Title
Mabilog vs. Commission on Audit
Case
G.R. No. 248977
Decision Date
Sep 28, 2021
Iloilo City officials and employees challenged COA's disallowance of P46.4M PEI for 2009, citing PS limits and Calamity Fund misuse. SC upheld COA, ruling disbursement illegal, holding officials and recipients liable.
budgetary limitations
approving and certifying officers
payees
A

Case Summary (G.R. No. 248977)

Factual Background

On 16 December 2009, the Sangguniang Panlungsod of Iloilo City enacted Ordinance No. 2009-095, approving Supplemental Budget No. 9 for CY 2009 totaling P43,465,085.68 and appropriating P20,001,679.00 for the payment of the Productivity Enhancement Incentive (PEI). The same body enacted Ordinance No. 2009-096 authorizing the realignment of P31,028,321.00 from Personal Services (PS) Savings to augment PEI funding. Pursuant to these ordinances, Iloilo City disbursed PEI of P30,000.00 each to its officials and employees, amounting in the aggregate to P46,424,328.24.

Initiation of Audit Disallowance

Upon audit, COA issued Notice of Disallowance No. 10-001-100-(09) dated 12 August 2010 disallowing the entire P46,424,328.24 paid as PEI. The Audit Team based the disallowance on two principal grounds: first, that Iloilo City had only P3,228,671.76 available under its 45% PS limitation pursuant to Section 325(a) of R.A. No. 7160 and Item 3.0 of DBM LBC No. 2009-93; and second, that the reversion and use of P31,431,648.00 from the Calamity Fund to unappropriated surplus contravened Item b.4 of the Implementing Rules and Regulations of R.A. No. 8185, which limits reversion and reappropriation to the succeeding fiscal year.

Persons Held Liable in the Notice of Disallowance

COA identified a range of city officials as responsible parties in the ND, including the then City Mayor, the City Administrator, City Treasurer and Assistant, the City Accountant, Budget Officers, members of the Sangguniang Panlungsod who enacted the ordinances, heads and assistant heads of departments who certified charges to appropriations, and various payees who received the PEI. The ND characterized approving and certifying officers as responsible for authorizing the disbursement and payees as recipients of the disallowed funds.

Administrative Appeals and COA Regional Ruling

Mayor Jed Patrick E. Mabilog appealed the ND to COA Regional Office No. VI. He defended the grant of PEI as motivated by good faith and municipal benevolence, asserted that majority of funding came from PS savings and MOOE without prejudice to general services, and argued that the PS limitation aims at fiscal sustainability rather than prohibiting PEI. By Decision No. 2015-026 dated 29 June 2015, the COA Regional Office denied the appeal and affirmed the ND, reasoning that AO 276 and attendant DBM circulars explicitly subjected PEI to the PS limitation and that factual findings established that Iloilo City had exceeded its PS cap.

COA Proper Review and Decision

Petitioners elevated the appeal to COA Proper. On 13 December 2017 COA Proper promulgated Decision No. 2017-404 denying the petition for review and affirming the regional disallowance in full. COA Proper held that the grant of PEI was subject to the PS limitation pursuant to AO 276 and DBM circulars, that factual computations showed Iloilo City lacked available PS funds beyond P3,228,671.76, and that the reversion and use of calamity funds were improper because reversion occurs only at the fiscal year end under Section 322 of R.A. No. 7160 and the Calamity Fund under Section 324(d), as amended by R.A. No. 8185, must be available for calamity contingencies until that time.

Issues Presented to the Supreme Court

The petition for certiorari framed four principal issues: whether COA gravely abused its discretion by holding that PEI granted for FY 2009 was subject to the PS limitation under Section 325(a) of R.A. No. 7160; whether COA erred in rejecting the reversion of the Calamity Fund to unappropriated surplus for PEI payment; whether there existed legal basis for Iloilo City to grant PEI for FY 2009; and whether COA wrongly found that the recipients did not act in good faith.

Petitioners' Contentions

Petitioners argued that PEI should not be subject to the PS limitation, that COA erred in computing the PS limitation by failing to exclude economic enterprise personnel costs, that the reversion of the Calamity Fund was lawful and available for PEI funding, that there was legal basis to grant PEI under AO 276 and related circulars, and that recipients acted in good faith such that solutio indebiti should not compel return.

The Supreme Court's Disposition

The Supreme Court dismissed the petition and affirmed COA Proper Decision No. 2017-404 and COA Proper Resolution No. 2019-038. The Court found no grave abuse of discretion in COA’s determinations that PEI was subject to the PS limitation, that Iloilo City had exceeded its PS cap, and that the Calamity Fund was improperly used prior to fiscal-year reversion. The Court affirmed that approving and certifying officers are solidarily liable for the disallowed amount and that payees are liable to return the amounts they received.

Legal Basis and Reasoning on PS Limitation

The Court enforced the plain language of AO 276, DBM LBC No. 2009-93, and DBM Budget Circular No. 2009-5, all of which unambiguously condition PEI grants on the PS limitation in municipal budgets pursuant to Sections 325(a) and 331(b) of R.A. No. 7160. Section 325(a) caps PS appropriations at forty-five percent for first to third class cities, and excludes appropriations for economic enterprises only when such expenditures are chargeable to those enterprises’ budgets. The Court accepted COA’s factual finding that Iloilo City had already used 44.64% of its PS limit and had only P3,228,671.76 available, rendering the aggregate PEI appropriation manifestly excessive and in violation of the statutory ceiling.

Legal Basis and Reasoning on Calamity Fund Reversion

The Court examined R.A. No. 8185 as an amendment to Section 324 of R.A. No. 7160 and read it in conjunction with Section 322 on reversion of unexpended balances. Section 322 provides that unexpended balances revert to unappropriated surplus only at the end of the fiscal year. The Court held that Supplemental Budget No. 9 and the related appropriation of calamity funds were enacted on 16 December 2009, prior to 31 December 2009; hence the calamity fund had not yet reverted and was not available for reappropriation that same fiscal year. Use of the calamity appropriation for PEI therefore contravened the statutory limitations and Section 336’s mandate that funds be available exclusively for their specific appropriation.

Standard of Review and Deference to Administrative Findings

The Court applied the standard that COA’s findings are entitled to weight given its expertise and constitutional mandate to audit public funds. It emphasized that a petition under Rule 64 will succeed only upon a showing of grave abuse of discretion amounting to lack or excess of jurisdiction. The Court concluded petitioners failed to demonstrate such abuse and that COA’s factual computations were corroborated by DBM review and supported by record evidence.

Application of Madera Rules and Subsequent Clarifications

The Court applied the Madera framework to assess liability for return of disallowed amounts. It reiterated that approving and certifying officers who acted in bad faith, with malice, or with gross negligence are solidarily liable under Section 43 of the Administrative Code, while payee-recipients are ordinarily liable under the doctrine of solutio indebiti. The Court invoked the refinements from Abellanosa and related jurisprudence requiring that exceptions excusing return u

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