Menzon vs. Commission on Audit

Approving and certifying officers of government agencies who fail to detect clear and glaring irregularities on the face of documents supporting fund disbursements are solidarily liable to return the disallowed amounts, unless they acted in good faith, in the regular performance of official functions, and with the diligence of a good father of the family; however, officers whose participation was limited to preparatory or ministerial functions without review, recommendatory, or approving authority may be absolved from refund liability.

The Home Development Mutual Fund (HDMF), more popularly known as the Pag-IBIG Fund, was established to provide a national savings program and affordable shelter financing for Filipino workers, with its rule-making power vested in its own Board of Trustees. To fast-track the government's housing program, the Board devised the Window 1 Contract to Sell (CTS)/Real Estate Mortgage (REM) with Buyback Guaranty scheme, under which accredited developers are authorized to receive, evaluate, pre-process, and approve the housing loan applications of the Fund's member-borrowers, with the Fund processing and releasing loan proceeds to the developer within seven working days from submission of the required documents. The implementing guidelines are embodied in Pag-IBIG Fund Circular No. 212 and Pag-IBIG Fund Circular No. 237.

Between 2007 and 2009, Ray F. Zialcita, an accredited developer of Villa Perla Subdivision located in Maasin City, Southern Leyte, filed with the HDMF Region VIII the housing loan applications of 21 member-borrowers under the Window 1 CTS/REM with Buyback Guaranty scheme. Upon receipt of the loan applications and their attached documents, the petitioners — officials and employees of the HDMF Region VIII — approved and released the total amount of ₱13,791,000.00 to Zialcita as payment for the lots allegedly purchased by the member-borrowers.

On post-audit, Audit Team Leader Virginia C. Tabao and Supervising Auditor Alicia M. Malquisto discovered numerous irregularities and deficiencies in the submitted documents. These included uncertified pay slips, identical contracts of employment for different borrowers, missing signatures of approving officer Flordelis B. Menzon on the Disclosure Statement on Loan Transaction and the Loan Mortgage Agreement, unsigned Notices of Installment/Amortization, residence certificates shared between borrowers, proof of billing in the name of another person, ongoing site development on the day of take-out, unnotarized Loan and Mortgage Agreements and Deeds of Absolute Sale, incompletely filled-up application forms, application forms in different handwriting, absence of proof of billing address and proof of income, discrepancies between the loan amounts in the Notice of Loan Amortization and the disbursement voucher, and documents not signed by responsible HDMF Region VIII officers.

Notices of Suspension were issued on May 4 and 5, 2011, covering all 21 transactions totaling ₱13,791,000.00, directing petitioners to explain, justify, and settle the irregularities and deficiencies within 90 days from receipt. Petitioners failed to comply within the prescribed period. Consequently, Notices of Disallowance were issued on February 29, 2012, naming the persons liable and specifying their respective participations — ranging from filing the loan applications and receiving the proceeds (Zialcita), to approving payments and countersigning checks (Menzon), certifying the necessity and lawfulness of expenses (Clarin), certifying availability of funds and completeness of supporting documents (Gatchalian and Cayobit), reviewing and certifying schedules of payment and evaluation sheets (Villablanca, Pomida, Granali), preparing documents (Pretencio), and signing Confirmations of Appraisal (Loreche, Faraon, Custodio, Naynos).

Petitioners, along with Gatchalian, Naynos, Custodio, and Cayobit, appealed the NDs before the COA Region VIII by filing a Joint Memorandum of Appeal dated October 1, 2012. The COA Region VIII found the deficiencies clear and glaring on the face of the documents, such that had petitioners scrutinized them, loan releases could have been prevented. It held that petitioners could not avoid responsibility by passing blame solely to Zialcita, because the use of the term "pre-process" in the governing circulars meant that further processing was required, which responsibility lay with the HDMF Region VIII officials who had the final say on approval. Petitioners Pomida, Pretencio, Faraon, and Loreche were not absolved despite not being included in the NSs, the COA Region VIII finding that their right to due process was not violated because the ATL and SA faithfully followed the requirements in issuing the NDs after determining their direct participation in the loan releases.

Petitioners then filed consolidated petitions for review with the COA Proper, while the other officers named in the NDs no longer joined them. The COA Proper affirmed the COA Region VIII ruling in Decision No. 2018-126 dated January 26, 2018, reiterating that petitioners' failure to detect obvious irregularities and to conduct post-take-out inspection and post-validation of borrowers were the primary reasons for their liability. It emphasized that as public officers who participated in the release of the loans, petitioners should have exercised the required diligence to ensure that all documents were valid to protect the government's interest. The COA Proper also held that due process had been afforded to Pomida, Pretencio, Faraon, and Loreche when they were allowed to file their Joint Memorandum of Appeal after receipt of the NDs.

• COA Jurisdiction: Petitioner argued that the loan take-outs are investments, not expenditures, and therefore fall outside the scope of COA's audit review jurisdiction.
• Premature Disallowance: Petitioner maintained that the NDs were prematurely issued because Pag-IBIG had already availed of remedies against the developer under Pag-IBIG Fund Circular Nos. 212 and 237 and had taken steps to convert the subject lots into acquired assets, such that the Government had yet to incur loss or damage.
• Policy Decision Liability: Petitioner argued that the Board of Trustees' policy decision to transfer to the developer the sole responsibility of submitting correct and authentic documents and of approving the loan and lot purchase applications should shield petitioners from liability for the attendant risks.
• Developer's Sole Responsibility: Petitioner maintained that the alleged incomplete or questionable documentation pertaining to the borrowers was the sole responsibility of the developer under the governing circulars.
• Trivial Deficiencies: Petitioner argued that the deficiencies cited by the COA were trivial or inconsequential and should not warrant disallowance.
• Notarization Requirement: Petitioner contended that the disallowance based on lack of notarization of some documents was improper because notarization was not yet required at the time the documents were submitted.
• Good Faith Reliance: Petitioner argued that they merely relied in good faith on the performance of duty by the developer, who had the sole responsibility of submitting correct and authentic documents and of approving the loan and lot purchase applications.
• Excusal for Good Faith: Petitioner maintained that they should be excused from paying the disallowed amounts on the ground of good faith.

• Audit Jurisdiction: Respondent countered that the loan proceeds represent payments advanced by HDMF Region VIII on behalf of member-borrowers for properties purchased from Zialcita, and thus constitute expenditures subject to COA audit review, regardless of whether they also qualify as investments.
• Pre-Process Means Further Processing: Respondent argued that the use of the term "pre-process" in Pag-IBIG Fund Circular Nos. 212 and 237 means that further processing needs to be made by HDMF officials, who have the final say on whether to approve the housing loan applications.
• Non-Delegation of Responsibility: Respondent maintained that petitioners cannot avoid responsibility by passing blame solely to the developer, as the responsibilities of further processing and final approval are lodged upon HDMF officials.
• Distinct Remedies: Respondent argued that the availment of remedies against the developer does not preclude the issuance of NDs upon a finding of irregularity in the release of loan take-outs, as the two are distinct from each other and subject to separate post-audit.
• Due Process Afforded: Respondent countered that the essence of due process — the opportunity to explain one's side or seek reconsideration — had been afforded to petitioners when they were allowed to file their Joint Memorandum of Appeal after receipt of the NDs.

• COA Jurisdiction: Whether the COA committed grave abuse of discretion in confirming the disallowance of loan amounts for lot purchases on the ground that said amounts are not expenditures subject to its audit jurisdiction.
• Premature Disallowance: Whether the COA committed grave abuse of discretion in confirming the disallowance notwithstanding that Pag-IBIG had availed of remedies against the developer and had taken steps to convert the subject lots into acquired assets.
• Developer Responsibility: Whether the COA committed grave abuse of discretion in confirming petitioners' liability for risks attendant to the Board of Trustees' policy decision to transfer to the developer the responsibility of submitting correct documents and approving loan applications.
• Sole Responsibility of Developer: Whether the COA committed grave abuse of discretion in confirming the disallowance notwithstanding that the alleged incomplete or questionable documentation was the sole responsibility of the developer.
• Trivial Deficiencies: Whether the COA committed grave abuse of discretion in confirming the disallowance on the basis of trivial or inconsequential deficiencies.
• Notarization Requirement: Whether the COA committed grave abuse of discretion in confirming the disallowance for lack of notarization of some documents, notwithstanding that notarization was not yet required.
• Good Faith Reliance: Whether the COA committed grave abuse of discretion in confirming the disallowance notwithstanding that petitioners merely relied in good faith on the developer's performance of duty.
• Excusal for Good Faith: Whether the COA committed grave abuse of discretion in confirming the disallowance instead of excusing petitioners from paying the disallowed amounts for reason of good faith.

• COA Jurisdiction: No. The loan take-outs constitute expenditures subject to COA audit, as they represent payments advanced by HDMF Region VIII on behalf of member-borrowers for properties purchased from Zialcita, involving the use of government funds within the COA's constitutional audit mandate.
• Premature Disallowance: No. The availment of remedies against the developer does not preclude the issuance of NDs upon a finding of irregularity, as the two are distinct from each other and subject to separate post-audit; the remedies did not cure the irregularity of the transactions.
• Developer Responsibility: No. The Window 1 scheme only expedites the process but does not render petitioners' functions ministerial or perfunctory; the term "pre-process" means further processing is required, which lies with HDMF officials who have the final say on approval.
• Sole Responsibility of Developer: No. Petitioners cannot trivialize their roles in the approval and release of loan take-outs; since government funds are involved, the disbursement bears their imprimatur, and shifting blame solely to the developer constitutes gross negligence.
• Trivial Deficiencies: No. The alleged triviality of the deficiencies is a factual matter outside the ambit of a certiorari petition; the findings of administrative agencies supported by substantial evidence are accorded great respect, if not finality.
• Notarization Requirement: No. The claim that notarization was not yet required is a factual matter that the Court cannot entertain in a certiorari petition, it being outside the scope of review.
• Good Faith Reliance: No. Petitioners' interpretation of the circulars was erroneous; the nonchalant reliance on the developer's compliance implies they merely affixed signatures without reviewing, examining, or evaluating the documents, negating good faith given the clear and glaring irregularities on the face of the documents.
• Excusal for Good Faith: No, except for Loreche, Faraon, and Pretencio. The approving and certifying officers who failed to detect glaring irregularities were held solidarily liable under Section 43 of the Administrative Code, while the three petitioners whose participation was limited to appraisal or document preparation without review or recommendatory authority were absolved.

• COA Jurisdiction: The COA is vested by Section 2(1), Article IX-D of the 1987 Constitution with the power to examine, audit, and settle all accounts pertaining to revenue, receipts, expenditures, and uses of funds and property owned or held by the Government, including government-owned or controlled corporations with original charters. While petitioners characterized the loan take-outs as investments rather than expenditures, the Court found that when the loan applications were approved and the proceeds released to Zialcita, said proceeds represented payments advanced by HDMF Region VIII on behalf of member-borrowers for properties allegedly purchased — thus constituting expenditures. Regardless of whether they are also characterized as investments, they primarily involve the use of government funds and are therefore subject to COA audit. The COA's exclusive authority to define the scope of its audit and promulgate auditing rules, including those for the prevention and disallowance of irregular expenditures, further supports its jurisdiction.

• Premature Disallowance: The Court agreed with the COA that the availment of remedies against the developer under Pag-IBIG Fund Circular Nos. 212 and 237 does not preclude the issuance of NDs upon a finding of irregularity in the release of loan take-outs, as the two are distinct from each other and subject to separate post-audit. The remedies availed of did not cure the irregularity of the transactions for which the NDs were issued. The damage or loss suffered by the Government resulting from the disallowed transactions was beyond cavil, contrary to petitioners' assertion that the Government had yet to incur loss.

• Developer Responsibility: The Court rejected petitioners' argument that Pag-IBIG Fund Circular Nos. 212 and 237 completely shifted responsibility to the developer, characterizing this interpretation as erroneous and absurd. While the circulars provide that the developer shall receive, evaluate, pre-process, and approve the housing loan applications, the COA correctly observed that the use of the term "pre-process" means that further processing needs to be made — and this responsibility lies with the HDMF officials who have the final say on approval. The Window 1 scheme expedites the process in furtherance of the government's housing program but does not render petitioners' functions ministerial or perfunctory; otherwise, petitioners would be reduced to mere "rubber stamps" of the developer.

• Sole Responsibility of Developer: Since government funds are involved, the disbursement or disposition thereof invariably bears the approving officers' imprimatur. The nonchalant stance of petitioners who admitted to having relied on Zialcita's compliance implies that they merely affixed their signatures without actually performing their duties of reviewing, examining, and evaluating the documents. The irregularities and deficiencies were clear and glaring on the face of the housing loan applications, such that it should have prompted Menzon, as head and final approving authority, to scrutinize the documents. Clarin, Villablanca, Pomida, and Granali were likewise liable based on their respective certifications as to completeness, correctness, necessity, lawfulness, and availability of funds, without which disbursement would not have been possible. Shifting blame solely to Zialcita constitutes gross negligence — characterized by want of even slight care and conscious indifference to consequences.

• Trivial Deficiencies: The Court held that the alleged triviality of the deficiencies is a factual matter which cannot be entertained in a certiorari petition, as it is outside the ambit of such a proceeding. By reason of their special knowledge and expertise, administrative agencies like the COA are in a better position to pass judgment on matters within their jurisdiction, and their findings of fact are accorded great respect, if not finality, when supported by substantial evidence. It is not the task of the appellate court or the Supreme Court to re-weigh the evidence submitted before and passed upon by the administrative body.

• Notarization Requirement: The claim that notarization was not yet required for the documents submitted is likewise a factual matter outside the scope of certiorari review. The Court deferred to the COA's expertise and findings on this point, applying the same principle of finality accorded to administrative agency findings supported by substantial evidence.

• Good Faith Reliance: The Court did not subscribe to petitioners' argument that the circulars completely shifted responsibility to the developer and that they acted in good faith in relying on Zialcita's compliance. While every public official is entitled to the presumption of good faith and regularity in the performance of official duties, the exception applies where, as here, the irregularities and deficiencies were clear and glaring on the face of the documents. The Court noted that mere signature without anything more does not result in liability without any showing of irregularity on the document's face warranting detailed examination — but in this case, such irregularity was present. The approving and certifying officers who acted with gross negligence — Menzon, Clarin, Villablanca, Pomida, Granali, Gatchalian, and Cayobit — were held solidarily liable with Zialcita under Section 43 of the Administrative Code of 1987, consistent with the Torreta guidelines.

• Excusal for Good Faith: Applying the Torreta guidelines on the return of disallowed amounts, the Court held that approving and certifying officers who acted with bad faith, malice, or gross negligence are solidarily liable with the recipients for the return of the disallowed amount. The payee-developer Zialcita, as recipient, is obligated to return the full amount regardless of good faith, subject to the application of quantum meruit. However, Loreche, Faraon, and Pretencio were absolved because their participation was limited to property appraisal or document preparation without any review, recommendatory, or approving function. The COA failed to prove that their work entailed review of the documents submitted by Zialcita or that they had a hand in the approval of the housing loan applications. Naynos and Custodio, though similarly situated, could not benefit from this ruling because they had opted not to challenge the COA Region VIII's Decision, which had long become final and executory as to them. The liable officers should not be held liable for transactions in which they did not participate, as that would constitute grave abuse of discretion.

• Torreta Guidelines on Return of Disallowed Amounts — The Court laid down specific guidelines: (1) if an ND is set aside, no return is required; (2) if an ND is upheld, (a) approving and certifying officers who acted in good faith, in the regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return, consistent with Section 38 of the Administrative Code; (b) approving and certifying officers who acted with bad faith, malice, or gross negligence are solidarily liable with the recipients, pursuant to Section 43 of the Administrative Code; (c) civil liability may be reduced by amounts due to the recipient based on quantum meruit on a case-to-case basis; (d) these rules are without prejudice to more specific provisions of law, COA rules, and accounting principles. In this case, the Court applied the guidelines to hold the grossly negligent officers solidarily liable while absolving those who acted without review or approving authority.

• Presumption of Good Faith and Regularity — Every public official is entitled to the presumption of good faith in the discharge of official duties, and absent any showing of bad faith or malice, there is a presumption of regularity. However, this presumption is rebutted when clear and glaring irregularities on the face of documents are left undetected, demonstrating gross negligence characterized by want of even slight care and conscious indifference to consequences.

• Quantum Meruit — Predicated on equity, this principle allows a person to recover the reasonable value of the thing delivered or service rendered, and acts as a device to prevent unjust enrichment. The Court applied it by directing that monthly amortizations already paid and remitted by member-borrowers covered by the disallowed transactions should be deducted from the total disallowed amount, to prevent the Government from unjustly enriching itself at Zialcita's expense.

• Finality of Administrative Agency Findings — Findings of administrative agencies, especially constitutionally-created bodies like the COA, are accorded not only respect but also finality when their decisions are not tainted with unfairness or arbitrariness amounting to grave abuse of discretion. Findings of fact supported by substantial evidence must be respected, and it is not the task of the appellate court to re-weigh the evidence and substitute its own judgment.

• Irregular Expenditure — An expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles, or practices recognized in law; funds disbursed without conforming with prescribed usages and rules of discipline. A transaction that deviates from or does not comply with established standards, or that fails to follow appropriate rules of procedure, is deemed irregular.

• "While it is true that, under the said Circulars, '[t]he developer shall receive, evaluate, pre-process and approve the housing loan applications of the Fund's member-borrowers x x x[,]' the COA correctly observed that the use of the term 'pre-process' means further processing needs to be made." — This passage articulates the ratio decidendi on the division of responsibility between the developer and HDMF officials, rejecting the argument that the circulars rendered the officials' functions ministerial.

• "The Window 1 - CTS/REM with Buyback Guaranty scheme under Pag-IBIG Fund Circular Nos. 212 and 237 only expedites the process in furtherance of the government's program on housing, but not to the extent as to render petitioners' functions ministerial or perfunctory. Otherwise, petitioners would be reduced to nothing but mere 'rubber stamps' of the developer." — This defines the scope and limits of the expedited take-out mechanism, clarifying that expediting the process does not eliminate the duty of HDMF officials to review and evaluate submitted documents.

• "The exception applies in the present case. As found by the ATL and the SA, and affirmed by the COA, the irregularities and deficiencies were clear and glaring on the face of the housing loan applications and the documents attached thereto, so much so that it should have prompted petitioner Menzon, as head of the HDMF Region VIII and as the final approving authority, to scrutinize the documents presented before her." — This establishes the threshold for negating the presumption of good faith: when irregularities are clear and glaring on the face of documents, the approving officer's failure to scrutinize constitutes gross negligence.

• "Having caused damage or loss to the Government, petitioners Menzon, Clarin, Villablanca, Pomida and Granali, as well as Gatchalian and Cayobit, are personally and solidarily liable with Zialcita to return the disallowed amounts, in consonance with Book VI, Chapter 5, Section 43 of the Administrative Code of 1987." — This states the legal basis for solidary liability of grossly negligent approving and certifying officers under the Administrative Code, applying the Torreta framework to the facts.

• Torreta vs. Commission on Audit, G.R. No. 242925, November 10, 2020 — Controlling precedent providing the specific guidelines on the return of disallowed amounts under irregular government contracts, distinguishing liability based on good faith versus bad faith, malice, or gross negligence, and establishing the application of quantum meruit.
• Madera vs. Commission on Audit, G.R. No. 244128, September 8, 2020 — Followed insofar as the principle that payees who receive undue payment, regardless of good faith, are liable for the return of the amounts they received; applied to hold Zialcita, as payee-developer, obligated to return the disallowed amount.
• City of General Santos vs. Commission on Audit, 733 Phil. 687 (2014) — Cited for the doctrine that the Court sustains decisions of administrative authorities, especially constitutionally-created bodies like the COA, on the basis of separation of powers and presumed expertise.
• Miralles vs. Commission on Audit, 818 Phil. 380 (2017) — Cited for the definition of "irregular expenditure" as an expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, or practices recognized in law.
• Paraiso-Aban vs. Commission on Audit, 777 Phil. 730 (2016) — Cited for the principle that findings of fact of administrative agencies supported by substantial evidence are accorded great respect, if not finality, and that it is not the task of appellate courts to re-weigh such evidence.
• Joson vs. Commission on Audit, 820 Phil. 485 (2017) — Cited for the principle that mere signature without anything more cannot be considered a presumption of liability, absent any showing of irregularity on the document's face warranting detailed examination — the exception applied in this case.
• Republic of the Philippines vs. Arias, 743 Phil. 266 (2014) — Cited for the definition of gross negligence as the want of even slight care, with conscious indifference to consequences, and the omission of care that even inattentive persons never fail to take on their own property.
• Lazaro, et al. vs. Commission on Audit, G.R. No. 213323, January 22, 2019 — Cited for the principle that persons held liable should not be held liable for transactions in which they did not participate, as doing so would constitute grave abuse of discretion.

• Section 2(1), Article IX-D, 1987 Philippine Constitution — Vests the COA with the power, authority, and duty to examine, audit, and settle all accounts pertaining to revenue, receipts, expenditures, and uses of funds and property owned or held by the Government, including government-owned or controlled corporations with original charters, on a post-audit basis. Applied to establish COA jurisdiction over the HDMF loan take-out disbursements.
• Section 2(2), Article IX-D, 1987 Philippine Constitution — Grants the COA exclusive authority to define the scope of its audit and examination, establish techniques and methods, and promulgate accounting and auditing rules, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. Applied to uphold the COA's authority to issue NDs.
• Section 39(1), Chapter 2, Title I, Presidential Decree No. 1445 (Government Auditing Code of the Philippines) — Empowers the COA to require submission of original documents for inspection purposes. Applied to support the COA's authority to examine the housing loan documents submitted by Zialcita.
• Section 39(2), Chapter 2, Title I, Presidential Decree No. 1445 — Provides that failure or refusal to comply with COA requirements without justifiable cause constitutes a ground for administrative disciplinary action and permanent disallowance of a claim. Applied to the petitioners' failure to comply with the Notices of Suspension within 90 days.
• Section 4(5), Presidential Decree No. 1445 — Provides that all government funds and property shall be managed, utilized, and disposed of in accordance with laws and regulations. Cited to emphasize that disbursement of government funds bears the approving officers' imprimatur.
• Section 9, Chapter III, 2009 Rules and Regulations on the Settlement of Accounts (COA Circular No. 2009-06) — Governs the issuance of Notices of Suspension for transactions of doubtful legality, propriety, or regularity, requiring settlement within 90 calendar days, failing which the transaction shall be disallowed. Applied to the issuance of NSs and the subsequent NDs upon petitioners' failure to comply.
• Section 10, Chapter III, 2009 RRSA — Governs the issuance of Notices of Disallowance for irregular, unnecessary, excessive, extravagant, illegal, or unconscionable transactions. Applied to uphold the propriety of the NDs issued against the loan take-out transactions.
• Section 16.1.2, Chapter III, 2009 RRSA — Defines the responsibilities of certifying officers as to completeness of supporting documents, correctness of entries, necessity and lawfulness of expenses, and availability of funds. Applied to hold Clarin, Villablanca, Pomida, Granali, Gatchalian, and Cayobit liable based on their respective certifications.
• Section 43, Book VI, Chapter 5, Administrative Code of 1987 (Executive Order No. 292) — Provides that every payment made in violation of law shall be illegal, and every official or employee authorizing or making such payment, or taking part therein, and every person receiving such payment shall be jointly and severally liable to the Government for the full amount. Applied as the legal basis for the solidary liability of the grossly negligent approving and certifying officers with Zialcita.
• Section 38, Administrative Code of 1987 — Provides that public officers who acted in good faith, in the regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return disallowed amounts. Recognized in the Torreta guidelines as a defense available to approving and certifying officers.

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