Figueroa vs. Commission on Audit

The Commission on Audit’s audit jurisdiction over the Philippine Amusement and Gaming Corporation is circumscribed by Section 15 of its charter to the five percent (5%) franchise tax and the fifty percent (50%) government share of gross earnings; funds sourced from PAGCOR’s operating expenses are outside COA’s audit authority, and the COA may not collaterally attack the constitutionality of that statutory limitation.

PAGCOR is a government-owned and controlled corporation created under Presidential Decree No. 1869 with a dual role: it operates gambling casinos and regulates games of chance. Its charter segregates earnings owed to the government from other corporate revenue. In December 2008, PAGCOR’s Corporate Communications and Services Department proposed the purchase of tickets to the film “Baler,” which had won Best Picture at the 2008 Metro Manila Film Festival, for distribution to casino patrons using their Player Tracking System points. The Board of Directors approved the purchase, and PAGCOR paid P26,700,000.00 to Batang Iwas Droga Foundation, Inc. A subsequent COA post-audit flagged irregularities and issued a notice of disallowance holding several officers personally liable.

• Nature: PAGCOR is a GOCC with an original charter (P.D. No. 1869) exercising dual regulatory and proprietary functions. Section 7(e) of its charter empowers the Board to perform acts “necessary or proper for the accomplishment of its purposes and objectives.” Section 15 limits COA’s audit of PAGCOR to the 5% franchise tax and the 50% government share of gross earnings.
• The Ticket Purchase Proposal: In a memorandum dated 3 December 2008, Edward F. King, Vice President of PAGCOR’s Corporate Communications and Services Department, requested from Chairman/CEO Efraim C. Genuino and the Board the allocation of movie passes for “Baler,” an award-winning film, for distribution to 12 casino branches, chargeable against patrons’ Player Tracking System (PTS) points. Guidelines were issued on 10 December 2008.
• Board Approval: On 16 December 2008, PAGCOR’s Board of Directors, including petitioners Lo and Roxas as members and Genuino as Chairman, held a regular meeting and approved the ticket purchases. No written board resolution specifically referencing operating expenses was mentioned; approval was reflected in the minutes.
• Disbursement: On 22 December 2008, a Request for Payment, an Accounts Payable Voucher (stating “Payment for BALER tickets” and “board approval to follow”), and a Check Voucher were processed. PAGCOR issued Land Bank Check No. 0000153001 dated 23 December 2008 for P26,700,000.00 payable to BIDA Foundation, Inc. (BFI). Petitioner Figueroa, Senior Vice President and designated alternate signatory for Genuino, signed the check and check voucher.
• COA Post-Audit and Findings: On 18 March 2011, COA Supervising Auditor Atty. Resurreccion C. Quieta issued Audit Observation Memorandum No. 2010-021 noting that only P2,039,580.00 was charged against patrons’ PTS points; the balance of P24,660,420.00 was charged to other accounts without board approval, and payment was made without complete supporting documents. The new PAGCOR Chairman commented that the transaction could be included in cases against past administration personnel.
• Notice of Disallowance: On 30 June 2011, COA issued ND No. 2011-002(08) disallowing the entire P26,700,000.00 and holding liable: Genuino (Chairman/CEO), Roxas and Lo (Board members), Figueroa (Senior Vice President who signed the check), King (VP-CCSD), Ester P. Hernandez (VP-Accounting), and BFI as payee.
• Fund Source: Per PAGCOR’s 2008 Annual Audit Report, its Operating Expenses of P12,765,934,118.00 were separate and distinct from the 5% franchise tax and the 50% government share of gross earnings. The P26.7 million “Baler” ticket payment was drawn from Marketing Expenses, a component of the Operating Expenses Fund.

• COA’s Audit Jurisdiction: Petitioner Genuino maintained that Section 15 of the PAGCOR Charter confines COA’s audit to the 5% franchise tax and the 50% government share, and that the disallowed sum, sourced from operating expenses, is beyond COA’s audit power. The ND was consequently void for lack of jurisdiction.
• Ultra Vires Determination: Genuino argued that COA exceeded its authority when it declared the Board’s approval of the ticket purchase ultra vires; no constitutional or statutory provision empowers COA to nullify corporate acts of a GOCC’s board.
• Legitimacy of the Expenditure: Genuino contended that purchasing “Baler” tickets was a valid socio-civic project within PAGCOR’s corporate social responsibility mandate, using private corporate funds, and fell within the Board’s management prerogative.
• Good Faith and Procedural Defects: Petitioner Figueroa asserted that he signed the check and voucher in good faith as an alternate signatory, relying on prior clearance by the Finance and Treasury Department. He further argued that ND No. 2011-002(08) was void for non-compliance with Rule IV, Section 4 of the 2009 Revised Rules of Procedure of the COA, and that he was not an accountable officer.
• Absence of Board Authorization: Petitioners Lo and Roxas argued that they did not sign any board resolution specifically authorizing the use of operating expenses for the movie tickets, and that liability should fall only on the executive officials who deviated from the Board’s manifest intent.

• Constitutional Audit Mandate: The COA countered that its audit jurisdiction under Article IX-D, Section 2 of the 1987 Constitution covers all accounts of PAGCOR as a GOCC with an original charter, without exception, and that Section 15 of the PAGCOR Charter cannot validly restrict this constitutional power. This position, in effect, challenged the constitutionality of Section 15.
• Ultra Vires and Irregularity: The COA maintained that the Board’s approval of the ticket purchase was ultra vires because the transaction was not a legitimate corporate expense and improperly used patrons’ PTS points without consent. The disbursement was irregular, unnecessary, and lacked proper documentation.
• Individual Liability: The COA held Genuino liable based on his fiscal responsibility as Chairman, his failure to object to Figueroa’s signing on his behalf, and his personal knowledge that the payee BFI was a party-list where his daughter was first nominee. Figueroa was liable for signing without ensuring the completeness of supporting documents. Lo and Roxas were liable as board members who approved the purchase and on account of their fiscal oversight duties.

• COA’s Audit Jurisdiction over PAGCOR’s Operating Expenses: Whether the COA may audit and disallow funds drawn from PAGCOR’s operating expenses, particularly marketing expenses, in view of Section 15 of the PAGCOR Charter limiting audit to the 5% franchise tax and the 50% government share of gross earnings.
• COA’s Power to Declare Corporate Acts Ultra Vires: Whether the COA may declare acts of PAGCOR’s Board of Directors ultra vires and disallow expenditures on that ground.
• Validity of the Expenditure: Whether the purchase of “Baler” movie tickets constituted a valid socio-civic project within PAGCOR’s corporate powers.
• Personal Liability of Petitioners: Whether the individual petitioners could be held personally liable for the disallowed amount given their respective roles and claims of good faith.

• COA’s Audit Jurisdiction over PAGCOR’s Operating Expenses: The COA’s audit jurisdiction over PAGCOR is not all-encompassing. Section 15 of the PAGCOR Charter expressly limits audit to the 5% franchise tax and the 50% government share of gross earnings. Because the disallowed P26,700,000.00 was sourced from PAGCOR’s Operating Expenses Fund—specifically marketing expenses—and that fund is separate and distinct from the franchise tax and government share, the transaction fell outside COA’s statutory audit coverage. Section 15 stands as a valid, unrepealed provision; the COA’s collateral attack on its constitutionality was impermissible. Hence, the issuance of the ND was void for lack of jurisdiction and constituted grave abuse of discretion.
• COA’s Power to Declare Corporate Acts Ultra Vires: Neither the 1987 Constitution, P.D. No. 1445 (Auditing Code), nor any related statute vests the COA with power to strike down or declare ultra vires acts of the Board of Directors of PAGCOR or any GOCC. The COA’s mandate is confined to examining and disallowing irregular, unnecessary, excessive, extravagant, or unconscionable expenditures; it cannot adjudicate corporate validity. Thus, the COA exceeded its authority in ruling the Board’s approval ultra vires.
• Validity of the Expenditure: Even assuming COA had jurisdiction, the purchase of “Baler” movie tickets, a history-based film, fell squarely within a socio-civic project that the PAGCOR Board is empowered to approve under Section 7 of its Charter. Because the funds were taken from marketing expenses, the transaction was a proper corporate outlay.
• Personal Liability of Petitioners: Since the ND was void ab initio for having been issued without audit jurisdiction, no liability attached to any petitioner. The disallowance was set aside in its entirety, rendering individual defenses on good faith unnecessary.

• Limited Audit Jurisdiction under a GOCC’s Charter — Where a GOCC’s charter expressly limits the scope of COA audit to specific funds, COA cannot exceed that statutory boundary absent an amendment or a direct constitutional challenge. Section 15 of P.D. No. 1869 confines COA’s audit of PAGCOR to the 5% franchise tax and the government’s 50% share of gross earnings, excluding operating expenses from its disallowance authority.
• No Implied Repeal of Statutory Audit Limitations; Collateral Attacks Not Allowed — Repeals by implication are disfavored. A constitutional provision granting broad audit power does not automatically supersede a pre-existing statutory limitation; the statute must be challenged directly, not collaterally. Until adjudged unconstitutional, Section 15 remains operative.
• COA Cannot Declare Corporate Acts Ultra Vires — The COA lacks power to declare void or ultra vires the acts of a GOCC’s board of directors. Its constitutional and statutory duties are fiscal and auditing in character, not judicial or quasi-judicial determinations of corporate authority.

• “The funds of the Corporation to be covered by the audit shall be limited to the 5% franchise tax and the 50% of the gross earnings pertaining to the Government as its share.” — Section 15 of the PAGCOR Charter, the provision central to the jurisdictional ruling.
• “It bears stressing that P.D. No. 1869 was enacted to increase the participation of the private sector in the subscription of the authorized capital stock of PAGCOR. … Likewise, to provide for greater flexibility in PAGCOR's operations, governmental audit was limited to the five percent (5%) franchise tax and the Government's fifty percent (50%) share of the gross earnings.”
• “Neither the 1987 Constitution nor P.D. No. 1445, also known as the Auditing Code of the Philippines, or any other related statute grants the COA the power to strike down as void or declare ultra vires the acts of the Board of Directors of PAGCOR or any other GOCC.”
• “Repeals by implication are not favored in this jurisdiction. … Unless and until a specific provision of the law is declared invalid and unconstitutional, the same is valid and binding for all intents and purposes.”

• Delos Santos, et al. v. Commission on Audit, 716 Phil. 322 (2013) — Cited for the general principle that COA decisions are accorded great respect and finality unless tainted with grave abuse of discretion; used as the starting standard for review.
• Joson III v. Commission on Audit, 820 Phil. 485 (2017) — Relied upon for the definition of grave abuse of discretion and the recognition that courts may intervene when COA acts outside its legal bounds.
• Funa v. Manila Economic and Cultural Office, 726 Phil. 63 (2014) — Enumerated the entities subject to COA’s audit jurisdiction; applied to emphasize that PAGCOR’s unique charter limit carves out an exception from the general coverage.
• Basco v. PAGCOR, 274 Phil. 323 (1991) — Referenced to characterize PAGCOR’s dual role as regulator and casino operator, underscoring the proprietary nature of some of its funds.

• Article IX-D, Section 2, 1987 Constitution — Defines the COA’s audit power over government revenues, expenditures, and GOCCs; the Court ruled that this provision does not automatically override the specific statutory limitation in PAGCOR’s charter absent a direct constitutional challenge.
• Section 15, Presidential Decree No. 1869 (PAGCOR Charter) — Limits COA’s audit of PAGCOR to the 5% franchise tax and the 50% government share of gross earnings; held to be valid, operative, and controlling, effectively excluding the operating expenses fund from COA’s disallowance authority.
• Section 7(e), Presidential Decree No. 1869 — Empowers the PAGCOR Board to perform acts “necessary or proper for the accomplishment of its purposes and objectives”; served as a basis for concluding that the movie ticket purchase was a valid socio-civic project.

Gesmundo, C.J., concurred. Perlas-Bernabe, J., and Leonen, J., filed separate concurring opinions. Caguioa and Carandang, JJ., took no part. Justices Hernando, Lazaro-Javier, Inting, Zalameda, M. Lopez, Delos Santos, Rosario, and J. Lopez concurred.