Development Bank of the Phils. v. Commission on Audit, G.R. No. 88435, January 16, 2002

Ponente: CARPIO J.

Facts:

As a condition to obtain a USD 310M Economic Recovery Loan, the World Bank required the PH gov't to rehabilitate the DBP. One of the steps required is for the DBP to be fully audited by external independent auditors.

Accordingly, the Central Bank issued CB Circular 1124 providing that “all Banks, including government banks, shall be fully audited by external independent auditors.” COA Chairman Teofisto Guingona interposed no objection on this.

DBP hired Joaquin Cunanan & Co as its private external auditor. DBP sought COA's concurrence to the contract it entered w/ the private auditor.

However, COA, under the new COA Chairman, Eufemio Domingo, protested the issuance of Circular No. 1124 saying that it encroaches upon the COA's constitutional and statutory power to audit government agencies.

COA issued a letter-decision denying DBP's note-request concurrence. COA likewise disallowed any payment to the private auditor by DBP.

DBP appealed to the COA en banc. It denied the appeal.

Hence, DBP filed this petition for review on certiorari.

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Issue 1 of 4: WON the COA has the sole and exclusive power to examine and audit government banks.

Held: No.

Interpretation of Sec 2, Art 9-D

COA: the nature of its authority under the lst par of Sec 2, Art 9-D is similar to its sole and exclusive authority under the 2^nd par of the same Section.

SC: The bare language of Section 2, however, shows that the COAs power under the first paragraph is not declared exclusive, while its authority under the second paragraph is expressly declared exclusive.

This distinction was intended as shown in the deliberations of the Constitutional Commission wherein the framers:

•   recognizes that there are government institutions with private investments in them, which require the presence of private auditing firms, not exclusively, but concurrently.

•   recognizes that there are certain instances where private auditing may be required, like the listing in the stock exchange

•    recognizes the fact that even government agencies, instrumentalities and subdivisions sometimes borrow money from abroad.

Thus, COA's power to examine and audit should and is not exclusive.

Note: The authority to define the scope of its audit, promulgate auditing rules and regulations, and disallow unnecessary expenditures is exclusive.

COA's findings and conclusions prevail over those of private auditors. Its findings and conclusions still bind government agencies and their officials.

Issue 2 of 4: Is there any statutes prohibiting government banks from hiring private auditors.

Held: None, but there is a “law” that requires government banks to hire private auditors.

COA: Sec 26, 31 and 32 of PD 1445 aka Government Auditing Code of the PH.

SC: Sec 26 defines the scope and extent of the powers of the COA. Nothing in it states that the COA's power to examine and audit government banks is exclusive.

Sec 31 merely grants authority to the COA to hire and deputize private auditors  to assist the COA in the auditing of government agencies. Such private auditors operate under the authority of the COA. Nothing in it prohibits the hiring of private auditors by government agencies.

Section 32 speaks of studies and services that the COA may choose not to render to a government agency. The subject of these contracts is not the audit itself of a government agency.

However CB Circular 1124 requires government banks to hire private auditors.

Note: Central Bank has the express constitutional (Sec 20, Art 12) and statutory power (General Banking Act aka RA No. 337) to promulgate the said circular.

Issue 3 of 4: WON the hiring by the DBP of a private auditor is necessary

Held: Yes

The hiring of a private auditor was not only necessary based on the governments loan covenant with the World Bank, it was also necessary because it was mandated by Central Bank Circular No. 1124 under pain of administrative and penal sanctions.

Issue 4 of 4: WON the fees paid by DBP to the private auditor is reasonable under the current circumstances

Held: Yes

An annual private audit fee of about half a million pesos added to the interest on a US$310 million loan would hardly make the cost of borrowing excessive, extravagant or unconscionable. Besides, the condition imposed by a lender, whose money is at risk, requiring the borrower or its majority-owned subsidiaries to submit to audit by an independent public accountant, is a reasonable and normal business practice.

Moreover, in 1986, the private auditor billed the DBP the amount of P487,321.14; in 1987, P529,947.00. In comparison, the COA billed the DBP an audit fee of P27,015,963.00 in 1988, and P15,421,662.00 in 1989. Even granting that the COA's scope of audit services was broader, still it could not be said that the private auditors fees are excessive, extravagant or unconscionable compared to the COA's billings.

DECISION: The petition is GRANTED. The letter-decision of the Chairman of the COA,  and the letter-decision promulgated by the COA en banc are SET ASIDE.

The TRO issued by the court enjoining COA from enforcing the said decisions is made PERMANENT.

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