Feliciano vs. Commission on Audit

A local water district created under Presidential Decree No. 198 is a government-owned and controlled corporation with an original charter subject to the audit jurisdiction of the Commission on Audit, because the Constitution prohibits private corporations from possessing special charters, and PD 198 constitutes the special enabling charter that confers corporate existence and powers upon local water districts.

A Special Audit Team from the Commission on Audit Regional Office No. VIII conducted an audit of the Leyte Metropolitan Water District accounts. Following the audit, COA requested payment of auditing fees from LMWD. Petitioner Ranulfo C. Feliciano, as General Manager, refused payment, invoking Sections 6 and 20 of PD 198 and Section 18 of RA 6758. Petitioner subsequently demanded that COA cease all audit services and refund auditing fees previously paid. COA denied both requests.

• COA Audit and Demand for Payment: A COA Special Audit Team audited LMWD accounts. On 19 July 1999, COA requested payment of auditing fees.
• Petitioner's Refusal: On 12 October 1999, petitioner replied that LMWD could not pay, citing PD 198 and RA 6758. The Regional Director referred the matter to the COA Chairman.
• Demand for Refund: On 19 October 1999, petitioner requested a refund of all auditing fees previously paid by LMWD.
• COA Denial: On 3 January 2000, the COA Chairman denied the requests, citing Davao City Water District v. Civil Service Commission and Commission on Audit, which established that water districts are not private corporations. A motion for reconsideration was denied on 30 January 2001.
• Petition to the Supreme Court: Petitioner filed the instant petition on 13 March 2001, supported by resolutions from the Visayas Association of Water Districts and the Philippine Association of Water Districts.

• Character of Local Water Districts: Petitioner argued that LWDs are not GOCCs with original charters but are private corporations. PD 198 created the Local Water Utilities Administration, not the LWDs themselves; LWDs are created only "pursuant to" PD 198 through Sangguniang Bayan resolutions, which act as the operative act of creation.
• Quasi-Public Nature: Petitioner contended that Section 6 of PD 198 classifies LWDs as "quasi-public," a term applicable only to private corporations, not public ones.
• Prohibition on COA Audit: Petitioner asserted that Section 20 of PD 198 prohibits government auditors from auditing LWDs, mandating instead that auditing be performed by a certified public accountant not in government service.
• Illegality of Auditing Fees: Petitioner maintained that Section 18 of RA 6758 absolutely prohibits COA from charging auditing fees to government entities like LWDs.
• Self-Ownership and Privatization: Petitioner claimed that LWDs became private entities through the transfer of water facilities from local government units to the districts, and that an LWD's owner is the district itself.

• Settled Jurisdiction: Respondent COA relied on Davao City Water District v. Civil Service Commission, which established that LWDs are not private corporations because their board members are appointed by local executives, unlike private corporations where directors are elected by stockholders.
• Denial of Requests: COA denied the requests to cease audit services, stop charging fees, and refund previously paid fees based on its jurisdictional mandate.

• COA Audit Jurisdiction: Whether a Local Water District created under PD 198 is a government-owned or controlled corporation subject to the audit jurisdiction of the COA.
• Statutory Exemption from Audit: Whether Section 20 of PD 198 prohibits COA certified public accountants from auditing local water districts.
• Legality of Auditing Fees: Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and controlled corporations auditing fees.

• COA Audit Jurisdiction: Local water districts are GOCCs with original charters subject to COA audit jurisdiction. The Constitution prohibits private corporations from having special charters; thus, corporations existing by virtue of a special law like PD 198 must be GOCCs. PD 198 is the special enabling charter that confers corporate powers on LWDs. A Sangguniang Bayan resolution does not create the corporation but merely implements PD 198. Furthermore, the determining factor for COA jurisdiction is government ownership or control; the government owns and controls LWDs through the appointment of directors, regulation of compensation, and the power to merge or consolidate districts.
• Statutory Exemption from Audit: The second sentence of Section 20 of PD 198 is unconstitutional. It violates Sections 2(1) and 3, Article IX-D of the Constitution, which vest COA with audit jurisdiction over GOCCs and prohibit any law exempting government entities from such jurisdiction.
• Legality of Auditing Fees: Charging auditing fees does not violate Section 18 of RA 6758. The law prohibits COA personnel from receiving compensation from government entities "except compensation paid directly by COA out of its appropriations and contributions." The term "contributions" refers to the cost of audit services paid by GOCCs directly to COA, not to individual auditors.

• Government-Owned and Controlled Corporations with Original Charters — GOCCs with original charters are those created by special law and not under the general incorporation statute (the Corporation Code). The term "original charters" is synonymous with "special charters."
• Constitutional Prohibition on Special Charters for Private Corporations — The Constitution prohibits the creation of private corporations by special charters, allowing only general laws for their formation. Consequently, any corporation created by special charter is necessarily a GOCC.
• Determinant of COA Audit Jurisdiction — The determining factor for COA audit jurisdiction is government ownership or control of the corporation, regardless of the corporation's nature (private, quasi-public, or public) or purpose.
• Prohibition Against Evading COA Jurisdiction — Section 3, Article IX-D of the Constitution prohibits any law exempting any government entity or subsidiary, in any guise whatever, from COA jurisdiction.

• "The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. ... In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional."
• "The determining factor of COA’s audit jurisdiction is government ownership or control of the corporation. ... The nature of the corporation, whether it is private, quasi-public, or public is immaterial."
• "No amount of clever legislation can exclude GOCCs like LWDs from COA’s audit jurisdiction. Section 3, Article IX-C of the Constitution outlaws any scheme or devise to escape COA’s audit jurisdiction..."
• "The contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost of the audit function in the corporation concerned plus a reasonable rate to cover overhead expenses."

• Davao City Water District v. Civil Service Commission and Commission on Audit, G.R. No. 95237-38, 13 September 1991 — Controlling precedent establishing that LWDs are not private corporations and that their board directors are appointed by local executives, not elected by stockholders.
• De Jesus v. Commission on Audit, G.R. No. 149154, 10 June 2003 — Reiterated the doctrine in Davao City Water District.
• National Service Corporation v. NLRC, G.R. No. 69870, 29 November 1988 — Clarified that "original charters" means charters created by special law, not under the Corporation Code, citing Constitutional Commission deliberations.
• Baguio Water District v. Trajano, 212 Phil. 674 (1984) — Established that a Sangguniang Bayan resolution is not the charter of an LWD but merely implements the provisions of PD 198.
• Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Bank, G.R. No. 67125, 24 August 1990 — Held that government ownership or control is the primary criterion for COA jurisdiction, outweighing even the presence of an original charter.
• Tejada v. Domingo, G.R. No. 91860, 13 January 1992 — Defined "contributions" under Section 18 of RA 6758 as the cost of audit services paid by GOCCs directly to COA, excluding extra emoluments to individual auditors.

• Section 2(1), Article IX-D, 1987 Constitution — Vesting COA with the power to audit all government agencies, including GOCCs with original charters.
• Section 3, Article IX-D, 1987 Constitution — Prohibiting any law from exempting any government entity or subsidiary from COA jurisdiction.
• Section 16, Article XII, 1987 Constitution — Mandating that private corporations be created by general law, while GOCCs may be created by special charters.
• Section 6, PD 198 — Declaring a water district a quasi-public corporation and providing for its formation.
• Section 20, PD 198 — Prescribing a system of business administration and stating that auditing shall be performed by a CPA not in government service (declared unconstitutional).
• Section 18, RA 6758 — Prohibiting COA personnel from receiving compensation from government entities except those paid directly by COA out of its appropriations and contributions.

Davide, Jr., C.J., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., Azcuna, and Tinga, JJ.