COA Disallowances and the Limits of Audit Power Over PAGCOR Funds

The Supreme Court’s April 2021 ruling in Figueroa v. Commission on Audit (G.R. Nos. 213212, 213497, and 213655) is a landmark decision on the limits of the Commission on Audit’s (COA) power. The Court reversed COA disallowances against PAGCOR officials over the purchase of movie tickets for the film "Baler," holding that COA overstepped its constitutional mandate. The ruling clarifies which funds COA may audit in government-owned and controlled corporations (GOCCs) and when corporate officers may be held personally liable for disallowed expenditures.

The Facts of the Case

In December 2008, PAGCOR’s Board of Directors approved the purchase of 89,000 tickets to the film "Baler" for P26.7 million. The tickets were intended for distribution to casino patrons through their Player Tracking System (PTS) points. The payment was sourced from PAGCOR’s Marketing Expenses, a subset of its Operating Expenses Fund.

In 2011, COA issued a Notice of Disallowance (ND) against the full amount, naming several PAGCOR officers and directors as liable, including Chairman Efraim Genuino, Board Members Philip Lo and Manuel Roxas, and Senior Vice President Rene Figueroa. COA found that only a small fraction of the tickets was charged to PTS points, the rest was charged to other accounts without board approval, and supporting documents were lacking.

The Issue Before the Court

The consolidated petitions raised a threshold question: Did COA gravely abuse its discretion in disallowing the expenditure and holding the officers liable? The petitioners argued that COA lacked audit jurisdiction over PAGCOR’s operating expenses, that the board acted within its powers, and that the officers acted in good faith.

The Ruling: COA’s Audit Jurisdiction Is Not Absolute

The Court granted the petitions and set aside the disallowance. It ruled that COA committed grave abuse of discretion in three key respects.

First, the Court examined Section 15 of PAGCOR’s charter (Presidential Decree No. 1869). This provision limits COA’s audit coverage to only two categories of PAGCOR funds: the five percent franchise tax and the fifty percent share of gross earnings owed to the national government. The P26.7 million used for the The purchase of tickets for a historical film, which PAGCOR treated as a socio-civic project, fell within this grant of authority. Because the funds came from Marketing Expenses—beyond COA’s audit jurisdiction—the disallowance had no legal basis.

Good Faith and Personal Liability

The Court’s ruling also touched on the principle of good faith in disallowance cases. Although the decision focused on COA’s lack of jurisdiction, it underscored that officers who rely on certifications from proper offices and act without personal knowledge of irregularities should not automatically be held liable. The earlier COA rulings had excluded some officers for good faith, but the COA Proper later reinstated liability against the petitioners. The Supreme Court rejected this reinstatement because the underlying disallowance itself was void.

Practical Takeaways

• COA’s audit power over GOCCs is defined by each charter. For PAGCOR, COA may only audit the franchise tax and the government’s share of gross earnings, not all corporate funds.
• COA cannot declare board acts ultra vires. That power belongs to the courts. COA’s role is to audit and settle accounts, not to second-guess corporate decisions within a board’s lawful authority.
• Fund sourcing matters. Whether a disallowance stands may depend on which fund was used. Expenditures from non-audited corporate funds may fall outside COA’s reach.
• Good faith remains a defense. Officers who sign documents based on certifications from responsible offices, and who lack knowledge of irregularities, may avoid personal liability.
• Charter provisions are presumed valid. Unless a law is repealed or declared unconstitutional, it remains binding, and COA cannot disregard it through a collateral attack.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.