Liwanag vs. Commission on Audit

A special audit that reopens transactions previously allowed in audit must strictly comply with Sections 15.1.2 and 15.3 of COA Circular 2009-006; failure to present the requisite office orders and to hold preliminary discussions with the auditor who earlier passed the transactions in audit violates the auditee’s right to due process, rendering the special audit and its results invalid.

ACWD, a local water district established under Presidential Decree 198, granted grocery allowance and year-end financial assistance to its employees for fiscal years 2008 and 2009. The resident auditors for those years passed the corresponding disbursements in audit without issuing any notice of disallowance. Subsequently, acting on a request to investigate alleged corruption, a different audit team leader conducted a special audit and issued four Notices of Disallowance in November 2012, disallowing a total of P14,556,195.00. The COA Regional Director affirmed the disallowances but noted that the amount might be increased to P26,462,024.00, and declared the decision subject to automatic review. The COA Proper nonetheless dismissed the petitioner’s appeal as out of time.

• The Disallowed Benefits: For the years 2008 and 2009, ACWD granted grocery allowance (P7,248,000.00 in 2008 and P4,955,500.00 in 2009) and year-end financial assistance (P1,069,771.00 in 2008 and P1,282,924.00 in 2009) to its employees. The original aggregate disallowed amount was P14,556,195.00. During the proceedings, the supervising auditor sought to increase the disallowance to P26,462,024.00, asserting that additional amounts had been overlooked.
• Prior Audits: The accounts of ACWD for 2008 were audited by Regional Director Amante A. Liberato, and those for 2009 by Supervising Auditor Edelmira M. Gonzales. Neither auditor issued any notice of disallowance concerning the grocery allowance or the year-end financial assistance; the disbursements were effectively allowed in audit.
• The Special Audit: Acting on a request to examine alleged corruption and irregular benefits, Audit Team Leader Rowena R. Bucu conducted a special audit and issued the assailed NDs in November 2012. The grocery allowance was disallowed on the ground that it had no legal basis and that similar expenses for 2010–2011 had been disallowed in a prior COA decision. The year-end financial assistance was disallowed because it did not conform to the benefits established as of December 31, 1999, per a DBM letter and PAWAD Memorandum Circular.
• DBM Secretary Boncodin’s Letter: A letter dated April 27, 2001, from then DBM Secretary Emilia Boncodin permitted local water districts to continue granting allowances and fringe benefits that were an “established and existing practice” as of December 31, 1999, subject to conditions: positive average net income over the prior 12 months, up-to-date debt service, unaccounted-for-water ratio not exceeding 40 percent, inclusion of benefits in the budget, and a staff-to-service-connection ratio of not less than 1:100. Petitioner asserted ACWD had complied but presented no documentary evidence. The list of benefits ACWD had granted since before 1999 did not include grocery allowance.
• Board Authorization: ACWD Board Resolution No. 19, Series of 2015, authorized the filing of a motion for reconsideration with the Supreme Court. The COA contended this limited the petitioner’s authority to that specific remedy.

• Timeliness of Appeal: Petitioner argued that the appeal to the COA Proper was not out of time because the Regional Director’s decision expressly stated it was “not final” and subject to automatic review under Section 7, Rule V of the 2009 RRPC, following the supervising auditor’s modification of the disallowed amount.
• Authority to Sue: Petitioner maintained that, as General Manager, he possessed inherent authority to file the certiorari petition and sign the verification and certification of non-forum shopping on behalf of ACWD even without a specific board resolution, pursuant to the doctrine in Cagayan Valley Drug Corp. v. CIR.
• Invalidity of the Special Audit: Petitioner contended that the special audit was illegal because the accounts had already been audited and passed without disallowance by previous auditors, and the COA failed to comply with the procedural requirements for special audits under COA Circular 2009-006, Section 15.
• Entitlement to Benefits: Petitioner asserted that the grocery allowance and year-end financial assistance were allowable as existing benefits as of December 31, 1999, and that ACWD had satisfied the parameters in Secretary Boncodin’s letter.

• Untimely Appeal: Respondent insisted that the petition for review was filed beyond the six-month reglementary period under Section 3, Rule VII of the 2009 RRPC, and that the Regional Director’s decision had become final and executory.
• Lack of Authority: Respondent argued that ACWD’s board resolution limited the petitioner’s authority to filing a motion for reconsideration, precluding him from bringing a petition for certiorari.
• Propriety of Disallowance: Respondent maintained that the grocery allowance and year-end financial assistance were properly disallowed because, under Section 12 of R.A. No. 6758 (the Salary Standardization Law), all allowances not expressly excepted are deemed integrated into the standardized salary. The petitioner failed to prove that the benefits fell within the exceptions or that ACWD met the DBM parameters.

• Timeliness of Appeal: Whether the petition for review with the COA Proper was filed out of time.
• Authority to File: Whether the petitioner, as General Manager, had the requisite authority to file the certiorari petition on behalf of ACWD.
• Validity of Special Audit: Whether the COA gravely abused its discretion in failing to invalidate the special audit despite non-compliance with COA Circular 2009-006.
• Merits of the Disallowance: Whether the COA gravely abused its discretion in affirming the disallowance of grocery allowance and year-end financial assistance.

• Timeliness of Appeal: The appeal was timely. The Regional Director acknowledged that the supervising auditor’s recommendation to increase the disallowed amount from P14.5 million to P26.4 million constituted a modification of the auditor’s original decision. Under Section 7, Rule V of the 2009 RRPC, a director’s decision that reverses, modifies, or alters the auditor’s decision is elevated directly to the Commission Proper for automatic review. Because the decision never attained finality, the period for filing an appeal did not run, and a motion for reconsideration was unnecessary.
• Authority to File: The petitioner was fully authorized to institute the certiorari proceeding. The sixth Whereas clause of Board Resolution No. 19 mentioned a motion for reconsideration, but the board’s clear intent was to pursue all remedies to reverse the COA decision. Even absent such a resolution, the General Manager of a corporation is among the officers who may sign the verification and certification of non-forum shopping without specific board authorization, as established in Cagayan Valley Drug Corp. v. CIR, because he is “in a position to verify the truthfulness and correctness of the allegations in the petition.”
• Validity of Special Audit: The special audit and its results were declared invalid and ineffectual. COA Circular 2009-006, Section 15.1.2 requires that special audit teams be authorized by office orders and that their notices of disallowance bear the corresponding office order number. Section 15.3 mandates that, where a transaction was earlier allowed in audit, the special audit team must preliminarily discuss the disallowance with the auditor concerned and, if the latter disagrees, obtain a written comment for evaluation. The COA failed to produce the required office orders and did not dispute the petitioner’s claim that no preliminary discussion was held with the prior auditors. These requirements were designed to prevent arbitrariness; their non-observance constituted a flagrant violation of ACWD’s right to due process under Section 1, Article III of the 1987 Constitution. The special audit and all NDs arising from it were therefore null and void.
• Merits of the Disallowance: The propriety of the disallowance was not resolved on the merits. The Court observed that the COA Proper was “probably justified” in finding the disallowance warranted, because grocery allowance was not among the benefits listed as an established practice as of 1999, and petitioner offered no documentary proof of compliance with the DBM parameters. Nonetheless, the invalidation of the special audit entirely removed the legal foundation for the disallowances, rendering the issue moot.

• Procedural Due Process in COA Special Audits — COA Circular 2009-006, Section 15, establishes mandatory protections when a special audit reopens accounts already allowed in audit: (a) the special audit must be authorized by an office order, which must be reflected in the notices of disallowance (Sec. 15.1.2); and (b) if the transaction was earlier allowed, the special audit team must preliminarily discuss the disallowance with the auditor who passed it and, in case of disagreement, secure that auditor’s written comment for evaluation (Sec. 15.3). These steps are designed to prevent arbitrary re-examinations and to afford the auditee fundamental fairness. Failure to comply with these procedural safeguards renders the special audit invalid as a violation of the constitutional guaranty of due process.
• Automatic Review of Modified Auditor Decisions — Under Section 7, Rule V of the 2009 Revised Rules of Procedure of the COA, whenever a Regional Director reverses, modifies, or alters the decision of an auditor, the case is elevated directly to the COA Proper for automatic review. The dispositive portion must expressly state that the decision is not final. As long as the decision is subject to automatic review, it never becomes final and executory, and the reglementary period for appeal does not commence.
• Authority of Corporate Officers to Verify Pleadings — A general manager or acting general manager of a juridical entity may sign the verification and certification against forum shopping on behalf of the entity without a separate board resolution, because such officer is, by the nature of his position, in a position to confirm the truthfulness and correctness of the petition’s allegations (Cagayan Valley Drug Corp. v. Commissioner of Internal Revenue).

• “The objective for holding the preliminary discussions was to obtain the grounds or bases for allowance by the earlier auditors, and the written comment of the former would then be obtained for the evaluation by the special audit team in view of the conflict between the respective findings of the auditors. Such requirements for the office orders and for the preliminary discussions were intended to prevent arbitrariness on the part of the special auditors.”
• “Any government act that militates against the ordinary norms of justice or fair play is considered an infraction of the great guaranty of due process; and this is true whether the denial involves violation merely of the procedure prescribed by the law or affects the very validity of the law itself.”

• Davao City Water District v. Civil Service Commission, G.R. Nos. 95237-38, September 13, 1991, 201 SCRA 593 — Cited as controlling precedent for the classification of local water districts as government-owned or controlled corporations with original charters, thereby placing them under COA jurisdiction only from 1991, after the enactment of the Salary Standardization Law.
• Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue, G.R. No. 151413, February 13, 2008, 545 SCRA 10 — Applied to affirm that the general manager of a corporation has inherent authority to sign the verification and certification of non-forum shopping without a board resolution.
• Legaspi v. City of Cebu, G.R. Nos. 159110 and 159692, December 10, 2013, 711 SCRA 771 — Invoked for its restatement of the constitutional protection of due process as a safeguard against arbitrary government action.

• Section 12, Republic Act No. 6758 (Salary Standardization Law) — Discussed as the substantive basis for integrating allowances into standardized salary rates; only those allowances expressly excepted may be continued, and the grocery allowance and year-end financial assistance were not among the enumerated exceptions.
• Section 7, Rule V, 2009 Revised Rules of Procedure of the COA — Applied to hold that the Regional Director’s modification of the disallowed amount triggered automatic review by the COA Proper, rendering the subsequent appeal timely.
• Section 15, COA Circular 2009-006 — The procedural linchpin of the ruling: the COA’s failure to produce office orders and to conduct preliminary discussions with prior auditors, as mandated by this provision, invalidated the special audit.
• Section 1, Article III, 1987 Constitution (Due Process Clause) — Held violated by the COA’s disregard of its own procedural rules, which amounted to arbitrariness and a deprivation of property without due process.

Carpio, Peralta, Perlas-Bernabe, Leonen, Jardeleza, Caguioa, A. Reyes, Jr., Gesmundo, Hernando, Carandang, Lazaro-Javier, and Inting, JJ., concur. J. Reyes, Jr., on leave.