Paraiso-Aban vs. Commission on Audit

The COA did not gravely abuse its discretion in holding the internal audit head liable for a disallowed excess payment where she certified the payment vouchers as correct after merely comparing them with approved budgets and relying on subordinate post-audits, without independent verification of the true price; such conduct failed to demonstrate the degree of diligence and good faith required of her sworn duty to safeguard agency assets.

Petitioner Alma G. Paraiso-Aban was the Acting Head of the Office of Internal Auditor of the Armed Forces of the Philippines Retirement and Separation Benefits System (AFP-RSBS), whose land acquisitions became the subject of audit. The Commission on Audit is the constitutional commission vested with general audit power over government funds and property, including the authority to disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. The dispute implicated Presidential Decree No. 1445’s internal-control provisions and COA Circular No. 2009-006’s rules on liability for audit disallowances.

In August 1996, the Armed Forces of the Philippines Retirement and Separation Benefits System (AFP-RSBS) purchased from Concord Resources, Inc. four parcels of land in Calamba, Laguna with a total area of 227,562 square meters. The purchase was covered by two deeds of sale for different amounts. The deed registered with the Register of Deeds of Calamba indicated a total price of P91,024,800.00 and bore the signatures of both vendor and vendee, while the deed found in AFP-RSBS records, executed by Concord alone and entered in its books of accounts, showed that AFP-RSBS actually paid P341,343,000.00, a difference of P250,318,200.00. The special audit team later concluded that, for all legal intents, the true deed of sale was the one filed with the Register of Deeds.

During the 11th Congress (1998 to 2001), the Senate Committees on Accountability of Public Officers and Investigations and on National Defense and Security held hearings to investigate alleged anomalous acquisitions of land by AFP-RSBS in Calamba, Laguna and Tanauan, Batangas. Acting on resolutions passed by the Senate committees, the Deputy Ombudsman for the Military and Other Law Enforcement Offices requested the COA on April 29, 2004 to audit the past and present transactions of AFP-RSBS. Per COA Legal and Adjudication Office Order No. 2004-125 dated December 29, 2004, a special audit team was constituted. It issued Audit Observation Memorandum Nos. 2005-01 and 2005-02, which AFP-RSBS received on October 12, 2005 and October 20, 2005, respectively; AFP-RSBS did not respond.

On July 28, 2010, the special audit team issued Notice of Disallowance No. 2010-07-084-(1996) for P250,318,200.00, representing the excess price paid for the lots. The notice named Alma G. Paraiso-Aban, then Acting Head of the Office of Internal Auditor of AFP-RSBS, among the persons liable, based on her participation through her “verifying the correctness of payment.” The other persons named were Elizabeth C. Liang, President of Concord, for representing Concord and receiving payment for the land; Jesus S. Garcia, Treasurer of Concord, for representing Concord; Jose S. Ramiscal, Jr., President of AFP-RSBS, for approving the payment for the land; and Oscar O. Martinez, Vice President-Comptroller of AFP-RSBS, for recommending approval of the payment.

Petitioner appealed to the COA Proper (COA en banc), where she claimed no knowledge of the transactions before her department’s post-audit; that payments had been made before her verification and approval; that the supporting documents were complete; that she was unaware of the two deeds of sale until the COA audit and did not know why they were executed; that she did not benefit from the transaction; and that she signed “verified correct” on the vouchers in good faith and only after the post-audit by Audit Staff Marilou R. Narzabal and the review by Head of the Financial Audit Branch Dahlia B. Peña, several months after payments were released to Concord.

Before the COA, petitioner admitted that to verify the correctness of the transaction she merely checked it against AFP-RSBS’s approved planned purchases and approved budgets. She consulted no independent sources, such as documents submitted to the Bureau of Internal Revenue and the Register of Deeds, or data on prevailing real estate prices. The approval sheet of the AFP-RSBS Investment Committee recommended the purchase of 611 hectares of land in Calamba, Laguna for “land banking” for P1,576,100,000.00, while the approval sheet for the purchase of the subject right-of-way covering 22.725 hectares contained an estimate of P1,500.00 per square meter. The COA found that these prices were mere estimates for proposed purchases, that the approved budget did not itself authorize AFP-RSBS to exhaust the entire amount, and that petitioner performed no other significant verification or examination to ensure that the budgets reflected prevailing values of similar real estate in Calamba. It concluded that AFP-RSBS squandered up to P250,318,200.00 in savings for the government.

• Lack of Knowledge and Good Faith: Petitioner maintained that she had no knowledge of the transaction or of the two versions of the deed of sale prior to her department’s post-audit, and that she signed “verified correct” on the vouchers in good faith only after the post-audit by Narzabal and the review by Peña.
• Prior Payment and Complete Documents: Petitioner argued that the payments had been made by AFP-RSBS even before her verification and approval, and that the documents supporting the payments were found to be complete.
• No Benefit from the Transaction: Petitioner claimed that she did not benefit in any way from the transaction.
• Reliance on Approved Budgets and Subordinate Audit: Petitioner pointed out that she checked the transaction against AFP-RSBS’s approved planned purchases and approved budgets, and that she signed “verified correct” months after payments had been released to Concord and only after the post-audit and review by her subordinates.
• Exclusion from Liability: Petitioner sought exclusion from liability under Notice of Disallowance No. 2010-07-084-(1996), insisting that the COA disregarded her defenses.

• Grave Abuse of Discretion: Whether the COA committed grave abuse of discretion in issuing Decision No. 2012-188 dated November 5, 2012 and its Resolution dated February 27, 2015, which denied petitioner’s request for exclusion from liability under Notice of Disallowance No. 2010-07-084-(1996).
• Liability of Internal Auditor: Whether petitioner, as Acting Head of the Office of Internal Auditor of AFP-RSBS, may be held liable for the disallowed excess payment of P250,318,200.00 despite her claims of lack of knowledge, good faith, non-benefit, and reliance on approved budgets and subordinate post-audits.

• Grave Abuse of Discretion: No. The COA acted within its constitutional audit power and did not gravely abuse its discretion; its findings are respected absent grave abuse of discretion amounting to lack or excess of jurisdiction.
• Liability of Internal Auditor: Yes. Petitioner was correctly held liable under Section 16 of COA Circular No. 2009-006 because she certified the correctness of the payment without the diligence and good faith required, having relied on approved budgets and subordinate post-audits and failed to perform independent verification.

• Grave Abuse of Discretion: The COA’s exercise of its general audit power is among the mechanisms of check and balance under the 1987 Constitution. Article IX-D, Section 2(1) grants the COA the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property owned or held in trust by, or pertaining to, the Government, including government-owned or controlled corporations with original charters. Article IX-D, Section 2(2) grants the COA exclusive authority to define the scope of its audit and examination, establish techniques and methods, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties. In Delos Santos vs. COA, the Court upheld the COA’s disallowance of irregularly disbursed Priority Development Assistance Fund and emphasized that the COA is endowed with enough latitude to determine, prevent, and disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. Administrative agencies have special knowledge and expertise, and their findings of fact are generally accorded great respect, if not finality, if supported by substantial evidence. The Court does not reweigh evidence and entertains petitions questioning COA rulings only when the COA has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction. No such grave abuse was shown.
• Liability of Internal Auditor: Internal audit is part of internal control which responsible agency officers must exercise over transactions. Section 123 of Presidential Decree No. 1445 defines internal control as the plan of organization and all coordinate methods and measures adopted within an organization or agency to safeguard its assets, check the accuracy and reliability of its accounting data, and encourage adherence to prescribed managerial policies. Section 124 places direct responsibility on the head of agency to install, implement, and monitor a sound system of internal control, but the agency head must rely on the diligent assistance and sound expertise of the internal audit head and staff. Petitioner admitted that to verify the correctness of the transaction, she merely checked it against AFP-RSBS’s approved planned purchases and approved budgets; she signed “verified correct” on the vouchers months after payments had been released to Concord and only after the post-audit by Narzabal and the review by Peña. She consulted no independent sources, such as documents submitted to the Bureau of Internal Revenue and the Register of Deeds, or data on prevailing real estate prices. Had she done so, she could conceivably have discovered the loss. The internal audit and verification failed to demonstrate the degree of diligence and good faith required in the performance of her sworn duty to safeguard AFP-RSBS assets. She relied merely on the post-audit performed by her subordinates, who may be presumed less competent and responsible than she is. Considering the amount involved and the likelihood of padded prices, she failed to perform necessary personal verification of the correctness of the prices paid. As head of internal audit, it was part of her duties to require that she be apprised beforehand of planned significant transactions; because of the huge amount involved, it would not have been too onerous to verify the correctness of the amounts against documents submitted to the Register of Deeds and the Bureau of Internal Revenue. Several months had elapsed from payment to verification, and she and her staff could have procured independent data and documents. She relied on approval sheets for the “land banking” investment, but those prices were mere estimates for proposed purchases; the approved budget did not itself constitute authority for AFP-RSBS to exhaust the entire amount. The deed of sale registered with the Register of Deeds showed P91,024,800.00 as the correct price, while the deed on file with AFP-RSBS, signed by Concord alone, bore P341,343,000.00 actually paid. Under Section 16 of the 2009 Rules and Regulations on Settlement of Accounts, as prescribed in COA Circular No. 2009-006, public officers who certify as to the necessity, legality and availability of funds or adequacy of documents shall be liable according to their respective certifications, and public officers who approve or authorize expenditures shall be held liable for losses arising out of their negligence or failure to exercise the diligence of a good father of a family. By signing the verification in the check vouchers to “attest” to the “correctness” of the land banking purchase after merely comparing it against approved investment budgets, without performing appropriate additional internal audit procedures to verify the true amounts involved, petitioner rendered herself liable for the loss because she lent her approval to the anomalous purchase.

• COA’s General Audit Power and Disallowance Authority — Under Article IX-D, Section 2(1) of the 1987 Constitution, the COA has the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property owned or held in trust by, or pertaining to, the Government, including government-owned or controlled corporations with original charters. Under Article IX-D, Section 2(2), the COA has exclusive authority to define the scope of its audit and examination, establish techniques and methods, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties. The Court applied this doctrine in sustaining the COA’s disallowance of the excess payment.
• Respect for Administrative Findings and Grave Abuse of Discretion Standard — Findings of administrative agencies, especially a constitutionally-created body such as the COA, are accorded respect and even finality when supported by substantial evidence and not tainted with unfairness or arbitrariness amounting to grave abuse of discretion. Courts do not reweigh evidence and entertain petitions questioning COA rulings only when the COA has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction. The Court found no grave abuse in the COA’s denial of petitioner’s exclusion from liability.
• Internal Control and Internal Audit Responsibility — Section 123 of Presidential Decree No. 1445 defines internal control as the plan of organization and all coordinate methods and measures adopted within an organization or agency to safeguard its assets, check the accuracy and reliability of its accounting data, and encourage adherence to prescribed managerial policies. Section 124 places direct responsibility on the head of agency to install, implement, and monitor a sound system of internal control, but the agency head relies on the diligent assistance and sound expertise of the internal audit head and staff. The Court applied this doctrine in holding that petitioner, as internal audit head, failed to exercise the required diligence.
• Liability for Audit Disallowances — Section 16 of the 2009 Rules and Regulations on Settlement of Accounts, as prescribed in COA Circular No. 2009-006, provides that liability for audit disallowances shall be determined by the nature of the disallowance, the duties and responsibilities of the officers concerned, the extent of their participation in the disallowed transaction, and the amount of damage or loss to the government. Public officers who certify as to the necessity, legality and availability of funds or adequacy of documents are liable according to their respective certifications, while public officers who approve or authorize expenditures are liable for losses arising out of their negligence or failure to exercise the diligence of a good father of a family. The Court applied this provision in holding petitioner liable for certifying the correctness of the payment.
• Good Faith and Diligence in Internal Audit — An internal audit head must exercise the degree of diligence and good faith required in the performance of the sworn duty to safeguard agency assets. Mere reliance on approved budgets and subordinate post-audits, without independent verification of the true amounts involved, is insufficient. The Court applied this doctrine in finding petitioner liable for the loss.

• “The Court finds no grave abuse of discretion on the part of the COA in rendering its assailed decision, which disregarded the petitioner's defense that she had no knowledge of the above transaction, or of the two versions of the deed of sale, prior to her post-audit, or that the payments for the lots were made long before she signed "verified correct" after completing the post-audit process and finding the supporting documents to be complete, or that she did not benefit from the transaction in any way.” — This passage states the core holding that the COA did not gravely abuse its discretion despite petitioner’s defenses.
• “The Court agrees with the COA that the internal audit and verification conducted by the petitioner, as head of the AFP-RSBS Internal Auditor Office, failed to demonstrate the degree of diligence and good faith required in the performance of her sworn duty to safeguard the assets of AFP-RSBS.” — This is the ratio decidendi on petitioner’s failure to meet the diligence and good faith required of her office.
• “By signing the verification in the check vouchers to "attest" to the "correctness" of AFP-RSBS's land banking purchase after merely comparing the same against the approved investment budgets, but without however performing appropriate additional internal audit procedures to allow her to conduct further verification of the true amounts involved, the petitioner rendered herself liable upon the loss incurred by AFP-RSBS because she is thereby said to have lent her approval to the anomalous purchase.” — This passage explains why petitioner was held liable under the COA’s rules on audit disallowances.
• “It is only when the CoA has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, that this Court entertains a petition questioning its rulings.” — This passage states the standard for judicial review of COA rulings, quoted from Delos Santos vs. COA.

• Delos Santos vs. COA, G.R. No. 198457, August 13, 2013, 703 SCRA 501 — Controlling precedent cited by the Court; it upheld the COA’s disallowance of irregularly disbursed Priority Development Assistance Fund and explained the COA’s latitude to determine, prevent, and disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, as well as the respect accorded to administrative findings and the grave abuse of discretion standard.
• Sps. Hipolito, Jr. vs. Cinco, et al., 677 Phil. 331, 349 (2011) — Cited for the rule that administrative findings of fact are generally accorded great respect, if not finality, by the courts as long as they are supported by substantial evidence, even if such evidence is not overwhelming or preponderant.

• Article IX-D, Section 2(1), 1987 Constitution — Grants the COA the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property owned or held in trust by, or pertaining to, the Government, including government-owned or controlled corporations with original charters. Applied as the basis for the COA’s audit of AFP-RSBS transactions.
• Article IX-D, Section 2(2), 1987 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 and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties. Applied as the basis for the disallowance.
• Section 123, Presidential Decree No. 1445 — Defines internal control as the plan of organization and all coordinate methods and measures adopted within an organization or agency to safeguard its assets, check the accuracy and reliability of its accounting data, and encourage adherence to prescribed managerial policies. Applied to characterize internal audit as part of internal control.
• Section 124, Presidential Decree No. 1445 — Provides that it is the direct responsibility of the head of agency to install, implement, and monitor a sound system of internal control. Applied to explain that the agency head relies on the internal audit head and staff, and that petitioner’s role carried responsibility.
• Section 16, 2009 Rules and Regulations on Settlement of Accounts, COA Circular No. 2009-006 — Provides the rules on liability for audit disallowances. Section 16.1.2 makes public officers who certify as to the necessity, legality and availability of funds or adequacy of documents liable according to their respective certifications; Section 16.1.3 makes public officers who approve or authorize expenditures liable for losses arising out of their negligence or failure to exercise the diligence of a good father of a family. Applied to hold petitioner liable for certifying the correctness of the payment.
• Rule 64, in relation to Rule 65, Rules of Court — Governs the petition for certiorari filed by petitioner to nullify the COA’s decision and resolution. Applied as the procedural vehicle for the petition.
• Title II, Vol. III, Government Accounting and Auditing Manual — Cited by the COA to point out that internal audit is part of internal control which responsible agency officers must exercise over transactions. Applied to support the COA’s finding on petitioner’s internal audit responsibility.

• Maria Lourdes P.A. Sereno (Chief Justice)
• Antonio T. Carpio
• Presbitero J. Velasco, Jr.
• Teresita J. Leonardo-De Castro
• Arturo D. Brion
• Diosdado M. Peralta
• Lucas P. Bersamin
• Mariano C. Del Castillo
• Martin S. Villarama, Jr.
• Jose Portugal Perez
• Jose Catral Mendoza
• Estela M. Perlas-Bernabe
• Marvic M.V.F. Leonen
• Francis H. Jardeleza