De Jesus vs. Commission on Audit

Factual Background

An auditing team of the COA Regional Office No. VIII audited the accounts of the Catbalogan Water District ("CWD") and found that between May to December 1997 and April to June 1998 members of the interim Board and the Board secretary had received Representation and Transportation Allowance ("RATA"), Rice Allowance, Productivity Incentive Bonus, Anniversary Bonus, Year-End Bonus and cash gifts. These payments were authorized internally by LWUA Board Resolution No. 313, Series of 1995.

Audit Findings and Notices of Disallowance

The COA audit team issued two notices of disallowance dated 1 October 1998 disallowing payment of the allowances and bonuses to the petitioners. The audit team grounded the disallowance on the contention that the payments ran contrary to Section 13 of PD 198, which provides that each director shall receive a per diem as determined by the board and that no director shall receive other compensation for services to the district.

Administrative Proceedings

Petitioners appealed the disallowances to the COA Regional Office No. VIII, where Regional Director Dominador T. Tersol denied the appeal. Petitioners then filed a petition for review with the COA central office, which issued a decision dated 12 September 2000 denying the petition. A motion for reconsideration was denied by COA by resolution dated 5 July 2001. Petitioners then filed the instant petition for certiorari under Rule 64 of the Rules of Court.

Petitioners' Contentions

Petitioners contended that the COA committed grave abuse of discretion by: (a) acting motu proprio to declare LWUA Board Resolution No. 313 not in conformity with Section 13 of PD 198; (b) ruling that Section 13 prohibits payment of RATA, extraordinary and miscellaneous expenses ("EME"), and other allowances and bonuses; and (c) demanding refund of the disallowed allowances and bonuses. Petitioners argued that LWUA, as the regulatory agency for water districts under PD 198, had the authority to fix compensation and benefits by administrative resolution and that COA lacked jurisdiction to substitute its judgment for LWUA’s policy circular. Petitioners also invoked the Department of Budget and Management’s role in administering compensation and relied on Eslao v. COA to assert that COA should observe LWUA Resolution No. 313 until a court declared it void.

COA's Rationale

COA concluded that Resolution No. 313, Series of 1995, which purported to grant compensation and other benefits beyond per diems, was inconsistent with Section 13 of PD 198, which speaks only of per diems and expressly states that "No director shall receive other compensation for services to the district." COA applied principles of statutory construction to enforce the clear language of Section 13 and disallowed payments not authorized by the decree.

Issues Presented to the Court

The Court identified the central questions as: whether COA had the constitutional authority to audit and disallow the questioned payments; whether Section 13 of PD 198 precluded payment of RATA, EME, bonuses and similar benefits to water district board members; and whether petitioners, having received the payments in good faith under LWUA Resolution No. 313, were obliged to refund them.

COA's Constitutional Authority to Audit and Disallow

The Court affirmed COA's constitutional and statutory authority to audit and disallow expenditures of government entities. It relied on Section 2, Subdivision D, Article IX of the 1987 Constitution, which vests the Commission on Audit with power and duty to examine, audit, and settle all accounts pertaining to government revenues and expenditures and with exclusive authority to define the scope of its audit and to promulgate rules for prevention and disallowance of irregular or unconscionable expenditures. The Court observed that water districts created under PD 198 are government-owned and controlled corporations with special charters and therefore fall squarely within COA’s auditing jurisdiction. The Court rejected petitioners' contention that COA had usurped LWUA’s functions, explaining that permitting an administrative board by resolution to authorize payments inconsistent with statute would nullify COA’s constitutional duty to guard public funds.

Construction of Section 13 of PD 198

The Court construed Section 13 of PD 198 as clear and unambiguous. The provision grants each director a per diem, limits the number of per diems allowable in a month, requires approval for per diems in excess of P50, and explicitly provides that "No director shall receive other compensation for services to the district." The Court held that "per diem" is the compensation intended for board members and that the statute expressly prohibits other compensation or allowance in any form. The Court cited Baybay Water District v. Commission on Audit in support of this interpretation and reaffirmed that Section 13 preempts any administrative resolution purporting to grant additional allowances or bonuses.

Distinction from Eslao and Roles of DBM and COA

The Court distinguished Eslao v. COA, noting that Eslao involved competing DBM compensation circulars where DBM had delegated authority and both regulations derived from DBM’s legislative authority over compensation. By contrast, the instant case concerned COA's constitutional duty to disallow expenditures plainly beyond the statute's authorization. The Court also distinguished the functions of the Department of Budget and Management and COA, reiterating that while DBM formulates and administers the compensation and classification systems and controls the national budget, the examination and audit of government accounts properly pertain to COA.

Application of Precedent on Refunds of Benefits Received in Good Faith

On the remedy of refund, the Court examined precedent. It found petitioners’ reliance on Civil Liberties Union v. Executive Secretary inapposite because that case involved de facto officers e