The Supreme Court, in this case, clarified the extent of liability for public officers involved in disallowed transactions by the Commission on Audit (COA). The Court ruled that while the hiring of private lawyers by a government-owned and controlled corporation (GOCC) without the necessary approvals is indeed a violation of auditing rules, officers who merely perform their ministerial duties without bad faith should not be held personally liable for refunding the disallowed amounts. This decision balances the need for fiscal responsibility with the recognition of good faith in the performance of official duties.

Beyond Corporate Veils: Who Bears the Cost of Unauthorized Legal Hires?

This case revolves around the Philippine National Construction Corporation (PNCC), formerly known as Construction and Development Corporation of the Philippines (CDCP). PNCC engaged the services of four private lawyers in 2011, and subsequently, the COA issued a Notice of Disallowance (ND) for the salaries paid to these lawyers, totaling P911,580.96. The COA based its disallowance on the fact that PNCC had not obtained the written conformity and acquiescence of the Office of the Government Corporate Counsel (OGCC) or the written concurrence of the COA itself, as required by COA Circular No. 95-011 and Office of the President Memorandum Circular (OP-MC) No. 9. The central question before the Supreme Court was whether officers of PNCC, who authorized the payments, should be held personally liable for the disallowed amounts.

The petitioners, Janice Day E. Alejandrino and Miriam M. Pasetes, former executive officers of PNCC, challenged the COA’s decision. They argued that PNCC, despite government ownership, should be considered a private corporation due to its incorporation under the general corporation law. Consequently, they believed COA’s audit jurisdiction and the requirements for hiring private lawyers should not strictly apply. The Court, however, firmly rejected this argument, reaffirming PNCC’s status as a GOCC subject to COA’s audit authority. The Court emphasized that the determining factor for COA’s exercise of audit jurisdiction is government ownership and control.

The legal framework governing this case stems from the Constitution and various administrative issuances. Section 2(1) of Article IX-D of the Constitution vests the COA with the power to audit government agencies, instrumentalities, and GOCCs. Furthermore, Section 10, Chapter 3, Book IV, Title III of the Administrative Code mandates that the OGCC act as the principal law office for all GOCCs. This mandate is reinforced by COA Circular No. 95-011 and OP-MC No. 9, which strictly regulate the hiring of private legal counsel by GOCCs, requiring prior written approval from both the OGCC and the COA.

The Supreme Court, citing its previous ruling in Strategic Alliance v. Radstock Securities, underscored that PNCC is “not just like any other private corporation precisely because it is not a private corporation’ but indisputably a government-owned corporation.” Therefore, the Court held that PNCC was subject to COA’s audit authority and the requirements for engaging private legal counsel. The Court also acknowledged the established jurisprudence which provided that recipients or payees in good faith need not refund disallowed amounts involving salaries, emoluments, benefits, and allowances due to government employees.

The critical aspect of the Court’s decision lies in its nuanced approach to determining the liability of the PNCC officers. While the Court upheld the disallowance of the payments to the lawyers, it distinguished between those who directly benefited from the transaction (the lawyers themselves, who were already absolved of liability) and those who merely facilitated the payments as part of their official duties. The Court considered COA Circular No. 006-09, which outlines the criteria for determining liability in audit disallowances. These criteria include the nature of the disallowance, the duties and responsibilities of the officers involved, the extent of their participation, and the amount of damage or loss to the government.

Applying these criteria, the Court found that Alejandrino and Pasetes, as Head of Human Resources and Administration and Acting Treasurer, respectively, were performing ministerial duties. Their functions were primarily administrative, and there was no evidence to suggest they acted in bad faith or were involved in policy-making decisions regarding the hiring of the lawyers. Consequently, the Court ruled that holding them personally liable for the disallowed amounts would be unjust. The Supreme Court emphasized that the officers of MWSS in the cases of MWSS v. COA and Uy v. MWSS and COA, “had nothing to do with policy-making or decision-making for the MWSS, and were merely involved in its day-to-day operations.”

This decision underscores the importance of distinguishing between approving officers who make policy decisions and those who simply implement them. It also highlights the significance of good faith in the performance of official duties. Public officers should not be penalized for honest mistakes or errors in judgment, especially when they are acting under the direction of their superiors and without any personal gain. This nuanced approach aims to strike a balance between accountability and fairness, ensuring that public service remains attractive to competent and honest individuals.

FAQs

What was the key issue in this case?	The main issue was whether PNCC officers should be held personally liable for the salaries paid to private lawyers hired without the required OGCC and COA approvals.
Is PNCC considered a government-owned and controlled corporation (GOCC)?	Yes, the Supreme Court reaffirmed that PNCC is a GOCC under the audit jurisdiction of the COA, despite being incorporated under the general corporation law.
Why were the payments to the lawyers disallowed?	The payments were disallowed because PNCC failed to obtain the written conformity of the OGCC and the written concurrence of the COA before hiring the private lawyers.
Were the lawyers required to refund the salaries they received?	No, the COA correctly held that the private lawyers were not required to refund the amounts they received in good faith for services rendered.
What is the significance of COA Circular No. 95-011?	COA Circular No. 95-011 prohibits government agencies and GOCCs from utilizing public funds to pay private lawyers without prior approval from the OGCC and COA.
What is the role of the Office of the Government Corporate Counsel (OGCC)?	The OGCC is the principal law office of all GOCCs and is responsible for providing legal services to these corporations.
On what basis did the Supreme Court absolve the PNCC officers of liability?	The Court absolved the officers because they were performing ministerial duties and there was no evidence that they acted in bad faith or were involved in policy-making decisions.
What is the effect of COA Circular No. 006-09 on determining liability?	COA Circular No. 006-09 provides guidelines for determining the liability of public officers in audit disallowances based on their duties, participation, and the extent of damage to the government.

In conclusion, the Supreme Court’s decision provides valuable guidance on the extent of liability for public officers in disallowed transactions. It underscores the importance of following auditing rules and regulations while recognizing the role of good faith in the performance of official duties. This ruling promotes a balanced approach to accountability in public service.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Janice Day E. Alejandrino and Miriam M. Pasetes vs. Commission on Audit, G.R. No. 245400, November 12, 2019