The Supreme Court has ruled that internal auditors bear a significant responsibility in preventing the misuse of public funds. In this case, the Court emphasized that merely relying on subordinates’ post-audit reports, without conducting thorough personal verification, does not fulfill the required diligence expected of an internal auditor. This decision underscores the importance of proactive and independent oversight in safeguarding government assets and ensuring accountability in public service.

AFP-RSBS Land Deal Gone Wrong: Can an Internal Auditor Pass the Blame?

This case revolves around a controversial land purchase made by the Armed Forces of the Philippines Retirement and Separation Benefits System (AFP-RSBS) in Calamba, Laguna. The Commission on Audit (COA) found that the AFP-RSBS paid an inflated price for the land, resulting in a significant loss of public funds. Alma G. Paraiso-Aban, the Acting Head of the Office of Internal Auditor of the AFP-RSBS, was implicated in the disallowance due to her role in verifying the correctness of the payment. The central legal question is whether Paraiso-Aban exercised sufficient diligence in her duties to avoid liability for the disallowed amount.

The COA’s audit revealed a discrepancy between the deed of sale registered with the Register of Deeds (RD) and the deed of sale found in the AFP-RSBS records. The registered deed indicated a total price of P91,024,800.00, while the AFP-RSBS records showed an actual payment of P341,343,000.00, a difference of P250,318,200.00. This discrepancy led to the issuance of a Notice of Disallowance (ND) holding several individuals liable, including Paraiso-Aban. She argued that she had no prior knowledge of the discrepancy and that she relied on the completeness of the supporting documents and the post-audit conducted by her staff.

The Supreme Court, however, sided with the COA, emphasizing the constitutional mandate and broad authority of the COA as stated in Article IX-D, Section 2(1) of the 1987 Constitution, which states that the COA has:

“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.”

The Court underscored the importance of internal control within government agencies, referencing Presidential Decree (P.D.) No. 1445, Section 123, which defines internal control as:

“the plan of organization and all the coordinate methods and measures adopted within an organization or agency to safeguard its assets, check the accuracy and reliability of its accounting data, and encourage adherence to prescribed managerial policies.”</blockquote

The Court found that Paraiso-Aban’s actions fell short of the required standard of care. Her verification process relied solely on comparing the transaction against approved planned purchases and budgets, without seeking independent confirmation of the land’s value or scrutinizing the details of the sale. The Supreme Court emphasized that administrative agencies possess specialized knowledge in their respective domains, and their factual findings are generally accorded great respect by the courts. The Court noted that reliance solely on post-audit reports from subordinates, who are presumed to be less experienced and responsible, does not satisfy the diligence required of a head of internal audit.

The Court highlighted the crucial role of internal auditors in safeguarding government assets. Despite Paraiso-Aban’s claims of lacking prior knowledge, the Court emphasized that as head of internal audit, she should have been informed of significant transactions beforehand. Given the substantial amount involved, it was reasonable to expect her to verify the correctness of the amounts against documents submitted to the Bureau of Internal Revenue (BIR) and the RD. Had she done so, she would have likely discovered the discrepancies in the deeds of sale.

In its decision, the Court referred to Section 16 of the 2009 Rules and Regulations on Settlement of Accounts, as prescribed in COA Circular No. 2009-006, regarding liability for audit disallowances:

Section 16.1 The Liability of public officers and other persons for audit disallowances/charges shall be determined on the basis of (a) the nature of the disallowance/charge; (b) the duties and responsibilities or obligations of officers/employees concerned; (c) the extent of their participation in the disallowed/charged transaction; and (d) the amount of damage or loss to the government…

The court’s decision reinforces the principle that public officials, particularly those in positions of financial oversight, must exercise a high degree of diligence in their duties. Certifying the correctness of transactions based solely on internal documents, without conducting independent verification, is insufficient to protect public funds. In effect, the court stresses that the responsibility extends beyond mere compliance with internal procedures. It necessitates a proactive approach to detecting and preventing irregularities.

This ruling serves as a reminder that the COA’s mandate is to protect government resources, and the courts will generally uphold its decisions unless there is a clear showing of grave abuse of discretion. Moreover, it emphasizes the importance of a robust system of internal control within government agencies. This requires not only the establishment of appropriate procedures but also the active and diligent implementation of those procedures by responsible officials.

FAQs

What was the key issue in this case?	The key issue was whether the petitioner, as the Acting Head of the Office of Internal Auditor, exercised sufficient diligence in verifying the correctness of a land purchase transaction, thereby avoiding liability for the disallowed amount.
What was the discrepancy discovered by the COA?	The COA found that the AFP-RSBS paid P341,343,000.00 for the land, while the deed of sale registered with the Register of Deeds indicated a price of only P91,024,800.00, resulting in a difference of P250,318,200.00.
What was the petitioner’s defense?	The petitioner argued that she had no prior knowledge of the discrepancy, relied on the completeness of the supporting documents, and conducted a post-audit through her staff.
What did the Supreme Court rule?	The Supreme Court ruled against the petitioner, finding that she failed to exercise the required diligence in her duties as head of internal audit, and therefore, was liable for the disallowed amount.
What is the role of internal control in government agencies?	Internal control is a system of policies and procedures designed to safeguard assets, ensure the accuracy of accounting data, and promote adherence to managerial policies within an organization.
What is the significance of COA Circular No. 2009-006?	COA Circular No. 2009-006 provides the rules and regulations on the settlement of accounts and outlines the basis for determining the liability of public officers and other persons for audit disallowances.
What does the Court say about public officials’ responsibility?	The Court emphasized that public officials in positions of financial oversight must exercise a high degree of diligence in their duties to protect public funds.
What did the Court mean by performing “appropriate additional internal audit procedures”?	The court held that comparing the purchase against approved budgets without verifying the “true amounts involved” made her “lend approval to the anomalous purchase”. Additional procedures would have been to check the actual prices of the land with the Bureau of Internal Revenue (BIR) and the Registry of Deeds (RD).
What is the implication of this case for other internal auditors?	This case serves as a reminder to internal auditors that they cannot simply rely on the work of their subordinates. They are expected to conduct independent verification and exercise a high degree of professional skepticism.

In conclusion, the Supreme Court’s decision in Paraiso-Aban v. COA underscores the critical role of internal auditors in safeguarding public funds and ensuring accountability in government transactions. This ruling serves as a potent reminder for internal auditors to exercise diligence, conduct independent verification, and proactively detect and prevent irregularities in financial transactions. This vigilance is crucial for maintaining public trust and preventing the misuse 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: Alma G. Paraiso-Aban v. Commission on Audit, G.R. No. 217948, January 12, 2016