Dear Atty. Gab

Musta Atty!

I’m Ricardo Cruz, an administrative officer at Luzon State University (LSU). For many years, LSU has had a policy, approved by our Board of Regents, allowing retiring professors to purchase the service vehicles they used during their tenure. This is seen as a gesture of appreciation for their long service. We’ve always used a specific valuation formula, also part of this policy, which considers depreciation and the sentimental value for our professors.

Recently, a COA audit team reviewed our disposals and flagged these sales. They insist that LSU should have used a different COA-prescribed general circular for valuation, which results in significantly higher prices for these old vehicles. This has caused quite a stir. Our University President believes our established policy is within LSU’s autonomy, especially since it’s a practice deeply rooted in our tradition and approved by our governing board. However, the COA auditor is firm, and there’s talk of potential disallowances.

I’m quite confused about this. Does our university, through its President and Board of Regents, not have the discretion to set its own policies for disposing of its property, especially when it’s tied to employee benefits and long-standing tradition? Or can COA simply overrule our internal policies because they have a different preferred method? This could impact not just past sales but also how we manage university resources and employee morale moving forward.

I would greatly appreciate your insights on how these differing views on authority and procedure are typically resolved under Philippine law.

Salamat po,
Ricardo Cruz

Dear Ricardo

Musta Atty! Thank you for reaching out with your concerns regarding Luzon State University’s property disposal policy and the recent COA findings. This is indeed a situation where the operational autonomy of a government institution intersects with the oversight functions of bodies like the Commission on Audit (COA).

The core legal principle at play here involves the fiscal and administrative autonomy that may be granted to certain government entities, such as state universities established by their respective charters. This autonomy generally encompasses the authority for the head of the agency, often with the concurrence of its governing board, to manage its resources. This includes the power to dispose of its property in accordance with its own established policies, provided these are legal and reasonable. While COA possesses the constitutional mandate to audit government funds and property, this power is typically exercised on a post-audit basis. It should generally respect the lawful exercise of discretion by autonomous institutions, particularly when such policies are aligned with the agency’s functions or long-standing, recognized practices serving a legitimate purpose, like employee welfare or recognition of service.

Understanding Institutional Autonomy and the Scope of COA’s Audit Power

The Philippine legal framework recognizes the importance of institutional independence for various governmental bodies to effectively discharge their mandates. For state universities like LSU, institutional autonomy is often enshrined in their charters, granting them a degree of self-governance in academic, fiscal, and administrative matters. This is crucial for them to operate efficiently and responsively to their unique needs and objectives. This operational independence is a cornerstone, ensuring that they can function without undue interference from other branches or agencies of government, so long as they act within the bounds of law.

A key aspect of this autonomy is fiscal autonomy. While often explicitly granted to constitutional bodies, the principles underpinning it can extend to other autonomous state entities. Fiscal autonomy, in essence, means a significant degree of freedom from outside control in the allocation and utilization of resources. As articulated in jurisprudence concerning constitutionally mandated fiscal autonomy:

As envisioned in the Constitution, the fiscal autonomy enjoyed by [certain independent bodies] contemplates a guarantee of full flexibility to allocate and utilize their resources with the wisdom and dispatch that their needs require. It recognizes the power and authority to levy, assess and collect fees, fix rates of compensation not exceeding the highest rates authorized by law for compensation and pay plans of the government and allocate and disburse such sums as may be provided by law or prescribed by them in the course of the discharge of their functions.

Fiscal autonomy means freedom from outside control. (Based on principles discussed in cases like Bengzon v. Drilon, G.R. No. 103524)

This principle underscores that an autonomous institution should have the latitude to decide how best to use its resources, including the disposal of assets, based on its own assessment of its needs and priorities. The authority of agency heads in matters of property disposal is further supported by general government auditing regulations:

The full and sole authority and responsibility for the divestment and disposal of property and other assets owned by the national government agencies or instrumentalities… shall be lodged in the heads of the departments, bureaus, and offices of the national government… who shall constitute the appropriate committee or body to undertake the same. (Section 501, Title 7, Chapter 3, Government Accounting and Auditing Manual, Volume 1)

This provision clearly vests primary responsibility for property disposal in the head of the agency. In the case of LSU, this would be the University President, acting with the approval or under policies set by the Board of Regents. This means that LSU has the prerogative to establish its own rules and procedures for such disposals, including valuation methods, provided these are not contrary to law, are reasonable, and do not cause undue prejudice to the government.

The Commission on Audit (COA) plays a vital role in ensuring accountability in the use of public funds and property. Its powers are constitutionally mandated:

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[.] (Article IX-D, Section 2(1), 1987 Philippine Constitution)

While COA’s audit authority is extensive, it is generally exercised on a post-audit basis for autonomous entities. This means COA reviews transactions after they have occurred. Crucially, this oversight must be balanced with the respect due to the autonomy and discretionary powers of the audited agency. COA cannot simply substitute its own judgment for that of the agency head or governing board if the agency’s actions are within its powers and are not tainted with illegality, fraud, or grave abuse of discretion. A mere difference in opinion regarding a valuation formula, especially when the agency’s formula is part of a long-standing, board-approved policy tied to legitimate objectives like employee welfare, may not be sufficient grounds to declare the transaction irregular, unless the agency’s chosen method is shown to be patently unreasonable or grossly disadvantageous to the government.

Therefore, if LSU’s policy on vehicle disposal and its valuation method are duly approved, consistently applied, rational, and not violative of any specific law prohibiting such a scheme, there is a strong argument that it falls within the university’s institutional autonomy. The fact that it is a long-standing tradition and considered a form of employee benefit can be legitimate considerations for the university in exercising its discretion.

Practical Advice for Your Situation

• Review LSU’s Charter and Internal Policies: Carefully examine LSU’s charter to understand the specific provisions on institutional autonomy, property management, and the powers of the Board of Regents and the University President. Ensure that the existing policy on vehicle disposal and valuation was properly promulgated and approved.
• Document the Rationale and History: Compile all documentation supporting the policy, including board resolutions, minutes of meetings where it was discussed, and any justifications for its adoption and continued practice (e.g., as an employee benefit, recognition of service, practical way to dispose of aging assets).
• Demonstrate Consistency and Reasonableness: Show that the valuation formula has been consistently applied to all eligible retirees without favoritism or arbitrariness. Prepare an analysis to demonstrate that the valuation, while perhaps different from COA’s preferred method, is still reasonable and not grossly disadvantageous to the university or government.
• Engage in Constructive Dialogue with COA: Formally respond to COA’s findings. Present LSU’s legal and factual basis for its policy, emphasizing its institutional autonomy, the long-standing nature of the practice, and its rationale. Seek to understand COA’s specific objections and explore if a mutually acceptable interpretation or clarification can be reached.
• Obtain a Formal Legal Opinion: It would be prudent for LSU to secure a comprehensive legal opinion from its university legal counsel or an external expert in administrative law. This opinion can assess the strengths of LSU’s position and guide its response to COA.
• Highlight Similar Practices or COA’s Previous Stance (if applicable): If COA has, in previous audits of LSU or other similar state universities, not objected to such policies or valuation methods, this could be a relevant point to raise, suggesting a potential inconsistency in COA’s current position.
• Assess Financial Impact: While sentimental value and tradition are important, ensure the university can also argue that the disposal method does not lead to substantial financial loss that would be considered unconscionable or indicative of mismanagement.
• Understand Appeal Mechanisms: Familiarize yourselves with the administrative and legal remedies available to contest COA’s findings or disallowances if a satisfactory resolution cannot be achieved through dialogue.

Navigating these issues requires a careful assertion of LSU’s institutional autonomy while respectfully engaging with COA’s legitimate oversight role. The key is to demonstrate that the university’s policies are lawful, reasonable, and consistently applied within the scope of its granted powers.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

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Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.