On 13 March 2001, petitioner filed this instant petition.

Attached to the petition

ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of The Ruling of the Commission on Audit
the Leyte Metropolitan Water District (LMWD), Tacloban City, petitioner,
vs. The COA ruled that this Court has already settled COA’s audit jurisdiction over
COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, local water districts in Davao City Water District v. Civil Service Commission
Commissioners RAUL C. FLORES and EMMANUEL M. DALMAN, and and Commission on Audit,3 as follows:
Regional Director of COA Region VIII, respondents.
The above-quoted provision [referring to Section 3(b) PD 198]
CARPIO, J.: definitely sets to naught petitioner’s contention that they are private
corporations. It is clear therefrom that the power to appoint the
The Case members who will comprise the members of the Board of Directors
belong to the local executives of the local subdivision unit where such
This is a petition for certiorari1 to annul the Commission on Audit’s ("COA") districts are located. In contrast, the members of the Board of Directors
Resolution dated 3 January 2000 and the Decision dated 30 January 2001 or the trustees of a private corporation are elected from among members
denying the Motion for Reconsideration. The COA denied petitioner Ranulfo C. or stockholders thereof. It would not be amiss at this point to emphasize
Feliciano’s request for COA to cease all audit services, and to stop charging that a private corporation is created for the private purpose, benefit, aim
auditing fees, to Leyte Metropolitan Water District ("LMWD"). The COA also and end of its members or stockholders. Necessarily, said members or
denied petitioner’s request for COA to refund all auditing fees previously paid stockholders should be given a free hand to choose who will compose
by LMWD. the governing body of their corporation. But this is not the case here and
this clearly indicates that petitioners are not private corporations.
Antecedent Facts
The COA also denied petitioner’s request for COA to stop charging auditing
A Special Audit Team from COA Regional Office No. VIII audited the accounts fees as well as petitioner’s request for COA to refund all auditing fees already
of LMWD. Subsequently, LMWD received a letter from COA dated 19 July paid.
1999 requesting payment of auditing fees. As General Manager of LMWD,
petitioner sent a reply dated 12 October 1999 informing COA’s Regional The Issues
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 Petitioner contends that COA committed grave abuse of discretion amounting to
well as Section 18 of Republic Act No. 6758 ("RA 6758"). The Regional lack or excess of jurisdiction by auditing LMWD and requiring it to pay
Director referred petitioner’s reply to the COA Chairman on 18 October 1999. auditing fees. Petitioner raises the following issues for resolution:

On 19 October 1999, petitioner wrote COA through the Regional Director 1. Whether a Local Water District ("LWD") created under PD 198, as
asking for refund of all auditing fees LMWD previously paid to COA. amended, is a government-owned or controlled corporation subject to
the audit jurisdiction of COA;
On 16 March 2000, petitioner received COA Chairman Celso D. Gangan’s
Resolution dated 3 January 2000 denying his requests. Petitioner filed a motion 2. Whether Section 20 of PD 198, as amended, prohibits COA’s
for reconsideration on 31 March 2000, which COA denied on 30 January 2001. certified public accountants from auditing local water districts; and

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 3. Whether Section 18 of RA 6758 prohibits the COA from charging Whether LWDs are Private or Government-Owned
government-owned and controlled corporations auditing fees. and Controlled Corporations with Original Charters

The Ruling of the Court 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
The petition lacks merit. City Water District v. Civil Service Commission 5 and just recently reiterated
in De Jesus v. Commission on Audit.6 Petitioner maintains that LWDs are not
The Constitution and existing laws4 mandate COA to audit all government government-owned and controlled corporations with original charters. Petitioner
agencies, including government-owned and controlled corporations ("GOCCs") even argues that LWDs are private corporations. Petitioner asks the Court to
with original charters. An LWD is a GOCC with an original charter. Section consider certain interpretations of the applicable laws, which would give a "new
2(1), Article IX-D of the Constitution provides for COA’s audit jurisdiction, as perspective to the issue of the true character of water districts."7
follows:
Petitioner theorizes that what PD 198 created was the Local Waters Utilities
SECTION 2. (1) The Commission on Audit shall have the power, Administration ("LWUA") and not the LWDs. Petitioner claims that LWDs are
authority and duty to examine, audit, and settle all accounts pertaining created "pursuant to" and not created directly by PD 198. Thus, petitioner
to the revenue and receipts of, and expenditures or uses of funds and concludes that PD 198 is not an "original charter" that would place LWDs
property, owned or held in trust by, or pertaining to, the Government, or within the audit jurisdiction of COA as defined in Section 2(1), Article IX-D of
any of its subdivisions, agencies, or instrumentalities, including the Constitution. Petitioner elaborates that PD 198 does not create LWDs since
government-owned and controlled corporations with original it does not expressly direct the creation of such entities, but only provides for
charters, and on a post-audit basis: (a) constitutional bodies, their formation on an optional or voluntary basis.8 Petitioner adds that the
commissions and offices that have been granted fiscal autonomy under operative act that creates an LWD is the approval of the Sanggunian Resolution
this Constitution; (b) autonomous state colleges and universities; (c) as specified in PD 198.
other government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities receiving subsidy Petitioner’s contention deserves scant consideration.
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 We begin by explaining the general framework under the fundamental law. The
a condition of subsidy or equity. However, where the internal control Constitution recognizes two classes of corporations. The first refers to private
system of the audited agencies is inadequate, the Commission may corporations created under a general law. The second refers to government-
adopt such measures, including temporary or special pre-audit, as are owned or controlled corporations created by special charters. Section 16, Article
necessary and appropriate to correct the deficiencies. It shall keep the XII of the Constitution provides:
general accounts of the Government and, for such period as may be
provided by law, preserve the vouchers and other supporting papers Sec. 16. The Congress shall not, except by general law, provide for the
pertaining thereto. (Emphasis supplied) formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
The COA’s audit jurisdiction extends not only to government "agencies or charters in the interest of the common good and subject to the test of economic
instrumentalities," but also to "government-owned and controlled corporations viability.
with original charters" as well as "other government-owned or controlled
corporations" without original charters. 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

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charters, which historically gave certain individuals, families or groups special Unlike private corporations, which derive their legal existence and power from
privileges denied to other citizens.10 the Corporation Code, LWDs derive their legal existence and power from PD
198. Sections 6 and 25 of PD 19814 provide:
In short, Congress cannot enact a law creating a private corporation with a
special charter. Such legislation would be unconstitutional. Private corporations Section 6. Formation of District. — This Act is the source of
may exist only under a general law. If the corporation is private, it must authorization and power to form and maintain a district. For
necessarily exist under a general law. Stated differently, only corporations purposes of this Act, a district shall be considered as a quasi-public
created under a general law can qualify as private corporations. Under existing corporation performing public service and supplying public wants.
laws, that general law is the Corporation Code,11 except that the Cooperative As such, a district shall exercise the powers, rights and privileges
Code governs the incorporation of cooperatives.12 given to private corporations under existing laws, in addition to the
powers granted in, and subject to such restrictions imposed, under
The Constitution authorizes Congress to create government-owned or controlled this Act.
corporations through special charters. Since private corporations cannot have
special charters, it follows that Congress can create corporations with special (a) The name of the local water district, which shall include the name of
charters only if such corporations are government-owned or controlled. the city, municipality, or province, or region thereof, served by said
system, followed by the words "Water District".
Obviously, LWDs are not private corporations because they are not created
under the Corporation Code. LWDs are not registered with the Securities and (b) A description of the boundary of the district. In the case of a city or
Exchange Commission. Section 14 of the Corporation Code states that "[A]ll municipality, such boundary may include all lands within the city or
corporations organized under this code shall file with the Securities and municipality. A district may include one or more municipalities, cities
Exchange Commission articles of incorporation x x x." LWDs have no articles or provinces, or portions thereof.
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 (c) A statement completely transferring any and all waterworks and/or
of all corporations registered with the Securities and Exchange Commission. sewerage facilities managed, operated by or under the control of such
The local mayor or the provincial governor appoints the directors of LWDs for a city, municipality or province to such district upon the filing of
fixed term of office. This Court has ruled that LWDs are not created under the resolution forming the district.
Corporation Code, thus:
(d) A statement identifying the purpose for which the district is formed,
From the foregoing pronouncement, it is clear that what has been which shall include those purposes outlined in Section 5 above.
excluded from the coverage of the CSC are those corporations created
pursuant to the Corporation Code. Significantly, petitioners are not (e) The names of the initial directors of the district with the date of
created under the said code, but on the contrary, they were created expiration of term of office for each.
pursuant to a special law and are governed primarily by its
provision.13 (Emphasis supplied) (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.
LWDs exist by virtue of PD 198, which constitutes their special charter. Since
under the Constitution only government-owned or controlled corporations may (g) A statement acknowledging the powers, rights and obligations as set
have special charters, LWDs can validly exist only if they are government- forth in Section 36 of this Title.
owned or controlled. To claim that LWDs are private corporations with a special
charter is to admit that their existence is constitutionally infirm.

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 Nothing in the resolution of formation shall state or infer that the local The purpose of this amendment is to indicate that government
legislative body has the power to dissolve, alter or affect the district corporations such as the GSIS and SSS, which have original charters,
beyond that specifically provided for in this Act. fall within the ambit of the civil service. However, corporations which
are subsidiaries of these chartered agencies such as the Philippine
If two or more cities, municipalities or provinces, or any combination Airlines, Manila Hotel and Hyatt are excluded from the coverage of the
thereof, desire to form a single district, a similar resolution shall be civil service.
adopted in each city, municipality and province.
THE PRESIDING OFFICER (Mr. Trenas). What does the Committee
xxx say?

Sec. 25. Authorization. — The district may exercise all the powers MR. FOZ. Just one question, Mr. Presiding Officer. By the term
which are expressly granted by this Title or which are necessarily "original charters," what exactly do we mean?
implied from or incidental to the powers and purposes herein
stated. For the purpose of carrying out the objectives of this Act, a MR. ROMULO. We mean that they were created by law, by an act
district is hereby granted the power of eminent domain, the exercise of Congress, or by special law.
thereof shall, however, be subject to review by the Administration.
(Emphasis supplied) MR. FOZ. And not under the general corporation law.

Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly MR. ROMULO. That is correct. Mr. Presiding Officer.
confers on LWDs corporate powers. Section 6 of PD 198 provides that LWDs
"shall exercise the powers, rights and privileges given to private corporations MR. FOZ. With that understanding and clarification, the Committee
under existing laws." Without PD 198, LWDs would have no corporate powers. accepts the amendment.
Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable
conclusion is that LWDs are government-owned and controlled corporations MR. NATIVIDAD. Mr. Presiding Officer, so those created by the
with a special charter. general corporation law are out.

The phrase "government-owned and controlled corporations with original MR. ROMULO. That is correct. (Emphasis supplied)
charters" means GOCCs created under special laws and not under the general
incorporation law. There is no difference between the term "original charters" Again, in Davao City Water District v. Civil Service Commission,16 the Court
and "special charters." The Court clarified this in National Service Corporation reiterated the meaning of the phrase "government-owned and controlled
v. NLRC15 by citing the deliberations in the Constitutional Commission, as corporations with original charters" in this wise:
follows:
By "government-owned or controlled corporation with original
THE PRESIDING OFFICER (Mr. Trenas). The session is resumed. charter," We mean government owned or controlled corporation
created by a special law and not under the Corporation Code of the
Commissioner Romulo is recognized. Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819,
February 8, 1989, 170 SCRA 79, 82), We held:
MR. ROMULO. Mr. Presiding Officer, I am amending my original
proposed amendment to now read as follows: "including government- "The Court, in National Service Corporation (NASECO) v.
owned or controlled corporations WITH ORIGINAL CHARTERS." National Labor Relations Commission, G.R. No. 69870,
Page 4 of 10
 promulgated on 29 November 1988, quoting extensively the drainage area of said water supply and within one hundred
from the deliberations of the 1986 Constitutional (100) meters of the reservoir, conduit, canal, aqueduct, pumping
Commission in respect of the intent and meaning of the new station, or watershed used in connection with the water service;
phrase ‘with original charter,’ in effect held that and regulate the consumption, use or wastage of water;
government-owned and controlled corporations with
original charter refer to corporations chartered by special x x x. (Emphasis supplied)
law as distinguished from corporations organized under our
general incorporation statute — the Corporation Code. In The Sangguniang Bayan may establish a waterworks system only in accordance
NASECO, the company involved had been organized under the with the provisions of PD 198. The Sangguniang Bayan has no power to create a
general incorporation statute and was a subsidiary of the corporate entity that will operate its waterworks system. However, the
National Investment Development Corporation (NIDC) which Sangguniang Bayan may avail of existing enabling laws, like PD 198, to form
in turn was a subsidiary of the Philippine National Bank, a bank and incorporate a water district. Besides, even assuming for the sake of
chartered by a special statute. Thus, government-owned or argument that the Sangguniang Bayan has the power to create corporations, the
controlled corporations like NASECO are effectively, excluded LWDs would remain government-owned or controlled corporations subject to
from the scope of the Civil Service." (Emphasis supplied) COA’s audit jurisdiction. The resolution of the Sangguniang Bayan would
constitute an LWD’s special charter, making the LWD a government-owned and
Petitioner’s contention that the Sangguniang Bayan resolution creates the LWDs controlled corporation with an original charter. In any event, the Court has
assumes that the Sangguniang Bayan has the power to create corporations. This already ruled in Baguio Water District v. Trajano19 that the Sangguniang Bayan
is a patently baseless assumption. The Local Government Code17 does not vest resolution is not the special charter of LWDs, thus:
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 While it is true that a resolution of a local sanggunian is still necessary
establishment of a waterworks system "subject to existing laws." Thus, Section for the final creation of a district, this Court is of the opinion that said
447(5)(vii) of the Local Government Code provides: resolution cannot be considered as its charter, the same being intended
only to implement the provisions of said decree.
SECTION 447. Powers, Duties, Functions and Compensation. — (a)
The sangguniang bayan, as the legislative body of the municipality, Petitioner further contends that a law must create directly and explicitly a
shall enact ordinances, approve resolutions and appropriate funds for GOCC in order that it may have an original charter. In short, petitioner argues
the general welfare of the municipality and its inhabitants pursuant to that one special law cannot serve as enabling law for several GOCCs but only
Section 16 of this Code and in the proper exercise of the corporate for one GOCC. Section 16, Article XII of the Constitution mandates that
powers of the municipality as provided for under Section 22 of this "Congress shall not, except by general law,"20 provide for the creation of private
Code, and shall: corporations. Thus, the Constitution prohibits one special law to create one
private corporation, requiring instead a "general law" to create private
xxx corporations. In contrast, the same Section 16 states that "Government-owned or
controlled corporations may be created or established by special charters."
(vii) Subject to existing laws, provide for the establishment, Thus, the Constitution permits Congress to create a GOCC with a special
operation, maintenance, and repair of an efficient waterworks charter. There is, however, no prohibition on Congress to create several GOCCs
system to supply water for the inhabitants; regulate the of the same class under one special enabling charter.
construction, maintenance, repair and use of hydrants, pumps,
cisterns and reservoirs; protect the purity and quantity of the The rationale behind the prohibition on private corporations having special
water supply of the municipality and, for this purpose, extend charters does not apply to GOCCs. There is no danger of creating special
the coverage of appropriate ordinances over all territory within privileges to certain individuals, families or groups if there is one special law
Page 5 of 10
creating each GOCC. Certainly, such danger will not exist whether one special and should be regarded as an ordinary commercial corporation.
law creates one GOCC, or one special enabling law creates several GOCCs. Section 28 of the said law so provides. The consequence is that the
Thus, Congress may create GOCCs either by special charters specific to each relations of the Bank with its employees should be governed by the
GOCC, or by one special enabling charter applicable to a class of GOCCs, like labor laws, under which in fact they have already been paid some of
PD 198 which applies only to LWDs. their claims. (Emphasis supplied)

Petitioner also contends that LWDs are private corporations because Section 6 Certainly, the government owns and controls LWDs. The government organizes
of PD 19821 declares that LWDs "shall be considered quasi-public" in nature. LWDs in accordance with a specific law, PD 198. There is no private party
Petitioner’s rationale is that only private corporations may be deemed "quasi- involved as co-owner in the creation of an LWD. Just prior to the creation of
public" and not public corporations. Put differently, petitioner rationalizes that a LWDs, the national or local government owns and controls all their assets. The
public corporation cannot be deemed "quasi-public" because such corporation is government controls LWDs because under PD 198 the municipal or city mayor,
already public. Petitioner concludes that the term "quasi-public" can only apply or the provincial governor, appoints all the board directors of an LWD for a
to private corporations. Petitioner’s argument is inconsequential. 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
Petitioner forgets that the constitutional criterion on the exercise of COA’s audit and other personnel of LWDs are government employees subject to civil service
jurisdiction depends on the government’s ownership or control of a corporation. laws25 and anti-graft laws.26
The nature of the corporation, whether it is private, quasi-public, or public is
immaterial. 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
The Constitution vests in the COA audit jurisdiction over "government-owned of LWDs shall come from the private sector. Once such private sector
and controlled corporations with original charters," as well as "government- representatives assume office as directors, they become public officials
owned or controlled corporations" without original charters. GOCCs with governed by the civil service law and anti-graft laws. Otherwise, Section 8 of
original charters are subject to COA pre-audit, while GOCCs without original PD 198 would contravene Section 2(1), Article IX-B of the Constitution
charters are subject to COA post-audit. GOCCs without original charters refer to declaring that the civil service includes "government-owned or controlled
corporations created under the Corporation Code but are owned or controlled by corporations with original charters."
the government. The nature or purpose of the corporation is not material in
determining COA’s audit jurisdiction. Neither is the manner of creation of a If LWDs are neither GOCCs with original charters nor GOCCs without original
corporation, whether under a general or special law. charters, then they would fall under the term "agencies or instrumentalities" of
the government and thus still subject to COA’s audit jurisdiction. However, the
The determining factor of COA’s audit jurisdiction is government ownership stark and undeniable fact is that the government owns LWDs. Section 4527 of PD
or control of the corporation. In Philippine Veterans Bank Employees Union- 198 recognizes government ownership of LWDs when Section 45 states that the
NUBE v. Philippine Veterans Bank,22 the Court even ruled that the criterion of board of directors may dissolve an LWD only on the condition that "another
ownership and control is more important than the issue of original charter, thus: public entity has acquired the assets of the district and has assumed all
obligations and liabilities attached thereto." The implication is clear that an
This point is important because the Constitution provides in its Article LWD is a public and not a private entity.
IX-B, Section 2(1) that "the Civil Service embraces all branches,
subdivisions, instrumentalities, and agencies of the Government, Petitioner does not allege that some entity other than the government owns or
including government-owned or controlled corporations with original controls LWDs. Instead, petitioner advances the theory that the "Water
charters." As the Bank is not owned or controlled by the District’s owner is the District itself."28 Assuming for the sake of argument that
Government although it does have an original charter in the form an LWD is "self-owned,"29 as petitioner describes an LWD, the government in
of R.A. No. 3518,23 it clearly does not fall under the Civil Service any event controls all LWDs. First, government officials appoint all LWD
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directors to a fixed term of office. Second, any per diem of LWD directors in PD 198 cannot prevail over the Constitution. No amount of clever legislation
excess of P50 is subject to the approval of the Local Water Utilities can exclude GOCCs like LWDs from COA’s audit jurisdiction. Section 3,
Administration, and directors can receive no other compensation for their Article IX-C of the Constitution outlaws any scheme or devise to escape COA’s
services to the LWD.30 Third, the Local Water Utilities Administration can audit jurisdiction, thus:
require LWDs to merge or consolidate their facilities or operations.31 This
element of government control subjects LWDs to COA’s 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
Petitioner argues that upon the enactment of PD 198, LWDs became private funds, from the jurisdiction of the Commission on Audit. (Emphasis
entities through the transfer of ownership of water facilities from local supplied)
government units to their respective water districts as mandated by PD 198.
Petitioner is grasping at straws. Privatization involves the transfer of The framers of the Constitution added Section 3, Article IX-D of the
government assets to a private entity. Petitioner concedes that the owner of the Constitution precisely to annul provisions of Presidential Decrees, like that of
assets transferred under Section 6 (c) of PD 198 is no other than the LWD Section 20 of PD 198, that exempt GOCCs from COA audit. The following
itself.32 The transfer of assets mandated by PD 198 is a transfer of the water exchange in the deliberations of the Constitutional Commission elucidates this
systems facilities "managed, operated by or under the control of such city, intent of the framers:
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 MR. OPLE: I propose to add a new section on line 9, page 2 of the
indication that the transfer is to privatize the operation and control of water amended committee report which reads: NO LAW SHALL BE
systems. PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR
ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY
Finally, petitioner claims that even on the assumption that the government owns INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION
and controls LWDs, Section 20 of PD 198 prevents COA from auditing OF THE COMMISSION ON AUDIT.
LWDs. 34 Section 20 of PD 198 provides:
May I explain my reasons on record.
Sec. 20. System of Business Administration. — The Board shall, as
soon as practicable, prescribe and define by resolution a system of We know that a number of entities of the government took
business administration and accounting for the district, which shall be advantage of the absence of a legislature in the past to obtain
patterned upon and conform to the standards established by the presidential decrees exempting themselves from the jurisdiction of
Administration. Auditing shall be performed by a certified public the Commission on Audit, one notable example of which is the
accountant not in the government service. The Administration may, Philippine National Oil Company which is really an empty shell. It is a
however, conduct annual audits of the fiscal operations of the district to holding corporation by itself, and strictly on its own account. Its funds
be performed by an auditor retained by the Administration. Expenses were not very impressive in quantity but underneath that shell there
incurred in connection therewith shall be borne equally by the water were billions of pesos in a multiplicity of companies. The PNOC — the
district concerned and the Administration.35 (Emphasis supplied) empty shell — under a presidential decree was covered by the
jurisdiction of the Commission on Audit, but the billions of pesos
Petitioner argues that PD 198 expressly prohibits COA auditors, or any invested in different corporations underneath it were exempted from the
government auditor for that matter, from auditing LWDs. Petitioner asserts that coverage of the Commission on Audit.
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 Another example is the United Coconut Planters Bank. The
government service."36 Commission on Audit has determined that the coconut levy is a form of

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taxation; and that, therefore, these funds attributed to the shares of So I believe, Madam President, that the proposed amendment is
1,400,000 coconut farmers are, in effect, public funds. And that was, I unnecessary.
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 MR. MONSOD: Madam President, since this has been accepted, we
Planters Bank. The charter of the UCPB, through a presidential decree, would like to reply to the point raised by Commissioner de Castro.
exempted it from the jurisdiction of the Commission on Audit, it being a
private organization. THE PRESIDENT: Commissioner Monsod will please proceed.

So these are the fetuses of future abuse that we are slaying right here MR. MONSOD: I think the Commissioner is trying to avoid the
with this additional section. 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
May I repeat the amendment, Madam President: NO LAW SHALL BE where certain institutions were exempted from audit. We are just
PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR reaffirming, emphasizing, the role of the Commission on Audit so that
ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY this problem will never arise in the future.37
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,
THE PRESIDENT: May we know the position of the Committee on Article IX-D of the Constitution vesting in COA the power to audit all GOCCs.
the proposed amendment of Commissioner Ople? 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.
MR. JAMIR: If the honorable Commissioner will change the number
of the section to 4, we will accept the amendment. On the Legality of COA’s
Practice of Charging Auditing Fees
MR. OPLE: Gladly, Madam President. Thank you.
Petitioner claims that the auditing fees COA charges LWDs for audit services
MR. DE CASTRO: Madam President, point of inquiry on the new violate the prohibition in Section 18 of RA 6758,38 which states:
amendment.
Sec. 18. Additional Compensation of Commission on Audit Personnel
THE PRESIDENT: Commissioner de Castro is recognized. and of other Agencies. – In order to preserve the independence and
integrity of the Commission on Audit (COA), its officials and
MR. DE CASTRO: Thank you. May I just ask a few questions of employees are prohibited from receiving salaries, honoraria, bonuses,
Commissioner Ople. allowances or other emoluments from any government entity, local
government unit, government-owned or controlled corporations, and
Is that not included in Section 2 (1) where it states: "(c) government- government financial institutions, except those compensation paid
owned or controlled corporations and their subsidiaries"? So that if directly by COA out of its appropriations and contributions.
these government-owned and controlled corporations and their
subsidiaries are subjected to the audit of the COA, any law exempting Government entities, including government-owned or controlled
certain government corporations or subsidiaries will be already corporations including financial institutions and local government units
unconstitutional. are hereby prohibited from assessing or billing other government
entities, including government-owned or controlled corporations

Page 8 of 10
 including financial institutions or local government units for services The contributions referred to are the cost of audit services earlier
rendered by its officials and employees as part of their regular functions mentioned which cannot include the extra emoluments or benefits
for purposes of paying additional compensation to said officials and now claimed by petitioners. The COA is further barred from assessing
employees. (Emphasis supplied) or billing GOCCs and government financial institutions for services
rendered by its personnel as part of their regular audit functions for
Claiming that Section 18 is "absolute and leaves no doubt,"39 petitioner asks purposes of paying additional compensation to such personnel. x x x.
COA to discontinue its practice of charging auditing fees to LWDs since such (Emphasis supplied)
practice allegedly violates the law.
In Tejada, the Court explained the meaning of the word "contributions" in
Petitioner’s claim has no basis. Section 18 of RA 6758, which allows COA to charge GOCCs the cost of its
audit services:
Section 18 of RA 6758 prohibits COA personnel from receiving any kind of
compensation from any government entity except "compensation paid directly x x x the contributions from the GOCCs are limited to the cost of audit
by COA out of its appropriations and contributions." Thus, RA 6758 itself services which are based on the actual cost of the audit function in the
recognizes an exception to the statutory ban on COA personnel receiving corporation concerned plus a reasonable rate to cover overhead
compensation from GOCCs. In Tejada v. Domingo,40 the Court declared: expenses. The actual audit cost shall include personnel services,
maintenance and other operating expenses, depreciation on capital and
There can be no question that Section 18 of Republic Act No. 6758 is equipment and out-of-pocket expenses. In respect to the allowances and
designed to strengthen further the policy x x x to preserve the fringe benefits granted by the GOCCs to the COA personnel assigned to
independence and integrity of the COA, by explicitly PROHIBITING: the former’s auditing units, the same shall be directly defrayed by COA
(1) COA officials and employees from receiving salaries, honoraria, from its own appropriations x x x. 41
bonuses, allowances or other emoluments from any government entity,
local government unit, GOCCs and government financial COA may charge GOCCs "actual audit cost" but GOCCs must pay the same
institutions, except such compensation paid directly by the COA out directly to COA and not to COA auditors. Petitioner has not alleged that COA
of its appropriations and contributions, and (2) government entities, charges LWDs auditing fees in excess of COA’s "actual audit cost." Neither has
including GOCCs, government financial institutions and local petitioner alleged that the auditing fees are paid by LWDs directly to individual
government units from assessing or billing other government entities, COA auditors. Thus, petitioner’s contention must fail.
GOCCs, government financial institutions or local government units for
services rendered by the latter’s officials and employees as part of their WHEREFORE, the Resolution of the Commission on Audit dated 3 January
regular functions for purposes of paying additional compensation to said 2000 and the Decision dated 30 January 2001 denying petitioner’s Motion for
officials and employees. Reconsideration are AFFIRMED. The second sentence of Section 20 of
Presidential Decree No. 198 is declared VOID for being inconsistent with
xxx Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.

The first aspect of the strategy is directed to the COA itself, while the SO ORDERED.
second aspect is addressed directly against the GOCCs and government
financial institutions. Under the first, COA personnel assigned to Davide, Jr., C.J., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago,
auditing units of GOCCs or government financial institutions can Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr.,
receive only such salaries, allowances or fringe benefits paid and Azcuna, and Tinga, JJ., concur.
directly by the COA out of its appropriations and contributions.

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