DECISION NO.

2018-388
November 28, 2018

Subject: Automatic Review of Commission on Audit Regional Office No. V Decision No. 2015-C-
004 dated January 19, 2015, which partially granted the appeal of Mr. Jeremias P. Aban,
Jr., et al., Metropolitan Naga Water District, Naga City, from Notice of Disallowance No.
13-005-101(12) dated April 22, 2013, on the payment of government share in the
Provident Fund, in the total amount of P2,894,792.85

DECISION

FACTS OF THE CASE

1
For automatic review is Commission on Audit (COA) Regional Office (RO) No. V Decision No. 2015-C-004 dated January
19, 2015. The decision partially granted the appeal of Mr. Jeremias P. Aban, Jr., et al., Metropolitan Naga Water District (MNWD),
Naga City, from Notice of Disallowance (ND) No. 13-005-101(12) dated April 22, 2013, on the payment of government share in
MNWD’s Provident Fund.

2
MNWD received ND No. 13-005-101(12) on May 17, 2013. After 153 days from receipt thereof, appellants filed an appeal
before the Regional Director (RD), COA RO No. V, on October 17, 2013. Thus, the appeal was filed within the six months or 180
3
days reglementary period.

Records disclose that the Audit Team Leader and the Supervising Auditor, MNWD, issued on April 22, 2013 ND No. 13-
005-101(12), disallowing the total amount of ₱2,894,792.85 pertaining to the government share of MNWD in the Provident Fund.
The disallowance was based on violation of Sub-Paragraph 5.6 of Department of Budget and Management (DBM) Corporate
4 5
Compensation Circular (CCC) No. 10, and DBM CCC No. 12. Under DBM CCC No. 10, the payment of other allowances/fringe
benefits and all other forms of compensation granted on top of basic salary, whether in cash or in kind, not mentioned in Sub-
Paragraphs 5.4 and 5.5 thereof, was already discontinued effective November 1, 1989. Thus, the payment made for such
allowances/fringe benefits after such date shall be considered as illegal disbursement of public funds.

Moreover, MNWD failed to submit the documents required under DBM CCC No. 12, namely:

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1. DBM approved Position Allocation List (PAL) issued upon the effectivity of Republic Act (RA) No. 6758,
reallocating existing positions to appropriate classes in the New Index of Occupational Services issued
pursuant to said law;

2. DBM approved Plantilla of Personnel and Salary Adjustment, prepared by government owned and/or
controlled corporations (GOCCs) in accordance with the approved PAL, copy furnished the Civil Service
Commission and COA;

3. Notice of Salary Adjustment issued by GOCCs/government financial institutions (GFIs) to their respective
employees, showing the basic salary as of June 30, 1989, the allowances integrated therewith as well as any
increase/adjustment of salary, as the case may be, and the total basic salary upon the effectivity of RA No.
6758 on July 1, 1989; and

4. Employees’ payroll upon the implementation of RA No. 6758, which presents the adjusted salaries of
employees (with integration of allowances).

7
In their Appeal dated September 3, 2013, appellants, prayed for the lifting of the ND, contending that:

1. DBM did not interpose any objection to the continued charging of the government share to the MNWD in the
Provident Fund but only to those who have been in the service as of December 31, 1999; and

2. The documents required under DBM CCC No. 12 were already submitted.

On January 19, 2015, the RD, COA RO No. V, partially granted the appeal under COA RO No. V Decision No. 2015-C-004,
lifting the disallowance of P826,679.16 pertaining to those employees who were incumbents as of July 1, 1989 and were already
beneficiaries of the government share to the Provident Fund.

Hence, this automatic review.

ISSUE

The issue to be resolved is whether COA RO No. V Decision No. 2015-C-004 dated January 19, 2015 is proper.
DISCUSSION

This Commission finds the subject decision not proper.

After careful evaluation of the records, this Commission finds that the contribution of MNWD’s government share to the
provident fund was not covered by any statutory authority. The records merely indicate that the Provident Fund was created
through Board Resolution No. 33, series of 1986, passed by the Board of Directors (BOD) on September 16, 1986, but without
showing the BOD’s legal authority in this particular case.
8
In the preambular clauses of Executive Order (EO) No. 641 dated June 25, 2007, it is apparent that the creation of
Provident Funds existing prior to the issuance of the EO was duly authorized such that these were exempted from the coverage of
DBM Budget Circular No. 2008-3, or the rules, regulations, and procedural guidelines implementing EO No. 641, because they
fell under either of the following categories: (1) Provident Funds for loaning operations and for other purposes beneficial to all
members which are funded out of service fees collected by government agencies, and which establishment are authorized
pursuant to the pertinent general provision in the annual General Appropriations Act (GAA), subject to the rules and regulations
prescribed under Administrative Order No. 279 dated May 5, 1992; and (2) Provident Funds created under existing laws or
approved by the President prior to the effectivity of EO No. 641.

Since there was no showing that the Provident Fund of MNWD was made pursuant to the GAA, or that it was created under
a law, or was approved by the President, the payment for the government share thereto was unauthorized. This is in line with the
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ruling of the Supreme Court in the case of Joseph H. Reyes vs. COA, which held thus:

[t]he Provident Fund was dissolved due to lack of statutory basis. Thus, contributions made were unauthorized,
if not unlawful.
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Further, Section 38 of the General Provisions of the GAA of 2012 provides that the Provident Fund shall be sourced from
service fees of the government agency, to wit:

Departments, bureaus, offices and agencies, which collect service fees for the payment of any obligation
through authorized deductions under the preceding section, shall deposit said service fees with the National
Treasury, to be recorded in its books of accounts as trust receipts. Said service fees shall be used exclusively
for the operation of a Provident Fund in favor of all its employees in accordance with pertinent rules and
regulations. The Provident Fund shall be used for loaning operations and other purposes beneficial to all
members as may be approved by its governing board. (Underscoring supplied)

A perusal of the records does not indicate that the Provident Fund of MNWD was taken from the service fees it has
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collected. This Commission has held in COA Decision No. 2014-072 dated May 8, 2014 that the failure of a water district to
substantiate that its Provident Fund was sourced from its service fees, as required by the GAA, merits the affirmation of the
disallowance, to wit:

On the other hand, Section 42 of R.A. No. 9336, which authorizes the establishment of a Provident Fund,
specifically indicates that the Provident Fund shall be sourced from Service Fees. SKWD failed to substantiate
that its Provident Fund is sourced from such fees, hence, the affirmance of the disallowance.

RULING

WHEREFORE, premises considered, Commission on Audit Regional Office No. V Decision No. 2015-C-004 dated
January 19, 2015, which partially granted the appeal of Mr. Jeremias P. Aban, Jr., et al., Metropolitan Naga Water District, Naga
City, is DISAPPROVED. Accordingly, Notice of Disallowance No. 13-005-101(12) dated April 22, 2013, on the payment of
government share to the Provident Fund in the total amount of P2,894,792.85, is hereby AFFIRMED.

(SGD.) MICHAEL G. AGUINALDO

Chairperson

(SGD.) JOSE A. FABIA (SGD.) ROLAND C. PONDOC

Commissioner Commissioner

Attested by:

(SGD.) NILDA B. PLARAS

Director IV
Commission Secretariat
Copy furnished:

Mr. Jeremias P. Aban, Jr.

Acting General Manager

The Audit Team Leader

The Supervising Auditor

All of the Metropolitan Naga Water District

Naga City

The Regional Director

Commission on Audit Regional Office No. V
Rawis, Legazpi City

The Directors
Information Technology Office, Systems and Technical Services Sector
Claims and Adjudication Office-Corporate, Commission Proper Adjudication
and Secretariat Support Services Sector

The Assistant Commissioners

Corporate Government Sector
Commission Proper Adjudication and Secretariat Support Services Sector

All of this Commission

ESZ/EDS/DHT/FPJ
4-4-15-AR-ABAN-MNWD-Provident-FPJ
OGC-02-11-2015-02446
CPCN-2015-082

1 Pursuant to Section 7, Rule V of the Revised Rules of Procedure of the Commission on Audit (RRPC).
2 Admitted in Letter-Appeal dated September 3, 2013, rollo, p. 46.
3 Pursuant to Section 8, Rule IV of the RRPC.
4 Rules and Regulations for the Implementation of the Revised Compensation and Position Classification System Prescribed Under R.A. No. 6758 for Government Owned
and/or Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs), February 15, 1999.
5 Implementation of Judicial Decisions Authorizing Grant of Additional Allowances in Government Owned and/or Controlled Corporations and Government Financial
Institutions.
6The Salary Standardization Law.
7 Rollo, p. 46.
8 Authorizing the Establishment and Administration of Provident Funds in the Government.
9 G.R. No. 125129, March 29, 1999.
10 Republic Act No. 10155.
11 Petition for Review filed by Engr. Jose D. Tabuga, Jr., General Manager, Sultan Kudarat Water District, Tacurong City, from Commission on Audit XII Decision No. 09-
06 dated April 24, 2009, affirming Notices of Disallowance Nos. 07-001-(06), 07-002-(06), 07-003-(06) and 07-004-(06), all dated November 26, 2007, on the payment of
various allowances in the total amount of P3,663,278.01.