Notes for chapter 2: Budget Process

The National Budget

 The national budget is the government's financial plan for one fiscal year.
 It estimates the sources of government funds (revenues) and their uses (expenditures).
 It serves as the basis for government spending.
 It ensures that public funds are used according to the budget approved by law.

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

1. Budget Preparation

2. Budget Legislation

3. Budget Execution

4. Budget Accountability

Budget Preparation

 Budget preparation is the first stage of the budget cycle.

 The Philippines uses a bottom-up budgeting approach, where budget proposals start from
government agencies and lower levels before reaching higher authorities.
 It encourages the participation of citizens and stakeholders in the budgeting process.
 The opposite approach is top-down budgeting, where budget preparation begins with
agency heads or higher officials.
 The government also introduced zero-based budgeting (ZBB), which requires agencies to
justify all budget requests, instead of simply increasing the previous year's budget
(incremental budgeting).

Incremental Budgeting vs. Zer-based budgeting

 Incremental Budgeting – A budgeting method that uses the previous year's budget as the
starting point and makes adjustments for the new budget period.

 Zero-Based Budgeting (ZBB) – A budgeting method that starts from zero, requiring every
expense to be justified and approved, regardless of previous budgets

1. Budget Call

 Budget Call is the official start of the budget preparation process.

 It is issued by the Department of Budget and Management (DBM) to all government
agencies.
  It contains:
o Budget guidelines
o Budget ceilings
o Government priorities and targets for the next fiscal year
o Instructions for preparing and submitting budget proposals

Relevant Terms

 Balanced Budget – Estimated revenues are equal to or greater than estimated

expenditures. A surplus occurs when revenues exceed expenditures, while a deficit
occurs when expenditures exceed revenues.
 Annual Budget – A budget that covers one fiscal year and serves as the basis for annual
appropriations.
 Special Budget – A budget for items or projects not included or not adequately
covered in the General Appropriations Act.
 Line-Item Budget – A budget that classifies expenditures by specific expense categories,
such as salaries, travel, supplies, and equipment.
 Performance Budget – A budget that emphasizes programs, activities, outputs, and
results, including their corresponding costs.
 Obligations Budget – A budget that focuses on obligations incurred during the current
year, whether they are paid in the current year or the next year.

2. Budget Hearings

 Budget hearings are conducted after government agencies submit their budget
proposals.
 During the hearings, each agency explains and defends its proposed budget before the
Department of Budget and Management (DBM).
 The DBM reviews, evaluates, and revises the proposals if necessary.
 After the review, the DBM consolidates all approved proposals into:
o National Expenditure Program (NEP) – details of proposed government
expenditures.
o Budget of Expenditures and Sources of Financing (BESF) – estimated
expenditures and their sources of funding.
 The DBM then submits the proposed national budget to the President.

3. Presentation to the Office of the President

 The President, together with the Cabinet members, reviews the proposed national
budget prepared by the DBM.
 Once approved, the DBM finalizes the budget documents for submission to Congress.
 At this stage, the proposed budget is called the President's Budget.
Documents Included in the President's Budget

a. President's Budget Message

 Explains the President's fiscal policies, budget priorities, and goals for the coming year.

b. National Expenditure Program (NEP)

 Contains the detailed proposed expenditures of all government agencies for the next
fiscal year.

c. Budget of Expenditures and Sources of Financing (BESF)

 Shows the government's estimated expenditures and the expected sources of funds to
finance them.

d. Other Supporting Documents

Provide additional details about the proposed budget, such as key government programs,
projects, and staffing information

Relevant provision of law:The President shall submit the proposed budget to the Congress
within 30 days fromthe opening of every regular session. (Art. VII, Sec. 22, Philippine
Constitution)

Budget Legislation (Textbook Style Notes)

Budget Legislation

 Budget legislation is the process of reviewing, approving, and legalizing the proposed national
budget.
 Government funds cannot be spent unless authorized by law through an appropriation.

4. House Deliberations

 The House of Representatives reviews the President's Budget.

 It conducts hearings to examine the budget proposals of government agencies.
 After deliberation, it prepares the General Appropriations Bill (GAB).

Key Idea: The House studies the proposed budget and prepares the GAB.
5. Senate Deliberations

 The Senate reviews and deliberates on the General Appropriations Bill (GAB).
 It may begin its hearings while the House is still conducting its own deliberations.

Key Idea: The Senate reviews and may suggest changes to the GAB.

6. Bicameral Deliberations

 The Bicameral Conference Committee resolves differences between the House and Senate
versions of the GAB.
 The harmonized version is called the Bicam Version.
 Both Houses ratify the final version before sending it to the President.

Key Idea: The House and Senate agree on one final budget bill.

7. President's Enactment

 The President signs the approved General Appropriations Bill (GAB) into law.
 Once signed, it becomes the General Appropriations Act (GAA).
 The President may veto certain provisions before signing.

Key Idea: GAB + President's approval = GAA (the official national budget law).

Relevant Provision of Law

Reenacted Budget

 If the GAA is not approved before the new fiscal year begins, the previous year's GAA is
automatically used until a new budget is enacted.

The Approved Budget

Approved Budget

 The approved budget is the government's legal authority to spend public funds based on
appropriations and other budget laws.
Important Terms

Unified Accounts Code Structure (UACS)

 A standard coding system used by the government for budgeting, accounting, and financial
reporting.

Appropriation

 A legal authorization by Congress allowing government funds to be spent for a specific purpose.

Types of Appropriations
1. New General Appropriations

 Annual budget authorized under the General Appropriations Act (GAA) for the current fiscal
year.

2. Continuing Appropriations

 Funds that remain available for multi-year projects not completed within one year.

Example: Construction of a bridge that takes three years.

3. Supplemental Appropriations

 Additional funds approved by law when the original budget is insufficient.

Example: Additional budget needed after a natural disaster.

4. Automatic Appropriations

 Funds that are automatically authorized by law and do not require yearly approval by Congress.

Example: Payment of government debt.

5. Unprogrammed Funds

 Standby funds that may be used only if additional revenues or financing become available.

Example: Tax collections exceed the government's target.

6. Retained Income/Funds

 Income that government agencies are allowed by law to keep and use for their operations.

Example: Tuition collected by a state university.

7. Revolving Funds

 Funds generated from business-type activities that are reused for the same operations.

Example: Income from a government hospital used to buy medicines.

8. Trust Receipts

 Funds received by a government agency on behalf of another person or organization and held
in trust.

Example: Scholarship funds managed by a government agency.

Relevant Provisions of Law

Special Appropriations

 A special appropriations bill must:

o State its specific purpose.
o Be supported by available funds or a corresponding source of revenue.

Transfer of Appropriations

 Government appropriations cannot be transferred from one purpose to another.

  However, certain officials (such as the President and heads of constitutional offices) may
augment budget items using savings from other items within their own office, as allowed by the
Constitution.

Budget Execution (Textbook Style Notes)

Budget Execution

 Budget execution is the stage where the approved budget is implemented and government
funds are spent.
 It ensures that government agencies use their approved budget according to law.

8. Release of Guidelines and Budget Execution

Documents (BEDs)
 The DBM issues guidelines on how government funds will be released and used.
 Government agencies submit their Budget Execution Documents (BEDs).

Budget Execution Documents (BEDs)

A BED is a document that shows an agency's financial and operational plan for the year.

It includes:

 Physical and Financial Plan – planned projects and their budget.

 Monthly Cash Program – expected monthly cash needs.
 Estimate of Monthly Income – expected monthly collections.
 List of Outstanding Obligations – obligations not yet due for payment.

Major Recipients of the Budget

1. National Government Agencies (NGAs)

 Government offices under the Executive, Legislative, and Judicial branches.

Examples: Departments, Commissions, State Agencies.

2. Local Government Units (LGUs)

 Local governments.
Examples: Provinces, Cities, Municipalities, Barangays.

3. Government-Owned and Controlled Corporations (GOCCs)

 Government-owned corporations that provide public services.

Examples: Government banks and public corporations.

9. Allotment
Allotment

 An authorization from the DBM allowing an agency to incur obligations.

 Also called Obligational Authority.
 Agencies cannot spend or enter into contracts without an allotment.

Obligation

 A commitment made by a government agency that requires future payment.

Examples:

 Hiring employees
 Purchasing supplies
 Signing a construction contract

Documents Used to Release Allotments

1. General Appropriations Act Release Document (GAARD)

 Releases funds that are immediately available under the GAA.

2. Special Allotment Release Order (SARO)

 Releases funds for:

o Special projects
o Funds that require additional approval
o Special Purpose Funds (e.g., Calamity Fund)
3. General Allotment Release Order (GARO)

 Releases funds for automatic appropriations that generally apply to government agencies.

10. Incurrence of Obligations

 Government agencies begin making legal commitments that will require payment.

Examples:

 Buying equipment
 Hiring employees
 Awarding contracts

11. Disbursement Authority

 The DBM authorizes agencies to access and use government funds to pay their obligations.

Documents Used for Disbursement

1. Notice of Cash Allocation (NCA)

 Allows agencies to withdraw cash from government banks.

 Based on the agency's Monthly Cash Program.

2. Notice of Transfer of Allocation (NTA)

 Transfers cash allocation from the Central Office to its regional or operating units.

3. Non-Cash Availment Authority (NCAA)

 Allows payment of obligations using loan or grant proceeds instead of cash.

4. Cash Disbursement Ceiling (CDC)

 Allows agencies with foreign operations (e.g., DFA) to use income collected abroad for their
expenses.

Methods of Disbursement
Government payments may be made through:

 MDS Check (Modified Disbursement System Check)

 Cash
 Commercial Check
 Bank Transfer / Bank Debit
 Credit Card

Budget Accountability (Textbook Style Notes)

Budget Accountability

 Budget accountability is the phase where the government monitors and evaluates how the
budget is being used.
 It happens at the same time as budget execution to ensure that government agencies spend
funds properly and achieve their planned targets.

12. Budget Accountability Reports

Government agencies prepare and submit reports to the Department of Budget and
Management (DBM) and the Commission on Audit (COA).

a. Monthly Report of Disbursements

 Shows the actual payments made during the month.

b. Quarterly Physical Report of Operations

 Shows the actual accomplishments of the agency compared with its planned targets.

c. Statement of Appropriations, Allotments, Obligations, Disbursements, and

Balances (SAAODB)

 Shows:
 o Approved budget (appropriations)
o Allotments received
o Obligations incurred
o Disbursements made
o Remaining balances

d. Summary of SAAODB by Object of Expenditures

 Same as the SAAODB, but breaks down expenses by category (e.g., salaries, travel, supplies).

e. List of Allotments and Sub-Allotments

 Shows the allotments received from the DBM and the allotments distributed to lower offices.

f. Statement of Approved Budget, Utilizations, Disbursements, and Balances

(SABUDB)

 Prepared by agencies that are allowed to use their own income.

 Shows:
o Approved budget
o Amount used
o Amount disbursed
o Remaining balance

g. Summary of SABUDB by Object of Expenditures

 Same as the SABUDB, but provides detailed expense classifications.

h. Quarterly Report of Revenue and Other Receipts

 Shows the actual revenues and collections received during the quarter.

i. Aging of Due and Demandable Obligations

 Shows:
o Creditors
o Amounts owed
o How long the obligations have remained unpaid

13. Performance Reviews

 The DBM and COA regularly evaluate the performance of government agencies.
 They determine whether:
 o The budget was used properly.
o The agency achieved its planned objectives.
 The results are reported to the President.

14. Audit
 The Commission on Audit (COA) examines the financial records and budget reports of
government agencies.
 The audit ensures that:
o Public funds were spent legally.
o Funds were used efficiently and for their intended purpose.
 The reports are also used in preparing the Statement of Comparison of Budget and Actual
Amounts, which compares the approved budget with the actual amounts spent.

Easy Summary
Budget Accountability = Check if the budget was used correctly.

Flow

1. Government agencies spend the budget.

2. Agencies prepare accountability reports.
3. DBM and COA review the reports.
4. COA audits the agencies.
5. The government compares the planned budget with the actual spending.

Responsibility Accounting (Textbook Style Notes)

Responsibility Accounting

 Responsibility accounting is a system used to evaluate the performance of managers based on

the costs and revenues they can control.
 It ensures that managers are held accountable only for activities under their direct
responsibility.
 It helps identify the cause of budget variances (deviations) and determine who is responsible.
 It requires identifying responsibility centers and distinguishing between controllable and non-
controllable costs.

Key Terms

Responsibility Center
  A department or unit managed by a person who is responsible for its performance.

Controllable Costs

 Costs that a manager can influence or control.

Example:

 Office supplies
 Overtime expenses
 Department utilities

Non-Controllable Costs

 Costs that a manager cannot control.

Example:

 Building depreciation
 Taxes set by law
 Head office charges