Philippine Supreme Court Resolutions

"G.R. No. 174788 (The Special Audit Team, Commission on Audit v. Court of Appeals and Government Service Insurance System) - On 30 September 2004, Commission on Audit (COA) Assistant Commissioner and General Counsel Raquel Ramirez-Habitan issued Legal and Adjudication Office (LAO) Order No. 2004-093 constituting a five-member special audit team (team) of COA auditors led by Atty. Joel Estolatan. The team was to conduct a "special audit on selected transactions for the period 2000-2004 with particular attention on the creation of subsidiaries such as Government Service Insurance System (GSIS) Properties, Inc., missing paintings, cash advances and allowances/benefits of the Officers and Members of the Board of Trustees."

Pursuant to the above-mentioned order, an initial conference ("entrance conference") was held with GSIS management to define the scope of the audit and the procedures to be followed. GSIS initially agreed, but later refused to furnish the team copies of documents pertinent to the audit areas. It questioned the team's authority to conduct the audit and held conferences with the COA Chairperson to request the recall of LAO Office Order No. 2004-093 and to constitute another team to conduct the audit. The COA Chairperson, however, affirmed the team's authority to conduct the audit.

When GSIS ignored the team's subpoena duces tecum dated 11 November 2004, the team employed alternative audit procedures by gathering pertinent documents from the Office of the Auditor of the GSIS and the House of Representatives, as well as confirmations by third parties. These procedures led to the issuance of Audit Observation Memorandum (AOM) Nos. 2005-01 to 2005-04 regarding (1) the GSIS eCard Project; (2) the compensation and benefits package of GSIS officials; (3) the creation of GSIS Properties, Inc.; and (4) cash advances covering discretionary allowances of GSIS officers. The AOMs recommended the issuance of a Notice of Disallowance of the said GSIS transactions.

Because the audit report was adverse, GSIS refused to attend the "exit conference," alleging that "the team was biased and ... (had) caused the leak of the AOMs to the media." GSIS nevertheless submitted its comments on the AOMs.

In due course, a verified Special Audit Report incorporating the GSIS's comments was submitted to the President, the Chairperson of the Appropriations Committee of the House of Representatives, the president of the Philippine Association for Government Budget Administration, Inc., and the Ombudsman.

This development prompted GSIS to file a Petition with the COA to nullify the Special Audit Report. It also filed civil, administrative and criminal cases against the members of the team.

On 18 July 2005, GSIS further filed, this time with the Court of Appeals (CA), a Petition for Prohibition with Prayer for Preliminary Prohibitory Injunction and Temporary Restraining Order (TRO) seeking to restrain the issuance of the allegedly impending Notice of Disallowance, which was allegedly based on erroneous findings and would cause irreparable damage to GSIS.

On 22 July 2005, the CA issued a Resolution granting the TRO and enjoining the team from "performing further acts related to or made in enforcement of COA Legal and Adjudication Office Order No. 2004-093."

After the parties submitted their Memoranda on whether a preliminary injunction should be issued, the CA, on 23 September 2005, granted a Writ of Preliminary Injunction. It cited as grounds therefor the preservation of the status quo, so as not to render moot any pronouncement it may render on the Petition and to avoid grave and irreparable injury, should the team's recommendation be enforced.

The team moved for reconsideration of the CA's 23 September 2005 Resolution, but the motion was denied by the appellate court in its 9 August 2006 Resolution.

Thus, the team filed the present Rule 65 Petition, posing the following issues:

1. Whether the CA had jurisdiction to rule on the validity or correctness of the findings and recommendations of the team
    
2. Whether the CA gravely abused its discretion in granting a preliminary injunction
    
3. Whether the team's special audit was carried out on sound statutory basis 

The Position of the COA Special Audit Team 

The team claims that the CA had no jurisdiction to rule on the validity or correctness of the former's findings and recommendations under the doctrine of primary jurisdiction and exhaustion of administrative remedies. In addition, the power of judicial review over the COA rests exclusively with the Supreme Court under Article IX-A of the Constitution.

The team also argues that the CA gravely abused its discretion in granting the injunction despite the procedural infirmities of GSIS's Petition; its failure to comply with the mandatory requirements for the issuance of the injunction; and its violation of the rule against forum shopping.

The Petition of GSIS for prohibition was not proper, because there was another plain, speedy and adequate remedy available to it. Under COA Memorandum Circular No. 2002-053 dated 26 August 2002 (Guidelines on the Delineation of the Auditing and Adjudication Functions), the AOM of the Special Audit Team is to be transmitted for review to the Director of the Legal and Adjudication Office-Corporate. The Director shall issue a Notice of Disallowance (ND), Notice of Suspension (NS), or Notice of Charge (NC), as the case may be. The agency being audited ("auditee") may then move for reconsideration of the ND/NS/NC or appeal to the COA proper. Clearly, then, even GSIS's Petition to nullify the Special Audit Report with the COA proper was premature. Should the appeal turn out to be adverse to GSIS, the auditee agency could still file a motion for reconsideration with the COA proper.

Since the audit report was not yet final, the threatened injury simply did not exist and there was no urgency that would justify the issuance of the TRO/injunction. The team points out that Section 7, Rule VIII of the COA Rules of Procedure mandates the resolution of any case by the COA proper "within sixty (60) days from the date it is submitted for decision or resolution," not from the date the case is filed. Since its appeal to COA proper was made only on 18 April 2005, while its CA Petition was filed on 18 July 2005, GSIS falsely claimed in its CA Petition that it was "being filed within sixty (60) days from the lapse of a reasonable time within which the COA Proper was expected to act but did not act on the above petition/request to nullify the Special Audit Report and to restrain respondent special audit team from committing subject Office Order."

Further, the team alleges, GSIS was guilty of forum shopping when it filed the appeal to the COA proper and the Petition for Prohibition with the CA, both basically seeking to nullify and set aside the team's Special Audit Report and to restrain the team from further performing any act connected with or related to the report. Notably, the Certification of Non-Forum Shopping attached to the CA Petition filed by GSIS states in part:

4. Except for the above-mentioned petition/request dated April 15, 2005 to nullify and set aside the Special Audit Report filed with the COA Proper, which had not informed petitioner of any action taken thereon for more than two months and a couple of weeks now, neither I nor petitioner has commenced any action or proceeding involving the same issues raised in this petition before the Supreme Court, the Court of Appeals, or the different divisions thereof, x x x 

Finally, the team contends that its special audit was carried out on sound statutory basis. Under COA Resolution No. 2002-05, the functions of the Legal Adjudication Office was expanded to include the primary responsibility of conducting special audit. This power is founded on Article IX-D of the Constitution, which extends the authority of COA to government-owned-and-controlled corporations with original charters; and which gives it exclusive authority to conduct audits for the "prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties."

The Position of GSIS 

On the other hand, GSIS, in its Comment alleges that the COA assistant commissioner and general counsel has no authority to conduct special audits. It is the Special Audits Office (SAO) that is vested with the power to conduct special audits under Section 7(5), Chapter 3, Title I-B, Book V of the Administrative Code of 1987 (E.O. No. 292). If there is a need to deputize a team apart from SAO, it is only the COA Chairperson who can do so under Section 40 of the Government Auditing Code of the Philippines (P.D. No. 1445).

Assuming that the subject LAO Office Order was valid, GSIS argues that the team exceeded its authority when it conducted a special audit of transactions not specified therein (i.e., the eCard project, compensation and benefits, package for GSIS officials and retainer's fees), contrary to the provision under Section 2(2), Article IX-D of the Constitution, requiring the COA to define the scope of its audit and examination.

GSIS also claims that its non-exhaustion of administrative remedies was justified, because the team had threatened to issue notices of disallowance of the subject transactions while audit findings were being reviewed by the COA proper. Moreover, there was official inaction that would have prejudiced GSIS. Also, in conducting the special audit, the team acted with partiality, in excess of jurisdiction, and with grave abuse of discretion.

GSIS further alleges that the CA has the power to prohibit the conduct of special audits and the issuance of notices of disallowance. Section 7, Article IX-A of the Constitution, indicates that the COA's ruling is appealable to the Supreme Court only. This provision is inapplicable here, because what was assailed before the CA was not the ruling of the COA, but merely that of the team.

Regarding the issue of primary jurisdiction, GSIS argues that since it did not dispute the correctness of the team's findings, there was no need for the CA to pass upon its validity. Further, the appellate court had jurisdiction to pass upon the issue of whether the team acted with grave abuse of discretion in the conduct of the special audit.

GSIS contends that there was no forum shopping. While its Petition with the COA sought to nullify the AOMs, its petition with the CA sought to perpetually restrain the concerned COA officials from performing acts in furtherance of COA LAO Office Order No. 2004-093. At any rate, GSIS disclosed to the CA the pendency of the former's Petition with the COA proper.

We take judicial notice of the fact that a new Chairperson and a new Commissioner have been recently appointed by the administration of President Benigno Aquino III. The former Chairperson and certain members of the board of GSIS have also been recently replaced. The resistance to the special audit being conducted by the COA special audit team is, firstly, a policy question for the GSIS management to resolve even before it becomes a legal question. Thus, to avoid having to rule on an issue unnecessarily, the Court RESOLVES to REQUIRE  both parties to MANIFEST, within twenty (20) days from receipt of this Resolution, whether they will maintain their present legal positions and to state the reason for any change therein." cralaw

Leonardo-De Castro, J., on official business.
Del Castillo, J., on official leave.

Very truly yours,

(Sgd.) ENRIQUETA E. VIDAL
  Clerk of Court