The Supreme Court ruled that while local water districts (LWDs) have the power to fix the compensation of their general managers (GMs), this power is subject to the limits prescribed by the Salary Standardization Law (SSL). This means that any compensation fixed by the board of directors must align with the position classification system under the SSL, unless the LWD’s charter specifically exempts it. The Court also affirmed that the engagement of private lawyers by government-owned and controlled corporations (GOCCs) requires the written conformity of the Office of the Government Corporate Counsel (OGCC) and the written concurrence of the Commission on Audit (COA).

Water Rights and Wage Ceilings: When Local Control Meets National Standards

This case revolves around Aleli C. Almadovar, the General Manager (GM) of Isabela Water District (ISAWAD), a government-owned and controlled corporation (GOCC). The Commission on Audit (COA) questioned several disbursements made by ISAWAD, including Almadovar’s salary increase, representation and transportation allowances (RATA), and payments to private legal counsel without proper authorization. The central legal question is whether ISAWAD’s board of directors has the autonomy to set the GM’s salary and engage legal services without adhering to national regulations, specifically the SSL and requirements for OGCC and COA approval.

The legal framework governing the compensation of GOCC employees is primarily the **Salary Standardization Law (SSL)**, embodied in Republic Act (R.A.) No. 6758. This law aims to standardize the salary structure of government personnel, including those in GOCCs. However, there are exceptions to this rule. GOCCs whose charters specifically exempt them from the SSL are allowed to have their own compensation schemes. Presidential Decree (P.D.) No. 198, also known as the “Provincial Water Utilities Act of 1973,” as amended by Republic Act (R.A.) No. 9286, created ISAWAD. However, the Supreme Court has previously held that this law does not explicitly exempt water utilities from the coverage of the SSL.

Building on this principle, the Court reiterated that the power of a local water district’s (LWD) board of directors to fix the compensation of its general manager, as outlined in Section 23 of P.D. No. 198, does not grant them unlimited discretion. The compensation must align with the position classification system established under the SSL. Almadovar argued that R.A. No. 9286, being a later law, impliedly repealed the SSL with respect to LWDs. The Supreme Court rejected this argument, stating that implied repeals are disfavored and only occur when there is an irreconcilable inconsistency between the two laws.

The Court found no such inconsistency, emphasizing that the board of directors can fix the GM’s salary but must do so within the limits set by the SSL. In this context, the court quoted the *Mendoza vs COA* case which stated:

The Salary Standardization Law applies to all government positions, including those in government-owned or controlled corporations, without qualification. The exception to this rule is when the government-owned or controlled corporation’s charter specifically exempts the corporation from the coverage of the Salary Standardization Law. xxx

We are not convinced that Section 23 of Presidential Decree No. 198, as amended, or any of its provisions, exempts water utilities from the coverage of the Salary Standardization Law. In statutes subsequent to Republic Act No. 6758, Congress consistently provided not only for the power to fix compensation but also the agency’s or corporation’s exemption from the Salary Standardization Law.

Another crucial aspect of the case concerns the engagement of private legal counsel by ISAWAD. COA Circular No. 95-011 dictates that GOCCs must secure the written conformity of the OGCC and the written concurrence of the COA before engaging a private lawyer, unless exceptional circumstances justify it. Almadovar argued that the written concurrence of the COA was not necessary for the renewal of a retainership contract with a private lawyer, Atty. Esguerra, but only for the initial hiring.

The Court disagreed, clarifying that each renewal of the retainership contract constitutes a new engagement, requiring both OGCC conformity and COA concurrence. As there was no COA concurrence for Atty. Esguerra’s services from January to October 2005, the payments were deemed unauthorized. Similarly, the payments to Atty. Operario, an OGCC lawyer, were disallowed because he provided legal services to ISAWAD before receiving the necessary authority from the OGCC. The Court reasoned that these requirements are in place to ensure proper oversight and accountability in the engagement of legal services by GOCCs.

Regarding the issue of good faith, the Court acknowledged that Almadovar acted in good faith concerning the salary increase. At the time of the disbursement, there was no clear jurisprudence definitively stating that LWDs were subject to the SSL. Thus, Almadovar relied on the scale provided by the Office of the Philippine Association of Water Districts, Inc., which held an erroneous belief that R.A. No. 9286 repealed the SSL.

However, the Court found that Almadovar could not claim good faith regarding the payments to Atty. Esguerra and Atty. Operaria or the excessive RATA. She knowingly approved these payments without the required government approvals, violating existing regulations. Furthermore, she continued to claim excessive RATA despite Corporate Budget Circular (CBC) No. 18 and National Budget Circular (NBC) No. 498 already providing the allowable RATA rates for LWD GMs.

Finally, Almadovar sought a writ of preliminary injunction to prevent the COA from enforcing its decision. However, the Court held that she failed to demonstrate a clear and unmistakable right that warranted injunctive relief. Given the unauthorized disbursements, the Court affirmed the COA’s decision with the modification that Almadovar was absolved from refunding the salary increase due to her good faith in that particular instance. This ruling underscores the importance of adhering to established regulations and seeking proper authorization when disbursing public funds, even for seemingly routine matters.

FAQs

What was the key issue in this case?	The key issue was whether the General Manager (GM) of Isabela Water District (ISAWAD) could be held liable for unauthorized disbursements, including salary increases, legal fees, and representation allowances. It also examined the extent to which Local Water Districts (LWDs) are governed by the Salary Standardization Law (SSL).
Are Local Water Districts (LWDs) exempt from the Salary Standardization Law (SSL)?	No, LWDs are not exempt from the SSL unless their charter specifically states otherwise. The Supreme Court has consistently held that the power of LWDs to fix the compensation of their general managers is subject to the limitations of the SSL.
What approvals are needed to hire a private lawyer for a GOCC?	Engaging a private lawyer requires the written conformity of the Office of the Government Corporate Counsel (OGCC) and the written concurrence of the Commission on Audit (COA), as per COA Circular No. 95-011. These approvals are required for both initial hiring and renewal of retainership contracts.
What constitutes “good faith” in disbursement of public funds?	Good faith, in this context, means an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with an absence of all information or belief of facts which would render the transaction unconscientious. This can be claimed when no prior jurisprudence or clear guidelines exist.
When can a writ of preliminary injunction be issued?	A writ of preliminary injunction can be issued when the right sought to be protected is clear and unmistakable, and there is an urgent necessity to prevent serious damage. It cannot be issued if the right is doubtful or disputed.
Who is responsible for refunding disallowed amounts in unauthorized disbursements?	The responsible officers who authorized the disbursements, including the General Manager, are typically held liable to refund the disallowed amounts, unless they can prove they acted in good faith and without negligence. The recipient of the funds is generally not held liable.
What are Representation and Transportation Allowances (RATA)?	Representation and Transportation Allowances (RATA) are allowances given to government officials to cover expenses related to their official duties. These allowances are subject to specific limits set by the Department of Budget and Management (DBM).
How does this case affect other GOCCs and LWDs?	This case serves as a reminder to all GOCCs and LWDs to strictly adhere to the requirements of the SSL and COA regulations. It reinforces the importance of seeking proper approvals before disbursing public funds and sets a precedent for accountability in financial transactions.

In conclusion, the Almadovar case reaffirms the principle that GOCCs and LWDs are not entirely autonomous in their financial decisions and must adhere to national regulations and guidelines. While local boards have the power to manage their affairs, they must operate within the boundaries set by law to ensure transparency and accountability in the use of public funds. The decision highlights the need for good governance and compliance with established procedures to avoid potential liabilities and uphold the integrity of public service.

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: ALELI C. ALMADOVAR vs. MA. GRACIA M. PULIDO-TAN, G.R. No. 213330, November 16, 2015