8. Feliciano v.

Commission on Audit (GR 147402 01/14/2004)

Facts:
A special audit team from COA Regional office no. VIII audited the accounts of
Leyte Metropolitan Water District (LMWD).
Subsequently, LMWD received a letter from COA dated July 19, 1999 requesting
payment of auditing fees.
As general manager of LMWD, petitioner (Engr. Feliciano) sent a reply dated October
12, 1999 informing COA’s regional director that the water district could not pay the
auditing fees.
Petitioner cited as basis for his action section 6 and 20 of Presidential Decree no.
198 (DECLARING A NATIONAL POLICY FAVORING LOCAL OPERATION AND CONTROL
OF WATER SYSTEMS) as well as section 18 of RA 6758(Compensation and Position
Classification Act of 1989).
The regional director referred petitioner to reply the COA Chairman on October 18,
1999. On October 19, 1999, petitioner wrote COA through the Regional Director asking
for refund of all auditing fees LMWD previously paid to COA.
On March 16, 2000, petitioner received COA Chairman Celso D. Gangans resolution
dated January 3, 2000 denying his requests. Petitioner filed a motion for
reconsideration on March 31, 2000, which COA denied on January 30, 2001.

Issue: Whether or not petitioner LMWD is a private corporation exempt from the
auditing jurisdiction of COA.

Held: No. Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law. Stated differently,
only corporations created under a general law can qualify as private corporations under
existing laws, that general law is the corporation code, except that the cooperative code
governs the incorporation of cooperatives.

Obviously, LWDs are not private corporations because they are not created under the
corporation code. LWDs are registered with the Securities and Exchange Commission
(SEC). Section 14 of the corporation code states that all corporations under this code
shall file with the SEC articles of incorporation. LWDs have no articles of incorporation,
no incorporators and no stockholders or members. There are no stockholders or
members to elect the board of directors of LWDs as in the case of all corporations
registered with the SEC. The local mayor or the provincial governor appoints the
directors of LWDs for a fixed term of office. This court has ruled that LWDs are not
created under the corporation code.
The determining factor of COA’s audit jurisdiction is government ownership or control of
the corporation. The criterion of ownership and control is more important than the issue
of original charter.

Certainly, the government owns and controls LWDs. The government organizes LWDs
in accordance with a specific law, PD 198. There is no private party involved as co-
owner in the creation of and LWD. Just prior to the creation of LWDs, the national or
local government owns and controls all their assets. The government controls LWDs
because under PD 198 the municipal or city mayor, or the provincial governor, appoints
all the board of directors of an LWD for a fixed term of six (6) years. The board of
directors of LWDs are not co-owners of the LWDs. LWD have no private stockholders or
members. The board of directors and other personnel of LWDs are government
employees subject to civil service laws, anti-graft laws.

Section 18 of RA 6758 prohibits COA Personnel from receiving any kind of

compensation from any government except compensation paid directly by COA out of
its appropriations and contributions. Thus, RA 6758 itself recognizes an exception to the
statutory ban by COA personnel receiving compensation from GOCCs.