Development Bank of the Philippines vs. Commission on Audit

A government agency's pre-audited transaction remains subject to COA's constitutional post-audit authority, and estoppel does not lie against the government to bar such post-audit; however, a disallowance of customs duties and taxes is improper where the winning bidder disclosed in its bid that the quoted price excluded such charges, and the total price including those charges still represented the lowest compliant bid, such that no undue privilege or prejudice resulted.

The Development Bank of the Philippines (DBP) is a government-owned and controlled corporation subject to the audit jurisdiction of the Commission on Audit (COA). At the time of the questioned transaction in September 1988, COA Circular No. 86-257 required pre-audit of government transactions before payment. COA Circular No. 89-299 subsequently lifted the pre-audit requirement, shifting to a post-audit system. The constitutional basis for COA's audit authority is Article IX(D), Section 2(1) of the 1987 Constitution, which expressly grants COA the power to examine, audit, and settle accounts of government-owned or controlled corporations on a post-audit basis.

On September 13, 1988, the Procurement Committee of the Development Bank of the Philippines (DBP) conducted a public bidding for one (1) unit of Uninterruptible Power Supply (UPS). Eight (8) suppliers participated, but four (4) were disqualified outright for failure to submit the required bidder's bond. The remaining four (4) were evaluated under "must" criteria to determine compliance with DBP's specifications. Only two bidders qualified: Paris-Manila Trading Corporation (Paris-Manila) and Voltronics Industrial Corporation (Voltronics).

These two bidders were further evaluated under the "wants" category, which considered delivery time, maintenance strategy, cost, manufacture support, and company profile. Paris-Manila received a rating of 75.02%, while Voltronics scored 78.75%. As to the bid amounts, Paris-Manila offered P2,493,000.00, while Voltronics offered P1,190,000.00 exclusive of customs duties and taxes at P246,539.25, for a total bid price of P1,436,539.25. The Special Technical Committee recommended awarding the contract to Voltronics.

DBP submitted all bidding documents to the Corporate Auditor for pre-audit pursuant to COA Circular No. 86-257. Then Corporate Auditor Elisa C. Gervasio found the proposed Purchase Order No. 137 dated October 14, 1988 to be "in order," but observed the lack of additional provisions in the DBP Bid Form regarding customs duties and taxes, suggesting that in future biddings the quotation or bid price should always mean the total price to be paid by DBP including customs duties and other charges. Thereafter, DBP issued Purchase Order No. 0137 to Voltronics at the adjusted price of P1,436,539.25, inclusive of customs duties and taxes.

COA Circular No. 89-299 was subsequently passed, lifting the pre-audit requirement for government transactions. A new Corporate Auditor was assigned to DBP. After a post-audit, the new Corporate Auditor issued an "Auditor's Notice to Persons Liable" to the Chairman of DBP, disallowing the amount of P246,539.25 representing customs duties and taxes and holding the DBP Chairman and other petitioners jointly and severally liable. The Corporate Auditor reasoned that there was no quotation regarding customs duties and that including them would improve the bid after the opening, a privilege not given to other bidders. DBP moved for reconsideration in a letter-clarification dated November 2, 1990, but the motion was denied. On appeal, the COA en banc affirmed the disallowance on May 13, 1992.

A central factual dispute arose as to whether Voltronics had disclosed at the time of bidding that its bid price excluded customs duties and taxes. DBP maintained that Voltronics informed it of this exclusion in a letter dated September 12, 1988 submitted along with the bid form, and that subsequent communications referenced this letter. COA countered that no such attachment appeared in the bid form or the Abstract of Bids. The Court noted a November 14, 1990 letter from the Senior Vice President of DBP for Operations confirming that a September 12, 1988 letter from Voltronics specifically mentioning that its bid did not include customs duties and taxes was supplementary to the Bid Form. Even without the contested letter, the Court observed that Voltronics had specified in its bid "DUTIES AND TAXES NOT INCLUDED."

• Retroactive Application of Post-Audit Circular: Petitioner argued that respondent COA erred in applying the post-audit system under COA Circular No. 89-299, considering that at the time of the questioned bidding, the law in force was COA Circular No. 86-257, which required pre-audit.
• Estoppel: Petitioner maintained that respondent COA is estopped from impugning the decision of its duly constituted representative (the former Corporate Auditor) who had exercised its function in the ordinary course of duty by finding the transaction in order during pre-audit.
• Misappreciation of Facts: Petitioner argued that respondent COA misappreciated facts which, had they been properly appreciated, would have altered its decision — specifically, that Voltronics had disclosed the exclusion of customs duties and taxes from its bid price, and that DBP was aware of this exclusion at the time of bidding.

• No Disclosure of Non-Inclusion of Duties: Respondent COA argued that there was no attachment to the bid form indicating that Voltronics' bid excluded customs duties and taxes, and that if there had been any such attachment, the bid form would have so stated. Since there was no mention in the bid form or the Abstract of Bids of any attachment, COA concluded that no September 12, 1988 letter was appended thereto.
• Improvement of Bid After Opening: Respondent COA contended that allowing the inclusion of customs duties and taxes after the bid opening would be tantamount to improving Voltronics' bid, a privilege not accorded to the other bidders, thereby undermining the fairness of the bidding process.
• Total Bid Price Presumption: Respondent COA asserted that when Voltronics offered P1,190,000.00, it was understood that said amount represented the total cost to be paid by DBP upon delivery of the item, including taxes, customs duty, and handling costs.

• COA Post-Audit Authority: Whether COA may conduct a post-audit of a transaction that had already been pre-audited and approved under a prior circular, and whether the subsequent circular lifting pre-audit was retroactively applied.
• Estoppel Against the Government: Whether COA is estopped from questioning, in a post-audit, the prior pre-audit approval issued by its own Corporate Auditor.
• Validity of Disallowance: Whether the disallowance of the P246,539.25 representing customs duties and taxes was proper, given that Voltronics had disclosed the exclusion of such charges from its bid and that no prejudice resulted to other bidders.

• COA Post-Audit Authority: Yes. COA's constitutional post-audit authority under Article IX(D), Section 2(1) of the 1987 Constitution is not precluded by a prior pre-audit approval; there was no retroactive application of post-audit because post-audit is a separate and independent power regardless of the result of any pre-audit.
• Estoppel Against the Government: No. Estoppel does not lie against the government, more so when the acts of its officials are erroneous or irregular; COA is not barred from conducting post-audit merely because its Corporate Auditor previously found the transaction in order.
• Validity of Disallowance: No. The disallowance was improper because Voltronics had disclosed in its bid that duties and taxes were not included, DBP was aware of this exclusion, and even with the duties and taxes added, Voltronics' total price remained substantially lower than the competing bid, such that no undue privilege was conferred and no prejudice resulted.

• COA Post-Audit Authority: The applicable procedure at the time of the questioned transaction was COA Circular No. 86-257, which required pre-audit. However, nothing in that circular precludes COA from subsequently conducting a post-audit of an already pre-audited transaction. Pre-audit is an examination of financial transactions before payment, seeking to determine compliance with appropriation law, availability of funds, reasonableness of expenditure, and proper authority. The favorable action of the Corporate Auditor during pre-audit does not necessarily mean the transaction was passed in audit, as COA Circular 86-257 itself provides that the action required within twenty-four hours "does not necessarily mean approval or allowing in audit." More importantly, Article IX(D), Section 2(1) of the Constitution expressly grants COA the power to examine, audit, and settle accounts of government-owned or controlled corporations on a post-audit basis. DBP is undeniably a government corporation. Thus, whether COA Circular No. 89-299 was retroactively applied is of no moment, because post-audit is an independent constitutional power that operates regardless of the result of any pre-audit.

• Estoppel Against the Government: It is erroneous for DBP to claim that COA is estopped from questioning, in the course of post-audit, the previous acts of its officials. The principle that estoppel does not lie against the government is well-settled, more so when the acts of government officials are erroneous or irregular. The prior pre-audit approval by the Corporate Auditor cannot operate as estoppel against COA's exercise of its constitutional post-audit mandate.

• Validity of Disallowance: The Corporate Auditor disallowed the payment of customs duties on the presumption that DBP had no knowledge that Voltronics' bid excluded such charges. However, the evidence belies this presumption. Voltronics specified in its bid "DUTIES AND TAXES NOT INCLUDED," and a November 14, 1990 letter from DBP's Senior Vice President for Operations confirmed that a September 12, 1988 letter from Voltronics specifically mentioning the exclusion of customs duties and taxes was supplementary to the Bid Form. As DBP itself conducted the bidding, the presumption lies in favor of DBP that such a letter existed. The Corporate Auditor's reason for disallowance — that the P1,190,000.00 bid was understood to represent the total cost including taxes — was based on a presumption that the bidders had a prior understanding of what the "total" bid price should comprise, when in truth there was no clear-cut definition of the term conveyed to the participating bidders. The former Corporate Auditor herself found the need to suggest clearer definitions for future biddings, indicating that the concept was not settled. Nor did the allowance of the questioned amount confer an undue privilege on Voltronics. Even with duties and taxes added, Voltronics' total of P1,436,539.25 was still more than a million pesos lower than Paris-Manila's P2,493,000.00. Voltronics won not solely on price but also ranked higher under the "wants" criteria with a rating of 78.75% versus Paris-Manila's 75.02%. Only Paris-Manila qualified as the "other" bidder under the "must" criteria, and even if it had been afforded the opportunity to improve its bid, Voltronics would still have been the lowest bidder. Neither Paris-Manila nor DBP was prejudiced, and Voltronics acted in good faith. Accordingly, the result of the pre-audit should be allowed to stand.

• Estoppel Does Not Lie Against the Government — The principle that estoppel does not operate against the state or its agencies, particularly when the acts of government officials are erroneous or irregular. The Court applied this doctrine to reject DBP's argument that COA was estopped from questioning the pre-audit approval issued by its own Corporate Auditor, holding that COA's constitutional post-audit authority cannot be barred by prior administrative approval of its representatives.

• COA's Constitutional Post-Audit Authority — Under Article IX(D), Section 2(1) of the 1987 Constitution, COA has the power, authority, and duty to examine, audit, and settle all accounts pertaining to revenue and expenditures of the Government and its instrumentalities, including government-owned or controlled corporations with original charters, on a post-audit basis. The Court held that this post-audit power is independent of and not precluded by any prior pre-audit conducted under COA Circular No. 86-257; a favorable pre-audit finding does not necessarily constitute approval or allowance in audit.

• Pre-Audit Does Not Preclude Post-Audit — COA Circular No. 86-257 itself provides that the action required of the head of the audit unit within twenty-four hours of receipt of pertinent vouchers and documents "does not necessarily mean approval or allowing in audit." The Court relied on this provision to clarify that a pre-audit finding that a transaction is "in order" does not foreclose subsequent post-audit disallowance.

• "While it is true that the applicable procedure in force at the time of the questioned transaction was COA Circular 86-257 requiring a pre-audit, there is nothing to preclude respondent COA from conducting a post-audit of the already pre-audited transaction." — This passage articulates the ratio decidendi on the relationship between pre-audit and post-audit, establishing that COA's constitutional post-audit authority operates independently of any prior pre-audit approval.

• "[W]ell-settled is the principle that estoppel does not lie against the government, more so if they are erroneous, let alone irregular." — This passage states the canonical formulation of the doctrine of estoppel against the government as applied in the context of COA audit proceedings, frequently cited in subsequent jurisprudence on government estoppel.

• "[T]he alleged 'privilege' had little effect on the ultimate outcome of the bidding. Inasmuch as neither Paris-Manila nor petitioner DBP was prejudiced by allowing the exclusion of the customs duties and taxes to the total bid price, the result of the pre-audit should be allowed to stand." — This passage captures the Court's reasoning on the fairness of the bidding process, holding that absent prejudice to other bidders, the disclosure of excluded duties and taxes does not constitute an undue privilege warranting disallowance.

• Cruz, Jr. vs. Court of Appeals, 194 SCRA 145 (1991) — Cited as authority for the principle that estoppel does not lie against the government.
• Republic vs. Court of Appeals, 182 SCRA 290 (1990) — Cited in support of the doctrine that estoppel does not operate against the state.
• Republic vs. Intermediate Appellate Court, 209 SCRA 90 (1992) — Cited to reinforce that estoppel does not lie against the government, particularly when the acts of its officials are erroneous or irregular.
• Sharp International Marketing vs. Court of Appeals, 201 SCRA 299 (1991) — Cited alongside the above cases for the same proposition on estoppel against the government.

• Article IX(D), Section 2(1), 1987 Constitution — Grants COA the power, authority, and duty to examine, audit, and settle all accounts pertaining to revenue and expenditures of the Government and its subdivisions, agencies, and instrumentalities, including government-owned or controlled corporations with original charters, on a post-audit basis. The Court relied on this provision to hold that DBP, as a government corporation, is subject to COA's post-audit authority, and that such authority is independent of any prior pre-audit.
• COA Circular No. 86-257 — Required pre-audit of government transactions before payment. The Court noted that this circular itself provides that the action of the head of the audit unit on a transaction subject to pre-audit "does not necessarily mean approval or allowing in audit," thereby clarifying that a favorable pre-audit finding does not preclude subsequent post-audit disallowance.
• COA Circular No. 89-299 — Lifted the pre-audit requirement for government transactions, shifting to a post-audit system. The Court held that the application of this circular did not constitute retroactive application of post-audit, because post-audit is a separate constitutional power that operates regardless of the pre-audit system in force at the time of the transaction.

Narvasa, C.J., Cruz, Feliciano, Padilla, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo, Quiason, Puno, Vitug, and Kapunan, JJ., concurred.