DIRECTOR FREDRIC VILLANUEVA, ATTY. JOSEPH HUMIDING, ENGR. FRANCIS BASALI, AND TESSIE BRINGAS, PETITIONERS, VS. THE COMMISSION ON AUDIT, HEREIN REPRESENTED BY GUILLERMO N. CARAGU…

Villanueva versus Commission on Audit

The Case

This is a special civil action for certiorari brought by Director Fredric Villanueva, Atty. Joseph Humiding, Engr. Francis Basali, and Tessie Bringas against the Commission on Audit, represented by its officials. The petitioners were members of the Prequalification Bids and Awards Committee of the Department of Environment and Natural Resources in the Cordillera Administrative Region. They ask the Supreme Court to reverse the decision and resolution of the Commission on Audit which affirmed a special audit report recommending criminal charges against them under Section 3(e) of Republic Act No. 3019 and requiring them to refund an alleged overprice in the purchase of polyethylene plastic bags. The case matters because it draws the boundary between the work of the bidding committee and the work of the resident auditor, and it tells us when the Commission on Audit may be bound by the acts of its own auditors.

Procedural History

The case began with a special audit conducted by the Special Audit Office of the Commission on Audit from March to May 1995, covering selected financial transactions of the regional office for the years 1992 to 1994. The audit team issued its report, and the Special Audit Office later issued notices of disallowance for the amounts representing the alleged overprice. The petitioners filed a letter-request for reconsideration of the findings, which the Commission on Audit treated as an appeal. The Commission rendered a decision dismissing the request and directing that a copy be furnished to the Office of the Ombudsman for Luzon for the filing of the appropriate criminal action. The petitioners moved for reconsideration, and the Commission denied the motion for lack of merit. The petitioners then went directly to the Supreme Court by a petition for certiorari, with a prayer for a temporary restraining order and a preliminary injunction, alleging grave abuse of discretion amounting to lack or excess of jurisdiction.

Facts

In 1993, a special order of the Department of Environment and Natural Resources designated the Chief of the Planning Division, Engr. Francis Basali, and the Chief of the Legal Division, Atty. Joseph Humiding, as members of the Bids and Awards Committee of the regional office, joining Director Fredric Villanueva and the secretariat, Tessie Bringas. In 1994 they held the same positions in a hold-over capacity, and a new officer-in-charge regional executive director took over. At that time the regional office was the implementing agency of the Adopt-A-Street and Park Program, and it had to produce as many pine tree seedlings as possible. Polyethylene plastic bags were needed at the soonest possible time, before the end of the rainy season, so the officer-in-charge directed that a bidding be conducted.

The office prepared and posted an invitation to bid, prepared canvass papers, and sent these to known suppliers by mail and personal delivery. Four suppliers were invited, three from Metro Manila and one from Baguio City. Three submitted sealed bids. On 12 July 1994, the committee deliberated and opened the sealed bids in the presence of the resident auditor of the Commission on Audit for the region, Estrellita Belandres. The committee found the bids of Fluid Air Technologies and Kinship Industrial Sales and Services to be the most advantageous to the government, and these were declared the winning bidders. The regional office then purchased plastic bags from both suppliers.

In February 1995 the resident auditor issued an independent auditor's report stating that the financial statements presented fairly, in all material respects, the financial position of the department, in accordance with applicable laws and regulations. Then came the special audit. The audit team declared that the purchase was made without a public bidding and was marked by an overprice of as much as 316,138 pesos and 50 centavos. It recommended criminal charges under Section 3(e) of Republic Act No. 3019 and recovery of the amount. Notices of disallowance were issued against the two suppliers' transactions. The Commission on Audit affirmed the findings, and the petitioners came to the Supreme Court.

Issues

• Whether or not the Commission on Audit gravely abused its discretion in holding the petitioners liable and recommending criminal charges against them before the Office of the Ombudsman.
• Whether or not the petitioners may escape liability by relying on the acts and representations of the resident auditor during the bidding.
• Whether or not the plastic bags purchased were in fact overpriced.

Applicable Provisions

Section 2, Article IX-D of the Constitution defines the audit power of the Commission on Audit:

The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity.

This provision anchors the audit on a post-audit basis, which is why the resident auditor's presence at the bidding could not have been a pre-audit.

Section 2(2), Article IX-D of the Constitution grants the Commission its rule-making authority:

The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties.

This is the source of the circulars that fix the auditor's role at the opening of bids.

COA Circular No. 78-87 delineates the nature and extent of the auditor's participation:

The Auditor's presence or that of his duly authorized representative is as witness only with specific functions to perform as hereunder delineated and explained.

This confines the auditor to witnessing, and it is the circular the Commission relied upon in affirming the audit report.

The Administrative Code of 1987 defines the task of the committee:

The conduct of prequalification of contractors, bidding, evaluation of bids and recommending of awards of contracts.

This places the technical evaluation of bids on the committee, not on the auditor.

Ruling

The Supreme Court affirmed the findings of the Commission on Audit. On the first issue, the Court held that the Commission did not gravely abuse its discretion. The Constitution empowers the Commission to examine and audit the use of funds on a post-audit basis, and it has exclusive authority to define the scope of its audit and to promulgate auditing rules. Among those rules is COA Circular No. 78-87, which requires the auditor's attendance at the opening of bids but limits the auditor's role to that of a witness, with the specific functions of maintaining documentary integrity and the physical security of the records of the bidding.

On the second issue, the Court held that the petitioners cannot rely on the acts of the resident auditor. The auditor was not conducting a pre-audit, because the Commission had lifted pre-audit of government transactions as early as 1989. Her presence was merely as a witness to ensure documentary integrity. The Court recalled its earlier ruling that the role of the Commission's representative at the bidding was only as a witness to insure documentary integrity. By contrast, the committee members are tasked with the conduct of prequalification, bidding, evaluation of bids, and recommending awards of contracts. Between the auditor, who can only perform post-audit functions, and the committee members, it is the latter who have the technical expertise to determine the offers that best meet the needs of the office. The burden of ensuring that the process is above-board rests on the agency that called for the bidding. The Court added that the Commission is not estopped by the acts of its resident auditor, because estoppel does not lie against the government, more so if the acts of its officials are erroneous or irregular. The petitioners' claim of good faith is a matter of defense in the criminal case, if any is filed.

On the third issue, the Court held that the matter of overpricing had been sufficiently studied and explained by the special audit team, which conducted a re-canvass of prices from three suppliers of plastic bags with the same specifications and compared these with the purchase prices. The Court found no reason to disturb the findings.

Doctrine

First, the resident auditor of the Commission on Audit attends the opening of bids as a witness only, to maintain documentary integrity and the physical security of the records, and does not perform pre-audit functions. Second, the members of the Prequalification Bids and Awards Committee bear the responsibility for prequalification, bidding, evaluation of bids, and recommending awards, and they have the technical expertise to determine the most advantageous offer. Third, estoppel does not lie against the Commission on Audit by reason of the acts of its auditors, especially when those acts are erroneous or irregular. Fourth, the auditor's failure to object to a bidding does not validate it, and reliance on the auditor's representations is a defense in the criminal case, not a ground to annul the audit findings.

Disposition

The petition was denied and the decision and resolution of the Commission on Audit were affirmed, with the recommendation for criminal action and the disallowance of the overprice sustained.

Remember This

The single line to memorize is that the COA auditor at a bidding is a witness only, while the PBAC members carry the burden of ensuring that the bidding is above-board and most advantageous to the government. Examiners use this case to test the scope of the audit power, the distinction between pre-audit and post-audit, and the rule that estoppel does not lie against the Commission on Audit.