G.R. No. 218310 . November 16, 2021.
POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION, REPRESENTED BY MS. LOURDES S. ALZONA, IN HER CAPACITY AS OFFICER-IN-CHARGE, AND IN BEHALF OF THE 37 PSALM OFFICERS AND EMPLOYEES LISTED IN ND 10-002 (2009), PETITIONERS, VS. COMMISSION ON AUDIT, RESPONDENT.

FACTS

On June 26, 2009, the Board of Directors of the Power Sector Assets and Liabilities Management Corporation (PSALM) approved Board Resolution No. 2008-1013-003, granting a special service incentive award in the form of gift checks amounting to P25,000.00 each (total P751,245.00) to thirty employees who had served continuously for five years. On March 24, 2010, State Auditor IV/Audit Team Leader Gina Maria P. Molina issued Notice of Disallowance (ND) No. 10-002-(2009), disallowing the incentive for being contrary to COA Circular No. 85-55A (prohibiting unnecessary, excessive, extravagant expenditures), Rule X, Section 7(e) of the Omnibus Rules Implementing Book V of Executive Order No. 292, CSC Memorandum Circular (MC) No. 6, s. 2002 (authorizing incentive awards), and CSC MC No. 01, s. 2001 (defining PRAISE parameters). The ND identified liable parties, including certifying/approving officers and the payees. Petitioners appealed to the COA-Corporate Government Sector (CGS), arguing the ND was issued without a prior Audit Observation Memorandum (AOM), that the grant was a non-monetary benefit not requiring CSC loyalty award rules, and that the expenditure was approved by the Department of Budget and Management (DBM) through PSALM’s 2009 Corporate Operating Budget (COB). The COA-CGS denied the appeal. Petitioners elevated the case to the COA Commission Proper (COA-CP), which affirmed the disallowance, ruling that an AOM is not a prerequisite for an ND, that DBM budget confirmation is not a blanket authority to disregard laws, and that the principle of solutio indebiti applies. The COA-CP denied reconsideration, prompting this petition for certiorari.

ISSUE

1. Whether the Commission on Audit committed grave abuse of discretion in ruling that petitioners’ right to due process was not violated when ND No. 10-002-(2009) was issued without a prior Audit Observation Memorandum.
2. Whether the Commission on Audit committed grave abuse of discretion in ruling that the special service incentive award was irregular despite being in accordance with the DBM-approved 2009 PSALM Corporate Operating Budget.
3. Assuming the award was a loyalty award under Civil Service rules, whether the Commission on Audit committed grave abuse of discretion in ruling that petitioners’ good faith is not a valid defense.

RULING

The Supreme Court DISMISSED the petition and AFFIRMED the Commission on Audit’s Decision and Resolution.
1. On the due process issue: The Court held that the issuance of an Audit Observation Memorandum (AOM) is not a mandatory prerequisite before a Notice of Disallowance (ND) can be issued. Citing COA Circular No. 2009-006, the Court explained that an AOM is issued when an auditor needs additional documents, but an ND may be issued outright when the auditor has sufficient basis. Petitioners were not denied due process as they were given ample opportunity to explain and refute the audit findings through their appeals to the COA-CGS and COA-CP. The Court also found that the absence of the Supervising Auditor’s signature on the ND did not render it void, as the signatory, State Auditor IV Gina Maria P. Molina, was duly designated as the Audit Team Leader with authority to issue the ND.
2. On the regularity of the expenditure: The Court ruled that the special service incentive award was an irregular expenditure. The grant, based solely on five years of continuous service, was effectively a loyalty award. Under CSC Memorandum Circular No. 01, s. 2001, loyalty awards are given in the form of a loyalty cash incentive, token, or plaque after every five years of service, with specific monetary caps (e.g., P1,000 for 5 years, not exceeding P5,000 for 40 years). The grant of P25,000 each far exceeded these limits and violated the prescribed guidelines. The Court further held that the inclusion of the award in the DBM-approved Corporate Operating Budget (COB) did not legitimize it, as budget confirmation does not constitute a blanket authority to disburse funds contrary to existing laws, rules, and regulations. The charging of the expense to “Other Maintenance and Operating Expenses” instead of “Other Personnel Benefits” did not cure its irregularity.
3. On the liability of the payees and certifying officers: The Court applied the principle of solutio indebiti under Article 2154 of the Civil Code, requiring the return of amounts received by mistake. All payees (the 30 employees who received the gift checks) are liable to return the disallowed amounts. Following the Court’s ruling in Madera v. Commission on Audit, the approving and certifying officers are also solidarily liable for the disallowance. However, citing Araullo v. Commission on Audit, the Court noted that recipients may be excused from refunding if they received the amounts in good faith. The Court found that the payees received the awards as additional compensation for their service, and there was no indication they were aware of its irregularity; thus, they are not required to refund, provided they can prove good faith. The approving and certifying officers, however, are presumed to have knowledge of the rules governing loyalty awards and are therefore liable to refund the disallowed amounts solidarily. The Court remanded the case to the COA to determine the good faith of the payees and to apply the appropriate rules on return.