Key Takeaway: Ensuring Compliance and Proper Documentation is Crucial for Business Development Expenses in Government-Owned Corporations

Power Sector Assets and Liabilities Management Corporation v. Commission on Audit, G.R. No. 211376, December 07, 2021

In a bustling government office, the excitement of a new project often leads to expenses that seem necessary but can later become contentious. The Supreme Court of the Philippines recently tackled a case that underscores the importance of strict adherence to regulations when it comes to business development expenses (BDE) in government-owned and -controlled corporations (GOCCs). This case involved the Power Sector Assets and Liabilities Management Corporation (PSALM) and their claim for BDE, which was ultimately disallowed by the Commission on Audit (COA). The central legal question was whether PSALM’s failure to comply with specific auditing and documentation requirements justified the disallowance of these expenses.

Understanding the Legal Framework for Business Development Expenses

The legal landscape for BDE in the Philippines is governed by various statutes and circulars, primarily by the Commission on Audit (COA). COA Circular No. 2006-001 outlines guidelines for the disbursement of extraordinary and miscellaneous expenses (EME) and other similar expenses in GOCCs. These guidelines require that claims for such expenses must be supported by receipts or other documents evidencing disbursements.

The term “business development expenses” refers to costs incurred for activities like meetings, seminars, conferences, and other official engagements aimed at furthering the corporation’s goals. These expenses are akin to EME, which are subject to a ceiling amount as specified in the General Appropriations Act (GAA).

One critical aspect of the legal framework is the requirement for a separate account for BDE, as mandated by the Corporate Operating Budget (COB) of the GOCC. This requirement is intended to ensure proper charging, monitoring, and accounting of these expenses, distinguishing them from regular representation expenses.

For example, imagine a government agency planning a series of workshops to promote renewable energy initiatives. The costs for these workshops, including venue rentals and participant meals, would fall under BDE. To comply with the law, the agency must ensure these expenses are properly documented and accounted for in a separate BDE account.

The Journey of PSALM’s Case: From Disallowance to Supreme Court Review

PSALM, tasked with managing the privatization of National Power Corporation (NPC) assets, claimed BDE for the year 2008. However, these claims were disallowed by the COA due to several deficiencies. The COA noted that PSALM failed to set up a separate BDE account as required by its COB, and the supporting documents for the claimed expenses were incomplete or inadequate.

PSALM’s journey through the legal system began with an Audit Observation Memorandum (AOM) from the COA Auditor, which highlighted the deficiencies in the documentation of BDE. Despite PSALM’s attempts to justify the expenses, the COA issued a Notice of Disallowance (ND) amounting to P1,110,078.89, citing the lack of proper substantiation and the violation of COA Circular No. 85-55-A, which prohibits irregular, unnecessary, excessive, or extravagant expenditures.

PSALM appealed the disallowance to the COA Corporate Government Sector (COA-CGS), arguing that the ND was a patent nullity and that they had submitted sufficient documentation. However, the COA-CGS upheld the disallowance, emphasizing the need for a separate BDE account and the inadequacy of the certifications provided by PSALM officials as alternative supporting documents.

Undeterred, PSALM escalated the case to the COA Proper, which also affirmed the disallowance. The COA Proper’s decision was based on the failure to comply with the COB’s requirement for a separate BDE account and the lack of proper documentation as per COA Circular No. 2006-001.

Finally, PSALM brought the case to the Supreme Court, seeking to reverse the COA’s decision. The Supreme Court, however, dismissed the petition, finding it to be filed out of time and lacking merit. The Court emphasized the importance of adhering to established rules and regulations:

“The setting up of a separate BDE account is an auditing mechanism required by the COA pursuant to its power to prescribe accounting rules and regulations governing the disbursement of EME and other similar expenses of GOCCs.”

The Court also highlighted the necessity of proper substantiation:

“The claim for reimbursement of such expenses shall be supported by receipts and/or other documents evidencing disbursements.”

Ultimately, the Supreme Court affirmed the liability of PSALM’s approving and certifying officers to refund the disallowed amounts, emphasizing the principles of solutio indebiti and unjust enrichment for the recipients of the funds.

Practical Implications and Key Lessons for the Future

This ruling has significant implications for GOCCs and other government entities handling BDE. It underscores the importance of strict compliance with COA regulations and the need for meticulous documentation to support expense claims. Going forward, similar cases will likely be scrutinized with the same rigor, emphasizing the need for separate accounts and detailed receipts.

For businesses and government agencies, this case serves as a reminder to:

• Ensure the establishment of separate accounts for BDE as per the COB.
• Maintain thorough and accurate documentation for all expenses, including receipts that clearly indicate the nature and purpose of the expenditure.
• Understand that certifications alone may not suffice as supporting documents unless they meet the criteria set by COA Circular No. 2006-001.

Key Lessons:

• Compliance with COA regulations is non-negotiable for GOCCs.
• Proper documentation is essential for validating expense claims.
• Officers approving or certifying expenses must exercise due diligence to avoid liability.

Frequently Asked Questions

What are business development expenses?

Business development expenses include costs associated with activities like meetings, seminars, and conferences aimed at advancing the goals of a government-owned corporation.

Why is a separate account for BDE required?

A separate account ensures that BDE are properly charged, monitored, and accounted for, distinguishing them from other types of expenses like representation expenses.

What documentation is needed to support BDE claims?

Claims for BDE must be supported by receipts or other documents that clearly evidence the disbursement and specify the nature and purpose of the expenses.

Can certifications be used as supporting documents for BDE?

Certifications can be used but must substantiate the payment of an account payable, specifying the nature, amount, date, and place of the expenses incurred.

What happens if BDE are disallowed by the COA?

Approving and certifying officers may be held liable to refund the disallowed amounts, and recipients may also be required to return the funds based on principles of solutio indebiti and unjust enrichment.

How can a GOCC avoid disallowance of BDE?

By strictly adhering to COA regulations, setting up a separate BDE account, and maintaining detailed and accurate documentation for all expenses.

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