Sanchez vs. Commission on Audit

A valid transfer of appropriations under Sec. 25(5), Art. VI of the 1987 Constitution requires two concurrence requisites: (1) actual savings in the programmed appropriation of the transferring agency, and (2) an existing item, project, or activity with an appropriation in the receiving agency to which the savings will be transferred. Absent either requisite, the transfer is void, and the officials who authorized it are personally liable for the unlawful expenditure.

Republic Act No. 7180, the General Appropriations Act of 1992, appropriated ₱75,000,000 for the DILG's Capability Building Program, restricting its use to local government and community capability building programs—training, technical assistance, and related support—and mandating implementation through the Local Government Academy under DILG administration. The Fund was to be released only upon submission of a work and financial plan supported by a detailed breakdown of expenditures. At the relevant time, the DILG was headed by Secretary Cesar N. Sarino, one of the petitioners, with Undersecretary Andres Sanchez, Chief Accountant Leonardo D. Regala, Director Rafael D. Barata, and Management Division Chief Norma Agbayani serving in key financial and administrative positions. The Local Government Code of 1991 had recently been enacted, creating pressure on the DILG to prepare for its implementation.

In 1991, Congress enacted Republic Act No. 7180, the General Appropriations Act of 1992, which appropriated ₱75,000,000 for the DILG's Capability Building Program. The Special Provisions restricted the Fund to local government and community capability building programs—training, technical assistance, and necessary support for training materials, supplies, and facilities—and further directed that the program be implemented nationwide through the Local Government Academy, involving local officials and employees including barangay officials. The appropriations were to be administered by the DILG and released only upon submission of a work and financial plan supported by a detailed breakdown of proposed expenditures. Savings from the appropriation could be used only to acquire equipment, except motor vehicles, in further support of the programs.

On November 11, 1991, Atty. Hiram C. Mendoza, identifying himself as Project Director of an Ad Hoc Task Force for Inter-Agency Coordination to Implement Local Autonomy, wrote to Deputy Executive Secretary Dionisio de la Serna proposing the creation of a "shamrock" type task force to design programs, strategize, and prepare modules for an effective local autonomy program under the Local Government Code of 1991. The estimated operational cost was ₱2,388,000 for a six-month period beginning December 1, 1991. Deputy Executive Secretary de la Serna accepted the proposal, and DILG Secretary Cesar N. Sarino issued a memorandum directing the transfer of ₱300,000 from the Fund to the Office of the President for the task force's operational expenses. A second cash advance of ₱300,000 was subsequently requested and processed, bringing the total to ₱600,000. Both amounts were withdrawn from the Fund by the DILG and transferred to the Cashier of the Office of the President, with the disbursement vouchers stating the transfer was for the ad hoc task force.

The first ₱300,000 was liquidated through a breakdown of expenditures—payroll of ₱226,000, office rentals of ₱60,000, office furniture of ₱7,500, and miscellaneous items totaling the balance—though no receipts were presented to support any of the expenditures. No record exists of the liquidation of the second ₱300,000. Atty. Mendoza, who initiated the proposal in his personal capacity, was neither an employee of the DILG nor of the Office of the President, and there is no evidence on record as to how the task force was formally created, what its functions were, who composed it, or whether it ever produced the programs, strategies, or modules it was supposed to design.

Upon post-audit, DILG Department Auditor Iluminada M.V. Fabroa disallowed the amounts in a 3rd Endorsement dated May 25, 1992, citing the absence of legal basis for the task force's claim through DILG cash advance, the existence of a prior unliquidated cash advance, failure to comply with the restrictions in the Special Provisions of R.A. 7180, and the unspecified estimates of expenses. The disallowance was formalized in a Notice of Disallowance dated March 29, 1993, holding Sarino, et al. jointly and severally liable and directing them to settle the disallowed amount. Sarino, et al. sought reconsideration, arguing the transfer served a public purpose, that the legality of the transfer was a judicial question requiring prior court determination, that the disallowance violated due process for lack of specificity, and that under Binamira vs. Garrucho, the acts of department heads are presumptively acts of the President. The Department Auditor denied the request, and the COA affirmed the disallowance in COA Decision No. 96-654 dated November 21, 1996, finding no legal justification to deviate from the DILG Auditor's findings. The OSG initially filed a manifestation supporting the petition as meritorious, but later retracted that position in its Memorandum, confirming the actual transfer through disbursement vouchers and receipts and arguing that the transfer had no legal basis.

• Public Purpose: Petitioners argued that the transfer was for the operational expenses of an ad hoc task force for inter-agency coordination to implement local autonomy, hence for a public purpose within the framework of the Special Provisions of R.A. 7180, and that the purpose of the task force fell within the general intendment of the Fund.
• Judicial Question: Petitioners maintained that whether the transfer violated R.A. 7180 was exclusively within the competence and jurisdiction of the courts and not of any other office, involving a prejudicial issue necessitating prior authoritative determination by the courts.
• Presumption of Regularity: Petitioners averred that the transfer of funds for a public purpose effected by the executive branch through the department head is presumed legal and regular, and that the DILG Auditor's conclusion of violation cannot overcome the presumption of legality of acts done by public officers in the performance of public duty.
• Due Process: Petitioners contended that the alleged violation was not specific and stated with particularity so as to apprise them of the nature and cause of the alleged violation, rendering the disallowance void for violating the constitutional guarantee of due process.
• Presumptive Act of the President: Citing Binamira vs. Garrucho, petitioners argued that the acts of department heads, unless reprobated or disapproved by the Chief Executive, are presumptively considered acts of the President of the Philippines.
• Operational Control: Petitioners maintained that the transfer was never repudiated by the President and that operational control over the amount transferred remained with the DILG, as evidenced by the fact that liquidation was done by the latter and not by the Office of the President.
• Nature of the Fund: Petitioners insisted that the Fund is a regular item of appropriation and not a trust fund because after the end of the calendar year, any unexpended amount would revert to the General Fund.

• Specific Purpose Restriction: Respondent countered that while the expenses may have been for a public purpose, they were categorically different from the purpose for which the Fund was created, and expenditures from the Capability Building Program are subject to compliance with the restrictions and conditions embodied in the Special Provisions of R.A. 7180.
• No Savings for Augmentation: Respondent argued that there were no savings from which augmentation could be taken because the releases of funds to the Office of the President were made at the beginning of the budget year 1992.
• Limited Transfer Authority: Respondent maintained that transfer of funds under Sec. 25(5), Art. VI of the Constitution may be made only by the persons mentioned in the section and may not be re-delegated, being already a delegated authority, and that the funds transferred must come only from savings of the office in other items of its appropriation and must be used for other items in the appropriation of the same office.
• Trust Fund Character: Respondent posited that while the Fund is a regular appropriation, it partakes of the nature of a trust fund because it was allocated for a specific purpose, and thus may be used only for the specific purpose for which it was created or the fund received.
• Personal Liability: Respondent concluded that petitioners should be held civilly and criminally liable for the disallowed expenditures.

• Legal Basis for Transfer: Whether there is legal basis for the transfer of funds of the Capability Building Program Fund appropriated in the 1992 General Appropriations Act from the DILG to the Office of the President.
• Requisites for Transfer: Whether the conditions or requisites for the transfer of funds under the applicable law were present in this case.
• Nature of the Fund: Whether the Capability Building Program Fund is a trust fund, a special fund, a trust receipt, or a regular appropriation.
• Validity of Disallowance: Whether the questioned disallowance by the Commission on Audit is valid.

• Legal Basis for Transfer: No. The transfer was not authorized by the President under Sec. 25(5), Art. VI of the 1987 Constitution, nor did it comply with the Special Provisions of R.A. 7180, which restricted the Fund to capability building programs implemented through the Local Government Academy.
• Requisites for Transfer: No. Neither requisite was satisfied: there were no actual savings from the Fund at the time of transfer, and there was no existing item in the Office of the President's appropriation to augment.
• Nature of the Fund: The Fund is a regular appropriation that partakes of the nature of a trust fund because it was allocated for a specific purpose, and may be used only for that purpose pursuant to Sec. 37 of P.D. 1177 and Sec. 84(2) of P.D. 1445.
• Validity of Disallowance: Yes. The COA acted within its constitutional mandate and without grave abuse of discretion in disallowing the transfer and holding petitioners personally liable.

• Legal Basis for Transfer: The power to transfer savings under Sec. 25(5), Art. VI of the 1987 Constitution pertains exclusively to the President, the President of the Senate, the Speaker of the House of Representatives, the Chief Justice, and the heads of Constitutional Commissions. In this case, the transfer was effected not by the President but at the instance of the Deputy Executive Secretary—not even the Executive Secretary himself—with no showing of presidential authorization. Even the DILG Secretary's corroboration did not supply the missing presidential authority. The General Provisions of R.A. 7180 expressly prohibited any change in expenditure items except through augmentation from savings as authorized under Sec. 25(5). The Fund was further restricted by its Special Provisions to capability building programs implemented through the Local Government Academy, and the transfer to the Office of the President completely abandoned the raison d'être for which the Fund was established. Petitioners failed to point to any specific law authorizing the transfer.

• Requisites for Transfer: Two essential requisites must concur for a valid transfer: first, savings in the programmed appropriation of the transferring agency; second, an existing item, project, or activity with an appropriation in the receiving agency to which the savings will be transferred. As to the first, actual savings is a sine qua non—the word "actual" denotes something real or substantial, existing presently in fact, as opposed to something merely theoretical, possible, potential, or hypothetical. The first transfer was made on January 31, 1992, only thirty days after the 1992 GAA took effect on January 1, 1992. It is preposterous to claim savings existed that early in the fiscal year. The 1992 GAA appropriated the Fund solely for maintenance and other operating expenses, with no allocation for personal services, meaning savings from vacant positions could not arise. The subsequent GAAs of 1993 and 1994 continued appropriating for the Capability Building Program, further confirming no savings existed from the prior year. Petitioners' own counsel admitted during oral argument that there were no savings as of the time of transfer. As to the second requisite, there was no item in the Office of the President's appropriation for the ad hoc task force to augment. Augmentation implies a deficiency in an existing item after implementation or evaluation; the ad hoc nature of the task force, with no permanent appropriation, is inconsistent with the concept of an existing item needing augmentation. The thesis that savings may be presumed from the mere transfer of funds is anathema to the doctrine in Demetria vs. Alba, as it would make the prohibition against transfer of appropriations the general rule rather than the stringent exception the constitutional framers intended.

• Nature of the Fund: The Fund is a regular appropriation but partakes of the nature of a trust fund because it was allocated for a specific purpose. Under Section 37 of P.D. 1177, all money appropriated for functions, activities, projects, and programs shall be available solely for the specific purpose for which they were appropriated. Under Section 84(2) of P.D. 1445, trust funds shall not be paid out except in fulfillment of the purpose for which they were created. The Special Provisions of R.A. 7180 further restricted the Fund's use to local government and community capability building programs. The transfer to the Office of the President for salaries, office supplies, rentals, food, and meals was a use completely outside the Fund's authorized purpose. The mere appropriation of public funds for a purpose other than that authorized by law is itself a violation of law, regardless of whether misappropriation occurred.

• Validity of Disallowance: The COA is vested with broad constitutional powers to examine, audit, and settle all accounts pertaining to government revenue and expenditures, including the authority to disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. Findings of administrative agencies, especially constitutionally-created ones, are accorded respect and finality when not tainted with unfairness or arbitrariness amounting to grave abuse of discretion. The COA's disallowance was based on clear violations of the Special Provisions of R.A. 7180 and the constitutional restrictions on transfer of appropriations. The grounds for disallowance were specifically enumerated in the 3rd Indorsement dated May 25, 1992, satisfying due process. The argument based on Binamira vs. Garrucho cannot prevail because what is disputed is the expenditure of public funds, which is subject to COA audit as constitutionally mandated, not the validity of an official's appointment. Petitioners, as responsible DILG officers—Secretary, Undersecretary, Chief Accountant, Director, and Chief of the Management Division—whose participation, assent, and approval were indispensable to the consummation of the illegal transfer, were properly held personally liable under Sec. 103 of P.D. 1445, which provides that expenditures of government funds in violation of law shall be a personal liability of the official or employee found to be directly responsible therefor.

• Two Requisites for Valid Transfer of Appropriations — Under Sec. 25(5), Art. VI of the 1987 Constitution, a valid transfer of appropriations requires two concurrence requisites: (1) savings in the programmed appropriation of the transferring agency, and (2) an existing item, project, or activity with an appropriation in the receiving agency to which the savings will be transferred. Both are sine qua non; the absence of either renders the transfer void. The Court applied this test to find that neither requisite was satisfied: there were no actual savings from the Fund at the time of transfer, and there was no existing item in the Office of the President's appropriation to augment.

• Actual Savings as Sine Qua Non — Actual savings, as opposed to projected, potential, or hypothetical savings, is indispensable to a valid transfer. Savings cannot be presumed from the mere transfer of funds. The word "actual" denotes something real or substantial, existing presently in fact. The Court applied this principle to reject the transfer made on January 31, 1992, barely thirty days into the fiscal year, when no savings could possibly have accrued from the Fund.

• Exclusive Power to Transfer — The power to augment from savings under Sec. 25(5), Art. VI pertains exclusively to the President, the President of the Senate, the Speaker of the House of Representatives, the Chief Justice, and the heads of Constitutional Commissions. This authority may not be re-delegated, being already a delegated authority. The Court applied this to reject the transfer effected at the instance of the Deputy Executive Secretary, who was not shown to have been authorized by the President.

• COA's Broad Audit Power — The COA, as guardian of public funds, has broad powers over all accounts pertaining to government revenue and expenditures, including exclusive authority to define the scope of its audit and promulgate accounting and auditing rules, and the power to disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. Its findings are accorded respect and finality absent grave abuse of discretion. The Court sustained the COA's disallowance as within its constitutional mandate.

• Personal Liability for Unlawful Expenditures — Under Sec. 103 of P.D. 1445, expenditures of government funds in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor. Public officers who approve or authorize transactions involving expenditure of government funds shall be liable for all losses arising out of their negligence or failure to exercise the diligence of a good father of a family. The Court applied this to hold the DILG Secretary, Undersecretary, Chief Accountant, Director, and Management Division Chief personally liable, as their participation, assent, and approval were indispensable to the illegal transfer.

• "Actual savings is a sine qua non to a valid transfer of funds from one government agency to another. The word 'actual' denotes that something is real or substantial, or exists presently in fact as opposed to something which is merely theoretical, possible, potential or hypothetical." — This passage defines the constitutional standard for savings required under Sec. 25(5), Art. VI, establishing that projected or potential savings cannot justify a transfer and that the existence of savings must be real and present, not presumed.

• "Clearly, there are two essential requisites in order that a transfer of appropriation with the corresponding funds may legally be effected. First, there must be savings in the programmed appropriation of the transferring agency. Second, there must be an existing item, project or activity with an appropriation in the receiving agency to which the savings will be transferred." — This is the canonical formulation of the two-pronged test for valid augmentation under the Constitution, frequently cited in subsequent jurisprudence on transfer of appropriations.

• "The thesis that savings may and should be presumed from the mere transfer of funds is plainly anathema to the doctrine laid down in Demetria v. Alba as it makes the prohibition against transfer of appropriations the general rule rather than the stringent exception the constitutional framers clearly intended it to be." — This rejects the presumption of savings from the fact of transfer, reinforcing the constitutional design that the prohibition against transfer of appropriations is the general rule and augmentation from savings the stringent exception.

• Demetria vs. Alba, 148 SCRA 208 (1987) — Controlling precedent on the prohibition against transfer of appropriations. The Court declared unconstitutional a provision of P.D. 1177 that authorized the President to indiscriminately transfer funds, establishing that the constitutional privilege of augmentation is limited to transfers from actual savings for the purpose of augmenting an existing item. The Court relied on this case to reject the presumption of savings from the mere transfer of funds and to emphasize the stringent nature of the exception to the prohibition.

• Philippine Constitution Association vs. Enriquez, G.R. No. 113105 (1994) — Followed for the principle that the power to approve realignment of savings belongs exclusively to the officials specified in Sec. 25(5), and that before approval, these officials must verify that the funds are actually savings and that the transfer is for augmentation. The Court also relied on this case for the proposition that the Chief of Staff of the Armed Forces may not be given authority to transfer funds, reinforcing the exclusivity of the power.

• Olaguer vs. Domingo, G.R. No. 109666 (2001) — Followed for the principle that findings of administrative agencies affirmed along the administrative hierarchy are generally conclusive on the courts, and that courts will not interfere in matters addressed to the sound discretion of government agencies entrusted with special technical knowledge. The Court applied this to sustain the COA's findings.

• Binamira vs. Garrucho, 188 SCRA 155 — Distinguished. Petitioners cited this case for the proposition that acts of department heads are presumptively acts of the President unless disapproved. The Court held this argument cannot prevail because what is disputed is the expenditure of public funds subject to COA audit, not the validity of an official's appointment or removal.

• Sec. 25(5), Art. VI, 1987 Constitution — Prohibits transfer of appropriations except by the President, Senate President, Speaker of the House, Chief Justice, and heads of Constitutional Commissions, who may augment any item in the GAA for their respective offices from savings in other items of their respective appropriations. Applied to determine that the transfer was invalid because it was not made by the President and there were no actual savings.

• Special Provisions, R.A. 7180 (GAA of 1992) — Restricted the Capability Building Program Fund to local government and community capability building programs, to be implemented through the Local Government Academy, and released upon submission of a work and financial plan. Applied to find that the transfer to the Office of the President for the ad hoc task force violated the Fund's authorized purpose.

• Sec. 17 and Sec. 19, General Provisions, R.A. 7180 — Authorized the President and other specified officials to augment any item from savings, and defined "savings" as portions or balances of any programmed appropriation free of any obligation or encumbrance still available after satisfactory completion or unavoidable discontinuance of the work, and "augmentation" as implying the existence of an item with an appropriation determined to be deficient. Applied to establish the two requisites for valid transfer.

• Sec. 37, P.D. 1177 — Provides that all money appropriated for functions, activities, projects, and programs shall be available solely for the specific purpose for which they were appropriated. Applied to reinforce that the Fund could not be used for purposes other than capability building.

• Sec. 84(2), P.D. 1445 (Government Auditing and Accounting Act) — Provides that trust funds shall not be paid out except in fulfillment of the purpose for which they were created, upon authorization of the legislative body or head of agency, and subject to pertinent budget law, rules, and regulations. Applied to characterize the Fund as partaking of a trust fund nature due to its specific purpose.

• Sec. 103, P.D. 1445 — Provides that expenditures of government funds in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor. Applied to hold petitioners personally liable for the disallowed disbursement.

Chief Justice Reynato S. Puno, and Associate Justices Leonardo A. Quisumbing, Consuelo Ynares-Santiago, Antonio T. Carpio, Ma. Alicia Austria-Martinez, Renato C. Corona, Conchita Carpio Morales, Adolfo S. Azcuna, Minita V. Chico-Nazario, Presbitero J. Velasco Jr., Antonio Eduardo B. Nachura, Ruben T. Reyes, Teresita J. Leonardo-De Castro, and Arturo D. Brion. No separate concurring opinions were written.