G.R. No. 242644. October 18, 2022.
ENGINEER ALEX C. PAGUIO, ET AL., PETITIONERS, VS. COMMISSION ON AUDIT, ET AL., RESPONDENTS.

FACTS

The petitioners are officials of the Pagsanjan Water District (PWD), a government-owned and controlled corporation. The Board of Directors issued resolutions authorizing the payment of Extraordinary and Miscellaneous Expenses (EME) to its General Manager, Alex C. Paguio, initially at P13,000 and later increased to P18,000 per month, which he received from 2009 to 2010. An audit was subsequently conducted for these years.
The audit team issued a Notice of Disallowance (ND) for the total amount of P432,000, citing three primary violations. First, the grant contravened the General Appropriations Acts (GAAs) of 2009 and 2010, which set a threshold salary grade of at least 26 for entitlement to EME, while Paguio’s position was only at salary grade 24. Second, the payments were made on a commutable or fixed monthly allowance basis instead of the required reimbursable basis for actual expenses incurred. Third, the Board failed to secure prior approval from the President, through the Department of Budget and Management, for the grant of such allowances as mandated by Presidential Decree No. 1597.

ISSUE

Whether the Commission on Audit correctly disallowed the payment of Extraordinary and Miscellaneous Expenses to the General Manager of Pagsanjan Water District.

RULING

Yes, the Commission on Audit correctly affirmed the disallowance. The Supreme Court upheld the ND based on a clear violation of existing laws and auditing rules. The legal logic proceeds from three established principles. First, the entitlement to EME is strictly governed by the annual General Appropriations Act. The GAAs for 2009 and 2010 explicitly limited such entitlement to officials holding positions with a salary grade of at least 26. Since the General Manager of PWD only held a position with salary grade 24, the grant lacked statutory basis.
Second, while the Board of Directors of a GOCC has the power to fix compensation, this power is not absolute. Section 6 of P.D. No. 1597 requires that such boards must report and seek approval from the President, through the DBM, for “levels of allowances” and other forms of compensation. The PWD Board’s failure to secure this prior approval rendered the grant of EME legally infirm. The Court rejected the argument that COA Circular No. 2006-01 validated the grant, clarifying that the circular merely provided audit guidelines and did not confer any authority to create benefits absent a legal basis.
Third, the manner of payment violated fundamental auditing principles. COA Circular No. 2006-01 and the GAAs require that EME be claimed strictly on a reimbursable basis for actual, necessary, and lawful expenses incurred, supported by receipts. The payment of a fixed, commutable monthly allowance without any requirement for liquidation or proof of actual expenditure is a direct contravention of this rule, constituting an irregular disbursement of public funds. Consequently, all approving and certifying officers were held solidarily liable for the refund, with the good faith of the passive recipient, the General Manager, recognized only for the purpose of excusing him from refunding the amounts he personally received.