DECISION NO.

2018-187
January 29, 2018

Subject: Petition for Review of Engineer Alex C. Paguio, General Manager, et al., all of
Pagsanjan Water District, Pagsanjan, Laguna, of Commission on Audit Regional
Office No. IV-A Decision No. 2013-39 dated October 21, 2013, on the appeal from
Notice of Disallowance No. 2012-100-002 (2009 and 2010) dated May 10, 2012
relative to the payment of Extraordinary and Miscellaneous Expenses for calendar
years 2009 and 2010, in the total amount of P432,000.00

DECISION

FACTS OF THE CASE

Before this Commission is the Petition for Review1 of Engineer Alex C. Paguio, General Manager (GM), et al., all of
Pagsanjan Water District (PAGWAD), Pagsanjan, Laguna, of Commission on Audit (COA) Regional Office (RO) No. IV-A
Decision No. 2013-39 dated October 21, 2013. The decision denied the appeal and affirmed Notice of Disallowance No. 2012-
100-002 (2009 and 2010) dated May 10, 2012, on the payment of Extraordinary and Miscellaneous Expenses (EME) to the GM of
PAGWAD, in the total amount of P432,000.00.

PAGWAD received the ND on May 23, 2012. An appeal from the ND was filed on November 11, 2012 before the Regional
Director (RD), COA RO No. IV-A, Quezon City. In COA RO No. IV-A Decision No. 2013-39 dated October 21, 2013, the RD
denied the appeal. Hence, this Petition for Review filed on October 30, 2013, within the reglementary period.2

Records show that during the Regular Meeting of the Interim Board of Directors (BOD) on January 25, 2005, Board
Resolution No. 04, series of 2005 was passed, authorizing the GM to receive EME at P13,000.00 per month effective January 1,
2005. Under Board Resolution No. 136, s. 2006, the EME of the GM was increased to P18,000.00 per month, which the GM
regularly received.

On May 10, 2012, the Audit Team Leader (ATL) and the Supervising Auditor, PAGWAD, issued ND No. 2012-100-002
(2009 and 2010) in the total amount of P432,000.00, on the ground that the grant of EME violated Sections 26 and 28 of the
General Appropriations Act (GAA) for fiscal years (FYs) 2009 and 2010 since his position as GM corresponds to Salary Grade
(SG) 24; and contravened COA Circular No. 2006-01 dated January 3, 2006 since the payment thereof was based on certification
and not on reimbursable basis. They further noted that the actual expenditures for EMEs were paid out of the funds for regular
expenses, such as meetings, seminars, official entertainments, funds for guests and public relations, purchase of office equipment
and supplies. The following persons were held liable for the disallowance:

Name Position/Designation Nature of Participation

Engr. Alex C. Paguio General Manager Agency Head who approved
payments/claimant
Angeline R. Aguilar Administrative Certified that the supporting
Division Manager documents were complete and
proper; Head of the Division
responsible for the pre-audit
of the disbursement
Editha B. Abarquez BOD Secretary BOD who approved the
Marifel B. Pabilonia BOD Chairperson payment of EME of the GM
through the Board Resolutions
Nina P. Velasco BOD Vice-Chairperson and inclusion in the Corporate
Fred V. Capistrano BOD Chairman Budget
Angelito T. Bombay BOD Vice Chairman

The appeal filed before the RD was denied under COA RO No. IV-A Decision No. 2013-39 dated October 21, 2013. Hence,
this Petition for Review, raising the following grounds:

1. The grant of EME to the GM was in accordance with Republic Act (RA) No. 9286 which granted upon the
BOD the power to determine the compensation of the GM. RA No. 9286 is a special law, thus, shall prevail
over the GAA which is a general law.

2. The comparison to regional director of a bureau to be entitled to EME shall not apply to a head of the agency,
like the GM of a water district.

3. The issuance of COA Circular No. 2006-001 dated January 3, 2006 has, in effect, validated the EME granted
by the governing boards of GOCCs, like water districts.
 4. There is no malice or bad faith in the grant of EME to the GM of PAGWAD.

In her Answer dated November 24, 2013, the RD, COA RO No. IV-A, maintained her stand affirming the disallowance
based on the grounds relied upon by the ATL and the SA.

ISSUE

The issue to be resolved is whether or not the Petition for Review is meritorious.

DISCUSSION

This Commission finds the Petition for Review devoid of merit.

On the first ground of petitioners that the grant of EME was in accordance with RA No. 9286 dated April 2, 2004 on the
power of the BOD to determine the compensation of the GM, this Commission is not persuaded. Section 23 of Presidential Decree
(PD) No. 198, as amended by Section 2 of RA No. 9286, provides:

The General Manager. - At the first meeting of the Board, or as soon thereafter as practicable, the Board shall
appoint, by a majority vote, a general manager and shall define his duties and fix his compensation. Said officer
shall not be removed from office, except for cause and after due process.

While the BOD of PAGWAD was given the authority to fix the compensation of the GM, such authority is not absolute.
Petitioners’ claim that it is the BOD alone that has the power to fix the compensation of the GM, without any restriction or
regulation is untenable. In effect, the law would be granting the BOD of PAGWAD an unrestrained discretion to fix the
compensation structure, something that the legislature could not have intended. PAGWAD, as a GOCC, is required to report and
seek the approval of the President of the Philippines, through the Department of Budget and Management, the position
classification, salary rates, levels of allowances, projects and other honoraria, overtime rates and other forms of compensation and
fringe benefits, pursuant to Section 6 of PD No. 1597, thus:

Exemptions from OCPC regulations. Agencies, positions or groups of officials and employees of the national
government, including government-owned or controlled corporations, that are hereafter exempted by law from
OCPC coverage shall observe such guidelines and policies as may be issued by the President governing
position classification, salary rates, levels of allowances, projects and other honoraria, overtime rates and other
forms of compensation and fringe benefits. Exemptions notwithstanding, agencies shall report to the President,
through the Budget Commission, on their position classification and compensation plans, policies, rates and
other related details following such specifications as may be prescribed by the President.

The aforecited provision is reiterated in Section 59 of the General Provisions of the 2010 GAA, which reads:

Special Compensation and Other Benefits. GOCCs, including GFIs, who are exempt from, or are legally
enjoying special compensation and other benefits which are subject to those authorized under R.A. No. 6758, as
amended, shall be governed by such special laws: PROVIDED, That they shall observe the policies, parameters,
and guidelines governing position classification, salary rates, categories and rates of allowances, benefits, and
incentives prescribed by the President: PROVIDED, FURTHER, That they shall submit their existing
compensation and position classification systems and their implementation status to the DBM: PROVIDED,
FURTHERMORE, That any grant of or increase in salaries, allowances, and other fringe benefits shall be
subject to the approval by the President upon favorable recommendation of the DBM: PROVIDED,
FINALLY, That they shall not be entitled to benefits accruing to government employees covered by R.A. No.
6758, as amended, if they are already receiving similar or equivalent benefits under their own compensation
scheme.

Hence, entitlement to EME shall be based on the SG of officials as provided under the GAA. As found by the ATL, the
position of GM of PAGWAD is SG 24, equivalent to a Division Chief. Under Sections 26 and 28 of the GAA for FYs 2009 and
2010, the lowest position entitled to EME of P16,000.00 per annum is SG 26, equivalent to a Municipal Trial Court Judge,
Municipal Circuit Trial Court Judge, and Shari'a Circuit Court Judge.

The second argument that the GM is a head of agency and should not be compared to a regional director of a bureau is
unavailing. The RD aptly pointed out that Section 2(4) of the Administrative Code of 1987 refers to an agency of the government
as “any of the various units of the Government, including a department, bureau, office, instrumentality, or government-owned and
controlled corporations, or a local government unit, or a distinct unit therein.” Hence, the definition of an agency does not
distinguish between a bureau headed by a regional director or a GOCC headed by a general manager. In COA Decision No. 2012-
036 dated March 22, 2012 affirming the disallowance, this Commission quoted the opinion of the DBM’s Compensation and
Position Classification Bureau (CPCB) contained in a letter dated September 6, 1999, thus:

We wish to inform you that the Compensation and Position Classification Bureau of the Department of Budget
and Management opined that key officials of local water districts are not of equivalent rank to any of the
officials enumerated in Section 24, General Provisions of RA No. 8745.Hence, they are not entitled to the EME
 officials enumerated in Section 24, General Provisions of RA No. 8745.Hence, they are not entitled to the EME
referred to in said section.

On the third ground that the issuance of COA Circular No. 2006-001 dated January 3, 2006 has, in effect, validated the
EMEs granted by the governing boards of GOCCs, like Water District, such argument is unconvincing. This Circular provides the
guidelines on the payment of EMEs, thus:

1. The amount of EME, as authorized in the corporate charters of GOCCs/GFIs, shall be the ceiling in the
disbursement of these funds. Where no such authority is granted in the corporate charter and the authority to
grant EME is derived from the GAA, the amounts fixed thereunder shall be the ceiling in the disbursements;

2. Payment of these expenditures shall be strictly on a non-commutable or reimbursable basis;

3. The claim for reimbursement of such expenses shall be supported by receipts and/or other documents
evidencing disbursements; and

4. No portion of the amounts appropriated shall be used for salaries, wages, allowances, intelligence and
confidential expenses which are covered by separate appropriations.

Records show that the GM likewise failed to submit receipts as required by the abovementioned Circular. Thus, the same
cannot be used as basis on the alleged valid grant of EMEs in this case.

On the fourth ground of good faith, even assuming that the GM received the EME in good faith, still, he is duty-bound to
return the amounts he received based on the principle of solutio indebiti. Good faith is not a valid defense of avoiding liability.
Article 2154 of the New Civil Code of the Philippines provides that “if something is received when there is no right to demand it,
and it was unduly delivered through mistake, the obligation to return it arises.” In the case of Government Service Insurance
System vs. Commission on Audit, G.R. No. 138381, November 10, 2004, the Supreme Court ruled that:

Anent the benefits which were improperly disallowed, the same rightfully belong to respondents without
qualification. As for benefits which were justifiably disallowed by the COA, the same were erroneously granted
to and received by respondents who now have the obligation to return the same to the System.

It cannot be denied that respondents were recipients of benefits that were properly disallowed by the
COA. These COA disallowances would otherwise have been deducted from their salaries, were it not for the
fact that respondents retired before such deductions could be effected. The GSIS can no longer recover these
amounts by any administrative means due to the specific exemption of retirement benefits from COA
disallowances. Respondents resultantly retained benefits to which they were not legally entitled which, in turn,
gave rise to an obligation on their part to return the amounts under the principle of solutio indebiti.

Under Article 2154 of the Civil Code, if something is received and unduly delivered through mistake when
there is no right to demand it, the obligation to return the thing arises. Payment by reason of mistake in the
construction or application of a doubtful or difficult question of law also comes within the scope of solutio
indebiti.

Meanwhile, the BOD and the officials of PAGWAD who authorized/ approved/certified the payment of EME to the GM
shall be jointly and solidarily liable for the illegal disbursement of public funds, pursuant to Section 103 of PD No. 1445, thus:

General liability for unlawful expenditures. Expenditures of government funds or uses of government property
in violation of law or regulations shall be a personal liability of the official or employee found to be directly
responsible therefor.

RULING

WHEREFORE, premises considered, the Petition for Review is hereby DENIED for lack of merit. Accordingly,
Commission on Audit Regional Office No. IV-A Decision No. 2013-39 dated October 21, 2013 and Notice of Disallowance No.
2012-100-002 (2009 and 2010) dated May 10, 2012, on the payment of Extraordinary and Miscellaneous Expenses to Engineer
Alex C. Paguio, General Manager, et al., all of Pagsanjan Water District, Pagsanjan, Laguna, for calendar years 2009 and 2010, in
the total amount of P432,000.00, are AFFIRMED.

(SGD.) MICHAEL G. AGUINALDO

Chairperson

(SGD.) JOSE A. FABIA (SGD.) ISABEL D. AGITO

Commissioner Commissioner
 Attested by:

(SGD.) NILDA B. PLARAS

Director IV
Commission Secretariat

Copy furnished:

Engineer Alex C. Paguio, General Manager

Angeline R. Aguilar, Administrative Division Manager

Editha B. Abarquez, Board Secretary

Marifel B. Pabilonia, Chairperson
Nina P. Velasco, Vice-Chairperson
Fred V. Capistrano, Chairman
Angelito T. Bombay, Vice Chairman
Board of Directors

All of Pagsanjan Water District

Pagsanjan, Laguna
The Audit Team Leader
The Supervising Auditor
Pagsanjan Water District
Pagsanjan, Laguna

The Regional Director

Commission on Audit Regional Office No. IV-A
Commonwealth Avenue, Quezon City

The Directors
Information Technology Office, Systems and Technical Services Sector
Claims and Adjudication Officer-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/CTS/DVG/NCE_Redraft
C-2013-021
OGC 2014-1-3-14
CPCN 2013-431

1 Pursuant to Rule V, Section 7 of the 2009 Revised Rules of Procedure of the Commission on Audit.
2 Pursuant to Section 3, Rule VII of the 2009 Revised Rules of Procedure of the Commission on Audit.