CHAPTER 2

The Budget Process

Sec. 29 (1), Article VI of the 1987 Constitution
- No money shall be paid out of the Treasury except in pursuance of an appropriation by law
- No public fund may be spent if there is no law authorizing the payment of money and
specifying the purpose for which the same will be spent

General Appropriations Act (GAA)

- As enacted, accounting for budgetary accounts formally commences
- Contains the legal authorization to use public money

General Accounting Plan (GAP)

- shows overall accounting system of a government agency/unit
- source documents, flow of transactions, and accumulations in the books of account and
finally the conversion into financial info/data

Accounting Systems:
1. Budgetary Accounts System
2. Receipt/Income and Deposit System
3. Disbursement System
4. Financial Reporting System

Fundamental Principles of Fiscal Operations

1. No appropriation law, no disbursement of money
2. Government funds/property is for public purposes only
3. Trust funds is only for specific purposes for which the trust is created
4. Fiscal responsibility shall, to be greatest extent, be shared by all those exercising authority
over the financial affairs, transactions, and operations of the gov’t agency
5. Disbursements or disposition of government funds or property shall invariably bear the
approval of the proper officials
6. Claims against gov’t funds shall be supported with complete documentation
7. All laws and regulations applicable to financial transaction shall be faithfully adhered to
8. Generally Accepted Principles and practices of accounting, as well as, of sound management
and fiscal administration shall be observed, provided they do not contravene existing laws
and regulations

The National Budget/Government Budget

- Is the government’s estimate of the sources and uses of government funds within a fiscal
year
- A plan for financing the gov’t activities for a fiscal year
- Definite proposal of estimate or statement of receipts and expenditures that may be
approved or rejected
- The financial blueprint of a country’s development plan

Balanced Budget
- Where the proposed expenditures are equal to or less than the estimated revenues
Performance-Informed Budgeting
- Budgeting approach that uses performance info to assist in deciding where funds will go.
- Focuses more on outputs and outcomes and places less emphasis on the inputs
a) Purpose for the funds required
b) Outputs that would be produced or the services that would be rendered
c) Outcomes that would be achieved by the outputs and/or services
d) Cost of the programs and activities proposed to achieve the objectives

Kinds of Budget
1. As to Nature
a) Annual Budget
 Covers a period of one year. Basis of annual appropriation
b) Supplemental
 Supplement or adjust a previous budget which deemed inadequate for the
purpose it is intended
c) Special
 Special in nature and generally submitted in special forms on account

2. As to Basis
a) Performance
 Emphasizes program and services conducted and based on functions,
activities, and projects
 Focuses attention upon the general character and nature of work to be done
b) Line Item
 The objects of expenditures such as; salaries and wages….

3. As to Approach and Technique

a) Zero-Based
 Requires systematic consideration of all programs, projects and activities
with the use of define ranking procedures.
 Activities are analyzed and presented in “decision packages” or key
budgetary inclusions
b) Incremental
 Only additional requirements need justifications. Focuses on analysis of
incremental changes in the budget and maybe done within context of
performance and program budgeting

Budget Cycle
- Where formulation and eventual utilization of the national budget are summarized

Budget Cycle Budget Process

Preparation 1. Budget Call
2. Budget Hearing
3. Presentation of the Office of the President
Legislation 4. House Deliberations
 5. Senate Deliberations
6. Bicameral Deliberations
7. President’s Enactment
Execution 8. Release guidelines and BEDs
9. Allotment
10. Incurrence of Obligations
11. Disbursement Authority
Accountability 12. Budget Accountability Reports
13. Performance Reviews
14. Audit

Budget Preparation
- Uses a “bottom-up” approach
- Wherein several parties participate in the budget preparation, starting from the lowest to
the highest levels of the government
- 2011, PH Gov’t attempted to start a new tradition by shifting from the old “incremental”
system of budgeting to the “zero-based budgeting” approach

Incremental Zero-based
Current year’s budget is formulated based on Current year’s budget is formulated without
the previous year’s budget, which is just regard to the previous year’s budget
adjusted for any variances experienced in the
past
Uses a “roll-over” approach Gov’t agencies are required to justify their
current year’s proposed programs and
expenditures, irrespective of whether these are
new or carried-over from the previous year
Prone to abuse Uses a “back-to-zero” or “clean slate” approach
Promotes efficient and effective utilization of
funds

I. Budget Call
- Preparation starts when the DBM issues a Budget Call to all gov’t agencies
- contains budget parameters earlier set by the Development Budget Coordination
Committee (DBCC) as well as policy guidelines and procedures to aid government agencies
in the preparation and submission of their budget proposals. 

2 Kinds
a. National Budget Call, which is addressed to all agencies, including state universities and
colleges;
b. Corporate Budget Call, which is addressed to all government-owned and -controlled
corporations (GOCCs) and government financial institutions (GFIs).
  Balanced Budget
 Prepared in such a way that estimated revenues exceed estimated
expenditures
 If actual revenues > actual expenditures, surplus
 If expenditure > revenues, deficit

 Annual Budget
 Covers a period of one year and forms the basis for the annual appropriation

 Special Budget
 Provides for items not adequately covered or not included in the general
appropriation act

 Line Item Budget

 Focuses on specific expenditures such as salaries and wages, travel
expenses, freight, supplies, materials and equipment

 Performance Budget
 A plan of activities to be undertaken, including their related costs, with the
emphasis on meeting targets and desired results. The main focus is on the
work to be done or services to be rendered

 Obligation Budget
 Focuses on expenditures incurred in the current year which are to be paid
either in the same year or in the following year

II. Budget Hearing

- Conducted after the agencies submit their budget proposals
- Each agency defends its budget proposal before the DBM
- DBM deliberates on the budget proposals, makes recommendations, and consolidates the
deliberated proposals
- DBM then submits the proposed budget to the President

III. Presentation to the Office of the President

- President and Cabinet members review the proposed budget
- After the president approves the proposed budget, the DBM finalizes the budget documents
to be submitted to the Congress. At this point, the proposed budget is referred to as the
“President’s Budget”

Relevant Provision of Law:

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

Budget Legislation
IV. House Deliberations
 - Upon receipt of the President’s Budget, House of Representatives conduct hearings to
scrutinize the various agencies’ respective proposed programs and expenditures
- Thereafter, the HOR prepares the General Appropriations Bill (GAB)

V. Senate Deliberations
- Senate conducts its own deliberations on the GAB. These normally start after the Senate
receives the GAB from HOR
- However, for expediency, hearings in the Senate start even as Representatives deliberations
are going

VI. Bicameral Deliberations

- A committee called “Bicameral Conference Committee” is formed to harmonize any conflicts
between the Representatives and Senate version of the GAB
- Harmonized GAB is submitted back to both House for ratification
- After ratification, the final GAB is submitted to the President for enactment

VII. President’s Enactment

- President enacts the budget which is now known as the General Appropriations Act (GAA)

The Approved Budget

- Expenditure authority derived from appropriation laws, government ordinances, and other
decisions related to the anticipated revenue or receipts for the budgetary period

 New General Appropriations

 Annual authorizations for incurring obligations during a specific budget year

 Continuing Appropriations
 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

 Supplemental Appropriations
 Are additional appropriations authorized by law to augment the original
appropriations which proved to insufficient for the intended purpose

 Automatic Appropriation
 Authorizations programmed annually or for some other period prescribed
by law which do not require action by Congress

 Unprogrammed Funds
 Standby appropriations authorized by Congress in the annual GAA

 Retained Income/Funds
  Collection which are authorized by law to be used directly by agencies
concerned for their operation or specific purposes

 Revolving Funds
 Receipts derived from business-type activities of departments/agencies
which are authorized by law to be constituted as such

 Trust Receipts
 Receipts by any government agency acting as trustee, agents, or
administrator for the fulfillment of some obligations or conditions

Budget Execution
- Phase where government funds are spent

VIII. Released Guideline and BEDs

- DBM issues and guidelines on the release and utilization of funds while the various agencies
submit their Budget Execution Documents (BEDs)

Budget Execution Documents

- Summarizes an agency’s fiscal year plans and performance targets

Major Recipients of the Budget

1. National Government Agencies
- Include all agencies within the executive, legislative and judicial branches of gov’t, for
example: commissions, departments, Land Bank of the Philippines, SSS, etc

2. Local Government Units

 Autonomous region
 Provinces and cities independent from a province
 Component cities, part of province
 Municipalities
 Barangays

3. GOCCs
- Owned or controlled, directly or indirectly, by the gov’t and vested with functions relating
to public needs

IX. Allotment
- DBM formulates the Allotment Release Program (ARP) and Cash Release Program (CRP) to
set the limit for allotment releases during the upcoming year

 Allotment Release Program

 Control device to ensure that releases conform to the national budget

 Cash Release Program

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

 Allotment
 An authorization issued by the DBM to gov’t agencies to incur obligations for
specified amounts contained in a legislative appropriation in the form of
budget release documents.
 Also referred to as Obligation Authority

 Obligation
 An act of a duty authorized official which binds the gov’t to the immediate or
eventual payment of a sum money

X. Incurrence of Obligations
- Gov’t agencies incur obligations which will be paid by the gov’t, for example: entering into
contracts, hiring of personnel, purchase of supplies, etc.

XI. Disbursement Authority

- Issued to the gov’t agencies
- The point where gov’t agencies obtain access to the gov’t funds

Documents used in realizing authority to Government Agencies

1. Notice of Cash Allocations
- Issued by DBM to central/region/provincial offices and operating units to cover their cash
requirements
- Specifies the maximum amount of cash that can be withdrawn from a government servicing
bank in a certain period

2. Notice of Transfer of Allocation

- 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

- Issued by 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

- Issued by the DBM to agencies with foreign operation (DFA) allowing them to use income
collected by their Foreign Service Posts to cover their operating requirements

Appropriation
- Authorization by a legislative body to allocate funds for specified purposes
Allotment
- Authorization to agencies to incur obligation/obligation authority
Obligation
- Amount contracted by an authorized officer for which the gov’t is held liable

Disbursement
- Actual amount paid out of the budgeted amount

Budget Accountability
- This phase occurs concurrently with the Budget Execution phase
- As the budget is being executed, it is regularly monitored to determine the conformance of
actual results with planned targets

XII. Budget Accountability Report

1. Monthly Report of Disbursements
- Shows the disbursements of the entity during the month

2. Quarterly Physical Report of Operation

- Agency’s physical accomplishments in a given quarter vis-a-vis its physical targets

3. Statement of Appropriation, 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

4. 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 rules

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

- This report is prepared by agencies that have authority to use their revenue. It shows the
budgeted revenue, the utilizations and disbursements thereof, and the utilized amount

6. Quarterly Report of Revenue and Other Receipts

- Shows the actual revenues and other receipts remitted to the BTr and deposited in
authorized gov’t depository banks in a given quarter

XIII. Performance Review

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

XIV. Audit
- COA audits the agencies