Issuance of Clearance for Government Employees with COA Notice of Disallowance in the Philippines

Introduction

In the Philippine public sector, government employees are subject to stringent accountability measures to ensure the proper use of public funds. The Commission on Audit (COA), as the constitutional watchdog over government finances, plays a pivotal role in this process. One of its key mechanisms is the issuance of a Notice of Disallowance (ND), which flags expenditures deemed irregular, unnecessary, excessive, extravagant, or unconscionable. An ND imposes civil liability on the accountable officers and payees involved, requiring them to refund the disallowed amounts.

For government employees, an outstanding ND can significantly impact various administrative processes, particularly the issuance of clearances. Clearances are essential documents required for purposes such as retirement, resignation, transfer to another agency, promotion, leave abroad, or even securing loans from government financial institutions like the Government Service Insurance System (GSIS) or Pag-IBIG Fund. This article explores the intricacies of obtaining clearances in the presence of a COA ND, grounded in Philippine laws, COA regulations, and relevant jurisprudence. It covers the legal framework, procedural requirements, implications, resolution mechanisms, and practical considerations.

Legal Framework Governing COA Notices of Disallowance

The foundation for COA's authority to issue NDs stems from the 1987 Philippine Constitution, particularly Article IX-D, which mandates COA to examine, audit, and settle all accounts pertaining to government revenues and expenditures. This is operationalized through several key statutes and regulations:

Presidential Decree No. 1445 (Government Auditing Code of the Philippines, 1978): This law empowers COA to disallow expenditures that violate auditing rules. Section 82 specifies that no money shall be paid out of the Treasury except in pursuance of an appropriation and on a warrant, while Section 103 holds certifying officers, disbursing officers, and payees liable for illegal expenditures.
Republic Act No. 6770 (Ombudsman Act of 1989): While primarily focused on graft and corruption, it intersects with COA findings, as NDs can lead to administrative or criminal charges if they involve misconduct.
COA Circular No. 2009-006 (September 15, 2009): This prescribes the rules and procedures for the settlement of audited accounts, including NDs. It defines disallowance as the disapproval of a transaction due to non-compliance with laws or regulations, resulting in a charge against the responsible persons.
COA Circular No. 2012-003 (October 29, 2012): Updates the manual on the settlement of accounts, emphasizing the civil nature of ND liabilities and the process for appeals.
Executive Order No. 292 (Administrative Code of 1987): Book V, Title I, Subtitle B, Chapter 9 outlines fiscal responsibility and accountability of public officers.

Under these provisions, an ND is not merely an audit observation but a formal charge that creates a receivable in favor of the government. The liability is joint and several among the approving/certifying officers (e.g., agency heads, accountants) and payees (e.g., employees receiving allowances or benefits).

Implications of a COA Notice of Disallowance on Clearances

Government employees with an unresolved ND face hurdles in obtaining clearances because the ND signifies an unsettled financial obligation to the state. Clearances are typically issued by the employee's agency, COA, or other bodies like the Civil Service Commission (CSC) and Ombudsman, and they certify that the employee has no pending administrative, criminal, or financial liabilities.

Types of Clearances Affected

Several clearances may be withheld or conditionally issued due to an ND:

Agency Clearance: Issued by the employee's department or agency, this is a prerequisite for separation from service. Agencies often require settlement of NDs before signing off.
COA Clearance (Certificate of Settlement and Balances - CSB): COA issues this to confirm that all accounts are settled. An ND directly prevents its issuance until the amount is refunded or the ND is lifted.
Ombudsman Clearance: If the ND involves potential graft, it may trigger an Ombudsman investigation, delaying clearance.
CSC Clearance: For purposes like retirement or transfer, the CSC may defer approval if financial accountability issues persist.
GSIS/Pag-IBIG Clearances: These are required for benefits claims. An ND can lead to withholding of retirement proceeds equivalent to the disallowed amount.

In practice, an ND acts as a "hold" on the employee's records. For instance, under COA rules, no final payment of salaries, allowances, or terminal benefits shall be made until the ND is satisfied.

Specific Scenarios

Retirement or Resignation: Retiring employees must secure a COA CSB. If an ND exists, benefits may be partially released, with the disallowed amount deducted or held in escrow.
Transfer to Another Agency: The receiving agency may refuse acceptance until the ND is cleared to avoid inheriting liabilities.
Promotion or Salary Adjustment: While not always directly blocked, an ND can lead to administrative charges, indirectly affecting career progression.
Leave Abroad or Study Leave: Agencies may deny these if the employee has unsettled accounts, as it risks non-return.

Process for Issuance of Clearance Amid an ND

Obtaining clearance with an ND involves a multi-step process, often requiring resolution of the disallowance first. Here's a step-by-step overview:

Receipt of ND: Upon audit, COA issues the ND to the agency head, who notifies the liable employees. The ND specifies the amount, reasons, and responsible parties.
Initial Response: Within 15 days (as per COA Circular 2009-006), the employee may file a written explanation or request for reconsideration with the auditor.
Settlement Options:
- Refund the Amount: The simplest way is to pay back the disallowed sum, either in lump sum or installments. Upon payment, COA issues a credit notice, lifting the ND.
- Appeal the ND: If contested, the process escalates:
  - Appeal to COA Cluster Director: Within 6 months from receipt.
  - Appeal to COA Commission Proper: If denied, within the remaining period of the 6-month prescriptive period.
  - Petition for Review with the Supreme Court: Under Rule 64 of the Rules of Court, as COA is a constitutional commission.
Request for Clearance:
- Submit a formal request to the agency HR or COA regional office, attaching proof of settlement or appeal status.
- If the appeal is pending, COA may issue a provisional clearance, especially for urgent needs like retirement, but with annotations about the pending liability.
Agency Role: The agency comptroller or accounting office verifies the ND status before endorsing the clearance.

Delays are common, as appeals can take years. Prescriptive periods are critical: NDs must be appealed within 6 months, or they become final and executory.

Resolution Mechanisms and Remedies

Resolving an ND is key to securing clearance. Beyond refunds and appeals:

Motion for Reconsideration: Filed with the issuing auditor if new evidence emerges.
Compromise Agreement: In cases of good faith, COA may allow reduced payments under its settlement policies.
Offsetting: Disallowed amounts can sometimes be offset against future claims or benefits.
Administrative Relief: If the ND results from agency policy (e.g., bonuses approved by higher-ups), employees may seek exemption, arguing they acted in good faith.

For payees (non-approving employees), liability is solidary but can be mitigated if they prove the benefit was received in good faith without knowledge of irregularity.

Relevant Jurisprudence

Philippine courts have shaped the application of NDs through landmark decisions:

Madera v. COA (G.R. No. 244128, September 8, 2020): The Supreme Court ruled that payees are not automatically liable if they received benefits in good faith. This "good faith" doctrine allows clearances to be issued without full refund if the employee was not involved in the approval process.
Araullo v. Aquino (G.R. No. 209287, July 1, 2014): While focused on DAP, it affirmed COA's disallowance powers but emphasized due process in ND issuance.
Technical Education and Skills Development Authority v. COA (G.R. No. 204869, March 11, 2014): Highlighted that NDs do not automatically bar retirement benefits; instead, only the disallowed portion is withheld.
Marquez v. COA (G.R. No. 244128, 2020 iteration): Reiterated that passive recipients of disallowed allowances may be excused from refund, facilitating clearance issuance.

These rulings underscore that while NDs impose liability, equitable considerations like good faith can expedite clearances.

Practical Considerations and Challenges

Documentation: Employees should maintain records of transactions to support appeals.
Timeliness: Missing appeal deadlines makes NDs executory, complicating clearance.
Agency Support: Some agencies provide legal aid for ND appeals.
Financial Impact: Unresolved NDs can lead to garnishment of salaries or benefits.
Reforms: Recent COA circulars aim to streamline appeals via digital platforms, reducing processing time.

Challenges include bureaucratic delays, varying interpretations across COA regions, and the interplay with other accountability bodies like the Ombudsman.

Conclusion

The issuance of clearances for government employees with a COA Notice of Disallowance is a critical intersection of fiscal accountability and employee rights in the Philippines. While an ND poses significant barriers, mechanisms like appeals, refunds, and good faith defenses provide pathways to resolution. Employees must navigate this process diligently, adhering to legal timelines and leveraging jurisprudence for relief. Ultimately, these rules safeguard public funds while ensuring fair treatment, embodying the balance between accountability and equity in public service. For personalized advice, consulting a legal expert or COA official is recommended.