The Supreme Court held that public officials can be held solidarily liable for the irregular disbursement of public funds if their negligence contributed to the unlawful expenditure. This decision underscores the responsibility of government officers to diligently monitor the use of public funds and ensure compliance with auditing rules and regulations. It serves as a reminder that good faith is not a sufficient defense when there is a clear violation of established procedures, and that public accountability demands a high standard of care in handling taxpayer money.

When “Ministerial Duty” Masks Malfeasance: The Price of Blind Faith in Public Spending

This case revolves around the Commission on Audit’s (CoA) decision to hold Filomena G. Delos Santos, Josefa A. Bacaltos, Nelanie A. Antoni, and Maureen A. Bien (petitioners) solidarily liable for the disallowed amount of P3,386,697.10. The disallowance stemmed from irregularities in the disbursement of funds from the Priority Development Assistance Fund (PDAF) of then Congressman Antonio V. Cuenco, which were intended for medical assistance to indigent patients under the Tony N’ Tommy (TNT) Health Program. The heart of the legal question is whether these officials, working at the Vicente Sotto Memorial Medical Center (VSMMC), acted with such negligence that they should be held personally responsible for the misuse of public funds, even if they claimed to be acting in good faith.

The facts reveal that Congressman Cuenco entered into a Memorandum of Agreement (MOA) with VSMMC, allocating P1,500,000.00 from his PDAF for the TNT Program. The hospital agreed to cooperate, coordinate, and monitor the program’s implementation. However, allegations of forgery and falsification of prescriptions and referrals surfaced. An audit revealed several irregularities, including fictitious patients, falsified prescriptions, and non-compliance with procurement rules. The Special Audit Team (SAT) discovered that 133 prescriptions for anti-rabies vaccines, allegedly dispensed by Dell Pharmacy, were falsified and paid by VSMMC from Cuenco’s PDAF. Forty-six prescriptions for other drugs were also falsified.

The CoA found that VSMMC officials failed to adhere to National Budget Circular No. 476 and other auditing laws. The TNT Program was managed by Cuenco’s office rather than the Department of Health, and medicines were purchased without public bidding. Several provisions of the MOA were also ignored, such as the limit of P5,000.00 per patient and the prohibition against repeated availment of benefits. The Supreme Court emphasized that the CoA has the authority to determine and disallow irregular expenditures. It is tasked with safeguarding the proper use of government funds, and its decisions are generally upheld unless there is grave abuse of discretion.

The petitioners argued that VSMMC was merely a passive entity in the disbursement process and invoked good faith. However, the Court was not persuaded. While there is a presumption of regularity in the performance of official duties, that presumption fails when explicit rules are violated. Citing jurisprudence, the Court noted that good faith is not a sufficient defense when actions violate established rules. For example, in Reyna v. CoA, the Court held officers liable despite claims of good faith because their actions violated the Landbank’s lending manual. Similarly, in Casal v. CoA, officers were held liable for approving incentive awards that violated presidential directives, even if there was no dishonest purpose.

In this case, the petitioners failed to justify their non-observance of auditing rules and regulations and their duties under the MOA. Their neglect in monitoring the disbursement of Cuenco’s PDAF facilitated the validation of falsified prescriptions and fictitious claims. Had there been an internal control system in place, the irregularities could have been detected and prevented. The Court highlighted the failure of the petitioners to monitor the TNT Office’s procedures, even when they were aware of irregularities. Delos Santos, as the Medical Center Chief, admitted to knowing about pre-signed and forged prescriptions but failed to take adequate corrective measures. The Court emphasized that public officers are liable for losses resulting from negligence in keeping funds, according to Section 105 of the Auditing Code.

Moreover, Sections 123 and 124 of the Auditing Code mandates the implementation of a “sound system of internal control” to safeguard assets and ensure accurate accounting data. The ruling underscores that public officials have a duty to ensure that public funds are managed with utmost diligence and in accordance with established laws and regulations. The degree of neglect in handling Cuenco’s PDAF could not pass unsanctioned without compromising the standard of public accountability.

FAQs

What was the key issue in this case?	The key issue was whether the CoA committed grave abuse of discretion in holding the VSMMC officials solidarily liable for the disallowed amount due to irregularities in the disbursement of PDAF funds.
What is the PDAF?	PDAF stands for Priority Development Assistance Fund. It is a lump-sum discretionary fund formerly allocated to members of the Philippine Congress for various projects and programs.
What was the TNT Health Program?	The Tony N’ Tommy (TNT) Health Program was a medical assistance program funded by Congressman Cuenco’s PDAF and implemented in coordination with the Vicente Sotto Memorial Medical Center (VSMMC) to provide medical aid to indigent patients.
What were the main irregularities discovered?	The irregularities included falsified prescriptions, fictitious patients, non-compliance with procurement rules, and failure to adhere to the terms of the Memorandum of Agreement between Congressman Cuenco and VSMMC.
What is solidary liability?	Solidary liability means that each of the individuals found liable is responsible for the entire amount of the disallowed funds. The CoA can pursue any or all of them for the full amount until it is recovered.
Why did the CoA hold the VSMMC officials liable?	The CoA held the VSMMC officials liable because they failed to exercise due diligence in monitoring the disbursement of funds, which led to the validation and payment of falsified claims. They did not implement sufficient internal controls to prevent the irregularities.
What defense did the VSMMC officials raise?	The VSMMC officials claimed they acted in good faith and that the hospital was merely a passive entity in the disbursement process. They argued that they were not directly involved in the fraudulent activities.
Why was the defense of good faith rejected?	The Court rejected the defense of good faith because there was a violation of explicit auditing rules and regulations. The officials’ negligence in failing to monitor the disbursement of funds and implement internal controls made them liable, regardless of their intentions.
What is the significance of National Budget Circular No. 476?	National Budget Circular No. 476 prescribes the guidelines on the release of funds for a congressman’s PDAF. The Court noted that the TNT Program did not follow the provisions of the National Budget Circular.
What are the key provisions of the Auditing Code relevant to this case?	Sections 104 and 105 of the Auditing Code establish the liability of accountable officers for losses resulting from negligence in the keeping of government funds. Sections 123 and 124 mandates the installation, implementation, and monitoring of a sound system of internal control.

The Supreme Court’s decision in this case serves as a stern reminder to public officials about their responsibilities in safeguarding public funds. It reinforces the principle that ignorance or good intentions do not excuse negligence, and that those who fail to exercise due diligence in handling public money will be held accountable for the resulting losses. This ruling underscores the importance of establishing and maintaining robust internal control systems to prevent fraud and ensure the proper use of government resources.

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: Delos Santos vs. Commission on Audit, G.R. No. 198457, August 13, 2013