Per Diem vs Other Compensation: Allowable Remuneration for Water District Board Members

The Supreme Court has settled a recurring question in local governance: what compensation may members of a water district's board of directors legally receive? In De Jesus v. Commission on Audit (G.R. No. 149154, June 10, 2003), the Court ruled that under Presidential Decree No. 198 (PD 198), board members are entitled only to per diems — not representation allowances, rice allowances, or bonuses. The decision is a clear reminder that statutory limits on public compensation cannot be expanded by administrative issuances.

The Case of the Catbalogan Water District

The Catbalogan Water District (CWD) in Samar was created under PD 198, also known as the Provincial Water Utilities Act of 1973. Between May to December 1997 and April to June 1998, members of CWD's interim Board of Directors granted themselves several benefits: Representation and Transportation Allowance (RATA), Rice Allowance, Productivity Incentive Bonus, Anniversary Bonus, Year-End Bonus, and cash gifts. These were authorized under Resolution No. 313, series of 1995, issued by the Local Water Utilities Administration (LWUA).

During a routine audit, the Commission on Audit (COA) disallowed these payments. The COA reasoned that Section 13 of PD 198 speaks only of per diems for board members and prohibits any other compensation. The board members appealed, arguing that the COA had no authority to override LWUA's regulations and that they received the amounts in good faith.

The Issue Before the Court

The central question was whether members of a water district's board of directors could receive allowances and bonuses beyond the per diems expressly allowed by Section 13 of PD 198. A related issue was whether the COA had the power to disallow payments authorized by LWUA resolutions.

The Ruling: Per Diems Only

The Supreme Court affirmed the COA's disallowance but modified the refund requirement. The Court held that Section 13 of PD 198 is explicit: each director shall receive a per diem for each meeting actually attended, but no director shall receive per diems in any given month exceeding the equivalent of four meetings. The provision then states, in no uncertain terms: "No director shall receive other compensation for services to the district."

The Court rejected the argument that "compensation" excludes allowances and bonuses. Citing its earlier ruling in Baybay Water District v. Commission on Audit, the Court explained that by specifying per diem as the compensation and by expressly prohibiting "other compensation," the law clearly authorizes directors to receive only per diems — and nothing else, in whatever form.

The COA's Authority to Disallow

The Court also firmly rejected the claim that the COA usurped LWUA's powers. Under Article IX-D, Section 2 of the 1987 Constitution, the COA has the power to examine, audit, and settle all accounts of government-owned and controlled corporations, including water districts. The Constitution vests in the COA the authority to disallow irregular, unnecessary, excessive, or unconscionable expenditures of government funds.

The Court noted that accepting the board members' theory would lead to an "absurd situation" where an administrative agency's resolution could nullify the COA's broad constitutional powers. While the Department of Budget and Management administers the compensation system, the duty to examine and audit government expenditures belongs to the COA.

Good Faith and the Refund Question

Although the disallowance was upheld, the Court excused the board members from refunding the amounts. Applying the ruling in Blaquera v. Alcala, the Court found that the board members received the benefits in good faith, relying on LWUA Resolution No. 313. At the time, the Court had not yet decided Baybay Water District, so the board members had no reason to doubt the legality of the payments. Since no bad faith was shown, refund was not required.

Practical Takeaways

• Water district board members may receive only per diems for meetings actually attended, subject to the monthly limit of four meetings and LWUA approval for per diems exceeding P50.
• Allowances, bonuses, and cash gifts are prohibited under Section 13 of PD 198, regardless of any LWUA resolution authorizing them.
• The COA has constitutional authority to audit water districts and disallow payments that exceed what the law allows; an agency resolution cannot override a clear statutory prohibition.
• Good faith may excuse refund, but it does not validate the payment — the disallowance stands, and only the refund is waived.
• Government entities should verify statutory limits before granting benefits, as reliance on administrative issuances that contradict the law is no guarantee of protection.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.