GABRIEL A. MAGNO, NIEVES P. CASTRO, EMIDIO S. MORALES, CONCEPCION Y. AQUINO AND RODOLFO Y. CERVAS, AS MEMBERS OF THE BOARD OF DIRECTORS, MANGALDAN WATER DISTRICT, PETITIONERS, V…

Magno versus Commission on Audit

The Case

This is a petition for certiorari under Rule 64 in relation to Rule 65 of the 1997 Revised Rules of Civil Procedure, filed by the members of the Board of Directors of the Mangaldan Water District against the Commission on Audit. The petitioners ask the Supreme Court to annul the decisions of the Commission on Audit which disallowed the bonuses, benefits, and allowances they received in 1997, and which directed them to refund the same. The case matters because it settles two questions every reviewee must know: whether the Salary Standardization Law applies to water district directors, and whether the per diem rule in the Provincial Water Utilities Act bars every other form of compensation.

Procedural History

The Commission on Audit, through its auditors from the Regional Office in San Fernando, La Union, conducted a special audit of the Mangaldan Water District for 1997 and issued a Notice of Disallowance covering the benefits in question. The petitioners appealed to the Director of the Commission on Audit Regional Office, who denied the appeal. They then filed a petition for review before the Commission on Audit itself, which affirmed the disallowance in a decision dated 29 December 2000. Their motion for reconsideration was denied in a resolution dated 6 September 2001. From these rulings, the petitioners went directly to the Supreme Court by petition for certiorari, alleging grave abuse of discretion amounting to lack or excess of jurisdiction.

Facts

The petitioners were members of the Board of Directors of the Mangaldan Water District in Pangasinan from 1 January 1997 to 31 December 1997. The Local Water Utilities Administration, through its Board of Trustees, had adopted Resolution No. 313, Series of 1995, as amended by Board Resolution No. 39, Series of 1996, entitled Policy Guidelines on Compensation and Other Benefits for the Water District Board of Directors. Relying on this resolution, the water district granted the petitioners rice, uniform, representation, transportation, special financial assistance, bonus, cash gift, and productivity or incentive allowances totaling 303,172 pesos.

Meanwhile, the Commission on Audit General Counsel issued an opinion stating that payments of compensation and other benefits to water district directors, aside from allowable per diems, should be disallowed for lack of legal basis, because they were inconsistent with Section 13 of Presidential Decree No. 198, as amended. The Director of the Regional Office circulated this opinion to the general managers of water districts in the region for their guidance.

The special audit followed, and the auditors recommended disallowance of the 303,172 pesos, with the petitioners asked to refund the amounts. The petitioners argued before the Supreme Court that the Commission on Audit relied on the General Counsel's opinion, which was never approved by the Commission as a collegial body, and that they were in any event not covered by the Salary Standardization Law and its implementing circular, which had not been validly published.

Issues

• Whether or not the Commission on Audit acted with grave abuse of discretion in affirming the Notice of Disallowance against the petitioners on the basis of the opinion of the Commission on Audit General Counsel.
• Whether or not the Commission on Audit gravely abused its discretion in finding that the petitioners were governed by Republic Act No. 6758, as implemented by Department of Budget and Management Corporate Compensation Circular No. 10, and were therefore no longer entitled to the benefits under Resolution No. 313, as amended.

Applicable Provisions

Section 13 of Presidential Decree No. 198, as amended, the law governing local water districts, provides:

Section 13. Compensation. Each director shall receive a per diem, to be determined by the board, for each meeting of the Board actually attended by him, but no director shall receive per diems in any given month in excess of the equivalent of the total per diem of four meetings in any given month. No director shall receive other compensation for services to the district. Any per diem in excess of 50 pesos shall be subject to approval of the Administration.

This provision is the decisive rule: it limits the directors to per diems and expressly forbids any other compensation, which is why the benefits granted under the resolution must fall.

Section 18 of Presidential Decree No. 198, as amended, defines the role of the board and provides:

Section 18. Functions Limited to Policy-Making. The function of the board shall be to establish policy. The Board shall not engage in the detailed management of the district.

This provision supports the ruling that directors are not organic personnel and thus fall outside the Salary Standardization Law.

Ruling

On the first issue, the Court held that the petitioners labored under the wrong impression. The Commission on Audit did not rest its affirmance on the General Counsel's opinion. It considered the findings of its duly authorized auditors and the decision of the Regional Director, and it went further by applying Republic Act No. 6758 as implemented by the circular. The General Counsel is authorized to render opinions as a guide to audit officials, but the disallowance stood on the auditors' findings and on the law.

On the second issue, the Court held that the Commission on Audit did gravely abuse its discretion. Following its earlier rulings, the Court held that the Salary Standardization Law does not apply to water district directors, because their functions are limited to policy-making and they receive per diems rather than salaries. The Court also held that the implementing circular, being administrative in nature, had to be published to be effective, and since it was not published, it could not be enforced against the petitioners; and in any event, since the law it implemented did not apply to them, neither could the circular.

But the Court did not stop there. It held that the benefits must still be disallowed under Section 13 of Presidential Decree No. 198, as amended, which governs the compensation of water district directors. The Court stressed that the law is clear and needs no further interpretation: it expressly prohibits the grant of compensation other than per diems, thus preempting any discretion of water districts to pay other allowances and bonuses. The Court nevertheless excused the petitioners from refund, because in 1997 they acted in good faith, the ruling declaring such payments illegal not yet having been handed down.

Doctrine

First, directors of local water districts are not covered by the Salary Standardization Law, Republic Act No. 6758, because their functions are limited to policy-making and they receive per diems, not salaries. Second, an administrative circular implementing a law must be published in the Official Gazette or in a newspaper of general circulation before it can be enforced. Third, and decisively, Section 13 of Presidential Decree No. 198, as amended, allows water district directors to receive only per diems and no other compensation or allowance in whatever form; any grant of additional benefits is void. Fourth, officials who receive such benefits in good faith, before the illegality was judicially declared, need not refund them.

Disposition

The petition was partially granted: the disallowance was affirmed, but the petitioners were not required to return the amounts they received in 1997, and they were declared not covered by Republic Act No. 6758 as implemented by the circular.

Remember This

Memorize the line that a water district director may receive per diems and no other compensation in whatever form. Examiners use this case to test the per diem limitation under the Provincial Water Utilities Act, the publication requirement for administrative circulars, and the good faith exception to refund.