Chapter 2-The Budget Process

Government Accounting and

Accounting for Non-Profit Organizations
By: Zeus Vernon B. Millan

National 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 its socio-economic objectives.

The Budget Cycle

• Budget Preparation

• Budget Legislation

• Budget Execution

• Budget Accountability

The Budget Cycle-Budget Preparation

Bottom - Up Approach

 Several parties participate in the budget preparation, starting from the lowest to the
highest levels of the government.

Top – Down Budgeting

 The opposite of bottom-up approach, wherein Budget preparation starts from the
agency heads

In 2011, the Philippine Government attempted to start a new tradition by shifting from the old
“incremental” system of budgeting to the “Zero Based Budgeting approach.
The Budget preparation starts when the DBM issues a budget Call to all Govt. Agencies

Budget Call- Contains the next fiscal year’s targets, the agency’s budget ceiling & other guidelines in the
completion & submission of budget proposal

• National Budget Call -All agencies including state universities and colleges
• Corporate Budget Call - All GOCCs

Budget Hearing- Are conducted after the agencies submit their budget proposal. The DBM deliberates
the budget proposal, make recommendations and consolidates the deliberated proposal into
the National Expenditure Program (NEP) and a Budget of Expenditures and Sources of Financing (BESF)

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 submit 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:

1. President’s Budget Message -President’s explanation of policy framework and budget

priorities

2. Budget of Expenditures and Sources of Financing (BESF)- this contains the estimated
expenditures accompanied by estimates of expected sources of financing

3. National Expenditure Program (NEP)-this contains the details of all government entities’
proposed expenditures in the coming year.
The Budget Cycle-Budget Legislation

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

Consists of:

❑ New General Appropriations

❑ Continuing Appropriations
❑ Supplemental Appropriations
❑ Automatic Appropriations
❑ Unprogrammed Funds
❑ Retained Income/Funds
❑ Revolving Funds
❑ Trust Receipts

Appropriation- is the authorization made by a legislative body to allocate funds for purposes specified
by the legislative or similar authority.

New General Appropriations - Annual authorizations for incurring obligations, as listed in the GAA.
Continuing Appropriations- authorizations to support the incurrence of obligations beyond the budget
year (e.g., multi-year construction projects).

Supplemental Appropriations - Additional appropriations to augment the original appropriations which

proved to be insufficient.

Automatic Appropriations - Authorizations programmed annually which do not require periodic action
by Congress.

Unprogrammed Funds - Standby appropriations which may be availed only upon the occurrence of
certain instances.

Retained Income/Funds - Collections which the agencies can use directly in their operations.

Revolving Funds - Receipts from business-type activities of agencies which are authorized to be
constituted as such. These are self-liquidating and all obligations and expenditures incurred by virtue of
said business-type activity shall be charged against the fund.

Trust Receipts - Receipts by a government agency acting as trustee, agent or administrator for the
fulfillment of some obligation.

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 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 of their respective appropriations.

The Budget Cycle-Budget Execution

Release Guidelines and BEDs- The DBM Issues guidelines on the release and utilization of funds while
the various agency submit their Budget execution Documents (BEDs).

Budget Execution Documents (BEDs)

❑ outlines agency’s plans and performance targets, including physical and financial plans, monthly
cash programs, estimate of monthly income, and list of obligations that are not yet due and
demandable

Allotment Release Program (ARP), formulated by the DBM 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

Cash Release Program (CRP), set guide for disbursement limit 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.

Obligation

❑ An act of a duly authorized official which binds the government to the immediate or eventual
payment of a sum of money;
❑ 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 obligation 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 in the entity’s submitted BEDs, subject to
compliance of required documents/clearances;
❑ Releases of allotments for Special Purpose Funds are covered by SAROs

3. General Allotment Release Order (GARO)

❑ Comprehensive authority issued to all national government agencies, covering automatically
appropriated expenditures common to most if not all, agencies without need of special
clearance or approval from competent authority
❑ For RLIP (Retirement and Life Insurance Premiums)

Incurrence of Obligation

❑ Government agencies in obligations which will be paid by the government;

❑ Obligations shall be incurred through issuance of Obligation Request and Status ORS, prepared
by the requesting office supported with valid claim documents and certified by the Head of the
Agency as to necessity and legality of obligation, validity of supporting documents and
availability of allotment

Disbursement Authority

DBM issues Disbursement Authority to authorize an agency to pay the obligations. This is the point
where government agencies obtain access to the govt. fund.

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;

❑ 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- 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 (NCAA)- 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 (CDC)- 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

5. Tax Remittance Advice (TRA)

The TRA is used to recognize:

1. (1) in the books of national government agencies, the constructive remittance to BIR
and BOC of taxes and customs’ duties withheld, and the constructive receipt of NCA for
those taxes and customs duties;
2. (2) in the books of the BIR and BOC, the constructive receipt of tax revenue and customs
duties; and
3. (3) in the books of the BTr, the constructive receipt of the taxes and customs duties
remitted.
Terms to remember:

❑ Allotment- is an authorization issued by a legislative body to allocate funds for specified

purpose

❑ Appropriation - is an authorization to agencies to incur obligations

❑ Obligation - Amount contracted by an authorized officer for which the government is held liable

❑ Disbursement- Actual amount paid out of the budgeted amount

The Budget Cycle-Budget Execution

Budget Accountability Reports (BARs)

❑ Required reports showing how agencies used their funds and identifying the corresponding
physical accomplishments;
❑ Submitted on a monthly and quarterly basis
❑ Includes quarterly physical and financial reports of operations, quarterly income reports,
monthly statement of allotments, obligations and balances, monthly report of disbursements
The following are required to be submitted by government agencies:

❑ Monthly Report of Disbursements- Shows the disbursements of the entity during the month,
classified according to the type of disbursement authority

❑ Quarterly Physical Report of Operation- Shows the agency’s physical accomplishments in a given
quarter vis-a-vis its physical target.

❑ Statement of Appropriations, Allotments, Obligations, Disbursements and Balances- Shows the

agency’s authorized appropriations, allotments received, obligation incurred, disbursements
made and the balances of unreleased appropriations, unobligated allotments and unpaid
obligations.

❑ Summary of Appropriations, Allotments, Obligations, Disbursements and Balance by Object of

Expenditures - Similar to Statement of Appropriations, Allotments, Obligations, Disbursements
and Balances but provides details of expenditures (salaries and wages, travelling expense, etch.)

❑ 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 of Regional Office to lower
operating units.

❑ Statement of Approved Budget, Utilizations, Disbursements and Balances - Shows the budgeted
revenue, the utilizations and disbursements thereof, and the unutilized amount.

❑ 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 expenditures

❑ 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.
Responsibility Accounting
❑ a system of providing cost and revenue information over which a manager has direct control of.

❑ It requires the identification of responsibility centers and the distinction between controllable
and non-controllable costs.

Responsibility centers – part, segment, unit or function of a government agency, headed by a manager,
who is accountable for a specified set of activities

Controllable costs – manager has the power to incur within a given period of time

Non-controllable costs – costs incurred indirectly and allocated to a responsibility level.