G.R. No. 245400 , November 12, 2019
Janice Day E. Alejandrino and Miriam M. Pasetes, Petitioners, vs. Commission on Audit, Leila S. Paras, in her capacity as COA Director CGS-4; Cecilia N. Chan, in her capacity as COA Audit Team Leader; and Manuela E. Dela Paz, in her capacity as COA Supervising Auditor, Respondents.

FACTS

Petitioners Janice Day E. Alejandrino and Miriam M. Pasetes were former executive officers of the Philippine National Construction Corporation (PNCC). In 2011, PNCC engaged the legal services of four private lawyers and paid them salaries. The Commission on Audit (COA) Audit Team issued Notice of Disallowance No. 12-004-(2011) dated August 9, 2012, disallowing the amount of P911,580.96 representing these salaries. The disallowance was based on the hiring being without the written conformity and acquiescence of the Office of the Government Corporate Counsel (OGCC) and the written concurrence of the COA, in violation of COA Circular No. 95-011 and Office of the President Memorandum Circular No. 9. The corporate officers of PNCC, including petitioners, and the four lawyer-payees were held liable to settle the disallowed amount. Petitioners appealed, arguing that PNCC is not a government-owned and controlled corporation (GOCC) but a government-acquired asset corporation, and thus not under COA’s full audit jurisdiction. The COA-CGS Cluster 4 denied the appeal, ruling PNCC is a GOCC subject to COA audit. The COA Commission Proper, in its Decision dated December 13, 2017, affirmed the disallowance but relieved the payee-lawyers from refunding the amounts received, holding the officers personally liable. Petitioners’ motion for partial reconsideration was denied.

ISSUE

1. Whether PNCC is a GOCC under the audit jurisdiction of COA.
2. Whether the COA committed grave abuse of discretion in disallowing the payment of salaries to the lawyers engaged by PNCC.
3. Whether petitioners are liable for the disallowed amount.
4. Whether the salaries of the lawyers are an irregular expense.

RULING

1. Yes, PNCC is a GOCC under COA’s audit jurisdiction. The Supreme Court held that PNCC, originally a private corporation (Construction and Development Corporation of the Philippines), became a GOCC when, pursuant to Letter of Instruction No. 1295, its unpaid obligations to Government Financial Institutions were converted into equity, making the government the majority stockholder. The Administrative Code of 1987 defines a GOCC as a stock or non-stock corporation owned or controlled by the government. As the government owns the majority of PNCC’s capital stock and controls its board, PNCC is a GOCC without an original charter, falling under COA’s audit jurisdiction pursuant to the Constitution and COA’s broad audit power over government agencies and instrumentalities, including GOCCs.
2. No, the COA did not commit grave abuse of discretion in disallowing the payments. The hiring of private lawyers and payment of their salaries without the written conformity of the OGCC and concurrence of the COA violated COA Circular No. 95-011 and OP-MC No. 9, which prohibit such hiring to prevent duplication of functions and unnecessary expenditure. The disallowance was proper as the transaction was irregular.
3. Petitioners are not personally liable to refund the disallowed amount. The Court modified the COA ruling. While the disbursement was disallowed for non-compliance with rules, petitioners, as corporate officers who approved the payments, acted in good faith. They relied on the presumption of regularity in the performance of their duties and the official acts of the PNCC Board of Directors in hiring the lawyers. Their functions in the approval process were ministerial, following the direction set by the Board. There was no showing of bad faith, malice, or gross negligence on their part. The principle of quantum meruit, however, was not applied as the disallowance was based on the irregularity of the hiring process, not the lack of service rendered.
4. The salaries were an irregular expense. The payment was irregular because it was made pursuant to a transaction that did not comply with the required conditions (OGCC conformity and COA concurrence) under applicable circulars.
DISPOSITIVE PORTION:
The petition for certiorari was PARTIALLY GRANTED. The COA Decision dated December 13, 2017 and Resolution dated September 27, 2018 were AFFIRMED with MODIFICATION in that petitioners Janice Day E. Alejandrino and Miriam M. Pasetes are held not personally liable to refund the disallowed amount.