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451 Phil. 812


[ G.R. No. 149154, June 10, 2003 ]




This is a petition for certiorari[1] to annul the Decision dated 12 September 2000 of the Commission on Audit ("COA") and its Resolution dated 5 July 2001. The COA affirmed the disallowance of payment of allowances and bonuses to members of the interim Board of Directors of the Catbalogan Water District.

The Antecedents

An auditing team from the COA Regional Office No. VIII in Candahug, Palo, Leyte, audited the accounts of the Catbalogan Water District ("CWD") in Catbalogan, Samar. The auditing team discovered that between May to December 1997 and April to June 1998, members of CWD's interim Board of Directors ("Board") granted themselves the following benefits: Representation and Transportation Allowance ("RATA"), Rice Allowance, Productivity Incentive Bonus, Anniversary Bonus, Year-End Bonus and cash gifts. These allowances and bonuses were authorized under Resolution No. 313, series of 1995, of the Local Water Utilities Administration ("LWUA").

During the audit, the COA audit team issued two notices of disallowance dated 1 October 1998 disallowing payment of the allowances and bonuses received by petitioners, namely: Rodolfo S. De Jesus, Edelwina DG. Parungao, Hermilo S. Balucan, Avelino C. Castillo and Danilo B. De Leon as members of the CWD Board as well as Alice Marie C. Osorio as the Board's secretary (collectively "petitioners"). The audit team disallowed the allowances and bonuses on the ground that they run counter to Section 13 of Presidential Decree No. 198 ("PD 198").

Petitioners appealed to the COA Regional Office No. VIII but COA Regional Director Dominador T. Tersol denied the appeal. Aggrieved, petitioners filed a petition for review with the COA which in a decision dated 12 September 2000 denied the petition. The COA also denied on 5 July 2001 petitioners' motion for reconsideration.

Hence, the instant petition.

The COA's Ruling

The COA explained that members of the CWD Board cannot receive compensation and other benefits in addition to the per diems allowed by Section 13 of PD 198. We quote the relevant portion of the COA's decision:
Resolution No. 313, s. 1995, as amended, which grants compensation and other benefits to the members of the Board of Directors of CWD is not in harmony with the aforequoted provisions of Sec. 13, PD 198, which speaks only of per diems, the amount of which is subject to approval by the administrator if more than P50.00 each for every meeting.

It is a fundamental rule in statutory construction that if a statute is clear, plain and free from ambiguity, it must be given literal meaning and applied without attempted interpretation. Thus, any resolution granting allowances to directors of Water Districts other than that authorized in Sec. 13 of PD 198 is null and void. A statutorily proscribed benefit may not be amended by a mere administrative fiat.[2]
The Issues

Petitioners contend that the COA committed grave abuse of discretion amounting to lack or excess of jurisdiction in —
    1.  Motu proprio exercising jurisdiction to declare LWUA Board Resolution No. 313, Series of 1995, as amended, not in conformity with Section 13 of PD 198, as amended;

    2.  Ruling that Section 13 of PD 198, as amended, prohibits payment to petitioners of RATA, extraordinary and miscellaneous expenses ("EME"), and other allowances and bonuses;

    3.  Demanding the refund of the disallowed allowances and bonuses received by petitioners as interim members and secretary of the CWD Board.
The Court's Ruling

The petition is meritorious in part.

The Catbalogan Water District was created pursuant to PD 198, as amended,[3] otherwise known as the Provincial Water Utilities Act of 1973. PD 198 authorized the local legislative bodies, through an enabling resolution, to create their respective water districts, subject to the guidelines and regulations under PD 198. PD 198 further created the Local Water Utilities Administration ("LWUA"), a national agency, and granted LWUA regulatory powers necessary to optimize public service from water districts.

COA `s Authority to Disallow Allowances and Benefits Granted under LWUA Board Resolution No. 313, Series 1995

For authority to grant themselves additional allowances and bonuses, petitioners rely on LWUA Resolution No. 131, series of 1995, entitled Policy Guidelines on Compensation and Other Benefits to WD Board of Directors. Petitioners assert that LWUA is the government agency tasked to regulate and control water districts created pursuant to PD 198 and that LWUA has the power to issue regulations to implement effectively PD 198. Petitioners claim that the COA has no jurisdiction to construe any provision of PD 198 on the compensation and other benefits granted to LWUA-designated members of the board of water districts. By exercising motu proprio plenary jurisdiction to construe and apply Section 13 of PD 198, the COA encroached on the powers of the LWUA. The COA also violated the presumption of legality and regularity generally accorded to policy circulars issued by the administrative agency entrusted to enforce the law.

Petitioners further claim that it is the Department of Budget and Management ("DBM"), not the COA, that has the power to administer the compensation and classification system of the government service and to revise it as necessary. Finally, citing Eslao v. COA,[4] petitioners contend that the COA "can do no less than to faithfully observe and carry into effect the mandate" of LWUA Board Resolution No. 313, until it is declared void in the proper forum.

Petitioners' contentions are untenable.

Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:
Sec. 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 state 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 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 preaudit, 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.

(2)     The Commission shall have exclusive authority, subject to the limitations in this article, to define the scope of its audit and examination, establish the techniques and methods required therefore, 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. (Emphasis supplied)
The Constitution and existing laws[5] mandate the COA to audit all government agencies, including government-owned and controlled corporations with original charters. Indeed, the Constitution specifically vests in the COA the authority to determine whether government entities comply with laws and regulations in disbursing government funds, and to disallow illegal or irregular disbursements of government funds.[6] This independent constitutional body is tasked to be vigilant and conscientious in safeguarding the proper use of the government's, and ultimately, the people's property.[7]

The Court already ruled in several cases[8] that a water district is a government-owned and controlled corporation with a special charter since it is created pursuant to a special law, PD 198. The COA has the authority to investigate whether directors, officials or employees of government-owned and controlled corporations, receiving additional allowances and bonuses, are entitled to such benefits under applicable laws. Thus, water districts are subject to the jurisdiction of the COA.[9]

We cannot sustain petitioners' claim that the COA usurped the functions of the LWUA in construing PD 198 and disallowing payment of the additional allowances and bonuses. Such a theory leads to the absurd situation where the board of an administrative agency, by the mere act of issuing a resolution, can put to naught the broad and extensive powers granted to the COA by the Constitution. This will prevent the COA from discharging its constitutional duty as an effective, efficient and independent watchdog of the financial operations of the government.[10]

Petitioners' reliance on Eslao[11] is misplaced.  In Eslao, the Department of Environment and Natural Resources and the Pangasinan State University entered into an agreement to evaluate government reforestation programs. The Asian Development Bank granted a loan to fund the implementation of the agreement. The personnel involved in the project were paid under the DBM-issued National Compensation Circular No. 53, which dealt with foreign-assisted projects. The COA disallowed the payment on the ground that the compensation should fall under the DBM-issued Compensation Policy Guidelines No. 80-4, which governs all projects and provides for lower compensation rates. In reversing the COA, the Court held that National Compensation Circular No. 53 amended Compensation Policy Guidelines No. 80-4 by excepting from the latter's scope foreign-assisted projects. The Court declared that the COA cannot "substitute its own judgment for any applicable x x x administrative regulation with the wisdom or propriety of which, however, it does not agree, at least not before such x x x regulation is set aside by the x x x courts x x x."

Clearly, Eslao is not in point. The difference is that in Eslao, the COA accepted the wisdom of Compensation Policy Guidelines No. 80-4 but refused to accept the propriety of the exception to the circular embodied in National Compensation Circular No. 53. The DBM issued both compensation regulations under its legislative authority to "classify positions and determine appropriate salaries for specific position classes and. review appropriate salaries for specific position classes and review the compensation benefits programs of agencies x x x."[12] Clearly, the COA had ample legislative authority to issue both compensation regulations. In the instant case, the COA was simply exercising its constitutional duty to examine and audit disbursements of public funds that are patently beyond what the law allows.

Petitioners confuse the COA which is an independent constitutional body with the DBM which is under the executive branch of the government. The DBM is responsible for formulating and implementing the national budget.[13] It is tasked to —
 President in the preparation of a national resources and expenditures budget, preparation, execution and control of the National budget, preparation and maintenance of accounting systems essential to the budgetary process, achievement of more economy and efficiency in the management of government operations, administration of compensation and position classification systems, assessment of organization effectiveness and review and evaluation of legislative proposals having budgetary or organizational implications.[14]
While the DBM is the government agency tasked to release government funds, the duty to examine and audit government accounts and expenditure properly pertains to the COA.[15]

PD 198 Expressly Prohibits the Grant of RATA, EME, and Bonuses to Members of the Board of Water Districts

Section 13 of PD 198, as amended, reads as follows:
Compensation. — Each director shall receive a per diem, to be determined by the board, for each meeting of the board actually attended by him, but no director shall receive per diems in any given month in excess of the equivalent of the total per diems of four meetings in any given month.  No director shall receive other compensation for services to the district.

Any per diem in excess of P50 shall be subject to approval of the Administration. (Emphasis supplied)
Petitioners argue that the term "compensation" in Section 13 of PD 198 does not include RATA, EME, bonuses and other similar benefits disallowed in this case.

This issue was already resolved in the similar case of Baybay Water District v. Commission on Audit.[16] In Baybay Water District, the members of the board of Baybay Water District also questioned the disallowance by the COA of payment of RATA, rice allowance and excessive per diems. The Court ruled that PD 198 governs the compensation of members of the board of water districts. Thus, members of the board of water districts cannot receive allowances and benefits more than those allowed by PD 198. Construing Section 13 of PD 198, the Court declared:
xxx    Under S 13 of this Decree, per diem is precisely intended to be the compensation of members of board of directors of water districts. Indeed, words and phrases in a statute must be given their natural, ordinary, and commonly-accepted meaning, due regard being given to the context in which the words and phrases are used. By specifying the compensation which a director is entitled to receive and by limiting the amount he/she is allowed to receive in a month, and, in the same paragraph, providing "No director shall receive other compensation" than the amount provided for per diems, the law quite clearly indicates that directors of water districts are authorized to receive only the per diem authorized by law and no other compensation or allowance in whatever form.
Section 13 of PD 198 is clear enough that it needs no interpretation. It expressly prohibits the grant of compensation other than the payment of per diems, thus preempting the exercise of any discretion by water districts in paying other allowances and bonuses.[17]

Refund of the Allowances and Benefits Received in Good Faith

Relying mainly on Civil Liberties Union v. Executive Secretary,[18] petitioners claim that the COA grossly erred in requiring them to refund the allowances and bonuses they received in good faith. In Civil Liberties Union, the Court declared Executive Order No. 284 unconstitutional as it allows Cabinet members, undersecretaries or assistant secretaries to hold multiple positions in violation of the express prohibition in Section 13, Article VII of the 1987 Constitution. However, the Court held that during their tenure in the questioned positions, respondents are de facto officers and entitled to emoluments for actual services rendered. The Court explained that "in cases were there is no de jure officer, a de facto officer, who in good faith has had possession of the office and has discharged the duties pertaining thereto, is legally entitled to the emoluments of the office, and may in an appropriate action recover the salary, fees and other compensations attached to the office."[19] The Court considered it unjust that the public should benefit from the services of a de facto officer and then be freed from all liability to pay for such, services. Thus, the Court ruled that any per diem, allowances or other emoluments received by the respondents in Civil Liberties Union for actual services rendered in the questioned positions may be retained by them.

The scenario in petitioners' case is different. The CWD Board appointed petitioners pursuant to PD 198. Petitioners received allowances and bonuses other than those granted to their office by PD 198. Petitioners cannot claim any compensation other than the per diem provided by PD 198 precisely because no other compensation is attached to their office.

Nevertheless, our pronouncement in Blaquera v. Alcala[20] supports petitioners' position on the refund of the benefits they received. In Blaquera, the officials and employees of several government departments and agencies were paid incentive benefits which the COA disallowed on the ground that Administrative Order No. 29 dated 19 January 1993 prohibited payment of these benefits. While the Court sustained the COA on the disallowance, it nevertheless declared that:
Considering, however, that all the parties here acted in good faith, we cannot countenance the refund of subject incentive benefits for the year 1992, which amounts the petitioners have already received. Indeed, no indicia of bad faith can be detected under the attendant facts and circumstances. The officials and chiefs of offices concerned disbursed such incentive benefits in the honest belief that the amounts given were due to the recipients and the latter accepted the same with gratitude, confident that they richly deserve such benefits.
This ruling in Blaquera applies to the instant case. Petitioners here received the additional allowances and bonuses in good faith under the honest belief that LWUA Board Resolution No. 313 authorized such payment. At the time petitioners received the additional allowances and bonuses, the Court had not yet decided Baybay Water District.[21] Petitioners had no knowledge that such payment was without legal basis. Thus, being in good faith, petitioners need not refund the allowances and bonuses they received but disallowed by the COA.

WHEREFORE, the Decision of the Commission on Audit dated 12 September 2000 as well as its Resolution dated 5 July 2001 are AFFIRMED with MODIFICATION. Petitioners need not refund the Representation and Transportation Allowance, Rice Allowance, Productivity Incentive Bonus, Anniversary Bonus, Year-End Bonus and cash gifts, received per Resolution No. 313, series of 1995, of the Local Water Utilities Administration, between May to December 1997 and April to June 1998.


Davide, Jr., C.J., Bellosillo, Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., and Azcuna, JJ., concur.

[1] Under Rule 64 of the 1997 Revised Rules of Court.

[2] Rollo, p. 20.

[3] As amended by Presidential Decrees Nos. 768 and 1479.

[4] G.R. No. 108310, 1 September 1994, 236 SCRA 161.

[5] Including the Government Auditing Code of the Philippines, specifically Section 26 thereof which provides:
Section 26. General Jurisdiction. The authority and powers of the Commission shall extend to and comprehend all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well as the examination, audit and settlement of all debts and instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations, including their subsidiaries, and other self-governing boards, commissions, or agencies of the Government, and as herein prescribed, including non-governmental entities subsidized by the government, those funded by donations through the government, those required to pay levies or government shares, and those for which the government has put up a counterpart fund or those partly funded by the government.     
and Section 11, Chapter 4, Subtitle B, Book V of the Administrative Code of 1987.

[6] National Electrification Administration v. COA, G.R. No. 143481, 15 February 2002.

[7] Caltex Philippines, Inc. v. Commission on Audit, G.R. No. 92585, 8 May 1992, 208 SCRA 726.

[8] Davao City Water District v. Civil Service Commission, G.R. Nos. 95237-38, 13 September, 1991, 201 SCRA 593; Tanjay Water District v. Gabaton, G.R. No. 84300, 17 April 1989, 172 SCRA 253; Hagonoy Water District v. NLRC, No. L-8l490, 31 August, 1988, 165 SCRA 272; Baguio Water District v. Hon. Trajano, etc., et al., 212 Phil. 674 (1984).

[9] Davao City Water District v. Civil Service Commission, ibid.

[10] Supra, see note 7.

[11] Supra, see note 4.

[12] Book IV, Title XVII, Chapter 3, Section 7(3), Revised Administrative Code of 1987.

[13] Book IV, Title XVII, Chapter 1, Section 2, Revised Administrative Code of 1987.

[14] Ibid., Section 3.

[15] Borrorneo v. Civil Service Commission, G.R. No.96032, 31 July 1991, 199 SCRA 911.

[16] G.R. Nos. 147248-49, 22 January 2002.

[17] Ibid.

[18] G.R. No. 83896, 22 February 1991, 194 SCRA 317.

[19] Emphasis supplied.

[20] 356 Phil. 678 (1998).

[21] Supra, see note 14.

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