In the recent landmark ruling in Mario M. Madera v. Commission on Audit, G.R. No. 244128 (08 September 2020) (“Madera”), the Supreme Court laid down a new set of rules regarding the refund of amounts disallowed by the Commission on Audit (“COA”).
Madera concerned the disallowance on post-audit of benefits and allowances which were granted by the Municipality of Mondragon, Northern Samar to its officials and employees. The petitioners in Madera were the certifying officers and recipients of said benefits, who were held liable under the Notices of Disallowance (“NDs”) by the Audit Team Leader and the Supervising Auditor of the municipality. The petitioners filed their appeal with the COA Regional Director, who affirmed the NDs. On appeal of the case to the COA proper, the COA opined that, following applicable rules, the approving officers and recipients were obligated to refund the amount received. However, the COA also acknowledged jurisprudence on the “good faith rule” in which, as an exception, passive recipients of disallowed amounts need not refund them if they received the same in good faith. The COA observed that the “good faith rule” results in an inequitable burden on the approving officers and is inconsistent with the concept of solutio indebiti. Nevertheless, it applied the exception in deference to previous rulings of the Supreme Court.
In its Decision, the Supreme Court modified the COA’s Notice of Disallowance, finding that the disallowance was correct but clarifying that the petitioners who were approving and certifying officers “need not refund the said disallowed amount” inasmuch as they had acted in good faith. This was based on the following set of rules regarding the refund of disallowed amounts, which settles conflicting jurisprudence on the matter:
- If a Notice of Disallowance is set aside by the court, no return shall be required from any of the persons held liable therein.
- If a Notice of Disallowance is upheld, the rules on return are as follows:
- Approving and certifying officers who acted in good faith, in regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return consistent with Section 38 of the Administrative Code of 1987.
- Approving and certifying officers who are clearly shown to have acted in bad faith, malice, or gross negligence are, pursuant to Section 43 of the Administrative Code of 1987, solidarily liable to return only the net disallowed amount, which excludes amounts excused under these rules.
- Recipients, whether approving or certifying officers or mere passive recipients, are liable to return the disallowed amounts respectively received by them, unless they are able to show that the amounts they received were genuinely given in consideration of services rendered.
- The court may likewise excuse the return of recipients based on undue prejudice, social justice considerations, and other bona fide exceptions as it may determine on a case to case basis.
In crafting the rules, Supreme Court considered several factors. First among these was the statutory bases for the liability of approving and certifying officers and payees for illegal expenditures under the Budget Reform Decree of 1977, the Government Auditing Code of the Philippines, the Administrative Code of 1987, and various COA circulars. The second factor concerned certain badges of good faith, which the Supreme Court stated should be appreciated before holding officers liable. Third, the Supreme Court examined the body of jurisprudence which absolves responsible persons from liability to return based on good faith, and concluded that this “good faith rule” was not intended to be at the expense of approving and certifying officers, who should not shoulder the amount paid to the absolved payees. Finally, the Supreme Court looked at the nature of the payees’ participation vis-à-vis the principles of unjust enrichment and solutio indebiti. On this point, it held that while the general rule was for disallowed amounts to be returned regardless of participation of the payee, there were several exceptions, such as when the amounts were genuinely given in consideration of services rendered, or when there were attendant social justice or humanitarian considerations.
In the final analysis, the Supreme Court based its guidelines on what it deemed equitable to the government whose interest is safeguarded by the COA, on the one hand, and to the government employees who approved, certified, and received the disallowed benefits, on the other.
Three justices issued separate concurring opinions. Justice Estela M. Perlas-Bernabe focused on the civil and administrative law frameworks that would provide for a better understanding of the underlying reasons for the parameters provided in the rules. Justine Marvic M.V.F. Leonen, while ultimately in agreement with the main opinion, proposed that the nature of the transaction or the reason behind its disallowance be the basis in determining the liability of authorizing officers and recipients, instead of whether or not they acted in good faith. Finally, Justice Henri Jean Paul B. Inting discussed the uniqueness of each disallowance case, and observed that the guidelines laid down by the ponencia were the most reasonable manner by which the controversy could be settled, without unduly restricting the Supreme Court’s exercise of judicial review in future disallowance cases.