The Budgeting Process

Peterson Y. Manalac, CPA

The National Budget
• The government’s estimate of the sources and
uses of government funds within a fiscal year.
• Government accounting is concerned with
providing information useful in assessing the
conformance of utilizations of governments with
the approved budget.
 BUDGET CYCLE

The four phases of the

budget cycle overlap in Preparation Legislation Execution Accountability
continuing cycles
every year. For
instance, the Executive
Release
implements the Budget Call House Guidelines &
Performance
Targets &
Deliberation Program
budget for the current Outcomes
Stakeholder
year and prepares the engagement Budget Execution
Documents Budget
budget for the next Senate
Deliberation
Accountability
Technical Budget Reports
fiscal year or defends Hearings Allotment & Cash
it in Congress. Release
Programming Quarterly
Bicameral
Execution and Executive Review
Deliberation
Performance
R2eview
Accountability phases Consolidation,
Allotment and
Cash Releases
are simultaneously Validation &
Confirmation
Year-end Budget
Ratification & Performance
implemented year- Presentation to
Enrolment Incurring Assessment
Review
round. the President &
Cabinet
Obligations

President’s
President’s Enactment & Disbursements/ Audit
Budget Veto Payments
Budget Preparation
• Bottom-up Approach
▫ Participation in the budget preparation starts
from the lowest level to the highest level of the
government.
At the beginning of the budget preparation year, the
Department of Budget and Management (DBM) issues
the National Budget Call to all agencies (including state
universities and colleges) and a separate Corporate
Budget Call to all GOCCs and GFIs.

The Budget Call contains budget parameters (including

macroeconomic and fiscal targets and agency budget
ceilings) as set beforehand by the Development Budget
Coordination Committee (DBCC); and policy guidelines
and procedures in the preparation and submission of
agency budget proposals.
DBCC
• The Development Budget Coordination Committee (DBCC) was created on
May 14, 1970 through the Executive Order No. 232 creating the Presidential
Development Budget Committee (PDBC) and enumerating its functions and
objectives.
• The role of the DBCC is primarily to review and approve the macroeconomic
targets, revenue projections, borrowing level, aggregate budget level and
expenditure priorities and recommend to the Cabinet and the President of the
consolidated public sector financial position and the national government
fiscal program.
• Functions of the DBCC
▫ Specifically, the DBCC is mandated with the following functions:
▫ Recommend for Presidential approval the level of the annual government
expenditure program and the ceiling of government spending for economic and
social development, national defense, general government and debt service;
▫ Recommend to the President the proper allocation of expenditures for each
development activity between current operating expenditures and capital outlay;
and
▫ Recommend to the President the amount set to be allocated for capital outlay
under each development activity for various capital or infrastructure projects.
DBCC
• Aside from what was explicitly mentioned in the EO
No. 232, listed below are other major functions of the
DBCC:
▫ The assessment of the reliability of revenue estimates;
▫ The recommendations of appropriate tax or other
revenue measures and the extent and type of the
borrowings; and
▫ The conduct of periodic review and general examination
of costs, accomplishments and performance standards
applied in undertaking development projects
DBCC
• The Committee is composed of the principals of the four
member agencies and is chaired by the DBM Secretary.
There is also an Executive Technical Board (ETB), which
serves as the clearing-house of the DBCC and consists of the
Undersecretaries and Directors of the DBCC member
agencies.
• The members of the DBCC have the following specific
responsibilities:
▫ DBM – resource allocation and management
▫ DOF – revenue generation and debt management
▫ NEDA- overall macroeconomic policy
▫ OP – Presidential oversight
A new feature in budget preparations which seeks to increase
citizen participation in the budget process, departments and
agencies are tasked to partner with civil society organizations
(CSOs) and other citizen-stakeholders as they prepare their
agency budget proposals.

This new process, which was piloted in the preparation of the

2012 National Budget, is now being expanded towards
institutionalization.
Departments & GOCCs mandated to conduct consultations

ORIGINAL SET (Piloted in 2012) NEW SET (Starting 2013)

Department of Tourism
Department of
Department of Health Transportation and
Department of Education Communication
Department of Social Welfare and Department of Interior and
Development Local Government
Department of Public Works and Department of Justice
Highways Department of Labor and
Department of Agriculture Employment
Department of Agrarian Reform Department of Environment
National Food Authority and Natural Resources
National Housing Authority Light Rail Transit Authority
National Home Mortgage and National Electrification
Finance Corp. Administration
National Irrigation
Note: All other departments and agencies are highlyAdministration
encouraged to undertake the process.
For the first time in history, the National Budget for 2013 will
be prepared using a breakthrough “bottom-up” approach. As
opposed to the conventional way of allocating resources from
top to bottom, grassroots communities will be engaged in
designing the National Budget.

The Aquino government, through the Cabinet Cluster on

Human Development and Poverty Reduction, has identified
300 to 400 of the poorest municipalities and will engage these
in crafting community-level poverty reduction and
empowerment plans. This initial salvo of “bottom-up”
budgeting will focus on rural development programs and the
conditional cash transfer program, and will thus involve DA,
DAR, DENR, DSWD, DepEd and DoH. These agencies will
then include the community plans in their proposed budgets.
These are conducted after departments
and agencies submit their Agency Budget
Proposals to the DBM. Here, agencies
defend their proposed budgets before a
technical panel of DBM, based on
performance indicators on output targets
and absorptive capacity. DBM bureaus
then review the agency proposals and
prepare recommendations.
The recommendations are presented before an
Executive Review Board which is composed of the DBM
Secretary and senior officials.

Deliberations here entail a careful prioritization of

programs and corresponding support, vis-à-vis the
priority agenda of the national government.

Implementation issues are also discussed and

resolved.
DBM then consolidates the recommended agency
budgets and recommendations into a National
Expenditure Program and a Budget of Expenditures and
Sources of Financing (BESF).

As part of the consolidating process, the deliberations by

the DBCC will determine the agency and sectoral
allocation of the approved total expenditure ceiling, in
line with the macroeconomic and fiscal program. Heads
of major departments are invited to this meeting.
The proposed budget is presented by
DBM, with the DBCC, to the
together
President and Cabinet for further
refinements reprioritization. After the
or President Cabinet approve the
and
proposed National Expenditure Plan, the
DBM prepares and finalizes the budget
documents to be submitted to Congress.
The budget preparation phase ends with
the submission of the proposed national
budget — the “President’s Budget” — to
Congress.

The President’s Budget consists of the

following documents, which help
legislators analyze the contents of the
proposed budget:
President’s Budget Message (PBM)
This is where the President explains the policy framework and priorities in the budget.

Budget of Expenditures and Sources of Financing (BESF)

Mandated by the Constitution, this contains the macroeconomic assumptions, public
sector context (including overviews of LGU and GOCC financial positions),
breakdown of the expenditures and funding sources for the fiscal year and the two
previous years.

National Expenditure Program (NEP)

This contains the details of spending for each department and agency by program,
activity or project, and is submitted in the form of a proposed General Appropriations
Act.

Details of Selected Programs and Projects

This contains a more detailed disaggregation of key programs, projects and activities
in the NEP, especially those in line with the national government’s development plan.

Staffing Summary
This contains a summary of the staffing complement of each department and agency,
including number of positions and amounts allocated for the same.
The House of Representatives, in plenary, assigns the President’s
Budget to the House Appropriations Committee. The Committee and
its Sub-Committees then schedule and conduct hearings on the
budgets of the departments and agencies and scrutinize their
respective programs and projects. It then crafts the General
Appropriations Bill (GAB).

In plenary session, the GAB is sponsored, presented and defended

by the Appropriations Committee and Sub-Committee Chairmen. As
in all other laws, the GAB is approved on Second and Third Reading
before transmission to the Senate. (Note: In the First Reading, the
President’s Budget is assigned to the Appropriations Committee.)
As in the House process, the Senate conducts its own
committee hearings and plenary deliberations on the GAB.
Budget deliberations in the Senate formally start after the
House of Representatives transmits the GAB. For
expediency, however, the Senate Finance Committee and
Sub-Committees usually start hearings on the GAB even as
House deliberations are ongoing.

The Committee submits its proposed amendments to the

GAB to plenary only after it has been formally transmitted by
the House.
Once both Houses of Congress have finished their
deliberations, they will each constitute a panel to the
Bicameral Conference Committee. This committee will
then discuss and harmonize the conflicting provisions of
the House and Senate Versions of the GAB. A
Harmonized Version of the GAB is thus produced.
The Harmonized or “Bicam” Version is then submitted to
both Houses, which will then vote to ratify the final GAB
for submission to the President. Once submitted to the
President for his approval, the GAB is considered
enrolled.
The President and DBM then review the GAB and
prepare a Veto Message, where budget items subjected
to direct veto or conditional implementation are
identified, and where general observations are made.
Under the Constitution, the GAB is the only legislative
measure where the President can impose a line-veto (in
all other cases, a law is either approved or vetoed in
full).
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
When the GAA is not enacted before the fiscal year starts, the
previous year’s GAA is automatically reenacted. This means
that agency budgets for programs, activities and projects
remain the same. Funding for programs or projects that have
already been terminated is realigned for other expenditures.
Because reenactments are tedious and prone to abuse, the
Aquino Administration—with the support of Congress—has
committed to ensure the timely enactment of a new GAA
every year.
This is where the people’s money is actually
spent. As soon as the GAA is enacted, the
government can implement its priority programs
and projects.
The budget execution phase begins with DBM’s
issuance of guidelines on the release and
utilization of funds.
Agencies are required to submit their BEDs at the start
of budget execution. These documents outline agency
plans and performance targets. These BEDs include:
•the physical and financial plan,
•monthly cash program,
•estimate of monthly income, and
•list of obligations that are not yet due and demandable.
RECIPIENTS OF THE BUDGET
• NGAs
• LGUs
• GOCCs
• Member of the Congress
• (Previous Years) Priority Development Assistance Fund (PDAF)
a.k.a Pork Barrel – intended for fund priority development
programs of the government (already declared by Supreme Court
as unconstitutional in the year 2013)
• Members of the Judiciary
▫ Judiciary Development Fund (JDF) – 80% for COLA of
members and personnel of Judiciary; 20% for acquisition
and maintenance of office equipment and facilities
To ensure that releases fit the approved Fiscal Program, the DBM
prepares an Allotment Release Program (ARP) to set a limit for
allotments issued to an agency and on the aggregate.

The ARP of each agency corresponds to the total amount of the

agency-specific budget under the GAA, as well as Automatic
Appropriations. A Cash Release Program (CRP) is also formulated
alongside that to set a guide for disbursement levels for the year
and for every month.
Allotments/Obligational
Authority, which authorize an
agency to enter into an
obligation, are released by
DBM to all agencies
comprehensively through:
•General Appropriations Act
Release Document
(GAARD)
•Special Allotment Release
Order (SARO)
•General Allotment Release
Order (GARO)
General Appropriations Act
Release Document (GAARD)
-obligationalauthority for the
comprehensive release of
budgetary items appropriated in
the GAA, categorized as For
Comprehensive Release (FCR).
Special Allotment Release Orders
(SAROs)
covers budgetary items under For Later
Release (FLR) (negative list) in the
entity submitted Budget Execution
Documents (BEDs), subject to
compliance of required
documents/clearances. Releases of
allotments for Special Purpose Funds
(SPFs) (e.g., Calamity Fund, Contingent
Fund, E-Government Fund, Feasibility
Studies Fund, International
Commitments Fund, Miscellaneous
Personnel Benefits Fund and Pension
and Gratuity Fund) are also covered by
SAROs.
General Allotment Release Orders
(GAROs)
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.
In implementing programs, activities
and projects, agencies incur
liabilities on behalf of the
government. Obligations are
liabilities legally incurred, which
the government will pay for.

There are various ways that an

agency “obligates:” for example,
when it hires staff (an obligation to
pay salaries), receives billings for
the use of utilities, or enters into a
contract with an entity for the supply
of goods or services.
To authorize an agency to pay
the obligations it incurs, DBM
issues a disbursement
authority.

Most of the time, it takes the

form of a Notice of Cash
Allocation (NCA); and in
special cases, the Notice of
Transfer of Allocation, Non-
Cash Availment Authority
(NCAA) and Cash
Disbursement Ceiling
(CDC).
 Notice of Cash Allocation (NCA)
 This is a cash authority issued
periodically by the DBM to the operating
units of agencies to cover their cash
requirements.
 The NCA specifies the maximum
amount of cash that can be withdrawn
from a government servicing bank for
the period indicated.
 The release of NCAs by DBM is based
on an agency’s submission of its
Monthly Cash Program and other
required documents.
 Others Disbursement Authorities.
 In contrast to NCAs, Non-Cash Availment
Authority (NCAA) are issued to authorize
non-cash disbursements.
 Notice of Transfer of Allocation authority
issued by the Central Office to its regional
and operating units to cover the latter’s
cash requirements
 Cash Disbursement Ceiling (CDC) are
meanwhile issued to departments with
overseas operations, allowing them to use
income collected by their foreign posts for their
operating requirements.
This is the final step of the budget execution phase, where
government monies are actually spent. The
Disbursement
Modified Scheme is mostly where
used, disbursements of
national government chargeable against agencies
the
government Treasury banks,
servicing are made
such as the Land Bank
through
of the Philippines.

The budget process, of course, does not end

when
peso must agencies
government be accounted for to funds:
spend public ensureeach
thatand
is every
used
properly, contributing to the achievement of socio-
economic goals.
This phase happens alongside the
Budget Execution phase.

Through Budget Accountability, the DBM

monitors the efficiency of utilization,
fund
assesses agency performance and provides
a vital basis for reforms and new policies.
Agencies are held accountable not only for
how these use public funds ethically, but
also on how these attain performance
targets and outcomes using available
resources.
These performance measures are set
alongside the preparation of the National
Budget; and these are indicated in the
OPIF Book of Outputs.

Prior to the execution of the enacted

National Budget, these performance
targets are up during the
firmed
preparation of BEDs.
Submitted by agencies on a
monthly and quarterly basis, BARs
are required reports that show how
agencies used their funds and
identify their corresponding physical
accomplishments.

These include quarterly physical

and financial reports of operations;
quarterly income reports, a monthly
statement of allotments, obligations
and balances; and monthly report of
disbursements.
Components of Budget and Financial Accountability
Reports. The budget reports consist of the following
Budget and Financial Accountability Reports (COA-DBM-
DOF Joint Circular No. 2013-1, as amended by COA and
DBM Joint Circular No. 2014-1 dated July 2, 2014):

a. Quarterly Physical Report of Operation (QPRO)

– BAR No. 1
b. Statement of Appropriations, Allotments,
Obligations, Disbursements and Balances
(SAAODB) – FAR No. 1
c. Summary of Appropriations, Allotments,
Obligations, Disbursements and Balances by
Object of Expenditures (SAAODBOE) – FAR No.
1-A
Components of Budget and Financial Accountability
Reports. The budget reports consist of the following
Budget and Financial Accountability Reports (COA-DBM-
DOF Joint Circular No. 2013-1, as amended by COA and
DBM Joint Circular No. 2014-1 dated July 2, 2014):

d. List of Allotments and Sub-Allotments (LASA) – FAR

No. 1-B
e. Statement of Approved Budget, Utilizations,
Disbursements and Balances (SABUDB) – FAR No. 2
(for Off-Budget Fund)
f. Summary of Approved Budget, Utilizations,
Disbursements and Balances by Object of Expenditures
(SABUDBOE) – FAR No. 2-A (for Off-Budget Fund)
Components of Budget and Financial Accountability
Reports. The budget reports consist of the following
Budget and Financial Accountability Reports (COA-DBM-
DOF Joint Circular No. 2013-1, as amended by COA and
DBM Joint Circular No. 2014-1 dated July 2, 2014):

g. Aging of Due and Demandable Obligations (ADDO) –

FAR No. 3

h. Monthly Report of Disbursements (MRD) – FAR No. 4

i. Quarterly Report of Revenue and Other Receipts

(QRROR) – FAR No. 5
• Starting 2012, the DBM will be withholding certain fund
releases to agencies if these fail to submit their Budget
Accountability Reports. In particular, these will be funds from
the Miscellaneous Personnel Benefits Fund (MPBF) for
compensation adjustments under the Salary Standardization
Law, provisions for unfilled positions and employee clothing
allowances.
• These funds to be withheld are only limited to agencies’
MPBF allotments so that only the agencies are penalized and
that the implementation of critical programs and projects will
not be disrupted. Errant and compliant agencies will also be
posted online for public scrutiny.
The DBM regularly reviews the financial and
physical performance of agencies. Actual
utilization of funds and physical
accomplishments, as indicated in
agencies’ BARs, are the
evaluated against their
targets as identified OPIF and in the
via
agencies’ BEDs. Agency Performance
Reviews (APRs) are conducted quarterly or
every semester, as the case may be.
An annual Budget Performance Assessment
Review (BPAR) is conducted to determine
each agency’s accomplishments and
performance by the year-end. The DBM
regularly reports results to the President.
Auditing is not within the DBM’s
jurisdiction, and is instead lodged
under the Commission on Audit
(COA). Nonetheless, auditing is critical
in ensuring agency accountability in
the use of public funds.

The DBM uses COA’s audit reports in

confirming agency performance,
determining budgetary levels for
agencies and addressing issues in
fund usage.