ce Chapter 2 The Budget Process Learning Objectives 1. Enumerate the Steps in the budget process. 2._Describe briefly the principles of responsibility accounting. 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 its socio-economic objectives. 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The Budget Process 25 Budget Preparation The budget preparation in the Philippines uses a “bottom-up’ approach. Under “bottom-up” budgeting, several _ parties participate in the budget preparation, starting from the lowest fo 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. (The Philippine Public Transparency Reporting Project, January 11, 2011) Incremental budgeting vs. __ Zero-based budgeting > The current year’s budget is formulated based on the previous year’s budget, which is just adjusted for any variances experienced in the past. Presumably, the and expenditures. in the previous year — are automatically approved in the current year. > Uses a “roll-over” approach. » Prone to abuse. proposed programs > The current year’s budget is formulated without regard to the previous year’s budget. Government 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. > Uses a “back-to-zero” or “clean slate” 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26 * Chapter 2 Apter 2. 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 estimateg revenues exceed estimated expenditures. If actual Tevenues 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. 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. 1The Budget Process . Od 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 referréd 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. VII, Sec. 22, Philippine Constitution)28 Illustration: Excerpts from President’s Budget Message Excerpt 1: Chapter 2 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 17% Congress of the Philippines: | 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) 207: 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 | 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: LAAN LAAN PLANS v RADA “Fiscal Year 2017The Budget Process 29 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 enacts 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 the last year’s GAA is automatically reenacted. The last year’s GAA shall be used in the current year until a new general appropriations bill is passed by the Congress. (Art. VI, Sec. 25(7), Philippine Constitution) year starts,Chapter, i Fs a | The Approved Budget Approved Budget - is the expenwiitui appropriation laws, government ordinances, related to the anticipated revenue or recelp 2 period. The approved budget consists of the following: re authority derived fro, | and other decisions ts for the budgetary UACS Code New General Appropriations o1 Continuing Appropriations 02 Supplemental Appropriations 03 Automatic Appropriations 4 Unprogrammed Funds 05 Retained Income/Funds 6 Revolving Funds 07 Trust Receipts 08 *The Unified Accounts Code Structure (ACS) refers to the standard coding system used in financial reporting of the National Government. > Appropriation — is the authorization made by a legislative body to allocate funds for purposes spécified 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 @ Certification of Availability of Funds from the BTr.tae ‘The Budget Process 31 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. (soiurce: http://www dbm gov. ph/?page_id-7366) 6. Retained Income/Funds - collections which are authorized by law to be used directly by agencies concerned for their operation or specific purposes. (http:/www.dbm gov. ph/wp-content/uploads/BESF/BESF2016/GLOSSARY pdf) 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. (hitpy/www.dbm.gov.ph/wp-content/uploads/BESF/BESF2016/GLOSSARY pdf) 8. Trust Receipts - receipts by any government agency acting as trustee, agent or administrator for the fulfilment of some obligations or conditions. (Adapted from the definition of “Trust Fund” in http://www.dbm.gov.ph/wp- content/uploads/BESF/BESF2016/GLOSSARY. pdf)32 Chapter 2 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. (Art. VI. Sec. 25(4), Philippine Constitution) 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.” (Art. VI, Sec. 25(5), Philippine Constitution) 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 an 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 recipients 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 System, etc._ The Budget Process 33 2. Local Government Units (LGUs) — include (a) autonomous regions, (b) provinces and cities independent from a province, (c) component cities (cities which are part ofa 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. The 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 acquisition and maintenance of office equipment and facilities. (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 ¢) 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 included in the GAA (i.e. nonexistent 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 DAP 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.” (Source: The Philippine Star. December 21, 2014)34 Chapter 2 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 a a _ |_ . 35 The Budget Process Fund, International Commitments Fund, Miscellaneous Personnel Benefits Fund and Pension and Gratuity Fund) are also covered by SAROs. . 3. General Allotment Release Order (GARO) = # 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. 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.36 ‘Chapter 2 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 ithe 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 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. CD) Remember the following: | 1, Appropriation |- authorization by a legislative body to allocate funds for specified purposes. 2. Allotment - authorization to agencies to incur obligations (ie, —_—_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,The Budget Process 37 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 Disbursements — shows the disbursements of the entity during the month, classified according to the type of disbursement authority. This report is submitted to the COA and DBM within 30 days after the end of each month. b. Quarterly Physical Report of Operation - shows the agency's physical accomplishments in a given quarter vis-a-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.| 38 Chapter2 | | £, Statement of Approved Budget, Utilizations, Disbursements and Balances — this report is prepared by agencies that have authority to .use their revenue. It shows the budgeteq | revenue, the utilizations and disbursements thereof, and the unutilized amount. | 8. Summary of Approved Budget, Utilizations, 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 ina given quarter. * Reports ‘b’ to ‘h’ above aré prepared on 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 number 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 follawing 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 Process 39 ‘ 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. Story: The Budget Cycle |. Budget Preparation Papa and Mama are leaving for a 1-month trip so they asked you and your little sister to make an estimate of the money you will need while they are gone (Budget Call). You started your estimate by asking first Little Sister of her needs ( ‘bottom-up’ budgeting). Same time last year. Papa and Mama also went for a 1-month trip and they had you made a similar estimate. However, instead of giving them that old estimate, you decided to make a new one in order to better reflect current circumstances ( ‘zero-based’ budgeting). - You defended your estimate with Mama (Budget hearings). Mama, submitted the estimate to Papa for approval (Presentation to the Office of the President). 11. Budget Legislation Papa consulted Lolo (a retired Lawyer) to review: your estimate (House Deliberations). After reviewing the estimate, Lolo gave the estimate to Lola (a retired CPA) for further study (Senate Deliberations). Lolo and Lola had some disagreements, so they asked Umpong. your. dog, to harmonize the conflicts (Bicameral Deliberations). After harmonizing the conflicts, Umpong submitted the “Bicam” version of the estimate back to both Lolo and Lola for ratification. Lolo and Lola submitted the ratified estimate to Papa for enactment (President's enactment). Your approved budget for the month is ®100 (Appropriation). UII. Budget Execution Papa left the money to Uncle. Uncle gave you guidelines on how the money will be released to you, based on your estimates of the timing Of disbursements (Release guidelines and BEDs).40 Chapter Uncle told you that you can now incur obligations up to 4 maximum of ®80 (Allotment). You then went to Aling Masing’s Store to purchase groceries, good for 1 month, worth P50. on crealt (Incurrence of Obligations). Uncle gave you ®25 cash to cover your cash disbursement needs for the 1* week (Disbursement Authority - Notice of Cash Allocation). You gave Little Sister her share of ®5 (Notice of Transfer of Allocation). *% Your disbursements in the I week were as follows: - You: PS installment payment to Aling Masing and P12 on personal needs - Little Sister: P5 on personal needs Total disbursements in Ist week P22 IV. Budget Accountability Your budget accountability reports after the 1* week will show the following information (Budget Accountability Reports): = Appropriation: #700 -' Allotment received: #80 - Unreleased appropriation: (P100 - P80) = #20 - Obligations incurred: (P50 to Aling Masing + ®12 on your personal needs + ®5 on Little Sister's personal needs) = P67 - Unobligated allotment: (P80 allotment - 67) = #/3 - Disbursements: P22 - Unpaid Obligations: (67 obligations incurred - P22 disbursements) = P45 (payable to Aling Masing) = Unused NCA = (#25 NCA - 22 disbursements) = P Unde periodically updates Papa and Mama regarding your budget execution through call and text (Performance Review). Papa and Mama will audit you when they return (Audit). - The End — < 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 estimate of the timing of needs (Budget Execution Documents ‘BEDs’). This is to prevent the incurrence of overdraft (ie, obligations exceeding the appropriated funds). . -_The Budget Process 41 BUDGET PREPARATION 4, House Daldsettine S,wadpe’” arsine BOs Saceoruatenes, wo DESERT Ens § PY , 9 14, Ava a 4 e a f nt i 9 5 THE 4 a 6. Bicameral 0 € peter BUDGET roa ems z CYCLE Dy 5 2 0 9 Z d Y 12. Bud, . ae 7 Pissidents a 9 a 2 f Uther "' TgBtigatass % 9 Allotmene 6 S.Release S BUDGET EXECUTION Ei é42 Chapter 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-conirollable 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 fot controllable costs. All costs are controllable by top management because of the high extent of its authority. Fewer costs at controllable in lower management levels because of the decreased scope of authority. Each government agency is assigned a responsibility center code as follows:The Budget Process = 43 Responsibility Center Code Structure Example: Commission on Audit —— ——_| | Comino it ay ey (nm Ler over cm ce tn eae scot Aetna ade for mau step oe Na orem Chapter 2 Summary: * The Budget Cycle: (1) Budget Preparation, (2) Budget Legislation , (3) Budget Execution, (4) Budget Accountability © Under “bottom-up” budgeting, several parties participate in the budget preparation, starting from the lowest to the highest levels of the government. « Under “zero-based” budgeting, the current year's budget is formulated without regard to the previous year's budget. Government 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. «Appropriation — is the authorization made by a legislative body to allocate funds for purposes specified by the legislative or similar authority. 7 Allotment - is an authorization issued by the DBM to incur obligations for specified government agencies to tive appropriation in the form amounts contained in a legisla of budget release documents. It is also referred to as Obligational Authority. © Obligation — is an act of a duly authorized official which binds the government to the immediate or eventual payment of a sum of money. * Under responsibility accounting, a evaluated only in terms of the costs that he controls. manager's performance is44 Chapter PROBLEMS: PROBLEM 2-1: TRUE OR FALSE 1. The budget preparation in the Philippines uses a “bottom-up approach. Under this approach, the budget preparation starts from the highest levels of the government down to the lowest levels. An entity prepares its budget by simply rolling-over the budget in the previous year and adjusting each line item by 10% increment to reflect inflation. This process is described as zero-based budgeting. After the budget call from the DBM, the proposed budget of various agencies are submitted immediately to the Office of the President for review. An entity can incur obligations after receiving notice of its appropriation but before receiving the allotment. Budget deliberations in the Congress start in the House of Senate. A government entity must first receive an allotment before it can incur obligations. A government entity can make disbursements even before it receives a disbursement authority. Appropriation is also called obligational authority. The Notice of Cash Allocation (NCA) is an authority issued by the DBM to central, regional and provincial offices and operating units to cover their cash requirements.The Budget Process 45 10. Responsibility accounting greatly + enhances budget accountability because managers are evaluated only in terms of the costs or other variables that they control, and therefore, budget deviations can be readily attributed to the managers accountable therefor. PROBLEM 2-2: MULTIPLE CHOICE 1. Which of the following does not properly describe the budget process used in the Philippines? a, Bottom-up budgeting b. Top-down budgeting c. Zero-based budgeting d. Non-incremental budgeting 2. Arrange the following steps according to the sequence that they appear in the budget cycle. I. Allotment |. Bicameral deliberations I. Budget accountability reports IV. President's enactment of the GAA V. Budget hearings with the DBM a. V,IV,IL,.and I cH, V, 0, Land I b. V,IL IV, land II d. V, 1, IL IV and It 3. Arrange the following steps according to the sequence that they appear in the budget cycle. I Allotment I. Disbursement authority Ill. Disbursement IV... Appropriation V. Incurrence of obligation *oe 46 Chapter a. IV,L IL, Vand III c. IV, V, Hand Ill b: IV,1,V, Il and Il d.IV, V, 1 and IL 4. This type of budget is prepared in such a way that estimated revenues exceed estimated expenditures. a. Balanced budget c. Obligations budget b. Excess budget d. Budget meal 5. This summarizes an agency’s fiscal year plans and performance targets. It shows the agency’s physical and financial plan, monthly cash program, estimate of monthly income, and list of obligations that are not yet due and demandable. a. Budget Execution Documents (BEDs) b. Special Allotment Release Order c, Statement of Approved Budget, —_Utilizations, Disbursements and Balances d. Aging of Due and Demandable Obligations 6. It is an authorization issued by the DBM to NGAs to incur ‘obligations. It is also referred to as Obligational Authority. a. Appropriation c. Budget call b. Allotment d. Budget hearings 7. It refers to the amount contracted by a duly authorized administrative officer for which the government is held liable. a. Appropriation c. Obligation | b. Allotment d. Disbursement 8. Which of the following best describes the Notice of Cash Allocation (NCA)? a. It isa form of legislative authorization in the allocation of funds for specified purposes. b. It is a form of authorization to a govemment agency to incur obligations on behalf of the government, c. It is a form of authorization to a government agency to make disbursements out of government funds.The Budget Process 47 d. It is a notice received from the Congress that cash is allocated for the payment of planned expenditures. 9. Disbursements by government entities are most commonly made through a. MDS Checks c. Petty Cash Fund b. Cash d. Credit Card 10. Responsibility accounting requires all of the following except a. separate books of accounts to segregate controllable and non-controllable costs . identification of responsibility centers ¢. distinction between controllable and non-controllable costs d. coding structure for responsibility centers PROBLEM 2-3: MULTIPLE CHOICE Fact pattern: A legislation approves the allocation of ®100B funds to support the operations of Entity A (a government agency) in the current year. At the start of first quarter, Entity A receives authorization to incur obligations for a maximum amount of P45B in that quarter. Entity.A extends half of that authorization to its lower operating units, During the quarter, Entity A receives monthly authorization to disburse funds not to exceed ®15B per month. Entity A extends half of those monthly authorizations to its lower operating units. At the end of the quarter, total obligations incurred amounted to 40B while total disbursements amounted to ®35B. 1. The allocation of the ®100B funds to Entity A is referred to as a. Allotment c. Obligation b. Appropriation d, Sub-allotment 2. The allocation of the P100B funds to Entity A is authorized by a. Department of Budget and Management (DBM)Chapter b. Commission on Audit (COA) ¢. Bureau of Treasury (BTr) d. Congress The P45B authorization is referred to as a. Allotment c. Obligation b. Appropriation d. Sub-allotment The P45B authorization is received by Entity A from a. DBM c. BTr b. COA d. Congress The half of the ®45B authorization extended by Entity A (Central Office) to its lower operating units is referred to as a. Allotment c. Obligation b. Appropriation d. Sub-allotment Which of the following best describes the P15B monthly authorizations? a. Allotment b. Obligation authority (¢,¢. Notice of Cash Allocation ‘NCA’) c. Disbursement authority (e.g, Notice of Cash Allocation ‘NCA’) d. Disbursement authority (e.g., Notice of Transfer of Allocation ‘NTA’) The ®15B monthly authorizations are received by Entity A from a. DBM c. BTr b. COA d. Congress The half of the ®15B monthly authorizations extended by Entity A (Central Office) to its lower operating units is referred to as a. Cash Disbursement Ceiling b. Non-Cash Availment Authority c. Notice of Cash Allocation (NCA)The Budget Process 49 d. Notice of Transfer of Allocation (NTA) 9. In Entity A’s first quarter Statement of Appropriations, Allotments, Obligations, Disbursements and Balances, how much is shown as “unreleased appropriations?” . a. P6SB b. P60B c. P55B d. P45B 10. In Entity A’s first quarter Statement of Appropriations, Allotments, Obligations, Disbursements and Balances, how much is shown as “unobligated allotments?” a. FOB b. 5B c. P10B d. P15B In Entity A’s first quarter Statement of Appropriations, Allotments, Obligations, Disbursements and Balances, how much is shown as “unpaid obligations?” a, POB b. PSB c. P10B d. 15B 11. PROBLEM 2-4: FOR CLASSROOM DISCUSSION 1. All disbursements of government entities must be in conformance with the law and the a. National budget c. PPSASs b. COA audit findings d. PFRSs 2. An entity prepares its budget for the upcoming year from scratch. It scrutinizes each item in the budget irrespective of whether the item was included in the previous budget. This process is called . a. zero budgeting c. scratch budgeting b. incremental budgeting d. zero-based budgeting 3. Under this approach to budgeting, several parties participate in the budget preparation - from the lowest levels of government to the highest levels, and sometimes even citizen- stakeholders participate in the budget preparation.50 i Chapter 2 a. bottoms-up budgeting c. top-down budgeting b. zero-based budgeting d. bottom-up budgeting 4. What is the correct sequence of the following steps in the budget process? I Budget Legislation Ul. Budget Accountability Il. Budget Preparation IV. Budget Execution a. IL I,landIv c. IM, 1, and IV b. TIL, IV and IL d. II, IV, I and IL 5. After deliberations in both houses in the Congress are finished, a committee is formed to harmonize any conflicts between the Representatives and Senate versions of the General Appropriations Bill. This committee is called the Adjudication Conference Committee Bicaramel Conference Committee | Referee Conference Committee | Bicameral Conference Committee ao ge 6. -It is the authorization made by a legislative body to allocate funds for purposes specified by the legislative or similar authority. a. Appropriation c. Obligation b. Allotment . d. Disbursement 7. These are the authorizations programmed annually or fot some other period prescribed by law, by virtue of outstanding legislation which does not require periodic action by Congress. a. Automatic Appropriations b. New General Appropriations c. Continuing Appropriatioris - d. Supplemental Appropriationsee EE ‘The Budget Process i 8, Entity A, a government entity, wants to make disbursements. Arrange the following events in the correct sequence before Entity A can make valid disbursements. “I. Allotment I. Disbursement Authority Il. Appropriation IV. _ Incurrence of obligation a. UL Il, 1,andIV c. IL, I, 0, and IV b. I, 1 1V, and I d. IH, IV, I, and II 9. This is necessary before government entities can enter into contracts that bind the government for the eventual disbursement of government funds a. Disbursement authority c. Allotment »_b. Notice of cash allocation d. Incurrence of obligation 10. Under responsibility accounting, a manager's performance is evaluated based on all resources under his custody a. or other variables, that he b. only in terms of the costs, controls. on the basis of both controllable and non-controllable costs. d. only at year-end.