The Importance of Adhering to Procedural Timelines in Government Audits

Cresencio D. Arcena, in his capacity as the President of Berlyn Construction and Development Corporation v. Commission on Audit, G.R. No. 227227, February 09, 2021

Imagine a construction company, eagerly awaiting payment for a completed project, only to find out that a notice of disallowance has been issued against them. The clock starts ticking, and the company must navigate the complex world of government audits and appeals. This scenario is not uncommon, and the Supreme Court’s decision in the case of Cresencio D. Arcena versus the Commission on Audit (COA) sheds light on the critical importance of adhering to procedural timelines in government audits. At the heart of this case is the question of whether an appeal filed out of time can be considered by the COA, and the Court’s ruling provides valuable insights for businesses dealing with similar issues.

Legal Context: The Role of the Commission on Audit and the Rules of Procedure

The Commission on Audit (COA) is the constitutional body tasked with examining, auditing, and settling all accounts pertaining to the revenue and expenditures of the Philippine government. Under the Government Auditing Code of the Philippines (Presidential Decree No. 1445), the COA has the authority to issue notices of disallowance when it finds irregularities in government transactions.

Appeals from COA decisions are governed by the 2009 Revised Rules of Procedure of the COA. These rules specify strict timelines for filing appeals, emphasizing the importance of timeliness in the audit process. For instance, Section 4 of Rule V states that an appeal must be filed within six months after receipt of the decision appealed from. Section 5 of Rule VII further requires that the petition for review must state the specific dates to show that it was filed within the reglementary period.

In the context of government contracts and audits, terms like “notice of disallowance” and “reglementary period” are crucial. A notice of disallowance is a formal document issued by the COA when it finds that government funds have been disbursed improperly. The reglementary period refers to the legally prescribed time within which an action, such as an appeal, must be filed.

Consider a scenario where a government contractor, after completing a project, receives a notice of disallowance due to alleged overpayment. The contractor must then file an appeal within the specified period, ensuring all procedural requirements are met to avoid the disallowance becoming final and executory.

Case Breakdown: The Journey of Cresencio D. Arcena’s Appeal

Cresencio D. Arcena, as the president of Berlyn Construction and Development Corporation, found himself in a similar situation. From 1995 to 1996, Berlyn Construction was involved in infrastructure projects for the Philippine Marine Corps, funded by a total of P69,983,830.00. An audit conducted in response to a request from the Office of the Ombudsman found that the funds spent exceeded the actual as-built plans by 2.33%, leading to a notice of disallowance (ND) of P1,590,173.66 issued against Arcena in 2008.

Arcena appealed the ND to the COA-Fraud and Audit Investigation Office (FAIO), which was denied in 2010. He then filed a petition for review with the COA Proper, which was dismissed in 2015 for being filed out of time. The COA Proper noted that Arcena failed to indicate the exact date of receipt of the ND, and even assuming the most favorable date, the petition was filed 35 days late.

Arcena’s subsequent motion for reconsideration was also denied, as he could not prove his new claim of receiving the FAIO decision later than initially stated. He then sought relief from the Supreme Court, arguing that the COA gravely abused its discretion in dismissing his appeal due to timeliness and not ruling on the merits of his case.

The Supreme Court, in its decision, emphasized the importance of following procedural rules:

“It must be remembered that a party desiring to appeal an ND must do so strictly in accordance with the COA’s Rules of Procedure. Lest it be forgotten, the right to appeal is neither a natural right nor a component of due process. Rather, it is a mere statutory privilege, that must be exercised only in the manner and in accordance with the provisions of the law.”

The Court also highlighted the finality of the ND and COA rulings due to Arcena’s belated appeal:

“In view of Arcena’s belated appeal and the consequent finality of the questioned ND and COA rulings, this Court can no longer exercise its jurisdiction.”

On the merits, the Court found that the MBT projects were not settled accounts, as the special audit report was part of an ongoing investigative audit. Furthermore, the COA’s computation of the disallowed amount was based on substantial evidence and in accordance with COA standards.

Practical Implications: Lessons for Businesses and Individuals

This ruling underscores the critical importance of adhering to procedural timelines when dealing with government audits. Businesses and individuals involved in government contracts must be vigilant in monitoring deadlines for appeals and ensure all procedural requirements are met.

The case also highlights the need for meticulous documentation. Arcena’s failure to indicate the exact date of receipt of the ND was a significant factor in the dismissal of his appeal. Keeping detailed records of all communications and transactions can be crucial in such scenarios.

Key Lessons:

• Always adhere to the specified timelines for filing appeals against COA decisions.
• Ensure all procedural requirements, such as indicating specific dates of receipt, are met when filing an appeal.
• Maintain thorough documentation of all transactions and communications related to government contracts.
• Understand that the right to appeal is a statutory privilege and must be exercised strictly according to the rules.

Frequently Asked Questions

What is a notice of disallowance?

A notice of disallowance is a formal document issued by the Commission on Audit when it finds that government funds have been disbursed improperly.

What is the reglementary period for filing an appeal against a COA decision?

The reglementary period for filing an appeal against a COA decision is six months from the receipt of the decision, as specified in the 2009 Revised Rules of Procedure of the COA.

Can the Supreme Court review a COA decision if the appeal was filed late?

Generally, no. The Supreme Court will not review a COA decision if the appeal was filed out of time, as the decision becomes final and immutable.

What happens if a notice of disallowance becomes final and executory?

If a notice of disallowance becomes final and executory, the disallowed amount must be returned by the parties held liable.

How can businesses protect themselves from notices of disallowance?

Businesses can protect themselves by ensuring compliance with all relevant regulations, maintaining detailed records, and promptly addressing any audit findings or notices of disallowance.

What are the consequences of failing to adhere to procedural timelines in government audits?

Failing to adhere to procedural timelines can result in the dismissal of an appeal, making the notice of disallowance final and executory, and requiring the return of disallowed funds.

ASG Law specializes in government contracts and audits. Contact us or email hello@asglawpartners.com to schedule a consultation.