G.R. No. 77647 - CETUS DEVELOPMENT INC. vs. COURT OF APPEALS

Case Summary (G.R. No. 77647)

Factual Background

PSALM is a government-owned and controlled corporation created under RA No. 9136 to manage the sale and disposition of National Power Corporation assets and related obligations. Since 2002 PSALM reimbursed Extraordinary and Miscellaneous Expenses (EME) to its officers and employees using claimant certifications as evidence of disbursement in reliance on Section 397(c) of the GAAM and COA Circular No. 89-300. In 2006 COA issued COA Circular No. 2006-001 directed specifically to GOCCs and GFIs and required that claims for EME reimbursement be supported by receipts and/or other documents evidencing disbursements. PSALM received a copy of that circular and, in August 2008, was reminded by a COA audit team that certifications were no longer an acceptable substitute for receipts.

Notices and Disallowances

Despite the COA circular and audit reminder, PSALM continued to reimburse EME in 2008 and 2009 supported only by certifications. COA issued Notice of Suspension No. 09-0001-000-(08) on March 16, 2009 demanding receipts for 2008 reimbursements; the Auditor later issued Notice of Disallowance No. 09-004-(08) dated December 28, 2009 disallowing 2008 EME totaling P2,385,334.06 and charging approving and certifying officers and payees. COA likewise issued Notice of Disallowance No. 10-005-(2009) dated August 9, 2010 disallowing 2009 EME totaling P2,615,500.79 and charging the responsible officers and recipients.

Procedural History before COA

PSALM filed appeals to the COA Corporate Government Sector (CGS), Cluster B, which denied the appeals in Decision No. 2010-012 (2008 EME) and Decision No. 2011-004 (2009 EME). PSALM petitioned the COA Proper; Decision No. 2013-229 affirmed the 2008 EME ND and became final and executory after PSALM failed to file a motion for reconsideration or a petition for certiorari, prompting issuance of a Notice of Finality of Decision dated March 6, 2014. PSALM sought relief from judgment, which the COA Proper denied in a Resolution dated November 20, 2014. PSALM timely filed a motion for reconsideration of COA Decision No. 2013-228 (2009 EME), but the COA Proper denied the motion in a Resolution dated April 4, 2014; that decision and resolution are the subject of G.R. No. 213425.

Issues Presented to the Supreme Court

The consolidated petitions raised the following principal questions: whether the COA committed grave abuse of discretion by issuing the 2009 EME ND without first issuing an Audit Observation Memorandum (AOM); whether the COA abused its discretion in denying PSALM’s motion for relief from judgment and declaring Decision No. 2013-229 final and executory; whether COA Circular No. 2006-001 applied to PSALM; whether certifications could constitute substantial compliance with the documentary requirements of COA Circular No. 2006-001; whether equal protection was violated by COA’s alleged differential treatment of GOCCs and NGAs or of specific GOCCs; and whether the approving, certifying officers and recipients were properly held liable to refund the disallowed amounts.

Petitioners' Contentions

PSALM asserted that due process was denied because no AOM was issued before the 2009 ND; that COA Circular No. 2006-001 did not apply to PSALM because its authority to disburse EME derived from the General Appropriations Act and thus Section 397(c) of the GAAM and COA Circular No. 89-300 should govern; that certifications satisfied the alternative documentary requirement; that COA’s enforcement was arbitrary and violative of the equal protection clause because other entities such as NPC and TransCo allegedly were permitted to use certifications; and that approving and certifying officers acted in good faith. In G.R. No. 216606 PSALM additionally sought relief from finality on grounds of an asserted inadvertent failure to file the proper pleadings.

COA's Position and Procedural Defenses

COA maintained that its RRSA does not require issuance of an AOM before an ND for transactions that are ripe for auditable determination, that COA Circular No. 2006-001 expressly applies to GOCCs and GFIs and therefore governs PSALM, and that certifications, unless they substantively evidence a paying out of funds with transaction details akin to receipts, are insufficient under the circular. COA also invoked the finality rules of its Revised Rules of Procedure and denied that PSALM’s asserted mistake justified relief from finality.

Standard of Review and the COA's Constitutional Role

The Court recognized the COA’s constitutional mandate under Art. IX-D, Sec. 2, 1987 Constitution to audit and to promulgate accounting and auditing rules and that the COA’s interpretation of its own rules is entitled to great weight. The Court reiterated the narrow scope of judicial review by certiorari: it will sustain COA decisions absent lack or excess of jurisdiction or grave abuse of discretion. Grave abuse of discretion was described as an evasion of a positive duty or a judgment not based on law and evidence but on caprice.

Due Process Analysis

The Court rejected PSALM’s due process argument. It held that COA Circular No. 2009-006 (RRSA) contemplates issuance of an AOM only where an audit decision cannot yet be reached because of incomplete documentation or where observed deficiencies do not involve pecuniary loss. For transactions already ripe for auditorial determination and for those constituting irregular or excessive expenditures, the RRSA authorizes immediate issuance of an ND without prior AOM. The Court found that PSALM was afforded adequate notice and opportunity to be heard through the ND and subsequent administrative appeals, and thus no deprivation of due process occurred.

Finality of COA Proper Decision No. 2013-229 and Motion for Relief

The Court held that COA Proper Decision No. 2013-229 became final pursuant to Sections 9 and 10, Rule X of the 2009 Revised Rules of Procedure of the COA, as amended by COA Resolution No. 2011-006, because PSALM failed to file a motion for reconsideration or a petition for certiorari within the prescribed period. Relief from judgment under Rule 38 of the Rules of Court is equitable and exceptional; PSALM’s claim of inadvertence by its staff did not constitute the sort of mistake, excusable negligence, or extrinsic fraud that warrants setting aside a final judgment. The Court emphasized the doctrine of immutability of final decisions and the litigant’s duty to vigilantly pursue available remedies.

Applicability of COA Circular No. 2006-001 to PSALM

The Court construed COA Circular No. 2006-001 as expressly applicable to all GOCCs, GFIs and their subsidiaries, including those GOCCs whose authority to grant EME derives from the GAA. It distinguished COA Circular No. 89-300 as a prior regulation directed to NGAs only. The Court observed that COA Circular No. 2012-001 reaffirmed the distinction and confirmed that the documentary guidelines for GOCCs are prescribed under COA Circular No. 2006-001. The Court further cited precedent in National Transmission Corporation v. Commission on Audit to the effect that even GOCCs deriving EME authority from the GAA remain subject to COA Circular No. 2006-001 because the GAA itself subjects expenditures to pertinent accounting and auditing rules and regulations.

Sufficiency of Certifications under COA Circular No. 2006-001

Relying on prior decisions such as Espinas v. Commission on Audit and TransCo, the Court held that certifications may qualify as evidence of disbursement only if they establish the paying out of funds with transaction details comparable to a receipt, including nature and description of expenditures, amounts, and dates. COA Circular No. 2006-001 requires receipts and/or other documents evidencing disbursements; the phrase “other documents” is qualified by “evidencing disbursements.” The Court found that the certifications PSALM relied upon were sweeping and general and did not substantiate actual disbursements. Because the certifications were not attached to the petitions, the Court sustained the COA’s factual finding of insufficiency.

Equal Protection Claim

The Court rejected PSALM’s equal protection argument. PSALM offered no evidence that COA intentionally or arbitrarily applied COA Circular No. 2006-001 differently to other GOCCs, and the record showed COA had disallowed EME supported solely by certifications in other entities, includin

Case Syllabus (G.R. No. 77647)

Parties and Posture

Power Sector Assets and Liabilities Management Corporation (PSALM) filed consolidated petitions under Rule 64 in relation to Rule 65 challenging COA actions in two administrative audit cases.
The consolidated petitions are docketed as G.R. No. 213425 and G.R. No. 216606 and assail COA decisions and resolutions arising from COA CP Case Nos. 2010-362 and 2011-144.
PSALM specifically challenged COA Decision No. 2013-228 dated December 23, 2013 and its Resolution dated April 4, 2014 in COA CP Case No. 2011-144.
PSALM also challenged the COA Proper’s Resolution dated November 20, 2014 sustaining finality of COA Decision No. 2013-229 in COA CP Case No. 2010-362.
Commission on Audit (COA) defended its audit disallowances, its interpretation of auditing rules, and the imposition of liabilities on approving and certifying officers as well as recipients.

Key Facts

PSALM is a GOCC created under RA No. 9136 to manage sale and disposition of NPC assets and to liquidate NPC obligations.
Since 2002, PSALM reimbursed Extraordinary and Miscellaneous Expenses (EME) on the basis of claimant certifications pursuant to Section 397(c) of the GAAM and COA Circular No. 89-300.
COA Circular No. 2006-001 dated January 3, 2006 ceased recognition of certifications as an alternative supporting document and was furnished to PSALM on March 8, 2006.
PSALM continued reimbursement by certifications for 2008 and 2009 EMEs, prompting COA audit action, including Notice of Suspension No. 09-0001-000-(08) and Notice of Disallowance (ND) No. 09-004-(08) dated December 28, 2009 disallowing P2,385,334.06 for 2008 EME.
COA CGS denied PSALM’s appeal of the 2008 ND in Decision No. 2010-012 dated November 25, 2010 and COA Proper denied PSALM’s petition for review in Decision No. 2013-229 dated December 23, 2013, which became final and executory.
For 2009 EME, COA issued ND No. 10-005-(2009) dated August 9, 2010 disallowing P2,615,500.79 and COA CGS and COA Proper denied appeals in Decision No. 2011-004 and Decision No. 2013-228 respectively, with PSALM’s MR denied in Resolution dated April 4, 2014.
COA Proper denied PSALM’s Motion for Relief from Judgment and sustained the finality of Decision No. 2013-229 in its Resolution dated November 20, 2014.

Issues Presented

Whether COA committed grave abuse of discretion by issuing ND No. 10-005-(2009) without first issuing an Audit Observation Memorandum (AOM).
Whether COA committed grave abuse of discretion in denying PSALM’s Motion for Relief from Judgment and sustaining the finality of COA Decision No. 2013-229.
Whether COA Circular No. 2006-001 applies to PSALM.
Whether certifications under Section 397(c) of the GAAM and COA Circular No. 89-300 qualify as substantial compliance with the documentary requirement of COA Circular No. 2006-001.
Whether the principle of equal protection was violated by alleged preferential treatment of other GOCCs and by differential treatment of NGAs and GOCCs.
Whether approving and certifying officers and EME recipients are liable to refund the disallowed amounts.

Petitioners’ Contentions

PSALM contended that the absence of an AOM before the 2009 ND violated the officers’ right to due process.
PSALM argued that COA Circular No. 2006-001 did not apply because its authority to disburse EME derives from the GAA and thus Section 397(c) of the GAAM and COA Circular No. 89-300 permitting certifications should govern.
PSALM asserted that the ceiling amounts under the GAA mitigate the evil COA sought to prevent and that certifications fall within “other documents evidencing disbursements.”
PSALM alleged violation of equal protection through asserted preferential treatment of NPC and TransCo and through different rules for NGAs and GOCCs.
PSALM invoked good faith of its approving and certifying officers, and in G.R. No. 216606 asked the Court to excuse procedural lapses and revisit the merits.

Statutory and Regulatory Framework

Art. IX-D, Sec. 2(1), 1987 Constitution vests COA with broad post-audit powers over government accounts and exclusive authority to promulgate accounting and auditing rules and regulations.
COA Circular No. 2006-001 prescribes audit guidelines on EME for all GOCCs, GFIs and subsidiaries and mandates receipts or other documents evidencing disbursements.
COA Circular No. 89-300 and Section 397(c) of the GAAM govern NGAs and permit certifications in lieu of receipts when receipts are unavailable.
COA Circular No. 2009-006 (RRSA) sets rules on AOM issuance and on issuance of Notices of Disallowance under paragraphs 5.3 and 10.1.
COA procedural rules on finality and motions for reconsideration are contained in Rule X, Sections 9 and 10 of the 2009 Revised Rules of Procedure of the COA as amended by COA Resolution No. 2011-006.
The remedy of relief from judgment is governed by Rule 38 of the Revised Rules of Court and is available only under exceptional circumstances.

Due Process

The Court held that COA Circular No. 2009-006 (RRSA) does not require an AOM prior t