Case Summary (G.R. No. 258510)
Discovery of Theft, Internal Investigation, and Petitioner's Actions
On January 31, 2011, petitioner Biong discovered alleged thefts of inks/toners and falsification of SWSs within the GSU. He filed an Incident Report (February 22, 2011) describing missing deliveries (including deliveries by other suppliers) and recommended a formal investigation by PhilHealth’s Legal Office. Biong filed a Request for Relief from Accountability with the COA Audit Team (March 18, 2011). Records do not show the outcome of that relief request prior to subsequent COA disallowances.
COA Audit Findings Underlying the Notices of Disallowance
COA Audit Team issued ND No. 11-002-000(10) (July 5, 2011) and ND No. 11-003-000(10) (August 15, 2011) disallowing payments to Silicon Valley on grounds including: staggered/delayed deliveries (violation of a 15-calendar-day delivery stipulation in the POs), lack of IARs or inspection by an authorized inspector (citing Section 465 of COA Circular No. 368-91), reliance on alternative documents (certification by Biong, SWSs, MRSMI) in lieu of IARs, altered/padded SWSs, SWSs without end-user counterparts, issuances to unknown recipients, and unaccounted deliveries — with specific disallowed amounts itemized per PO. Silicon Valley as payee was not held liable under the NDs.
COA Regional Office No. III Decision (2012)
COA RO3 (Assistant Commissioner Encallado) affirmed the disallowances (COA RO3 Decision No. 2012-46, Oct. 4, 2012) but excluded one officer (Reyes) from liability for one ND. RO3 emphasized that, although the disallowances sprang from lack of IARs and supplier delay, the real concern was management of office supplies and the long delay (two to three years) in payment processing, which strengthened the finding of irregularities. RO3 held that petitioner Biong, as GSU Chief, should have ensured prompt inspection and failed to exercise due diligence in acceptance and custody. The decision was referred for automatic review by COA Proper.
COA Proper Decision (2019)
COA Proper (Decision No. 2019-040, March 21, 2019) approved RO3’s decision with modifications: it excluded several officials (Balog, Lumba, Mamawal, Quizon, Marbebe) from liability while affirming the NDs against others, including petitioner Biong and Mary Joy Cruz. COA Proper found that PhilHealth RO3 had a valid obligation to pay Silicon Valley (which supported exclusion of certain signatories) but held Biong liable for “apparent and consistent negligence” for failing to discover falsified SWSs and MRSMI that led to payment despite lack of supporting documents. A Notice of Finality (Nov. 17, 2021) was later issued.
Procedural Defect: Failure of Service and Due Process
The Supreme Court first found an invalid service to petitioner Biong: he was not served a copy of COA Proper Decision No. 2019-040 prior to issuance of the Notice of Finality, and only received a certified true copy on January 25, 2022, precluding timely filing of motions for reconsideration. This violated Section 7 of the 2009 Revised Rules of Procedure of the COA (which prescribes service of ND/NC/NS, orders, or decisions by personal service or registered mail). The COA’s failure to comply with its own rules amounted to grave abuse of discretion and deprived Biong of due process; on that basis the Notice of Finality had to be set aside.
Standard of Judicial Review Applied
The Court acknowledged the general deference given to COA findings of fact when supported by substantial evidence, but emphasized the Court’s authority under Section 1, Article VIII of the 1987 Constitution to review for grave abuse of discretion amounting to lack or excess of jurisdiction. The Court reiterated COA’s mandate to prevent irregular, unnecessary, excessive, or illegal expenditures, but stressed that a disallowance is warranted only where an expenditure falls within those anomalous categories at the time the expenditure is incurred.
Court’s Analysis: Irregular Expenditure — Burden and Timing of Irregularity
The Court held that for an expenditure to be deemed irregular, the deviation from established rules or standards must have occurred at the time the expenditure was incurred; irregularities that occur after the expenditure or are disconnected from the underlying transaction do not justify disallowance. The Court examined the three grounds COA cited (supplier delay, lack of IARs, falsified SWSs) and found none sufficient to sustain disallowance of payments to Silicon Valley.
Court’s Analysis: Delay in Delivery and Contractual Remedies
The 15-calendar-day delivery condition in the POs was characterized as a contractual stipulation rather than an established legal rule. Breach of that clause is a supplier default triggering contractual remedies (liquidated damages, penalties, or contract termination per procurement rules), not automatic audit disallowance. Because Silicon Valley ultimately delivered the items and paid contractually-applicable penalties (liquidated damages), the Court held that disallowance on account of delay was unwarranted.
Court’s Analysis: Lack of Inspection and the Role of Internal Rules
The Court treated the absence of IARs and the inspector’s nonperformance as internal procedural lapses of PhilHealth RO3. Citing precedent (Theo-Pam), the Court reasoned that internal rules and process flows, which do not implicate the supplier, may not be used to deny payment to a third-party supplier that actually delivered and whose invoices showed receipt by agency personnel. The sales invoices and evidence that PhilHealth personnel received the goods sufficed to obligate PhilHealth to pay the supplier despite internal compliance failures.
Court’s Analysis: Falsified SWSs and Causal Disconnect
Although falsification of SWSs is an irregularity, the Court emphasized that the falsification occurred after completion of the procurement transactions and was disconnected from the POs and payments to Silicon Valley. The supplies at issue were fungible; COA did not show a logical causal link establishing that the falsified SWSs concerned the goods delivered by Silicon Valley rather than goods delivered by other suppliers (Masangkay Computer Center, PC Worx). Holding Silicon Valley or converting the supplier’s payment into a disallowance based on post-transaction theft/falsification by agency personnel was arbitrary. The Court found COA’s decision to disallow payments and penalize agency officers for supply-management failures to be capricious in the absence of a demonstrated causal relationship.
Relief-from-Accountability and Measure of Liability for Stolen Property
The Court noted that, if petitioner Biong were to be held accountable for missing supplies, the measure of liability under the Government Auditing Code (Sections 73, 102, 104, 105) is limited to the money value of the loss, and relief from accountability procedures apply (Section 73). The Court therefore separated any potential liability for theft or loss from the present inquiry into whether the payments to Silicon Valley were irregular; resolution of Biong’s Request for Relief from Accountability would determine any monetary liability for stolen property.
Solutio Indebiti, Payee Liability, and COA’s Application
The Court explained that when a disbursement is declared illegal or irregular, a payee’s receipt is generally subjec
...continue readingCase Syllabus (G.R. No. 258510)
Court and Decision
- En Banc decision of the Supreme Court of the Philippines, G.R. No. 258510, dated May 28, 2024.
- Decision authored by Justice Inting.
- Petition for Certiorari under Rule 64 in relation to Rule 65 of the Rules of Court.
- Relief sought: annulment of Commission on Audit (COA) Decision No. 2019-040 (March 21, 2019) and Notice of Finality of Decision No. 2021-252 (November 17, 2021).
- Final disposition: Petition granted; COA Decision No. 2019-040 (Mar. 21, 2019) and Notice of Finality No. 2021-252 (Nov. 17, 2021) set aside; “So ordered.”
- Justices concurring: Gesmundo, C.J., Leonen, SAJ., Caguioa, Hernando, Lazaro-Javier, Zalameda, M. Lopez, Gaerlan, Rosario, J. Lopez, Dimaampao, Marquez, Kho, Jr., and Singh, JJ.
Parties
- Petitioner: Jess Christopher S. Biong — Administrative Officer III / Former Head of the General Services Unit (GSU), PhilHealth Region III.
- Respondent(s): Commission on Audit (COA) and COA officers who issued and sustained Notices of Disallowance (NDs); other PhilHealth Region III officials and personnel were parties to COA proceedings and named in the disputed NDs.
- Payee/supplier implicated in the underlying transactions: Silicon Valley (office at SM Pampanga, San Jose, City of San Fernando, Pampanga) — not made liable under the subject NDs.
Subject Matter and Transactions
- Disallowed amounts stem from PhilHealth Region III payments to Silicon Valley for office supplies (printer inks and toners).
- Purchase Orders (POs) at issue:
- PO No. 09-236 dated December 4, 2009 — paid through Check No. 5226 dated December 22, 2010 — PHP 373,094.20.
- PO No. 043 dated April 25, 2008 — paid through Check No. 5227 dated December 22, 2010 — PHP 117,207.95.
- PO No. 160 dated November 4, 2008 — paid through Check No. 5274 dated December 30, 2010 — PHP 398,934.59.
- PO No. 09-005 dated February 4, 2009 — paid through Check No. 5273 dated December 30, 2010 — PHP 216,962.78.
Antecedent Facts and Internal Handling
- August 2010: PhilHealth Region III Comptrollership/Accounting Unit found no Inspection and Acceptance Reports (IARs) for the deliveries; payments to Silicon Valley were withheld.
- Vice President Rodolfo M. Balog consulted State Auditor IV and Audit Team Leader Trinidad Gozun, who suggested that, in lieu of IARs, alternative documents may be attached to the disbursement voucher (DV).
- Alternative documents attached to DVs by PhilHealth Region III:
- Certification from the GSU issued by petitioner Biong certifying delivery of supplies.
- Supplies Withdrawal Slips (SWSs) showing requisitions by end-users.
- Monthly Report of Supplies and Materials Inventory (MRSMI) prepared by GSU to support journal entry voucher.
- After evaluation of these documents, payments were processed and the four Philippine Veterans Bank checks (two dated Dec. 22, 2010 and two dated Dec. 30, 2010) were released to Silicon Valley.
Discovery of Theft and Internal Investigation Steps
- January 31, 2011: Petitioner Biong discovered incidents of theft of office supplies and falsification of SWSs in the GSU office.
- February 22, 2011 Incident Report by petitioner Biong:
- Reported missing inks and toners delivered by other suppliers (Masangkay Computer Center and PC Worx) declared missing on January 31, 2011.
- Recommended a more thorough investigation by the PhilHealth Legal Office and affirmed GSU personnel willingness to cooperate.
- Meetings and statements taken: meeting on February 19, 2011 at Management Services Division (MSD); statements requested from personnel (Susan David, Mary Joy Cruz, Jenalyn Deang).
- Confession/accusation: Cruz accused project-based employee Jajomar (Jomar/Jajomar) Marbebe of routinely bringing inks out of the office; Marbebe denied allegations and contract non-renewed on March 17, 2011.
- March 18, 2011: Petitioner Biong wrote to signify intent to file a Request for Relief from Accountability with COA Audit Team; record does not show whether COA issued an audit decision on that relief request.
COA Audit Team Findings Supporting ND No. 11-002-000(10) (PO No. 09-236)
- Findings relied upon by the Audit Team for disallowance (ND No. 11-002-000(10), dated July 5, 2011):
- Staggered deliveries occurred over almost six months, contrary to PO stipulation requiring delivery within 15 calendar days.
- Items were not inspected by an authorized inspector, violating Section 465 of COA Circular No. 368-91 (Government Accounting and Auditing Manual).
- Instead of IARs, attached documents were Certification by petitioner Biong, SWSs, and MRSMI.
- Some SWSs were altered, resulting in padded issuances amounting to PHP 75,400.00.
- SWSs reflected purported issuances valued at PHP 119,240.00 that lacked corresponding end-user copies.
- GSU copies of SWSs showed PHP 3,580.00 worth of supplies issued to unknown end-users/recipients.
- Unaccounted deliveries totaling PHP 16,720.00.
COA Audit Team Findings Supporting ND No. 11-003-000(20) (PO Nos. 043, 160, 09-005)
- Findings relied upon by the Audit Team for disallowance (ND No. 11-003-000(20), dated August 15, 2011):
- Lack of IARs and staggered delivery by Silicon Valley.
- Altered SWSs totaling PHP 49,995.00.
- SWSs with no counterpart end-users’ copies valued at PHP 414,020.00.
- Supplies issued to unknown end-users valued at PHP 21,720.00.
- Unaccounted deliveries totaling PHP 129,370.00.
Persons Initially Held Civilly Liable under the Subject NDs (Per Audit Team / NDs)
- PO No. 09-236 (PHP 373,094.20; Check No. 5226):
- Balog — PhilHealth Region III Vice President — approved the transaction.
- Grace M. Mamawal — Chief of MSD — certified expense lawful, necessary, authorized.
- Jess Christopher S. Biong (petitioner) — Administrative Officer III / Former GSU Chief — certified items were delivered.
- Angelita S. Reyes — Fiscal Controller IV — certified that expenditure was supported by documents.
- Leonidas A. Lumba — Fiscal Controller III — determined propriety/validity of supporting documents as head of Comptrollership Unit.
- Cruz — Project-based clerk — signed sales invoice nos. indicating receipt.
- Marbebe — project-based data encoder — signed sales invoice nos. indicating receipt.
- Ryan Steven Algraea Quizon — Administrative Officer II / Canvasser — signed sales invoice nos. indicating receipt.
- PO No. 043 (PHP 117,207.95; Check No. 5227):
- Balog — approved transaction.
- Reyes — OIC, MSD — certified expense lawful, necessary, authorized.
- Lumba — head of Comptrollership — determined propriety/validity of supporting documents.
- Cruz — signed sales invoices.
- Biong — GSU Head — certified delivery and issuance.
- PO No. 160 (PHP 398,934.59; Check No. 5274):
- Reyes — OIC, MSD — signed as approving officer; certified necessity, lawfulness, authorization.
- Lumba — head of Comptrollership — determined propriety/validity of supporting documents.
- Cruz — signed sales invoices.
- Biong — GSU Head — certified delivery and issuance.
- PO No. 09-005 (PHP 216,962.78; Check No. 5273):
- Mamawal — OIC, Office of PhilHealth RO3 Branch A Manager — signed for approving officer.
- Reyes — OIC, MSD — signed for approving officer; certified necessity, lawfulness, authorization.
- Lumba — head of Comptrollership.
- Cruz — signed sales invoice.
- Quizon — signed sales invoice.
- Biong — GSU Head — certified delivery and issuance.
- Notably, Silicon Valley was not listed among persons held liable under the subject NDs.
Administrative and COA Responses Seeking Lifting of NDs
- PhilHealth Region III officials and personnel advanced defenses including:
- Existence of a valid contractual obligation to Silicon Valley; staggered delivery did not render transaction irregular.
- Consultation with the Audit Team Leader regarding lack of IARs prior to payment processing.
- No suspicion of anomaly at the time alternative supporting documents were submitted.
- Actions were in good faith and with due diligence.
- Argument that Reyes should be excluded because although her name printed on the DV, Lumba actually signed it.
- Audit Team Leader Gozun’s Answer (Jan. 16, 2012) clarified:
- She did not categorically deny suggesting submission of alternative documents, but said she referred only to authentic copies as best proof of deliveries in absence of IARs.
- It was not the mere fact of staggered delivery that rendered the transaction irregular, but Silicon Valley’s failure to complete delivery within required 15-day period.
COA Regional Office (RO3) Ruling — Decision No. 2012-46 (Oct. 4, 2012)
- Assistant Commissioner Winnie Rose H. Encallado penned COA RO3 Decision No. 2012-46 dated October 4, 2012.
- RO3 upheld the disallowance but modified COA Audit Team findings to exclude Angelita S. Reyes as a person liable under ND No. 11-002-000(10).
- RO3 emphasized that although disallowances budded from lack of IARs and delay by supplier, they actually revolved around the management of office supplies.
- Noted lengthy processing time (two to three years) to release payments to Silicon Valley, supporting finding of irregularities.
- RO3 held GSU Head (Biong) responsible for en