SUBJECT: The Rule on ‘The Commission on Audit’ (COA) and the Power to Examine Accounts

I. Introduction

This memorandum provides an exhaustive analysis of the constitutional and statutory framework governing the Commission on Audit (COA), with a specific focus on its core power to examine, audit, and settle all accounts pertaining to government revenue, expenditure, and the utilization of public funds and properties. The power to examine accounts is the foundational authority from which all other audit functions derive. This memo will delineate the scope, nature, limitations, and legal effects of this power, situating it within the broader context of Philippine political law and the state’s fiscal administration.

II. Constitutional Foundation

The Commission on Audit is an independent constitutional body established under Article IX-D of the 1987 Constitution . Its existence and powers are not merely statutory but are enshrined in the fundamental law to insulate it from political pressure and ensure the integrity of the state’s financial operations. Section 2(1) of Article IX-D is the primary source of its power to examine accounts: “The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters.” This constitutional grant is self-executing and provides the broadest possible scope of audit jurisdiction.

III. Statutory Elaboration: The Auditing Code of the Philippines (P.D. No. 1445)

Presidential Decree No. 1445, known as The Government Auditing Code of the Philippines, operationalizes the constitutional mandate. It provides the detailed mechanics for the exercise of COA’s power to examine accounts. Key provisions include:
Section 26*: Establishes the general rule that all government resources must be managed with the utmost degree of honesty, economy, and efficiency.
Section 38: Empowers COA to define the scope of its audit and examination, to establish techniques and methods required therefor, and to promulgate accounting and auditing rules and regulations*.
Section 39*: Authorizes COA to disallow irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties.
Section 48: Provides for the settlement of accounts*, which is the process of determining the balance of an account, whether it is a balance due to or from the government.
Section 52: Grants COA the authority to issue subpoenas* and compel the attendance of witnesses and the production of documents in connection with its audit examinations.

IV. Scope and Coverage of the Power to Examine Accounts

The constitutional phrase “examine, audit, and settle all accounts” encompasses a tripartite function with expansive coverage.
Examine*: The preliminary scrutiny and inspection of financial transactions, records, and supporting documents to verify their accuracy, completeness, and compliance with law.
Audit: The systematic and independent appraisal of financial, operational, and performance activities, which includes compliance auditing (adherence to laws), financial auditing (fairness of financial statements), and performance auditing* (economy, efficiency, and effectiveness).
Settle*: The final and authoritative determination of the pecuniary liability of any person found to have received public funds or property for which they are answerable, or the amount due to any officer or accountable officer.
The coverage is all-encompassing, extending to every agency of the national government, local government units, government-owned or controlled corporations (GOCCs) with original charters, and even non-governmental entities receiving subsidies, equity, or grants from the government. The phrase “owned or held in trust by, or pertaining to” ensures that even indirect uses of public assets fall under COA’s audit jurisdiction.

V. Nature of COA’s Power: Quasi-Judicial and Discretionary

The power to examine and settle accounts is quasi-judicial in nature. In the exercise of this power, COA does not merely perform a ministerial or clerical function. It investigates facts, applies laws and regulations, and renders decisions (in the form of audit observations, notices of disallowance, or notices of charge) that adjudicate the rights and liabilities of accountable officers. These decisions are binding and have legal consequences, such as the obligation to refund disallowed amounts. The Supreme Court has consistently held that COA’s exercise of its constitutional mandate is entitled to great respect and, absent grave abuse of discretion, its findings are conclusive. Furthermore, COA possesses a degree of administrative discretion in determining the manner, timing, and focus of its audit examinations, guided by its professional standards and risk assessments.

VI. The Audit Process and Key Outputs

The exercise of the power to examine accounts materializes through a formal process:

Preliminary Examination: Review of financial statements and transactions.

Field Audit or Desk Review: Detailed testing and verification.

Exit Conference: Discussion of initial findings with the audited agency.

Audit Observation Memorandum (AOM): Formal communication of findings requiring explanation or action.

Notice of Disallowance (ND) / Notice of Suspension (NS) / Notice of Charge (NC): The formal decision disallowing an irregular transaction, suspending action on a questionable item, or charging a person accountable for a loss.

Appeal: The aggrieved party may file a motion for reconsideration with the COA Auditor, then a petition for review with the COA Commission Proper (the Commission Proper).

Finality of Decision: Decisions of the Commission Proper become final and executory upon the lapse of the period to appeal or seek judicial review.

VII. Comparative Analysis: COA’s Power vs. Other Fiscal Oversight Bodies

The following table compares COA’s constitutional power to examine accounts with the fiscal oversight functions of other key government bodies.

Feature	Commission on Audit (COA)	Congress (via the Commission on Appointments & Power of the Purse)	Office of the Ombudsman
Primary Legal Basis	Article IX-D, 1987 Constitution ; P.D. 1445	Article VI, 1987 Constitution	Article XI, 1987 Constitution ; R.A. 6770
Core Function	Examination, audit, and settlement of all government accounts; post-audit.	Authorization of revenue generation and appropriation of public funds (pre-audit in a policy sense); confirmation of key appointments.	Investigation and prosecution of graft and corrupt practices; overall public accountability.
Nature of Power	Quasi-judicial, independent, and centralizes all government auditing functions.	Legislative, political, and policy-oriented.	Investigatory, prosecutorial, and quasi-judicial (in administrative cases).
Temporal Focus	Post-Transaction: Examines financial transactions after they have occurred.	Pre-Transaction: Sets the legal framework and budget before funds are spent.	Post-Transaction: Investigates illegal acts arising from transactions, often after an audit finding.
Key Output	Audit Reports, Notices of Disallowance, Notices of Charge, Certificates of Settlement and Balances.	General Appropriations Acts, Tax Laws, confirmation or rejection of appointees.	Administrative and Criminal Cases for violation of anti-graft laws; recommendations for disciplinary action.
Objective	Ensure that government funds and properties are managed with regularity, honesty, economy, efficiency, and effectiveness.	Ensure democratic control over fiscal policy and the executive branch.	Punish and deter corrupt acts, promote ethical conduct in public service.

VIII. Limitations and Jurisdictional Boundaries

While plenary, COA’s power to examine accounts is not absolute. Key limitations include:
Judicial Review: Final decisions of the COA Commission Proper are subject to review by the Supreme Court via a petition for certiorari under Rule 64 of the Rules of Court, but only upon a showing of grave abuse of discretion* amounting to lack or excess of jurisdiction.
Non-Interference with Executive Prerogative: COA cannot substitute its judgment on policy matters that are within the wisdom or discretion* of the executive or legislative branches. Its role is to audit based on established laws, not to dictate policy.
Prescription: Claims against accountable officers may be subject to prescription under relevant laws, such as the Civil Code*.
Constitutional Immunities: Certain funds, like those for the Judiciary Development Fund and Congressional Priority Development Assistance Fund* (though now abolished), have been subject to jurisdictional disputes, with the Supreme Court ultimately affirming COA’s jurisdiction but sometimes defining its scope.

IX. Legal Effects of COA’s Exercise of Power

The finality of COA’s decisions on the examination and settlement of accounts produces significant legal effects:
Liability of Accountable Officers: Persons named in a final Notice of Disallowance are solidarily liable to return the disallowed amount to the government, as established in the landmark case of Madera v. Commission on Audit*.
Good Faith as a Defense: While liability is solidary, the Supreme Court, in Araullo v. Aquino III and subsequent cases, has ruled that approving and certifying officers who acted in good faith* and with due diligence may be excused from personal liability. The burden of proving good faith rests upon the officer.
Enforceability: A final and executory COA decision is enforceable like a court judgment. COA can issue a writ of execution* to collect amounts due to the government.
Administrative Consequences: Audit findings may lead to the filing of administrative charges for grave misconduct, neglect of duty*, or other offenses under civil service laws.

X. Conclusion

The power of the Commission on Audit to examine, audit, and settle all government accounts is a cornerstone of the Philippine system of public accountability and fiscal transparency. Rooted directly in the Constitution and elaborated by statute, this power is plenary, quasi-judicial, and designed to be exercised independently. While its scope is exceptionally broad, covering virtually all entities that handle public resources, its exercise is tempered by legal principles such as the requirement for due process, the possibility of judicial review, and the recognition of good faith. The outputs of this power—disallowances, charges, and settlements—create concrete legal obligations for public officers, making COA a potent mechanism for ensuring that government operations adhere to the principles of regularity, economy, and efficiency mandated by law. Its function is distinct from, yet complementary to, the oversight roles of Congress and the Ombudsman, collectively forming an integral framework for checking the use of public power and resources.