that the Audit Team was not required to furnish copies of the NDs to the petitioners individually. Under Section 12.1 of COA Circular No. 2009-006, in instances where there are several payees, service to the accountant constitutes constructive notice to all payees listed in the payroll. Service upon NORSU Acting Chief Accountant Alba was therefore sufficient to bind the petitioners.

• Joint and Several Liability: COA maintained that, even if the petitioners were not involved in the passage of the Board Resolution allowing the grant of ERA, they are still bound to return the amounts illegally expended because every person who received the same is jointly and severally liable for the full amount received under Section 49 of Presidential Decree No. 1177.

• Constructive Knowledge: COA argued that the petitioners should be deemed aware of the illegality of the grant of ERA because NORSU's management was already informed of the illegality as early as 2007 through Audit Observation Memoranda (AOMs), and the petitioners had access to the Annual Audit Reports of NORSU where the AOMs were included.

• Finality of Decisions: COA insisted that the NFDs had already issued and the COEs had become ministerial duties of the Regional Director, precluding further review of the disallowance.

• Due Process (Notice): Whether the COA committed grave abuse of discretion amounting to lack or excess of jurisdiction in upholding the Notices of Finality of Decision and Orders of Execution despite the lack of actual service of the Notices of Disallowance upon the petitioners.

• Good Faith: Whether the petitioners' claim of good faith in receiving the Economic Relief Allowance constitutes a valid defense against the disallowance and refund order.

• Due Process (Notice): Grave abuse of discretion was committed. Section 10.2 of COA Circular No. 2009-006 categorically requires that the ND shall be "served on the persons liable." While Section 12.1 provides that service to an accountant constitutes constructive notice to all payees in the payroll, this presupposes that the accountant actually informs the payees concerned. Here, the accountant failed to inform the petitioners, and the Supervising Auditor even refused the request of the NORSU President to furnish copies to the individuals liable. The failure to serve the NDs upon the petitioners deprived them of the opportunity to be heard and to defend themselves, violating the due process clause of Section 1, Article III of the Constitution. Violation of due process rights is a jurisdictional defect that renders a decision or judgment fatally defective.

• Good Faith: The Court found it unnecessary to rule extensively on the good faith defense in light of the due process violation. However, the remand of the case to the COA for resolution of the appeal on the merits preserves the petitioners' right to raise this defense in the proceedings below.

• Remand: The Notices of Finality of Decision and Orders of Execution were set aside, and the case was remanded to the COA to resolve the petitioners' appeal from the subject notices of disallowance on the merits.

• Mandatory Service of Notice of Disallowance — Section 10.2 of COA Circular No. 2009-006 requires that the Notice of Disallowance be addressed to the agency head and the accountant, and served on the persons liable. The provision mandates actual service upon all persons determined to be liable for the disallowed expenditure. Constructive notice under Section 12.1, which allows service upon an accountant to constitute notice to all payees in a payroll, is conditional upon the accountant actually informing the payees. Where the accountant fails to transmit the notice, the constructive notice provision does not satisfy the mandatory requirement of Section 10.2.

• Due Process as Jurisdictional Requirement — Due process of law, as guaranteed by the Constitution, requires that a party be properly notified of allegations against him or her and be given an opportunity to defend himself or herself. A decision rendered in violation of a party-litigant's right to due process is fatally defective and constitutes a jurisdictional defect that may be assailed even after the decision has become final. The denial of the opportunity to be heard is offensive to due process and vitiates any subsequent finality or execution orders.

• Constructive Notice Limitations — Constructive notice through an intermediary, such as an accountant under COA rules, does not substitute for actual notice to affected parties where the intermediary fails to perform the duty to inform. The government cannot rely on constructive notice provisions to circumvent the constitutional requirement of actual notice and opportunity to be heard.

• "Section 10.2 of COA Circular No. 2009-006 which categorically requires service of the ND to all the persons liable, viz.: '10.2 The ND shall be addressed to the agency head and the accountant; served on the persons liable; and shall indicate the transactions and amount disallowed, reasons for the disallowance, the laws/rules/regulations violated, and persons liable.'"

• "Given the petitioners' allegation that the Supervising Auditor even refused the request of NORSU's former president that copies of the NDs be furnished to the individuals determined to be liable, it is easy to conclude that COA not only did not observe Section 10.2 of COA Circular No. 2009-006, but also the mandate of the due process clause."

• "Such lack of notice to the petitioners amounted to a violation of their fundamental right to due process as the same is considered satisfied only if a party is properly notified of the allegations against him or her and is given an opportunity to defend himself or herself."

• "Violation of due process rights is a jurisdictional defect" and "a decision or judgment is fatally defective if rendered in violation of a party-litigant's right to due process."

• Estalilla v. Commission on Audit, G.R. No. 217448, September 10, 2019 — Cited for the standard of review in certiorari proceedings against the COA: the Court will not review errors allegedly committed by the COA unless tainted with grave abuse of discretion, defined as the evasion of a positive duty or virtual refusal to perform a duty enjoined by law, or when the judgment is rendered not based on law and evidence but on caprice, whim, and despotism.

• Gutierrez v. Commission on Audit, 750 Phil. 413 (2015) — Cited for the proposition that due process is satisfied only if a party is properly notified of allegations against him or her and is given an opportunity to defend himself or herself.

• Liwanag v. Commission on Audit, G.R. No. 218241, August 6, 2019 — Cited for the definition of due process as a safeguard against arbitrariness on the part of the Government, and that any government act that militates against ordinary norms of justice or fair play is an infraction of the due process guarantee.

• Pang v. Commission on Audit-Legal Services Sector, G.R. No. 217538, June 20, 2017 — Cited for the rule that what is offensive to due process is the denial of the opportunity to be heard.

• Arrieta v. Arrieta, G.R. No. 234808, November 19, 2018 — Cited for the principle that violation of due process rights is a jurisdictional defect rendering a decision fatally defective.

• Section 1, Article III, 1987 Constitution — The due process clause, which guarantees that no person shall be deprived of life, liberty, or property without due process of law. Applied to hold that the petitioners' right to due process was violated when they were not served with the Notices of Disallowance and were thus deprived of the opportunity to be heard.

• Section 48, Presidential Decree No. 1445 (Government Auditing Code of the Philippines) — Provides for the six-month period to appeal a decision of the Commission on Audit. The Court held that this period was not effectively commenced against the petitioners due to the lack of proper notice.

• Section 33, Chapter 5(B)(1), Administrative Code of 1987 — Provides for the reglementary period for appeals from COA decisions. Similarly held not to have commenced due to lack of notice.

• Section 10.2, COA Circular No. 2009-006 (Rules and Regulations on Settlement of Accounts) — Mandates that the Notice of Disallowance be "served on the persons liable." Interpreted as requiring actual service upon all persons liable, not merely constructive notice through an accountant.

• Section 12.1, COA Circular No. 2009-006 — Provides that in case of several payees, service to the accountant constitutes constructive notice to all payees in the payroll. Interpreted as conditional upon the accountant actually informing the payees; where such information is not transmitted, the constructive notice does not satisfy due process.

• Section 49, Presidential Decree No. 1177 (Budget Reform Decree of 1977) — Provides for joint and several liability of persons who receive illegally expended funds. Noted by the COA as the basis for holding petitioners liable, but the Court found that the due process violation preceded any determination of liability under this provision.

Peralta, C.J., Perlas-Bernabe, Leonen, Caguioa, Gesmundo, Hernando, Carandang, Lazaro-Javier, Inting, Zalameda, Lopez, Delos Santos, and Gaerlan, JJ., concurred. Baltazar-Padilla, J., was on official leave.