The Supreme Court ruled that Administrative Order (AO) 103, which sets a limit on the total amount of per diems that can be received by members of governing boards of government-owned and controlled corporations (GOCCs), does not conflict with Presidential Decree (PD) 198, which allows water districts to prescribe per diems subject to the approval of the Local Water Utilities Administration (LWUA). The Court emphasized that AO 103 effectively superseded LWUA Memorandum Circular (MC) 004-02, which prescribed higher per diems, because the President has control over executive departments and GOCCs. The directors were ordered to reimburse the excess per diems they received because AO 103 was already in effect when the payments were made, negating their claim of good faith.

When Austerity Measures Clash with Water District Compensation: Who Decides?

This case revolves around the per diems received by the board of directors of the Baguio Water District (BWD) in September 2004. The Commission on Audit (COA) disallowed a portion of these per diems, arguing that they exceeded the limit prescribed by Administrative Order (AO) 103, which directed the continued adoption of austerity measures in the government. The BWD directors, however, contended that their per diems were approved by the Local Water Utilities Administration (LWUA) through Memorandum Circular (MC) 004-02, issued pursuant to Presidential Decree (PD) 198, also known as the Provincial Water Utilities Act of 1973. The central legal question is whether AO 103 could validly limit the per diems authorized by LWUA, and whether the BWD directors should reimburse the disallowed amounts.

The Supreme Court addressed the apparent conflict between AO 103 and PD 198 by applying the principle of statutory construction, which prioritizes harmonizing seemingly inconsistent laws. The Court stated:

It is a basic principle in statutory construction that when faced with apparently irreconcilable inconsistencies between two laws, the first step is to attempt to harmonize the seemingly inconsistent laws.

In this light, the Court found that PD 198 and AO 103 could coexist. PD 198, as amended by Republic Act 9286, grants the water district board the power to set per diems, subject to LWUA approval:

Sec. 13. Compensation. – Each director shall receive 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. Any per diem in excess of One hundred fifty pesos (P150.00) shall be subject to the approval of the Administration.

AO 103, on the other hand, imposed a ceiling on the total per diems and benefits that non-full-time government officials, including members of governing boards, could receive:

SEC. 3. All NGAs, SUCs, GOCCs, GFIs and OGCEs, whether exempt from the Salary Standardization Law or not, are hereby directed to: (ii) in the case of those receiving per diems, honoraria and other fringe benefits in excess of Twenty Thousand Pesos (P20,000.00) per month, reduce the combined total of said per diems, honoraria and benefits to a maximum of Twenty Thousand Pesos (P20,000.00) per month.

The Court clarified that the true conflict lay between AO 103 and MC 004-02, the LWUA circular that prescribed the higher per diems. Here, the President’s power of control over the executive branch becomes relevant.

The President’s power of control, as enshrined in Section 17, Article VII of the 1987 Constitution, allows the President to:

alter or modify or set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the President over that of the subordinate officer.

Since LWUA is a government-owned and controlled corporation, it is subject to the President’s control. Therefore, AO 103 effectively superseded MC 004-02, limiting the per diems that BWD directors could receive.

The petitioners also argued that they acted in good faith when they received the excess per diems, citing Blaquera v. Alcala and De Jesus v. Commission on Audit. However, the Court rejected this argument because AO 103 was already in effect when the questioned payments were made. The Court emphasized that AO 103 took effect immediately upon its publication in two newspapers of general circulation on September 3, 2004.

The Court distinguished the present case from Blaquera, where the disallowed amounts were released before the issuance of the regulating administrative order. Similarly, in De Jesus, the Court considered the ambiguity of the term “compensation” in the relevant decree, which led to the good faith reliance of the petitioners. The Court stated:

At the time petitioners received the additional allowances and bonuses, the Court had not yet decided Baybay Water District. Petitioners had no knowledge that such payment was without legal basis. Thus, being in good faith, petitioners need not refund the allowances and bonuses they received but disallowed by the COA.

In contrast, AO 103 explicitly and clearly ordered the discontinuance of per diems exceeding P20,000. Thus, the directors’ failure to comply with AO 103 was deemed unwarranted, and they were ordered to reimburse the excess amount.

The implications of this decision are significant for government-owned and controlled corporations. It underscores the President’s authority to implement austerity measures and control the compensation of government officials. It also clarifies that reliance on previous authorizations is not a valid defense when a subsequent administrative order limits or prohibits such payments.

FAQs

What was the key issue in this case?	The key issue was whether the Commission on Audit (COA) correctly disallowed the per diems received by the Baguio Water District (BWD) directors, which exceeded the limit set by Administrative Order (AO) 103. This involved determining whether AO 103 superseded prior authorizations for higher per diems.
What is Administrative Order (AO) 103?	AO 103 is an executive issuance directing the continued adoption of austerity measures in the government. It sets a limit of P20,000 per month on the combined per diems, honoraria, and fringe benefits for non-full-time government officials, including members of governing boards.
What is Presidential Decree (PD) 198?	PD 198, also known as the Provincial Water Utilities Act of 1973, governs the creation and operation of water districts in the Philippines. It authorizes the boards of water districts to determine the per diems of their directors, subject to the approval of the Local Water Utilities Administration (LWUA).
What is the role of the Local Water Utilities Administration (LWUA)?	The LWUA is a government-owned and controlled corporation (GOCC) that regulates and supervises water districts in the Philippines. It has the power to approve the per diems, allowances, and benefits prescribed by the boards of water districts.
Why did the COA disallow the per diems?	The COA disallowed the per diems because they exceeded the P20,000 limit set by AO 103. The COA argued that AO 103 superseded the LWUA’s prior authorization for higher per diems.
What was the basis for the BWD directors’ claim that they should not have to reimburse the disallowed amounts?	The BWD directors argued that they received the per diems in good faith, relying on the LWUA’s prior authorization and the principle established in previous Supreme Court cases. They believed that they should not be made to reimburse the amounts if they acted in good faith.
How did the Supreme Court reconcile AO 103 and PD 198?	The Supreme Court reconciled the two by stating that AO 103 does not negate the power of the LWUA to approve applications for per diems greater than P150. It emphasized that the conflict lay between AO 103 and MC 004-02, and that AO 103 effectively overruled the latter.
Why was the defense of good faith rejected by the Supreme Court?	The Supreme Court rejected the defense of good faith because AO 103 was already in effect when the questioned payments were made. The AO took effect immediately upon its publication in two newspapers of general circulation, putting the directors on notice of the new limit.
What is the significance of the President’s power of control in this case?	The President’s power of control over the executive branch, including GOCCs like the LWUA, was crucial in this case. It allowed the President to issue AO 103, which effectively modified or set aside the LWUA’s prior authorization for higher per diems.

In conclusion, the Supreme Court’s decision affirms the President’s authority to implement austerity measures and control the compensation of government officials, even in GOCCs. This case serves as a reminder that government officials must adhere to prevailing administrative orders and cannot rely on prior authorizations when subsequent issuances impose stricter limits.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: TERESITA P. DE GUZMAN vs. COMMISSION ON AUDIT, G.R. No. 217999, July 26, 2016