DOJ Opinion No. 134, s. 1983

DOJ OPINION NO. 134 , s. 1983 September 5, 1983 Minister Roberto V. Ongpin Ministry of Trade and Industry Makati, Metro Manila Sir : This refers to your request for opinion on whether of not subsidiaries of the National Development Company (NDC) are subject to audit by the Commission on Audit (COA). It is your position that the SEC-registered subsidiaries of the NDC are not government-owned or controlled corporations within the meaning of paragraph (1), Section 2, Article XII-D of the New Constitution which empowers the COA "to examine, audit and settle . . . all accounts . . . funds and property . . . pertaining to the Government of any of its subsidiaries, agencies or instrumentalities, including government-owned or controlled corporations ". You cite in this connection Opinion No. 62, s. 1976 of the Minister of Justice which ruled that the coverage of the Civil Service as defined in Article XII-B, Section 1 (1) of the New Constitution extends only to employees of government owned or controlled corporations created by special law and not to employees of corporations created by special law and not to employees of corporations which were created as subsidiaries of government corporations directly chartered of created by special law. You also cite an opinion of the Government Corporate Counsel to the effect that only those subsidiaries created by the parent or holding government owned or controlled corporations pursuant to their respective charters are deemed covered by the provision of Section 26 of the Government Auditing Code (P.D. No. 1445) which places under the general audit jurisdiction of the COA "all government-owned of controlled corporations, including their subsidiaries . We concur in the view that SEC-registered subsidiaries of the NDC are not subject to audit by the COA. LexLib Section 26 of the Government Auditing Code defines the general jurisdiction of the COA as follows: "SEC. 26. General jurisdiction . The authority and powers of the Commission shall extend to and comprehend all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of any sort due from or owing to the Government or any of its subdivision, agencies and instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations, including their subsidiaries, and other self-governing boards, commissions, or agencies of the Government, and as herein prescribed including non-governmental entities subsidized by the government, those funded by donations through the government, those required to pay levies or government share, and those for which the government has put up a counterpart fund of those partly funded by the government ". (Under-scoring supplied) However, by express provision of the NDC Charter (P.D. No. 1648), it is provided that: "SEC. 10. Auditor . The Commission on Audit shall appoint, subject to the approval of the Board, a representative who shall be the Auditor of the Company, and such personnel as may be necessary to assist said representative in the performance of his duties. Subsidiaries of the Company created and registered with the Securities and Exchange Commission are to be audited by independent Certified Public Accountants as may be approved by the Board ". (Emphasis supplied) It is believed that in view of the express provisions of Section 10, above-quoted , which is a later and special law clearly expressing the legislative intent to remove the NDC subsidiaries that are registered with the Securities and Exchange Commission from the general audit jurisdiction of the COA, such subsidiaries are not subject to COA jurisdiction as defined in Section 26 of the Government Auditing Code. LexLib Relative to the latent issue that touches upon the scope of the constitutional provision subjecting government-owned and controlled corporations to the jurisdiction of the COA and of Section 26 the Government Auditing Code which extends the jurisdiction of the COA to all subsidiaries of government-owned and controlled corporations, it is our view, consistently with our ruling in Opinion No. 62, s. 1976 , that we can adopt the general proposition that COA jurisdiction covers government corporation created by special law and does not comprehend those private corporations which are organized under the general corporation law and/or are subsequently acquired by government-owned or controlled corporations organized by or operating under special laws. As observed in the aforecited opinion, the rationale for the distinction lies in the fact that government corporations established by special laws perform functions of government, whether such functions are governmental or proprietary in character, whereas private enterprises formed under the Corporation Law are "organized wholly for profit with the promotion of private interests as their direct object". That they are later on acquired by the government should not rid them of their essentially private character "since they would still be operating with the same business and profit motivation". By parity of ratiocination, the term "subsidiaries" found in Section 26 of the Government Auditing Code should be deemed to cover only such subsidiaries as may have been created by government-owned or controlled corporations pursuant to an express grant of authority in their respective charters empowering them to create subsidiary corporations. This is without prejudice, however, to specific provisions in the charters of government corporations removing in effect their subsidiaries from the audit jurisdiction of COA by providing a different auditing procedure for such subsidiaries, as in the case of the SEC-registered subsidiaries of the NDC. In such cases, the special provision on audit of subsidiaries will be deemed an exception from the general audit provisions of the Government Auditing Code applying the settled rule that in case of an irreconcilable conflict between two provisions the specific provision will prevail over the general provision of the law. Please be guided accordingly. Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice