Topic: The Budget Process

Learning Outcomes:

At the end of this module, the student should be able to:

▪ Enumerate the steps in the budget process

▪ Determine the principles of responsibility accounting

Core Values/Biblical Principles:

Our kindness will very often have a rippling effect on others we may not ever meet this side of
heaven. But our rewards will come. As Christ’s hands and feet here on this Earth, what an opportunity
we have to be kind and demonstrate His love for the world to see.

Introduction:

Government accounting is primarily budgetary accounting. It 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.

Body:

National budget (Government budget) – 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 obejctives

Different types of Budget

● Balanced Budget – Prepared in such a way that estimated revenue exceed estimated
expenditures
● 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

● Performance Budget – A plan of activities to be undertaken, including their related costs, with
the emphasis on meeting targets and desired results
● 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

BUDGET CYCLE
The budget cycle has four phases, namely: (PLEA)

1. Budget Preparation
2. Budget Legislation

3. Budget Execution
4. Budget Accountability

BUDGET PREPARATION

o The budget preparation in the Philippines uses a “bottom-up” approach

Bottom-up approach Top-down approach

Several parties participate in

the budget preparation,
The budget preparation starts
starting from the lowest to
from the agency heads
the highest levels of the
government

o In 2011, the Philippine Government started to use “zero-based budgeting” approach

Zero-based budgeting Incremental budgeting

o Current year’s budget is o The current year’s budget

formulated without regard is formulated based on
to the previous year’s the previous year’s
budget. budget, which is just
o Government agencies are adjusted for any
required to justify their variances experienced in
current year’s proposed the past
programs and o Presumably, the proposed
expenditures, irrespective programs and
of whether these are new expenditures in the
or carried over from the previous year are
previous year automatically approved in
o Uses a “back-to-zero” or the current year
“clean slate” approach o Uses a “roll-over”
o Promotes efficient and
approach
effective utilization of
o Prone to abuse
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:
▪ Next fiscal year’s target

▪ Agency’s budget ceiling

▪ Other guidelines in the completion and submission of agency budget

proposals

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 budget proposals, make recommendations, and consolidates
the deliberated proposals into the National Expenditure Program (NEP) and
Budget of Expenditures and Sources of Financing (BESF)
- BDM will 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’s approval of the proposed budget, DBM will finalize the budget
documents to be submitted to the Congress
 - The proposed budget is referred to as “President’s Budget” and it contains the
following:
▪ President’s Budget Message – contains the President’s explanation of the
country’s fiscal policy and budget priorities

▪ National Expenditure Program (NEP) – this contains the details of all the
government entities’ proposed expenditures accompanied by estimates of
expected sources of financing

▪ Budget of Expenditures and Sources of Financing (BESF) – this contains the

estimated expenditures accompanied by estimates of expected sources of
financing

▪ Other documents aimed to provide further explanation of selected items in

the NEP (e.g., details of key programs and projects and staffing summary)

Note: The President shall submit the proposed budget to the Congress within 30 days from
the opening of every regular session

BUDGET LEGISLATION

o Government funds shall only be spent in pursuance of an appropriation made by law

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, House of representatives prepares the General Appropriations Bill (GAB)

5. Senate Deliberations
- The Senate conducts its own deliberations on the GAB.
▪ Normally start AFTER the Senate receives the GAB from the House of
Representatives
▪ But 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
▪ This 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 the 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 the enactment, the President may exercise his veto power as conferred to him
under the Philippine Constitution

Note: 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

THE APPROVED BUDGET

o The expenditure authority derived from appropriation laws, government ordinances,

and other decisions related to the anticipated revenue or receipts for the budgetary
period

o 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

1. New General Appropriations

- These are the authorization made by a legislative body to allocate funds for
purposes specified by the legislature or similar authority

2. Continuing Appropriations
- These 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
- These are dditional 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 a
Certification of Availability of Funds from the BTr

4. Automatic Appropriations
 - These are the authorizations programmed annually or for some other period
prescribed by law which do not require periodic action by Congress

5. Unprogrammed Funds
- These are the 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 originally
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
- These are the 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
- These are receipts by any government agency acting as trustee, agent or
administrator for the fulfillment of some obligations or conditions

Note: A special appropriation 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 raised by
a corresponding revenue proposal therein

On the other hand, no law shall be passed authorizing any transfer of appropriations.
However, the following 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:
The President
The President of the Senate
The Speaker of the House of Representatives
The Chief Justice of the Supreme Court

BUDGET EXECUTION

o This is the phase where government funds are spent

8. Release Guidelines and BEDs

 - DBM issues guidelines on the release and utilization of funds while the various agencies
submit their Budget Execution Documents (BEDs)
▪ BED summarizes an agency’s fiscal year plans and performance targets. It
includes the following:
a. Physical and financial plan
b. Monthly cash program
c. Estimate of monthly income
d. List of obligations that are not yet due and demandable

- The following are the major recipients of the budget:

o National Government Agencies (NGAs)
o Local Government Units (LGUs)
o Government Owned and Controlled Corporations (GOCCs)

9. Allotment
- The DBM formulates the Allotment Release Program (ARP) and Cash Release Program
(CRP)
▪ Allotment Release Program (ARP)
- Sets the limit from allotment releases during the upcoming year
- Used as a control device to ensure that releases conform to the
national budget

▪ Cash Release Program (CRP)

- Sets the disbursement limits for the year, for each quarter and for
each month

Allotment vs Obligation

Allotment Obligation

▪ An authorization issued by the DBM to ▪ An act of a duly authorized official

government agencies to incur which binds the government to the
obligations for specified amounts immediate or eventual payment of a
contained in a legislative appropriation sum of money
in the form of budget release ▪ Referred to as a commitment that
documents
encompasses possible future liabilities
▪ Also referred as Obligational based on current contractual agreement
Authority

- It is illegal for a government entity to incur obligations without having first received the
“Allotment”
- The type and amount of obligations to be incurred must conform to those that are
specified in the “Allotment”
 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 the 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

3. General Allotment Release Order (GARO) – 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

10. Incurrence of Obligation

- 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

- 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 allowing them to use the income collected by their Foreign Service Posts to
cover their operating requirements

Note: Disbursements are most commonly made through checks that are chargeable
against the account of the Treasurer of the Philippines
BUDGET ACCOUNTABILITY

o This phase occurs concurrently with the Budget Execution phase.

o As the budget is being executed, it is regularly monitored to determine the conformance of
actual results with planned targets

12. Budget Accountability Report

- Government agencies are required to submit the following accountability reports:

Report submitted to the COA and DBM within 30 days after the end of each month

▪ Monthly Report of Disbursements

- Shows the disbursements of the entity during the month, classified according to
the type of disbursement authority

Reports submitted to the COA and DBM within 30 days after the end of each
quarter

▪ Quarterly Physical Report of Operation

- Shows the agency’s physical accomplishments in a given quarter vis-vis its
physical targets

▪ 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

▪ Summary of Appropriations, Allotments, Obligations, Disbursements and Balances by

Object of Expenditures
- Similar to Statement of Appropriations, Allotments, Obligations, Disbursements
and Balances but provides details of expenditures

▪ 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

▪ Statement of Approved Budget, Utilizations, Disbursements and Balances

- This report is prepared by agencies that have authority to use their revenue

▪ Summary of Approved Budget, Utilizations, Disbursements, and Balances by Object of

Expenditures
- Similar to Statement of Approved Budget, Utilizations, Disbursements and
Balances but provides details of expenditure

▪ 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 in a given quarter

Report submitted to the COA and DBM within 30 days after the end of the year

▪ 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

Report submitted on or before February 14 of the following year

▪ Consolidated Statement of Allotments, Obligations and Balances per Summary of

Appropriations
- Based on Statement of Appropriations, Allotments, Obligations, Disbursements
and Balances, and Summary of Appropriations, Allotments, Obligations,
Disbursements and Balances by Object of Expenditures

13. Performance reviews

- The DBM and COA perform periodic reviews of the agencies’ performance and budget
accountability and report to the President

14. Audit
- COA audits the agencies

THE BUDGET CYCLE

RESPONSIBILITY ACCOUNTING

o A system of providing cost and revenue information over which a manager has direct control
of
o This enables the evaluation of a manager’s performance based on only matters that are
directly under his control
o Government accounting adheres to the concept of responsibility accounting for better
evaluation of budget accountability
o 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

Summary:

The budget cycle in the Philippines has four phases, namely: Budget Preparation, Budget Legislation,
Budget Execution, and Budget Accountability. The budget preparation started when Department of
Budget and Management (DBM) issues a budget call to all government agencies and ends with
presentation of the proposed budget to the President for his approval. The budget preparation uses a
“bottom-up” approach and “zero-based budgeting approach.

On the other hand, budget legislation comprises of house and senate deliberations. After deliberations
in both houses, a bicameral deliberations will be conducted. A harmonized GAB will be sent back to
both houses for ratification and once ratified, it will be submitted to the President for enactment

After the enactment of approved budget, the next phase, which is the budget execution, will comes
next. This is where the government funds are spent. It will start from releasing guidelines and BEDs
and ends with DBM issuing a disbursement authority to the government agencies.

Budget accountability occurs concurrently with Budget execution phase. As the budget is being
executed, it is regularly monitored to determine the conformance of actual results with planned
targets.

References:
Government Accounting & Accounting for Non-Profit Organizations by Zeus Vernon Millan
Manuals | Commission on Audit (coa.gov.ph)