In a ruling that clarifies the requirements for expense reimbursement in government-owned and controlled corporations (GOCCs), the Supreme Court upheld the Commission on Audit’s (CoA) disallowance of extraordinary and miscellaneous expense (EME) claims that were supported only by certifications, not receipts. The Court emphasized that CoA Circular No. 2006-01 requires receipts or other documents that evidence actual disbursements, and a mere certification of expenses incurred is insufficient. This decision reinforces the CoA’s authority to set strict auditing rules for GOCCs to prevent misuse of public funds.

When Internal Controls Meet External Audits: Who Pays for ‘Extraordinary’ Expenses?

The case of Espinas v. Commission on Audit arose from a disallowance of EME reimbursements claimed by several department managers of the Local Water Utilities Administration (LWUA). These officials sought reimbursement for expenses incurred between January and December 2006, supporting their claims with certifications attesting to the expenses. The CoA, however, disallowed these claims, citing CoA Circular No. 2006-01, which mandates that reimbursement claims be supported by receipts or other documents evidencing disbursements. The central legal question was whether these certifications sufficed as adequate documentation for EME reimbursement claims in GOCCs.

The petitioners argued that their certifications should have been accepted, referencing Section 397 of the Government Accounting and Auditing Manual, Volume I (GAAM – Vol. I), which reproduced Item III(4) of CoA Circular No. 89-300. These provisions allow for certifications in lieu of receipts for NGAs. They also contended that CoA Circular No. 2006-01 violated the equal protection clause because it treated GOCC officials differently from NGA officials. Furthermore, they initially claimed that the circular was unenforceable due to lack of proper publication. This multi-pronged challenge sought to overturn the CoA’s strict interpretation of what constitutes sufficient documentation for expense reimbursements.

The CoA countered by emphasizing its constitutional mandate to prevent irregular, unnecessary, excessive, extravagant, or unconscionable expenditures of government funds. The Commission argued that CoA Circular No. 2006-01 specifically applies to GOCCs, GFIs, and their subsidiaries, and its stricter documentation requirements are justified by the fact that these entities have greater autonomy in allocating funds for EME through their respective governing boards. The exclusion of certifications as sufficient supporting documents was a deliberate control measure. This distinction between NGAs and GOCCs forms a crucial part of the legal reasoning, underpinning the differing treatment.

The Supreme Court sided with the CoA, underscoring the Commission’s exclusive authority to promulgate accounting and auditing rules and regulations. The Court deferred to the CoA’s interpretation of its own rules, recognizing the agency’s expertise in safeguarding public funds. It cited Delos Santos v. CoA, which established a general policy of sustaining CoA decisions unless there is evidence of grave abuse of discretion. This deference reflects the judiciary’s acknowledgment of the CoA’s specialized role in ensuring fiscal responsibility.

The Court clarified that the “other documents” required under CoA Circular No. 2006-01 must also evidence actual disbursements, akin to receipts. A mere certification, stating that expenses were incurred, does not meet this requirement. The Court noted that the certifications submitted by the LWUA officials lacked specifics about the actual payment or disbursement of funds. This point highlights the distinction between a simple assertion of expense and concrete evidence of payment.

Moreover, the Court affirmed the CoA’s stance that Section 397 of GAAM – Vol. I and CoA Circular No. 89-300 do not apply to GOCCs, GFIs, and their subsidiaries. These rules explicitly cover only NGAs. Thus, the petitioners could not rely on these provisions to justify the use of certifications in lieu of receipts. The decision reinforced the specific applicability of CoA Circular No. 2006-01 to GOCCs and GFIs.

Addressing the equal protection argument, the Court found a substantial distinction between officials of NGAs and those of GOCCs and GFIs. GOCCs and GFIs have the power to allocate EME through their own governing boards, whereas NGAs depend on appropriations in the General Appropriations Act (GAA) enacted by Congress. The Court reasoned that this distinction justifies stricter control measures for GOCCs and GFIs. This rational basis for the differential treatment negates the claim of an equal protection violation.

The Court emphasized that CoA Circular No. 2006-01 aims to regulate expenditures by GOCCs and GFIs, ensuring that they are not irregular, unnecessary, excessive, extravagant, or unconscionable. This goal is consistent with the CoA’s constitutional mandate. The ruling underscores the judiciary’s support for the CoA’s efforts to enforce fiscal discipline in GOCCs and GFIs.

By upholding the disallowance, the Supreme Court sent a clear message: GOCC officials must provide concrete evidence of disbursements, such as receipts, when claiming EME reimbursements. Certifications alone are insufficient. This ruling reinforces the CoA’s authority to set and enforce strict auditing rules for GOCCs and GFIs, promoting greater accountability and transparency in the use of public funds.

FAQs

What was the key issue in this case?	The key issue was whether certifications, without receipts, were sufficient to support claims for reimbursement of extraordinary and miscellaneous expenses (EME) in a government-owned and controlled corporation. The Supreme Court ruled they were not, upholding the CoA’s disallowance based on a circular requiring receipts or equivalent documentation.
What is CoA Circular No. 2006-01?	CoA Circular No. 2006-01 provides guidelines on the disbursement of extraordinary and miscellaneous expenses and other similar expenses in government-owned and controlled corporations (GOCCs), government financial institutions (GFIs), and their subsidiaries. It requires that reimbursement claims be supported by receipts or other documents evidencing actual disbursements.
Why couldn’t the petitioners rely on certifications?	The petitioners could not rely on certifications because CoA Circular No. 2006-01, which governs GOCCs, GFIs, and their subsidiaries, mandates receipts or other documents evidencing disbursements. Unlike rules applicable to National Government Agencies (NGAs), certifications are not considered sufficient documentation for GOCCs and GFIs.
Did the Court find an equal protection violation?	No, the Court did not find an equal protection violation. It held that there is a substantial distinction between officials of NGAs and those of GOCCs and GFIs, justifying different regulatory treatment regarding expense reimbursement.
What constitutes “other documents evidencing disbursements”?	The Court clarified that “other documents evidencing disbursements” must be similar to receipts, providing proof of an actual payment or disbursement of funds. A mere certification stating that expenses were incurred does not meet this requirement.
What was the basis for the Court’s decision?	The Court based its decision on the CoA’s exclusive authority to promulgate accounting and auditing rules and regulations, as well as the need to prevent irregular, unnecessary, excessive, extravagant, or unconscionable expenditures of government funds. It also noted the greater autonomy GOCCs and GFIs have in allocating funds.
Who is responsible for returning the disallowed amounts?	The persons held liable in Notice of Disallowance No. 09-001-GF(06) are responsible for returning the disallowed amount of P13,110,998.26. These are the individuals who claimed and received the reimbursements based on certifications alone.
What is the practical implication of this ruling for GOCCs and GFIs?	The practical implication is that GOCCs and GFIs must ensure that all expense reimbursements are supported by receipts or other verifiable documents evidencing actual payments. Certifications alone are not sufficient and could lead to disallowances by the CoA.

The Espinas case serves as a critical reminder of the stringent requirements for expense reimbursements in GOCCs and GFIs. By prioritizing documentation over mere certification, the Supreme Court reinforced the CoA’s role in safeguarding public funds and promoting fiscal responsibility. This decision should prompt GOCCs and GFIs to review their internal policies and ensure compliance with CoA regulations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Espinas vs. Commission on Audit, G.R. No. 198271, April 01, 2014