Water District Board Compensation: Per Diems, Additional Benefits, and COA Disallowances

The Supreme Court's 2005 ruling in Molen, Jr. v. Commission on Audit (G.R. No. 150222) clarifies a recurring question for local water districts: what compensation may board directors legally receive? The decision affirms that under Presidential Decree No. 198, as amended, water district directors are entitled only to per diems—not the array of allowances and benefits that some boards had granted themselves. The ruling also offers important guidance on when disallowed amounts must be refunded.

The Facts of the Case

The Commission on Audit (COA) conducted a special audit of the Metro Iloilo Water District (MIWD) for calendar year 1995. The audit disallowed various benefits granted to board directors totaling P730,910.43, including cash gifts, representation allowances, rice subsidies, traveling expenses, medical and uniform allowances, wreath and mass cards, and family and group hospitalization insurance premiums.

The disallowance was based on Section 13 of P.D. No. 198, as amended by P.D. No. 768, which states that each director shall receive a per diem for board meetings actually attended, but no director shall receive per diems exceeding the equivalent of four meetings per month. The provision also restricts directors from receiving other compensation for their services to the district.

The MIWD board members appealed to COA, arguing that the Salary Standardization Law (R.A. No. 6758) had impliedly repealed Section 13 of P.D. No. 198, and that the Local Water Utilities Administration (LWUA) had authorized the benefits through its Resolution No. 313, series of 1995.

The Issue

The central question was whether members of a water district board of directors could receive additional benefits beyond the per diem allowed under P.D. No. 198, as amended, and whether they must refund disallowed amounts.

The Court's Ruling

The Supreme Court affirmed COA's disallowance with modification. The Court held that P.D. No. 198 remains the governing law on water district director compensation, and it has not been impliedly repealed by R.A. No. 6758.

Salary Standardization Law does not apply. The Court, citing Baybay Water District v. Commission on Audit (374 SCRA 482 [2002]), explained that water district directors are not covered by the Salary Standardization Law because their function is limited to policy-making under Section 18 of P.D. No. 198. Directors do not receive salaries but per diems, and the law's provisions on allowances and benefits refer to salaried positions.

Express prohibition on other compensation. By specifying per diem as the only compensation and providing that no director shall receive other compensation, P.D. No. 198 clearly limits directors to per diems. No other allowance or benefit, in whatever form, may be granted.

LWUA Resolution cannot override the law. The Court rejected the argument that LWUA Resolution No. 313, series of 1995, authorized the benefits. LWUA cannot grant authority that contradicts the express provisions of P.D. No. 198.

Practice does not create vested rights. The Court rejected the argument that long-standing enjoyment of the benefits constituted a vested right. As stated in Baybay Water District, erroneous application of law by public officers does not estop the government from correcting such errors, and practice contrary to law cannot give rise to vested rights.

Good Faith Exception

Despite affirming the disallowance, the Court made a significant modification. Citing De Jesus v. Commission on Audit (403 SCRA 666 [2003]), the Court held that directors who received benefits under LWUA Resolution No. 313 in 1995—before the Baybay Water District ruling in 2002—need not refund them. At the time, they had no knowledge that the payments lacked legal basis.

However, the Court ordered refunds for the family and group hospitalization insurance (P4,660.28) and wreath and mass cards (P4,810), as these were not among the benefits authorized by LWUA Resolution No. 313, and the wreath and mass cards were unnecessary and personal in nature.

A Note on the 2004 Amendment

The Court noted that R.A. No. 9286, approved on April 2, 2004, amended Section 13 of P.D. No. 198 to allow directors to receive "allowances and benefits as the Board may prescribe subject to the approval of the Administration." However, this amendment is prospective and did not apply to the 1995 transactions at issue.

Practical Takeaways

• Water district directors are limited to per diems under P.D. No. 198, as amended, unless a later law expressly authorizes additional benefits.
• The Salary Standardization Law does not cover water district directors because they are policy-making officials who receive per diems, not salaries.
• LWUA resolutions cannot authorize benefits that contradict the express provisions of P.D. No. 198.
• Good faith recipients may be excused from refunding disallowed benefits if they received them before the illegality was clearly established by jurisprudence, but this exception has limits.
• Refund liability extends beyond recipients to officers who approved, certified, or facilitated unlawful payments.

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