Personal Liability of Public Officials: Good Faith as a Defense Against COA Disallowances

The Commission on Audit (COA) has the power to disallow irregular, unnecessary, excessive, or extravagant expenditures of government funds. When a disallowance is issued, the question inevitably arises: who pays? The Supreme Court's 2006 decision in Salva v. Carague (G.R. No. 157875) provides important guidance on when a public official may be held personally liable—and when good faith serves as a complete defense.

The Facts of the Case

Dr. Teresita L. Salva was the President of the Palawan State University (PSU, formerly Palawan State College). In 1992, PSU entered into a construction agreement with Integrand Development Construction, Inc. (IDCI) for the construction of a Multi-Purpose Building (Phase II) at a contract price of P1,685,883.45.

During post-audit, the COA's Technical Audit Specialist found an overpricing of P274,726.38, attributed mainly to two items: mobilization/demobilization costs and earthfill and compaction expenses. The COA computed the mobilization cost at 2% of direct costs per DPWH Department Order No. 30, while the agency's estimate was much higher. Similarly, the COA's estimate for earthfill and compaction was significantly lower than what the university had approved.

The COA held Dr. Salva, along with other officials, jointly and severally liable for the disallowed amount. Eventually, after several appeals, the COA affirmed Dr. Salva's liability, prompting her to file a petition for certiorari with the Supreme Court.

The Legal Framework: Section 103 of PD 1445

The COA anchored Dr. Salva's liability on Section 103 of Presidential Decree No. 1445, the Government Auditing Code of the Philippines. This provision states that expenditures of government funds in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefor.

The Supreme Court identified three requisites for personal liability under this provision: (1) there must be an expenditure of government funds; (2) the expenditure is in violation of law or regulation; and (3) the official is found directly responsible for the violation.

The Issue: Was Dr. Salva "Directly Responsible"?

The pivotal issue was whether Dr. Salva should be held personally liable for the disallowed amount. The COA argued that she was responsible because she approved the award and the expenses, and because she directly caused the diversion of filling materials that resulted in additional expenses.

The Supreme Court disagreed. The Court noted that the Approved Agency Estimates (AAE) were prepared by the PSU engineers, not by Dr. Salva. Her only participation was to approve the estimates—a function inherent in her position as President.

Good Faith as a Defense

The Court emphasized a crucial principle: the mere fact that an official is the final approving authority does not automatically make that official personally liable for a disallowance. Citing the earlier case of Suarez v. Commission on Audit, the Court held that an official who had nothing to do with the preparation and computation of the estimates should not be held liable for amounts disallowed during post-audit.

More importantly, the Court found that Dr. Salva had satisfactorily justified the additional expenses. She explained that:

• The fencing, temporary access road, and stockroom were legitimately included under mobilization costs;
• Filling materials were sourced from an area 200 meters away from the project site instead of being purchased, which required additional heavy equipment;
• The change in sourcing was done after consultation with the project engineer, with measures to preserve fruit trees and conduct soil tests.

The Court also noted that the additional expenses were within the Approved Agency Estimates and were incurred for the benefit of the university. There was no showing that Dr. Salva was ill-motivated, personally profited from the transaction, or acted for personal or selfish ends.

The Court's Ruling

The Supreme Court granted the petition and exonerated Dr. Salva from liability. The Court reasoned that the additional expenses were not irregular, excessive, unnecessary, or unconscionable, viewed in light of the circumstances. The disallowance was reversed and set aside insofar as Dr. Salva was concerned.

Practical Takeaways

• Approval alone is not enough for liability. A public official who merely approves a transaction, without participating in its preparation or computation, may not be automatically held personally liable for a COA disallowance.
• Good faith is a viable defense. Officials who act in good faith, without personal motive or profit, and who can justify the expenditures as reasonable and for the benefit of the government, may be exonerated.
• Document the justification. Officials should maintain records explaining the basis for expenditures, including technical justifications, consultations with experts, and the benefits derived from the transaction.
• Direct responsibility is key. Under Section 103 of PD 1445, liability attaches only to officials "directly responsible" for the unlawful expenditure—not to every officer in the chain of approval.
• Context matters. The determination of whether an expense is "irregular" or "excessive" is situational. Courts will look at the circumstances, including whether the expense benefited the government and whether the official had any improper motive.

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