Paguio vs. Commission on Audit

A decision of the Commission on Audit that is not appealed within the reglementary period lapses into finality and may no longer be modified, consistent with the doctrine of immutability of judgments, absent compelling reasons grounded on substantial justice. Further, allowances and benefits prescribed by a water district board for its own members under Section 13 of Presidential Decree No. 198 require the prior approval of the Local Water Utilities Administration; board resolutions and internal legal memoranda that do not satisfy the statutory requirement, and that contravene prevailing austerity directives under Administrative Order No. 103, do not legalize the disallowed expenditures.

Petitioners were officers and members of the Board of Directors of the Pagsanjan Water District, a government-owned and controlled corporation organized under Presidential Decree No. 198, otherwise known as the “Provincial Water Utilities Act of 1973.” In 2009 and 2010, the Board passed resolutions granting its members extra year-end financial assistance, additional cash gifts, medical allowance, anniversary bonus, productivity enhancement incentive, communication allowances, and a loyalty award. The Commission on Audit subsequently issued a Notice of Disallowance covering an aggregate amount of ₱283,965.00, finding that the benefits lacked legal basis because they were conferred without the approval of the Local Water Utilities Administration in violation of Section 13 of Presidential Decree No. 198, as amended by Republic Act No. 9286, and contrary to Administrative Order No. 103 which had suspended new and additional benefits to GOCC officials and governing boards.

• Parties and Nature of the Action: Petitioners Engr. Alex C. Paguio and Angeline R. Aguilar were the General Manager and Administrative Division Manager, respectively, of the Pagsanjan Water District. Petitioners Edita B. Abarquez, Marifel B. Pabilonia, Nina P. Velasco, Fred V. Capistrano, and Angelito T. Bombay were members of the PAGWAD Board of Directors. PAGWAD is a GOCC created under Presidential Decree No. 198. The case originated from a Notice of Disallowance issued by the COA against benefits the board members granted to themselves.

• The Grant of Benefits: In 2009 and 2010, the PAGWAD Board of Directors passed several resolutions granting themselves the following: (1) extra year-end financial assistance of ₱12,555.00 each under Resolution No. 71; (2) additional extra year-end financial assistance of ₱5,000.00 each under Resolution No. 87; (3) medical allowance of ₱7,500.00 each under Resolution No. 10; (4) anniversary bonus equivalent to one-month basic salary under Resolution No. 31; (5) productivity enhancement incentive of ₱10,000.00 each under Resolution No. 63; as well as communication allowances and a loyalty award.

• The Disallowance: On May 10, 2012, the COA issued Notice of Disallowance No. 2012-100-001(09 & 10) covering ₱283,965.00, finding that the benefits lacked legal basis because they were granted without the approval of the Local Water Utilities Administration as required by Section 13 of PD No. 198, as amended, and in violation of COA Resolution No. 2004-006, DBM regulations, and Administrative Order No. 103. The Notice held petitioners liable to settle the disallowed amounts.

• The Appeal to the Regional Office: Petitioners appealed to COA Regional Office No. IV-A, invoking LWUA Board of Trustees Resolution No. 239 (which approved year-end financial assistance and cash gift to water district board members), LWUA Memorandum Circular Nos. 011-06 and 004-11, and an Inter-Office Memorandum dated April 18, 2008 from the LWUA Legal Department. The Regional Office denied the appeal in Decision No. 2014-35, holding that Executive Order No. 7 and LWUA Memorandum Circular No. 015-10 had suspended the grant of year-end financial assistance and cash gift, and that Memorandum Circular No. 015-12 later categorically suspended the disbursement until clearance from a higher authority was obtained.

• The Appeal to the COA Proper: Petitioners received the Regional Office Decision on April 23, 2014. They filed a Petition for Review before the COA Proper on April 30, 2014, which was two days beyond the remaining five days of the 180-day appeal period. The COA Proper dismissed the petition on the ground of finality, and denied reconsideration.

• Authority under Section 13 of PD No. 198: Petitioners maintained that the Board of Directors possessed the authority to prescribe additional allowances and benefits for its members under Section 13 of Presidential Decree No. 198, as amended by Republic Act No. 9286.

• Existence of LWUA Approval: Petitioners argued that the grant of year-end financial assistance and cash gift was authorized by LWUA Board of Trustees Resolution No. 239 dated December 20, 2005, confirmed by LWUA Memorandum Circular No. 011-06, and that the release of the 2010 benefits was allowed by LWUA Memorandum Circular No. 004-11. They further cited an Inter-Office Memorandum dated April 18, 2008 signed by Atty. Ma. Elena R. Te of the LWUA Legal Department as proof of LWUA approval for the questioned benefits.

• Leniency in the Application of Procedural Rules: Petitioners entreated the Court to exercise liberality and resolve the case on the merits, asserting that the adverse COA decision had a grievous effect on their families given their meager income and personal loans.

• Finality of the Regional Office Decision: Respondents asserted that petitioners’ appeal before the COA Proper was filed two days beyond the reglementary period, rendering the Regional Office Decision final and executory under Section 51 of PD No. 1445 and the COA Rules of Procedure.

• Absence of Valid LWUA Approval: Respondents countered that the cited LWUA issuances did not constitute the required prior approval. LWUA Resolution No. 239 and its confirming circulars were invalid because they contravened Administrative Order No. 103, which had suspended new and additional benefits to GOCC board members. Further, LWUA Memorandum Circular No. 004-11 pertained only to the 2010 year-end assistance, not the 2009 grants, and the Inter-Office Memorandum was merely a recommendation, not an approval.

• Liability for Gross Negligence: The COA maintained that petitioners patently disregarded clear statutory and regulatory directives, amounting to gross negligence that made them solidarily liable to refund the disallowed amounts.

• Finality of Appeal: Whether the COA Proper committed grave abuse of discretion in dismissing petitioners’ Petition for Review for having been filed out of time.

• Propriety of the Disallowance: Whether the COA Proper committed grave abuse of discretion in sustaining the Notice of Disallowance.

• Finality of Appeal: The dismissal of the petition for review for being filed out of time was proper and did not constitute grave abuse of discretion. The COA Rules of Procedure prescribe a single 180‑day period within which an aggrieved party must pursue an appeal from the auditor’s decision to the regional director and, thereafter, to the COA Proper. Petitioners received the Notice of Disallowance on May 23, 2012 and filed their appeal to the Regional Office 175 days later, leaving only five days of the 180‑day period. Upon receipt of the Regional Office Decision on April 23, 2014, the remaining period began to run again; the appeal to the COA Proper was filed on April 30, 2014, which was two days late. The decision thus became final and executory pursuant to Section 51 of PD No. 1445, and the doctrine of immutability of judgments barred its modification. No compelling reason existed to relax the rules: petitioners offered no explanation for the delay and rested on general averments of hardship, which are insufficient to override the mandatory character of procedural periods.

• Propriety of the Disallowance: Even assuming the procedural barrier were lifted, no grave abuse of discretion attended the affirmation of the disallowance. Section 13 of PD No. 198 authorizes water district boards to prescribe allowances and benefits subject to the approval of the LWUA. None of the invoked issuances satisfied that requirement. LWUA Board Resolution No. 239 and Memorandum Circular No. 011-06 could not validate the grants because Administrative Order No. 103, effective since 2004, had already suspended new or additional benefits to GOCC governing boards; allowing the grants would contravene the President’s power of control over the executive branch and its instrumentalities. Moreover, petitioners failed to prove that the year-end assistance given in 2009 fell within the threshold set in Resolution No. 239. LWUA Memorandum Circular No. 004-11 concerned only the 2010 year-end assistance and was therefore inapplicable to the 2009 grants. The Inter-Office Memorandum of the LWUA Legal Department was a mere recommendation, not an approval, and addressed only the medical allowance up to ₱6,000.00, not the ₱7,500.00 actually granted or the other benefits. No authority was presented for the anniversary bonus, productivity incentive, communication allowances, and loyalty award. Consequently, all the disbursements lacked legal basis.

• Liability to Refund: Because the COA Regional Office Decision had become final, the issue of good faith was immaterial. The approving and certifying officers’ disregard of PD No. 198, RA No. 9286, and AO No. 103 amounted to gross negligence, negating the presumption of regularity. Under Section 43 and Section 38 of the Administrative Code of 1987, as applied in Madera v. Commission on Audit, officers who authorized or took part in irregular disbursements are jointly and severally liable for the full amount. Thus, Paguio and Aguilar were solidarily liable even though they were not recipients, and the board members were solidarily liable to refund the benefits they received.

• Doctrine of Immutability of Final Judgments — A decision that has attained finality becomes immutable and unalterable and may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact and law. This doctrine applies to quasi-judicial bodies like the COA and is grounded on public policy that litigation must end at a definite date. It was applied to uphold the dismissal of petitioners’ out‑of‑time appeal.

• Rule on Liberality in the Application of Procedural Rules — Procedural rules may be relaxed only for the most compelling reasons, when strict adherence would defeat the ends of justice. A plea for liberality must be accompanied by a justification grounded on substantial justice; general invocations of social justice or hardship are insufficient. The rule was invoked to deny petitioners’ request for leniency in the absence of any explanation for their delay.

• Requirement of LWUA Approval under Section 13 of PD No. 198, as amended — The power of a water district board to grant additional allowances and benefits to its members is not unbridled; it is expressly subject to the approval of the Local Water Utilities Administration. Board resolutions and internal legal memoranda that do not demonstrate a valid, prior LWUA approval cannot legalize the expenditures. The Court further held that any such approval must conform to prevailing austerity directives issued by the President.

• Liability of Public Officers for Disallowed Transactions (Madera Doctrine) — Under Sections 38 and 43 of the Administrative Code of 1987, every official who authorizes, takes part in, or receives payment in an irregular transaction is jointly and severally liable for the full amount. Civil liability of superior officers requires a showing of bad faith, malice, or gross negligence. The palpable disregard of laws and applicable directives constitutes gross negligence, which removes the presumption of good faith and regularity.

• “[A]t the risk of occasional error, the judgment of courts and quasi-judicial agencies must become final at some definite date fixed by law.” — This passage encapsulates the policy rationale for the immutability doctrine, justifying the strict enforcement of appeal periods.

• “[P]rocedural rules should be treated with utmost respect and due regard because they are precisely designed to effectively facilitate the administration of justice. … [W]e have always taken precaution in exercising such liberality as we may do so only for the most compelling reasons, when stubborn obedience to the procedure would defeat rather than serve the ends of justice.” — The statement establishes the high threshold for relaxing procedural rules.

• “[G]eneral averments of social justice concepts would not suffice to warrant deviation from established rules and principles on immutability of final judgments as every litigant can conveniently allege injustice from every adverse decision.” — This underscores that bare claims of hardship do not justify overturning final and executory rulings.

• “The palpable disregard of laws, prevailing jurisprudence, and other applicable directives amounts to gross negligence, which betrays the presumption of good faith and regularity in the performance of official functions enjoyed by public officers.” — This excerpt outlines the standard by which the approving and certifying officers were held liable.

• Madera v. Commission on Audit, G.R. No. 244128, September 8, 2020 — The Court applied its refined rules on the liability of officers and recipients in disallowed transactions. It clarified that approving and certifying officers are solidarily liable where gross negligence is shown, and that recipients must return what they received.

• Technical Education and Skills Development Authority (TESDA) v. Commission on Audit, 729 Phil. 60 (2014) — Cited for the principle that the COA’s plenary discretion is generally sustained, and judicial review is limited to instances of grave abuse of discretion.

• Ocampo v. CA, 601 Phil. 43, 49 (2009) — Used to support the rule that a party who fails to question an adverse decision within the prescribed period loses the right to do so and the decision becomes final and binding.

• Team Pacific Corporation v. Daza, 690 Phil. 427, 441 (2012) — Referred to for the foundational justification of the immutability doctrine grounded on public policy and the need for finality.

• Binga Hydroelectric Plant, Inc. v. Commission on Audit, 836 Phil. 46, 54 (2018) — Cited for the proposition that an appeal for the Court’s exercise of liberality must be accompanied by a justification speaking of strong substantial justice considerations.

• Metropolitan Waterworks and Sewerage System v. Commission on Audit, 821 Phil. 117, 140 (2017) and Tetangco, Jr. v. Commission on Audit, 810 Phil. 459, 467 (2017) — Both invoked to support that gross negligence negates the presumption of regularity.

• Section 13, Presidential Decree No. 198, as amended by Republic Act No. 9286 — The statutory basis for a water district board’s authority to grant allowances and benefits to its members, expressly requiring that any such grant be “subject to the approval of the Administration [LWUA].” The Court held that this prerequisite was not satisfied.

• Administrative Order No. 103 (2004) — Section 3(c) directed the suspension of new or additional benefits to non‑full‑time officials, including members of governing boards of GOCCs. The Court ruled that the LWUA Board of Trustees and water district boards could not ignore this presidential directive, which rendered the purported LWUA approvals ineffectual.

• Section 51, Presidential Decree No. 1445 (Government Auditing Code of the Philippines) — Provides that a decision of the COA or its auditor, if not appealed in accordance with its rules, becomes final and executory. This provision anchored the ruling that the Regional Office Decision had attained finality.

• Sections 38 and 43, Chapter 9, Book I of the Administrative Code of 1987 (Executive Order No. 292) — Section 43 imposes joint and several liability on every official who authorizes or takes part in an illegal payment. Section 38 limits the civil liability of superior officers to instances of bad faith, malice, or gross negligence. The Court found gross negligence and thus imposed solidary liability.

• 2009 Revised Rules of Procedure of the Commission on Audit, Rules IV, V, and VII — These rules establish the six‑month (180‑day) period to appeal from the auditor’s decision to the director and, if necessary, to the COA Proper, and provide that the period is tolled only upon receipt of the director’s decision. Failure to appeal within the remaining time rendered the decision final.

Gesmundo, C.J., Perlas-Bernabe, Leonen, Caguioa, Hernando, Carandang, Lazaro-Javier, Inting, Zalameda, Delos Santos, Gaerlan, Rosario, and J. Lopez, JJ., concurred.

N/A — The decision was unanimous.