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8. Prohibited transactions

Contracts or conveyances may be executed for and in behalf of the Government or any of its branches, subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations, whenever demanded by the exigencies of the service and as long as the same are not prohibited by law.

Applicable Laws, Rules and Regulations

Article 1348, NCC - Void Contracts

Impossible things or services cannot be the object of contracts.

Article 1352, NCC

Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.

Article 1353, NCC

The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another which is true and lawful.

Section 29, Article VI, 1987 Constitution - Use of Government Funds or Property

(1) No money shall be paid out of the Treasury except in pursuance of an appropriation made by law.

(2) No public money or property shall be appropriated, applied, paid or employed, directly or indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian institution, or system of religion, or of any priest, preacher, minister or other religious teacher, or dignitary as such, except when such priest, preacher, minister of dignitary is assigned to the armed forces or to any penal institution or government orphanage or leprosarium.

(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general fund of the Government.

Section 4 (1-3), PD 1445

Financial transactions and operations of any government agency shall be governed by the fundamental principles set forth hereunder, to wit:

(1) No money shall be paid out of any public treasury or depository except in pursuance of an appropriation law or other specific statutory authority.

(2) Government funds or property shall be spent or used solely for public purposes.

(3) Trust funds shall be available and may be spent only for the specific purpose for which the trust was created or the funds received.

Section 43, Book VI, RAC - Liability for Illegal Expenditures

Every expenditure or obligation authorized or incurred in violation of the provisions of this Code or of the general and special provisions contained in the Annual General or other Appropriations Act shall be void. Every payment made in violation of said provisions shall be illegal and every official or employee authorizing or making such payment or taking part therein, and every person receiving such payment shall be jointly and severally liable to the Government for the full amount so paid or received.

Section 43, Book VI, RAC - Liability for Illegal Expenditures

Any public official or employee who shall apply any government fund or property under his administration or control to any use other than for which such fund or property is appropriated by law, shall suffer the penalty imposed under the appropriate penal laws.

Section 80, Book VI, RAC - Misuse of Government Funds and Property

No public money or property shall be appropriated or applied for religious or private purposes.

Section 2 (2), Article IX-D, 1987 Constitution - Exclusive Authority of COA to Promulgate Accounting Rules and Regulations

The Commission shall have the 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.

Section 162, GAAM, Vol. I - Irregular Expenditures

The term "irregular expenditure" signifies an expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in law. Irregular expenditures are incurred without conforming with prescribed usages and rules of discipline. There is no observance of an established pattern, course, mode of action, behavior, or conduct in the incurrence of an irregular expenditure. A transaction conducted in a manner that deviates or departs from, or which does not comply with standards set, is deemed irregular. An anomalous transaction which fails to follow or violate appropriate rules of procedures is likewise irregular (COA Cir. 85-55A, Sept. 8, 1985).

Section 163, GAAM, Vol I - Unnecessary Expenditures

The term "unnecessary expenditures" pertains to expenditures which could not pass the test of prudence or the obligation of a good father of the family, thereby non-responsiveness to the exigencies of the service. Unnecessary expenditures are those not supportive of the implementation of the objectives and mission of the agency relative to the nature of its operation. This could also include incurrence of expenditure not dictated by the demands of good government, and those the utility of which cannot be ascertained at a specific time. An expenditure that is not essential or that which can be dispensed with without loss or damage to property is considered unnecessary. The mission and thrusts of the agency incurring the expenditure must be considered in determining whether or not the expenditure is necessary (COA Cir. 85-55A).

Section 164, GAAM, Vol. I - Excessive Expenditures

The term "excessive expenditures" signifies unreasonable expense or expenses incurred at an immoderate quantity or exorbitant price. It also includes expenses which exceed what is usual or proper as well as expenses which are unreasonably high, and beyond just measure or amount. They also include expenses in excess of reasonable limits (COA Cir. 85-55A).

Section 165, GAAM, Vol. I - Extravagant Expenditures

The term "extravagant expenditures" signifies those incurred without restraint, judiciousness and economy. Extravagant expenditures exceed the bounds of propriety. These expenditures are immoderate, prodigal, lavish, luxurious, wasteful, grossly excessive, and injudicious (COA Cir. 85-55A).

Section 166, GAAM, Vol. I - Unconscionable Expenditures

The term "unconscionable expenditures" signifies expenses without a knowledge or sense of what is right, reasonable and just and not guided or restrained by conscience. These are unreasonable, and immoderate expenses incurred in violation of ethics and morality by one who does not have any feeling of guilt for the violation.

Illustrative Decisions

COA Decision No. 319 dated June 23, 1983 - Where NACIDA/CIDE prices are excessive, agencies can purchase from other source at lesser rates

The purpose of LOI No. 83 is to assist the NACIDA/CIDE with adequate funds obtained from sales of products at reasonable rates. It is not intended to assist those bodies to a point detrimental to the public interest. It presupposes responsible pricing and does not authorize excessive or extravagant expenditure of public funds. Therefore, should NACIDA/CIDE prices appear to be far above the average selling price under the on-going market rates, the purchasing agencies concerned are enjoined to purchase from other source at lesser rates.

COA Decision No. 369 dated September 20, 1985 - Constitution prohibits giving away of public funds to a sect, church or sectarian institution without material value in return

What the Constitution prohibits, as opined by the then Secretary of Justice in his Opinion No. 244, Series of 1955, "is the giving away of public funds or property to a sect, church or sectarian institution as such without the Government receiving the corresponding material value in return.

Since no such material value was received by the Government in the instant case, the request for reconsideration may not be given due course.

COA Decision No. 385 dated August 29, 1986 - Government funds available only for the specific purpose for which these are appropriated

Well-settled is the rule that no Government funds shall be paid out of the public treasury or depository except in pursuance of an appropriation by law and once appropriated shall be available solely for the specific purpose for which these are made. Under the circumstances, the "suggestion" contained in the letter of the Minister of the Budget that the corporation can make use of its excess cash in the implementation of its projects is by no means the specific statutory authority which can validly justify the charging of subject excess expenditure to the corporate equity funds.

COA Decision No. 2292 dated May 20, 1992 - Honorarium for lecture on moral and spiritual upliftment allowed by law

The expenditure for the flowers was incidental and necessary to grace the activity while the honorarium of P700 was not purely for the personal benefit of the priest as the latter's lecture was conducted mainly for the purpose of upliftment of the spiritual and moral values of the residents concerned. Hence, the expenditures incurred was in the nature of compensation allowed by law and not prohibited under Section 42 of PD 477.

COA Decision No. 93-3110 dated August 25, 1993 - Holding a seminar at a hotel where function rooms are available in the agency considered an extravagant expenditure

Since the Philippine Heart Center had well equipped function rooms and facilities which were ready and available during the seminar period, the cost of the two-day seminar for medical personnel held at the Manila Peninsula Hotel is considered an extravagant expenditure prohibited under COA Circular No. 85-55A dated September 8, 1985.

National Housing Authority vs. COA, Gr. No. 101370 - COA authorized to disallow irregular, unnecessary, excessive, extravagant or unconscionable expenditures

The Constitution also granted to COA the power to 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. Pursuant to said constitutional mandate COA promulgated Circular No. 88-55A dated September 8, 1985 defining the term "unnecessary expenditures.

In Caltex Philippines, Inc. vs. COA, we recognized the authority of COA to disallow irregular, unnecessary, excessive, extravagant or unconscionable (IUEEU) expenditures. We ruled: Since the COA is responsible for the enforcement of the rules and regulations, it goes without saying that the failure to comply with them is a ground for disapproving the payment of the proposed expenditure.

There can be no dispute on the proposition that the continued extension of the services of Engr. Murdoch as a foreign consultant constitutes at the very least an unnecessary expenditure.

COA Decision No. 93-3335 dated October 14, 1993 - Purchase of ceiling fans stored in the stock room and left unused considered excessive and unnecessary

The purchase of 22 units of electric ceiling fans was excessive and unnecessary considering that they were not utilized during the SEDP Seminars conducted thereat but are instead stored and left unused in the stock room from the date of the purchase up to the present. Also, the existence of 12 units of ceiling fans in the SEDP Session Hall further reveal the plain extravagance of the subject purchase as these old units were already adequate.

COA Decision 93-3415 dated November 16, 1993 - Expenditures not supportive of the implementation of the objectives of the agency considered unnecessary

The purchase by the Cooperative Development Authority of 1,000 pieces gift wrappers with CDA logo in the amount of P14,500 violates Sec. 163 of GAAM which defines unnecessary expenditures as "those not supportive of the implementation of the objectives and mission of the agency relative to the nature of its operation." Moreover, one of the standards for unnecessary expenditures as contained in COA Circular No. 85-55A is that the volume of purchase must be enough to fill the three months requirements of the agency.

Unnumbered COA Decision dated January 6, 1994 - Public money may be used even if only a portion of the public is benefitted

Public money may now be used for slum clearance, low cost housing, squatter resettlement, etc. where only private persons are the immediate beneficiaries. Taxes may now be levied with a regulatory purpose to provide means for the rehabilitation of threatened industry which is affected with public interest. It is not necessary that tax be for the use of the whole body of inhabitants; it is sufficient if part or portion of the public is benefited. Although private individuals are benefited the tax is still valid as long as such benefit is only incidental.

COA Decision No. 94-124 dated March 14, 1994 - Donations for the benefit of charitable and socio-civic projects allowable

Aside from the purposes of subject donations which are considered proper, they being for the benefit of various charitable and socio-civic projects, it is worth emphasizing that moral recovery is one of the thrusts of government. Premise considered, COA believes that the disallowance in the total amount of P=1,265,500 may now be lifted.

COA Decision No. 94-341 dated December 13, 1994 - Non-ratification of suppliers who quoted lower prices but who did not participate in the bidding considered proper

The equipment was not available in the locality so as to enable the college to know what price is reasonable or not. Precisely, the bidding was conducted to ensure the lowest price for comparative quality or to secure the best terms for the government. If the only guide of the college in awarding the contract was the prices quoted by the suppliers at the time of the bidding, the college cannot be faulted for the non-ratification of the other suppliers who quoted lower prices.