Module 3 47

Module 3
Agency Budgets

A t some point in in your career, you, as government manager, will

have to perform the task of preparing a budget, whether for the whole
office or for a program or project. You must also be involved in budget
monitoring and/or planning for next year’s budget. You have your tech-
nical staff to do most of the work, but you have to give them concrete
guidelines as to agency priorities, new programs and projects, extent of
program detail, program and project thrusts, and other necessary infor-
mation.

Because of the importance of the budget

in planning and control, much attention Objectives
has been given to the way it is prepared.
At one end, the budget could be prepared At the end of this module, you
by analyzing the items of expenditures. At should be able to:
the other end, the budget will be analyzed
in terms of the objectives, programs and 1. Prepare a budget for your
projects of the agency. In practice, budget agency or unit following
preparation tends to be a combination of prescribed approaches;
analysis by objectives, performance and 2. Determine the orientation,
nature of expense. advantages and applicabil-
ity of each budget approach;
We shall discuss four budget approaches 3. Determine the documentary
which are in use in government organiza- requirements in every phase
tions, and their orientations. Each of the of the budget process; and
approaches has its own strengths and pur- 4. Identify some measures of
poses. We will also discuss the budgetary agency performance.
process in this module. After this discus-
sion, you will find samples of each of these
budget approaches.

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48 PM 230: Financial Management in Government

Budget Approaches and Orientation

A budget in the most literal sense is a document containing words and figures
which propose expenditures for certain objectives, programs, projects, and activi-
ties. It describes the items of expenditures (salaries, equipment, etc.) or purposes
(e.g., implementation of a milk-feeding program; reforestation; construction of
roads, etc.) with the equivalent costs attached to them.

With the limited amount of financial resources and the growing amount of item-
ized expenditures to satisfy agency needs and purposes, we have to find ways to
properly and efficiently distribute the budget.

Budget approaches
The way in which the annual budget is prepared depends on whether the em-
phasis is on the nature of the income and expenditure (e.g., income from grants,
fees, expenditures on salaries, supplies, etc.) or on the purpose of the expenditure
(e.g., crime prevention, child health, waste disposal). There would be more details
than in the sample here, but in general the analysis will concentrate on the nature
of the income and expenditure.

Line-item budget

The line-item budgeting (LIB) method is the easiest and probably the oldest of the
methods used today. It is focused on the item to be purchased, not on the purpose
for its purchase.

The objects of expenditures such as personnel items, supplies, and equipment are
listed without identifying the purposes or programs where such items will be
used. It is usually based on last year’s budget and new commitments that may be
identified. The LIB therefore builds up on last year’s estimates and accepts these
without examining the relevance or importance of the prior year’s commitments.

This approach has certain advantages, namely:

1. It easy to control expenditures, especially for salaries and expenses for supplies
and materials;
2. Control is uniform (the same accounts and standardsJ.S. govern
Mill each agency),
comprehensive (control extends to all the fiscal transactions of the govern-
ment), exact (it can be directed at the expenditures that central officials want to
control), and routine;
3. It facilitates the identification of items that can be subject to budget cuts; and
4. It is easy to use and does not need technical expertise compared to the other
budget approaches.

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 Module 3 49

Below is an example of the items in a budget in the line-item format.

Table 3-1. Line-item budget format

Name of Agency

Items Amount in Pesos

I. Personal Services
One Department Secretary
One Executive Assistant
Items 3 to 15 Listing of other itemized positions
Contractual Casuals and Emergency Personnel
Total Salaries/Wages

Other Compensation
Terminal Leave Benefits
PAG-IBIG Contribution
Medicare Premiums
Representation and Transportation Allowance
Year-end Bonus and Cash Gift
Personnel Economic and Relief Allowance
Additional P500 Allowance
Clothing/Uniform Allowance
Hazard Pay Productivity Incentive Benefits
Others
Total Other Compensation
Total for Personal Services

II. Maintenance and Other Operating Expenses

Travelling Expenses
Communication Services
Repair and Maintenance of Government Facilities
Repair and Maintenance of Government Vehicles
Transportation Services
Supplies and Materials
Rents
Grants, Subsidies and Contributions
Awards and Indemnities
Water, Illumination and Power Services
Social Security Benefits
Training and Seminar Expenses
Extraordinary and Miscellaneous Expenses
Confidential and Intelligence Expenses
Taxes, Duties and Fees
Gasoline, Oil and Lubricants
Fidelity Bonds and Insurance Premiums
Other Services
Total Maintenance and Other Operating
Expenses

III. Capital Outlays

Land and Land Improvements Outlay
Buildings and Infrastructures Outlay
Furniture, Fixtures, Equipment and Books Outlay
Total Capital Outlays

TOTAL NEW APPROPRIATIONS

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50 PM 230: Financial Management in Government

Performance
tance of the work budget
to be done, and the service to be rendered, rather than upon
the inputs or resources to be used, such as personal services, supplies,
This budget approach
equipment, etc. presents in detail the function, activities, and projects
of an agency. The focus is on the general character and relative impor-
tance of the work
Some people refer totoperformance
be done, and the service
budgeting whentothey
be mean
rendered,
programrather than
budget-
on the inputs or resources to be used, such as personal services, supplies,
ing and vice versa. Basically, performance budgeting uses the line-item
equipment, etc.
budget format to present the financial request and then describes what (not
why)people
Some will berefer
accomplished with the money
to performance (Garner,
budgeting when1991:32).
they mean program
budgeting and vice versa. Basically, performance budgeting uses the line-
In essence,
item budgetperformance
format to budget (PB)
present thespecifies
financialtherequest
concreteand
proposals of the
then describes
agency which it wants accomplished during the fiscal year. It is
what (not why something) will be accomplished with the money (Garner, formulated on
the basis of work to be done or services to be rendered by the government
1991:32).
and their costs. Objects of expenditures are significant only in what they are
In used
essence, a performance
for and budgetcharacter.
not for their specific (PB) specifies the concrete proposals
The accomplishment of the of
theplanned
agencyactivity
whichbecomes
it wantstheaccomplished during the fiscal year. It is
important objective of a performance budget. for-
mulated on the basis of work to be done or services to be rendered by the
government and their costs. Objects of expenditures are significant only
A performance budget has the following features:
in what they are used for and not for their specific character. The accom-
plishment of the planned activity becomes the important objective of a
* Short-term and
performance long term goals in the major functional areas for which funds
budget.
are requested
* Programs
A performance in each function
budget hasand
theactivities
followingor projects
features:in each program pro-
posed for the accomplishment of the goals in the various functional areas
·* Cost of the programs
Short-term and longand activities
term goals inor the
projects
major proposed
functional areas for which
* Qualitative
funds are and quantitative data for the program and activities proposed
requested
·* Organization
Programs in each
units functionfor
responsible and activities
carrying or programs
out the projects in each program
proposed
* Sources andfor the accomplishment
amount of the
of all money receipts andgoals in the various
expenditures, and functional
areas
* Units of work measurement which measure the results of programs, projects
· Cost of the programs and activities or projects proposed
and activities.
· Qualitative and quantitative data for the program and activities pro-
posed
·TheOrganization
used of
units responsible for carrying out the programs
measures of performance makes the PB a distinct and promising
· Sources and amount of all money receipts and expenditures
· Units
budgetof
approach. But this also iswhich
work measurement its weakness due the
measure to the difficulty
results of estab-
of programs,
lishing standard
projects measures of performance. Even with this difficulty, a budget
and activities
presented in this format has many advantages (Premchand, 1989:321):

* More comprehensive and contains information useful to the chief executive,

the legislative body and the general public as to the policies of government.
* Helps legislators understand what the government is doing and what costs are
involved.
* Facilitates legislative examination of budgetary requirements and enables
legislative financial committees to decide more easily the basic expenditure
issues each year.

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The use ofadministrators

* Enables measures of performance makes the PB
to place responsibility a distinct
upon and promising
subordinate officials forbud-
getthe
approach. But thisofisthe
clear execution also its weakness
provisions madedue to legislative.
by the the difficulty of establishing
standard measures of performance.
Below is an illustration of a performance budget, taking the Function of Con-
Even with this difficulty, a budget presented in this format has many advantages
struction as example.
(Premchand, 1989:321):

·Function
It is more comprehensive and contains information useful to the chief execu-
Construction
tive, the legislative body, and the general public.
Programs
·Institutional and nonresidential
It helps legislators understandbuildings
what the government is doing and what costs
National roads
are involved. and highways construction
Other public works
·Administration
It facilitates legislative examination of budgetary requirements and enables
and supervision
legislative
Activities financial committees to decide more easily the basic expenditure
issues each
Institutional andyear.
nonresidential buildings
Public hospitals
·Educational
It enables administrators to place responsibility upon subordinate officials for
buildings
the clear execution of the provisions made by the legislative.
Office buildings
Cost Elements
Below is an illustration of a performance budget, taking the function of construc-
Salaries
tion and Wages
as example.
Materials and equipment
Land Table 3.2 Performance budget
Steel
Function Construction
Cement
Programs
Supplies Institutional and nonresidential buildings
National roads and highways construction
Other equipment Other public works
Maintenance of Equipment Administration and supervision

OtherActivities
expenses Institutional and nonresidential buildings
Public hospitals
Measures of performance Educational buildings
Cost per kilometer of road constructed (input)
Office buildings
Length of new roads
Cost Elements (output) Salaries and Wages
Accessibility of government services Materials and equipment
(outcome)
Land
Less traffic (outcome) Steel
Dispersal of industries (impact) Cement
Supplies
Urbanization proceeds at faster speed (impact)
Other equipment
Source: Adopted from Premchand, Maintenance
1989:312 of Equipment
with modification.
Other expenses

Measures of performance Cost per kilometer of road constructed (input)

In summary, a performance budget gives
Length of a description
new of the programs, the
roads (output)
corresponding productivity measurements, workload services
Accessibility of government data, and intended
(outcome)
Less traffic (outcome)
goals and accomplishments. Dispersal of industries (impact)
Qa Urbanization proceeds at faster speed (impact)

Adapted from Premchand, 1989:312

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52 PM 230: Financial Management in Government

In summary,
ion a performance
of the feasible course budget gives a description of the programs
*and the corresponding
Determination productivity
of personnel measurements,
and resources needed for theworkload
fulfillmentdata, and
of objec-
intended
tives goals and accomplishments.
* Determination of costs of such resources
* Determination of the annual profile of costs
* Allocation of resources for selected programs
* Presentation
Activity of the
3-1budget in the program structure evolved for the purpose
* Formulation of operational targets
* Progress
Whichreports
of the on thebudget
two implementation of the
approaches budget do you prefer?
discussed
* Adjustment
Why? in the light of progress
* Evaluation
Source: Premchand, 1989:328.

4. Zero-based budget

In its pure form, ZBB implies the preparation of operating budgets from a zero
base. (In practice, a ZBB takes last year’s budget as the baseline budget).
Under ZBB, it is assumed every budget year that the organization is starting
anew (Jones et al, 1996: 80). Consequently, every item of expenditure has to
be rejustified, a process which can result to the weeding out of obsolete

Comments on Activity 3-1

A line-item budget lists down the items of expenditures. It facili-
tates control over expenses.
A performance budget focuses on performance measures as well
as objectives, programs and projects.
Each budget format has its own usefulness. Each bring in a set of
information that can help managers decide.

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Planning, programming and budgeting system (PPBS)

expenditure.

Given limited
The essence resources,
of the choices
ZBB is the use of have to be
‘decision made toand
packages’, ensure that
follows thethe re-
sources are steps:
following allocated in such a way as to produce the greatest beneficial
impact of the overall objectives. PPBS provides a framework for making
such choices. of decision units
* Identification
* Development of decision packages
The starting point in preparing a budget using the PPBS approach is to
* Review and ranking of decision packages.
determine the overall objectives of the organization as precisely as pos-
sible. Second, it is necessary to identify and evaluate alternative programs
A decision
that mightunit
be is characterizetobyachieve
undertaken the presence
theseofobjectives.
a manager who
Thisshall be the
requires
clearly responsible for the operation of the program, well-defined
identification of program benefits. The third step is to calculate the and mea-
costs
of surable impacts, and
each program well-defined
so that and measurable
a cost-benefit objectives.
relationship can be established.
With the cost-benefit information now available, budgetary allocations
can be made.
Example is show below for the education service. The decision unit could be at
any of the following levels:
Important key words in PPBS are program, program structure, project,
activity, input
* The service andwith
level, output.
the whole education service being one decision unit, or
the whole of the highways service being one decision unit, and so on;
A program is a set of inter-related activities assigned to a responsible offi-
* The division of service level, which for education would mean the whole of
cial, using measurable resources (money, material, manpower, etc.) to
primary education, or the whole secondary education, and so on;
produce results (goods, services, technological events, etc.). A budgetary
*program
The subdivision of service
comprises all thelevel, whichand
functions would mean each
activities schooltoasthe
devoted a decision
accom-
unit;
plishment of a major purpose for which a government entity is estab-
*lished.
The school department
A program maylevel,
havewith
one each department,
or more projects.such as history or phys-
ics, being one decision unit.
A project is a sub-division of a program covering a homogenous group of
activities and describes the work to be done. A program or project has the
Example:
following
Sector: components:
Education, Agriculture Tourism Social welfare, Housing
In Education:
Output
Levels: - things secondary,
primary, or servicestertiary,
the program is expected to turn out
vocational
Activities - types and level of activities to be performed to obtain
Primary Level: School A, School B, School C
output
Subjects: History Literature Math Biology
Inputs - resources needed for each activity

A program structure is a system for classifying government activities in a

At this point,
hierarchy ofdecision packages
goal-oriented can already beItdeveloped.
relationships. is useful for managers as it
serves as an analytical tool for identifying low priority or unnecessary
There are two
activities, andtypes of decision
it serves package: for making and enforcing resource
as a framework
allocation decisions.
The mutually exclusive decision package. The purpose of this type is to identify
for each decision unit the alternative ways of performing its functions so as to
enable management to choose the best alternative. One such alternative will
be to abolish the decision unit and not perform its functions at all.

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54 PM 230: Financial Management in Government

Below is a schematic
The incremental presentation
decision package. Thisofidentifies
a PPB System.
the different levels of effort
(and associated costs) and their effect on the function. For example, there
Table which
will be a minimum level below 3-3. PPB System
it would be impossible to exercise the
function;
Structurala base level which reflects theAspects
Analytical current level of activity;Informational
and improve-
Aspects Aspects
ment levels which reflect the effect of increases over the current level.
Planning Programming Budgeting

Figure . Format•ofFormulation
Classification a ZBB Decision Packageof
• Determination • Allocation of • Progress
of the budget of objec- personnel and resources for reports on the
Package
into:
name: tives resources selectedRank: implementation
• Identifica- needed for the programs of the budget
• Functions tion of fulfillment of • Presentation of • Adjustment in
Department:
alternatives alternatives objectives the budget in the light of
• Programs • Evaluation • Determination of the program progress
objectives of alterna- costs of such evolved for the • Evaluation
Activity:
• Activities tives resources purpose Manager:
• Cost • Selection of • Determination of • Formulation of
elements the feasible the annual the operational
Statement of purpose:
course feasible course targets

Source: Premchand,
Description 1989:328
of actions:

Quantitative package measures:

Zero-based budget
Resources required:
In its pure form, ZBB implies the preparation of operating budgets from a
zero base. (In practice, a ZBB takes last year's budget as the baseline bud-
Consequences of not approving package:
get). Under ZBB, it is assumed every budget year that the organization is
starting anew (Jones et al. 1996: 80). Consequently, every item of expen-
Incremental
diture has topackages:
be rejustified, a process which can result in the weeding out
Different levels
of obsolete of effort (and cost):
expenditures.

Mutually-exclusive
The essence of thepackages:
ZBB is the use of 'decision packages', and follows the
Different
followingways of performing the same function:
steps:
Source: Jones and Pendlebury, 1996, p. 86.
1. Identification of decision units
2. Development of decision packages
3. Review and ranking of decision packages

A decision unit is characterized by the presence of a manager who shall

be responsible for the operation of the program, well-defined and mea-
Figure
surable_.impacts,
Mutually and
exclusive and incremental
well-defined decision packages
and measurable objectives.

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 Module 3 55

Below is an example for the education service. The decision unit could be
at any of the following levels:

• The service level, with the whole education service being one decision
unit, or the whole of the highways service being one decision unit,
and so on;
• The division of service level, which for education would mean the
whole of primary education, or the whole secondary education, and
so on;
• The subdivision of service level, which would mean each school as a
decision unit; and
• The school department level, with each department, such as history
or physics, being one decision unit.

Example:
Let us summarize the four budget approaches and their characteristics.
Sector: Education, Agriculture, Tourism, Social Welfare, Housing
Approaches
Descriptions
In Education:
Strengths
Levels: primary, secondary, tertiary, vocational
Weaknesses
Primary Level: School A, School B, School C
Line-item
Subjects: History, Literature, Math, Biology
with itemization of expenditures for PS, MOOE and CO without taking into
account the objectives of programs, projects or activities for which the items
Atwill
thisbe
point,
used.decision packages can be developed. There are two types of
decision
An effectivepackages:
control mechanism since it contains a detailed listing of the items of
expenditures
1.
DoesThenotmutually exclusiveofdecision
take the objectives program package. Theinto
and activities purpose of this type is
account
to identify for each decision unit the alternative ways of performing its
Performance budget
functions so as to enable management to choose the best alternative.
Budget is based on the function, activities, and projects
One such alternative will be to abolish the decision unit and not per-
Theform
objects
its of expenditures
functions are linked to planned work or service
at all.
Required classification of government agency taking into account the fiscal,
2. organizational
The incremental and political
decision considerations
package. This identifies the different levels
PPBSof effort (and associated costs) and their effect on the function. For
Incorporates
example,threetheredistinct
will beprocesses
a minimumsuch as strategic
level below planning,
which itmanagement
would be im-
possible
control, andtooperational
exercise the function; a base level which reflects the current
control.
leveland
Holistic of integrative
activity; and improvement levels which reflect the effect of
approach
increases
Requires over and
economic the planning
current skills
level.
ZBB
Requires each manager to justify the entire budget request in detail and shift the
burden of proof to each manager to justify why he should spend any money
Comprehensive budgeting; this is both a management and a budgeting process
Entails a lot of work since it necessitates each manager to justify fully his budget
proposal

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56 PM 230: Financial Management in Government

Package name: Rank:

Department:

Activity: Manager:

Statement of purpose:

Description of actions:

Quantitative package measures:

Resources required:

B. Budget Orientationof
Consequences not approving package:

Each of Incremental packages:

the four budget approaches has its own distinct orientation.
Different levels of effort (and cost):

* Control orientation
Mutually-exclusive packages:
Different ways of performing the same function:
The process of enforcing the limitations and conditions set in the budget and of
Figure with
securing compliance 3-1 Format of a ZBB
the spending decision
restrictions packageby central
imposed
(Source: Jones and Pendlebury, 1996, p. 86)
authorities on appropriations. Priority is given more on control, that is keep-
ing the expenditures within the levels and ceilings determined rather than
management and planning as its p
riority. An example that has a control orientation
level of effortis the LIB. Its focus is more on
expenditure classification or detailed listing
Option 1 -of the items required in operating
50%
an administrative unit like personnel, office supplies andA50 other inputs.
* Management orientation Option 2 - 75%
Package A A75

This orientation involves the use of budgetary authority

Option 3 - 100%at both agency and central levels
A100
to ensure efficiency with their staff and the use of resources. It is more concerned
with operations and results rather than control. PB has this kind of orientation.
Option 1 - 50% B50
* Planning orientation

This refers to the process of determiningOption - 75% and the evaluation of

public 2objectives
Package
alternative programs. B planning, central authorities must B75
With have information on the
purpose and effectiveness of programs. PPBS and the ZBB approaches have this
orientation. Option 3 - 100% B100

SAQ Describe a budget in PPBS format.

Figure
2. How is this 3-2. Mutually
different from aexclusive
ZBB? and incremental decision packages
3. Which one would be more useful for you as manager?

ASAQ

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 Module 3 57

Let us summarize the four budget approaches and their characteristics.

A PPBS budget has the following elements: program, program structure,
Table
project, activity, input and 3.3 Budget approaches
output.
A ZBB makes use of decision
Approaches packages in evaluating
Descriptions Strengthsprograms and projects
Weaknesses
and their alternative. It entails a review and rejustification of the whole budget
Line-item An effective control Does not take the
on annual basis.With itemization of ex-
penditures or PS, mechanism since objectives of
These two budget MOOE
formats both
and CO, have some it degree
containsofa complexity to prepare.
program and
detailed listing of activities
The PPBS is holistic and integrative, while the ZBB is comprehensive.
without taking into into
account the objectives the items of account.
of programs, projects expenditures.
or activities for which
the items will be used.

PerformanceBased on the The objects of Required classifica-

budget function, activities, expenditures are tion of government
and projects.
C. AGENCY BUDGET AND THE BUDGETlink-ed PROCESS
to planned agency taking into
work or service. account the fiscal,
organizational and
The national government budget evolves within the frameworkpolitical
of the total
consider-
ations.
impact of government activity on the national economy. The process has four
phases and is considered
PPBS a cycle.
Incorporates pro- WhileHolistic
there are
and
four distinct phases, in
Requires
reality the phases overlap.
cesses such as integrative economic and
strategic planning, approach planning skills
management control,
and operational
Jan
FebZBB Requires each Comprehensive Entails a lot of
manager to justify budgeting; this is work since it
Mar the entire budget both a manage- requires each
Apr request in detail and ment and a manager to justify
May shifts the burden of budgeting fully his budget
proof to each process. proposal.
Jun manager to justify
Jul why he/she should
Aug spend any money
Sep
Oct
Nov
Dec
Preparation

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58 PM 230: Financial Management in Government

Budget orientation

Each of the four budget approaches has its own distinct orientation.

Control orientation

Control orientation is the process of enforcing the limitations and condi-

tions set in the budget and of securing compliance with the spending
restrictions imposed by central authorities on appropriations. Priority is
given to control, that is, keeping the expenditures within the levels and
ceilings determined. The LIB has a control orientation. Its focus is more on
expenditure classification or detailed listing of the items required in oper-
ating an administrative unit like personnel, office supplies, and other in-
puts.

Management orientation

This orientation involves the use of budgetary authority at both agency

and central levels to ensure efficiency in the staff and in the use of re-
sources. It is more concerned with operations and results rather than con-
trol. PB has this kind of orientation.

Planning orientation

This refers to the process of determining public objectives and the evalua-
tion of alternative programs. With planning, central authorities must have
information on the purpose and effectiveness of programs. The PPBS and
ZBB approaches have this orientation.

Activity 3-2
Reflect on which one of the PPBS and ZBB formats would be more
useful for you as manager.

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Comments on Activity 3-2

The following sections will outline the budget process and the role and activities
A PPBS budget has the following elements: program, program
that national government agencies have to do.
structure, project, activity, input and output.
TheA
Budget Processuse of decision packages in evaluating programs
ZBB makes
and projects and their alternative. It entails a review and
* Budget Preparation
rejustification of the whole budget on an annual basis.

ThisThese
is the first
twophase of budgeting.
budget Thishave
formats both coverssome
the activities
degree of from determination
complexity
ofand may bepriorities
budgetary difficulttoto prepare. The
submission by thePPBS is holistic
President of the and integra-
Budget of
tive, while the ZBB is comprehensive.
Expenditures and Sources of Financing (BESF) to Congress.

The phase involves such activities as follows:

Agency Budget
1. Annual budget planning and the Budget Process

The nationalofgovernment
This consists budget
the determination evolvespriorities
of budgetary within and
the activities
framework of the
involving
total
theimpact of government
Development activity onCommittee
Budget Coordinating the national economy.
composed Thefollowing
of the process
has four phases and is considered a cycle. While there are four distinct
agencies:
phases, in reality the phases overlap.
NEDA issues developmental guidelines and projections
DOF - works out the revenue estimates
DBM - supplies the expenditure data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Central Bank - provides information on monetary situation
Preparation
Authorization
During this phase, the DBM and NEDA conduct a joint planning and program-
Implementation
ming exercise. They consult agencies on the baseline budget. On the other
Accountability
hand, national government departments undertake an assessment of on-going
major programs. Then a report on this is submitted to the DBM and NEDA
Figure 3-3. Phases of the budget process
for review in terms of continuing relevance.
The following sections will outline the budget process and the role and
2. Issuance of the National Budget Call.
activities of national government agencies in this process.

The budget call is directed to the heads of all departments, agencies, bureaus
and offices of the national government. This prompts central offices to
develop and issue guidelines to their respective regional offices. Issued as a
National Budget Circular, the budget call for the year 2000 (National Budget
Memorandum No. 88, dated February 24, 1999, adopts the following policy
guidelines:

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60 PM 230: Financial Management in Government

*Budget
Adoption of preparation
the baseline budget approach. The baseline budget refers to the
minimum level of expenditure at which the agency will continue to operate at
theiscurrent
This year’s
the first phaselevel
of and be able and
budgeting to perform
coversits
thebasic mandate
activities anddetermi-
from func-
nation
tions.of budgetary priorities to submission by the President of the Bud-
get of Expenditures
* Prudent and Sources
spending. Agencies of Financing
shall prepare (BESF) towhich
budget proposals Congress. The
are cost-
phase involves
effective, the and
focused following activities:
integrated.
* Entrepreneurial budgeting. Agencies shall review their fee structure and their
1. Annual budget planning
public services to recover the cost of specific public services.
* Total resource budgeting. The one fund concept shall be observed, including
This consists of the determination of budgetary priorities and activities
trust funds,
involving thespecial funds, or those
Development Budgetearmarked for specific
Coordinating programscomposed
Committee which
are not part of the
of the following agencies:annual budgetary appropriations of the agency.
* Performance-based budgeting. Agencies shall identify their particular key
result-areas
NEDA issues(KRA)/commitments
developmental guidelines for specific
andprograms and projects.
projections.
*DOFWholistic
- works budgeting.
out the The regional
revenue spatial and Project Management Office
estimates.
DBM - supplies
dimension of thethe expenditure
budget data. in the agency budget, including
shall be reflected
Central Bankliabilities
contingent - provides information
arising on monetary situation.
from Build-Operate-Transfer schemes.

During
3. thisDevelopment
Regional phase, the Council
DBM and NEDA
(RDC) conduct a joint
and DBM-Regional planning
Office (RO) and
programming exercise.
Budget Preparation They consult agencies on the baseline budget. On
the other hand, national government departments undertake an assess-
ment of ongoing major programs. Then a report on this is submitted to
This starts with the issuance by the RDCs of guidelines on regional priorities and
the DBM and NEDA for review in terms of continuing relevance.
thrusts to all regional offices of government agencies. In accordance with
2. these RDCof
Issuance guidelines and inBudget
the National conformity Callwith their respective Central Office’s
guidelines, the ROs prepare their budgets which are then submitted to the
TheRDC. Budget
budget callhearings on the
is directed to regional
the headslevel
of of
allbudget proposalsagencies,
departments, of regionalbu-
offices are conducted by the RDC, after which the RDC
reaus and offices of the national government. This prompts central formulates its offices
to recommendations
develop and issueonguidelines
the budgetto of their
regional offices toregional
respective be forwarded to Issued
offices. the
as respective
a NationalCentral
Budget Circular, the budget
Offices of regional offices.call for the year 2000 (National
Budget Memorandum No. 88, dated February 24, 1999, adopts the fol-
lowing
4. policy guidelines:
Consolidation of RDC recommendations by the different Central Offices in
their agency-wide budget proposals and submission of agency budget
· Adoption of the baseline budget approach. The baseline budget refers
proposals to the DBM
to the minimum level of expenditure at which the agency will continue
to operate at the current year’s level and be able to perform its basic
5. Evaluation
mandate andto agency budget proposals by DBM
functions.

· Conduct
6. Prudentof technical budget
spending. hearings
Agencies shall with officials
prepare and technical
budget proposalsstaff of theare
which
agency concerned.
cost-effective, focused and integrated.

· Budget
7. Entrepreneurial budgeting.
review by the Agencies
DBM Executive shallBoard
Review review their fee structure
(ERB)
and their public services to recover the cost of specific public services.
8. Approval by the President/ Cabinet of the National Budget

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 Module 3 61

·9. Confirmation
Total resource
of budgeting. Thebudgets
the final agency one fund concept
by agency shall be observed, in-
heads.
cluding trust funds, special funds, or those earmarked for specific pro-
10.grams whichofare
Submission not part national
the proposed of the annual budgetary
budget with appropriations
supporting documents toof
the agency.
Congress within thirty days from the opening of each regular session.
· Performance-based budgeting. Agencies shall identify their particular
key result areas (KRA)/commitments for specific programs and projects.
On January 20, 1999, the general guideline in budgeting of “what-you-see is
· what you get”
Wholistic concept was
budgeting. Theadopted
regionalin spatial
all national
andgovernment agencies, Of-
Project Management
SUCs, local governments units, GOCCs and other government
fice dimension of the budget shall be reflected in the agency offices. With
budget,
this policy, the
including specifically
contingent appropriated
liabilities amounts
arising fromunder the agency budgets
Build-Operate-Transfer
and those
schemes. under the IRA including Local Government Empowerment Fund
(LGEF) and the Municipal Development Fund (MDF) as reflected in the
3. 1999
Regional Development
GAA shall Councilwithout
be made available (RDC) any
andreserve
DBM-Regional Office (RO)
imposition.
Budget Preparation
During the budget preparation phase, each department, office or agency of the
This startsgovernment,
national with the issuance bylegislative
including the RDCsand of judicial
guidelines on regional
branches, includingpriori-
ties and thrusts to all regional offices of government agencies. In accor-
GOCCs, submits its request for appropriations to the DBM in accordance
dance with these RDC guidelines and in conformity with their respective
with the budget calendar, and prescribed format and such rules and regula-
Central Office's guidelines, the ROs prepare their budgets, which are then
tions. Thetobudget
submitted proposal
the RDC. of agencies
Budget is accompanied
hearings on the regionalby thelevel
following
of budget
supporting
proposals ofdocuments:
regional offices are conducted by the RDC, after which the
RDC formulates its recommendations on the budget of regional offices to
* Letter
be of endorsement
forwarded of the department/agency
to the respective Central Officeshead highlighting
of regional the agency
offices.
thrust and major programs and projects;
4. Consolidation
* Four of RDC
sets of properly recommendations
accomplished by the different
Budget Preparation Forms asCentral Of-
prescribed
fices in their
(see list below);agency-wide budget proposals and submission of agency
budget proposals
* Inventory to the
of equipment DBMunder NBC Nos. 438, 446 and 446-A,
required
including Inventory and Inspection Report (IIR) of equipment for replace-
5. Evaluation to agency budget proposals by DBM
ment;
* Report of compliance to EO 159 (Revision of Fees and Charges, dated
6. Conduct of technical budget hearings with officials and technical staff of the
February 23, 1994;
agency concerned
* Three copies each of the agency’s FY 1997 and FY 1998 Accomplishment
Reports; and
7. Budget review by the DBM Executive Review Board (ERB)
* Other documents specific to certain agencies.
8. Approval by the President/ Cabinet of the National Budget

9. Confirmation of the final agency budgets by agency heads

10. Submission of the proposed national budget with supporting documents to

Congress within 30 days from the opening of each regular session

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62 PM 230: Financial Management in Government

On January 20, 1999, the “what-you-see is what you get” concept was
adopted in all national government agencies, SUCs, local governments
units, GOCCs and other government offices. With this policy, the specifi-
cally appropriated amounts under the agency budgets and those under
the IRA, including Local Government Empowerment Fund (LGEF) and
the Municipal Development Fund (MDF) as reflected in the 1999 GAA,
shall be made available without any reserve imposition.

During the budget preparation phase, each department, office or agency

of the national government, including legislative and judicial branches,
as well as GOCCs, submits its request for appropriations to the DBM in
accordance with the budget calendar, prescribed format, and other rules
and regulations. The budget proposal of agencies is accompanied by the
following supporting documents:

• Letter
In the caseofofendorsement of the department/agency
GOCCS and chartered head operating
institutions, their internal highlighting the
agency thrust and major programs and projects;
budgets are approved by their respective governing boards. In certain cases,
• Four sets of properly accomplished Budget Preparation Forms as pre-
their budgets are subjected to review and approval as part of the national
scribed (see list below);
budget process where national government budgetary support is needed in
• Inventory of equipment required under NBC Nos. 438, 446 and 446-A,
terms of (1)Inventory
including capital or equity inputs; (2) operating
and Inspection contributions
Report (IIR) of equipmentto support
for re-
specific
placement;activities undertaken by the institution as part of its regular functions;
• and (3) guarantee
Report of the national
of compliance to EO 159 government
(Revisionforofobligations
Fees and or contractsdated
Charges,
entered into23,
February by1994;
the corporations (Section 19, Book VI, EO 292).
• Three copies each of the agency's FY 1997 and FY 1998 Accomplish-
ment Reports; and
• Other Legislation
* Budget documentsorspecific to certain agencies.
Authorization
In the case of GOCCS and chartered institutions, their internal operating
This pertains to the Legislative consideration ad approval of the Appropriations
budgets are approved by their respective governing boards. In certain
Bill through the following steps:
cases, their budgets are subjected to review and approval as part of the
national budget process where national government budgetary support
1.
is Congressional
needed in terms deliberation of the or
of (1) capital budget
equity inputs; (2) operating contribu-
2. Conduct of budget hearings
tions to support specific activities undertaken by the institution as part of
3.
itsSenate
regulardeliberation
functions; and (3) guarantee of the national government for
4. Bicameralor
obligations conference
contractsand approval
entered intobybyCongress
the corporations (Section 19, Book
VI,Approval
5. EO 292).of the General Appropriations Act (GAA) including veto message
by the President.

The agency’s role is to defend their respective budgets before the House, the
Senate, and the bicameral committee.

* Budget Implementation

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 Module 3 63

Budget
The legislation
implementation or isauthorization
of the budget pursuant to the National Budget Circular
issued by the DBM Secretary. For 1999, NBC No. 463, dated January 20,
1999,
This has thetofollowing
pertains provisions,
the Legislative among others
consideration and(Refer to the of
approval Appendix).
the Appro-
priations Bill through the following steps:
* No. 3.1. - Adoption of the “what-you-see-is-what-you-get” (WYSIWYG)
1. concept
Congressional deliberation
in the 1999 of the Under
release of funds. budgetthis policy, appropriated
2. amounts
Conductunder
of budget hearings
the agencies’ budgets and those under the IRA including the
3. Senate deliberation
Local Government Empowerment Fund (LGEF) and the Municipal Develop-
4. Bicameral conference and approval by Congress
ment Fund (MDF), as reflected in the 1999 GAA, shall be made available
5. Approval of the General Appropriations Act (GAA) including veto
without
message any
byreserve imposition.
the President
* No. 3.4 - All NGAs and GOCCs shall provide DBM with their performance
Thetargets and the
agency’s roleindicators used their
is to defend to measure said targets,
respective budgetsduly approved
before by the
the House,
theAgency
Senate,Head.
and the bicameral committee.
* No. 3.5. - A total resource budget plan shall be prepared by the agency using
the Agency Budget Matrix (ABM). The ABM is the official document that
Budget
will serve implementation
as basis in the release of obligational authority.
* No. 3-10. - The Notices of Cash Allocation (NCAs) for regular operations
The implementation
shall be issued quarterlyof the budget
while the NCAis pursuant to the
for prior year’s National
accounts Budget
payable
Circular issued
(A/Ps) and RG/TL by the
shallDBM Secretary.
be issued For 1999,
on a monthly NBC No. covering
basis. Guidelines 463, dated
January 20, 1999, has the following provisions, among others (refer
the procedures for payment of A/Ps and RG/TL shall be issued separately. to the
Appendix):
* No. 3-11. - Agencies shall prepare an Annual Cash Program broken down
by month, based on the agency’s current appropriations, to include programs
No. 3.1 - Adoption of the “what-you-see-is-what-you-get” (WYSIWYG)
reflected in the ABM and prior year’s A/Ps.
concept in the 1999 release of funds. Under this policy, appropriated
amounts under the agencies' budgets and those under the IRA includ-
ing the Local Government Empowerment Fund (LGEF) and the Mu-
* Budget
nicipalAccountability
DevelopmentorFund
Review
(MDF), as reflected in the 1999 GAA, shall
be made available without any reserve imposition.
On performance review, a mid-year review of agency performance shall be
No. 3.4 - All
undertaken by NGAs
the DBM.andThis
GOCCs
reviewshall
shallprovide
take intoDBM with
account the their perfor-
agency’s
actual physical accomplishments and the cost involved in the attainment duly
mance targets and the indicators used to measure said targets,
approved
thereof. by accomplishments
These the Agency Head. shall be measured against the performance
and financial target commitments made at the start of the year. Failure to
No. 3.5 - A total resource budget plan shall be prepared by the agency
accomplish the performance targets shall have to be explained or accounted
using the Agency Budget Matrix (ABM). The ABM is the official docu-
for by the agency.
ment that will serve as basis in the release of obligational authority.

OnNo.
reporting
3-10 -requirements,
The Noticesthe
of “no report,
Cash no release”
Allocation policyfor
(NCAs) shall be strictly
regular opera-
enforced.
tions shall be issued quarterly while the NCA for prior year's accounts
payable (A/Ps) and RG/TL shall be issued on a monthly basis. Guide-
Accountability reports
lines covering are submitted
the procedures fortopayment
fiscal agencies andand
of A/Ps to Congress, includ-
RG/TL shall be
issued
ing the: separately.

1. Summary list of checks issued (SLCI) and other monthly reports

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64 PM 230: Financial Management in Government

No. 3-11 financial

2. Quarterly - Agencies
andshall prepare
physical reportsanofAnnual
operationCash Program
including statusbroken
of
down
programbyimplementation
month, based on the agency’s current appropriations, to
include programs reflected
3. Consolidated quarterly inand
financial thephysical
ABM and prior
reports ofyear's A/Ps.
operations
4. Semi-annual physical reports of operations for state universities and colleges
A sample ofofthe
5. Statement ABM is
accounts foundand
payable at the endtrial
annual of this module.
balance
6. Quarterly reports to the President, House Committee on Appropriations, and
the Senate Committee on Finance, copy furnished the DBM and COA
Budget accountability or review
A mid-year review of agency performance shall be undertaken by the
D. MEASURING PERFORMANCE
DBM. This review shall take into account the agency's actual physical
accomplishments and the cost involved in the attainment thereof. These
Measuring performance
accomplishments shall isbea complex
measuredtask. The practice
against before was to
the performance andlook at
finan-
cialperformance in terms of compliance
target commitments made at thetostart
budgetary
of theappropriations,
year. Failureand to
to accom-
well-established to accounting and auditing rules and regulations. The
plish the performance targets shall have to be explained or accounted for pur-
bypose of spending public money was not given importance. The culture of
the agency.
means rather than ends was the prevailing norm in many expenditures.
On reporting requirements, the “no report, no release” policy shall be
strictly
Much ofenforced.
these practices have changed to suit the requirements of accountability
in the use and management of government funds. In budgeting, performance
Accountability reports are submitted to fiscal agencies and to Congress,
measures have increasingly been required to justify the budget. Performance
including the:
measures and results indicators are also very much in use in the formulation
1. and execution
Summary listofofgovernment expenditure
checks issued programs.
(SLCI) and other monthly reports
2. Quarterly financial and physical reports of operation, including the
Performance measures implementation
status of program may be classified as quantitative and qualitative, objec-
3. tive and subjective,
Consolidated or effort
quarterly and results.
financial andAnother
physicalway is to classify
reports perfor-
of operations
mance measures into discrete or scalar, or actual or surrogate. See
4. Semi-annual physical reports of operations for state universities and table
colleges
below for the meanings of these performance measures.
5. Statement of accounts payable and annual trial balance
6. Quarterly reports to the President, House Committee on Appropria-
Subjective
tions,
Based on and the Senate
personal judgmentCommittee on Finance, copy furnished the DBM
and COA
Objective
Independent of human judgment
Quantitative
Measuring Performance
Expressed in numerical form or in terms of amount or extent of output
Qualitative
Measuring performance is a complex task. The practice before was to
Narrative statement or based on the degree of excellence of performance based
look at performance in terms of compliance to budgetary appropriations
o the desired standard
and to well-established accounting and auditing rules and regulations.
Discrete
The purpose of spending public money was not given importance. The
Dichotomy measures,
culture of means e.g. satisfactory
rather than ends vs.wasunsatisfactory
the prevailing norm in many ex-
Scalar
penditures.
Performance measured along a scale
Actual

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 Module 3 65

Many of theseofpractices
Measurement have changed to suit the requirements of account-
actual output
ability in the use and management of government funds. In budgeting,
Surrogate
performance measures
Use of substitute measures have increasingly been required to justify the bud-
get. Performance measures and result indicators are also very much in
use in the formulation and execution of government expenditure pro-
grams.
Measurement of objective performance rests on inputs and or one or more of
the following
Performance results (Schiavo-Campo,
measures 1995:25):
may be classified as quantitative and qualitative,
objective and subjective, or effort and results. Another way is to classify
*performance
Inputs - the resources
measuresused
into to produce
discrete orthe service.
scalar, Inputsor
or actual aresurrogate.
easy to mea-
Table
3-1sure. They can
presents the be expressed
meanings ofinthese
termsperformance
of cost and compliance
measures.to policies and
rules.
Box itself.
* Output - the service 3-1. Typology of performance
This is a measure measures
of efficiency.
* Outcome - the purpose that is achieved. The performance measure is effec-
Subjective: Based on personal Objective: Independent of
tiveness. judgment human judgment
* Impact - often used as a synonym for outcome , but is more properly defined
Quantitative:
as value-added Expressed in
from the activity Qualitative: Narrative statement
numerical form or based on the
* Process - the manner in which inputs are procured, outputs
or in terms of
produced, or
degree of excellence
outcomes achieved.
amount or extent of performance based
of output on the desired standard

Discrete: Dichotomy measures, Scalar: Performance measured

The meaning, social
e.g.value, and performance
satisfactory vs. criterion of along
these ameasures
scale of
unsatisfactory
performance are summarized in the table below, using child health services as
example.
Actual: Measurement of Surrogate: Use of substitute
actualServices
Program: Child Health output measures

Measure of Social Value

Measurement of objective performance rests on inputs and or one or more
Budgeting/Performance
of the following results Criterion
(Schiavo-Campo, 1995:25):
Input: Doctors, nurses, hospital equipment, medicines
Cost of service
• Inputs - the resources used to produce the service. Inputs are easy to
Compliance
measure. toThey
budgetary
can be ceilings, procurement
expressed in terms process
of cost and compliance to
policies
Output: the and rules.
service itself (such as the number of child vaccinations)
Market price for the same or the closest equivalent service
• Output i.e.,
Efficiency, - the service itself.
minimizing This cost
total input is a per
measure
unit of of efficiency.
output (or maximizing the
quantity of output
• Outcome - the purpose that is achieved. The performance measure is
Outcome: the purpose that is achieved by producing the service (e.g., reduction
effectiveness.
in child mortality and morbidity)
Social value is subjective and arbitrary
• Impact - often used as a synonym for outcome , but is more properly
Effectiveness
defined as(maximizing
value-added outcomes
from the in activity.
relation to the outputs produced)
Impact: often used as synonym for outcome; can be referred as value-added
• from the activity
Process - the manner in which inputs are procured, outputs produced,
Theorsocial value is
outcomes that it takes some account of favorable or unfavorable
achieved.

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 66 PM 230: Financial Management in Government

The meaning, beyond

circumstances social value, and of
the control performance criterion of these measures
those responsible
of performance
Extremely difficult toare summarized in Table 3-5, using child health services
measure
as example.

Table 3-5. Program: Child Health Services

Measure of Social Budgeting/Performance

Value Criterion

Input: Doctors, nurses, Cost of service Compliance to budget-

hospital equipment, ary ceilings, procure-
medicines ment process

Output: the service itself Market price for the same Efficiency, i.e., minimiz-
(such as the number of or the closest equivalent ing total input cost per
child vaccinations) service unit of output (or
maximizing the quantity
of output

Outcome: the purpose that Social value is subjective Effectiveness (maximiz-

is achieved by producing and arbitrary ing outcomes in relation
the service (e.g., reduction to the outputs produced)
in child mortality and
morbidity)

The social value is that it Extremely difficult

Impact: often used as takes some account of to measure
synonym for outcome; favorable or unfavorable
can be referred as value- circumstances beyond
added from the activity the control of those
responsible

Process: the manner in The value of “good” In other areas, process

which inputs are process is undeter- indicators are a useful
procured, outputs mined. proxy for performance
produced, or outcomes when outputs or
achieved outcomes cannot be
defined with clarity.
Process indicators can
be quantitative but are
usually qualitative.

Source: Schiavo-Campo, 1999.

Schiavo-Campo further gives us the accountability chain to relate account-

ability with the hierarchy of performance criteria and indicators. The fig-
ure implies an “accountability chain”, with accountability clearest and
most immediate by the narrowest performance criterion (i.e., compliance
with input allocations), and most ambiguous and diffuse by the broadest
performance criterion (i.e., net impact).

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 Module 3 67

Policy Goals

Program Objectives

Planned outcomes Process Actual outcomes

Effectiveness

Planned outputs Process Actual outputs

Planned inputs Process Actual inputs

Efficiency

Figure 3-6. Hierarchy of performance criteria and indicators

(Source: Schiavo-Campo, 1999:27)

Schiavo-Campo gives us more examples of performance indicators in certain gov-

ernment sectors.

Table 3-6. Performance indicators in government sectors

Sector Type of Indicator

Input Output Outcome Process

Administration Number of Number of Better Openness of

staff policy papers decision debate
Education Student/ Retention Higher Encouragement
teacher rates literacy student
expressions
Judicial system Budget Cases heard Low Assistance
appel for indigent
defendants
Police Number of Number of Decline in Respect of
police arrests crime rate rights
Corrections Cost per Number of Recidivism Prevention
prisoner prisoners rate of abuse
Health Nurses per Number of Lower Bedside
population vaccinations morbidity manner
Social welfare Social Persons Exits Dignified
workers assisted from treatment
system

Source: Schiavo-Campo, 1995:30.

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68 PM 230: Financial Management in Government

Activity 3-3
Think of your agency. What things do you have to watch out for
during budget preparation? During budget legislation? During
budget implementation and review?

Comments on Activity 3-3

Answers will be variable. An example of something to watch out
for during legislation is having your agency budget cut or re-
aligned.

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 Module 3 69

Activity 3-4
Examine one government sector or subsector (e.g., education;
tertiary education). Identify some measures of performance that
may be used. You may come up with a table similar to the one
presented above. What difficulties did you encounter in identify-
ing measures of performance? Make a list of these problems and
difficulties. Compare your work with those your classmates.

Comment on Activity 3-4

You may do this activity in the classroom or individually at home.
What is important is for you to experience the task of coming up
with performance standards and be satisfied with your work. Ask
your classmates to comment on your work, or get their opinions.

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70 PM 230: Financial Management in Government

References

Premchand, A. (1989). Government budgeting and expenditure controls theory

and practice. International Monetary Fund.
Garner, CW. (1991). Accounting and budgeting in public and nonprofit orga-
nizations a manager’s guide. Jossey-Bass Inc., California.
Rowan, J & M Pendlebury. (1996). Public sector accounting. 4th Edition.
London: Pitman Publishing.
Schiavo-Campo, S. (1999). Strengthening “performance” in public ex-
penditure management. Asian review of public administration, Vol.
XI, No. 2, July-December, pp. 23-44.
National Budget Circular No. 463, dated January 20, 1999.
National Budget Memorandum No. 88, dated February 24, 1999.
Executive Order No. 292, or the Revised Administrative Code of 1987.

UP Open University