Padilla vs. Commission on Audit

PICCI, as a wholly-owned subsidiary of the fiscally autonomous BSP, is not covered by E.O. No. 80 and its implementing guidelines and is not under DBM jurisdiction; a COA disallowance premised on that coverage has no legal basis, and when the Notice of Disallowance is set aside, no return is required from any person held liable therein.

PICCI is a government corporation wholly-owned by the BSP that manages and operates the PICC. It was organized pursuant to P.D. No. 520, which authorized the Central Bank of the Philippines to establish an International Conference Center and to organize a corporation fully subscribed by the Central Bank; the Center was later named the PICC under P.D. No. 710. The BSP is the country’s central monetary authority and enjoys fiscal and administrative autonomy under Section 1 of R.A. No. 7653. E.O. No. 80 established a Performance-Based Incentive System for government employees and, by its terms, covers departments, agencies, SUCs, and GOCCs that remain under DBM jurisdiction.

Petitioners Renato B. Padilla and Maria Louisa Perez-Padilla were, respectively, the General Manager and the Officer-in-Charge of the Accounting Department of PICCI. On December 19, 2012, the PICCI Board of Directors approved the grant of a Performance-Based Bonus for the year 2012 to all PICCI employees at P10,000.00 each, or a total of P840,000.00. The bonus was given in recognition of the successful hosting of events at the PICC, especially the 45th Annual Meeting of the Asian Development Bank Board of Governors held on May 2-5, 2012.

On March 21, 2013, the Audit Team Leader and the Supervising Auditor issued Audit Observation Memorandum No. PICCI-2012-05, noting that the grant did not comply with E.O. No. 80 dated July 20, 2012 and its implementing guidelines, particularly Memorandum Circular No. 2012-01 dated August 13, 2012 and Memorandum Circular No. 2012-03 dated November 12, 2012. PICCI maintained in its Comment that while it is a government corporation, the DBM has no jurisdiction over it because its budget is not part of the General Appropriations Act.

On December 6, 2013, the Audit Team Leader and the Supervising Auditor issued Notice of Disallowance No. PICCI-13-001-(12), disallowing the payment of the PBB and declaring it an irregular transaction under COA Circular No. 2012-003 dated October 29, 2012. The Notice of Disallowance ordered settlement of the disallowed amount by (a) Renato B. Padilla, General Manager, who approved the payment; (b) Maria Louisa Perez-Padilla, Officer-in-Charge of the Accounting Department, who certified the availability of funds and the completeness of the supporting documents; and (c) all PICCI employees who received the PBB.

The COA-CGS and later the COA Proper found that PICCI is a wholly-owned subsidiary of the BSP. PICCI receives its annual budget for capital expenditures and operational expenses from the BSP; its approved budget is accounted under “Due from PICCI” for capital expenditures and “Advances to PICCI” for operational expenses. PICCI’s balance sheet accounts are consolidated line by line with the BSP, and its income and expenses are integrated under “Miscellaneous Income-PICCI” and “Miscellaneous Expenses-PICCI.” PICCI is governed by a BOD with the BSP Governor as Chairman, the BSP Deputy Governor as Vice-Chairman, and five other members designated by the Monetary Board; under Section 5 of P.D. No. 520, the BSP Governor as chairman must submit to the Monetary Board an annual report on PICCI’s activities and financial condition.

After the COA Proper denied their petition for review, petitioners filed the present Petition for Certiorari.

• Coverage of E.O. No. 80: Petitioners argued that PICCI is not covered by E.O. No. 80 and its implementing guidelines since its parent company, the BSP, enjoys fiscal autonomy under Section 1 of R.A. No. 7653.
• DBM Jurisdiction: Petitioners argued that PICCI is not within the jurisdiction of the DBM since it does not derive its budget from the General Appropriations Act, but from the BSP.
• Good Faith: Petitioners argued that the COA failed to show “dishonest purpose” or “moral obliquity” so as to constitute bad faith on their part when they approved the payment and certified the availability of funds and completeness of supporting documents for the grant of the PBB.

• DBM Review: Respondent maintained that PICCI’s budget is subject to DBM review, it being a wholly-owned subsidiary of the BSP.
• Executive Branch Coverage: Respondent argued that since PICCI does not fall under the legislative or judicial branches of the government, it is deemed part of the executive branch and is therefore required to comply with the directives issued by the President such as E.O. No. 80 and its implementing guidelines.
• Liability: Respondent maintained that the approving/certifying/authorizing officers of PICCI should be held personally and solidarily liable for the full amount of the disallowed PBB in view of Section 16 of the 2009 Rules and Regulations on Settlement of Accounts.

• Coverage of E.O. No. 80 / DBM Jurisdiction: Whether the COA acted with grave abuse of discretion when it ruled that E.O. No. 80 and its implementing guidelines apply to PICCI.
• Good Faith / Liability: Whether the COA acted with grave abuse of discretion when it found that petitioners did not act in good faith when they approved and/or certified the grant of the PBB.

• Coverage of E.O. No. 80 / DBM Jurisdiction: Yes. The COA acted with grave abuse of discretion; PICCI is not covered by E.O. No. 80 because, as a wholly-owned subsidiary of the fiscally autonomous BSP, it is not under DBM jurisdiction, and offices with fiscal autonomy are merely encouraged to adopt the PBB scheme.
• Good Faith / Liability: Yes. The COA’s bad-faith finding and liability ruling cannot stand because the Notice of Disallowance had no legal basis; under Rule 1 of the Rules on Return in Madera vs. Commission on Audit, when a Notice of Disallowance is set aside, no return is required from any person held liable therein.

• Coverage of E.O. No. 80 / DBM Jurisdiction: The SC began with the nature of the PBB as a top-up bonus under the Performance-Based Incentive System introduced by E.O. No. 80, which covers all departments, agencies, SUCs, and GOCCs that remain under DBM jurisdiction. PICCI is a government corporation wholly-owned by the BSP and manages the PICC; under P.D. No. 520, the Central Bank was authorized to establish the International Conference Center and organize a corporation fully subscribed by it, and P.D. No. 710 later named it the PICC. The BSP enjoys fiscal and administrative autonomy under Section 1 of R.A. No. 7653; the Monetary Board adopts the BSP’s annual budget, and the BSP does not receive its budget from the national government through the General Appropriations Act. Because the Monetary Board adopts the BSP’s budget and, as a matter of course, PICCI’s budget, it is incongruous to place the BSP under DBM jurisdiction and subject its budget to DBM review. Annex B of Memorandum Circular No. 2012-01 listed the BSP as a GOCC under DBM, but the SC found this inconsistent with the BSP’s charter; the listing appears explained by the BSP’s express exclusion from R.A. No. 10149, and the entities in Annex B are the same entities found in Section 4 of R.A. No. 10149. Memorandum Order No. 2012-09 classified PICCI as a GOCC excluded from R.A. No. 10149 and GCG jurisdiction, but exclusion from GCG does not mean inclusion under DBM. Offices vested with fiscal autonomy such as the BSP cannot be compelled to observe the PBB guidelines under E.O. No. 80; Section 8 merely encourages them to adopt the E.O. The same reasoning applies to PICCI, which obtains its budget from the BSP. The SC clarified that fiscal autonomy does not authorize unbridled discretion: PICCI remains subject to COA review and audit, and its approved budget is public in character; its PBB should have been audited against criteria set by its BOD or the Monetary Board. But no existing law, rules, or guidelines declare PICCI covered by E.O. No. 80 or under DBM jurisdiction. While COA decisions are generally deferred to, the SC may intervene where COA acted with grave abuse of discretion, as here where the disapproval in audit had no basis in law and jurisprudence.
• Good Faith / Liability: The SC held that the Notice of Disallowance was bereft of legal foundation, which brought the case under Rule 1 of the Rules on Return in Madera vs. Commission on Audit: if a Notice of Disallowance is set aside, no return shall be required from any of the persons held liable therein. The obligation to return is civil in nature and based on the loss incurred by the government because of the transaction. There was no showing that the grant of the PBB strained government coffers. PICCI was issued a Notice of Disallowance for failure to comply with conditions in the implementing guidelines of E.O. No. 80 when it need not subscribe to that E.O. in the first place. Hence, petitioners, as approving and certifying officers, cannot be held civilly liable for the PBB released to PICCI employees.

• Fiscal autonomy of the BSP and its subsidiary PICCI — The BSP is a government-owned corporation that enjoys fiscal and administrative autonomy under Section 1 of R.A. No. 7653; the Monetary Board adopts its annual budget, and it does not rely on Congress through the General Appropriations Act. E.O. No. 80 covers GOCCs under DBM jurisdiction, but the BSP is not under DBM; offices with fiscal autonomy are merely encouraged to adopt the PBB scheme under Section 8. The SC applied the same rule to PICCI because it is a wholly-owned BSP subsidiary that obtains its budget from the BSP.
• COA audit jurisdiction over public funds — Even if PICCI does not receive its budget from the national government through the General Appropriations Act, its approved budget is public in character and subject to COA review and audit. Fiscal autonomy does not authorize unbridled discretion; PICCI’s PBB should have been audited against criteria set by its BOD or the Monetary Board. But a COA disallowance must still have a legal basis.
• Grave abuse of discretion in COA decisions — COA decisions are generally accorded deference because of separation of powers and COA’s expertise, but the SC may intervene when COA acts without or in excess of jurisdiction or with grave abuse of discretion, as where the disapproval in audit has no basis in law and jurisprudence.
• Rules on Return under Madera vs. Commission on Audit — If a Notice of Disallowance is set aside, no return is required from any person held liable therein. The obligation to return is civil and based on loss to the government; no loss was shown, and the Notice of Disallowance had no legal basis, so petitioners could not be held civilly liable.

• “The petition is meritorious. The PICCI is not covered by E.O. No. 80.” — This is the SC’s core conclusion, framing the entire ruling on coverage and DBM jurisdiction.
• “Since the MB adopts an annual budget for the BSP and, as a matter of course, the PICCI, it is incongruous, if not absurd, to place the BSP under the jurisdiction of the DBM and subject its budget to the DBM's review and approval.” — This passage explains why the BSP’s fiscal autonomy excludes it from DBM budget review and why the same reasoning extends to PICCI.
• “Offices vested with fiscal autonomy such as the BSP cannot be compelled to observe and adhere to the guidelines and principles governing the PBB scheme under E.O. No. 80.” — This states the rule that fiscal-autonomy offices are only encouraged, not compelled, to adopt the PBB scheme.
• “[i]f a Notice of Disallowance is set aside by the Court, no return shall be required from any of the persons held liable therein.” — This is the Madera rule the SC applied after setting aside the Notice of Disallowance, resulting in no liability to return the PBB.

• Manila International Airport Authority vs. Commission on Audit, G.R. No. 218388, October 15, 2019 — Relied on for the rule that COA decisions are generally deferred to, but the SC may intervene where COA acted with grave abuse of discretion.
• Madera vs. Commission on Audit, G.R. No. 244128, September 8, 2020 — Controlling precedent for the Rules on Return; the SC applied Rule 1 holding that no return is required when a Notice of Disallowance is set aside.
• Tetangco, Jr. vs. Commission on Audit, G.R. No. 244806, September 17, 2019 — Relied on for the point that PICCI remains subject to COA review and audit.
• Civil Service Commission vs. Department of Budget and Management, 517 Phil. 440, 443 (2006) — Cited for the general allocation and release framework, which the SC contrasted with the BSP’s fiscal autonomy.

• Section 1, R.A. No. 7653 (The New Central Bank Act) — Declares that the central monetary authority, while a government-owned corporation, shall enjoy fiscal and administrative autonomy; applied to hold that the BSP is not under DBM jurisdiction and that PICCI, as its wholly-owned subsidiary, obtains its budget from the BSP.
• Section 15(d), R.A. No. 7653 — Authorizes the Monetary Board to adopt an annual budget for the BSP and authorize expenditures; applied to show that the BSP and PICCI budget is crafted by the Monetary Board, not through the General Appropriations Act and DBM process.
• Section 6, E.O. No. 80 — Limits coverage to departments, agencies, SUCs, and GOCCs that remain under DBM jurisdiction; applied to exclude PICCI because it is not under DBM.
• Section 8, E.O. No. 80 — Provides that offices vested with fiscal autonomy are encouraged to adopt the E.O. to be eligible for the PBB; applied to the BSP and, by the same reasoning, to PICCI.
• Section 4, R.A. No. 10149 (GOCC Governance Act of 2011) — Excludes the BSP, SUCs, cooperatives, local water districts, economic zone authorities, and research institutions from its coverage; applied to explain why Annex B of Memorandum Circular No. 2012-01 listed the same entities and why the BSP’s exclusion from R.A. No. 10149 did not place it under DBM.
• Section 3(o), R.A. No. 10149 — Defines GOCCs and related entities within GCG jurisdiction; cited to note that the BSP and PICCI are excluded from GCG authority, but that exclusion does not confer DBM jurisdiction.
• Sections 1, 2, and 5, P.D. No. 520 — Authorized the Central Bank to establish the International Conference Center, organize a corporation fully subscribed by the Central Bank, and require the BSP Governor as BOD chairman to report to the Monetary Board; applied to show PICCI is part of BSP operations.
• P.D. No. 710 — Named the International Conference Center as the PICC; applied as context for PICCI’s identity and operations.
• Rule 64 in relation to Rule 65, Rules of Court — Governs the Petition for Certiorari assailing the COA decision; applied as the procedural vehicle for SC review.