Limiting the Liability of Approving Officers: The Net Disallowed Amount

G.R. No. 272898, October 08, 2024

Imagine government funds being spent on items or benefits that lack proper legal authorization. Who is responsible when these expenditures are flagged as irregular? The Commission on Audit (COA) often steps in, disallowing such expenses and holding accountable the approving officers. But what exactly is the extent of their liability? This case sheds light on the principle of “net disallowed amount,” clarifying that an approving officer’s liability is not always the total expenditure.

In Bernadette Lourdes B. Abejo v. Commission on Audit, the Supreme Court delved into the extent of liability for an approving officer in cases of disallowed expenditures. The court clarified that the solidary liability of an officer who approved and certified an illegal expenditure does not necessarily equate to the total amount of the expenditure. Rather, the solidary liability of such officer should be limited only to the “net disallowed amount.”

Understanding Liability for Illegal Government Expenditures

Philippine law emphasizes accountability in government spending. Several legal provisions address liability for unlawful expenditures. Section 49 of Presidential Decree No. 1177, the Budget Reform Decree of 1977, states that officials authorizing illegal expenditures are liable for the full amount paid.

Similarly, Sections 102 and 103 of Presidential Decree No. 1445, the Government Auditing Code of the Philippines, hold agency heads personally liable for unlawful expenditures of government funds or property. Book VI, Chapter 5, Section 43 of the Administrative Code of 1987 also stipulates that officials authorizing payments violating appropriations laws are jointly and severally liable for the full amount paid.

However, the Supreme Court has refined this strict liability through the “Madera Rules on Return,” outlined in Madera v. Commission on Audit. These rules distinguish between approving officers and recipients, considering factors like good faith, regular performance of duties, and negligence.

The case of Abellanosa v. Commission on Audit further elucidates this framework. It highlights that civil liability for approving officers stems from their official functions and the public accountability framework. In contrast, liability for payees-recipients is viewed through the lens of unjust enrichment and the principle of solutio indebiti.

Key Legal Provisions

• Presidential Decree No. 1177, Section 49: Liability for Illegal Expenditures.
• Presidential Decree No. 1445, Sections 102 & 103: Primary and secondary responsibility; General liability for unlawful expenditures.
• Administrative Code of 1987, Book VI, Chapter 5, Section 43: Liability for Illegal Expenditures.

The Case of Bernadette Lourdes B. Abejo

Bernadette Lourdes B. Abejo, as Executive Director of the Inter-Country Adoption Board (ICAB), approved the payment of Collective Negotiation Agreement incentives and Christmas tokens to board members and the Inter-Country Placement Committee. The COA issued a Notice of Disallowance for PHP 355,000.00, citing a lack of legal basis and non-compliance with regulations.

Abejo appealed, arguing that the gift checks were recognition for services rendered and consistent with Department of Budget and Management (DBM) Circular No. 2011-5. She maintained she acted in good faith and should not be compelled to refund the amounts.

The COA denied the appeal, stating that the grant of Christmas tokens lacked legal basis and was not made pursuant to any appropriation. Abejo then filed a Petition for Review, citing previous cases where government employees performing extra tasks were compensated. She also noted that year-end tokens were a sanctioned practice under Republic Act No. 6686 and DBM Budget Circular No. 2010-01.

The Commission on Audit (COA) denied the Petition, leading to a Motion for Reconsideration, which was also denied. Abejo then elevated the case to the Supreme Court, arguing that the COA had acted with grave abuse of discretion.

“Every expenditure or obligation authorized or incurred in violation of the provisions of this Code or of the general and special provisions contained in the annual General or other Appropriations Act shall be void,” the Court cited.

Here’s a breakdown of the procedural steps:

• April 4, 2011: COA issues Notice of Disallowance No. 2011-010-101-(08-10).
• July 13, 2011: Abejo appeals the disallowance before the Director of the COA.
• January 22, 2016: COA denies the appeal in Decision No. 2016-001.
• March 4, 2016: Abejo files a Petition for Review before the Commission Proper.
• August 16, 2019: COA denies the Petition in Decision No. 2019-347.
• November 5, 2019: Abejo files a Motion for Reconsideration.
• March 19, 2024: Abejo receives Notice of Resolution No. 2024-025 denying the Motion.
• April 18, 2024: Abejo files a Petition for Certiorari before the Supreme Court.

Practical Implications and Lessons Learned

The Supreme Court partly granted the petition, emphasizing the principle of “net disallowed amount.” The Court noted that the payees were not made liable in the Notice of Disallowance, and because they were not parties in the case, the amounts they received could not be ordered returned. As a result, Abejo was absolved from her solidary liability.

This ruling has significant implications for government officials approving expenditures. It clarifies that their liability is limited to the net disallowed amount, which excludes amounts effectively excused or allowed to be retained by the payees. This provides a more equitable framework for determining liability in disallowance cases.

This case demonstrates the importance of adherence to judicial precedents, particularly the doctrine of stare decisis. The Court applied its previous pronouncements in a similar case (G.R. No. 251967), reinforcing the need for consistency in legal rulings.

Key Lessons:

• Approving officers are liable only for the “net disallowed amount.”
• Payees not included in the Notice of Disallowance may not be compelled to return funds.
• The doctrine of stare decisis promotes consistency in legal rulings.

Frequently Asked Questions

Q: What is the “net disallowed amount”?

A: The net disallowed amount is the total disallowed amount minus any amounts allowed to be retained by the payees. It represents the actual amount that approving officers are solidarily liable to return.

Q: What happens if the payees are not included in the Notice of Disallowance?

A: If the payees are not included in the Notice of Disallowance and are not made parties to the case, the amounts they received may not be ordered returned, effectively reducing the approving officer’s liability.

Q: What is the significance of the Madera Rules on Return?

A: The Madera Rules on Return provide a framework for determining the liability of persons involved in disallowed expenditures, considering factors like good faith, negligence, and the principle of solutio indebiti.

Q: What is the doctrine of stare decisis?

A: Stare decisis is the legal principle that courts should adhere to judicial precedents established in previous cases involving similar situations. This promotes certainty and stability in the law.

Q: How does this ruling affect government officials approving expenditures?

A: This ruling clarifies that approving officers’ liability is limited to the net disallowed amount, providing a more equitable framework for determining liability in disallowance cases. However, it is crucial that government officials act with diligence in their official functions.

Q: What is solutio indebiti?

A: Solutio indebiti is a principle of civil law that arises when someone receives something that is not due to them, creating an obligation to return it.

Q: Is good faith a valid defense against liability for disallowed expenditures?

A: While good faith can be a factor in determining liability, it is not always a complete defense. If disbursements are made contrary to law, even good faith may not absolve an approving officer from liability.

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