G.R. No. 146824 - Santiago vs. Commission on Audit

On June 16, 1998, COA State Auditors Erlinda B. del Rosario and Rodolfo T. Follero, assigned at the Provincial Auditor’s Office in Pili, Camarines Sur, conducted an examination of the cash and accounts of petitioner Municipal Treasurer Encarnacion E. Santiago covering the period from June 1997 to June 1998.
The audit uncovered several irregularities, including:

A cash shortage amounting to P3,580,378.80.
Evidence of rampant manipulation of books of account by both petitioner Santiago and Municipal Accountant Designate Generoso V. Ortua.
Failure to remit trust liabilities under the General Fund totaling P3,439,868.07 in violation of the GSIS Act of 1997.
Non-certification of vouchers covering cash advances by the Municipal Budget Officer in contravention of Section 344 of the Local Government Code of 1991.
Cash advances improperly granted through unauthorized cash transfers and without adherence to COA Circular No. 97-002 provisions.
Payment for recurring expenses exceeding the prescribed amount and non-submission of required Report of Collection and Disbursements with relevant supporting documents.

A demand letter dated August 19, 1998 informed petitioner of the cash shortage.
On September 11, 1998, petitioner submitted a letter of explanation claiming she would furnish liquidation documents by September 23, 1998, a promise which she eventually failed to fulfill.
On September 24, 1998, based on her failure to provide the necessary supporting documents and in accordance with Section 348 of Republic Act No. 7160, petitioner was relieved from her duties.
A second demand letter was issued on November 23, 1998, reiterating the cash shortage and requiring an immediate submission of all supporting documents along with an explanation for the delay.
Subsequent to these events, COA, through its Director of Regional Office No. V, filed a complaint with the Office of the Ombudsman for Malversation of Public Funds on June 24, 1999, and two criminal cases were filed against petitioner. An administrative case was likewise initiated with the Civil Service Commission on December 13, 1999.

On July 20, 1999, State Auditor del Rosario directed the Municipal Mayor of Goa, Camarines Sur, to withhold petitioner’s salary and other emoluments to satisfy her cash shortage, pursuant to Section 37 of Presidential Decree No. 1445 (mirroring Section 21 of EO No. 292, Administrative Code of 1987).
As a result, petitioner did not receive her salary from October 1998 to July 1999, and subsequent salary payments were endorsed and their proceeds applied to the cash shortage.
On January 7, 2000, petitioner formally requested reconsideration of the withholding directive, arguing that the audit finding did not establish a final indebtedness to the government and that withholding her salary without her consent was illegal.
COA Regional Office No. V denied the request in subsequent correspondence (including a First Indorsement dated January 25, 2000, and a letter on January 22, 2001), stating that the withholding was legally grounded to satisfy the alleged cash shortage.

Petitioner filed a petition seeking to review COA’s decisions. She contended that withholding her salary based solely on an audit finding and pending administrative and criminal cases was without legal basis.
The petition raised the legal question of whether a government auditor, acting on audit findings, can order the withholding, retention, and application of a government employee’s salary towards payment of public funds allegedly embezzled, given that no final judicial order has been rendered to that effect.

Whether the salary and other emoluments of a government employee can be ordered withheld, retained, and applied to the payment of public funds allegedly embezzled under her care solely on the basis of an audit report and pending administrative and criminal cases.
Whether a government auditor has the legal authority to definitively pronounce the existence of indebtedness against an employee based merely on audit findings without a final judicial determination or admission by the indebted party.
Whether applying the withheld salary as set-off against the alleged cash shortage is valid given that the shortage has not been conclusively adjudicated by a competent court.