Navigating Extraordinary and Miscellaneous Expenses: A Guide for Government Entities

In a consolidated decision, the Supreme Court affirmed the Commission on Audit's (COA) disallowance of Extraordinary and Miscellaneous Expenses (EME) reimbursements made by the Power Sector Assets and Liabilities Management Corporation (PSALM) to its officers and employees. The ruling clarifies the documentary requirements for EME claims and underscores the importance of adhering to COA regulations, particularly for government-owned and controlled corporations (GOCCs).

The Facts of the Case

PSALM, a GOCC created under the Electric Power Industry Reform Act of 2001, had been reimbursing EME to its officers and employees using certifications issued by the claimants as evidence of disbursement. This practice was based on Section 397(c) of the Government Accounting and Auditing Manual (GAAM) and COA Circular No. 89-300.

However, in 2006, the COA issued Circular No. 2006-001, which specifically governs EME disbursements for GOCCs and requires that claims be supported by receipts and/or other documents evidencing disbursements. Despite being informed of this new regulation, PSALM continued its old practice in 2008 and 2009.

The COA subsequently issued Notices of Disallowance for the EME reimbursements in both years, totaling over P5 million, holding the approving and certifying officers, as well as the payees, liable for the disallowed amounts.

The Issues Raised

PSALM raised several arguments before the Supreme Court, including claims that:

• The COA violated due process by not issuing an Audit Observation Memorandum before the disallowance
• COA Circular No. 2006-001 should not apply to PSALM because its authority to disburse EME comes from the General Appropriations Act (GAA)
• Certifications should be considered substantial compliance with documentary requirements
• The different treatment between national government agencies (NGAs) and GOCCs violated the equal protection clause
• Its officers acted in good faith

The Court's Ruling

The Supreme Court denied both petitions, affirming the COA's disallowances. The Court held that:

Due process was observed. The COA's rules do not require an Audit Observation Memorandum before issuing a Notice of Disallowance. The essence of due process is the opportunity to be heard, which PSALM had through the appeal process.

COA Circular No. 2006-001 applies to all GOCCs. The circular explicitly covers all GOCCs, GFIs, and their subsidiaries, including those whose authority to disburse EME comes from the GAA. The Court noted that COA Circular No. 89-300 applies only to NGAs, not GOCCs.

Certifications are insufficient. The Court held that certifications merely stating that expenses were incurred for official purposes do not qualify as "other documents evidencing disbursements." Such documents must reflect transaction details typically found in receipts, including the nature, amount, date, and place of the expenditures.

No equal protection violation. The Court found substantial distinctions between NGAs and GOCCs that justify different auditing rules. GOCCs have more latitude in EME disbursement, as their governing boards appropriate these funds, unlike NGAs whose appropriations are fixed by Congress in the GAA.

Liability stands. The approving and certifying officers were held solidarily liable, and recipients were required to refund amounts they received.

Practical Takeaways

• GOCCs must strictly comply with COA Circular No. 2006-001 for EME reimbursements, regardless of whether their authority derives from their charter or the GAA.
• Certifications alone are not acceptable evidence of EME disbursements for GOCCs. Claims must be supported by receipts or similar documents showing transaction details.
• The COA's interpretation of its own rules is given great weight, and its decisions are sustained unless there is grave abuse of discretion.
• Failure to appeal a COA decision within the prescribed period makes it final and executory. Claims of staff negligence or confusion will not justify relief from an immutable decision.
• Government entities should stay updated on COA circulars and ensure their internal practices align with current regulations, not outdated ones.

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