PSALM vs. COA

COA Circular No. 2006-001, which mandates that claims for reimbursement of Extraordinary and Miscellaneous Expenses (EME) in GOCCs be supported by receipts and/or other documents evidencing actual disbursement, applies to all government-owned and controlled corporations (GOCCs) without qualification, including those that derive their authority to disburse EME from the General Appropriations Act (GAA) rather than their corporate charters; certifications executed by officials declaring that expenses were incurred are insufficient as they do not constitute documents evidencing disbursement.

Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned and controlled corporation created under Republic Act No. 9136, the Electric Power Industry Reform Act of 2001, with the principal purpose of managing the sale and privatization of National Power Corporation assets. Since 2002, PSALM had been reimbursing EME to its officers and employees based solely on certifications executed by the claimants, pursuant to Section 397(c) of the Government Accounting and Auditing Manual (GAAM) Volume I and COA Circular No. 89-300, which allowed certifications in lieu of receipts for national government agencies.

Nature of the Dispute: The consolidated petitions assailed the Commission on Audit's disallowance of Extraordinary and Miscellaneous Expenses (EME) reimbursed by petitioner PSALM to its officers and employees for calendar years 2008 and 2009, totaling P2,385,334.06 and P2,615,500.79 respectively.

The Audit Disallowances: In 2008, the COA Audit Team Leader reminded PSALM that COA Circular No. 2006-001, which PSALM received on March 8, 2006, no longer permitted the use of certifications as alternative supporting documents for EME reimbursement claims, mandating instead that claims be supported by "receipts and/or other documents evidencing disbursements." Despite this reminder and a subsequent Notice of Suspension requiring submission of receipts, PSALM persisted in disbursing EME for 2008 and 2009 supported only by certifications executed by the claimants under Section 397(c) of the GAAM Volume I and COA Circular No. 89-300.

The Certifications: The certifications submitted by PSALM officials contained general declarations that expenses were incurred for purposes contemplated under the law or regulation in relation to their positions, and that amounts were within authorized ceilings. They did not specify transaction details such as nature, description, amount, date, and place of individual expenses.

Procedural Posture: For the 2008 EME, PSALM appealed the Notice of Disallowance through the COA Corporate Government Sector to the COA Proper. After the COA Proper denied the petition in Decision No. 2013-229, PSALM failed to file a motion for reconsideration or petition for certiorari within thirty days, rendering the decision final. PSALM subsequently filed a Motion for Relief from Judgment claiming its staff confused Decision No. 2013-229 with a simultaneous decision on the 2009 EME, which the COA Proper denied.

For the 2009 EME, PSALM similarly appealed the disallowance through the COA Corporate Government Sector. The COA Proper denied the petition in Decision No. 2013-228. PSALM timely filed a motion for reconsideration, which was denied, prompting the petition for certiorari.

• Due Process: Petitioner maintained that the 2009 EME Notice of Disallowance was issued without prior Audit Observation Memorandum (AOM), violating the right to due process because the COA Rules and Regulations on Settlement of Accounts (RRSA) require an AOM before disallowance.

• Applicability of COA Circular No. 2006-001: Petitioner argued that COA Circular No. 2006-001 applies only to GOCCs whose governing boards appropriate EME through resolutions, and not to PSALM which derives its EME authority from the General Appropriations Act (GAA). It contended that Section 397(c) of the GAAM Volume I and Paragraph III(4) of COA Circular No. 89-300, which allow certifications for NGAs, should apply to PSALM by analogy.

• Substantial Compliance: Petitioner contended that the certifications it submitted constitute "other documents evidencing disbursements" under Paragraph III(3) of COA Circular No. 2006-001, thus satisfying the documentary requirement.

• Equal Protection: Petitioner claimed violation of the equal protection clause, alleging that COA auditors failed to apply COA Circular No. 2006-001 to NPC and TransCo, which were allegedly allowed to use certifications. It also argued that the differential treatment between NGAs (allowed certifications) and GOCCs (required receipts) violates equal protection.

• Good Faith: Petitioner invoked good faith on the part of its approving, certifying, and receiving officers, arguing that they relied on COA Circular No. 89-300 and Section 397(c) of the GAAM in approving and receiving the EME reimbursements.

• Relief from Judgment: In G.R. No. 216606, petitioner argued that the COA gravely abused its discretion in denying its motion for relief from judgment and sustaining the finality of Decision No. 2013-229, claiming that its failure to file a motion for reconsideration was due to honest mistake, inadvertence, or excusable negligence when its staff received two decisions on the same day and confused them.

• Due Process: Respondent countered that COA Circular No. 2009-006 (RRSA) does not require an AOM before issuance of a Notice of Disallowance when the transaction is irregular, unnecessary, excessive, or illegal. An AOM is required only when audit decisions cannot be reached due to incomplete documentation or when deficiencies do not involve pecuniary loss. Respondent argued that PSALM was afforded due process through the notices, appeals, and hearings before the Auditor, COA CGS, and COA Proper.

• Applicability of Circular: Respondent argued that COA Circular No. 2006-001 expressly applies to "all GOCCs, GFIs and their subsidiaries" without distinction, including those deriving EME authority from the GAA. It cited COA Circular No. 2012-001 and the decision in National Transmission Corporation v. Commission on Audit confirming that GOCCs must comply with COA Circular No. 2006-001 regardless of EME authority source.

• Documentary Requirements: Respondent maintained that certifications are not "other documents evidencing disbursements" under COA Circular No. 2006-001 because they do not establish the actual paying out of funds or reflect transaction details necessary to determine propriety of expenditures.

• Equal Protection: Respondent argued that petitioner failed to prove that NPC and TransCo were treated differently, noting that both entities had EME disbursements disallowed in other cases. It asserted that the State cannot be estopped by the omission or error of its officials. Regarding the distinction between NGAs and GOCCs, respondent argued there exists a substantial distinction: NGAs have EME appropriations fixed by Congress in the GAA with limited discretion, while GOCCs appropriate EME through their governing boards with greater autonomy, justifying stricter documentation requirements for GOCCs.

• Liability: Respondent argued that approving and certifying officers are solidarily liable when they act with bad faith, malice, or gross negligence. Given PSALM's receipt of COA Circular No. 2006-001 in 2006 and the 2008 reminder, its continued use of certifications constituted wanton defiance, negating good faith. For recipients, respondent argued liability attaches under solutio indebiti and unjust enrichment principles regardless of good faith, absent showing that amounts were genuinely given for services rendered.

• Finality of Decision: Respondent argued that relief from judgment is an equitable remedy available only under exceptional circumstances such as extrinsic fraud or excusable negligence that ordinary diligence could not guard against. Staff confusion over receiving two decisions does not constitute excusable negligence warranting relief from a final and immutable judgment.

• Due Process: Whether the COA committed grave abuse of discretion in ruling that due process was not violated when the 2009 EME Notice of Disallowance was issued without prior Audit Observation Memorandum.

• Finality of Judgment: Whether the COA committed grave abuse of discretion in denying PSALM's motion for relief from judgment and declaring Decision No. 2013-229 final and executory.

• Applicability of COA Circular No. 2006-001: Whether the COA committed grave abuse of discretion in ruling that COA Circular No. 2006-001 applies to PSALM notwithstanding its derivation of EME authority from the GAA rather than its corporate charter.

• Substantial Compliance: Whether the COA committed grave abuse of discretion in ruling that certifications cannot be considered as substantial compliance with the documentary requirement under COA Circular No. 2006-001.

• Equal Protection: Whether the COA committed grave abuse of discretion in ruling that there was no violation of the equal protection clause when COA auditors allegedly failed to apply COA Circular No. 2006-001 to NPC and TransCo, and whether the differential treatment between NGAs and GOCCs violates equal protection.

• Liability of Officers: Whether the COA committed grave abuse of discretion in affirming the solidary liability of approving and certifying officers and the individual liability of recipients to settle the disallowed amounts.

• Due Process: No grave abuse of discretion was committed. Paragraph 5.3 of COA Circular No. 2009-006 (RRSA) requires an Audit Observation Memorandum only when an audit decision cannot be reached due to incomplete documentation or when deficiencies refer to financial or operational matters not involving pecuniary loss. Paragraph 10.1 permits immediate issuance of a Notice of Disallowance for transactions that are irregular, unnecessary, excessive, extravagant, illegal, or unconscionable. The essence of due process is an opportunity to be heard, which PSALM was afforded through the audit appeals process before the Auditor, COA CGS, and COA Proper.

• Finality of Judgment: No grave abuse of discretion was committed. Relief from judgment under Rule 38 is an equitable remedy granted only under exceptional circumstances involving fraud, accident, mistake, or excusable negligence that ordinary diligence could not guard against, or when a party is prevented from fully presenting their case. The alleged confusion of PSALM's staff in receiving two decisions simultaneously does not constitute excusable negligence or extrinsic fraud; it constitutes inexcusable neglect that would otherwise render all judgments subject to endless litigation. Decision No. 2013-229 became final and immutable for failure to file a motion for reconsideration or petition for certiorari within the reglementary period.

• Applicability of COA Circular No. 2006-001: No grave abuse of discretion was committed. Paragraph II of COA Circular No. 2006-001 expressly applies to "all GOCCs, GFIs and their subsidiaries," without distinction between those deriving authority from corporate charters and those deriving authority from the GAA. Paragraph III(1) specifically mentions GOCCs deriving EME authority from the GAA. The maxim "ubi lex non distinguit, nec nos distinguere debemus" applies. This interpretation is confirmed by COA Circular No. 2012-001 and the ruling in National Transmission Corporation v. Commission on Audit that GOCCs must comply with COA Circular No. 2006-001 regardless of EME authority source, and that expenditures are subject to pertinent accounting and auditing rules.

• Substantial Compliance: No grave abuse of discretion was committed. Paragraph III(3) of COA Circular No. 2006-001 mandates that claims be supported by "receipts and/or other documents evidencing disbursements." The phrase "other documents" is qualified by "evidencing disbursements," meaning documents that establish the actual paying out of funds from an account payable. Certifications that merely declare expenses were incurred for certain purposes, without reflecting transaction details such as nature, description, amount, date, and place, do not constitute documents evidencing disbursement. Following Espinas v. Commission on Audit and National Transmission Corporation v. Commission on Audit, such general certifications are insufficient.

• Equal Protection: No grave abuse of discretion was committed. Petitioner failed to prove that NPC and TransCo were treated differently; in fact, both entities had similar EME disbursements disallowed in other cases. The State cannot be estopped by the omission, mistake, or error of its officials. Regarding the distinction between NGAs and GOCCs, a substantial distinction exists: NGAs have EME appropriations fixed by Congress in the GAA with limited discretion, while GOCCs appropriate EME through their governing boards with greater autonomy. This disparity in EME disbursement autonomy justifies the different treatment in documentary requirements, making the classification germane to the purpose of preventing irregular, unnecessary, excessive, or unconscionable expenditures.

• Liability of Officers: No grave abuse of discretion was committed. Under Executive Order No. 292 and the doctrine established in Madera v. Commission on Audit, approving and certifying officers are solidarily liable to refund disallowed amounts when they act with bad faith, malice, or gross negligence. PSALM received COA Circular No. 2006-001 in 2006 and was specifically reminded of the receipt requirement in 2008, yet deliberately continued using certifications based on the superseded COA Circular No. 89-300. This constitutes wanton defiance of applicable rules, negating any claim of good faith. Recipients are liable to refund amounts individually received under the principles of solutio indebiti and unjust enrichment, regardless of good faith, unless they prove the amounts were genuinely given in consideration of services rendered or establish other bona fide equitable exceptions.

Finality and Immutability of Judgments — A decision becomes final and immutable when the party fails to file the proper remedy within the period prescribed by law, and may no longer be modified even to correct erroneous conclusions. Relief from judgment is granted only under exceptional circumstances involving fraud, accident, mistake, or excusable negligence that ordinary diligence could not guard against, or when a party is prevented from fully and fairly presenting their case.

Due Process in Administrative Audit Proceedings — The essence of due process in administrative proceedings is the opportunity to be heard, which is satisfied when a party is afforded notice and the opportunity to explain their side through available administrative appeals. An Audit Observation Memorandum is not a prerequisite to a Notice of Disallowance when the transaction is clearly irregular, unnecessary, excessive, or illegal; the RRSA permits immediate disallowance for such transactions.

Scope of COA Circular No. 2006-001 — COA Circular No. 2006-001 applies to all government-owned and controlled corporations (GOCCs), government financial institutions (GFIs), and their subsidiaries without distinction, including those that derive their authority to disburse Extraordinary and Miscellaneous Expenses (EME) from the General Appropriations Act (GAA) rather than their corporate charters. Where the law (or circular) does not distinguish, neither should the courts.

"Other Documents Evidencing Disbursements" — Under COA Circular No. 2006-001, "other documents" supporting EME reimbursement claims must be documents that evidence actual disbursement—meaning they establish the paying out of funds or payment of an account payable. Certifications that merely declare expenses were incurred, without specifying transaction details such as nature, description, amount, date, and place, do not satisfy this requirement.

Equal Protection and Valid Classification — The equal protection clause does not require identical treatment of all persons; it permits valid classification based on substantial distinctions that are germane to the purpose of the law. A substantial distinction exists between National Government Agencies (NGAs) and GOCCs regarding EME disbursement: NGAs operate under appropriations fixed by Congress in the GAA, while GOCCs exercise greater autonomy through board appropriations, justifying stricter audit documentation requirements for GOCCs.

Liability for Disallowed Expenditures — - Approving and Certifying Officers: Solidarily liable to settle disallowed amounts upon a showing of bad faith, malice, or gross negligence in the performance of official duties. Good faith requires honesty of intention, freedom from knowledge of circumstances that ought to put the holder upon inquiry, and absence of information that would render transactions unconscientious. - Recipients: Liable to refund disallowed amounts under the principles of solutio indebiti (Civil Code Article 2154) and unjust enrichment (Civil Code Article 22), regardless of good faith, unless they prove the amounts were genuinely given in consideration of services rendered or establish other bona fide equitable exceptions.

Standard of Review for COA Decisions — The Supreme Court generally sustains COA decisions unless they were rendered without jurisdiction, in excess of jurisdiction, or with grave abuse of discretion. The COA's interpretation of its own auditing rules and regulations is accorded great weight and respect.

• "The essence of due process is simply an opportunity to be heard; an opportunity to explain one's side; or the opportunity to seek a reconsideration of the action or ruling complained of. It safeguards, not the lack of previous notice, but the denial of the opportunity to be heard."

• "A sweeping and general statement that expenditures were incurred by some officials within a certain month does not, in any way, satisfy the condition contemplated in the circular."

• "There exists a substantial distinction between officials of NGAs and the officials of GOCCs, GFIs and their subsidiaries which justify the peculiarity in regulation. Since the EME of GOCCs, GFIs and their subsidiaries, are, pursuant to law, allocated by their own internal governing boards, as opposed to the EME of NGAs which are appropriated in the annual GAA duly enacted by Congress, there is a perceivable rational impetus for the COA to impose nuanced control measures to check if the EME disbursements of GOCCs, GFIs and their subsidiaries constitute irregular, unnecessary, excessive, extravagant, or unconscionable government expenditures."

• "Good faith has been defined in disallowance cases as: 'that state of mind denoting honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even though technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transactions unconscientious.'"

• "This case does not involve a mere honest lapse of judgment in relying upon COA Circular No. 89-300 or a mistaken interpretation of the provisions of COA Circular No. 2006-001, but a wanton defiance of the applicable rules and the categorical directives of the COA."

Espinas v. Commission on Audit, 731 Phil. 67 (2014) — Controlling precedent followed; held that certifications cannot be considered "other documents evidencing disbursements" under COA Circular No. 2006-001 because they do not substantiate the paying out of an account payable.

National Transmission Corporation v. Commission on Audit, G.R. No. 244193, November 10, 2020 — Controlling precedent followed; affirmed that COA Circular No. 2006-001 applies to GOCCs deriving EME authority from the GAA, and that expenditures are subject to pertinent accounting and auditing rules regardless of GAA authorization.

Madera v. Commission on Audit, G.R. No. 244128, September 8, 2020 — Controlling precedent followed; established that approving and certifying officers are solidarily liable for disallowed amounts upon showing of bad faith, malice, or gross negligence, while recipients are liable under solutio indebiti and unjust enrichment regardless of good faith.

National Power Corporation v. Commission on Audit, G.R. No. 240519, February 19, 2019 — Controlling precedent cited to rebut petitioner's claim of unequal treatment; established that NPC's EME disbursements supported by certifications were similarly disallowed.

Article IX-D, Section 2(1) and (2), 1987 Constitution — Vests the COA with broad powers over government accounts and exclusive authority to promulgate accounting and auditing rules and regulations for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures.

Section 397(c), Government Accounting and Auditing Manual (GAAM) Volume I — Reproduces COA Circular No. 89-300 allowing certifications in lieu of receipts for NGAs; held inapplicable to GOCCs covered by COA Circular No. 2006-001.

Paragraph III(3), COA Circular No. 2006-001 — Mandates that claims for reimbursement of EME shall be supported by "receipts and/or other documents evidencing disbursements."

Paragraph 5.3 and 10.1, COA Circular No. 2009-006 (Rules and Regulations on Settlement of Accounts) — Prescribes when Audit Observation Memoranda are required (incomplete documentation/non-pecuniary matters) and when Notices of Disallowance may issue immediately (irregular/unnecessary/excessive/illegal transactions).

Article III, Section 1, 1987 Constitution — Equal protection clause; held not violated by the distinction between NGAs and GOCCs regarding EME documentation requirements.

Articles 2154 and 22, Civil Code — Basis for recipient liability under solutio indebiti and unjust enrichment principles for disallowed amounts received without just or legal ground.

Executive Order No. 292, Book VI, Chapter 5, Section 43 and Book I, Chapter 9, Section 38 — Basis for solidary liability of officers who authorize or make irregular payments, and exemption from civil liability only when acting without bad faith, malice, or gross negligence.

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