Power Sector Assets and Liabilities Management Corporation vs. Commission on Audit

Business development expenses incurred without prior Commission on Audit approval for a separate account as required by the corporate operating budget and without receipts or other documents evidencing disbursement are irregular expenditures properly subject to disallowance, with approving and certifying officers solidarily liable absent good faith and recipients liable to return amounts received absent an applicable exception.

Power Sector Assets and Liabilities Management Corporation is a government-owned and -controlled corporation created under Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act of 2001. Its principal mandate is to manage the orderly sale, disposition, and privatization of National Power Corporation generation assets, real estate, other disposable assets, and independent power producer contracts, with the objective of liquidating all National Power Corporation financial obligations. Its fiscal operations, including extraordinary and miscellaneous expenses and similar disbursements, are subject to the General Appropriations Act, the approved Corporate Operating Budget, and Commission on Audit accounting and auditing rules.

Power Sector Assets and Liabilities Management Corporation obtained Department of Budget and Management approval of its 2008 Corporate Operating Budget on October 30, 2008. The budget allocated disbursements for Extraordinary and Miscellaneous Expenses subject to Section 26, General Provisions of the FY 2008 Budget and/or approval of the Commission on Audit on the setting up of a separate account for business development expenses, covering (a) representation expenses and (b) business development. Although required to maintain a business development account separate from the representation account to ensure proper charging, monitoring, and accounting, Power Sector Assets and Liabilities Management Corporation maintained only the representation account. Thereafter, through Board Resolution No. 2008-1124-008 dated November 24, 2008, it authorized board members, management and review committees, managers, and actively participating members to incur and claim business development expenses, and through Memorandum Order No. 2008-017 dated November 27, 2008, it provided that all claims should be supported by receipts or certifications issued by the concerned officials.

When the accounts were audited, the Commission on Audit Auditor observed in Audit Observation Memorandum No. 2008-014 dated May 5, 2009 that the validity and correctness of P1,177,027.75 charged against the representation account could not be ascertained because supporting documents were incomplete. According to the audit, the receipts, mostly for meals, groceries, and gift items, failed to indicate the nature, purpose, and participants of the relevant meetings or activities, leaving it undetermined whether the expenses served a public purpose or the goals stated in the board resolution and memorandum order. The audit further noted deficiencies in P573,704.18 in official receipts as either pre-dating the effectivity of Memorandum Order No. 2008-017 or dated on a Saturday, Sunday, or holiday without information on the nature of the expenses, contrary to the Government Auditing and Accounting Manual requirement of complete documentation. For its part, Power Sector Assets and Liabilities Management Corporation replied that complete documentation was ambiguous, invoked its memorandum order allowing certifications as support, and asserted a presumption of regularity in the ordinary course of business.

Because the explanation was found without merit, Notice of Disallowance No. 09-0003-(08) dated August 20, 2009 formally disallowed P1,110,078.89 as irregular, unnecessary, excessive or extravagant expenditures in violation of Commission on Audit Circular No. 85-55-A, identifying as liable the president and chief executive officer for issuing the guidelines and as payee, members of the board for approving the resolution, cost center heads and department managers for approving payments, finance specialists for certifying completeness of documents, and all payees. On appeal, the Commission on Audit Corporate Government Sector Director and subsequently the Commission on Audit Proper sustained the disallowance, finding no prior Commission approval for the separate business development account, no presidential approval shown under Section 64 of the Electric Power Industry Reform Act of 2001, insufficiency of mere certifications under Circular No. 2006-001, and no basis for reimbursing expenses incurred before the memorandum order. The factual findings sustained below were that the questioned transactions from November to December 2008 were paid from the representation account without the required separate account, and that neither the receipts alone, which included meals, groceries, gift items, and amusement park entrance tickets, nor the general certifications established the nature, occasion, or official connection of the claimed business development activities.

• Due Process and Nullity of Notice: Petitioner maintained that the Notice of Disallowance is a patent nullity for violating due process and Commission on Audit rules because it merely stated the legal conclusion that November and December 2008 payments violated Circular No. 85-55-A on irregular, unnecessary, excessive or extravagant expenditures.
• Operational Standards for Characterization: Petitioner argued that the Notice failed to characterize the claims as irregular, unnecessary, excessive or extravagant based on the operational definitions and standards or situational cases under the Circular.
• Lack of Evidentiary Support: Petitioner maintained that the Notice is unsupported by evidence, while asserting that receipts and/or certifications were duly submitted to substantiate all business development claims which enjoy a presumption of having been incurred in the ordinary course of business and in accordance with law.
• Timeliness and Excusable Mistake: Petitioner admitted late filing but asserted that the delay resulted from an honest mistake in believing a fresh 30-day period applied from receipt of denial of the motion for reconsideration.

• Timeliness: Whether the Rule 64 petition, filed February 27, 2014 after receipt of the denial of reconsideration on January 28, 2014, was filed within the reglementary period.
• Due Process: Whether the Notice of Disallowance violates the constitutional guarantee to due process and Commission on Audit rules for merely stating conclusions of law without evidentiary and definitional support.
• Authority and Substantiation: Whether the disallowance of business development expenses has factual and legal bases in light of the corporate operating budget condition, prior approval requirements, and documentation rules.
• Liability for Return: Whether approving and certifying officers and recipients are liable to refund the disallowed P1,110,078.89 notwithstanding good faith, solutio indebiti, and the Rules on Return.

• Timeliness: No. The petition was filed eight days late, the 22-day remaining period having expired on February 19, 2014, rendering the assailed decision final and immutable.
• Due Process: No. Due process was satisfied by the Audit Observation Memorandum, opportunity to reply, and successive appeals, with the Commission on Audit Proper laying out factual and legal bases and being entitled to amplify or add grounds.
• Authority and Substantiation: Yes. Disallowance was proper because no prior Commission approval for a separate business development account was secured and neither receipts nor general certifications evidenced disbursement and official connection as required.
• Liability for Return: Yes. Approving and certifying officers in bad faith or gross negligence are solidarily liable, and recipients must return amounts received, no exception under the Rules on Return having been established.

• Timeliness: Under Section 3, Rule 64, the petition must be filed within 30 days from notice, with a timely motion for reconsideration interrupting the period and leaving only the remaining period, not less than five days, from denial. Receipt of Decision No. 2012-230 on December 11, 2012, timely reconsideration on December 19, 2012, and receipt of denial on January 28, 2014 left 22 days until February 19, 2014, but filing occurred only on February 27, 2014. Reliance on a fresh 30-day period under Neypes vs. Court of Appeals was rejected pursuant to Fortune Life Insurance Company, Inc. vs. Commission on Audit, thoughtlessness or misapplication of rules not warranting relaxation, and finality had attached as shown by the Notice of Finality and Order of Execution.
• Due Process: Due process requires notice of allegations and opportunity to be heard, including by reconsideration and appeal. The Audit Observation Memorandum, though not mandatory, notified petitioner of deficiencies under the Government Auditing and Accounting Manual and Circular No. 85-55-A, petitioner replied with documents and arguments before the Notice issued, and petitioner appealed to the Corporate Government Sector and the Commission Proper. Consistent with Yap vs. Commission on Audit, the Commission is not confined to the auditor's grounds and may explain, clarify, expound, and add grounds, which it did by invoking the unmet separate-account condition, thereby curing any perceived vagueness.
• Authority and Substantiation: The 2008 Corporate Operating Budget did not automatically grant business development disbursements; incurrence was conditioned on Commission approval for a separate account, which was not obtained, and the amounts were charged against representation expenses from November to December 2008. Business development expenses partake of extraordinary and miscellaneous expenses and similar other expenses under Circular No. 2006-001 and Section 26 of the 2008 General Appropriations Act, subject to ceilings and pertinent accounting and auditing rules, with the separate account serving as a valid auditing mechanism within Commission expertise. Even if authorized, reimbursement required receipts and/or other documents evidencing disbursements; the receipts alone did not show nature, purpose, participants, or public purpose, some pre-dating the memorandum order or falling on weekends or holidays, while certifications under Espinas vs. Commission on Audit and National Transmission Corporation vs. Commission on Audit must establish paying out of an account payable with nature, amount, date, place, and reasonable connection to official functions, which sweeping declarations failed to do, rendering the outlays irregular under Circular No. 85-55-A for deviation from established rules.
• Liability for Return: Under Rule 2a of Madera vs. Commission on Audit and Section 38 of the Administrative Code of 1987, approving and certifying officers acting in good faith in regular performance with diligence of a good father of the family are excused, liability attaching only upon bad faith, malice, or gross negligence. Good faith as honesty of intention and freedom from inquiry-putting circumstances was negated by authorizing business development expenses for the third year despite knowledge since the 2006 and 2007 budgets of the prior-approval condition and by approving reimbursements without substantiation, constituting wanton defiance rather than honest lapse. Recipients' good faith is immaterial under solutio indebiti and unjust enrichment, and no Madera exception of genuine consideration for services with clear, direct, and reasonable connection to official work, undue prejudice, social justice, or humanitarian consideration was proven, following Abellanosa vs. Commission on Audit.

• Finality of Rule 64 recourse — A Rule 64 petition must be filed within 30 days from notice, interrupted only by a timely motion for reconsideration, after which only the remaining period, not less than five days, is available; belated filing on mistaken invocation of the Neypes vs. Court of Appeals fresh-period rule is fatal and renders the assailed Commission on Audit decision final and immutable, with procedural relaxation unavailable for thoughtlessness or blatant misapplication, as in Canton vs. City of Cebu.
• Commission on Audit's constitutional audit latitude — As guardian of public funds, the Commission has the broadest latitude to define audit scope, establish techniques and methods, and promulgate accounting and auditing rules including prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures; its findings are generally sustained for expertise and disturbed only for lack or excess of jurisdiction or grave abuse of discretion.
• Grave abuse of discretion — Grave abuse denotes evasion of positive duty or virtual refusal to perform a duty enjoined by law or to act in contemplation of law, as when the action rests not on applicable law and evidence but on caprice, whim, and despotism; none was shown where disallowance rested on budget conditions, circulars, and documented deficiencies.
• Due process in audit disallowance — Due process is satisfied by notice and opportunity to be heard, including reply to an Audit Observation Memorandum and resort to reconsideration and appeal; the Commission on Audit Proper may amplify, clarify, expound, and add grounds beyond the auditor's stated bases pursuant to Yap vs. Commission on Audit.
• Business development expenses as similar to extraordinary and miscellaneous expenses — Under Circular No. 2006-001, business development, discretionary, and representation expenses are other expenses similar to extraordinary and miscellaneous expenses for meetings, official entertainment, public relations, and other similar purposes, subject to General Appropriations Act ceilings and pertinent accounting and auditing rules, with a separate account validly required to ensure proper charging, monitoring, and accounting.
• Substantiation by receipts or documents evidencing disbursement — Claims for reimbursement must be supported by receipts and/or other documents evidencing disbursements showing nature and description, amount, date, place, and reasonable connection to official duties; bare receipts for meals, groceries, gifts, and similar items and sweeping certifications do not suffice under Espinas vs. Commission on Audit and National Transmission Corporation vs. Commission on Audit.
• Irregular expenditure — An irregular expenditure is one incurred without adhering to established rules, regulations, procedural guidelines, policies, principles, or recognized practices, deviating from prescribed usages and standards of discipline, distinct from an illegal expenditure incurred in violation of law itself.
• Madera Rules on Return — Approving and certifying officers who acted in good faith in regular performance with diligence of a good father of the family are not civilly liable to return, liability requiring bad faith, malice, or gross negligence; recipients are liable under solutio indebiti and unjust enrichment, excused only when amounts were genuinely given for services rendered with clear, direct, and reasonable connection to official work, or undue prejudice, social justice, or humanitarian considerations apply.

• "Due process simply requires that a party be properly notified of the allegations against him or her and be accorded an opportunity to be heard and to controvert those allegations." — States the controlling due process test applied to uphold the Notice after issuance of the Audit Observation Memorandum, reply, and multiple appeals.
• "an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law or to act in contemplation of law," — Gives the canonical formulation of grave abuse of discretion used to reject intervention in the Commission's audit findings.
• "The term "irregular expenditure" signifies an expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in law." — Supplies the definitional basis for classifying the unapproved and unsubstantiated business development reimbursements as irregular under COA Circular No. 85-55-A.

• Fortune Life Insurance Company, Inc. vs. Commission on Audit, 752 Phil. 97 (2015) — Followed to hold that belated Rule 64 filing on erroneous reliance on the Neypes fresh-period rule is fatal.
• Neypes vs. Court of Appeals, 506 Phil. 613 (2005) — Invoked by petitioners for a fresh period but held inapplicable to Rule 64 certiorari.
• Canton vs. City of Cebu, 544 Phil. 369, 378 (2007) — Cited for the rule that procedural liberality does not excuse thoughtlessness or blatant misapplication of rules.
• Yap vs. Commission on Audit, 633 Phil. 174 (2010) — Controlling precedent that the Commission on Audit may assess disallowances on grounds beyond the auditor's and add or clarify bases on review.
• Espinas vs. Commission on Audit, 731 Phil. 67 (2014) — Followed to hold that certifications must evidence disbursement by establishing paying out of an account payable to qualify as other documents under Circular No. 2006-001.
• National Transmission Corporation vs. Commission on Audit, G.R. No. 244193, November 10, 2020 — Followed to require specification of nature, amount, date, place, and official connection for certifications and receipts.
• Madera vs. Commission on Audit, G.R. No. 244128, September 8, 2020 — Controlling Rules on Return applied to sustain solidary liability of approving and certifying officers and liability of recipients.
• Abellanosa vs. Commission on Audit, G.R. No. 185806, November 17, 2020 — Cited for the genuine-consideration exception requiring clear, direct, and reasonable connection to official work, found absent here.

• Section 2(2), Article IX-D, Constitution — Vests the Commission on Audit with power to promulgate accounting and auditing rules including prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures; basis for deference to its audit mechanisms such as the separate business development account.
• Section 3, Rule 64, Rules of Court — Fixes the 30-day filing period and interruption by reconsideration with only the remaining period thereafter; applied to compute the February 19, 2014 deadline and declare the February 27, 2014 filing late.
• Sections 50 and 64, Republic Act No. 9136 — Define Power Sector Assets and Liabilities Management Corporation's privatization and liquidation mandate and subject compensation and emoluments of its officials and board to presidential approval under fiscal prudence; cited regarding asserted entitlement to business development expenses.
• Section 26, General Provisions, FY 2008 Budget (Republic Act No. 9498) and 2008 Corporate Operating Budget — Condition disbursements for extraordinary and miscellaneous expenses and business development on pertinent accounting rules and Commission approval for a separate account; unmet condition supporting irregularity.
• COA Circular No. 85-55-A dated September 8, 1985 — Prohibits irregular, unnecessary, excessive, extravagant, or unconscionable expenditures; defines irregular expenditure as deviation from established rules; ground for disallowance.
• COA Circular No. 2006-001 dated January 3, 2006 — Governs disbursement of extraordinary and miscellaneous and other similar expenses in government-owned and -controlled corporations, requiring claims to be supported by receipts and/or other documents evidencing disbursements; basis for rejecting mere certifications.
• Government Auditing and Accounting Manual, Sections 138(f) and 168(c) via COA Circular No. 368-91 — Require claims against government funds to be supported with complete documentation and documents establishing validity and correctness; basis for finding receipts and certifications deficient.

Gesmundo, C.J., Perlas-Bernabe, Leonen, Caguioa, Hernando, Carandang, Lazaro-Javier, Zalameda, M. Lopez, Gaerlan, Rosario, J. Lopez, and Marquez, JJ., concur. Dimaampao, J., on official leave.