Bilibli vs. COA

A valid augmentation of appropriated funds requires that the program, activity, or project to be augmented already exists in the approved budget of the agency; a non-existent program cannot be funded by augmentation from savings. Approving and certifying officers who acted in bad faith are solidarily liable to return only the net disallowed amount — the total disallowed amount minus amounts already excused from return by recipients — such that when all recipients have been excused, the officers' solidary liability is reduced to zero.

The National Commission on Indigenous Peoples (NCIP) is a sui generis government agency created to recognize and protect the rights of indigenous peoples as a fundamental element of nation building and as a social justice measure. The constitutional and statutory framework governing augmentation of appropriations — Section 25(5), Article VI of the 1987 Constitution and Sections 59 and 60 of Republic Act No. 10147 (the General Appropriations Act for FY 2011) — prohibits the use of savings to fund non-existent programs, activities, or projects and authorizes only the augmentation of existing items in the general appropriations law. The petitioners are NCIP officers who certified, approved, or authorized the disbursement of agency funds for a scholarship program with the Ateneo de Manila University (ADMU).

The National Commission on Indigenous Peoples (NCIP), through its Board of Trustees, passed Resolution No. 084-2012 on December 7, 2012, authorizing the forging of a Memorandum of Agreement with the Ateneo de Manila University (ADMU) for the admission of twenty-five NCIP officials and employees to ADMU's Masters in Public Management Scholarship Program, with tuition and miscellaneous fees to be paid by NCIP in the amount of P3,095,829.25. The number of scholars was later reduced to twenty-four. To fund the scholarship program, the NCIP Board approved Resolution No. 088-2012 on December 19, 2012, realigning the agency's unutilized 2011 budget of P13,690,090.88, of which P3,095,829.25 was allocated for tuition, miscellaneous fees, and transportation expenses of the scholars.

The NCIP had initially proposed funding for its Human Resource Development Plan, including scholarship expenses, in its FY 2012 budget, but the Department of Budget and Management (DBM) disapproved the proposal because it was not among the agency's priority projects. Consequently, the scholarship program and its corresponding funds were not included in the 2012 General Appropriations Act. Undeterred, the NCIP proceeded with the program by realigning its unutilized General Administration and Support Services balance of P10,233,536.18 as of December 31, 2011, to augment the Training and Scholarship Program for FY 2012.

On post-audit, COA Audit Team Leader Nelda R. Monteverde and State Auditor Helenita R. Aguilar issued Audit Observation Memorandum No. 2013-02(12), flagging the grant of scholarship privileges as irregular because it was not among NCIP's mandated functions, the funding was not appropriated in the Agency Budget Matrix for CY 2012, and no Certificate of Availability of Funds was issued for the MOA. The audit team also deemed the expenditure excessive since similar programs were available from state universities and colleges. The NCIP, by letter dated September 16, 2013, explained that it had included Human Resource Development in its proposed FY 2012 budget but DBM disapproved it, prompting the agency to realign unutilized funds to augment the Training and Scholarship Program.

The COA Audit Team then issued Notice of Disallowance No. 2013-001 for P1,462,358.04, representing the amount thus far paid to ADMU. The disallowance was grounded on the absence of an approved Annual Procurement Plan, the award of the contract without public bidding or approved budget, the fact that some scholars already held Master's degrees, and NCIP's failure to refute the audit observation memorandum. The notice identified as liable Aurora M. Tolete (Chief Administrative Officer/Budget Officer V), Darrow P. Odsey (Director IV), Gladys Minerva N. Bilibli (Chief Accountant), Zenaida Brigida H. Pawid (Chairperson), the twenty-four NCIP scholars, and ADMU as payee.

On appeal, the COA-National Government Sector (NGS) Cluster 1, by Decision No. 2016-005, partially granted the appeal by excluding the twenty-two NCIP scholars and ADMU from liability — the scholars on the ground of good faith in accepting the scholarship, and ADMU for having submitted all required documents — while affirming the disallowance as to the other persons named. On automatic review, the COA En Banc affirmed in full through Decision No. 2016-483 dated December 29, 2016, ruling that because the scholarship program did not form part of NCIP's 2012 budget, it could not be legally funded by augmentation from reprogrammed funds. The COA En Banc also directed the issuance of a Supplemental Notice of Disallowance against the NCIP officers who approved Resolution No. 084-2012. That Supplemental Notice of Disallowance was later resolved with finality, the involved NCIP officers having failed to file an appeal.

• Budgetary Basis: Petitioners argued that the NCIP's "General Administration and Support Program" was part of the Agency Budget Matrix for FY 2011 and included "Training and Scholarship Services" such as the 2012 Masters in Public Management Scholarship Program, making augmentation from savings proper since the budget therefor was already appropriated in the NCIP's budget for FY 2011.
• Good Faith: Petitioners maintained that they acted in good faith when they affirmed the payment of tuition and miscellaneous fees to ADMU, relying on certifications issued by concerned NCIP officers that the expense was necessary and the supporting documents valid and complete, and that assuming the disbursement was without legal basis, they had no knowledge of such defect.
• Prejudicial Question: Petitioner Pawid additionally asserted that the Supplemental Notice of Disallowance issued to the members of the NCIP who approved Resolution No. 084-2012 posed a prejudicial question to the issue of petitioners' liability, warranting suspension of the present petition pending resolution of the related case by the COA Proper.

• No Budget Allocation: Respondent pointed to NCIP's own admission that there was no authorized funding allocation for scholarship expenses in its approved Agency Budget Matrix for FY 2012, precluding funding from reprogrammed FY 2011 funds.
• No Prejudicial Question: Respondent argued that the Supplemental Notice of Disallowance did not pose a prejudicial question to petitioners' liability because it pertained to a different set of NCIP officers, and that it had already been resolved with finality.

• Validity of Disallowance: Whether the COA gravely abused its discretion when it affirmed the Notice of Disallowance.
• Liability to Refund: Whether petitioners are liable to refund the full disallowed amount.

• Validity of Disallowance: No. The COA did not gravely abuse its discretion; the disallowance was proper because the scholarship program was not included in the approved 2012 GAA, precluding valid augmentation from savings under Section 25(5), Article VI of the Constitution and Sections 59–60 of RA 10147.
• Liability to Refund: No. Petitioners are excused from returning the disallowed amount because the recipient-scholars and ADMU had already been excused from returning the amounts at the COA-NGS level, reducing the net disallowed amount to zero under the Madera Rules on Return.

• Validity of Disallowance: The Court relaxed the procedural requirement of filing a motion for reconsideration before certiorari in the higher interest of substantial justice, noting that rules of procedure are tools designed to secure, not override, substantial justice. On the merits, Section 25(5), Article VI of the 1987 Constitution and Sections 59–60 of RA 10147 (GAA for FY 2011) authorize augmentation of any item in the general appropriations law from savings, but only if the item to be augmented already exists in the approved budget. Three conditions must concur: (1) a law authorizing the transfer; (2) the funds transferred are savings; and (3) the purpose is to augment an existing item in the general appropriations law. The Court focused on the third element. The NCIP admitted by letter dated September 16, 2013 that its scholarship program under its Human Resource Development Plan was disapproved by the DBM and was not among the items approved under the 2012 GAA. A mere proposal without funding cannot be augmented. Following Sanchez vs. COA, the absence of an item to be augmented starkly projects the illegality of the diversion of funds. The COA Proper therefore committed no grave abuse of discretion in sustaining the Notice of Disallowance corresponding to P1,462,358.04.

• Liability to Refund: Under the Madera Rules on Return, approving and certifying officers who acted in bad faith, malice, or gross negligence are solidarily liable to return only the net disallowed amount — the total disallowed amount minus amounts excused under Rules 2c and 2d. The presumption of good faith is overturned when there is a violation of a clear and explicit rule. Applying Reyna vs. COA, Casal vs. OCA, and Tesda vs. COA, the Court found that petitioners participated in approving and authorizing payment for a non-existent budget item in clear violation of the Constitution and the 2011–2012 GAAs, thus their invocation of good faith must fail. However, because the recipient-scholars and ADMU had already been excused from returning the amounts by the COA-NGS Cluster 1 in Decision No. 2016-005, the net disallowed amount was effectively zero. Following Abellanosa vs. COA and Pastrana vs. COA, when the entire disallowed amount received by payees has been excused, the solidary liability of approving and certifying officers who were not recipients is reduced to zero. Additionally, the Court found that the disbursement ultimately redounded to the benefit of NCIP and the indigenous peoples it serves, falling within Madera's Rule 2d, which allows the Court to excuse return based on social justice considerations and bona fide exceptions. The Court cautioned, however, that petitioners' excuse from civil liability does not relieve them from any appropriate administrative case for gross negligence.

• Augmentation Doctrine — A valid transfer of appropriated funds requires the concurrence of three conditions: (1) a law authorizing the head of a constitutional commission to transfer funds within their respective office; (2) the funds to be transferred are savings generated from the appropriations for their respective offices; and (3) the purpose of the transfer is to augment an existing item in the general appropriations law. Augmentation implies the existence of a program, activity, or project with an appropriation that is determined to be deficient after implementation or evaluation. In no case shall a non-existent program, activity, or project be funded by augmentation from savings. The Court applied this by finding that the NCIP's scholarship program was not included in the approved 2012 GAA — it was merely a proposal disapproved by the DBM — and thus could not be augmented from savings.

• Madera Rules on Return — The framework for determining liability to return disallowed amounts: (1) If a Notice of Disallowance is set aside, no return is required from any person; (2) If upheld: (a) approving and certifying officers who acted in good faith, in regular performance of official functions, and with diligence of a good father of the family are not civilly liable; (b) those who acted in bad faith, malice, or gross negligence are solidarily liable to return only the net disallowed amount, which excludes amounts excused under Rules 2c and 2d; (c) recipients are liable to return amounts received unless they show the amounts were genuinely given in consideration of services rendered; (d) the Court may excuse return based on undue prejudice, social justice considerations, and other bona fide exceptions on a case-to-case basis. The Court applied Rule 2b (petitioners acted in bad faith) but found the net disallowed amount was zero because recipients were excused under Rules 2c and 2d.

• Presumption of Good Faith — Public officers are presumed to act in good faith in the performance of official duties, but this presumption is overturned when there is a violation of a clear and explicit law, rule, or regulation. The Court applied this by finding that petitioners' violation of the Constitution and GAAs on augmentation overturned any presumption of good faith, equating to gross negligence amounting to bad faith.

• Net Disallowed Amount — The total disallowed amount minus the amounts excused to be returned by recipients under Rules 2c and 2d of the Madera Rules. When the entire disallowed amount received by payees has been excused at the COA level, the solidary liability of approving and certifying officers who were not recipients of any portion of the disallowed amount is practically reduced to zero, effectively negating liability on their part.

• "In no case shall a non-existent program, activity, or project, be funded by augmentation from savings or by the use of appropriations otherwise authorized in this Act." — This statutory provision from RA 10147, quoted by the Court, defines the core prohibition against augmenting non-existent items and forms the textual basis for invalidating the NCIP's funding scheme.

• "The absence of any item to be augmented starkly projects the illegality of the diversion of the funds and the profligate spending thereof." — Quoted from Sanchez vs. COA, this passage articulates the ratio decidendi for why augmentation without an existing budget item is illegal, and was relied upon to sustain the COA's disallowance.

• "Hence, since the entire disallowed amount received by the payees had already been excused at the COA level, the solidary liability of petitioners, who were not recipients of any portion of the disallowed amount, has been practically reduced to zero (0), effectively negating liability on their part." — Quoted from Pastrana vs. COA (per Senior Justice Perlas-Bernabe), this passage explains the net disallowed amount concept and why petitioners' civil liability was extinguished despite their bad faith.

• "The Court may likewise excuse the return of recipients based on undue prejudice, social justice considerations, and other bona fide exceptions as it may determine on a case to case basis." — Quoted from Madera vs. COA, this is the canonical formulation of Rule 2d, which the Court invoked to justify excusing return given the social justice dimensions of NCIP's mandate to serve indigenous peoples.

• Sanchez vs. COA, 575 Phil. 428 (2008) — Controlling precedent on the augmentation requirement; held that the absence of an item to be augmented renders the diversion of funds illegal. The Court relied on this to sustain the COA's disallowance.
• Madera vs. COA, G.R. No. 244128, September 8, 2020 — Established the Rules on Return for disallowed amounts; the framework applied by the Court to determine petitioners' liability and the concept of net disallowed amount.
• Abellanosa vs. COA, G.R. No. 185806, November 17, 2020 — Applied the Madera Rules, holding that when recipients' liability is completely excused under Rule 2d, there is nothing more for approving and certifying officers to return.
• Pastrana vs. COA, G.R. No. 242082, June 15, 2021 — Applied the net disallowed amount concept, holding that when payee-recipients have been absolved, the solidary liability of non-recipient approving officers is reduced to zero.
• Reyna vs. COA, 657 Phil. 209 (2011) — Cited for the proposition that violation of an explicit rule overturns the presumption of good faith.
• Casal vs. OCA, 538 Phil. 634 (2006) — Cited for the proposition that patent disregard of explicit issuances amounts to gross negligence, making approving officers liable.
• Tesda vs. COA, 729 Phil. 60 (2014) — Cited for the proposition that blatant violation of clear constitutional and statutory provisions equates to gross negligence amounting to bad faith.

• Section 25(5), Article VI, 1987 Constitution — Prohibits transfer of appropriations except augmentation by authorized officials (President, Senate President, House Speaker, Chief Justice, and heads of Constitutional Commissions) from savings in other items of their respective appropriations. Applied to determine whether the NCIP's fund realignment constituted valid augmentation.
• Sections 59–60, RA 10147 (GAA for FY 2011) — Define "savings" and "augmentation," expressly providing that no non-existent program, activity, or project may be funded by augmentation from savings. Applied to invalidate the NCIP's funding of a scholarship program not included in its approved 2012 budget.
• Section 38, Chapter 9, Book I, Administrative Code of 1987 — Provides that public officers are not civilly liable for acts done in the performance of official duties absent a clear showing of bad faith, malice, or gross negligence. Cited as the basis for the good faith exception to liability under Madera Rule 2a.
• Section 39, Chapter 9, Book I, Administrative Code of 1987 — Provides that subordinate officers are liable for willful or negligent acts contrary to law even if acting under orders of superiors. Cited in connection with the Madera Rules framework.
• Section 43, Chapter 5, Book IV, Administrative Code of 1987 — Provides that officials authorizing illegal expenditures are jointly and severally liable to the government for the full amount paid or received. Applied as the statutory basis for solidary liability under Madera Rule 2b.
• Section 10, Rule X, 2009 COA Rules of Procedure — Provides for a motion for reconsideration as a remedy before the COA, which is a condition sine qua non for the filing of a petition for certiorari. The Court acknowledged this requirement but relaxed it in the interest of substantial justice.

Gesmundo, C.J., Perlas-Bernabe, Caguioa, Hernando, Carandang, Inting, Zalameda, M. Lopez, Gaerlan, Rosario, and J. Lopez, JJ., concurred. Leonen, J., filed a separate concurring opinion.