G.R. No. 213409 - Land Bank of the Philippines vs. Commission on Audit

The case involves the Land Bank of the Philippines (LBP), a government financial institution created under Republic Act No. 3844 (as amended by RA 10374 and RA 10878), and its related entities.
The petitioners include LBP and its wholly-owned or affiliated subsidiaries: Land Bank Insurance Brokerage, Inc.; Land Bank Realty Development Corporation; LBP Leasing Corporation; Masaganang Sukahan, Inc.; and LBP Countryside Development Foundation, Inc.
The subsidiaries operate as either private corporations under the Corporation Code or non-stock non-profit corporate foundations, though they are functionally tied to LBP.

In the 2003 Annual Audit Report, the Commission on Audit (COA) identified that certain individuals held dual roles—as officers/employees of the Parent Company (LBP) and as Board members or corporate officers of the Subsidiaries.
In exchange for their services on the Boards, these individuals received additional allowances and benefits amounting to P5,133,830.02, which were flagged as violating the constitutional prohibition on double compensation.
The COA noted that these payments were not supported by any legal basis, including the requirements of Section 30 of the Corporation Code and the mandates of Office of the President Memorandum Order No. 20 and DBM Circular Letter No. 2003-10.

The Subsidiaries responded via a letter-reply (dated August 24, 2004), clarifying that certain benefits were discontinued and asserting that the payments were for token compensation—granted in recognition of the extra responsibilities of Board members in the subsidiaries.
They further argued that, since all subsidiaries are wholly owned by LBP, the approval rendered by the Board (including the presence of the LBP President/CEO) was tantamount to the approval by the majority stockholders.

In Notice of Disallowance No. LBP-Subs. 2008-015 (pertaining to the 2002-2003 period), the COA disallowed the payment of additional allowances and benefits on the ground that they were unauthorized and violated both statutory and constitutional provisions.
The COA’s disallowance was premised on the absence of proper legal authority: the subsidiaries’ by-laws did not permit additional compensation beyond reasonable per diems, and proper presidential approval was lacking.

LBP and its subsidiaries filed a petition for certiorari assailing the COA Proper Decision, claiming violations of due process and challenging the COA’s jurisdiction over payments made by government-owned entities incorporated under the Corporation Code.
The petitioners contended that the additional payments were not “new” or “increased” benefits, and that the resolution of the Boards effectively substituted for the majority stockholder vote required by law.

The COA maintained that due process requirements were met, emphasizing that a formal Audit Observation Memorandum (AOM) is not mandatory provided that sufficient notice and an opportunity to respond were given.
The COA substantiated the disallowance by citing specific legal provisions (Section 30 of the Corporation Code, the 1987 Constitution, Memorandum Order No. 20, and DBM Circular Letter No. 2003-10), and pointed out that the dual capacity in which the officials acted (as both payees and approving officers) created inherent conflicts of interest.

The case highlighted that the officials who received the disallowed payments were also involved in authorizing them, making them liable both as individual payees and as approving officers.
Conversely, other approving or certifying officers (such as accountants and treasurers) were exonerated from liability provided they acted in good faith and performed their duties regularly.

Is the issuance of an Audit Observation Memorandum (AOM) mandatory in all disallowance cases?
Were the petitioners properly notified of the charges against them?

Does the COA Proper have jurisdiction over disallowances involving payments made by subsidiaries incorporated under the Corporation Code of a government-controlled corporation?
Does the nature of the transaction—wherein public funds are implicated due to the involvement of LBP officials—place the matter within the COA’s oversight?

Do the subject payments qualify as “new” or “increased” benefits under Office of the President Memorandum Order No. 20 and DBM Circular Letter No. 2003-10?
In cases where a corporation’s Board is predominantly composed of representatives of its sole stockholder, can a resolution passed by the Board substitute for the stockholders’ approval mandated under Section 30 of the Corporation Code?

Does receiving the payments in good faith excuse the recipients from their liability to refund the disallowed amount?
What is the legal consequence for officials who acted simultaneously as payees and as approving officers in effecting the disbursements?