Notice of Disallowance

Also known as: ND · Disallowance · Audit disallowance · Notice of Disallowance/Charge (ND/NC, as jointly styled in the 2009 Revised Rules of Procedure)

Government

Definition

A notice of disallowance (ND) is the principal accountability instrument of the Commission on Audit (COA) of the Philippines: the written audit decision by which a COA auditor disapproves, in whole or in part, a government transaction found contrary to law or to the rules against irregular, unnecessary, excessive, extravagant, or unconscionable expenditures. The Commission’s authority to promulgate rules “for the prevention and disallowance” of such expenditures rests on Article IX-D, Section 2 of the 1987 Constitution, and the operative framework is Presidential Decree No. 1445, the Government Auditing Code of the Philippines, supplemented by the Commission’s 2009 Revised Rules of Procedure, which define the root concept: “disallowance” is “the disapproval in audit of a transaction, either in whole or in part.” (PD No. 1445, 2009 COA Revised Rules of Procedure, 1987 Constitution, Article IX-D)

The instrument’s legal force is personal liability. Under Section 103 of PD No. 1445, expenditures made in violation of law or regulations “shall be the personal liability of the official or employee directly responsible”; Section 104 makes agency heads jointly and solidarily liable with negligent accountable officers, and Section 106 makes an officer who follows a superior’s illegal order without questioning it in writing secondarily liable. An ND is not immediately final, but if the persons held liable fail to appeal within six months from receipt, the disallowance becomes final and executory under Section 51 of the Code and Rule IV, Section 8 of the 2009 Rules. (Madera v. COA, PD No. 1445, 2009 COA Revised Rules of Procedure)

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Also Known As

ND
Disallowance
Audit disallowance
Notice of Disallowance/Charge (ND/NC, as jointly styled in the 2009 Revised Rules of Procedure)

Examples and Analogies

Charge-back analog: an ND functions like a credit-card charge-back against the government’s own transaction — after the money has been paid out, the auditor calls the expenditure back and directs that it be answered for by the persons who approved, certified, or received it. (Madera v. COA)
Two-track liability: the instrument deliberately splits responsibility — the approving or certifying officer answers for the decision to pay (liable only in bad faith, malice, or gross negligence under the Madera rules), while every recipient answers for the amount received (returnable as unjust enrichment unless genuinely earned for services rendered). (Madera v. COA)
Clock analog: the six-month appeal window is a one-way timer; once it lapses without an appeal, the disallowance hardens into a final, unchangeable liability under the doctrine of immutability of judgments. (PhilHealth v. COA (G.R. No. 222710))

Usage Scenarios

1. Post-Audit of Government Disbursements

COA audit teams examine agency transactions on a post-audit basis; where the audit discloses expenditures contrary to law, the Audit Team Leader and Supervising Auditor issue the ND as an audit decision resting on laws, regulations, jurisprudence, and generally accepted accounting and auditing principles. In Madera v. COA, eleven NDs disallowed municipal allowances totaling ₱7,706,253.10 found contrary to the Salary Standardization Law. (Madera v. COA, 2009 COA Revised Rules of Procedure)

2. Appeals Through the COA and the Supreme Court

A person aggrieved by an ND escalates it in writing to the COA Director with jurisdiction within six months from receipt (Rule V of the 2009 Rules), then by petition for review to the Commission Proper within the balance of the same period (Rule VII); the Commission Proper’s decision is reviewable by the Supreme Court on certiorari under Rule 64 within thirty days from notice of the final judgment — the sequence traversed in PhilHealth v. COA, G.R. No. 222129. (2009 COA Revised Rules of Procedure, PhilHealth v. COA (G.R. No. 222129), Madera v. COA)

3. Enforcement of Restitution

Once final, the ND is enforced as a money demand against the persons named: solidary liability against officers who acted in bad faith, malice, or gross negligence for the net disallowed amount, and restitution from recipients under solutio indebiti — tempered by the Court’s power to excuse return on grounds of undue prejudice or social justice, and to reduce awards on quantum meruit where services were actually rendered. (Madera v. COA, Avanceña v. COA)

Strategies

Answer the audit first: because an unexplained suspension ripens into a disallowance under Section 82 of PD No. 1445 if not satisfactorily explained within ninety days, accountable officers treat the audit-stage explanation as the cheapest point to stop an ND. (PD No. 1445)
Perfect the appeal on time: practitioners calendar the six-month window from receipt; PhilHealth v. COA (G.R. No. 222710) shows that a petition filed past the 180-day period meets the doctrine of immutability of judgments, barring relief even for good-faith payees. (PhilHealth v. COA (G.R. No. 222710))
Build the good-faith record: under Madera, approving officers escape liability by showing badges of good faith — certifications of funds, legal opinions, absence of precedent disallowance, longstanding unchallenged practice — while recipients prove what they received was genuinely compensation for services rendered. (Madera v. COA)
Distinguish roles before litigating: Avanceña v. COA absolved officers whose participation was purely administrative and ministerial: liability follows the approver and the recipient, not every signatory in the chain. (Avanceña v. COA)

Security and Safety Measures

Personal accountability as deterrent: Sections 103, 104, and 106 of the Government Auditing Code convert illegal expenditures into the personal, and in proper cases solidary, liability of responsible officials — the audit system’s principal safeguard against improvident spending. (PD No. 1445)
Layered review: an ND passes through the audit team, the COA Director, and the Commission Proper before reaching the Supreme Court, so no single auditor’s judgment becomes enforceable without opportunity for protest. (2009 COA Revised Rules of Procedure, PhilHealth v. COA (G.R. No. 222129))
Finality rule: the six-month period and the “final and executory” clause of Section 51 protect settled disallowances from endless relitigation, so that misapplied public money can actually be recovered. (PD No. 1445, PhilHealth v. COA (G.R. No. 222710))
Equity valves: the Madera rules excuse good-faith officers and hardship cases, guarding the instrument against becoming a trap for blameless civil servants while preserving restitution from the unjustly enriched. (Madera v. COA)

Historical Context

The disallowance descends from the audit-and-settlement powers of the old General Auditing Office, whose Auditor General under the 1935 Constitution was duty-bound to call out spending he deemed “irregular, unnecessary, excessive, or extravagant.” The 1973 Constitution reconstituted the audit office as the collegial Commission on Audit, and Presidential Decree No. 1445 (June 11, 1978) codified the modern disallowance machinery — the six-month appeal (Section 48), the sixty-day decision deadline (Section 49), certiorari to the Supreme Court (Section 50), and finality (Section 51). The 1987 Constitution retained the scheme and added COA’s exclusive authority to promulgate rules “for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures,” adding “unconscionable” to the inherited list. The Commission’s 2009 Revised Rules of Procedure (promulgated September 15, 2009) translated the statutory scheme into the present-day ND/NC/NS system. (1935 Constitution, PD No. 1445, 1987 Constitution, Article IX-D, 2009 COA Revised Rules of Procedure)

The doctrine was reshaped by three Supreme Court rulings. In PhilHealth v. COA, G.R. No. 222710 (July 24, 2018, En Banc), a petition filed beyond the 180-day window was too late: the COA decision sustaining the disallowance had become final and executory under Section 51, and the immutability of judgments compelled return of longevity pay even though the recipients had acted in good faith. In Madera v. COA, G.R. No. 244128 (September 8, 2020, En Banc), the Court laid down clear rules on the refund of disallowed amounts — good-faith approving officers excused, bad-faith officers solidarily liable for the net amount, recipients returning what they received absent proof of services rendered. In Avanceña v. COA, G.R. No. 254337 (June 18, 2024, En Banc), the Court applied the framework to procurement disallowances under Republic Act No. 9184, holding procurement body members solidarily liable for bad-faith violations while absolving a ministerial secretariat head. (PhilHealth v. COA (G.R. No. 222710), Madera v. COA, Avanceña v. COA, PhilHealth v. COA (G.R. No. 222129))

Challenges and Controversies

Finality Versus Justice

The strict six-month rule has produced the instrument’s harshest outcomes: in PhilHealth v. COA (G.R. No. 222710), rank-and-file recipients had to return longevity pay received in good faith solely because their institution’s petition missed the 180-day deadline — prompting criticism that procedural finality can defeat substantive fairness, and the counter-argument that without a hard cutoff, disallowed funds would never be conclusively recovered. (PhilHealth v. COA (G.R. No. 222710))

The Blameless-Recipient Problem

Before Madera, the treatment of passive payees swung between excusing everyone who acted in good faith and requiring refund from everyone. The Madera rules settled the middle position, but controversies persist over what counts as amounts “genuinely given in consideration of services rendered” and over the Court’s open-ended power to excuse return on social-justice grounds. (Madera v. COA, PhilHealth v. COA (G.R. No. 222129))

Enforcement Lag

Madera itself traced NDs issued for allowances granted years earlier, appealed to the Director in 2014–2015, decided by the Commission Proper in 2017, and resolved by the Supreme Court only in 2020 — illustrating why critics argue the ND’s deterrent value erodes when collection takes the better part of a decade. (Madera v. COA)

High-Profile Disallowances and Political Pressure

Because NDs name senior officials — governors, mayors, board members, political appointees — the instrument sits at the intersection of audit law and politics, with high-profile disallowances drawing public attention and pressure on the Commission; the constitutional guarantees of fixed terms and fiscal autonomy exist to keep the audit judgment independent of its targets. (1987 Constitution, Article IX-D, Avanceña v. COA)