Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 147402
January 14, 2004
ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte
Metropolitan Water District (LMWD), Tacloban City, petitioner,
vs.
COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and
EMMANUEL M. DALMAN, and Regional Director of COA Region VIII, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari1 to annul the Commission on Audits ("COA") Resolution dated 3 January
2000 and the Decision dated 30 January 2001 denying the Motion for Reconsideration. The COA denied
petitioner Ranulfo C. Felicianos request for COA to cease all audit services, and to stop charging
auditing fees, to Leyte Metropolitan Water District ("LMWD"). The COA also denied petitioners request
for COA to refund all auditing fees previously paid by LMWD.
Antecedent Facts
A Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD. Subsequently,
LMWD received a letter from COA dated 19 July 1999 requesting payment of auditing fees. As General
Manager of LMWD, petitioner sent a reply dated 12 October 1999 informing COAs Regional Director
that the water district could not pay the auditing fees. Petitioner cited as basis for his action Sections 6
and 20 of Presidential Decree 198 ("PD 198")2, as well as Section 18 of Republic Act No. 6758 ("RA
6758"). The Regional Director referred petitioners reply to the COA Chairman on 18 October 1999.
On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all
auditing fees LMWD previously paid to COA.
On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3 January
2000 denying his requests. Petitioner filed a motion for reconsideration on 31 March 2000, which COA
denied on 30 January 2001.
On 13 March 2001, 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.
The Ruling of the Commission on Audit
The COA ruled that this Court has already settled COAs audit jurisdiction over local water districts in
Davao City Water District v. Civil Service Commission and Commission on Audit,3 as follows:
The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught
petitioners 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 petitioners request for COA to stop charging auditing fees as well as petitioners
request for COA to refund all auditing fees already paid.
The Issues
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. Petitioner raises the following
issues for resolution:
1. 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;
2. Whether Section 20 of PD 198, as amended, prohibits COAs certified public accountants
from auditing local water districts; and
3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and
controlled corporations auditing fees.

The Ruling of the Court

The petition lacks merit.
The Constitution and existing laws4 mandate COA to audit all government agencies, including
government-owned and controlled corporations ("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, as follows:
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 COAs 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.
Whether LWDs are Private or Government-Owned
and Controlled Corporations with Original Charters
Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed
by a long line of cases culminating in Davao City Water District v. Civil Service Commission5 and
just recently reiterated in De Jesus v. Commission on Audit.6 Petitioner maintains that LWDs are not
government-owned and controlled corporations with original charters. Petitioner even argues that
LWDs are private corporations. Petitioner asks the Court to consider certain interpretations of the
applicable laws, which would give a "new perspective to the issue of the true character of water
districts."7
Petitioner 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 as defined in Section 2(1), Article IX-D of the Constitution. Petitioner
elaborates that PD 198 does not create LWDs since it does not expressly direct the creation of such
entities, but only provides for their formation on an optional or voluntary basis. 8 Petitioner adds that
the operative act that creates an LWD is the approval of the Sanggunian Resolution as specified in PD
198.
Petitioners contention deserves scant consideration.
We begin by explaining the general framework under the fundamental law. The Constitution recognizes
two classes of corporations. The first refers to private corporations created under a general law. The
second refers to government-owned or controlled corporations created by special charters. 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.
The Constitution emphatically prohibits the creation of private corporations except by a general law
applicable to all citizens.9 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.10
In short, Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law. Stated differently, only
corporations created under a general law can qualify as private corporations. Under existing laws, that
general law is the Corporation Code,11 except that the Cooperative Code governs the incorporation of
cooperatives.12

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.
Obviously, LWDs are not private corporations because they are not created under the Corporation
Code. LWDs are not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that "[A]ll corporations organized under this code shall file with the Securities
and Exchange Commission articles of incorporation x x x." LWDs have no articles of incorporation, no
incorporators and no stockholders or members. There are no stockholders or members to elect the
board directors of LWDs as in the case of all corporations registered with the Securities and Exchange
Commission. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term
of office. This Court has ruled that LWDs are not created under the Corporation Code, thus:
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.13
(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.
Unlike private corporations, which derive their legal existence and power from the Corporation Code,
LWDs derive their legal existence and power from PD 198. Sections 6 and 25 of PD 198 14 provide:
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.
(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.
xxx
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)
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.

The phrase "government-owned and controlled corporations with original charters" means GOCCs
created under special laws and not under the general incorporation law. There is no difference between
the term "original charters" and "special charters." The Court clarified this in National Service
Corporation v. NLRC15 by citing the deliberations in the Constitutional Commission, as follows:
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.
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)
Again, in Davao City Water District v. Civil Service Commission,16 the Court reiterated the
meaning of the phrase "government-owned and controlled corporations with original charters" in this
wise:
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:
"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)
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 Code17 does not vest in the Sangguniang Bayan the power to create corporations. 18
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:
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:
xxx
(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)
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 COAs audit jurisdiction. The resolution of the Sangguniang Bayan
would constitute an LWDs 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. Trajano19 that the Sangguniang Bayan resolution is not the special charter of LWDs, thus:
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,"20 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.
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. Certainly, such danger will not exist whether one special
law creates one GOCC, or one special enabling law creates several GOCCs. Thus, Congress may create
GOCCs either by special charters specific to each GOCC, or by one special enabling charter applicable
to a class of GOCCs, like PD 198 which applies only to LWDs.
Petitioner also contends that LWDs are private corporations because Section 6 of PD 198 21 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. Put differently, petitioner
rationalizes that a public corporation cannot be deemed "quasi-public" because such corporation is
already public. Petitioner concludes that the term "quasi-public" can only apply to private corporations.
Petitioners argument is inconsequential.
Petitioner forgets that 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 "government-owned and controlled
corporations with original charters," as well as "government-owned or controlled corporations" without
original charters. GOCCs with original charters are subject to COA pre-audit, while GOCCs without
original charters are subject to COA post-audit. GOCCs without original charters refer to corporations
created under the Corporation Code but are owned or controlled by the government. The nature or
purpose of the corporation is not material in determining COAs audit jurisdiction. Neither is the
manner of creation of a corporation, whether under a general or special law.
The determining factor of COAs audit jurisdiction is government ownership or control of the
corporation. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans
Bank,22 the Court even ruled that the criterion of ownership and control is more important than the
issue of original charter, thus:
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. 3518,23 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. 24 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 25 and
anti-graft laws.26
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. Once
such private sector representatives assume office as directors, they become public officials governed
by the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198 would contravene Section
2(1), Article IX-B of the Constitution declaring that the civil service includes "government-owned or
controlled corporations with original charters."
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
4527 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.
Petitioner does not allege that some entity other than the government owns or controls LWDs. Instead,
petitioner advances the theory that the "Water Districts owner is the District itself." 28 Assuming for the
sake of argument that an LWD is "self-owned,"29 as petitioner describes an LWD, the government in any
event controls all LWDs. First, government officials appoint all LWD directors to a fixed term of office.
Second, any per diem of LWD directors in excess of P50 is subject to the approval of the Local Water
Utilities Administration, and directors can receive no other compensation for their services to the
LWD.30 Third, the Local Water Utilities Administration can require LWDs to merge or consolidate their
facilities or operations.31 This element of government control subjects LWDs to COAs audit jurisdiction.
Petitioner argues that upon the enactment of PD 198, LWDs became private entities through the
transfer of ownership of water facilities from local government units to their respective water districts
as mandated by PD 198. Petitioner is grasping at straws. Privatization involves the transfer of
government assets to a private entity. Petitioner concedes that the owner of the assets transferred
under Section 6 (c) of PD 198 is no other than the LWD itself. 32 The transfer of assets mandated by PD
198 is a transfer of the water systems facilities "managed, operated by or under the control of such
city, municipality or province to such (water) district."33 In short, the transfer is from one government
entity to another government entity. PD 198 is bereft of any indication that the transfer is to privatize
the operation and control of water systems.
Finally, petitioner claims that even on the assumption that the government owns and controls LWDs,
Section 20 of PD 198 prevents COA from auditing LWDs. 34 Section 20 of PD 198 provides:
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.35 (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."36
PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude GOCCs like
LWDs from COAs audit jurisdiction. Section 3, Article IX-C of the Constitution outlaws any scheme or
devise to escape COAs audit jurisdiction, thus:
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.
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.37
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.
On the Legality of COAs
Practice of Charging Auditing Fees
Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in
Section 18 of RA 6758,38 which states:
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.
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)
Claiming that Section 18 is "absolute and leaves no doubt," 39 petitioner asks COA to discontinue its
practice of charging auditing fees to LWDs since such practice allegedly violates the law.
Petitioners claim has no basis.
Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any
government entity except "compensation paid directly by COA out of its appropriations and
contributions." Thus, RA 6758 itself recognizes an exception to the statutory ban on COA personnel
receiving compensation from GOCCs. In Tejada v. Domingo,40 the Court declared:
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 latters officials and employees as part of their regular functions
for purposes of paying additional compensation to said officials and employees.
xxx
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)
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 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-ofpocket expenses. In respect to the allowances and fringe benefits granted by the GOCCs to the
COA personnel assigned to the formers auditing units, the same shall be directly defrayed by
COA from its own appropriations x x x. 41
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, petitioners contention must fail.
WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and the Decision
dated 30 January 2001 denying petitioners Motion for Reconsideration 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. No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, AustriaMartinez, Corona, Carpio-Morales, Callejo, Sr., and Azcuna, and Tinga, JJ., concur.