Barbo vs. Commission on Audit

Directors of local water districts are prohibited from receiving compensation other than per diems, and allowances or bonuses granted beyond per diems are properly disallowed by the COA; however, recipients who received such disallowed benefits in good faith under the honest belief that authorizing resolutions made the payments valid are not required to refund them.

Petitioners, officials of the Local Water Utilities Administration (LWUA) and designated members of the Interim Board of Directors of the San Fernando Water District (SFWD), received various allowances and bonuses from SFWD between 1994 and 1996. These payments were authorized by LWUA Board Resolution No. 313 (Series of 1995) and Board Resolution No. 39 (Series of 1996). A subsequent COA audit disallowed these benefits as excessive and contrary to the Government Accounting and Auditing Manual, Civil Service Commission Resolution No. 954073, and Section 13 of Presidential Decree No. 198.

• Authorization of Benefits: On December 4, 1995, and February 12, 1996, the LWUA Board of Trustees issued Board Resolution No. 313 (Series of 1995) and Board Resolution No. 39 (Series of 1996). These resolutions authorized the SFWD Board of Directors to receive reimbursable allowances, including RATA, Travel Allowance, EME, Christmas Bonus, Uniform Allowance, Rice Allowance, Medical and Dental Benefits, and Productivity Incentive Bonus.
• Receipt of Benefits: Pursuant to these resolutions, petitioners received EME, Rice Allowance, Christmas Bonus, and Productivity Bonus from SFWD during the calendar years 1994 to 1996.
• COA Audit and Disallowance: On June 30, 1997, a COA Special Audit Team audited SFWD's financial accounts for January 1, 1994, to July 15, 1996. The team disallowed the payment of the benefits, finding them excessive and contrary to the Government Accounting and Auditing Manual, CSC Resolution No. 954073, and Section 13 of PD No. 198. Petitioners were directed to refund the disallowed amounts.

• COA Jurisdiction: Petitioners argued that the COA lacks jurisdiction to declare LWUA Board Resolutions in conflict with PD 198, asserting this is a judicial function.
• Applicability of CSC Resolution: Petitioners maintained that CSC Resolution No. 954073 issued in Cruz v. Cabili cannot extend to them since they were not parties to that case.
• Authority over Compensation: Petitioners contended that the CSC Resolution operates as an implementing rule beyond CSC's jurisdiction, claiming the Department of Budget and Management (DBM) is the appropriate authority to rule on compensation.
• Nature of Benefits: Petitioners argued that Christmas Bonus, Productivity Bonus, Rice Allowance, and Uniform Allowance are not compensation, and that EME is a reimbursement of expenses rather than compensation.
• LWUA Authorization: Petitioners asserted that LWUA appropriately recognizes the right of water district directors and the interim general manager to receive allowances and other benefits.
• Good Faith: Petitioners claimed they are not liable to refund the disallowed payments because they received them in good faith as de jure officers of SFWD.

• Prohibition on Additional Compensation: Respondent countered that Section 13 of PD 198 expressly prohibits directors of local water districts from receiving compensation other than per diems.
• Nature of Benefits: Respondent argued, citing Peralta v. Mathay, that the subject bonuses and allowances constitute additional compensation or remuneration.
• Validity of LWUA Resolutions: Respondent maintained that LWUA Board Resolution Nos. 313 and 39 were contrary to the law they intended to implement.
• Applicability of CSC Resolution: Respondent asserted that CSC Resolution No. 954073 applies on all fours to petitioners' case.

• COA Jurisdiction: Whether the COA has jurisdiction to declare LWUA Board Resolutions in conflict with Section 13 of PD 198.
• Entitlement to Benefits: Whether Section 13 of PD 198 prohibits petitioners' entitlement to RATA, EME, bonuses, and other benefits and allowances.
• Refund Liability: Whether petitioners are liable to settle or refund the disallowed allowances, bonuses, and other benefits.

• COA Jurisdiction: The COA has jurisdiction to rule on the legality of the disbursement of government funds by a water district and to declare whether resolutions conflict with law. This power is constitutionally mandated under Section 2, Article IX of the 1987 Constitution, which tasks the COA with auditing government entities and disallowing illegal or irregular disbursements.
• Entitlement to Benefits: Section 13 of PD 198 expressly prohibits the grant of compensation other than per diems to water district directors. By specifying the compensation a director is entitled to receive and explicitly stating that "no director shall receive other compensation," the law preempts any discretion by water districts to pay other allowances and bonuses. RATA, EME, and other bonuses constitute additional compensation properly disallowed by the COA.
• Refund Liability: The recipients are excused from refunding the disallowed benefits. Petitioners received the additional allowances and bonuses in good faith under the honest belief that LWUA Board Resolution No. 313 authorized such payment. At the time of receipt, the Court had not yet decided Baybay Water District, meaning petitioners had no knowledge that the payment was without legal basis.

• Prohibition on Additional Compensation for Water District Directors — Under Section 13 of PD 198, directors of water districts are authorized to receive only per diems for meetings actually attended, limited to the equivalent of per diems for four meetings in any given month. The explicit provision that "no director shall receive other compensation" precludes the grant of any additional allowances, bonuses, or other forms of remuneration.
• Good Faith Exception to Refund of Disallowed Amounts — Recipients of disallowed benefits need not refund them if they received such amounts in good faith under the honest belief that authorizing resolutions made the payments valid, particularly in the absence of prior jurisprudence declaring such payments illegal. No indicia of bad faith can be detected when officials disburse and recipients accept benefits pursuant to validly issued board resolutions.
• COA Jurisdiction over Disallowances — The Constitution vests the COA with the exclusive authority to define the scope of its audit, examine all accounts pertaining to government funds, and promulgate rules for the prevention and disallowance of irregular, unnecessary, excessive, or unconscionable expenditures. This jurisdiction does not conflict with the functions of the courts, the DBM, or the LWUA.

• "Under §13 of this Decree, per diem is precisely intended to be the compensation of members of board of directors of water districts. Indeed, words and phrases in a statute must be given their natural, ordinary, and commonly-accepted meaning, due regard being given to the context in which the words and phrases are used. By specifying the compensation which a director is entitled to receive and by limiting the amount he/she is allowed to receive in a month, and, in the same paragraph, providing 'No director shall receive other compensation' than the amount provided for per diems, the law quite clearly indicates that directors of water districts are authorized to receive only the per diem authorized by law and no other compensation or allowance in whatever form."
• "Petitioners here received the additional allowances and bonuses in good faith under the honest belief that LWUA Board Resolution No. 313 authorized such payment. At the time petitioners received the additional allowances and bonuses, the Court had not yet decided Baybay Water District. Petitioners had no knowledge that such payment was without legal basis. Thus, being in good faith, petitioners need not refund the allowances and bonuses they received but disallowed by the COA."

• Baybay Water District v. Commission on Audit, G.R. No. 147248-49, January 23, 2002 — Followed. Established that Section 13 of PD 198 limits director compensation to per diems and prohibits other allowances or bonuses.
• Rodolfo S. de Jesus [Catbalogan Water District] v. COA, G.R. No. 149154, June 10, 2003 — Followed. Upheld the authority and jurisdiction of the COA to rule on the legality of disbursements by water districts.
• Abanilla v. Commission On Audit, G.R. No. 142347, August 25, 2005 — Followed. Cited for the principle that recipients of disallowed incentive benefits need not refund them when received in good faith.
• Peralta v. Mathay, No. L-26608, March 31, 1971 — Followed. Cited by the COA to support the classification of the subject bonuses and allowances as additional compensation or remuneration.

• Section 13, Presidential Decree No. 198 (Provincial Water Utilities Act of 1973), as amended — Limits the compensation of water district directors to a per diem for each meeting actually attended, not exceeding the equivalent of per diems for four meetings in any given month, and expressly provides that "[n]o director shall receive other compensation for services to the district." Applied to disallow the RATA, EME, and bonuses granted to the petitioners.
• Section 2(1) and (2), Article IX of the 1987 Constitution — Vests the COA with the power, authority, and duty to examine, audit, and settle all accounts pertaining to government revenue and expenditures, and the exclusive authority to define the scope of its audit and promulgate accounting and auditing rules. Applied to uphold the COA's jurisdiction to disallow the illegal disbursements.

Reynato S. Puno (Chief Justice), Leonardo A. Quisumbing, Consuelo Ynares-Santiago, Antonio T. Carpio, Ma. Alicia Austria-Martinez, Renato C. Corona, Conchita Carpio Morales, Adolfo S. Azcuna, Dante O. Tinga, Minita V. Chico-Nazario, Presbitero J. Velasco, Jr., Antonio Eduardo B. Nachura, Ruben T. Reyes, Arturo D. Brion