The Supreme Court affirmed the Commission on Audit’s (COA) power to audit local water districts (LWDs), reinforcing that these entities are government-owned and controlled corporations (GOCCs) subject to public scrutiny. This ruling ensures that LWDs, which manage essential water resources, are held accountable for their financial operations, safeguarding public funds and promoting transparency in their administration. The decision underscores the importance of COA’s oversight in maintaining integrity and preventing misuse of resources within these critical public service providers.
Watering Down Accountability? COA’s Jurisdiction Over Local Water Districts
The case of Feliciano v. Commission on Audit revolves around the question of whether local water districts (LWDs) fall under the audit jurisdiction of the Commission on Audit (COA). Engr. Ranulfo C. Feliciano, as General Manager of Leyte Metropolitan Water District (LMWD), challenged COA’s authority to audit LMWD and to charge auditing fees. Feliciano argued that LWDs are not government-owned or controlled corporations with original charters, and thus, COA’s audit jurisdiction should not extend to them. This challenge stemmed from a COA audit of LMWD’s accounts, which led to a request for payment of auditing fees that LMWD refused to pay, citing provisions in Presidential Decree 198 and Republic Act No. 6758.
The Supreme Court, however, disagreed with Feliciano’s arguments. Building on a long line of precedents, including Davao City Water District v. Civil Service Commission, the Court firmly established that LWDs are indeed government-owned and controlled corporations with original charters. This classification stems from the fact that LWDs are created under a special law, Presidential Decree 198, and not under the general incorporation law or the Corporation Code. The Constitution explicitly grants COA 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. This broad mandate is designed to ensure accountability and transparency in the management of public resources.
The Court emphasized that the Constitution recognizes two classes of corporations: private corporations created under a general law, and government-owned or controlled corporations created by special charters. Since LWDs are not created under the Corporation Code and have no stockholders or members to elect a board of directors, they cannot be considered private corporations. Instead, they exist by virtue of PD 198, which confers upon them corporate powers and serves as their special charter. The appointment of LWD directors by local government officials further underscores their status as government-controlled entities.
Moreover, the Court addressed Feliciano’s argument that Section 20 of PD 198 prohibits COA auditors from auditing LWDs. Section 20 states that “Auditing shall be performed by a certified public accountant not in the government service.” The Supreme Court declared this provision unconstitutional, asserting that it directly conflicts with Sections 2(1) and 3, Article IX-D of the Constitution, which vest in COA the power to audit all GOCCs. To allow such a provision to stand would be to undermine COA’s constitutional mandate and create opportunities for abuse and mismanagement of public funds.
Regarding the legality of COA’s practice of charging auditing fees, the Court found no violation of Section 18 of RA 6758, which prohibits COA personnel from receiving compensation from any government entity except “compensation paid directly by COA out of its appropriations and contributions.” The Court clarified that the “contributions” referred to in Section 18 pertain to the cost of audit services, which COA is entitled to charge to GOCCs. This ensures that COA has the resources necessary to carry out its auditing functions effectively, while also preventing any undue influence or conflicts of interest that could arise from direct payments to COA personnel by the entities they audit.
FAQs
| What was the key issue in this case? | The central issue was whether local water districts (LWDs) fall under the audit jurisdiction of the Commission on Audit (COA), and whether COA could legally charge these entities auditing fees. |
| Are local water districts considered private or government entities? | The Supreme Court has consistently ruled that LWDs are government-owned and controlled corporations (GOCCs) with original charters, due to their creation under a special law (PD 198). |
| What is an ‘original charter’ in the context of GOCCs? | An original charter refers to a government-owned or controlled corporation created by a special law or act of Congress, rather than under the general incorporation statute (Corporation Code). |
| Why is COA’s audit jurisdiction over LWDs important? | COA’s audit jurisdiction ensures accountability and transparency in the management of public resources within LWDs, preventing misuse and safeguarding public funds. |
| Did PD 198 prohibit COA from auditing local water districts? | Section 20 of PD 198, which stated that auditing should be performed by a CPA not in government service, was declared unconstitutional as it conflicted with COA’s mandate. |
| Can COA charge local water districts for auditing services? | Yes, COA can charge LWDs for the actual cost of audit services, as this falls under the exception of “contributions” permitted by Section 18 of RA 6758. |
| What happens if a local water district dissolves? | If an LWD dissolves, its assets must be acquired by another public entity, which assumes all obligations and liabilities, recognizing the government’s ownership interest. |
| Who appoints the board of directors of a local water district? | The local mayor or provincial governor appoints the members of the board of directors, depending on the geographic coverage and population make-up of the district. |
In conclusion, the Supreme Court’s decision reinforces the principle that government entities, including local water districts, are subject to the oversight of the Commission on Audit. This ruling ensures accountability in the management of public funds and resources within these critical service providers. This decision guarantees the honest handling of funds within water districts and aligns all governing laws to protect the population.
For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.
Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: ENGR. RANULFO C. FELICIANO VS. COMMISSION ON AUDIT, G.R. No. 147402, January 14, 2004
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