G.R. No. 167219 ; February 8, 2011
RUBEN REYNA and LLOYD SORIA, Petitioners, vs. COMMISSION ON AUDIT, Respondent.

FACTS

The Land Bank of the Philippines (Land Bank) Ipil, Zamboanga del Sur Branch approved loans for a cattle-financing program to four cooperatives. The approved Credit Facility Proposals (CFPs) required a Memorandum of Agreement (MOA) with the supplier, Remad Livestock Corporation (REMAD), prior to loan release. In December 1993, the Ipil Branch released six loans totaling ₱3,375,775 to the cooperatives. From these proceeds, ₱3,115,000 was advanced to REMAD as payment for the cattle. REMAD failed to deliver the cattle. In post-audit, the COA Auditor disallowed the ₱3,115,000 advance payment for being irregular and in violation of Section 88 of P.D. No. 1445 (the Government Auditing Code) and Land Bank’s own manual, which prohibit advance payment for undelivered supplies. The disallowance made petitioners Ruben Reyna (Senior Field Operations Specialist) and Lloyd Soria (Loans and Credit Analyst II), along with other bank employees, liable. Petitioners’ appeal to the COA Regional Office was denied. They did not file a further Petition for Review with the COA Commission Proper, making the Regional Office’s decision final. Petitioners later sought to set aside the disallowance, citing a subsequent Ombudsman resolution that dismissed a related graft complaint against them for lack of evidence and an approval by the Bangko Sentral ng Pilipinas to write off the loans. The COA Commission Proper, in the assailed Resolution No. 2004-046, sustained the disallowance, ruling that the Ombudsman’s dismissal did not bind the COA and that the advance payment was clearly violative of auditing rules.

ISSUE

Whether the Commission on Audit committed grave abuse of discretion in affirming the disallowance of the ₱3,115,000 advance payment to REMAD and in holding petitioners solidarily liable therefor.

RULING

The Supreme Court DISMISSED the petition and AFFIRMED the Commission on Audit’s resolution. The Court held that the COA did not commit grave abuse of discretion.
1. On the Propriety of the Disallowance: The advance payment of ₱3,115,000 to REMAD prior to the delivery of the cattle was a clear violation of Section 88 of P.D. No. 1445, which expressly prohibits advance payment for supplies not yet delivered, and of Land Bank’s own Manual on FOG Lending Operations. The law allows such payment only with prior approval of the President, which was not obtained. The terms of the “Cattle-Breeding and Buy-Back Marketing Agreement” between the cooperatives and REMAD also did not contain any provision authorizing prepayment. Therefore, the disallowance was proper and in accordance with law.
2. On the Effect of the Ombudsman Resolution: The Ombudsman’s dismissal of the criminal complaint against petitioners for lack of evidence does not bar the COA from exercising its constitutional power to disallow irregular expenditures. The two offices have distinct mandates: the Ombudsman investigates criminal liability, while the COA audits the legality of transactions and safeguards public funds. An absence of criminal liability does not preclude a finding of civil liability for an irregular disbursement of government funds.
3. On the Finality of the COA Regional Office Decision: Petitioners failed to appeal the COA Regional Office’s decision to the Commission Proper within the reglementary period. Consequently, that decision became final and executory pursuant to Section 51 of the Government Auditing Code. The COA Commission Proper correctly refused to disturb this final decision.
4. On Petitioners’ Liability: Petitioners, as bank officers who processed and facilitated the irregular advance payment, were correctly held solidarily liable for the disallowed amount. Their defense of having acted in good faith was unavailing, as the violation of a clear statutory prohibition (P.D. No. 1445, Sec. 88) constitutes gross negligence. Public officials are presumed to know the laws they are duty-bound to implement.