G.R. No. 211553, September 13, 2016
LEANDRO B. VERCELES, JR., PETITIONER, VS. COMMISSION ON AUDIT, RESPONDENT.

FACTS

The Provincial Government of Catanduanes, represented by then-Governor Leandro B. Verceles, Jr., entered into five Memoranda of Agreement (MOAs) with the Provincial Environment and Natural Resources Office for a tree seedlings production project. The Sangguniang Panlalawigan (SP) initially granted the Governor blanket authority to enter into contracts and realign budget items. However, the SP later issued Resolution No. 104-A-2001, which revoked this blanket authority. The first and third MOAs were purportedly funded by direct allocations from the Economic Development Fund (EDF) in the 2001 and 2002 budgets. The second, fourth, and fifth MOAs were funded by augmentations or realignments from other EDF savings. The COA Audit Team issued an Audit Observation Memorandum, leading to the issuance of Notices of Disallowance totaling P7,528,175.46, on the grounds that the contracts lacked the required prior SP authorization and that the augmentations were invalid.
Verceles appealed, arguing that the first and third MOAs, being funded by pre-existing EDF appropriations, did not require separate SP authority under an exception in the Local Government Code (LGC). He contended that the subsequent augmentations to fund the other MOAs were valid exercises of his authority. He also claimed his veto of the revoking SP resolution was effective and that the initial grant of authority via SP resolutions was permanent and applied to him. The COA Proper denied his appeal, ruling that all disbursements violated statutory requirements for prior appropriation and specific authority, and that the initial resolutions authorized his predecessor, not him. Verceles filed this petition for certiorari.

ISSUE

Whether the Commission on Audit committed grave abuse of discretion in affirming the disallowance of the payments for the MOAs.

RULING

The Supreme Court DISMISSED the petition and AFFIRMED the COA decision. The Court found no grave abuse of discretion as the disallowance had a clear legal basis. The legal logic centered on the fundamental principle that no money shall be paid from any public treasury without a corresponding appropriation as provided by law. For local government units, this is governed by the LGC and the Government Auditing Code. The Court held that the general rule under Section 22(c) of the LGC requires prior sanggunian authorization for contracts involving expenditure of local funds. Verceles’s reliance on an exception under Section 465(b)(1)(vi), which allows the governor to enter into contracts “pursuant to an ordinance,” was misplaced. The Court ruled that “pursuant to an ordinance” means pursuant to a specific, pre-existing appropriation ordinance that clearly appropriates funds for the specific contract. The mere inclusion of a lump-sum EDF allocation in the annual budget did not constitute such a specific appropriation for these MOAs. Furthermore, the power to augment under Section 336 of the LGC is not absolute; it requires the existence of a deficient line-item in the budget. The transfers here were from one lump-sum fund to another to create new projects, which constitutes illegal transfer of appropriations, not valid augmentation. The Court also upheld the COA’s finding that the initial blanket authority resolutions were not permanent ordinances and did not extend to Verceles. His alleged veto of the revoking resolution was ineffective as the Local Government Code prescribes a veto process for ordinances, not resolutions. Consequently, all payments lacked the requisite prior appropriation and authority, making the disallowance proper.