MODULE 2 – OVERVIEW OF GOVERNMENT BUDGETING

BUDGETING
BASIC PURPOSE OF BUDGETING
1. planning
2. controlling
- basis of orderly management of public finances
-
Linkages between government budgeting and state accounting
A close linkage exists between government budgeting and state accounting:
Accounting system – provides essential information needed to make resources allocation
decisions, monitor budgetary performance, and asses the effectiveness of operatives.
Budget – provides the framework within which transactions should be recorded, classified
and summarized in the accounting system to permit comparison of actual results with budgeted
standards.

Advantages of Budgeting:
1. Action is based on study

- due to the fact that executives and operating heads make the plans which they are
bound to execute when approved, careful study will become a habit before any action
is taken.

2. Cooperation is secured in the entire organization

- operating heads and all those who have something to do with operations are supposed
to assist in the formulation of the best operating plans for the organization. As such,
the result of their work represents the judgement of the entire organization.

3. Policies are established

- policies are declared in the budget in that emphasis is given on the essentiality of
projects to be undertaken. A system of priorities is often established especially where
there are limited resources.

4. Programs or activities are related to expected or available resources and economic

conditions.

- the economy of the nation as a whole is considered in budgeting of public

expenditures. Government spending may be contracted or expanded depending on the
needs of the economy.

5. Balanced programs are developed

- the priority and essentially of projects are studied to the end in view of determining
how should be spend and what is to be expected in the prosecution of chosen projects
or actions.

6. Coordinated effort is attained

- in budgeting, coordination of all departments or division is necessary for without it

concerted action cannot be attained.
 7. Operations are controlled

- control of expenditures and operations is provided in systematic budgeting

8. Weakness in the organization are revealed

- in the execution of plans, responsibilities are delegated. One will not accept
responsibility unless authority is delineated. Where plans are developed and
responsibilities for the accomplishment are delegated, weakness, if any, in the
organization will be revealed.

9. Waste is prevented

- because budgeting analyses the reasons for proposed expenditures in advance, waste is
prevented.

BUDGET AS A FRAMEWORK OF THE ACCOUNTS

BUDGET – is an estimate of proposed expenditures for specified purpose and period,
and embodies the means of financing them during the same period.
- It provides the means for controlling the estimate accounts to be raised as well as the
proposed amounts to be spent for specified objects.

- The financial plan of the government.

- It has been regarded as a system of policy-making decisions for the allocation of

scarce financial resources among competing needs, a system by which policies are
implemented and for which execution controls, both administrative and legislative,
are established.

- It is a program that guides all activities relating to collections and expenditures. It is

the framework of the accounts by which the transactions affecting such collections and
expenditures shall be recorded.

- Thus, the proper classification of income and expenditures should be reflected in the
accounts so that the recorded data may give adequate support to future budget estimates.

NATIONAL BUDGET SYSTEM

- Consists of the methods and practices of the government for planning, programming
and budgeting.
- It shall include the adoption of sound economic and fiscal policies and the political,
economic and social objectives
- Its primary concern is the availability and use of money to provide the services
required or expected from the government.

LEGAL BASIS OF THE BUDGET SYSTEM

The legal basis of the current national budget system is the Budget Reform Decree or
PD no. 1177. The first premise of the BR Decree is that the national budget is an instrument for
development, execution and accountability.
PRINCIPAL OBJECTIVES OF THE CURRENT BUDGET SYSTEM
1. to carry on all government activities under a comprehensive fiscal plan developed,
authorized and executed in accordance with the constitution, prevailing statutes and
principles of sound public management.
2. to provide for a periodic review and disclosure of the budgetary status of the government
in such detail that officials entrusted by law with the responsibility of managing the fiscal
affairs of the government can determine the adequacy of the financial position of the
government.

OVERVIEW OF THE BUDGET PROCESS

What is a national budget?
A national budget is the government’s estimate of its income and expenditure for a given
period. It is based on what the government plans to spend in its programs and projects in relation
to the income it projected to have to be sourced from internal revenues, local and foreign
borrowings and other sources such as shares from the income of government owned and
controlled corporations.
The National Budget
Government – accounting is primarily budgetary accounting. Government accounting 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.
The national budget (government budget) is the 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 it socio-economic objectives.

NATIONAL BUDGET, defined

A statement of the estimated receipts based on existing and proposed revenue measures and
of expenditures which serves as the basis of the general appropriation bill.

Why does government borrow from foreign sources?

Government revenues are not enough to provide for the operation of the government.
Government has to borrow for it to deliver basic services our people and the industries require.
However, relying only on local borrowings to augment the requirement of the government will
have a negative effect on the economy.
If the government takes too large a share of domestic resources, local private demand will
have less for their own projects and activities. As a result, credit will be tight, interest charges
will be high, and prices of goods and services will go up.

FORMS AND CONTENTS OF THE NATIONAL BUDGET

- The budget proposal to the President shall include current operating expenditures and
capital outlays.
- it shall comprise such funds as maybe necessary for the operation of the programs,
projects and activities of the various departments and agencies.
- The proposed General Appropriation Act and other Appropriation Acts necessary to
cover the budget proposals shall be submitted to Congress to accompany the
President’s budget submission.
 - The budget shall be presented to Congress in such form and content as may be
approved by the President.

SYSTEMS IN THE GOVERNMENT

BUDGETING – is performed on a basis consistent with revenue and appropriation systems.
1. Revenue system – provides fundamentally for the collection and custody of government
funds. It consists fundamentally of the collection by designated agencies of taxes and
other revenues determined in accordance with law and placing of collections in the
Treasury until such time that the congress / senate authorized their use.

2. Appropriation system – provides for the control and ultimate disbursement of funds
collected. It consists of:

2.1 An authorization by the Congress to use government revenues for designated

purposes.

2.2 The release of accounts by the Department of Budget and Management to the
agencies which will carry out the actual work.

2.3 The incurrence by the agencies pursuant to their allotments of financial obligations
during the course of their work program.

2.4 The payment by the Treasury from revenues in its custody of warrants drawn on the
treasury to pay legitimately incurred financial obligations.

The Budget Process

The formulation and eventual utilization of the national budget are summarized in the
budget cycle.
The Budget Cycle
The budget cycle has four phases, namely:
1. Budget Preparation
2. Budget Legislation
3. Budget Execution
4. Budget Accountability
PHASES / STAGES OF BUDGETARY PROCEDURES
1. Preparation and Presentation – this phase covers the estimation, determination and
translation of government revenues, priorities and activities. Under this phase,
government agencies prepare their budgets to be submitted to the Department of Budget
and Management for review. The DBM them consolidates all budgets to form a
government wide budget estimate. This shall be submitted to the President for final
approval.

2. Budget Authorization – this phase involves the submission of the national government
budget to the legislative body for review, and the formulation of an appropriation bill to
be forwarded to the President for approval.

3. Budget Execution or Operation – this phase covers the implementation of the various
operational aspects of the budget, such as the release of allotment to the various agencies,
the continuing review of government fiscal position, and other related activities.

DBM – is primarily responsible for monitoring budget execution

 Main Objectives of a System of Budget Execution:

1. preserving legislative unit

2. observing financial limitations
3. maintaining flexibility in governmental operations

This process serves management as the medium through which plans for
operation can be developed and the feasibility and soundness of specific proposals tested
against approved programs and policies, desirable targets and goals and available
resources and funds.
DBM executes GAA
Once signed into law, the GAA mandates the DBM to execute or implement the
expenditure program.

Formulation ABM ABM

allotment and Cash Preparation Validation
Release Program Confirmation

Program/Project GARO / SARO /

Activity NGA Releases
Implementation

4. Budget Accountability – this phase involves the comparison and evaluation of expenditures
and performance against the predetermined budget.

Obligations incurred, personnel used and work accomplished are compared with the plans
and goals of various agencies submitted at the time their respective budget was prepared.
This is accomplished by the heads of the various agencies who review the performance of
their respective agency and the Commission of Adult who examine accounts and operation of
the agencies.
 The Budget Cycle

Authorization

Preparation Execution

Accountability

YEARLY CALENDAR OF MAJOR ACTIVITIES

JAN FEB MAR APIL MAY JUN JUL AUG SEPT OCT NOV DEC

Budget Preparation
Budget
Authorization
Budget Execution
Budget
Accountability

THE BUDGET PROCESS

How is the national budget prepared?
Budget preparation starts with the determination of budgetary priorities and activities guided
by our national development plan, within the constraints of financing limits.

THE DBCC
The DBCC is the highest policy making body if the government when it comes to setting of
priorities that has major impact on the nation’s economy.
 Development Budget
Coordination Committee

DBM DOF NEDA BSP OP

resource resource overall monetary Presidential
allocation generation economic measures oversight
and and debt policy and policies
management management

Major Function of the DBCC

Establish level of government expenditure program
Establish ceiling of government spending
Determine proper allocation of expenditures
Allocate amount set for each development actively
Asses reliability of revenue estimates
Recommend appropriate tax or other revenue
measures and extent and type of borrowings and,
Conduct periodic review and general examination
costs, accomplishments and performance standards.

The Development Budget Coordination Committee (DBCC) determines the overall

expenditure levels, the revenue projection, the deficit levels and the financing plan. These will be
submitted by the DBCC to the cabinet and the President for approval.
The Budget Call
After the expenditure levels, revenue projection, the deficit level and financing plan have
been approved by the President and the cabinet, the Department of Budget and Management
(DBM) issues a Budget Call.
What is a Budget Call?
It is a document issued by the DBM to all government agencies in the form of National
Budget Circular prescribing the policy, guidelines and procedures in the preparation of budget
for a given year.
Contents of Budget Call
• The Budget Framework
• Macroeconomic and Fiscal Targets
• Guide to Agency Budget Formulation and Resource Allocation
• Budget Ceiling of each Agency
• Submission Requirement and Timetable

AGENCY prepares own budget

Upon the receipt of the Budget Call, each agency is expected to start the preparation of its
budget, fitting in their department plans and priorities for the specific year with the budget
ceiling and parameters given the department.
Consultation with DBM
The DBM then holds consultation with agencies on allocation of the sector and sub-sector
expenditure ceilings set by the DBCC.
DBM Review
The DBM then undertakes a series of review activities to evaluate the merits of the budget
proposals and determine areas where possible cuts could be made.
The Proposed National Budget
The result is an overall national budget that is presented to the cabinet for deliberation and
approval of the President.

In depth discussion:
Budget Preparation
The budget preparation in the Philippines uses “bottom-up” approach. Under “bottom-up”
budgeting, several parties participate in the budget preparation, starting from the lowest to the
highest levels of the government. Government agencies are also tasked to increase the
participation of citizen-stakeholders in the budget preparation. The opposite of “bottom-up”
budgeting is “top-down” budgeting – wherein the budget preparation starts from the agency
heads.
In 2011, the Philippine Government attempted to a start a new tradition by shifting from
the old “incremental” system of budgeting to the “zero-based budgeting” approach

Incremental budgeting vs. Zero-based budgeting

➢ The current year’s budget is formulated ➢ The current year’s budget is formulated
based on the previous year’s budget, which without regard to the year’s budget.
is just adjusted for any variances Government agencies are required to justify
experienced in the past. Presumably, the their current year’s proposed programs and
proposed programs and expenditures in the expenditures, irrespective of whether these
previous year are automatically approved are new or carried over from the previous
in the current year. year.
➢ Uses a “roll-over” approach. ➢ Uses a “back-to-zero” or “clean-slate”
➢ Prone to abuse. approach.
➢ Promotes efficient and effective utilization
of 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, among other things, the next fiscal year’s targets, the agency’s budget ceiling,
and other guidelines in the completion and submission of agency budget proposals.

Relevant terms:
• Balanced budget – prepared in such a way that estimated revenues exceed estimated
expenditures. If actual revenues exceed actual expenditures, the government earns a
surplus. If expenditures exceed revenues, the government incurs a 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 appropriations 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.
• 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.

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 the budget proposals, makes recommendations, and consolidates the
deliberated proposals into the National Expenditure Program (NEP) and Budget of
Expenditures and Sources of Financing (BESF). The DBM then 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 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.”
The “President’s Budget” contains the following documents which are intended
to assist the Congress in their review and deliberation of the proposed national budget:

a. President’s Budget Message – this contains the President’s explanation of the

country’s fiscal policy and budget priorities.
b. National Expenditure Program (NEP) – this contains the details of all the government
entities’ proposed expenditures in the coming year.
c. Budget of Expenditures and Sources of Financing (BESF) – this contains the
estimated expenditures accompanied by estimates of expected sources of financing.
d. Other documents aimed to provide further explanation of selected items in the NEP
(e.g., details of key programs and projects and staffing summary).

Relevant provision of law:

➢ The President shall submit the proposed budget to the Congress within 30 days from
the opening of every regular session. Art. VΙΙ. Sec. 22, Philippine Constitution)
Illustration: Excerpts from President’s Budget Message
Excerpt 1:
Fiscal Year 2017

Message of
President Rodrigo Roa Duterte
to the Seventeenth Congress of the Philippines
on the National Budget for Fiscal Year 2017

August 15, 2016

Ladies and Gentlemen of the

17th Congress of the Philippines:

I have the honor to submit to you, through the President of the Senate and the Speaker of the
House of Representatives, the Proposed National Budget for Fiscal Year (FY) 2017.

Excerpt 2:

Fiscal Year 2017

BUDGET PHILOSOPHY

Ladies and gentlemen, my commitment to implement real change lies at the core of the P3.35
trillion proposed Budget for FY 2017.

This is my Administration’s first Budget. It is a Budget that gives flesh and bone to the promise
by which I won as President: to fight for social justice. It was designed to realize change in the
here and now.

This Budget is for the people and by the people.

In the last one and a half months since we assumed office, we designed this Budget around the
following principles:
Budget Legislation
Government funds shall only be spent in pursuance of an appropriation made by law. Therefore,
due process must be undertaken to legalize the proposed budget.

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, the House of Representatives prepares the General Appropriations
Bill (GAB).

5. Senate Deliberations – The Senate conducts its own deliberations on the GAB. These
normally start after the Senate receives the GAB from the House of Representatives.
However, 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 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, ratification, the final GAB is submitted to the President for enactment.

7. President’s enactment – The President enact the budget, which is now known as the General
Appropriations Act (GAA). Before enactment though, the President may exercise his veto
power as conferred to him under the Philippine Constitution.

Relevant provision of law:

➢ When the proposed budget is not enacted before the fiscal year starts, the last year’s GAA is
automatically re-enacted. The last year’s GAA shall be used in the current year until a new
general appropriations bill is passed by the Congress.
(Art. VΙ, Sec. 25(7), Phillippine Constitution)

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 Recipes 08

“The Unified Accounts Code Structure (UACS) refers to the standard coding system used in
financial reporting of the National Government.

➢ Appropriation – is authorization made by a legislative body to allocate funds for purposes

specified by the legislative or similar authority.

1. New General Appropriations – are annual authorizations for incurring obligations during a
specified budget year, as listed in the GAA.

2. Continuing Appropriations – 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 – are additional 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 – are the authorizations programmed annually or for some other
period prescribed by law which do not require periodic action by Congress.
5. Unprogrammed Funds – are 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 used to be directly by

agencies concerned for their operation or specific purposes.

7. Revolving Funds – 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 Recipes – receipts by any government agency acting as trustee, agent or administrator
for the fulfilment of some obligations or conditions.

Relevant provisions of law:

➢ A special appropriations 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 be raised
by a corresponding revenue proposal therein.
➢ No law shall be passed authorizing any transfer of appropriations; however, the President,
the President of the Senate, the Speaker of the House of Representatives, the Chief of Justice
of the Supreme Court, and the heads of Constitutional Commissions may, by law, be
authorized to augment any item in the general appropriations law for their respective offices
from savings in other items for their respective appropriations.

Budget Execution
This is the phase where government funds are spent.
8. Release guidelines and BEDs – The DBM issues guidelines on the release and utilization of
funds while the various agencies submit their Budget Execution Documents (BEDs). A BED
summarizes and 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, and
d. List of obligations that are not yet due and demandable.
The following are the major receipts of the budget:
1. National Government Agencies (NGAs) – include all agencies within the executive,
legislative and judicial branches of government, e.g., commissions, departments, Land
Bank of the Philippines, Social Security Systems, etc.
2. Local Government Units (LGUs) – include (a) autonomous regions, (b) provinces and
cities independent from a province, (c) component cities (cities which are part of a
province) and municipalities, and (d) barangays.
3. Government Owned and Controlled Corporations (GOCCs) – corporations that are
owned or controlled, directly or indirectly, by the government and vested with functions
relating to public needs.
 members of the Congress (Senators and Congressmen) and the Judiciary Branch are also recipients of a
portion of the budget.
1. The portion received by members of the Congress is referred to as the Priority Development
Assistance Fund (PDAF) a.k.a. “Pork Barrel.” This is intended to fund priority development
programs of the government.
2. The portion received by members of the Judiciary is referred to as the Judiciary Development Fund
(JDF). At least 80% of the fund is intended for the cost of living allowances of the members and
personnel of the Judiciary, the remainder, not exceeding 20%, is for the acquisitions and maintenance
of office equipment and facilitates. (PD NO. 1949)

In 2014, the Aquino Administration introduced the Disbursement Acceleration Program (DAP)
which aims to speed-up public spending. The DAP is not a fund but a mechanism of releasing funds,
particularly from savings and unprogrammed funds.
➢ Savings are available portions or balances of items under the General Appropriations Act (GAA)
which result from: a) the completion or final discontinuance or abandonment of a program, activity, or
project: b) unpaid compensation for vacant or unfilled positions and leaves of absence without pay: or
c) the implementation of efficiency measures that enable agencies to deliver services at lower cost.
Such savings may then be used to augment funds for programs, activities, or projects which are include
in the GAA (i.e. non-existent budget items cannot be funded)>
➢ Unprogrammed funds (see previous definition).

Both the PDAF and the DAP received various criticisms from the public in 2013 and 2014,

following the Janet Lim-Napoles alleged pork scam. The PDAF and DAF was later on thought to have
been abolished by the Supreme Court. However, “The 2015 budget is still filled with pork barrel funds
despite the Supreme Court decision declaring the Disbursement Acceleration Program (DAP) and the
Priority Development Assistance Fund (PDAF) as unconstitutional,

according to a budget watchdog.”

9. Allotment – The DBM formulates the Allotment Release Program (ARP) to set the limit for
allotment releases during the upcoming year. This is used as a control device to ensure that
releases conform to the national budget. Alongside, is a Cash Release Program (CRP), which
sets the disbursement limits for the year, for each quarter and for each month.

➢ Allotment – is an authorization issued by the DBM to government agencies to incur

obligations for specified amounts contained in a legislative appropriation in the form of
budget release documents. It is also referred to as Obligational Authority.
It is illegal for a government entity to incur obligations without having first
received the “Allotment.” Moreover, the type and amount of obligations to be incurred
must conform to those that are specified in the “Allotment.”
➢ Obligation – is an act of a duly authorized official which binds the government to the
immediate or eventual payment of a sum of money. Obligation maybe referred to as a
commitment that encompasses possible future liabilities based on current contractual
agreement.

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 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. Releases of allotments for
Special Purpose Funds (e.g., Calamity Fund, Contingent Fund, E-Government Fund,
Feasibility Studies Fund, International Committee Fund, Miscellaneous Personnel
Benefits Fund and Pension and Gratuity Fund) are also covered by SAROs.

3. General Allotment Release Order (GARO) – is a comprehensive authority issued to all

national government agencies, in general, 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 component authority, i.e. Retirement and Life
Insurance Premium.

10. Incurrence of Obligations – 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 – the 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 (e.g., Department of Foreign Affairs ‘DFA’) allowing them to use the income
collected by their Foreign Service Posts to cover their operating requirements.

Disbursements are most by commonly made through checks that are chargeable
against the account of the Treasurer of the Philippines (i.e., Treasury Single Account).
Checks issued under this scheme are called “Modified Disbursement System (MDS)
Checks.”
Other modes of disbursements include payments through cash, commercial check,
bank transfer/bank debit, or credit card. We will elaborate on these later in Chapter 5.
 Remember the following:
1. Appropriation - authorization by a legislative body to allocate funds for specified
purposes.
2. Allotment - authorization to agencies to incur obligations (i.e., obligational
authority).
3. Obligation - amount contracted by an authorized officer for which the government
is held liable.
4. 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.

12. Budget Accountability Reports – government agencies are required to submit the following
accountability reports:

a. Monthly Report of Disbursement – shows the disbursements of the entity during the
month, classified according to the type of disbursement authority. This is report is
submitted to the COA and DBM within 30 days after the end of month.

b. Quarterly Physical Report of Operation – shows the agency’s physical accomplishments

in a given quarter vis-à-vis its physical targets.
c. 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.

d. Summary of Appropriations, Allotments, Obligations, Disbursements and Balances by

Object of Expenditures – similar to ‘c’ above but provides details of expenditures (e.g.,
salaries and wages, traveling expenses, etc.).

e. 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.

f. 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.

g. Summary of Approved Budget, Utilization, Disbursements and Balances by Object of

Expenditures – similar to ‘f’ above but provides details of expenditures.

h. 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.

❖ Reports ‘b’ to ‘h’ above are prepared in a quarterly basis and are submitted to the COA and
DBM within 30 days after the end of each quarter.

i. Aging of Due and Demandable Obligations – shows the names of creditors, the amounts
owed to them, and the numbers of days these obligations are outstanding. This report is
submitted to the COA and DBM within 30 days after the end of the year.
❖ A Consolidated Statement of Allotments, Obligations, and Balances per Summary of
Appropriations (based on reports ‘c’ and ‘d’ above) shall be submitted on or before February
14 of the following year.

13. Performance reviews – The DBM and COA perform periodic reviews of the agencies’
performance and budget accountability and report to the President.

14. Audit – the COA audits the agencies.

❖ The budget reports, together with other budget records, provide information in preparing the
Statement of Comparison of Budget and Actual Amounts, which is one of the components
of a complete set of financial statements of a government entity. We will discuss this
statement later.
 Notice that appropriation, allotments and disbursement authorities are systems of
budgetary controls. Instead of releasing the allocated funds of ₱100 to you all at once, it is
released on a piecemeal basis, based on your estimated of the timing of need (Budget
Execution Documents ‘BEDs’). This is to prevent the incurrence of overdraft (i.e., obligations
exceeding the appropriated funds).

Responsibility Accounting
To better evaluate the budget accountability of an entity, government accounting adheres to the
concept of responsibility accounting.
Responsibility accounting is a system of providing cost and revenue information over
which a manager has direct control of. This enables the evaluation of a manager’s performance
based only on matters that are directly under his control. Therefore, budget deviations can be
readily attributed to the managers accountable therefor.
Responsibility accounting requires the identification of responsibility centers and the
distinction between controllable and non-controllable costs.
➢ Responsibility center – is a part, segment, unit or function of a government agency, headed
by a manager, who is accountable for a specified set of activities.
➢ Controllable costs – a cost is considered controllable at a given level of managerial
responsibility if the manager has the power to incur it within a given period of time.
➢ Non-controllable costs – are costs incurred indirectly and allocated to a responsibility level.

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.
Each of the managers of an agency that is a cost center is evaluated based on his ability to
meet budgeted goals for controllable costs. All costs are controllable by top management because
of the high extent of its authority. Fewer costs are controllable in lower management levels
because of the decreased scope of authority.
Each government agency is assigned a responsibility center code as follows:

Responsibility Center Code Structure Example: Commission on Audit

00 000 0000000 000 00 000 0000000 000

Organizations 0 0
Commission on Audit
Department Agency (none)
Agency
Central Office
Lower Level
Operating Unit

Additional code for major office/department Additional code for major office/department
Major Office/
Department National Government
Sector
Chapter 2 Summary: