Chapter 2: The Budget Process

The National Budget

Government accounting is primarily budgetary accounting. Government accounting does

not only aim to provide information on past events and transactions but also budget
information in accordance with PPSAS 24.

The Philippine Constitution and other laws require government funds to be utilized in
accordance with a national budget that is duly approved by legislation. Government accounting,
therefore, is concerned with providing information useful in assessing the conformance of
utilizations of government funds with the approved budget.
The national budget (government budget) is the government's estimate of the sources
and uses of government funds within a fiscal year. This forms the basis for expenditures and is
the government's key instrument for promoting its socio-economic objectives.
The formulation and eventual utilization of the national budget are summarized in the
budget cycle.
The Budget Cycle
The budget cycle has four phases, namely:

1. Budget Preparation
2. Budget Legislation
3. Budget Execution
4. Budget Accountability

Budget Preparation

The budget preparation in the Philippines uses a “bottom-up” approach. Under “bottom-up”
budgeting, several parties participate in the budget preparation, starting, from the lowest to the
highest levels of the government. Government agencies are also tasked to increase the
participation of citizen-stakeholders in the budget preparation. The opposite of “bottom-up”
budgeting is “top-down” budgeting - wherein the budget preparation starts from the agency
heads.

In 2011, the Philippine Government attempted to a start a new tradition by shifting from
the old “incremental” system of budgeting, to the “zero-based budgeting” approach.

Incremental budgeting Zero-based budgeting

 The current year's budget is  The current year’s budget is
formulated based on the previous formulated without regard to the
year's budget, which is just adjusted previous year’s budget. Government

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 for any variances experienced in the agencies are required to justify their
past. Presumably, the proposed current year’s proposed programs and
programs and expenditures in the expenditures, irrespective of whether
previous year are automatically these are new or carried over from
approved in the current year. the previous year.
 Uses a “roll-over” approach.  Uses a “back-to-zero” or “clean slate”
 Prone to abuse. approach.
 Promotes efficient and effective
utilization of funds.

1. Budget call — The budget preparation starts when the Department of Budget and
Management (DBM) issues a Budget Call to all government agencies. The budget call contains,
among other things, the next fiscal year’s targets, the agency’s budget ceiling, and other
guidelines in the completion and submission of agency budget proposals.
Relevant terms:
 Balanced budget — prepared in such a way that estimated revenues exceed estimated
expenditures. If actual revenues exceed actual expenditures, the government earns a
surplus. If expenditures exceed revenues, the government incurs a deficit.
 Annual budget — covers a period of one year and forms the basis for the annual
appropriation.
 Special budget — provides for items not adequately covered or not included in the
general appropriations act.
 Line-item budget — focuses on specific expenditures such as salaries and wages, travel
expenses, freight, supplies, materials and equipment.
 Performance budget — a plan of activities to be undertaken, including their related
costs, with the emphasis on meeting targets and desired results. The main focus is on
the work to be done or services to be rendered.
 Obligations budget — focuses on expenditures incurred in the current year which are to
be paid either in the same year or in the following year.

2. Budget hearings — Budget hearings are conducted after the agencies submit their budget
proposals. Each agency defends its budget proposal before the DBM. The DBM deliberates on
the budget proposals, makes recommendations, and consolidates the deliberated proposals
into the National Expenditure Program (NEP) and Budget of Expenditures and Sources of
Financing (BESF), The DBM then submits the proposed budget to the President.

3. Presentation to the Office of the President — The President and Cabinet members review
the proposed budget. After the President approves the proposed budget, the DBM finalizes the
budget documents to be submitted to the Congress. At this point, the proposed budget is
referred to as the “President's Budget.”

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 The “President's Budget” contains the following documents which are intended to assist
the Congress in their review and deliberation of the proposed national budget:

a. President's Budget Message — this contains the President's explanation of the country’s fiscal
policy and budget priorities.
b. National Expenditure Program (NEP) — this contains the details of all the government
entities’ proposed expenditures in the coming year.
c. Budget of Expenditures and Sources of Financing (BESF) — this contains the estimated
expenditures accompanied by estimates of expected sources of financing.
d. Other documents aimed to provide further explanation of selected items in the NEP (e.g.,
details of key programs and projects and staffing summary).

Relevant provision of law:

 The President shall submit the proposed budget to the Congress within 30 days from the
opening of every regular Session. (Art. VII, Sec. 22, Philippine Constitution).
*di ko na nilagay yung illustration: excerpts from President’s Budget Message

Budget Legislation
Government funds shall only be spent in pursuance of an appropriation made by law. Therefore,
due process must be undertaken to legalize the proposed budget.
4. House Deliberations - Upon receipt of the President's Budget, the House of Representatives
conducts hearings to scrutinize the various agencies’ respective proposed programs and
expenditures. Thereafter, the House of Representatives prepares the General Appropriations
Bull (GAB).
5. Senate Deliberations - The Senate conducts its own deliberations on the GAB. These normally
start after the Senate receives the GAB from the House of Representatives, However, for
expediency, hearings in the Senate start even as Representatives deliberations are ongoing.
6. Bicameral Deliberations - After deliberations in both houses are finished, a committee called
the Bicameral Conference Committee is formed to harmonize any conflicts between the
Representatives and Senate versions of the GAB.
The harmonized GAB (‘Bicam’ version) is submitted back to both Houses for ratification.
After ratification, the final GAB is submitted to the President for enactment.

7. President's enactment - The President enacts the budget, which is now known as the General
Appropriations Act (GAA). Before enactment though, the President may exercise his veto power
as conferred to him under the Philippine Constitution.

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Relevant provision of law:
When the proposed budget is not enacted before the fiscal year starts, the last year’s GAA is
automatically reenacted. The last year’s GAA shall be used in the current year until a new
general appropriations bill is passed by the Congress. (Art. VI, Sec. 25(7). Philippine
Constitution).

The Approved Budget

Approved Budget - is the expenditure authority derived from, appropriation laws, government
ordinances, and other decisions, related to the anticipated revenue or receipts for the
budgetary period. The approved budget consists of the following:

UACS Code
New General Appropriations 01
Continuing Appropriations 02
Supplemental Appropriations 03
Automatic Appropriations 04
Unprogrammed Funds 05
Retained Income/Funds 06
Revolving Funds 07
Trust Receipts 08
*The Unified Accounts Code Structure (UACS) refers to the standard coding system used in
financial reporting of the National Government.

 Appropriation - is the authorization made by a legislative body to allocate funds for

purposes specified by the legislative similar authority.
1. New General Appropriations - are annual authorizations for incurring obligations during a
specified budget year, as listed in the GAA.
2. Continuing Appropriations - are the authorizations to support obligations for a specific
purpose or project, such as multi-year construction projects which require the incurrence of
obligations even beyond the budget year.
3. Supplemental Appropriations - are additional appropriations authorized by law to augment
the original appropriations which proved to be insufficient for their intended purpose due to
economic, political or social conditions supported by 8 Certification of Availability of Funds from
the BTr.
4. Automatic Appropriation - are the authorizations programmed annually of for some other
period prescribed by law which do not require periodic action by Congress.

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5. Unprogrammed Funds - are standby appropriations authorized by Congress in the annual
GAA which may be availed only when any of the following instances occur:
a. revenue collections exceed the original revenue targets in the Budget of Expenditures and
Sources of Financing (BESF) submitted by the President to the Congress;
b. new revenues are collected or realized from sources not onginally considered in the BESF; or
c. newly-approved loans for foreign-assisted projects are secured or when conditions are
triggered for other sources of funds such as perfected loan agreements for foreign assisted
projects.
6. Retained Income/Funds - collections which are authorized by law to be used directly by
agencies concerned for their operation or specific purposes.

7. Revolving Funds - receipts derived from business-type activities of departments/agencies

which are authorized by law to be constituted as such and deposited in an authorized
government depository bank. These funds shall be self-liquidating and all obligations and
expenditures incurred by virtue of said business-type activity shall be charged against said fund.
8. Trust Receipts - receipts by any government agency acting as trustee, agent or administrator
for the fulfilment of some obligations or conditions.

Relevant provisions of law:

 A special appropnations bill shall specify the purpose for which it is intended, and shall
be supported by funds actually available as certified by the National Treasurer, or to be
raised by a corresponding revenue proposal therein.
 No law shall be passed authorizing any transfer of appropriations; however, the
President, the President of the Senate, the Speaker of the House of Representatives, the
Chief Justice of the Supreme Court, and the heads of Constitutional Commissions may,
by law, be authorized to augment any item in the general appropriations law for their
respective offices from savings in other items of their respective appropriations.

Budget Execution

This is the phase where government funds are spent.

8. Release guidelines and BEDs - The DBM issues guidelines on the release and utilization of
funds while the various agencies submit their Budget Execution Documents (BEDs). A BED
summarizes an agency’s fiscal year plans and perform targets. It includes the following:
a. Physical and financial plan,
b. Monthly cash program,

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c. Estimate of monthly income, and
d. List of obligations that are not yet due and demandable.

The following are the major recipients of the budget:

1. National Government Agencies (NGAs) - include all agencies within the executive, legislative
and judicial branches of government, e.g., commissions, departments, Land Bank of the
Philippines, Social Security System, etc.
2. Local Government Units (LGUs) - include (a) autonomous regions, (b) provinces and cities
independent from a province, (c) component cities (cities which are part of a province) and
municipalities, and (d) barangays.
3. Government Owned and Controlled Corporations (GOCCs) - corporations that are owned or
controlled, directly or indirectly, by the government and vested with functions relating to public
needs.
The members of the Congress (Senators and Congressmen) and the Judiciary Branch are also
recipients of a portion of the budget.
1. The portion received by members of the Congress {s referred to as the Priority Development
Assistance Fund (PDAF) a.k.a. “Pork Barrel.” This is intended to fund priority development
programs of the government.

2. The portion received by members of the Judiciary is referred to as the Judiciary Development
Fund (JDF). At least 80% of the fund Is intended for the cost-of-living allowances of the
members and personnel of the Judiciary. the remainder, not exceeding 20%, is for the
acquisition and maintenance of office equipment and facilities. (PD NO. 1949).
In 2014. the Aquino Administration introduced the Disbursement Acceleration Program
(DAP) which aims to speed-up public spending. The DAP is not a fund but a mechanism of
releasing funds, particularly from savings and unprogrammed funds.
 Savings are available portions or balances of items under the General Appropriations
Act (GAA) which result from: a) the completion or final discontinuance or abandonment
of a program, activity, or project; b) unpaid compensation for vacant or unfilled positions
and leaves of absence without pay: or c) the implementation of efficiency measures that
enable agencies to deliver services at lower cost. Such savings may then be used to
augment funds for programs, activities. or projects which are included in the GAA (i.e.
nonexistent budget items cannot be funded).
 Unprogrammed funds (see previous definition).

Both the PDAF and the DAP received various criticisms from the public in 2013 and 2014,
following the Janet Lim-Napoles alleged pork scam. The PDAF ad DAP was later on thought to
have been abolished by the Supreme Court. However, “The 2015 budget is still filled with pork

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barrel funds despite the Supreme Court decision declaring the Disbursement Acceleration
Program (DAP) and the Priority Development Assistance Fund (PDAF) as unconstitutional,
according to a budget watchdog.”

9. Allotment - The DBM formulates the Allotment Release Program (ARP) to set the limit for
allotment releases during the upcoming year. This is used as a control device to ensure that
releases conform to the national budget. Alongside, is a Cash Release Program (CRP), which sets
the disbursement limits for the year, for each quarter and for each month.

 Allotment - is an authorization issued by the DBM to government agencies to incur

obligations for specified amounts contained in a legislative appropriation in the form of
budget release documents. It is also referred to as Obligational Authority.

It is illegal for a government entity to incur obligations without having first

received the “Allotment.” Moreover, the type and amount of obligations to be incurred
must conform to those that are specified in the “Allotment.”

 Obligation - is an act of a duly authorized official which binds the government to the
immediate or eventual payment of a sum of money. Obligation maybe referred to as a
commitment that encompasses possible future liabilities based on current contractual
agreement.

The following are the documents used in releasing allotments to government agencies:

1. General Appropriations Act Release Document (GAARD) - serves as the obligational authority
for the comprehensive release of budgetary items appropriated in the GAA, categorized as For
Comprehensive Release.
2. Special Allotment Release Order (SARO) - covers budgetary items under For Later Release
(negative list) in the entity's submitted Budget Execution Documents (BEDs), subject to
compliance of required documents/clearances. Releases of allotments for Special Purpose
Funds (e.g., Calamity Fund, Contingent Fund, E-Government Fund, Feasibility Studies Fund,
International Commitments Pund, Miscellaneous Personnel Benefits Fund and Pension and
Gratuity Fund) are also covered by SAROs.
3. General Allotment Release Order (GARO) - is a comprehensive authority issued to all national
government agencies, in general, to incur obligations not exceeding an authorized amount
during a specified period for the purpose indicated therein. It covers automatically appropriated
expenditures common to most, if not all, agencies without need of special clearance or
approval from competent authority, i.e. Retirement and Life Insurance Premium.

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10. Incurrence of Obligations — government agencies incur obligations which will be paid by
the government, e.g., entering into contracts, hiring of personnel, purchase of supplies, etc.

11. Disbursement Authority - the DBM issues disbursement authority to the government
agencies. This is the point where government agencies obtain access to the government funds.
The following are the documents used in releasing disbursement authority to
government agencies:

1. Notice of Cash Allocation (NCA) - authority issued by the DBM to central, regional and
provincial offices and operating units to cover their cash requirements.

The NCA specifies the maximum amount of cash that can be withdrawn from a
government servicing bank in a certain period. The NCA is based on the agency's submitted
Monthly Cash Program.

2. Notice of Transfer of Allocation - authority issued by an agency’s Central Office to its regional
and operating units to cover the latter’s cash requirements.

3. Non-Cash Availment Authority - authority issued by the DBM to agencies to cover the
liquidation of their actual obligations incurred against available allotments for availment of
proceeds from loans/grants through supplier's credit/constructive cash.
4. Cash Disbursement Ceiling - authority issued by the DBM to agencies with foreign operations
(e.g., Department of Foreign Affairs ‘DFA’) allowing them to use the income collected by their
Foreign Service Posts to cover their operating requirements.
Disbursements are most commonly made through checks that are chargeable against
the account of the Treasurer of the Philippines (i.e., Treasury Single Account). Checks issued
under this scheme are called “Modified Disbursement System (MDS) Checks.”
Other modes of disbursements include payments through cash, commercial check, bank
transfer/bank debit, or credit card. We will elaborate on these later in Chapter 5.
Remember the following:

1. Appropriation - authorization by a legislative body to

allocate funds for specified purposes
2. Allotment - authorization to agencies to incur
obligations (i.e., obligational authority).
3. Obligation - amount contracted by an authorized officer
for which the government is held liable.
4. Disbursement - actual amount paid out of the budgeted
amount.

Budget Accountability

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This phase occurs concurrently with the Budget Execution phase. As the budget is being
executed, it is regularly monitored to determine the conformance of actual results with planned
targets.
12. Budget Accountability Reports - government agencies are required to submit the following
accountability reports:
a. Monthly Report of Disbursements - shows the disbursements of the entity during the month,
classified according to the type of disbursement authority. This report is submitted to the COA
and DBM within 30 days after the end of each month.
b. Quarterly Physical Report of Operation - shows the agency’s physical accomplishments in a
given quarter vis-a-vis its physical targets.
c. Statement of Appropriations, Allotments, Obligations, Disbursements and Balances - shows
the agency’s authorized appropriations, allotments received, obligations incurred,
disbursements made and the balances of unreleased appropriations, unobligated allotments,
and unpaid obligations.
d. Summary of Appropriations, Allotments, Obligations, Disbursements and Balances by Object
of Expenditures - similar to ‘c’ above but provides details of expenditures (e.g., salaries and
wages, traveling expenses, etc.).

e. List of Allotments and Sub-Allotments - shows the allotments received by the agency from the
DBM and the sub-allotments issued by the agency's Central Office or Regional Office to lower
operating units.

f. Statement of Approved Budget, Utilizations, Disbursement and Balances - this report is

prepared by agencies that have authority to use their revenue. It shows the budgeted revenue,
the utilizations and disbursements thereof, and the unutilized amount.

g. Summary of Approved Budget, Utilizations, Disbursements and Balances by Object of

Expenditures - similar to ‘f’ above but provides details of expenditures.
h. Quarterly Report of Revenue and Other Receipts - shows the actual revenues and other
receipts remitted to the BTr and deposited in authorized government depository banks ina given
quarter.

 Reports ‘b’ to ‘h’ above are prepared on a quarterly basis and are submitted to the COA
and DBM within 30 days after the end of each quarter.

i. Aging of Due and Demandable Obligations - shows the names of creditors, the amounts owed
to them, and the number of days these obligations are outstanding. This report is submitted to
the COA and DBM within 30 days after the end of the year.

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  A Consolidated Statement of Allotments, Obligations, and Balances per Summary of
Appropriations (based on reports ‘c’ and ‘d’ above) shall be submitted on or before
February 14 of the following year.
13. Performance reviews - The DBM and COA perform periodic reviews of the agencies’
performance and budget accountability and report to the President.

14. Audit - the COA audits the agencies.

 The budget reports, together with other budget records, provide information in
preparing the Statement of Comparison of Budget and Actual Amounts, which is one of
the components of a complete set of financial statements of a government entity. We
will discuss this statement later.
*di ko na sinama yung Story: The Budget Cycle

Responsibility Accounting

To better evaluate the budget accountability of an entity, government accounting adheres to the
concept of responsibility accounting.
Responsibility accounting is a system of providing cost ang revenue information over
which a manager has direct control of. This enables the evaluation of a manager’s performance
based only on matters that are directly under his control. Therefore, budget deviations can be
readily attributed to the managers accountable therefor.
Responsibility accounting requires the identification of responsibility centers and the
distinction between controllable and non-controllable costs.
 Responsibility center — is a part, segment, unit or function of a government agency,
headed by a manager, who is accountable for a specified set of activities.
 Controllable costs — a cost is considered controllable at a given level of managerial
responsibility if the manager has the power to incur it within a given period of time.
 Non-controllable costs - are costs incurred indirectly and allocated to a responsibility
level.
Except for some which derive most of their income from collection of taxes and fees,
government agencies are basically cost centers whose primary purpose is to render service to
the public at the lowest possible cost.
Each of the managers of an agency that is a cost center evaluated based on his ability to
meet budgeted goals for controllable costs. All costs are controllable by top management
because of the high extent of its authority. Fewer costs art controllable in lower management
levels because of the decreased scope of authority.

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Each government agency Is assigned a responsibility center code as follows:
*di ko na sinama yung illustration.

Chapter 2 Summary:
 The Budget Cycle: (1) Budget Preparation, (2) Budget Legislation, (3) Budget Execution,
(4) Budget Accountability
 Under “bottom-up” budgeting, several parties participate in the budget preparation,
starting from the lowest to the highest levels of the government.
 Under “zero-based” budgeting, the current year’s budget is formulated without regard
to the previous year’s budget. Government agencies are required to justify their current
year’s proposed programs and expenditures, irrespective of whether these are new or
carried over from the previous year.
 Appropriation — is the authorization made by a legislative body to allocate funds for
purposes specified by the legislative or similar authority.
 Allotment - is an authorization issued by the DBM to government agencies to incur
obligations for specified amounts contained in a legislative appropriation in the form of
budget release documents. It is also referred to as Obligational Authority.
 Obligation - is an act of a duly authorized official which binds the government to the
immediate or eventual payment of a sum of money.
 Under responsibility accounting, a manager’s performance is evaluated only in terms of
the costs that he controls.

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