464 Phil. 439
The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught petitioner’s contention that they are private corporations. It is clear therefrom that the power to appoint the members who will comprise the members of the Board of Directors belong to the local executives of the local subdivision unit where such districts are located. In contrast, the members of the Board of Directors or the trustees of a private corporation are elected from among members or stockholders thereof. It would not be amiss at this point to emphasize that a private corporation is created for the private purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or stockholders should be given a free hand to choose who will compose the governing body of their corporation. But this is not the case here and this clearly indicates that petitioners are not private corporations.The COA also denied petitioner’s request for COA to stop charging auditing fees as well as petitioner’s request for COA to refund all auditing fees already paid.
- Whether a Local Water District (“LWD”) created under PD 198, as amended, is a government-owned or controlled corporation subject to the audit jurisdiction of COA;
- Whether Section 20 of PD 198, as amended, prohibits COA’s certified public accountants from auditing local water districts; and
- Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and controlled corporations auditing fees.
SECTION 2. (1) 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 and 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; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied)The COA’s audit jurisdiction extends not only to government “agencies or instrumentalities,” but also to “government-owned and controlled corporations with original charters” as well as “other government-owned or controlled corporations” without original charters.
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens.
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are those corporations created pursuant to the Corporation Code. Significantly, petitioners are not created under the said code, but on the contrary, they were created pursuant to a special law and are governed primarily by its provision. (Emphasis supplied)LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only government-owned or controlled corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled. To claim that LWDs are private corporations with a special charter is to admit that their existence is constitutionally infirm.
Section 6. Formation of District. — This Act is the source of authorization and power to form and maintain a district. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act.Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs corporate powers. Section 6 of PD 198 provides that LWDs “shall exercise the powers, rights and privileges given to private corporations under existing laws.” Without PD 198, LWDs would have no corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable conclusion is that LWDs are government-owned and controlled corporations with a special charter.
(a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system, followed by the words “Water District”.
(b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof.
(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the control of such city, municipality or province to such district upon the filing of resolution forming the district.
(d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5 above.
(e) The names of the initial directors of the district with the date of expiration of term of office for each.
(f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 44 of this Title.
(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this Title.
Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be adopted in each city, municipality and province.
x x x
Sec. 25. Authorization. — The district may exercise all the powers which are expressly granted by this Title or which are necessarily implied from or incidental to the powers and purposes herein stated. For the purpose of carrying out the objectives of this Act, a district is hereby granted the power of eminent domain, the exercise thereof shall, however, be subject to review by the Administration. (Emphasis supplied)
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.Again, in Davao City Water District v. Civil Service Commission, the Court reiterated the meaning of the phrase “government-owned and controlled corporations with original charters” in this wise:
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: “including government-owned or controlled corporations WITH ORIGINAL CHARTERS.” The purpose of this amendment is to indicate that government corporations such as the GSIS and SSS, which have original charters, fall within the ambit of the civil service. However, corporations which are subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?
MR. FOZ. Just one question, Mr. Presiding Officer. By the term “original charters,” what exactly do we mean?
MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special law.
MR. FOZ. And not under the general corporation law.
MR. ROMULO. That is correct. Mr. Presiding Officer.
MR. FOZ. With that understanding and clarification, the Committee accepts the amendment.
MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are out.
MR. ROMULO. That is correct. (Emphasis supplied)
By “government-owned or controlled corporation with original charter,” We mean government owned or controlled corporation created by a special law and not under the Corporation Code of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:Petitioner’s contention that the Sangguniang Bayan resolution creates the LWDs assumes that the Sangguniang Bayan has the power to create corporations. This is a patently baseless assumption. The Local Government Code does not vest in the Sangguniang Bayan the power to create corporations. What the Local Government Code empowers the Sangguniang Bayan to do is to provide for the establishment of a waterworks system “subject to existing laws.” Thus, Section 447(5)(vii) of the Local Government Code provides:
“The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No. 69870, promulgated on 29 November 1988, quoting extensively from the deliberations of the 1986 Constitutional Commission in respect of the intent and meaning of the new phrase ‘with original charter,’ in effect held that government-owned and controlled corporations with original charter refer to corporations chartered by special law as distinguished from corporations organized under our general incorporation statute — the Corporation Code. In NASECO, the company involved had been organized under the general incorporation statute and was a subsidiary of the National Investment Development Corporation (NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank chartered by a special statute. Thus, government-owned or controlled corporations like NASECO are effectively, excluded from the scope of the Civil Service.” (Emphasis supplied)
SECTION 447. Powers, Duties, Functions and Compensation. — (a) The sangguniang bayan, as the legislative body of the municipality, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality as provided for under Section 22 of this Code, and shall:The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. The Sangguniang Bayan has no power to create a corporate entity that will operate its waterworks system. However, the Sangguniang Bayan may avail of existing enabling laws, like PD 198, to form and incorporate a water district. Besides, even assuming for the sake of argument that the Sangguniang Bayan has the power to create corporations, the LWDs would remain government-owned or controlled corporations subject to COA’s audit jurisdiction. The resolution of the Sangguniang Bayan would constitute an LWD’s special charter, making the LWD a government-owned and controlled corporation with an original charter. In any event, the Court has already ruled in Baguio Water District v. Trajano that the Sangguniang Bayan resolution is not the special charter of LWDs, thus:
x x x(vii) Subject to existing laws, provide for the establishment, operation, maintenance, and repair of an efficient waterworks system to supply water for the inhabitants; regulate the construction, maintenance, repair and use of hydrants, pumps, cisterns and reservoirs; protect the purity and quantity of the water supply of the municipality and, for this purpose, extend the coverage of appropriate ordinances over all territory within the drainage area of said water supply and within one hundred (100) meters of the reservoir, conduit, canal, aqueduct, pumping station, or watershed used in connection with the water service; and regulate the consumption, use or wastage of water;x x x. (Emphasis supplied)
While it is true that a resolution of a local sanggunian is still necessary for the final creation of a district, this Court is of the opinion that said resolution cannot be considered as its charter, the same being intended only to implement the provisions of said decree.Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may have an original charter. In short, petitioner argues that one special law cannot serve as enabling law for several GOCCs but only for one GOCC. Section 16, Article XII of the Constitution mandates that “Congress shall not, except by general law,” provide for the creation of private corporations. Thus, the Constitution prohibits one special law to create one private corporation, requiring instead a “general law” to create private corporations. In contrast, the same Section 16 states that “Government-owned or controlled corporations may be created or established by special charters.” Thus, the Constitution permits Congress to create a GOCC with a special charter. There is, however, no prohibition on Congress to create several GOCCs of the same class under one special enabling charter.
This point is important because the Constitution provides in its Article IX-B, Section 2(1) that “the Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charters.” As the Bank is not owned or controlled by the Government although it does have an original charter in the form of R.A. No. 3518, it clearly does not fall under the Civil Service and should be regarded as an ordinary commercial corporation. Section 28 of the said law so provides. The consequence is that the relations of the Bank with its employees should be governed by the labor laws, under which in fact they have already been paid some of their claims. (Emphasis supplied)Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD 198. There is no private party involved as co-owner in the creation of an LWD. Just prior to the creation of LWDs, the national or local government owns and controls all their assets. The government controls LWDs because under PD 198 the municipal or city mayor, or the provincial governor, appoints all the board directors of an LWD for a fixed term of six years. The board directors of LWDs are not co-owners of the LWDs. LWDs have no private stockholders or members. The board directors and other personnel of LWDs are government employees subject to civil service laws and anti-graft laws.
Sec. 20. System of Business Administration. — The Board shall, as soon as practicable, prescribe and define by resolution a system of business administration and accounting for the district, which shall be patterned upon and conform to the standards established by the Administration. Auditing shall be performed by a certified public accountant not in the government service. The Administration may, however, conduct annual audits of the fiscal operations of the district to be performed by an auditor retained by the Administration. Expenses incurred in connection therewith shall be borne equally by the water district concerned and the Administration. (Emphasis supplied)Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that matter, from auditing LWDs. Petitioner asserts that this is the import of the second sentence of Section 20 of PD 198 when it states that “[A]uditing shall be performed by a certified public accountant not in the government service.”
Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any investment of public funds, from the jurisdiction of the Commission on Audit. (Emphasis supplied)The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to annul provisions of Presidential Decrees, like that of Section 20 of PD 198, that exempt GOCCs from COA audit. The following exchange in the deliberations of the Constitutional Commission elucidates this intent of the framers:
MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee report which reads: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from auditing LWDs and Sections 2(1) and 3, Article IX-D of the Constitution vesting in COA the power to audit all GOCCs. We rule that the second sentence of Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the Constitution.
May I explain my reasons on record.
We know that a number of entities of the government took advantage of the absence of a legislature in the past to obtain presidential decrees exempting themselves from the jurisdiction of the Commission on Audit, one notable example of which is the Philippine National Oil Company which is really an empty shell. It is a holding corporation by itself, and strictly on its own account. Its funds were not very impressive in quantity but underneath that shell there were billions of pesos in a multiplicity of companies. The PNOC — the empty shell — under a presidential decree was covered by the jurisdiction of the Commission on Audit, but the billions of pesos invested in different corporations underneath it were exempted from the coverage of the Commission on Audit.
Another example is the United Coconut Planters Bank. The Commission on Audit has determined that the coconut levy is a form of taxation; and that, therefore, these funds attributed to the shares of 1,400,000 coconut farmers are, in effect, public funds. And that was, I think, the basis of the PCGG in undertaking that last major sequestration of up to 94 percent of all the shares in the United Coconut Planters Bank. The charter of the UCPB, through a presidential decree, exempted it from the jurisdiction of the Commission on Audit, it being a private organization.
So these are the fetuses of future abuse that we are slaying right here with this additional section.
May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.
THE PRESIDENT: May we know the position of the Committee on the proposed amendment of Commissioner Ople?
MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, we will accept the amendment.
MR. OPLE: Gladly, Madam President. Thank you.
MR. DE CASTRO: Madam President, point of inquiry on the new amendment.
THE PRESIDENT: Commissioner de Castro is recognized.
MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner Ople.
Is that not included in Section 2 (1) where it states: “(c) government-owned or controlled corporations and their subsidiaries”? So that if these government-owned and controlled corporations and their subsidiaries are subjected to the audit of the COA, any law exempting certain government corporations or subsidiaries will be already unconstitutional.
So I believe, Madam President, that the proposed amendment is unnecessary.
MR. MONSOD: Madam President, since this has been accepted, we would like to reply to the point raised by Commissioner de Castro.
THE PRESIDENT: Commissioner Monsod will please proceed.
MR. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past, because the same provision was in the 1973 Constitution and yet somehow a law or a decree was passed where certain institutions were exempted from audit. We are just reaffirming, emphasizing, the role of the Commission on Audit so that this problem will never arise in the future.
Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. – In order to preserve the independence and integrity of the Commission on Audit (COA), its officials and employees are prohibited from receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit, government-owned or controlled corporations, and government financial institutions, except those compensation paid directly by COA out of its appropriations and contributions.Claiming that Section 18 is “absolute and leaves no doubt,” petitioner asks COA to discontinue its practice of charging auditing fees to LWDs since such practice allegedly violates the law.
Government entities, including government-owned or controlled corporations including financial institutions and local government units are hereby prohibited from assessing or billing other government entities, including government-owned or controlled corporations including financial institutions or local government units for services rendered by its officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees. (Emphasis supplied)
There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further the policy x x x to preserve the independence and integrity of the COA, by explicitly PROHIBITING: (1) COA officials and employees from receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit, GOCCs and government financial institutions, except such compensation paid directly by the COA out of its appropriations and contributions, and (2) government entities, including GOCCs, government financial institutions and local government units from assessing or billing other government entities, GOCCs, government financial institutions or local government units for services rendered by the latter’s officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees.In Tejada, the Court explained the meaning of the word “contributions” in Section 18 of RA 6758, which allows COA to charge GOCCs the cost of its audit services:
x x x
The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed directly against the GOCCs and government financial institutions. Under the first, COA personnel assigned to auditing units of GOCCs or government financial institutions can receive only such salaries, allowances or fringe benefits paid directly by the COA out of its appropriations and contributions. The contributions referred to are the cost of audit services earlier mentioned which cannot include the extra emoluments or benefits now claimed by petitioners. The COA is further barred from assessing or billing GOCCs and government financial institutions for services rendered by its personnel as part of their regular audit functions for purposes of paying additional compensation to such personnel. x x x. (Emphasis supplied)
x x x the contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost of the audit function in the corporation concerned plus a reasonable rate to cover overhead expenses. The actual audit cost shall include personnel services, maintenance and other operating expenses, depreciation on capital and equipment and out-of-pocket expenses. In respect to the allowances and fringe benefits granted by the GOCCs to the COA personnel assigned to the former’s auditing units, the same shall be directly defrayed by COA from its own appropriations x x x. COA may charge GOCCs “actual audit cost” but GOCCs must pay the same directly to COA and not to COA auditors. Petitioner has not alleged that COA charges LWDs auditing fees in excess of COA’s “actual audit cost.” Neither has petitioner alleged that the auditing fees are paid by LWDs directly to individual COA auditors. Thus, petitioner’s contention must fail.
“(b) Appointing Authority. – The person empowered to appoint the members of the Board of Directors of a local water district depending upon the geographic coverage and population make-up of the particular district. In the event that more than seventy-five percent of the total active water service connections of local water districts are within the boundary of any city or municipality, the appointing authority shall be the mayor of the city or municipality, as the case may be; otherwise, the appointing authority shall be the governor of the province within which the district is located: Provided, That if the existing waterworks system in the city or municipality established as a water district under this Decree is operated and managed by the province, initial appointment shall be extended by the governor of the province. Subsequent appointments shall be as specified as herein. Baguio Water District v. Trajano, supra note 20; Davao City Water District v. Civil Service Commission, supra note 3.
If portions of more than one province are included within the boundary of the district, and the appointing authority is to be the governor, then the power to appoint shall rotate between the governors involved with the initial appointments made by the governor in whose province the greatest number of service connections exists.”