G.R. No. 127545 - Sanchez vs. Commission on Audit

Case Summary (G.R. No. 127545)

Petitioner(s) and Respondent

Petitioners: Andres Sanchez, Leonardo D. Regala, Rafael D. Barata, Norma Agbayani, Cesar N. Sarino — officials of the DILG who approved or participated in the transfers. Respondent: Commission on Audit (COA), exercising its constitutional audit authority under the 1987 Constitution.

Key Dates and Procedural Posture

R.A. No. 7180 (1991) provided the 1992 appropriations. Proposal for an ad hoc task force was communicated on 11 November 1991; first cash advance disbursed by check dated 31 January 1992; second transfer occurred 28 April 1992. Department Auditor issued endorsements and a Notice of Disallowance (29 March 1993); COA Decision No. 96-654 (21 November 1996) affirmed disallowance. Petition for review filed 10 February 1997 and resolved by the Supreme Court affirming COA (decision issued April 23, 2008, applying the 1987 Constitution).

Applicable Law and Constitutional Basis

Primary constitutional bases: COA’s audit powers under Art. IX, Sec. 2(1)–(2) of the 1987 Constitution; restrictions on transfer/augmentation of appropriations under Art. VI, Sec. 25(5). Statutory and administrative references: R.A. No. 7180 (General Appropriations Act of 1992), General Provisions of that Act (Sections 16, 17, 18, 19), P.D. No. 1177 and P.D. No. 1445 (Government accounting and manual provisions), and applicable COA and Department of Finance rules concerning liquidation and trust funds.

Appropriation and Special Provisions (R.A. No. 7180)

R.A. No. 7180 allocated P75,000,000 for the Capability Building Program for local personnel, to be used for local government and community capability building programs (training, technical assistance, materials, supplies, facilities). The Special Provisions required implementation nationwide through the DILG’s Local Government Academy, mandated administration by DILG, release of funds only upon submission of a work and financial plan with detailed breakdowns, and limited the use of savings from the appropriation to the acquisition of equipment (except motor vehicles), subject to other general provisions on priority in the use of savings.

Creation and Funding of the Ad Hoc Task Force

Atty. Mendoza proposed a “shamrock”-type Ad Hoc Task Force for Inter-Agency Coordination to Implement Local Autonomy to design programs and modules to operationalize the Local Government Code of 1991. The Deputy Executive Secretary accepted the proposal; DILG Secretary Sarino attested to a memorandum effecting a transfer/remittance to the OP of P300,000 and requested an additional P300,000. The transfers were made from the Capability Building Program Fund and recorded as transfers “to the Office of the President for Ad-Hoc Task Force for Inter-Agency Coordination to Implement Local Autonomy.”

Transfers, Withdrawals and Liquidation Records

Two cash advances of P300,000 each were withdrawn from the Fund and transferred to the OP cashier. The first advance was purportedly liquidated with entries for payroll, rentals, furniture, supplies, and other small items but without supporting receipts; the second advance lacks any record of liquidation. The transfers were effected early in the fiscal year (first on 31 January 1992; second on 28 April 1992), before any meaningful determination of savings could reasonably be made.

Department Auditor Findings and COA Decision

The Department Auditor disallowed the transfers on multiple grounds: lack of legal basis for the task force to claim payment through DILG by cash advance; failure to liquidate previous cash advances; noncompliance with the Special Provisions governing the Capability Building Program (including absence of a required work and financial plan); and unspecific estimates of the expenses. COA affirmed the disallowance in Decision No. 96-654, concluding that the transfers and expenditures violated R.A. No. 7180 and related budget/accounting rules. Commissioner Ursal dissented, viewing the transfer as within presidential augmentation power, but the majority upheld disallowance.

Arguments of Petitioners and Initial OSG Position

Petitioners contended the transfer was for a public purpose consistent with the Fund’s objectives and argued presumption of regularity in executive acts, due process defects in the disallowance, and reliance on prior doctrine that department head acts are presumptively acts of the President. The Office of the Solicitor General initially filed a manifestation supportive of petitioners’ view but later disavowed that stance and, in its final memorandum, agreed with COA that the transfer lacked legal basis and that requisite conditions for augmentation and proper administration were not met.

Issues Framed by the Court

The Court crystallized four controlling questions: (1) whether there was legal basis to transfer the Capability Building Fund from DILG to OP; (2) whether conditions/requisites for transfers under applicable law were satisfied; (3) whether the Fund was a trust, special, or regular appropriation; and (4) whether COA’s disallowance was valid.

Legal Standard on Transfer/Augmentation (Sec. 25(5), Art. VI)

Under Art. VI, Sec. 25(5) of the 1987 Constitution and implementing provisions of R.A. No. 7180, transfer/augmentation of appropriations is tightly constrained: only specified officials (President, Senate President, Speaker, Chief Justice, heads of constitutional commissions) may be authorized to augment items from savings in their respective appropriations; augmentation requires (a) actual savings in the item of the transferring agency and (b) an existing item, project, or activity in the receiving office which has an appropriation determined to be deficient and thus in need of augmentation. The power is non-delegable and confined to the conditions set by the Constitution and statute.

Application of the Augmentation Standard to the Facts

The Court found the augmentation prerequisites absent. There were no actual savings in the Fund at the time of transfers (the 1992 GAA had taken effect only on 1 January 1992 and the transfers occurred within the first quarter or two); petitioners admitted there were no actual savings when questioned. There was likewise no existing item in the Office of the President to be augmented by the transferred funds—an ad hoc task force with no established appropriation in the OP cannot satisfy the requirement of an existing apropriated item in need of augmentation. The transfers were not effected by the President nor under any law authorizing the Deputy Executive Secretary or other non-designated official to augment, and therefore the constitutional and statutory conditions for valid transfer were not present.

Use of Funds Relative to R.A. No. 7180 Requirements and Task Force Legitimacy

Even assuming a public purpose, the transfers violated the Special Provisions of R.A. No. 7180, which required administration through the Local Government Academy and release of fun

Case Syllabus (G.R. No. 127545)

Title, Citation and Procedural Posture

Full case caption: Andres Sanchez, Leonardo D. Regala, Rafael D. Barata, Norma Agbayani, and Cesar N. Sarino, petitioners, vs. Commission on Audit, respondent.
Reported at 575 Phil. 428; En Banc; G.R. No. 127545; decision promulgated April 23, 2008.
Petition for Review filed dated 10 February 1997 seeking relief from COA Decision No. 96-654 (COA assailed decision dated 21 November 1996).
The Supreme Court (En Banc) received memoranda and oral argument; parties included petitioners, the Commission on Audit (COA), and the Office of the Solicitor General (OSG), which filed an initial Manifestation and Motion in Lieu of Comment and later a Memorandum retracting its earlier position.
The Court framed the decisive issues for resolution, required memoranda, and heard oral argument to decide whether COA’s disallowance should be upheld.

Core Facts and Chronology of Operative Incidents

Republic Act No. 7180 (General Appropriations Act of 1992) appropriated P75,000,000.00 under Title XIII for the Department of the Interior and Local Government (DILG) Capability Building Program for local personnel, with Special Provisions governing use and release.
Special Provisions for the Capability Building Program specified use for local government and community capability building programs (training and technical assistance) and provided that savings from the appropriation may be used to acquire equipment (except motor vehicles); the Program was to be implemented nationwide by the DILG through the Local Government Academy; releases required submission of a work and financial plan with detailed breakdown; and savings over requirements prescribed in Sec. 18 were to be made available for the Capability Building Program subject to Section 40 of P.D. 1177.
On 11 November 1991, Atty. Hiram C. Mendoza, as Project Director of an Ad Hoc Task Force for Inter‑Agency Coordination to Implement Local Autonomy, proposed a “shamrock” type task force to design programs, strategize and prepare modules for local autonomy implementation; estimated operational expenses P2,388,000.00 for six months beginning 1 December 1991 to 31 May 1992.
Deputy Executive Secretary Dionisio de la Serna accepted the proposal; then DILG Secretary Cesar N. Sarino issued a memorandum transferring/remitting P300,000.00 to the Office of the President for task force operational expenses and requested an additional cash advance of P300,000.00; both amounts were taken from the Capability Building Program Fund.
Two cash advances of P300,000.00 each were withdrawn from the Fund by the DILG and transferred to the Cashier of the Office of the President. Disbursement voucher particulars indicated transfer “to the Office of the President for Ad‑Hoc Task Force for Inter‑Agency Coordination to Implement Local Autonomy.”
The first cash advance was liquidated with no supporting receipts presented: payroll P226,000.00; office rentals P60,000.00; office furniture P7,500.00; office supplies P3,682.50; Xerox P300.30; transportation P406.00; bank charges P75.00; miscellaneous P60.00 — totaling P298,023.80 and a balance of P1,976.00 as of 31 March 1992.
There is no record of liquidation for the second cash advance of P300,000.00.
The DILG Department Auditor (Iluminada M.V. Fabroa) conducted a post‑audit and disallowed the amounts for reasons: no legal basis for the Task Force to claim payment via DILG cash advance; prior cash advance not liquidated; expenditures from capability building subject to Special Provisions restrictions/conditions; estimate of expenses not specified.
A Notice of Disallowance dated 29 March 1993 reiterated that the transfer from DILG to the Office of the President to defray salaries, supplies, rentals, foods and meals of the ad hoc task force taken from the Capability Building Program Fund violated R.A. 7180. Notice of Disallowance directed Mr. Sarino et al. to settle the disallowance jointly and severally.

Statutory and Constitutional Provisions Invoked

1987 Constitution, Art. IX, Sec. 2(1) and (2): grants Commission on Audit (COA) power to examine, audit, and settle accounts pertaining to revenues, receipts and expenditures; exclusive authority to define scope of audit and promulgate accounting and auditing rules including prevention and disallowance of irregular, unnecessary, excessive, extravagant or unconscionable expenditures.
1987 Constitution, Art. VI, Sec. 25(5): generally prohibits transfer of appropriations by law but authorizes the President, President pro tempore of Senate, Speaker of the House, Chief Justice, and heads of Constitutional Commissions (by law) to augment any item in the general appropriations law for their respective offices from savings in other items of their respective appropriations.
P.D. No. 1445, Sec. 37: “All money appropriated for functions, activities, projects and programs shall be available solely for the specific purpose for which these are appropriated.”
P.D. No. 1445, Sec. 103: general liability for unlawful expenditures — expenditures of government funds in violation of law/regulations are personal liability of the official or employee directly responsible.
R.A. No. 7180 (1992 GAA), General Provisions Secs. 16, 17 and 19: Sec. 16 restricts changes/modifications in expenditure items except by act of Congress or augmentation from savings under Sec. 25(5) Art. VI of the Constitution; Sec. 17 authorizes augmentation from savings for enumerated officials; Sec. 19 defines “savings” and “augmentation” (savings = portions/balances of programmed appropriation free of obligation or encumbrance after completion/discontinuance or arising from unpaid compensation for vacant positions; augmentation = existence of an item/project/activity with appropriation determined to be deficient).
1992 GAA Special Provisions for Capability Building Program (quoted above) establishing use, implementing agency (Local Government Academy), release requirements (work and financial plan with detailed breakdown), and limits on use of savings.

Issues Presented (as crystallized by the Court)

Whether there was legal basis for the transfer of funds of the Capability Building Program Fund appropriated in the 1992 GAA from DILG to the Office of the President.
Whether the conditions or requisites for the transfer of funds under applicable law were present in this case.
Whether the Capability Building Program Fund is a trust fund, a special fund, a trust receipt, or a regular appropriation.
Whether the questioned disallowance by the Commission on Audit is valid.

Positions and Key Arguments of Petitioners

Petitioners contended the transfer from the Fund to the Office of the President was legal and the Notice of Disallowance (29 March 1993) lacked basis.
Claimed the Capability Building Program financed by the Fund was administered by DILG and intended to complement DILG’s intensified program for enhancing local autonomy.
Argued the task force was created to design programs, strategize and prepare modules for local autonomy and its expenses should be charged to the Fund — thus the transfer fell within the Special Provisions’ framework.
Asserted law did not prohibit DILG from coordinating directly with the Office of the President to attain local autonomy objectives.
Maintained the transfer was presumed legal and regular absent judicial pronouncement to the contrary; the DILG auditor’s conclusion allegedly could not overcome presumption of legality of acts by public officers in performance of public duty.
During proceedings petitioners’ position varied: in one instance counsel stated there was no transfer of any centavo; elsewhere petitioners asserted an actual transfer that was never repudiated by the President and operational control remained with DILG (liquidation done by DILG), and that the Fund was a regular appropriation (unexpended amounts revert to the General Fund).

COA, Department Auditor, and OSG Positions

DILG Department Auditor disallowed transfers for lack of legal basis, failure to liquidate prior cash advance, non‑compliance with Special Provisions, and unspecified expense estimate.
Commission on Audit affirmed disallowance in COA Decision No. 96-654 (21 November 1996), holding transfer and expenditures violative of R.A. 7180 and that mere appropriation of funds for purposes other than authorized by law creates personal liability.
Commissioner Sofronio B. Ursal signed the COA De