G.R. No. 210571 - Miralles vs. Commission on Audit

The Constitution grants the Commission on Audit (COA) exclusive authority to define the scope of its audits, set auditing methodologies, and promulgate rules for disallowing government expenditures.
COA’s power to disallow expenditures is limited to transactions that are irregular, unnecessary, excessive, extravagant, illegal, or unconscionable. Disallowances based solely on the delinquency of loan collections are not recognized as valid grounds.

QUEDANCOR, formerly a subsidiary of the National Food Authority, was created under Republic Act No. 7393 to channel investments and credit into the countryside, stimulating rural development, productivity, and employment.
The institution spearheaded various financing programs with specific purposes:

The Sugar Farm Modernization (SFM) Program, governed by Circular No. 102, Series of 1999, to finance the purchase of tractors and implements.
The Food and Agricultural Retail Enterprises (FARE) Program, covered under Circular No. 079, Series of 1997, to augment the working capital of retailers dealing with agri-related commodities.

QUEDANCOR issued policies, implementing guidelines, and standard operating procedures for its operations, thus directing its field officers (QOOs) across various regions.

In 2003, an Audit Observation Memorandum (AOM) noted the failure of QUEDANCOR Management to effectively collect delinquent loans, particularly under the SFM Program.
Following the AOM:

On April 7, 2005, the COA issued Notice of Disallowance (ND) No. RLAO-2005-052 for P3,092,900.00 concerning unsettled SFM Program loans, holding petitioner Orestes S. Miralles personally liable for approving these transactions.
Subsequently, on June 6, 2005, ND No. RLAO-2005-055 was issued for P4,450,000.00 relating to FARE Program loans, where the investigation revealed that some borrowers lacked viable businesses as required.

QUEDANCOR Management and its officers, through their lack of appropriate legal action (such as foreclosure and collection suits), contributed to prolonged loan delinquencies.
The disallowance appeared to conflate administrative deficiencies (failure to collect) with irregularities in the approval process.

The petitioner, Mr. Miralles, contended that his approval of the loan applications was based on:

The basis of ND No. RLAO-2005-052 was defective because it targeted delinquency in collections rather than identifying any irregular, unnecessary, excessive, extravagant, illegal, or unconscionable expenditure.
He should not be personally held liable given that the responsibility for pursuing legal remedies lay with QUEDANCOR’s Legal Affairs Department.
His invocation of the Arias doctrine was justified, as it allows departmental heads to reasonably rely on subordinates’ findings and recommendations.

The administrative appeals and subsequent COA decisions (including the LSS Decision No. 2010-022 and the COA Proper Decision on November 20, 2013) ultimately affirmed the imposition of personal liability under the two NDs.

Whether the COA gravely abused its discretion (amounting to lack or excess of jurisdiction) by:

Upholding ND No. RLAO-2005-052 on the basis of delinquent collections under the SFM Program rather than on permissible grounds (irregular, unnecessary, excessive, extravagant, illegal, or unconscionable expenditure).
Holding the petitioner personally liable for actions that were essentially part of his duty to approve loans in adherence to established guidelines and based on subordinate recommendations.

Affirming ND No. RLAO-2005-055, concerning FARE Program loans where the absence of viable business verification was noted.
Refusing to apply the Arias doctrine to shield the petitioner from personal liability, despite his reliance on subordinates and the high volume of loan applications handled by his department.

The COA’s failure to precisely inform him of the issues for which he was being held liable.
The lack of a fair opportunity to rebut the specific findings, particularly regarding the supposed deficiencies in his supervision.