Balintona vs. Aguinaldo

A public officer who approves a disallowed transaction cannot be held civilly liable where he acted in good faith and with diligence; any one of the badges of good faith and diligence recognized in Madera vs. COA may suffice, and bad faith requires a clear showing of malice, gross negligence, or a blatant, patent, palpable, or deliberate violation of law. COA’s outright disallowance of PDAF fund transfers as illegal or irregular, without considering pre-Belgica post-enactment legislative participation and the silence of the governing rules on recall, constitutes grave abuse of discretion; the disallowance may nevertheless stand where the death of the legislator-proponent defeats the purpose of suspension.

Petitioner Edito A.G. Balintona was the former Mayor of the Municipality of Sarrat, Ilocos Norte. During his term, the Municipality received financial assistance from the Priority Development Assistance Fund (PDAF) allocation of Congressman Roque R. Ablan, Jr., former Representative of the First District of Ilocos Norte. The PDAF system then operated under the Special Provisions of the General Appropriations Acts for Fiscal Years 2008 and 2009, DBM National Budget Circular No. 476-01, and COA audit rules, and, before Belgica vs. Ochoa, legislators exercised post-enactment authority in project identification, fund release, project reidentification, and fund realignment. The dispute concerns COA’s audit of fund transfers made by the Municipality to Ablan’s 1st District Monitoring Office.

Petitioner Edito A.G. Balintona was a former Mayor of the Municipality of Sarrat, Ilocos Norte. During his term, the Municipality received financial assistance from the Priority Development Assistance Fund allocation of Congressman Roque R. Ablan, Jr., former Representative of the First District of Ilocos Norte. In three separate transactions in 2009 and 2010, a total of PHP 30,000,000.00 in PDAF funds was returned to Ablan through the 1st District Monitoring Office, 1st District, Ilocos Norte Congressional Office.

In the first transfer, an Advice of NCA Issued dated December 19, 2008, signed by then Department of Budget and Management Secretary Rolando G. Andaya, Jr., informed the Director of DBM Regional Office No. 1 of a cash allocation of PHP 10,000,000.00 issued for credit to the Regional Office’s account. The stated purpose was to cover the cash requirements of the Municipality of Sarrat for priority programs and projects in the 1st District, Ilocos Norte, authorized under Special Allotment Release Order No. ROCS-08-09458 dated November 25, 2008, issued per request of Congressman Ablan and chargeable against the Fiscal Year 2008 Budget, Republic Act No. 9498. Pursuant to the Advice, Atty. Janet B. Abuel, Director IV of DBM Regional Office No. 1, sent petitioner a Notice of Funding Check Issued dated December 24, 2008, stating that PHP 10,000,000.00 was deposited for credit to the Municipality’s account and represented financial assistance for priority development programs and projects in the 1st District, released upon Ablan’s request. Petitioner claimed that before the written notice, Ablan personally informed him that he had requested DBM to release his PDAF allocation for his priority projects in the First District and that the amount would have to be transferred from the Municipality to the account of the 1st District Monitoring Office at the Laoag City Branch of the Philippine National Bank. Petitioner claimed it was his first encounter with such a request; he asked fellow mayors and the Provincial Auditor and was informed that similar transfers had been requested from and made by the Municipalities of Dumalneg, Burgos, Bacarra, and Vintar, all in the First District, with no recorded audit disapproval or disallowance. The Sangguniang Bayan of Sarrat, through Resolution No. 2009-01 dated January 5, 2009, authorized petitioner to enter into a Memorandum of Agreement with Ablan for the transfer and implementation of PHP 10,000,000.00 covered by SARO No. ROCS-08-09458. Ablan formalized his request through a January 8, 2009 letter asking for immediate transfer of the funds to the District Monitoring Office, 1st District, Ilocos Norte Congressional Office, with PNB Account Number 152903300011. On January 12, 2009, petitioner and Ablan signed a MOA under which the 1st Congressional District, represented by Ablan, would cause the implementation of the fund for its priority development programs, furnish a list of programs and projects, and administer, manage, disburse, and utilize the fund in accordance with auditing and accounting rules; the Municipality, represented by petitioner, would transfer and deposit PHP 10,000,000.00 to the account of the 1st District Monitoring Office and monitor implementation and require progress reports. Petitioner then instructed Sarrat Municipal Accountant Enrico Paz and OIC Municipal Treasurer Liza Cariño to process the appropriate documents, and the transfer was made.

In the second transfer, some months later, petitioner claimed that Ablan again personally informed him that he had requested DBM to release PHP 10,000,000.00 for his priority development projects in the First District and that upon receipt it had to be transferred to the 1st District Monitoring Office’s account, just like the first transfer. Petitioner thereafter received a Notice of Funding Check Issued dated May 28, 2009, advising him of the deposit of another PHP 10,000,000.00 released under SARO No. ROCS-09-01883 dated April 13, 2009. Ablan again sent a letter dated June 15, 2009 requesting immediate transfer of the amount. Petitioner sought legislative authority from the Sangguniang Bayan, which promulgated Resolution No. 2009-37 on June 8, 2009. On June 15, 2009, petitioner and Ablan executed another MOA containing the same terms as the earlier MOA. Petitioner instructed the Municipal Accountant and Municipal Treasurer to effect the second transfer, which was completed on even date.

In the third transfer, an Advice of NCA Issued dated December 10, 2009, signed by Andaya, notified DBM Regional Office No. 1 of the deposit of PHP 10,000,000.00 pertaining to SARO No. G-09-08-006 dated October 26, 2009. Petitioner claimed that the following day he was faxed a copy of the Advice by Ablan’s office and simultaneously received a phone call from Ablan informing him of the incoming funds and that they would be transferred to the 1st District Monitoring Office as in the two previous instances. Petitioner requested authorization from the Sangguniang Bayan to enter into a MOA with Ablan for the implementation and transfer of the funds, and Resolution No. 2009-65 was issued on December 14, 2009. Ablan and petitioner signed a third MOA on December 21, 2009, containing common terms with the first two MOAs. After passing pre-audit, the appropriate municipal officers transferred the funds as directed by petitioner. Ablan’s earlier verbal instructions were formalized through a letter dated January 4, 2010. In this way, a total of PHP 30,000,000.00 of Ablan’s PDAF funds was transferred from the Municipality to the 1st District Monitoring Office.

Two years later, former COA Commissioner Heidi L. Mendoza issued a Memorandum dated February 28, 2012 addressed to Marilyn J. Llaguno, the Audit Team Leader assigned to the Municipality. The Memorandum observed that not a single project was implemented by the Municipality and that the funds were instead transferred to the private bank account of the 1st District Monitoring Office; it also noted that the third transfer passed pre-audit. The ATL was required to explain why the fund transfers were allowed in audit or pre-audit and to provide information on audit actions taken. ATL Llaguno wrote petitioner on August 30, 2012 requesting a list of projects implemented with supporting documents. Petitioner submitted the DBM Notices, Ablan’s letters, the Sangguniang Bayan Resolutions, the MOAs, and the documents effecting the transfers; he explained that their understanding was that implementation of the PDAF funds would be undertaken by the 1st District Congressional Office as stated in Ablan’s request for transfer, and assured the ATL that the Municipality was exerting efforts to contact the 1st District Congressional Office. Audit Observation Memorandum No. 13-008 signed by ATL Llaguno on January 10, 2013 noted that the transfers of PHP 30,000,000.00 were not yet liquidated as required by COA Circular No. 94-103 dated December 13, 1994, and that proper utilization for the intended purpose, including compliance with COA accounting, auditing rules and regulations, was not ascertained; it recommended that the Municipality require the implementing agency to submit reports for monitoring and liquidation. On June 4, 2013, ATL Llaguno separately wrote petitioner and, for the first time, Ablan, requesting submission of a list of projects implemented pertaining to the PHP 30,000,000.00 with supporting documents. Petitioner responded on August 2, 2013, explaining that the Municipality had already furnished all documents available within its means; it had located Ingrid Ramos, former secretary of the District Monitoring Office, who assured them she would provide the necessary records, and petitioner sought COA’s understanding due to the non-existence of the former 1st District Monitoring Office. A new set of COA auditors was assigned to the Municipality; after turnover of records on August 23, 2013, ATL Ramelin A. Guiang and Supervising Auditor Elvira M. Jimenez disallowed the fund transfers through three Notices of Disallowance all dated September 19, 2013: Notice No. 13-001-100(09) for DV No. 100-090102 dated January 8, 2009 and DBP Check No. 27123129; Notice No. 13-002-100(09) for DV No. 100-0906336 dated June 15, 2009 and DBP Check No. 30353416; and Notice No. 13-003-100(10) for DV No. 100-100102 dated January 7, 2010 and DBP Check No. 30353608, each for PHP 10,000,000.00. Each Notice stated that the transfer to the District Monitoring Office constituted an irregular transaction, that the fund was intended for implementation of priority development programs and projects in the 1st District by the Municipality of Sarrat, that the Municipality as implementing agency had not submitted documents to validate utilization, that the Mayor’s act of authorizing transfer instead of implementing the projects was highly irregular and illegal, that transfer of accountability was inappropriate and unauthorized, and that the transfer was irregular and without legal basis. The persons determined liable were petitioner as Municipal Mayor who approved the transaction, Enrico G. Paz as Municipal Accountant who certified that the allotment was obligated for the purpose, Liza F. Cariño as ICO-Municipal Treasurer who signed the check, and the 1st District Monitoring Office, Ilocos Norte/Roque R. Ablan, Jr. as payee and owner of the account where the fund was transferred. The COA Regional Office later found that the last fund transfer had been allowed in pre-audit, with the previous ATL justifying that PNB recognized the account of the 1st District Monitoring Office as a legitimate institutional bank depositor and that the required list of implemented projects had been referred to Ablan after the January 2013 AOM; after a reshuffle of COA personnel, the new ATL issued the Notices of Disallowance. Petitioner alleged that Ablan had since passed away.

• Recall of PDAF Releases: Petitioner argued that COA committed grave abuse of discretion in upholding the three Notices of Disallowance because it failed to consider that the fund transfers were in the nature of a recall of PDAF releases by the legislator-proponent.
• Good Faith: Petitioner maintained that, assuming the fund transfers were irregular or illegal without treating them as PDAF recall, COA gravely abused its discretion in failing to appreciate good faith in his favor; he relied on DBM notices, Ablan’s letters, Sangguniang Bayan resolutions, MOAs, prior similar transfers, and consultations with fellow mayors and COA personnel, and acted without malice or intent to commit a wrong.
• Suspension Instead of Disallowance: Petitioner argued that the more just and proper action should have been a Notice of Suspension instead of a Notice of Disallowance to afford the parties time to submit documentary requirements and allow a categorical determination of the propriety of the disbursements.
• Absence of Disbursement or Loss: Petitioner contended that COA gravely abused its discretion in upholding the disallowance absent any clear disbursement or expenditure of the funds; there was still no definite conclusion as to how the transferred funds were ultimately spent, preventing a determination of loss or injury to the government.
• Trust Funds Specific Purpose: Petitioner argued that the records did not bear any specific purpose or purposes clearly relayed to the Municipality prior to the deposit of the funds, contrary to the claim that the PDAF partook of the nature of trust funds that could only be spent for their intended purpose.

• No Authority to Transfer: Respondent countered that the Municipality, through petitioner, was not authorized to transfer the financial subsidies to the 1st District Monitoring Office; nowhere in the Special Provisions of the 2008 and 2009 GAAs were other entities, let alone legislative offices, allowed to be implementing agencies for PDAF projects.
• No Good Faith: Respondent argued that petitioner was not in good faith when he approved the fund transfers; as Municipal Mayor of Sarrat and a member of the bar, he was presumed to know the existing laws, rules, and regulations relative to his position and could have known them through other means.
• Propriety of Disallowance: Respondent maintained that because the transfer was contrary to law, a Notice of Disallowance was more proper than a Notice of Suspension; the letters from Ablan, the Sangguniang Bayan Resolutions, and the MOA did not negate petitioner’s liability as head of office to ensure that government funds were used in accordance with laws and regulations.
• No Grave Abuse of Discretion: Respondent asserted that no grave abuse of discretion could be ascribed to the issuance of the assailed Decision and Resolution because they were in consonance with prevailing laws, rules and regulations, and jurisprudence.

• Propriety of Disallowance: Whether COA acted with grave abuse of discretion in upholding the Notices of Disallowance despite the fund transfers being treated as recall of PDAF releases by the legislator-proponent.
• Suspension vs. Disallowance: Whether COA acted with grave abuse of discretion in disallowing the transactions outright instead of suspending them pending accounting and liquidation.
• Petitioner’s Civil Liability: Whether COA acted with grave abuse of discretion in holding petitioner civilly liable for the disallowed amounts despite his claim of good faith.

• Propriety of Disallowance: The outright disallowance was grave abuse of discretion, but the Notices of Disallowance were allowed to stand. Pre-Belgica post-enactment legislative participation allowed recall/reidentification, and the governing rules were silent on the procedure; however, Ablan’s death defeated the purpose of suspension.
• Suspension vs. Disallowance: Yes. Under the 2009 Rules and Regulations on the Settlement of Accounts, suspension is proper when a transaction appears irregular unless explained or until requirements are submitted; disallowance is for illegal, irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. The initial action should have been suspension.
• Petitioner’s Civil Liability: No. Petitioner cannot be held civilly liable because he acted in good faith; any one of the Madera badges of good faith and diligence may suffice, and the violation was not blatant, patent, palpable, or deliberate.

• Propriety of Disallowance: The COA-Commission Proper held that the fund transfers were irregular and illegal for violating the Special Provisions on PDAF in the 2008 and 2009 GAAs, Section 309(b) of Republic Act No. 7160 on trust funds, and DBM Circular No. 476-01, because the Municipality could not validly transfer the funds to a non-implementing agency. The Special Provisions stated that the amount appropriated shall be used to fund priority programs and projects under the Ten-Point Legacy Agenda and released directly to implementing agencies. Through the SARO and NCA, the funds were directly released to the Municipality, but before any project could be implemented, Ablan recalled the funds with the representation that his office would undertake implementation. While the Special Provisions enumerated authorized implementing agencies depending on the project, they were silent on whether a subsequent transfer or recall by the legislator-proponent could be done after release; DBM Circular No. 476-01 also contained no provision on recall by the legislator-proponent for reidentification or change of project or implementing agency. The COA Regional Director correctly identified this as a collateral issue and correctly held that if the transfers were legitimate, accountability and responsibility shifted to Ablan and his office upon transfer. The answer required appreciation of the PDAF system as then operationalized. During the period of the disallowed transfers, and even as late as 2013 as found in Belgica vs. Ochoa, legislators were accorded post-enactment authority in project identification, fund release, including project reidentification and fund realignment. In Belgica, the Court narrated that the 2005 PDAF Article introduced the program menu concept, which was consistently integrated into the 2007, 2008, 2009, and 2010 GAAs; while the PDAF Articles from 2002 to 2010 were textually silent on individual legislators’ participation in project proposal and identification, as practiced, the individual legislator would choose and identify the project from the priority list. Prior to Belgica, legislators were allowed to request the transfer of PDAF funds post-GAA. The three fund transfers were neither flagged via audit observations in exit conferences, Annual Audit Reports, nor disallowance prior to 2013, and petitioner alleged, without COA denying, that similar transfers were already made by other municipalities in the First District and passed in audit. Thus, the COA-Commission Proper’s reliance on Philconsa vs. Enriquez to say the transfer was illegal because legislative participation post-GAA is only recommendatory was misplaced; the recommendation contemplated in Philconsa was addressed to DBM, not to petitioner as head of the agency receiving the funds, and Philconsa did not deal with the situation where the legislator-proponent proceeds directly to the identified implementing agency to recall funds released by DBM upon his request. The COA Regional Director was correct that accountability and responsibility transferred to, if not shared with, Ablan upon transfer, and the transactions should have been suspended instead of disallowed at the first instance to determine whether the funds had been disbursed and how. Under the 2009 Rules and Regulations on the Settlement of Accounts, disallowance is the disapproval in audit of a transaction, while suspension is a temporary disallowance for transactions or accounts that appear illegal, improper, or irregular unless satisfactorily explained or until requirements are submitted. A transaction is suspended when it is temporarily disallowed until requirements are complied with, covering only transactions that may result in pecuniary loss; a transaction is disallowed when disapproved for being illegal, irregular, unnecessary, excessive, extravagant, or unconscionable. Considering the facts, the transactions should have first been suspended to allow the parties to submit documentary requirements showing utilization. When the Notices of Disallowance were issued on September 19, 2013, Ablan had been notified of the requirement to submit documentary requirements only once, through ATL Llaguno’s June 2013 letter; the earlier AOM was issued to petitioner only, not to Ablan. The more appropriate audit action should have been suspension to allow Ablan to account for the funds and determine whether they were finally expended by the 1st District Monitoring Office and for which purposes. Even the COA auditors could not make heads or tails of the roles of the Municipality and the First District: up until three years after the transactions, the Municipality was considered the source agency while the First District was considered the implementing agency and was directed to comply with COA Circular No. 94-013; some months later, the Notices of Disallowance designated the Municipality as the implementing agency. Source Agency is defined as the agency to which the allotment was originally released and in whose behalf or benefit the project will be prosecuted or implemented, while Implementing Agency is the agency to which the funds are transferred for the purpose of prosecuting or implementing the project. Another interpretation, more in keeping with the operationalization of PDAF at the time, was made by the COA Regional Director—that the fund transfers partook of the nature of PDAF recall. Taken with the recognition that post-enactment project identification and realignment were allowed pre-Belgica and Ablan’s communications, the premise of the fund transfers was a reidentification of project or implementing agency. This operated against the finding that petitioner violated Section 309(b) of Republic Act No. 7160 on trust funds in relation to DBM Circular No. 476-01, which provides that local government units shall take up releases charged against the PDAF as trust accounts and that a trust fund shall only be used for the specific purpose for which it was created or for which it came into the possession of the local government unit. It was true that the Municipality was charged to treat the funds as trust funds and use them only for the specific purpose for which they were created, if the funds were not recalled by the legislator-proponent who initiated their release before any other releases could be made. Considering that no specific purpose pertaining to the Municipality appeared on the SARO, Advice of NCA Issued, and Notice of Funding Check Issued on record, and upon the verbal and written representations of Ablan that the PDAF received by the Municipality were intended for his District and impliedly not specifically for the Municipality, it was not unreasonable for petitioner to think that Ablan was authorized to request a recall and to fund his chosen projects, and act accordingly. In Clarete vs. Office of the Ombudsman, the Solicitor General, as Tribune of the People, took a contrary stance from the probable cause finding of the Ombudsman; then Agriculture Secretary Arthur Cua Yap was indicted in a conspiracy for having transferred PDAF funds to and entered into MOAs with the identified implementing agency by legislator-proponent Marina P. Clarete. The Solicitor General posited that the DA-NABCOR MOA was executed pursuant to the valid issuance by then DBM Secretary Rolando G. Andaya, Jr. of SARO No. ROCS-09-04240 in the amount of PHP 8 Million, and that Yap had no discretion to deny Clarete’s request to transfer the PDAF allocation to NABCOR as the fund was covered by the GAA and made available via the SARO; the MOA contained safeguards, and arrangements between NABCOR as the implementing agency identified by Clarete and KKAMFI as one of the NGOs/project partners named by Clarete were agreements to which Yap was no longer privy. Here, all the issuances and communications received by petitioner from DBM stated that the funds received were released through the initiative of Ablan, to whom the PDAF was originally allocated and who was authorized to choose projects and who would implement them; Ablan also expressly stated that his office would be implementing the projects. By analogy, it was not unreasonable for petitioner to conceive that he had little discretion to deny Ablan’s request. Thus, in hindsight, four years after the pronouncements in Belgica had crystallized the rules on post-enactment legislative participation and without recognizing the contemporaneous interpretation of the PDAF provisions at the time of the transactions, the COA-Commission Proper’s outright disallowance of the transactions for being irregular and illegal constituted grave abuse of discretion. Nevertheless, petitioner alleged that Ablan had since passed away; the purpose of a suspension is defeated when the person sought to account for the funds is no longer able or could no longer be required to explain or justify the deficiencies or submit documents. Thus, the Court allowed the Notices of Disallowance to stand.

• Suspension vs. Disallowance: The 2009 Rules and Regulations on the Settlement of Accounts define disallowance as the disapproval in audit of a transaction, either in whole or in part, applying to the audit of disbursements, and suspension as a temporary disallowance referring to transactions or accounts which appear illegal, improper, or irregular unless satisfactorily explained or justified by the responsible officers or until requirements on matters raised in the course of audit are submitted or complied with. Under Section 5.3, the audit and examination of transactions shall determine whether they may be allowed, suspended, disallowed, or charged in audit; if an audit decision cannot yet be reached due to incomplete documentation or information, or if the deficiencies refer to financial or operational matters which do not involve pecuniary loss, an Audit Observation Memorandum shall be issued. A transaction is suspended when it is temporarily disallowed or disapproved until the requirements on matters raised in the course of audit are complied with, covering only transactions which may result in pecuniary loss; a Notice of Suspension shall indicate the requirements to be complied with by the officers concerned. A transaction is disallowed when it is disapproved either in whole or in part for being illegal, irregular, unnecessary, excessive, extravagant, or unconscionable expenditure, and a Notice of Disallowance is issued for the disallowed amount. Considering the facts, the transactions should have first been suspended in audit to allow time for the parties to submit the documentary requirements showing the utilization of the fund. When the Notices of Disallowance were issued on September 19, 2013, Ablan had been notified of the requirement to submit documentary requirements just once, through ATL Llaguno’s June 2013 letter; the earlier AOM was issued pursuant to the RRSA to petitioner only, not to Ablan. Thus, the more appropriate audit action should have been a suspension to allow Ablan to account for the funds and to determine whether the funds were finally expended by the 1st District Monitoring Office and for which purposes. However, because Ablan had since passed away, the purpose of suspension was defeated, and the Court allowed the Notices of Disallowance to stand.

• Petitioner’s Civil Liability: The liability of petitioner ultimately hinged upon his good faith, considering that the transaction had already been disallowed. The examination of an officer’s liability always begins with the presumption of regularity and good faith. Good faith is a state of mind denoting honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even though technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious. Cases holding officers liable for disallowances generally describe the disregard or violation of laws, rules, or regulations as blatant, patent or palpable, or deliberate; it is that nature of the violation which constitutes bad faith, malice, or gross negligence that defeats the presumption of or betrays the claim of good faith and diligence. In Lumayna vs. COA, the Court held that mistakes committed by a public officer are not actionable absent a clear showing that he was motivated by malice or gross negligence amounting to bad faith; bad faith does not simply connote bad moral judgment or negligence, but requires some dishonest purpose or moral obliquity and conscious doing of a wrong, a breach of a sworn duty through some motive or intent, or ill will, and partakes of the nature of fraud. This is consistent with Sections 38 and 39, Chapter 9, Book I of the Administrative Code: a public officer shall not be civilly liable for acts done in the performance of official duties unless there is a clear showing of bad faith, malice, or gross negligence; no subordinate officer or employee shall be civilly liable for acts done in good faith in the performance of duties, but shall be liable for willful or negligent acts contrary to law, morals, public policy, and good customs even if acting under orders or instructions of superiors. Here, given the silence of the Special Provisions of the 2008 and 2009 GAAs and DBM Circular No. 476-01 on the particular situation petitioner was confronted with, the violation of law, if any, committed by petitioner in allowing the requested fund transfers could not be considered blatant, palpable, or deliberate. In Madera vs. COA, the Court recognized badges of good faith and diligence on the part of authorizing or approving officers: (1) Certificates of Availability of Funds pursuant to Section 40 of the Administrative Code; (2) in-house or Department of Justice legal opinion; (3) no precedent disallowing a similar case in jurisprudence; (4) that it is traditionally practiced within the agency and no prior disallowance has been issued; or (5) with regard to the question of law, that there is a reasonable textual interpretation on its legality. To the extent these badges apply to both approving and certifying officers, they should be considered before holding these officers liable; the presence of any factor may tend to uphold the presumption of good faith, which must always be examined relative to the circumstances. Petitioner consistently asserted at every stage that he acted in good faith, based on: (1) the formal advice of ATL Llaguno and SA Rizalino S. Franco that the Municipality of Sarrat was the Source Agency and the Congressional Office was the Implementing Agency pursuant to COA Circular No. 94-013; (2) the formal communications of the DBM Regional Office through Abuel stating that the funds were issued upon the initiative of Ablan for the implementation of his priority projects in the First District; (3) the formal communications of Ablan requesting petitioner to transfer the funds to the account of the 1st District Monitoring Office; (4) the Resolutions of the Sangguniang Bayan authorizing petitioner to transfer the funds and enter into MOAs; and (5) the existence of prior similar transfers in various municipalities within the First District which were never disallowed by COA. The Court agreed that petitioner sufficiently showed that he exercised the diligence of a good father of a family in approving the transfer; as instructed by Madera, the presence of a single badge of good faith and diligence may serve to absolve an officer from liability. As to the third and fourth badges, petitioner alleged, without COA controverting, that he inquired from his fellow mayors in the First District and local COA personnel who informed him that similar transactions had been made and passed in audit, and nothing suggested that petitioner effected any prior transfer that was disallowed, apart from the three transfers in 2009 and 2010 which were not flagged until 2013. As to the fifth badge, a reasonable textual interpretation on legality could be a basis of good faith depending on the surrounding circumstances, even where the disbursement is contrary to law; a finding of good faith remains plausible if an unlawful expense was incurred due to the officers’ mistake based on some reasonable textual interpretation of the relevant law affecting the expense’s legality. Even if the fund transfers were considered illegal outright despite the silence of the Special Provisions and DBM Circular No. 476-01 on PDAF recall and the language of the Advice of NCA Issued and Notice of Funding Check Issued admitting of several interpretations as to the ultimate purpose of the funds, the misstep could not but be described as committed in good faith owing to a mistake on a question of law. The difficulty of the question of law was shown by the differing interpretations of two sets of COA resident auditors and the COA Regional Director. In Philippine Economic Zone Authority vs. Commission on Audit, the Court held that good faith has always been a valid defense of public officials and is a state of mind denoting honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The COA-Commission Proper reiterated that petitioner, being a member of the bar, is presumed to know the existing laws and regulations relative to his position; petitioner stated that precisely for this reason he performed acts of diligence by consulting local COA personnel and fellow chief executives who informed him that the impending fund transfer or recall was regular and legal and within the ambit of COA Circular No. 94-013. The Court sided with petitioner. Public officers are presumed to know and are expected to keep abreast of the rules and regulations bearing upon their functions, and this presumption operates with greater strength upon a member of the bar; however, the circumstances of this case prevented its full application. It was unfair to penalize public officials based on overly stretched and strained interpretations of rules which were not readily capable of being understood at the time such functionaries acted in good faith; if there is any ambiguity, which is actually clarified years later, it should only be applied prospectively. In fine, the Court held that petitioner cannot be held civilly liable for the disallowed amounts for having acted in good faith with respect to the disallowed fund transfers.

• Good Faith as Defense to Civil Liability for Disallowed Transactions — Public officers are presumed to have acted in good faith and in the regular performance of official duties. Bad faith is not presumed and requires a clear showing of malice, gross negligence, or a violation that is blatant, patent, palpable, or deliberate. In Madera vs. COA, the Court recognized badges of good faith and diligence, including the presence of a Certificate of Availability of Funds, an in-house or Department of Justice legal opinion, absence of precedent disallowing a similar case, traditional practice within the agency without prior disallowance, or a reasonable textual interpretation of the law’s legality. The presence of any one badge may suffice to absolve an officer. The Court applied this doctrine to absolve petitioner because he relied on DBM communications, Ablan’s requests, Sangguniang Bayan resolutions, MOAs, prior similar transfers, and COA personnel, and because the legal question was genuinely ambiguous.

• PDAF Post-Enactment Legislative Participation Before Belgica vs. Ochoa — Prior to Belgica vs. Ochoa, the PDAF system allowed legislators post-enactment authority in project identification, fund release, project reidentification, and fund realignment. The Special Provisions of the 2008 and 2009 GAAs and DBM Circular No. 476-01 were silent on whether a legislator-proponent could recall funds after release to the implementing agency. Philconsa vs. Enriquez did not address a legislator-proponent proceeding directly to the identified implementing agency to recall funds; its recommendation requirement was addressed to DBM. The Court applied this doctrine to hold that COA’s outright disallowance of the transfers as illegal or irregular was grave abuse of discretion.

• Suspension vs. Disallowance in COA Audit — Under the 2009 Rules and Regulations on the Settlement of Accounts, suspension is a temporary disallowance for transactions or accounts that appear illegal, improper, or irregular unless satisfactorily explained or until audit requirements are submitted, covering only transactions that may result in pecuniary loss. Disallowance is the disapproval in audit of a transaction for being illegal, irregular, unnecessary, excessive, extravagant, or unconscionable. Where documentation is incomplete and the transaction may result in pecuniary loss, suspension is the proper initial action. The Court applied this doctrine to hold that COA should have suspended the transactions to allow Ablan to account for the funds, but because Ablan died, the purpose of suspension was defeated and the Notices of Disallowance were allowed to stand.

• Trust Funds Under Section 309(b) of Republic Act No. 7160 — Trust funds shall only be used for the specific purpose for which they were created or for which they came into the possession of the local government unit. The Court held that this provision did not justify the disallowance because no specific purpose pertaining to the Municipality appeared on the SARO, Advice of NCA Issued, and Notice of Funding Check Issued, and Ablan represented that the PDAF received by the Municipality was intended for his District; it was not unreasonable for petitioner to believe that Ablan was authorized to request a recall.

• Presumption of Regularity and Good Faith in Public Office — Public officers are presumed to know and keep abreast of the rules and regulations bearing upon their functions, and this presumption is stronger for members of the bar. However, the presumption does not automatically defeat a claim of good faith where the legal question is ambiguous and the officer has taken steps to ascertain the propriety of his actions. The Court applied this doctrine to hold that petitioner’s status as a lawyer did not preclude a finding of good faith under the circumstances.

• "Considering the facts of this case, it is apparent that the transactions should have first been suspended in audit to allow time for the parties to submit the documentary requirements showing the utilization of the fund." — This passage states the Court’s ratio on the proper audit action, distinguishing suspension from disallowance under the 2009 RRSA and explaining why COA’s initial disallowance was procedurally improper.

• "Thus, in hindsight, four years after the pronouncements in Belgica had crystallized the rules on post-enactment legislative participation and without recognizing the contemporaneous interpretation of the PDAF provisions at the time of the transactions, the COA-CP's outright disallowance of the transactions for being irregular and illegal constitutes grave abuse of discretion." — This is the core holding on grave abuse of discretion, grounding the ruling in the pre-Belgica PDAF practice and the silence of the governing rules on recall.

• "In fine, the Court holds that petitioner cannot be held civilly liable for the disallowed amounts for having acted in good faith with respect to the disallowed fund transfers." — This is the dispositive legal conclusion on petitioner’s civil liability, resolving the case in his favor on the ground of good faith.

• "The presence of any of these factors in a case may tend to uphold the presumption of good faith in the performance of official functions accorded to the officers involved, which must always be examined relative to the circumstances attending therein." — This passage states the Madera doctrine that any single badge of good faith and diligence may uphold the presumption of good faith, which the Court applied to absolve petitioner.

• Belgica vs. Ochoa, 721 Phil. 416 (2013) — Controlling precedent; recognized the pre-2013 PDAF system and post-enactment legislative participation, including project reidentification and fund realignment; used to hold that COA’s outright disallowance ignored the contemporaneous interpretation of PDAF rules.
• Philippine Constitution Association (Philconsa) vs. Enriquez, 305 Phil. 546 (1994) — Cited by COA but distinguished; the recommendation contemplated was addressed to DBM, not to the head of the agency receiving funds, and it did not deal with a legislator-proponent directly recalling funds from the identified implementing agency.
• Madera vs. COA, 882 Phil. 744 (2020) — Controlling precedent; enumerated the badges of good faith and diligence for authorizing and certifying officers and held that the presence of any one badge may absolve an officer from liability; applied to petitioner.
• Lumayna vs. COA, 616 Phil. 929 (2009) — Cited for the definition of bad faith and gross negligence; mistakes of public officers are not actionable absent a clear showing of malice or gross negligence amounting to bad faith.
• Philippine Economic Zone Authority vs. Commission on Audit, 797 Phil. 117 (2016) — Cited for the rule that good faith is a valid defense for public officials and that ambiguous rules clarified years later should be applied prospectively.
• Clarete vs. Office of the Ombudsman, G.R. Nos. 232968, 232974 & 238584-87, April 15, 2024 — Cited by analogy; the Solicitor General’s position that a department secretary had no discretion to deny a legislator’s request to transfer PDAF funds supported petitioner’s reasonable belief that he had little discretion to deny Ablan’s request.
• Torreta vs. Commission on Audit, 889 Phil. 119 (2020) — Cited for the definition of good faith as a state of mind denoting honesty of intention and freedom from knowledge of circumstances that ought to put the holder upon inquiry.

• Special Provisions on PDAF, General Appropriations Act for Fiscal Year 2008 and Fiscal Year 2009 — The amount appropriated shall be used to fund priority programs and projects under the Ten-Point Legacy Agenda of the national government and shall be released directly to the implementing agencies. The Court noted that the provisions enumerated authorized implementing agencies but were silent on whether a subsequent transfer or recall by the legislator-proponent could be made after release.
• Section 309(b), Republic Act No. 7160 (Local Government Code of 1991) — Trust funds shall only be used for the specific purpose for which they were created or for which they came into the possession of the local government unit. The Court held that no specific purpose pertaining to the Municipality appeared on the SARO, Advice of NCA Issued, and Notice of Funding Check Issued, and Ablan represented that the funds were for his District, making petitioner’s belief in a recall not unreasonable.
• Sections 38 and 39, Chapter 9, Book I, Administrative Code — Section 38 provides that a public officer shall not be civilly liable for acts done in the performance of official duties unless there is a clear showing of bad faith, malice, or gross negligence. Section 39 provides that no subordinate officer or employee shall be civilly liable for acts done in good faith in the performance of duties, but shall be liable for willful or negligent acts contrary to law, morals, public policy, and good customs even if acting under orders or instructions of superiors. The Court applied these provisions in finding petitioner not civilly liable.
• 2009 Rules and Regulations on the Settlement of Accounts (COA Circular No. 2009-006, September 15, 2009), Sections 4.16, 4.27, 5.3, 5.3.1, and 5.3.2 — These provisions define disallowance as the disapproval in audit of a transaction and suspension as a temporary disallowance for transactions or accounts that appear illegal, improper, or irregular unless satisfactorily explained or until audit requirements are submitted. The Court applied them to hold that suspension, not disallowance, was the proper initial audit action.
• COA Circular No. 94-013 (1994), Sections 3.3 and 3.4 — These provisions define Source Agency as the agency to which the allotment was originally released and in whose behalf or benefit the project will be prosecuted or implemented, and Implementing Agency as the agency to which the funds are transferred for the purpose of prosecuting or implementing the project. The Court noted that COA auditors inconsistently applied these definitions, contributing to the ambiguity.
• DBM National Budget Circular No. 476-01 (September 20, 2001) — This circular prescribed guidelines on the appropriate treatment of PDAF releases but contained no provision on the mechanics or guidelines for the recall of PDAF releases by the legislator-proponent to effect changes, additions, reidentification of priorities, and realignment of programs and projects. The Court cited this silence as supporting petitioner’s good faith.
• Presidential Decree No. 1445 (Government Auditing Code of the Philippines) and Republic Act No. 7160 — The COA-Commission Proper cited these laws on liability for unlawful expenditures. The Court ultimately held that petitioner could not be held civilly liable because he acted in good faith.
• Rule 64 — The Petition for Certiorari was filed under Rule 64, assailing the COA Decision No. 2017-468 dated December 28, 2017 and Resolution No. 2020-024 dated January 8, 2020.

Gesmundo, C.J., Leonen, SAJ., Lazaro-Javier, Inting, Zalameda, M. Lopez, Rosario, J. Lopez, Dimaampao, Marquez, Kho, Jr., and Singh, JJ., concur. Hernando, J., was on official business; Gaerlan, J., was on official leave.