When Approving Officers Must Refund Disallowed Amounts: The Net Disallowed Amount Rule

The Supreme Court recently clarified an important rule on the liability of government officers who approve illegal expenditures. In Abejo v. Commission on Audit (G.R. No. 272898, October 8, 2024), the Court ruled that an approving officer's solidary liability does not automatically equal the total disallowed amount. Instead, it is limited to the "net disallowed amount"—the portion actually required to be returned by the payees.

The case involved Bernadette Lourdes B. Abejo, former Executive Director of the Inter-Country Adoption Board (ICAB), who approved the payment of PHP 355,000.00 in Christmas tokens to board members and Inter-Country Placement Committee members from 2008 to 2010. The Commission on Audit (COA) disallowed the entire amount for lack of legal basis and held Abejo solely liable as the approving officer.

The Facts of the Case

The COA issued Notice of Disallowance No. 2011-010-101-(08-10) on April 4, 2011, disallowing the PHP 355,000.00 payment. The grounds were:

• The payment of tokens to board members had no legal basis.
• Under Administrative Order No. 135, Collective Negotiation Agreement incentives are limited to rank-and-file employees.
• Under Section 5 of Presidential Decree No. 1597, allowances, honoraria, and other fringe benefits require the President's approval.

Abejo appealed through several levels, arguing good faith and citing various legal bases, including Republic Act No. 6686 (authorizing annual Christmas bonuses) and DBM Budget Circular No. 2010-01. The COA consistently denied her appeals, holding that the tokens were granted without legal basis and without appropriation.

The Issue Before the Court

The central issue was whether the COA committed grave abuse of discretion in affirming the disallowance and holding Abejo liable for the full amount. The Court ultimately had to determine the extent of an approving officer's liability when the payees are not made parties to the case.

The Ruling: Liability Limited to Net Disallowed Amount

The Supreme Court partly granted the petition. While it affirmed the disallowance itself, it absolved Abejo from her solidary liability to return the amount.

The Court applied the "Madera Rules on Return" established in Madera v. Commission on Audit (882 Phil. 744 [2020]). Under these rules, approving and certifying officers who acted in bad faith, malice, or gross negligence are solidarily liable—but only for the net disallowed amount.

The net disallowed amount is the total disallowed amount minus any amounts excused or allowed to be retained by the payees. This concept, explained in Juan v. Commission on Audit (G.R. Nos. 237835, 237860, 237883, and 237884, February 7, 2023), is rooted in the principle that the ultimate responsibility to return disallowed benefits rests on the payees who received them, based on solutio indebiti (the obligation to return what was unduly received).

In this case, the Notice of Disallowance held only Abejo liable. The payees—the board and committee members—were not made parties to the case. Since none of the amounts they received could be ordered returned, the entire disallowed amount was "effectively excused or allowed to be retained" by the payees. Consequently, the net disallowed amount was zero, and Abejo had nothing to return.

Why the Disallowance Was Upheld

The Court found that the Christmas tokens were indeed irregular expenditures. While Republic Act No. 6686 authorizes Christmas bonuses, Section 3 of that law requires the amounts to be included in the annual General Appropriations Act. The COA found—and Abejo failed to refute—that the payments were not made pursuant to any appropriation law. This violates the fundamental principle under Section 4(1) of Presidential Decree No. 1445 that no money shall be paid out of the public treasury except in pursuance of an appropriation law.

The Court also applied the doctrine of stare decisis, noting its prior ruling in Abejo v. Commission on Audit (923 Phil. 68 [2022]), which involved the same parties and similar facts. In that case, the Court likewise absolved Abejo from liability because the payees were not held liable in the Notice of Disallowance.

Practical Takeaways

• Approving officers are not automatically liable for the full disallowed amount. Their solidary liability is limited to the net disallowed amount—the portion that payees are actually required to return.
• Payees bear primary responsibility to return disallowed amounts. Under Madera, recipients are liable to return what they received unless excused by the Court based on services rendered, undue prejudice, or social justice considerations.
• Good faith matters, but it is not always enough. While good faith may absolve approving officers under Section 38 of the Administrative Code of 1987, blatant disregard of laws and rules can amount to gross negligence, defeating the presumption of good faith.
• Legal basis must be clear and supported by appropriation. Benefits must be grounded in law and included in the General Appropriations Act. Reliance on general authorizations without proper appropriation invites disallowance.
• Consistency in rulings matters. The Court will apply stare decisis where facts and issues are substantially similar, promoting predictability and stability in the law.

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