Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G. R. No. 146824             June 15, 2006

ENCARNACION E. SANTIAGO, Petitioner,
vs.
COMMISSION ON AUDIT and THE DIRECTOR OF THE COMMISSION ON AUDIT, REGIONAL OFFICE NO. V, Respondents.

D E C I S I O N

AZCUNA, J.:

This is a special civil action for certiorari raising a question of law: Can the salary of a government employee be ordered withheld, retained and applied to the payment of public funds allegedly embezzled under the employeeís care on the basis of an audit report and the filing of administrative and criminal cases against the employee?

The antecedents are as follows:

On June 16, 1998, COA State Auditors Erlinda B. del Rosario and Rodolfo T. Follero, assigned at the Provincial Auditorís Office, Pili, Camarines Sur, examined the cash and accounts of petitioner municipal treasurer covering the period from June 1997 to June 1998. As a result of the examination, the auditors made these findings:

1. Municipal Treasurer Encarnacion E. Santiago was found short of her accountability totaling P3,580,378.80;

2. Rampant manipulation of books of account perpetrated by Municipal Treasurer Encarnacion E. Santiago and Municipal Accountant Designate Generoso V. Ortua were detected by the examining auditors during their audit.

3. Trust liabilities under General Fund totaling P3,439,868.07 were not remitted to the agencies concerned in violation of GSIS Act of 1997.

4. All vouchers covering cash advances were not certified by the Municipal Budget Officer as to the existence of appropriation, which is a violation of Sec. 344 of the Local Government Code of 1991.

5. Cash advances made by Claro G. Pitallano, Cashier II, totaling P5,031,746.57 were granted by means of cash transfer from Municipal Treasurer Encarnacion E. Santiago which is in gross violation of Section 4.1.6 of COA Circular No. 97-002 dated February 10, 1997.

6. Cash advances were drawn by Municipal Treasurer Encarnacion E. Santiago with no legal specific purpose. Additional cash advances were likewise drawn even if the previous cash advances given were not settled, nor proper accounting was made, which is in violation of Sec. 339 of the Local Government Code in relation to Sec. 4.1.1 and 4.1.2 of COA Circular No. 97-002 dated February 10, 1999.

7. Payments for recurring expenses exceeding P15,000 were paid by Municipal Treasurer Encarnacion E. Santiago out of her cash advances in violation of Section 4.3.2 of COA Circular No. 97-002 dated February 10, 1997.

8. Report of Collection and Disbursements together with the corresponding journals and supporting documents were not prepared and submitted to the auditor on the date required under Sections 8 and 9 of the Manual on the Certificate of Settlement and Balances.1

Petitioner was informed about her cash shortage of P3,580,378.80 in a demand letter dated August 19, 1998.

On September 11, 1998, petitioner submitted her letter of explanation for the cash shortage with a notation that she will submit the liquidation documents on or before September 23, 1998.

In her Comment, respondent COA Director Linda N. Solite, Regional Office No. V, Legazpi City, stated that petitioner did not fulfill her promise to submit the liquidation documents by September 23, 1998. But petitioner wrote a letter to the Provincial Treasurer, Camarines Sur requesting that she be detailed at the said office "in view of the lack of confidence of the present administration with the undersigned."

Due to the cash shortage and the failure of petitioner to submit all the supporting documents enumerated in the demand letter dated August 19, 1998, State Auditors del Rosario and Follero informed petitioner through a letter dated September 24, 1998 that she was relieved from her duties and responsibilities as municipal treasurer effective September 24, 1998 in accordance with paragraph 2,2 Section 348 of Republic Act No. 7160.3 The

Municipal Mayor and Municipal Accountant were also informed of the fact.

Thereafter, a second demand letter dated November 23, 1998 was sent to petitioner Santiago reiterating her cash shortage of P3,580,378.80 and apprising her of additional credits to her accountability. A final demand was made on petitioner to submit immediately all supporting documents stated in the accompanying schedules and to submit within 72 hours a written explanation why said documents were not submitted within the reglementary period.

In her Comment, respondent COA Region V Director stated that petitioner Santiago did not dispute the shortage in the second demand letter. Accordingly, COA, through Director Lourdes M. Castillo of Regional Office No. V, Rawis, Legazpi City, filed with the Office of the Ombudsman a complaint on June 24, 1999 for Malversation of Public Funds against petitioner, Municipal Accountant Generoso Ortua and Cashier II Claro Pitallano. Upon a finding of probable cause against petitioner, two criminal cases were filed against her with the Regional Trial Court, Fifth Judicial Region, Branch 58, San Jose, Camarines Sur, which are still pending. In addition, an administrative case was filed on December 13, 1999 against petitioner with the Civil Service Commission, Regional Office No. V, Legazpi City, which case is still pending.

In a letter4 dated July 20, 1999, State Auditor del Rosario directed Municipal Mayor Marcel S. Pan of Goa, Camarines Sur to "withhold payment of the salary and other emoluments due Mrs. Encarnacion E. Santiago or so much thereof as may be necessary, effective immediately and to apply the said withheld amounts in full satisfaction of her x x x shortage of P3,580,378.80" pursuant to Section 37 of Presidential Decree (PD) No. 1445, otherwise known as the "Government Auditing Code of the Philippines," which provides:

Sec. 37. Retention of money for satisfaction of indebtedness to government. Ė When any person is indebted to any government agency, the Commission [on Audit] may direct the proper officer to withhold the payment of any money due such person or his estate to be applied in satisfaction of the indebtedness.5

Due to the directive of State Auditor del Rosario, petitioner was not able to collect her salary for the period from October 1998 to July 1999. After five (5) checks in payment of her salary were issued, the Municipal Mayor of Goa, Camarines Sur, endorsed the checks and the proceeds thereof, in the total amount of P124,606.20, was used to pay petitionerís cash shortage, which is evidenced by official receipts6 of the Republic of the Philippines.

In a letter dated January 7, 2000 to the COA Director of Regional Office No. V, Legazpi City, petitioner requested reconsideration of the directive to withhold payment of her salary and other emoluments. She asserted that there is no valid basis for the application of her salary, without her consent, to the unconfirmed accountability, and that there is no final judicial order that she incurred such accountability, citing as legal basis Villanueva v. Tantuico, Jr.7

In a First Indorsement dated January 25, 2000, COA Regional Office No. V denied petitionerís request for reconsideration on the ground that the ruling in Villanueva is not applicable in this case. It anchored its decision on COA Decision No. 97-084 dated January 28, 1997 and held that State Auditor del Rosario acted within the bounds of law in issuing the directive.

Petitioner appealed from the denial to COA. In a letter dated March 8, 2000, COA informed petitioner to litigate the appeal in accordance with its Revised Rules of Procedure. In compliance, petitioner reproduced her appeal in a Petition for Review. After the COA Director of Regional Office No. V, Legazpi City filed an Answer to the petition, petitioner filed a motion for early resolution of the petition on the ground that the issue was purely a legal one.

In a letter dated December 8, 2000, COA, through its General Counsel, informed the counsel of petitioner that the motion for early resolution cannot be given due course since the Commission temporarily archived the petition for review until the final resolution of the pending criminal and administrative cases against petitioner.

Petitionerís motion for reconsideration was denied by COA in a letter dated January 22, 2001. COA, through its General Counsel, stated that the Commission decided to archive the petition for review pending resolution of the related criminal and administrative cases filed with the appropriate tribunals in order not to preempt their respective decisions. It emphasized, thus:

". . . Clearly stated, what this Commission has denied is your Motion for Early Resolution and not the Petition for Review. The Commission has its legal grounds in withholding the salary of the petitioner until the amount defalcated has been satisfied."

Hence, petitioner filed this petition.

Petitioner states that the issue she raised before COA is whether the State Auditor can order the suspension and retention of her salary based merely on an audit finding of a shortage in her account and the pendency of the criminal case against her. She contends that in archiving her petition for review to await the resolution of the administrative and criminal actions against petitioner, COA, in effect, sustained the decision of COA Regional Office No. V and adversely resolved her petition.

Petitioner alleges that she is filing this petition for review of the judgment of COA under Rule 64 of the Rules of Court if COAís denial of her motion for reconsideration may be considered a final decision of COA of the petition. However, if the action of COA is not yet appealable, petitioner submits that this petition should alternatively be considered as a petition for certiorari under Rule 65, there being no appeal nor any plain and speedy remedy in the ordinary course of law.

Petitioner prays that judgment be issued setting aside the Directorís First Indorsement dated January 25, 2000, the Commissionís Letters dated December 8, 2000 and January 22, 2001, the Second Indorsement8 dated December 8, 2000, and that the respondents, including the Municipal Mayor of Goa, Camarines Sur, be ordered to immediately pay her salary in the accumulated amount of P124,606.21, and the salary accruing after the month of July 1999 to which she may be entitled.

It is true that COA has not yet formally ruled on the petition for review of petitioner because it archived the same to await the resolution of the pending criminal and administrative cases it filed against petitioner. The Court notes, however, that in the letter dated January 22, 2001 denying petitionerís motion for reconsideration of the denial of her motion for early resolution, COA, through its General Counsel, maintained that "[t]he Commission has its legal grounds in withholding the salary of the petitioner until the amount defalcated has been satisfied."

The Court takes cognizance of this petition insofar as it raises this question of law: Can the salary of a government employee be ordered withheld, retained and applied to the payment of public funds allegedly embezzled under the employeeís care on the basis of an audit report and the filing of an administrative case and a criminal case for malversation of public funds?

Stated otherwise, may State Auditor del Rosario direct that the salary and other emoluments of petitioner be withheld and applied to her cash shortage determined merely in an audit examination?

Petitioner contends that there is no legal basis for the seizure of her salaries and other emoluments. She argues that the finding of a cash shortage during the audit examination does not definitely and finally establish that she is already indebted to the government in the amount of the shortage. She points out that Section 37 of PD No. 1445, which is the legal basis cited by State Auditor del Rosario for directing the withholding of her salary, is identical with Section 21,9 Chapter 4, Subtitle B (Commission on Audit), Book V of Executive Order No. 292, otherwise known as the "Administrative Code of 1987." She asserts that the meaning of "indebtedness" in said Section 21 is defined in Villanueva v. Tantuico10 as follows:

"Unless admitted by a debtor himself, the conclusion that he is in truth indebted to the Government cannot be definitely and finally pronounced by a Government auditor, no matter how convinced he may be from his examination of the pertinent records of the validity of that conclusion. Such a declaration, that a government employee or officer is indeed indebted to the government, if it is to have binding authority, may only be made by a court. That determination is after all, plainly a judicial, not an administrative function. No executive officer or administrative body possesses such a power."

Petitioner thus contends that the Auditor cannot definitely and finally pronounce that she is indebted to the government based merely on the audit examination conducted on her account; hence, the withholding and seizure of her salaries and other emoluments is not in accordance with law.

Villanueva referred to the propriety of setting off the indebtedness to the Government of the petitioner therein against his salary and other monetary benefits payable to him by the Government. In that case, Auditor Emiliana Cruz of the Bureau of Records Management made the finding that petitioner therein Villanueva was indebted to the government in the sum of P31,949.15, and pursuant to Section 62411 of the Revised Administrative Code of 1919, as amended, which is substantially the same as Section 21 of the Administrative Code of 1987, the indebtedness may properly be set off against Villanuevaís salary and other monetary benefits due from the Government. The Court therein ruled that before set off can take place under Section 624 of the Revised Administrative Code of 1919, as amended, a personís indebtedness must be one that is admitted by him or pronounced by final judgment of a competent court. The ruling of the Court reads:

While Section 624 of the Revised Administrative Code does indeed authorize the set-off of a personís indebtedness to the Government against "any money due him or his estate to be applied in satisfaction of such indebtedness," that indebtedness must be one that is admitted by the alleged debtor or pronounced by final judgment of a competent court. In such a case, the person and the Government are in their own right both debtors and creditors of each other, and compensation takes place by operation of law in accordance with Article 1278 of the Civil Code. Absent, however, any such categorical admission by an obligor or final adjudication, no legal compensation can take place, as this Court has already had occasion to rule in an early case. Unless admitted by a debtor himself, the conclusion that he is in truth indebted to the Government cannot be definitely and finally pronounced by a Government auditor, no matter how convinced he may be from his examination of the pertinent records of the validity of that conclusion. Such a declaration, that a government employee or officer is indeed indebted to the government, if it is to have binding authority, may only be made by a court. That determination is after all, plainly a judicial, not an administrative function. No executive officer or administrative body possesses such a power.12

Regarding the propriety of withholding petitionerís salary, the Court holds that COA can direct the proper officer to withhold petitionerís salary and other emoluments under Section 21, Chapter 4, Subtitle B, Book V of the Administrative Code of 1987, which is substantially the same as Section 37 of PD No. 1445, the legal basis of COA, thus:

SEC. 21. Retention of Money for Satisfaction of Indebtedness to Government.óWhen any person is indebted to any government agency, the Commission may direct the proper officer to withhold the payment of any money due such person or his estate to be applied in satisfaction of the indebtedness.

It is noted that the directive of State Auditor del Rosario to the Municipal Mayor of Goa, Camarines Sur to withhold the salary of petitioner is in accordance with the COA Guidelines to the Examiner/Auditor in case of a cash shortage contained in Chapter 3 of the COA Handbook on Cash Examination, thus:

SPECIFIC GUIDELINES FOR CASH SHORTAGE/OVERAGE

Cash Shortages

1. Should the examination disclose cash shortages, the examiner shall not immediately make any announcement, notice or report until all arithmetical and mathematical computations are rechecked and documents reviewed.

2. The examiner shall prepare the report on the shortage after completion of the examination when all amounts and computations have been reviewed and after the reconciliation of related accounts and the verifications of all transactions.

3. He/She shall issue a demand letter to the AO for the immediate restitution of the shortage (for sample refer to Appendix 10).

4. Within seventy-two (72) hours upon receipt of demand letter, the examiner shall obtain from the AO a written explanation of the shortage.

5. Upon failure by the AO to immediately restitute the amount, the examiner shall recommend to the agency head in writing for the immediate relief of the AO from his/her duties. The letter-recommendation should be duly acknowledged by the agency head or his/her authorized representative. The acknowledgement shall form part of the examinerís working paper.

6. The examiner shall see to it that all cash and records pertaining to the account are adequately safeguarded.

7. He/She shall submit an interim or advance report to the appropriate COA official in case there will be a delay in the completion of the report.

8. He/She shall direct the proper officer to withhold the payment of any money due the AO, except retirement pay or gratuity due her/him, as soon as the cash shortage is ascertained and is not contested.13 Please refer to Appendix 11 for sample copy of the withholding order. The amount withheld shall be applied to the shortage pursuant to Section 73 (should be Section 37), PD 1445. The examiner shall report the ordering of the withholding to the COA Chairman immediately.

9. In the case of a local treasurer, the [examiner] shall seize the office and its contents and shall notify the COA and the local chief executive. He/She shall immediately take full possession of the office and its contents, close and render his/her accounts at the date of taking possession and temporarily continue the public business of the office. The auditor who takes possession of the office of the local treasurer shall ipso facto supersede the local treasurer until the officer involved is restored, or other provision has been lawfully made for filling the office. (Sec. 46, PD 1445)

10. The examiner shall submit his/her report to the RCD/CD. The latter shall review it and forward [it] to the RLAO/LAO. (The Report shall be submitted to RLAO/LAO for shortages and overages)

11. If the shortage is material, the examiner shall request thru the Chairman, the Department of Foreign Affairs, the National Bureau of Investigation, the Commission on Immigration and Deportation and the National Intelligence and Security Agency that no clearance for purposes of travel abroad should be issued to erring AO and that he/she be included in the hold order list unless cleared by COA.

Under Paragraph 8 of the aforequoted Guidelines, the examiner/auditor is authorized to direct the proper officer to withhold the payment of any money due the accountable officer, except retirement pay or gratuity due her/him, as soon as the cash shortage is ascertained and is not contested.

In this case, respondent COA Regional Director Linda N. Solite stated in her Comment that petitioner Santiago never disputed the second and final demand letter dated November 23, 1998 informing her of her cash shortage. Hence, the directive of State Auditor del Rosario to withhold petitionerís salary was in order.

The State Auditorsí finding of cash shortage against petitioner municipal treasurer, which has not been satisfactorily disputed is prima facie evidence against her. The prima facie evidence suffices for the withholding of petitionerís salary, in order to safeguard the interest of the Government.

However, it must be stated that although State Auditor del Rosario properly directed the Municipal Mayor of Goa, Camarines Sur to withhold petitionerís salary and other emoluments, she incorrectly directed that the same be applied or set off against petitionerís cash shortage. As ruled in Villanueva, before set-off can take place under Section 624 of the Revised Administrative Code of 1919, as amended, now Section 21 of the Administrative Code of 1987, a personís indebtedness to the government must be one that is admitted by him or pronounced by final judgment of a competent court. In this case, the indebtedness was not admitted by petitioner and a competent court has not yet pronounced final judgment thereon.

As a result, the amount of petitionerís salary remitted to the local government treasurer as payment of petitionerís cash shortage should be considered merely withheld until final resolution on her indebtedness. In the event that petitioner is found not liable for the cash shortage, the withheld salary and other emoluments will be released to her; otherwise, it will be applied in payment of her indebtedness.

WHEREFORE, the petition is PARTLY GRANTED in that respondent COA is authorized merely to withhold petitionerís salary but not to apply it to the alleged shortage for which her liability is still being litigated. No costs.

SO ORDERED.

ADOLFO S. AZCUNA
Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice

REYNATO S. PUNO
Associate Justice
LEONARDO A. QUISUMBING
Asscociate Justice
(On Leave)
CONSUELO YNARES-SANTIAGO
Associate Justice

ANGELINA SANDOVAL-GUTIERREZ
Asscociate Justice
ANTONIO T. CARPIO
Associate Justice
MA. ALICIA AUSTRIA-MARTINEZ
Asscociate Justice
RENATO C. CORONA
Associate Justice
CONCHITA CARPIO MORALES
Asscociate Justice
ROMEO J. CALLEJO, SR.
Associate Justice
DANTE O. TINGA
Asscociate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
CANCIO C. GARCIA
Asscociate Justice

PRESBITERO J. VELASCO, JR.
Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the cases were assigned to the writer of the opinion of the Court.

ARTEMIO V. PANGANIBAN
Chief Justice


Footnotes

* On Leave.

1 Comment to Petition of Respondent Director, COA Regional Office No. V, Rollo, pp. 115-116.

2 "In case an examination of the accounts of a local treasurer discloses a shortage in cash which should be on hand, it shall be the duty of the examining officer to seize the office and its contents and notify the COA, the local chief executive concerned, and the local accountant. Thereupon, the examining officer shall immediately turn over to the accountable officer next-in-rank in the local treasury service, unless the said officer is likewise under investigation, the office of the treasurer and its contents, and close and render his accounts on the date of turnover. In case the accountable officer next-in-rank is under investigation, the auditor shall take full possession of the office and its contents, close and render his accounts on the date of taking possession, and temporarily continue the public business of such office until such time that the local treasurer is restored or a successor has been duly designated. The local treasurer or accountable officer found with such shortage shall be automatically suspended from office."

3 The Local Government Code of 1991.

4 Rollo, p. 34.

5 The provision is also contained in Section 21, Chapter 4, Subtitle B, Book V of Executive Order No. 292, otherwise known as the "Administrative Code of 1987."

6 Rollo, pp. 36-37.

7 G.R. No. 53585, February 15, 1990, 182 SCRA 263.

8 The Second Indorsement dated December 8, 2000 reads: "Respectfully forwarded to the Director, COA Regional Office No. V, Legazpi City, a copy of the Memorandum dated December 4, 2000, transmitting to the Chief, Records Division, Administrative Office, this Commission, the 1st Indorsement dated October 26, 2000 from that end and the records of the above-entitled case for filing and future reference, there being no action to be taken thereon as this Office concurs with the prayer that the Petition for Review filed by Ms. Encarnacion E. Santiago be temporarily archived until the related criminal and administrative cases are finally decided by the tribunals in which they are pending."

9 Executive Order No. 292, Subtitle B, Book V, Chapter 4, Sec. 21. Retention of Money for Satisfaction of Indebtedness to Government. Ė When any person is indebted to any government agency, the Commission [on Audit] may direct the proper officer to withhold the payment of any money due such person or his estate to be applied in satisfaction of the indebtedness.

10 Supra note 7, at 267-268.

11 SEC. 624. Retention of salary for satisfaction of indebtedness to Government.-- When any person is indebted to the Government of the Philippines, the Auditor General may direct the proper officer to withhold the payment of any money due him or his estate, the same to be applied in satisfaction of such indebtedness.

12 Petitioner quoted the italicized portion to support her argument.

13 Emphasis supplied.


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