06 FELICIANO v. COA (BITOIN) (RA 6758). Such was denied by the COA Chairman.
Petitioner filed a motion for
Jan. 14, 2004 | Carpio, J. | GOCC; Local Water District
PETITIONER: ENGR. RANULFO C. FELICIANO, in his capacity as General
Manager of the Leyte Metropolitan Water District (LMWD), Tacloban City
RESPONDENTS: COMMISSION ON AUDIT, Chairman CELSO D.
GANGAN, Commissioners RAUL C. FLORES and EMMANUEL M.
DALMAN, and Regional Director of COA Region VIII
SUMMARY:
The COA audited the accounts of LMWD. However, the petitioner did not pay for
the audit fees, instead, he asked for a refund of all auditing fees previously paid to
COA citing Sections 6 and 20 of Presidential Decree 198 as well as Section 18 of
Republic Act No. 6758. Petitioner argues that LWDs are private corporations,
thus, not subject to COA’s jurisdiction. The SC ruled that LWDs are GOCCs
because LWDs are not created under the Corporation Code, which is a general
law; not registered with the Securities and Exchange Commission; have no articles
of incorporation, no incorporators and no stockholders or members; no private
party involved as co-owner in the creation of an LWD; the local mayor or the
provincial governor appoints the directors of LWDs for a fixed term of 6 years;
the board directors and other personnel of LWDs are government employees
subject to civil service laws and anti-graft laws; and most importantly, LWDs exist
by virtue of PD 198, which constitutes their special charter. It 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. Hence, LWDs are GOCCs and subject to COA’s jurisdiction.
DOCTRINE:
The Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to GOCCs created by
special charters. LWDs exist by virtue of PD 198, which constitutes their special
charter. It 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.
There is no difference between the term original charters and special charters. By
GOCCs with original charter, it means GOCCs created by a special law and not
under the Corporation Code of the Philippines.
FACTS:
1. A Special Audit Team from COA Regional Office No. VIII audited the accounts
of LMWD. Subsequently, LMWD was requested to pay for corresponding
auditing fees. However, the petitioner did not heed such request, instead, he asked
for a refund of all auditing fees LMWD previously paid to COA citing Sections 6
and 20 of Presidential Decree 198 as well as Section 18 of Republic Act No. 6758
reconsideration but it was also denied.
2. Petitioner filed this instant petition. Attached to the petition were resolutions of
the Visayas Association of Water Districts (VAWD) and the Philippine
Association of Water Districts (PAWD) supporting the petition.
3. The COA ruled that this Court has already settled COAs audit jurisdiction over
local water districts in Davao City Water District v. CSC and COA; that water
districts are not private corporations but GOCCs.
4. Petitioner contends that COA committed grave abuse of discretion amounting to
lack or excess of jurisdiction by auditing LMWD and requiring it to pay auditing
fees.
ISSUE:
1. W/N a Local Water District (LWD) created under PD 198 is a GOCC subject to
the audit jurisdiction of COA. (YES)
2. W/N Section 20 of PD 198 prohibits COAs CPAs from auditing LWDs. (NO)
3. W/N Section 18 of RA 6758 prohibits the COA from charging GOCCs auditing
fees. (NO)
RULING:
WHEREFORE, the Resolution and the Decision of the COA denying petitioners MR
are AFFIRMED. The second sentence of Section 20 of Presidential Decree No. 198 is
declared VOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the
Constitution.
RATIO:
First Issue: W/N a Local Water District (LWD) created under PD 198 is a GOCC
subject to the audit jurisdiction of COA. (YES)
1. The Constitution and existing laws mandate COA to audit all government
agencies, including GOCCs with original charters. An LWD is a GOCC with an
original charter. Section 2(1), Article IX-D of the Constitution provides for COAs
audit jurisdiction.
2. 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)
3. The COAs audit jurisdiction extends not only to government agencies or
instrumentalities, but also to GOCCs with or without original charters.
4. Petitioner even argues that LWDs are private corporations. He theorizes that what
PD 198 created was the Local Waters Utilities Administration (LWUA) and not
the LWDs. Petitioner claims that LWDs are created pursuant to and not created
directly by PD 198. Thus, petitioner concludes that PD 198 is not an original
charter that would place LWDs within the audit jurisdiction of COA.
5. Petitioners contention deserves scant consideration. The Constitution recognizes
two classes of corporations. The first refers to private corporations created under
a general law. The second refers to GOCCs created by special charters.
6. Section 16, Article XII of the Constitution provides: 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.
7. The Constitution 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.
8. Private corporations may exist only under a general law. Under existing laws, that
general law is the Corporation Code, except that the Cooperative Code governs
the incorporation of cooperatives.
9. The Constitution authorizes Congress to create government-owned or controlled
corporations through special charters. Since private corporations cannot have
special charters, it follows that Congress can create corporations with special
charters only if such corporations are government-owned or controlled.
10. Obviously, LWDs are not private corporations because:
a. they are not created under the Corporation Code.
b. not registered with the Securities and Exchange Commission.
c. LWDs have no articles of incorporation, no incorporators and no
stockholders or members.
d. There is no private party involved as co-owner in the creation of an
LWD.
e. The local mayor or the provincial governor appoints the directors of
LWDs for a fixed term of 6 years.
f. The board directors and other personnel of LWDs are government
employees subject to civil service laws and anti-graft laws.
g. LWDs exist by virtue of PD 198, which constitutes their special charter.
It 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.
11. There is no difference between the term original charters and special charters. By
GOCCs with original charter, it means GOCCs created by a special law and not
under the Corporation Code of the Philippines.
12. Petitioners 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.
13. 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 does not prohibit the Congress
to create several GOCCs of the same class under one special enabling charter. The
rationale behind the prohibition on private corporations having special charters
does not apply to GOCCs. There is no danger of creating special privileges to
certain individuals, families or groups if there is one special law creating each
GOCC.
14. Petitioner also contends that LWDs are private corporations because Section 6 of
PD 198 declares that LWDs shall be considered quasi-public in nature. Petitioners
rationale is that only private corporations may be deemed quasi-public and not
public corporations. Petitioners argument is inconsequential. The constitutional
criterion on the exercise of COAs audit jurisdiction depends on the governments
ownership or control of a corporation. The nature of the corporation, whether it is
private, quasi-public, or public is immaterial. The Constitution vests in the COA
audit jurisdiction over GOCCs with or without original charters. The former is
subject to COA pre-audit, while latter is subject to COA post-audit. The
determining factor of COAs audit jurisdiction is government ownership or control
of the corporation. Certainly, the government owns and controls LWDs.
15. While Section 8 of PD 198 states that [N]o public official shall serve as director
of an LWD, it only means that the appointees to the board of directors of LWDs
shall come from the private sector.
16. If LWDs are neither GOCCs with original charters nor GOCCs without original
charters, then they would fall under the term agencies or instrumentalities of the
government and thus still subject to COAs audit jurisdiction. However, the stark
and undeniable fact is that the government owns LWDs. Section 45 of PD 198
recognizes government ownership of LWDs when Section 45 states that the board
of directors may dissolve an LWD only on the condition that another public entity
has acquired the assets of the district and has assumed all obligations and
liabilities attached thereto. The implication is clear that an LWD is a public and
not a private entity.
Second Issue: W/N Section 20 of PD 198 prohibits COAs CPAs from auditing LWDs.
(NO)
1. Petitioner claims that even on the assumption that the government owns and
controls LWDs, Section 20 of PD 198 prevents COA from auditing LWDs.
 Section 20 of PD 198 provides that auditing shall be performed by a certified
public accountant not in the government service. However, this was declared
unconstitutional because PD 198 cannot prevail over the Constitution. Section 3,
Article IX-C of the Constitution outlaws any scheme or devise to escape COAs
audit jurisdiction. 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.

Third Issue: W/N Section 18 of RA 6758 prohibits the COA from charging GOCCs
auditing fees. (NO)
1. Petitioner claims that the auditing fees COA charges LWDs for audit services
violate the prohibition in Section 18 of RA 6758. Section 18 is designed to
strengthen further the policy x x x to preserve the independence and integrity of
the COA, by explicitly PROHIBITING:
a. 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
b. 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 latters officials and
employees as part of their regular functions for purposes of paying
additional compensation to said officials and employees.
2. 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.
3. The word contributions in Section 18 is 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. 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 COAs 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.