Case Summary (G.R. No. 248675)
Antecedent Facts and Procedural Posture
By BWD Resolution No. 046-2009 (Nov. 20, 2009), BWD authorized payment of a centennial bonus equivalent to 50% of salary to officers and employees to commemorate Baguio City’s 100th anniversary. The COA audit team issued ND No. 12-023-101-(09) (May 15, 2012) disallowing P1,233,860.50, citing AO 103’s suspension of new/additional benefits. COA-CAR affirmed the ND (May 21, 2015). COA En Banc affirmed with modification (Dec. 28, 2017) that passive recipients acting in good faith need not refund, but holding approving/certifying officers liable; COA denied reconsideration (Sept. 27, 2018). Petitioners raised procedural and substantive defenses before COA and subsequently filed the present petition.
Petitioners’ Principal Arguments
Petitioners contend: (1) the ND is defective because it lacked the supervising auditor’s signature, violating Section 10.2, Chapter III of the COA RRSA; (2) BWD, as a local water district established under PD 198, validly exercised its charter powers through its Board in granting the bonus and was not bound by AO 103; and (3) payments were made in good faith, insulating approving/certifying officers and recipients from refund liability.
Government’s Position (OSG)
The government maintains the ND is valid despite the absence of a supervising auditor’s signature because none was assigned to the audit team at the time and the OIC Regional Director authorized audit team leaders to issue NDs. As a GOCC, BWD is subject to the Office of the President’s control and thus bound by AO 103. Petitioners’ invocation of good faith is unavailing because gross negligence attended the grant and disbursement in clear contravention of AO 103.
Issues Framed by the Court
- Whether ND No. 12-023-101-(09) is defective for lacking the supervising auditor’s signature.
- Whether the BWD is subject to the power of control of the Office of the President (and thus AO 103).
- Whether petitioners (approving/certifying officers and recipient employees) are liable to refund the disallowed amount.
Ruling — Validity of the Notice of Disallowance
The Court holds the ND is not defective or invalid merely because it lacked the supervising auditor’s signature. The RRSA prescribes signature by both Audit Team Leader (ATL) and Supervising Auditor (SA), but non‑compliance was not fatal where no SA had been assigned and the OIC Regional Director expressly authorized the ATL to issue the ND. Post‑audit functions do not hinge on the physical availability of a supervising auditor; therefore, under the circumstances the ATL’s signature sufficed and the ND retained force and effect.
Ruling — BWD as GOCC and Applicability of AO 103
The Court affirms that local water districts such as BWD are government‑owned or controlled corporations (GOCCs) created by special charter (PD 198) and are part of the Executive Department for policy and general supervision purposes under the Revised Administrative Code. As GOCCs, local water districts remain subject to the President’s power of control, and directives implementing austerity measures (AO 103) lawfully limit the grant of additional benefits. AO 103’s Section 3(b) clearly suspends new/additional benefits except for CNA incentives or benefits expressly provided by presidential issuance; the centennial bonus was neither. Accordingly, the grant lacked legal basis.
Ruling — Legal Framework on Liability for Unlawful Expenditures
The Court synthesizes statutory provisions and precedents governing liability: Section 43, Book VI, Chapter V (Administrative Code) declares illegal expenditures void and makes officials and recipients jointly and severally liable; Sections 38–39, Book I, Chapter 9 (Administrative Code) delineate that civil liability for public officers arises only upon shown bad faith, malice, or gross negligence, while subordinates acting in good faith are generally not civilly liable; Section 52 and COA auditing code provisions echo personal liability for unlawful expenditures; PD 1177 and the Manual of Certificate of Settlement and Balances were also invoked to outline liability considerations. The Court applies the principles articulated in the cited jurisprudence (notably Madera and related precedents) to refine how liability is apportioned among approving/certifying officers and recipients, recognizing solutio indebiti and unjust enrichment as bases for requiring return, while permitting judicially identified exceptions.
Application of Liability Principles to the Present Case — Approving/Certifying Officers
COA identified specific officers and their roles in the disbursement (e.g., General Manager approved and received payment; Internal Auditor pre-audited and received payment; Senior Accountant certified completeness; Administrative Manager certified necessity and incurred supervision; Board members approved the resolution). The Court finds no clear evidence of malice or bad faith by these officers, but concludes they were grossly negligent for approving and disbursing benefits plainly suspended by AO 103. Under Section 43 and the Madera framework, approving and certifying officers who acted with gross negligence are jointly and severally liable for the net disallowed amount (subject to reduction for any amounts judicially excused for payees).
Application of Liability P
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The Case — Nature of the Petition and Issuances Assailed
- Petition for Certiorari under Rule 64 of the Rules of Court challenging Commission on Audit (COA) issuances concerning the grant of a centennial bonus by the Baguio Water District (BWD).
- Issuances assailed:
- COA Decision No. 2017-475 dated December 28, 2017, which denied petitioners’ appeal of COA-Cordillera Administrative Region (COA-CAR) Decision No. 2015-26 and affirmed Notice of Disallowance (ND) No. 12-023-101-(09) dated May 15, 2012 with modification.
- COA Resolution dated September 27, 2018, denying petitioners’ Motion for Reconsideration.
- Monetary subject of disallowance: P1,233,860.50 granted as centennial bonus for calendar year 2009 to officers and employees of BWD.
- Central relief sought: annulment or setting aside of the notice of disallowance and related COA determinations, including questions on formal validity (signatures), substantive authority to grant the bonus, and refund liability.
Antecedents — Granting of Centennial Bonus and COA Action
- BWD Board Resolution (BR) No. 046-2009 dated November 20, 2009 authorized a centennial bonus equivalent to fifty percent (50%) of employee salary to commemorate the 100th anniversary of the City of Baguio.
- COA Audit Team, led by Antonieta La Madrid, issued ND No. 12-023-101-(09) dated May 15, 2012, disallowing the total amount of P1,233,860.50 for allegedly lacking legal basis.
- Basis for COA disallowance: Section 3(b) of Administrative Order (AO) No. 103 dated August 31, 2004, which suspended the grant of new or additional benefits to full-time officials and employees except (i) CNAI granted under specified Public Sector Labor-Management Council Resolutions and (ii) benefits expressly granted by presidential issuances.
- Consequence under the ND: recipients directed to refund the centennial bonus they received.
Proceedings before COA-CAR — Petitioner Arguments and COA-CAR Findings
- Petitioners before COA-CAR included the named BWD officers (general manager, internal auditor, administrative manager, senior accountant), present and former BOD members, and BWD employees/payees.
- Petitioners’ primary contentions to COA-CAR:
- The ND was defective because it lacked the signature of a supervising auditor, bearing only the audit team leader’s signature.
- BWD was not covered by the austerity measures of AO 103 and thus the bonus was lawful.
- The bonus was released in good faith and should not be ordered returned.
- COA-CAR Decision No. 2015-26 dated May 21, 2015 affirmed the disallowance:
- Noted absence of a supervising auditor assigned to the BWD audit at the time of issuance.
- Referred to a Memorandum dated May 9, 2012 from the OIC Regional Director authorizing audit team leaders to issue NDs without supervising auditor signature where none was assigned.
- Characterized BWD as a government-owned and controlled corporation (GOCC) and therefore subject to presidential issuances like AO 103.
- Concluded that BWD’s grant of the bonuses disregarded AO 103 and negated any claim of good faith.
COA En Banc Ruling (Assailed Decision) and Motion for Reconsideration
- COA En Banc rendered Decision No. 2017-475 dated December 28, 2017:
- Affirmed COA-CAR’s decision but modified relief: passive recipients who received the centennial bonus in good faith were not required to refund the amounts; however, approving/certifying/authorizing officers remained liable for the total disallowance.
- Motion for Reconsideration filed by petitioners was denied by COA via Resolution dated September 27, 2018.
Parties’ Contentions before the Supreme Court
- Petitioners’ arguments to the Court:
- The absence of a supervising auditor’s signature on the ND violated Section 10.2, Chapter III of the COA Rules and Regulations on Settlement of Accounts (COA-RRSA) requiring signatures of both Audit Team Leader (ATL) and Supervising Auditor (SA), rendering the ND defective.
- Presidential Decree No. 198 (PD 198) grants local water districts the power to conduct their affairs through their boards of directors; the BWD Board therefore validly exercised its powers in granting the bonus.
- The centennial bonus was granted in good faith; officers who authorized release should not be required to refund.
- Office of the Solicitor General (OSG) response:
- ND valid despite single signature because no supervising auditor was assigned when ND was issued.
- Water districts are GOCCs under presidential control; AO 103 is binding on BWD.
- Petitioners’ invocation of good faith is untenable due to gross negligence in granting the bonus contrary to AO 103.
Issues Presented to the Court
- Whether ND No. 12-023-101-(09) is defective for not bearing the signature of a supervising auditor.
- Whether the Baguio Water District is subject to the power of control of the Office of the President.
- Whether petitioners are liable to refund the full disallowed amount.
Court’s Rule on Defectiveness of the Notice of Disallowance
- Court’s conclusion: ND No. 12-023-101-(09) is not defective solely because it lacked the supervising auditor’s signature.
- Reasoning and factual foundation:
- Section 10.2, Chapter III of the RRSA requires signature of both ATL and SA but non-compliance is not a fatal defect rendering the ND invalid in the circumstances presented.
- There was no supervising auditor assigned to COA Audit Group C for BWD transactions at the relevant time.
- OIC Regional Director’s Memorandum dated May 9, 2012 expressly authorized the audit team leaders to issue NDs without the SA signature in the absence of assignment.
- Post-audit functions and issuance of NDs do not depend on the presence of a supervising auditor; such functions are not suspended by a vacancy or non-assignment.
Court’s Ruling on BWD as a GOCC and Applicability of AO 103
- Court’s conclusion: BWD is a GOCC and therefore subject to the presidential power of control; AO 103 applies.
- Legal bases and reasoning:
- A local water district is a GOCC with a special charter, created pursuant to PD 198.
- The Revised Administrative Code attaches GOCCs to the appropriate executive department for policy, program coordination, and general supervision; GOCCs form part of the Executive Department.
- Precedent (ZCWD v. COA) supports that amounts granted by local water district boards (e.g., per diems) are subject to presidential control and AO 103 limits.
- Quotation and operative provision of AO 103, Section 3(b): suspension of grant of new or additional benefits t