Roselle A. Corvera-Cirunay and Ligaya Q. De Guzman vs. The Commission on Audit, Chairperson Gamaliel A. Cordoba, et al.

Factual Background

In November 2009, TMC, THPAL, the Mamanwa Tribes, and NCIP entered into the MOA for the construction and operation of a nickel mineral processing plant within the ancestral domain of the Mamanwa Tribes. The MOA allocated obligations and benefits to be provided to the IPs and NCIP, including both (a) royalty payments and (b) separate financial assistance.

As to royalties, the MOA imposed on TMC a ONE PERCENT (1%) Royalty based on gross revenue from extraction and sales of nickel ore, payable to the concerned IPs. The MOA also stated that such royalty payment constituted full compliance with the legal requirement that royalties be paid to IPs for ore mined and extracted from their ancestral land.

Distinct from royalties, the MOA provided a yearly financial assistance payable by THPAL to NCIP. Under Item 5.6, THPAL was to give PHP 2,000,000.00 per year to NCIP, to be exclusively used for NCIP’s socio-economic projects for the IPs of Surigao del Norte, for the duration of the project, and to be deposited into a trust account established by NCIP. The MOA also specified the payment mechanism, stating that the payments would be made to NCIP’s trust account.

In March 2012, the Mamanwa Tribe issued Certificate of Ancestral Domain Title 048 (CADT-048) via Resolusyon No. 14, series of 2012, signed by leaders of multiple tribal communities. The resolution endorsed to NCIP En Banc the annual socio-economic program, projects, and activities of NCIP Surigao del Norte. It also contemplated the use of the financial assistance for enumerated purposes, including hiring community organizers and development workers, holding tribal meetings and dialogues, community visitations of NCIP, census validation, capability building and trainings for both IPs and NCIP employees, and assistance for medical, livelihood, education, calamity/crisis, culture, and arts of tribes within the province. It further included allowances for general operation of NCIP RO No. XIII, such as rental, capital outlay, equipment, maintenance, communication, supplies, and materials.

COA Audit Findings and Notices of Disallowance

COA issued Audit Observation Memorandum (AOM) No. 2014-003 (2013) on March 24, 2014, which reported that from January to November 2013, PHP 913,240.10 of the THPAL financial assistance was spent for the operating expenses of NCIP Regional Office No. XIII instead of for socio-economic projects benefiting the Mamanwa Tribes.

Upon a request for auditing by the Tribal Customary Self-Governance Mindanao on May 8, 2014, COA issued AOM No. 2014-004 (2014), stating that from January to August 2014, PHP 509,205.79 of the same financial assistance was likewise used for operating expenses of NCIP Regional Office No. XIII.

COA then issued Notices of Suspension (NSs) requiring submission of reports showing implementation of socio-economic projects and their costs, or an addendum to the MOA permitting operating expenses to be charged against the financial assistance. When the required compliance was not made, COA issued five Notices of Disallowance, all dated May 26, 2015, totaling PHP 1,573,227.83. The disallowance was premised on the finding that the financial assistance had been used to defray operating expenses such as salaries, rent, and travel, rather than for the intended socio-economic projects benefitting the IPs under Section 5.6 of the MOA.

COA identified petitioners among those liable: Roselle A. Corvera-Cirunay, NCIP Accountant III, for certifying availability of funds; and Ligaya Q. De Guzman, then NCIP Chief, Finance and Administrative Division, for approving transactions on behalf of the head of the agency.

The November 2016 Addendum and Petitioners’ Administrative Appeals

On September 16, 2016, the parties executed an Addendum to the MOA. The Addendum recited that the parties did not intend to strictly limit the financial assistance to “socio-economic projects” for the Surigao del Norte Mamanwa IPs. It asserted that the financial assistance should cover all programs implemented by NCIP XIII that would directly or indirectly benefit Mamanwa ICCs throughout the Caraga Administrative Region. It stated that the original intent was to address perceived constraints, including the lack of support personnel, limited maintenance and operating expenses, and the absence of transport for field visits, thus justifying augmenting NCIP’s MOOE, funding capital outlay, paying monthly office rental, paying contractual employees and job orders, and purchasing transport vehicles for the office.

The Addendum amended Item 5.6 to broaden the use of financial assistance for socio-economic projects benefiting all Mamanwa ICCs throughout Caraga, and it further stated that NCIP would have sole discretion in identifying plans and programs and preparing the work and financial plan, dispensing with the need for prior approval from all parties before downloading the funds for intended purposes. It also provided for retroactive application to past transactions.

After COA issued its disallowances, petitioners—along with approving and certifying officers—filed separate appeals before COA. They argued that COA Proper erred in denying that the use of financial assistance for operating expenses was within the MOA’s intent as supported by the Addendum and by Resolusyon No. 14. They also contended that the Addendum was a valid agreement binding as to a trust fund’s intended use.

The COA Regional Director granted the appeals on automatic review, but the COA Proper reversed. It ruled that Resolusyon No. 14 conflicted with the purpose for which the trust fund was created under Section 17 of Republic Act No. 7942. It held that disbursements for administrative and operating expenses such as travel, salaries of support personnel, office equipment, meals, and vehicle rentals were not socio-economic purposes and should have been charged to NCIP’s appropriation for maintenance and other operating expenses. Citing the trust-fund limitation in Section 4(3) of Presidential Decree No. 1445, COA Proper upheld the disallowances.

COA Proper disapproved the Regional Office decision and affirmed the Notices of Disallowance totaling PHP 1,573,227.83.

The Parties’ Contentions and the Core Issue

Petitioners contended that COA Proper committed grave abuse of discretion in applying Republic Act No. 7942. They maintained that Republic Act No. 8371 (IPRA) should govern because it protects IP rights, and they argued that IPRA, being later legislation, effectively repealed Republic Act No. 7942. Petitioners also invoked NCIP Administrative Order No. 3, series of 2012, particularly a provision alleged to permit use of royalty payments for purposes other than socio-economic projects that would redound to ICC/IP well-being.

They further argued that the disallowed amounts were not royalty payments contemplated in Section 17 of Republic Act No. 7942. Rather, they were part of the separate financial assistance under the MOA’s Item 5.6. Petitioners also argued that if the disallowances were upheld, they should not be held personally liable because COA had made no determination of bad faith.

Accordingly, the issue presented was whether COA Proper committed grave abuse of discretion in affirming the Notices of Disallowance.

Legal Basis and Reasoning: Distinguishing Royalties from Financial Assistance

The Court first drew a distinction between royalty payments and the financial assistance under the MOA. It emphasized that Section 16 of Republic Act No. 7942 requires the consent of the concerned ICC/IP before mining operations may proceed in ancestral land. Once consent is obtained, Section 17 requires royalty payments, which form part of a trust fund for socio-economic well-being of the ICC/IP. The implementing rule reflected in DENR Administrative Order No. 96-40 required royalty payments not less than one percent of gross output, with terms embodied in an MOA between IPs/ICCs, mining companies, and NCIP.

Applying these provisions to the MOA, the Court recognized that the MOA’s Item 4.1 covered royalty payments, while Item 5.6 covered a separate financial assistance of PHP 2,000,000.00 per year deposited into NCIP’s trust account, to be exclusively used for socio-economic projects benefiting the IPs.

The Court noted COA’s findings in the Notices of Disallowance that the disallowed amounts were taken from the financial assistance under Item 5.6, and not from the royalty payments under Item 4.1. Thus, the disallowed amounts did not form part of royalty payments that Republic Act No. 7942 restricted to socio-economic well-being.

Even so, the Court held that the disallowances remained legally proper.

Legal Basis and Reasoning: Trust-Fund Limitation and Invalid After-the-Fact Justification

The Court treated the financial assistance as a trust fund based on the MOA’s explicit language that the THPAL payments were to be deposited in a trust account and used exclusively for socio-economic projects. It invoked the established principle that trust funds held by government agencies must be spent only for the specific purpose for which they were created or the funds received, citing Presidential Decree No. 1445.

The Court found that the questioned disbursements were charged to the trust account created specifically for socio-economic projects to benefit the IPs/ICCs of Surigao del Norte. It held that using the funds for the NCIP Regional Office’s basic running costs, rent, equipment purchases, maintenance, communications, and supplies violated the law and the MOA’s exclusive socio-economic purpose.

On the matter of justification, the Court ruled that Resolusyon No. 14 could not validly expand the allowed uses of the financial assistance beyond the MOA’s trust terms. It characterized Resolusyon No. 14 as only an endorsement to NCIP En Banc and not as an instrument capable of changing the trust agreement executed among three parties: the mining companies as trustors, NCIP as trustee, and the IP/ICC as b