Good Faith Protects Certifying Officers from Liability for Disallowed Funds

G.R. No. 245894, July 11, 2023

Imagine a local government accountant, diligently performing her duties, only to be held personally liable for millions of pesos in disallowed funds. This is the reality many public servants face. But when does good faith shield them from financial responsibility? In Melloria vs. Jimenez, the Supreme Court clarified the extent to which certifying officers can be held liable for disallowed disbursements, offering a crucial layer of protection for those acting in good faith and within the scope of their ministerial duties. This case underscores the importance of understanding the nuances of public accountability and the limits of personal liability for government employees.

Understanding the Legal Framework for Public Fund Disbursements

Philippine law holds public officials accountable for the proper use of government funds. The 1987 Administrative Code and the Government Auditing Code (Presidential Decree No. 1445) are the cornerstones of this accountability. These laws aim to prevent corruption and ensure that public resources are used efficiently and legally.

Sections 102 and 103 of Presidential Decree No. 1445 explicitly state that officials are responsible for government funds and property. Any unlawful expenditure results in personal liability for the responsible official or employee. However, this is balanced by Sections 38 and 39 of the 1987 Administrative Code, which protect subordinate officers acting in good faith. Critically, Section 38 states that “A public officer shall not be civilly liable for acts done in the performance of his official duties, unless there is a clear showing of bad faith, malice or gross negligence.”

DILG Memorandum Circular No. 99-65 sets limits on intelligence and confidential funds for local governments. Item II.2 states: “the total annual amount appropriated for Intelligence or Confidential undertakings shall not exceed thirty percent (30%) of the total annual amount allocated for peace and order efforts or three percent (3%) of the total annual appropriations whichever is lower.” This provision aims to prevent excessive spending on confidential activities and ensure that such funds are properly managed.

For example, imagine a municipality with a total annual budget of PHP 100 million and a peace and order budget of PHP 10 million. Under DILG MC No. 99-65, the maximum amount that can be allocated for intelligence and confidential funds is PHP 3 million (3% of the total budget) or PHP 3 million (30% of the peace and order budget), whichever is lower. Thus, the limit would be PHP 3 million.

The Case of Melloria vs. Jimenez: A Detailed Breakdown

In 2011, the Municipality of Laak, Compostela Valley, allocated PHP 18,093,705.00 for its peace and order programs. Mayor Reynaldo Navarro authorized cash advances of PHP 4,100,000.00 for intelligence and confidential activities. The Commission on Audit (COA) flagged this, arguing that it exceeded the allowable limit under DILG MC No. 99-65. COA issued Notice of Disallowance (ND) No. 2014-12-0013, disallowing PHP 2,600,000.00.

The COA determined that the maximum allowable budget for intelligence and confidential activities was only PHP 1,500,000.00. This was based on 30% of the municipality’s peace and order budget after deducting funds allocated for human rights advocacy and community development programs, which COA did not consider part of “peace and order efforts.”

Those held solidarily liable included Mayor Navarro, Municipal Budget Officer Sonia Quejadas, Municipal Accountant Raquel Melloria, and Municipal Treasurer Eduarda Casador. Melloria and Casador, in their roles as certifying officers, appealed the COA’s decision, arguing that they acted in good faith.

The case journeyed through the following steps:

• COA’s Intelligence/Confidential Funds Audit Unit (ICFAU) issued ND No. 2014-12-0013, disallowing PHP 2,600,000.00.
• Petitioners appealed to the COA Proper, which affirmed the disallowance in Decision No. 2018-007.
• Petitioners moved for reconsideration, but the COA denied this in Resolution No. 2019-008.
• Petitioners elevated the case to the Supreme Court.

The Supreme Court ultimately ruled in favor of Melloria and Casador, stating, “Certifying officers who were merely performing ministerial duties not related to the legality or illegality of the disbursement may be excused from the liability to return the disallowed amounts on account of good faith.” The Court emphasized that the accountant and treasurer were merely attesting to the availability of funds and the obligation of the allotment, functions that did not involve discretionary decision-making regarding the legality of the expenditure.

The Supreme Court cited Madera v. Commission on Audit, clarifying that “approving and certifying officers who acted in good faith, in regular performance of official functions, and with the diligence of a good father of the family are not civilly liable to return consistent with Section 38 of the Administrative Code of 1987.”

As the Court stated, “Being mere certifying officers, petitioners do not appear to have a hand in deciding the upper limit of the intelligence and confidential funds or which activities could be charged against the intelligence and confidential funds…”.

Practical Implications for Public Officials

This case provides significant relief for certifying officers in local governments. It clarifies that good faith and the performance of ministerial duties can shield them from personal liability for disallowed funds. However, it also underscores the importance of understanding the limits of intelligence and confidential funds and the need for clear documentation.

Local government units should ensure that all expenditures, especially those related to intelligence and confidential funds, are properly documented and aligned with relevant regulations. Certifying officers should diligently perform their duties, but they are not expected to be experts in interpreting complex legal provisions. The primary responsibility for ensuring the legality of disbursements lies with the approving authority, typically the local chief executive.

Key Lessons

• Certifying officers acting in good faith and performing ministerial duties are generally protected from personal liability.
• Local governments must adhere to the limits on intelligence and confidential funds set by DILG MC No. 99-65.
• Clear documentation and proper allocation of funds are crucial to avoid disallowances.

Frequently Asked Questions

Q: What is considered a ministerial duty?

A: A ministerial duty is one that requires no exercise of discretion or judgment. It is a duty that must be performed in a prescribed manner based on a given set of facts.

Q: What constitutes good faith in the context of public fund disbursements?

A: Good faith implies honesty of intention and a lack of knowledge of circumstances that would put a reasonable person on inquiry. It means acting without any intention to take unconscientious advantage, even if there are technicalities in the law.

Q: How does DILG MC No. 99-65 limit intelligence and confidential funds?

A: It limits the total annual amount appropriated for intelligence or confidential undertakings to 30% of the total annual amount allocated for peace and order efforts or 3% of the total annual appropriations, whichever is lower.

Q: What happens if a disbursement is disallowed by the COA?

A: If a disbursement is disallowed, the individuals responsible for the illegal expenditure may be held personally liable to return the funds, unless they can prove they acted in good faith and within the scope of their duties.

Q: What should local government units do to avoid disallowances?

A: Local government units should ensure that all expenditures are properly documented, comply with relevant regulations, and are aligned with the intended purpose of the funds.

Q: Can a certifying officer be held liable if they rely on the advice of a superior?

A: While reliance on a superior’s advice can be a factor in determining good faith, it does not automatically absolve a certifying officer of liability. The officer must still exercise due diligence and ensure that the disbursement is lawful.

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