G.R. No. 127545 - Sanchez vs. Commission on Audit

In 1991, Congress enacted Republic Act No. 7180 (the General Appropriations Act of 1992), which included a P75,000,000.00 appropriation for the Department of the Interior and Local Government (DILG)’s Capability Building Program.
The Special Provisions of the Act mandated that funds are to be used exclusively for local government and community capability building programs (training, technical assistance, support for training materials, supplies, and facilities).
The law provided that any savings from the appropriation could only be used to acquire equipment (excluding motor vehicles) in furtherance of the program, and that the fund must be implemented by the DILG through the Local Government Academy.

On November 11, 1991, Atty. Hiram C. Mendoza (Project Director of the Ad Hoc Task Force for Inter-Agency Coordination to Implement Local Autonomy) initiated the proposal to form a “shamrock” type task force aimed at preparing programs and modules for local autonomy.
The proposal was communicated to then Deputy Executive Secretary Dionisio de la Serna and was attested by then DILG Secretary Cesar N. Sarino, one of the petitioners.
A memorandum was issued directing the transfer of P300,000.00 from the Capability Building Program Fund to the Office of the President for the task force’s operational expenses, and a second cash advance of an equal amount was also withdrawn from the fund.

Two cash advances of P300,000.00 each were processed from the fund, with one voucher showing a breakdown of expenses (payroll, office rental, office supplies, etc.) and a remaining balance noted, while the other advancement lacked any record of liquidation.
A post-audit conducted by the DILG Auditor disallowed the expenditures on several bases, including:

Absence of a legal basis for the task force to claim payment from the DILG via a cash advance.
The failure to liquidate previous cash advances.
Noncompliance with the restrictions and conditions laid out in the Special Provisions of RA 7180.
Inadequate specification of the expenses covered.

Following the audit, the Department Auditor’s disallowance was reiterated in subsequent notices (including a Notice of Disallowance dated March 29, 1993), holding the petitioners jointly and severally liable for the disallowed funds.
Petitioners (including Sarino, Sanchez, Regala, Barata, and Agbayani) submitted a request for reconsideration based on several arguments:

The transfer’s purpose was for public benefit, specifically to implement local autonomy.
The legality of the transfer is a matter exclusively within the jurisdiction of the courts, preserving the presumption of legality for acts performed in the public interest.
The doctrine from Binamira v. Garrucho was cited, which presumed acts performed in the regular course of business to be acts of the President.

The Office of the Solicitor General (OSG) initially filed a manifestation supporting the petitioners’ stance, but later retracted this position, averring that the transfer had no legal basis.

A key factual dispute arose over whether a real transfer of funds took place from the DILG to the Office of the President:

Petitioners alternately argued that no actual physical transfer occurred and that the funds remained under DILG control.
Conversely, the records (including disbursement vouchers and oral argument testimonies) confirm that there were indeed two separate vouchers evidencing an actual transfer.

The COA and the courts had to determine whether the funds were legally transferable under Section 25(5), Article VI of the 1987 Constitution, which limits the power of fund transfer to specific officials and requires that such transfers be made only from actual savings for the purpose of augmenting an item.

Whether there exists a legal basis for the transfer of funds from the DILG’s Capability Building Program Fund to the Office of the President.
Whether the transfer was made in accordance with the purpose for which the fund was established under RA 7180.

Whether the requisites for transferring funds under Section 25(5), Article VI of the 1987 Constitution were met, specifically:

The existence of actual savings in the appropriated fund.
The presence of an existing appropriation item (or a deficiency therein) that required augmentation.

Whether the transferred funds were accompanied by the necessary work and financial plan and detailed breakdown as prescribed by the law.

Whether the Capability Building Program Fund should be classified as a trust fund, a special fund, a trust receipt, or a regular appropriation.
The implications of such classification on the permissible use and transfer of the funds.

Whether the Commission on Audit (COA) properly exercised its constitutional mandate to disallow irregular, unnecessary, or excessive expenditures.
Whether the disallowance, considering both the lack of compliance with the purpose of the fund and the irregularities associated with the transfer, is valid.