Oriondo vs. Commission on Audit

A corporation organized under the Corporation Code, without an original charter, is a government-owned or controlled corporation under the audit jurisdiction of the Commission on Audit if it possesses all three attributes: it is organized as a stock or non-stock corporation, its functions are public in character, and it is owned or controlled by the government. The manner of creation—whether under a general or special law—is immaterial in determining COA's audit jurisdiction; what matters is government ownership or control.

The Philippine Tourism Authority (PTA), a government-owned corporation attached to the Department of Tourism, was authorized under Executive Order No. 123 to develop Corregidor Island into a tourist destination pursuant to a lease from the Ministry of National Defense for one peso. To centralize the island's planning and development, the PTA Board of Directors approved the creation of a foundation, and Corregidor Foundation, Inc. (CFI) was incorporated on October 28, 1987 as a non-stock corporation under the Corporation Code. Successive memoranda of agreement between PTA and CFI governed the release of PTA operating funds to CFI, with the 1996 MOA expressly subjecting CFI's disbursements to the audit of the PTA Internal Auditor and the Commission on Audit. Five PTA officers concurrently rendering services to CFI received honoraria and cash gifts from CFI, prompting the audit challenge that culminated in this petition.

Executive Order No. 58, series of 1954, opened certain battlefield areas in Corregidor to the public as tourist attractions, and Executive Order No. 123, series of 1968, further authorized the Ministry of National Defense to enter into contracts for the conversion of areas within Corregidor into tourist spots. Pursuant to Executive Order No. 123, the Ministry of National Defense and the Philippine Tourism Authority executed a Memorandum of Agreement dated July 10, 1986, under which the Ministry, with prior presidential approval, leased the entire island of Corregidor to the PTA for one peso. The PTA undertook to maintain and preserve the war relics on the island and to fully develop Corregidor's potential as an international and local tourist destination, and was authorized to package and source the necessary funds for that purpose.

On February 6, 1987, the PTA Board of Directors adopted Resolution No. B-7-87 approving the creation of a foundation for the development of Corregidor. Corregidor Foundation, Inc. was incorporated on October 28, 1987 under SEC Registration No. 145674 as a non-stock corporation under the Corporation Code. All of its incorporators were government officials: the Secretary of Tourism, the Secretary of National Defense, the Chief of Staff, the Undersecretary of Tourism for Internal Services, and the General Manager of the PTA. Its Articles of Incorporation required that the members of its Board of Trustees be government officials who shall hold their positions by reason of their respective offices. CFI was organized primarily to maintain and preserve war relics on Corregidor Island and to develop the area's tourism potential, purposes related to the promotion and development of tourism—a declared state policy under the Administrative Code.

On August 3, 1993, the PTA executed a Memorandum of Agreement with CFI to centralize the island's planning and development. The PTA agreed to release operating funds to CFI based on a budget for its approval, while CFI agreed to submit quarterly reports on the receipts and disbursements of PTA funds and to deposit all revenue collections in a distinct and separate account in the name of the island of Corregidor, with disposition of the funds at the sole discretion of the PTA. A subsequent Memorandum of Agreement dated September 3, 1996 reiterated these provisions and added that disbursements of PTA funds by CFI shall be subject to the audit of the PTA Internal Auditor and the Commission on Audit. Under this MOA, the PTA assumed responsibility for providing CFI's budgetary requirements, authorized CFI to manage and operate Corregidor Island, and required CFI to submit annual reports on receipts and disbursements of PTA funds subject to COA audit.

On February 14, 2005, the COA Audit Team issued Audit Observation Memorandum No. 2004-002 noting that five PTA personnel concurrently rendering services in CFI had received honoraria and cash gifts in 2003: Adelaido Oriondo (₱43,500), Teodoro Hernandez (₱43,500), Renato L. Basco (₱17,500), Carmen Merino (₱11,100), and Reynaldo Salvador (₱15,900), totaling ₱131,500.00. The Audit Team opined that the grant of honoraria was contrary to DBM Budget Circular No. 2003-5, which limited honoraria to teaching personnel, lecturers and resource persons, and chairs and members of collegial bodies. The cash gifts were deemed double compensation prohibited under Article IX-B, Section 8 of the Constitution because the recipients had already received honoraria and cash gifts as PTA employees. This led to the issuance of Notice of Disallowance No. CFI-2006-001 on June 15, 2006, disallowing the payments and holding the payees and certain CFI officers liable. Petitioners moved for reconsideration, arguing that CFI is a private corporation beyond COA's audit jurisdiction, but the disallowance was upheld through every level of COA review, culminating in the Commission Proper's Decision No. 2010-095 and the En Banc Resolution denying reconsideration with finality.

• COA Jurisdiction to Determine GOCC Status: Petitioners maintained that a cursory reading of Article IX-D, Section 2 of the Constitution reveals that COA has no power to determine whether an entity is a government-owned or controlled corporation, and consequently had no jurisdiction to conduct a post-audit of CFI's disbursements on the basis of its own determination of CFI's status as a GOCC.
• CFI Not a GOCC — Manner of Creation: Petitioners insisted that CFI is not a GOCC because it is neither organized as a stock corporation nor created by a special law or governed by an original charter, having been organized as a private corporation under the general corporation law.
• CFI Not a GOCC — Private Assets: Petitioners argued that CFI's assets are its exclusive property and not government-owned.
• CFI Not a GOCC — SSS Coverage: Petitioners pointed out that CFI's personnel are under the coverage of the Social Security System, further showing that CFI is a private corporation.
• CFI Not a GOCC — Source of Funds: Petitioners contended that CFI's funds come primarily from grants and donations of international organizations and foreign entities, not from the National Government, considering that its funding was never provided in the General Appropriations Act.
• CFI Not a GOCC — Reporting Obligation: Petitioners asserted that the quarterly reports submitted by CFI are based only on its Memorandum of Agreement with the PTA, not because it is a GOCC.

• Improper Designation of Petition: Respondent COA highlighted that the Petition was erroneously denominated as a "Petition for Review on Certiorari" under Rule 64, there being no such remedy, but contended that it should be treated as one for certiorari to determine whether there was grave abuse of discretion.
• COA Competency to Determine GOCC Status: Respondent COA argued that pursuant to its constitutional duty to examine, audit, and settle all accounts pertaining to government revenue and expenditures, including GOCCs, the determination of an entity's status as a GOCC is a necessary incident to the performance of its duties and discharge of its functions, and that it merely applied the law on the matter.
• CFI Is a GOCC — Totality of Circumstances: Respondent COA asserted that CFI is a GOCC, citing the criteria enunciated in Philippine National Oil Company - Energy Development Corporation vs. National Labor Relations Commission and Philippine Society for the Prevention of Cruelty to Animals vs. Commission on Audit, and noting that all criteria are present: CFI is under the Department of Tourism, its incorporators and trustees are government officials sitting ex officio, it is substantially subsidized by the government with 99.66% of its budget coming from government entities, its budget requires PTA approval, it must submit quarterly reports, all revenue collections are deposited as accountability to the PTA, and it cannot alienate the premises subject of its MOA with the PTA.
• Public Funds Subject to Audit: Respondent COA maintained that the disallowed amounts were public funds within its audit jurisdiction, and therefore there was no grave abuse of discretion in issuing the Notice of Disallowance.

• COA Jurisdiction to Determine GOCC Status: Whether the Commission on Audit has jurisdiction to determine whether a corporation such as Corregidor Foundation, Inc. is a government-owned or controlled corporation.
• CFI's Status as GOCC: Whether Corregidor Foundation, Inc. is a government-owned or controlled corporation under the audit jurisdiction of the Commission on Audit.

• COA Jurisdiction to Determine GOCC Status: Yes. The determination of whether an entity is the proper subject of COA's audit jurisdiction is a necessary part of the Commission's constitutional mandate to examine and audit the government and non-government entities receiving subsidies from it.
• CFI's Status as GOCC: Yes. CFI possesses all three attributes of a GOCC: it is organized as a non-stock corporation, its functions are public in character, and it is controlled by the government through its board composition and funding.

• COA Jurisdiction to Determine GOCC Status: The Constitution, the Administrative Code of 1987, and the Government Auditing Code of the Philippines all vest in COA the power to examine, audit, and settle all accounts pertaining to government revenue and expenditures, including GOCCs with or without original charters, and even non-governmental entities receiving subsidy or equity from the government. The Administrative Code further allows COA to categorize GOCCs for purposes of the exercise of its powers. Jurisdiction is the power to hear and determine cases of the general class to which the proceedings belong, and determining whether an entity falls within COA's audit jurisdiction is a necessary incident to the discharge of its constitutional functions. To hold otherwise would impede COA's exercise of its powers. This competency was upheld in Feliciano vs. Commission on Audit and Boy Scouts of the Philippines vs. Commission on Audit, where the Court took cognizance of petitions assailing COA's determination that certain entities were GOCCs subject to its audit jurisdiction.

• CFI's Status as GOCC: The statutory definitions of GOCC in Presidential Decree No. 2029, the Administrative Code of 1987, and Republic Act No. 10149 all require three attributes: (1) the entity is organized as a stock or non-stock corporation; (2) its functions are public in character; and (3) it is owned or, at the very least, controlled by the government. CFI satisfies all three. First, it was organized as a non-stock corporation under the Corporation Code and registered with the SEC. Second, its purposes—maintaining and preserving war relics and developing Corregidor's tourism potential—relate to the promotion and development of tourism, a declared state policy and therefore a function public in character. Third, the government controls CFI: all incorporators were government officials, the Articles of Incorporation require that Board of Trustees members be government officials holding their positions by reason of their office, and the government has substantial participation in the selection of CFI's governing board. Additionally, 99.66% of CFI's budget for the audited period came from the Department of Tourism, Duty Free Philippines, and the PTA, and the 1996 MOA shows CFI is funded by the government through the PTA, with CFI's budget subject to PTA approval and its disbursements subject to COA audit. Petitioners' arguments that CFI is not a GOCC because it was not created by special law and its employees are under SSS coverage were rejected: the statutory definitions expressly include non-stock corporations, and nothing in the law requires GOCCs to always be created under an original charter. The Civil Service Commission's jurisdiction under Article IX-B, Section 2(1) of the Constitution extends only to GOCCs with original charters, so SSS coverage of CFI employees does not negate CFI's GOCC status. Even if CFI were funded by international grants, those funds became public upon donation to CFI. The manner of creation—whether under general or special law—is immaterial; what matters is government ownership or control. The Court also found that petitioners were not in good faith in receiving the disallowed amounts: DBM Circular No. 2003-5 clearly limits honoraria to specific personnel categories none of which apply to CFI, and receiving additional honoraria and cash gifts for ex-officio positions in CFI while already receiving the same as PTA employees constitutes double compensation prohibited by Article IX-B, Section 8 of the Constitution. Unlike in Blaquera vs. Alcala and De Jesus vs. Commission on Audit, where ostensible legal bases existed for the recipients' honest belief in their entitlement, no such basis was present here.

• Three Attributes of a Government-Owned or Controlled Corporation — An entity is considered a GOCC if all three attributes are present: (1) the entity is organized as a stock or non-stock corporation; (2) its functions are public in character; and (3) it is owned or, at the very least, controlled by the government. The Court applied this test to CFI, finding all three attributes satisfied.

• Totality Test for Determining Public or Private Corporation — The true criterion to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State. If the corporation is created by the State as the latter's own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is public; otherwise, it is private. The Court applied this test, as articulated in Philippine Society for the Prevention of Cruelty to Animals vs. Commission on Audit, to conclude that CFI is a public corporation.

• COA Audit Jurisdiction over GOCCs with or without Original Charters — The constitutional criterion on the exercise of COA's audit jurisdiction depends on the government's ownership or control of a corporation. GOCCs with original charters are subject to COA's pre-audit, while GOCCs without original charters—those created under the Corporation Code but owned or controlled by the government—are subject to COA's post-audit. The nature or purpose of the corporation and the manner of its creation are immaterial in determining COA's audit jurisdiction. The Court applied this doctrine to hold that CFI, though created under the Corporation Code, is subject to COA's post-audit because the government controls it.

• COA's Competency to Determine GOCC Status — The determination of whether an entity is a GOCC is a necessary part of COA's constitutional mandate to examine and audit the government and non-government entities receiving subsidies. COA's competency to make such determination was upheld as a necessary incident to the performance of its duties.

• Good Faith as Basis for Enjoining Refund of Disallowed Amounts — Good faith, defined as a state of mind denoting honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry, may justify enjoining the refund of disallowed amounts. However, good faith cannot be ascribed where the recipients knew they served in an entity by reason of their office in another government agency and already received compensation from that agency, making additional compensation tantamount to prohibited double compensation. An ostensible legal basis for the recipients' honest belief in their entitlement, as existed in Blaquera and De Jesus, is required.

• Ex-Officio Position as Part of the Principal Office — An ex-officio position is actually and in legal contemplation part of the principal office, as pronounced in Civil Liberties Union vs. The Executive Secretary. Receiving additional compensation for services rendered in an ex-officio capacity therefore constitutes additional or double compensation prohibited by the Constitution.

• "A corporation, whether with or without an original charter, is under the audit jurisdiction of the Commission on Audit so long as the government owns or has controlling interest in it." — This is the opening statement of the decision and encapsulates the core ruling: COA's audit jurisdiction turns on government ownership or control, not on the manner of the corporation's creation.

• "[T]he constitutional criterion on the exercise of [the Commission on Audit's] audit jurisdiction depends on the government's ownership or control of a corporation. The nature of the corporation, whether it is private, quasi-public, or public is immaterial." — This passage, quoted from Feliciano vs. Commission on Audit, states the controlling doctrine on COA audit jurisdiction and is frequently cited in subsequent jurisprudence on GOCC classification.

• "[I]t is the 'totality test'—the totality of the relation of a corporation to the State—that determines a corporation's status as a government-owned or controlled corporation." — This formulation of the totality test, as applied by the COA Commission Proper and affirmed by the Court, provides the analytical framework for determining whether a corporation is public or private.

• "[I]f the corporation is created by the State as the latter's own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is public; otherwise, it is private." — This passage from Philippine Society for the Prevention of Cruelty to Animals vs. Commission on Audit defines the canonical test for distinguishing public from private corporations and was relied upon by the Court in classifying CFI.

• Feliciano vs. Commission on Audit, 464 Phil. 439 (2004) — Controlling precedent followed. The Court upheld COA's competence to determine the status of an entity as a GOCC and established that the determining factor of COA's audit jurisdiction is government ownership or control of the corporation, not the manner of creation. The Court also relied on Feliciano for the proposition that GOCCs without original charters—those created under the Corporation Code but owned or controlled by the government—are subject to COA's post-audit.

• Boy Scouts of the Philippines vs. Commission on Audit, 666 Phil. 140 (2011) — Followed. The Court took cognizance of this case as an example of a GOCC (a non-stock corporation created under an original charter, Commonwealth Act No. 111) performing public functions and subject to COA audit jurisdiction.

• Philippine Society for the Prevention of Cruelty to Animals vs. Commission on Audit, 560 Phil. 385 (2007) — Followed. The Court relied on the "totality test" articulated in this case to determine whether a corporation is public or private, and applied the principle that a corporation created by the State as its own agency or instrumentality to carry out governmental functions is public.

• Funa vs. Manila Economic and Cultural Office, 726 Phil. 63 (2014) — Distinguished. MECO was declared not a GOCC because none of its members, officers, or trustees were government appointees or public officers, thus failing the third attribute of government ownership or control. The Court distinguished this from CFI, whose board is composed of government officials holding their positions ex officio.

• Fernando vs. Commission on Audit, G.R. Nos. 237938 and 237944-45, December 4, 2018 — Distinguished. The Executive Committee of the Metro Manila Film Festival was declared not a GOCC because it was not organized as a stock or non-stock corporation, failing the first attribute. The Court also relied on Fernando for the principle that funds donated to the government become public in character upon donation.

• Blaquera vs. Alcala, 356 Phil. 678 (1998) — Distinguished. The Court enjoined the refund of disallowed productivity incentive benefits because the recipients received them in honest belief of entitlement based on an ostensible legal basis (Administrative Order No. 268). The Court distinguished this from the present case, where no ostensible legal basis existed for petitioners' belief in their entitlement to additional honoraria and cash gifts.

• De Jesus vs. Commission on Audit, 451 Phil. 812 (2003) — Distinguished. The Court enjoined the refund of disallowed allowances and bonuses because the recipients honestly believed they were entitled based on an ostensible legal basis (LWUA Resolution No. 313). Again distinguished from the present case for lack of any ostensible legal basis.

• Civil Liberties Union vs. The Executive Secretary, 272 Phil. 147 (1991) — Followed. The Court relied on the pronouncement that an ex-officio position is actually and in legal contemplation part of the principal office, making additional compensation for ex-officio service tantamount to prohibited double compensation.

• Davao City Water District vs. Civil Service Commission, 278 Phil. 605 (1991) — Followed. Cited for the proposition that GOCCs with original charters refer to corporations created by special law, distinguished from corporations organized under the Corporation Code, which are excluded from Civil Service Commission coverage—a distinction that does not affect COA's audit jurisdiction.

• Reyna vs. Commission on Audit, 657 Phil. 209 (2011) — Followed. Cited for the principle that the remedy against COA decisions under Rule 64 is certiorari, limited to the resolution of jurisdictional issues and grave abuse of discretion, not correction of simple errors of judgment.

• Article IX-D, Section 2, 1987 Constitution — Defines COA's power, authority, and duty to examine, audit, and settle all accounts pertaining to government revenue and expenditures, including GOCCs with original charters, other GOCCs and their subsidiaries, and non-governmental entities receiving subsidy or equity from the government. The Court applied this provision to uphold COA's audit jurisdiction over CFI as a GOCC without an original charter, subject to post-audit.

• Article IX-B, Section 8, 1987 Constitution — Prohibits elective or appointive public officers or employees from receiving additional, double, or indirect compensation unless specifically authorized by law. The Court applied this provision to uphold the disallowance of honoraria and cash gifts paid to petitioners, who already received the same as PTA employees, making the additional payments prohibited double compensation.

• Article IX-A, Section 7, 1987 Constitution — Provides that decisions, orders, or rulings of the Constitutional Commissions may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from receipt. The Court applied this provision to confirm that the proper remedy against COA decisions is a petition for certiorari, not a petition for review on certiorari.

• Article IX-B, Section 2(1), 1987 Constitution — Defines the scope of the civil service as embracing all branches, subdivisions, instrumentalities, and agencies of the Government, including GOCCs with original charters. The Court applied this provision to explain that CFI's employees are not under Civil Service Commission jurisdiction because CFI lacks an original charter, but this does not negate CFI's status as a GOCC subject to COA audit.

• Section 2(13), Introductory Provisions, Administrative Code of 1987 — Defines a GOCC as any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly or, where applicable, to the extent of at least fifty-one percent of its capital stock. The Court applied this definition as one of the statutory bases for the three-attribute test for GOCC status.

• Section 26, Government Auditing Code of the Philippines (Presidential Decree No. 1445) — Extends COA's jurisdiction to all GOCCs, including their subsidiaries, and to non-governmental entities subsidized by the government, those funded by donations through the government, those required to pay levies or government share, and those for which the government has put up a counterpart fund. The Court cited this provision as further statutory basis for COA's broad audit authority.

• Section 2, Presidential Decree No. 2029 — Defines a GOCC as a stock or non-stock corporation, whether performing governmental or proprietary functions, which is directly chartered by a special law or if organized under the general corporation law is owned or controlled by the government directly or indirectly. The Court applied this definition as one of the statutory bases for the three-attribute test.

• Section 3(o), Republic Act No. 10149 (GOCC Governance Act of 2011) — Defines a GOCC as any agency organized as a stock or nonstock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly or, where applicable, to the extent of at least a majority of its outstanding capital stock. The Court applied this definition as one of the statutory bases for the three-attribute test.

• DBM Budget Circular No. 2003-5 — Limits the payment of honoraria to specific government personnel: teaching personnel engaged in actual classroom teaching outside regular hours, lecturers and resource persons in seminars and training programs, and chairs and members of collegial bodies compensated in the form of honoraria as provided by law. The Court applied this circular to uphold the disallowance, as none of the enumerated categories applied to petitioners.

• Rule 64, Section 1 and Section 2, Rules of Court — Governs the review of judgments, final orders, or resolutions of the COMELEC and COA, providing that such judgments may be brought to the Supreme Court on certiorari under Rule 65. The Court applied these provisions to treat the erroneously designated petition as one for certiorari under Rule 64.

Bersamin, C. J., Carpio, Peralta, Del Castillo, Perlas-Bernabe, A. Reyes, Jr., Gesmundo, J. Reyes, Jr., Hernando, Lazaro-Javier, and Inting, JJ., concurred.