LAGUNA NORTHWESTERN COLLEGE

COURSE REQUIREMENT IN ACCOUNTING IN PUBLIC ADMINISTRATION

Submitted by

______

Submitted to

DR. ROLANDO A. ENTILA

Professor

Second Semester
S.Y. 2021 – 2022
Course Task: Discuss individually or ingroup your local government annual budget
process utilizing the sub-system approach in terms of:

1. Input
2. Preparation
3. Output
4. Feedback
5. Operating environment
6. The future

Introduction

Allocating tax revenues and borrowed money in order to achieve the nation's

economic and social objectives is a crucial part of government budgeting. As part of

maintaining a sound fiscal position, it also requires managing government spending in a

way that will maximize the economic impact of the production and distribution of

products and services. Government budgeting is essential because it enables the

government to plan and manage its financial resources to support the execution of

numerous programs and initiatives that best advance the growth of the nation. With the

help of the budget, the government can decide which projects, programs, and policies to

implement first, within the limits of its financial resources as determined by the state of

the economy.

The operating budget, according to the Municipal Research and Services Center

(2023), is likely the most significant output of a municipality. The budget fulfills a variety

of purposes. It is essentially a legal document that grants representatives of local

government the ability to incur debt and make payments. It determines how much each

department may spend while allocating resources among departments in accordance

with the priorities and policies of the legislative body. The budget now typically contains

more information than merely financial statistics. Mission statements, aims, and
objectives explain how budget choices fit into the municipality's overall future vision. A

budget can also be used as a measurement tool, contrasting the promises made in the

budget from the previous year with the results achieved.

An annual budget, sometimes referred to as the operating budget, is the

document that details the financial plan of the local government or school district for a

fiscal year. The annual budget is perhaps an entity’s most vital document and should be

developed using all of the most current and accurate information available. The budget

is not just a financial plan; it also has legal implications. Furthermore, the budget

process does not end with the adoption of the budget. Instead, the budget is a

document that must be monitored and amended from time to time, as needed.

(Dinapoli, 2016)

Budgeting for the local government of the City of Biñan involves four (4) distinct

processes or phases : budget preparation, budget authorization, budget execution and

accountability. While distinctly separate, these processes overlap in the implementation

during a budget year. Budget preparation for the next budget year proceeds while

government agencies are executing the budget for the current year and at the same

time engaged in budget accountability and review of the past year's budget.

This procedure resounds in the report presented by Ohio University (2020). Most

cities and counties have a four-step procedure:

1. Preparation: Departments develop estimates of expenditures while considering

available revenues.
2. Approval: The city council or other designated body reviews the proposed
budget. Citizen input is often considered.
3. Implementation: City or county departments provide services as spelled out by
the budget.
 4. Evaluation or audit: Officials monitor city/county and departmental performance
throughout the year and use those findings to determine efficiency and inform the
budget process for the following year.

Input

A strong annual budget starts with accurate estimations and financially reasonable

presumptions. To make sure that planned services are adequately supported, spending

levels and financial resources must be precisely estimated while the budget is being

prepared. Budget officers should use as much relevant data as they can to create

sound estimates. While there are many sources of useful information, the budget officer

should also collaborate closely with department heads to create a realistic annual

budget. (Dinapolis, 2016)

Several months before the beginning of the next fiscal year, the budget officer

notifies department heads of all requirements for the upcoming budget process. This

can be accomplished through a meeting or workshop where the budget officer provides

department heads with:

 Instructions for submitting budget requests for the next fiscal year

 Deadlines for all steps in the budgeting process

 Year to date expenditures for each department

 Departmental budgets from previous years

Requests for people, operations, and capital requirements for the future year should

all be included in departmental budget recommendations. Salaries, benefits, and any

other expenses associated with present or anticipated new employees are all included

in personnel requests. If a department head plans to fill new posts, an explanation for
the extra staff members and the pay for those roles should be given. Operational costs

are those incurred by the department for routine tasks such as providing services and

purchasing supplies. Capital outlays are expenses incurred by a department for

equipment or other tangible assets that cost more than projected throughout their

intended lifetime. These budget requests may be determined using several different

methods including:

 An incremental approach based on costs from recent years with small

changes

 Yearly adjustments for inflation

 Internal Service Funds – City predetermines the cost of support activities and

sets aside that money each year for all departments

 Standard Costs – Estimated cost of supplies for one employee multiplied by

the number of employees

Preparation

According to Dinapoli (2016) the budget preparation process starts with the setting

forth of the budget calendar. The budget officer distributes budget forms and

instructions to all the department heads of the local government or school district. The

forms should include all revenue and expenditure account codes used in the previous

two years along with the actual and budgeted estimates for the previous fiscal year and

year-to-date totals for the current year. The form should also contain space for the

department head to explain or justify new types of proposed revenues or expenditures

or to further explain large increases or decreases in the amounts proposed for the
following year. Department heads submit their estimates and discuss their requests with

the budget officer. The budget officer uses the information from the budget forms to

prepare the tentative/proposed budget. This will generally involve assessing whether

the total departmental estimates of appropriations are greater than the estimated

financial resources and then developing a tentative/proposed budget that provides

necessary appropriations within the limits of those resources. The budget officer should

also ensure that the tentative/proposed budget meets all legal requirements, consulting

with the local government or school district’s legal counsel as necessary. The budget

officer presents the tentative/proposed budget to the governing board for its

consideration and approval. At this time, it may be necessary for the budget officer to

provide backup documentation for some of the estimated appropriation and revenue

figures. Alterations and revisions may be necessary before approving the budget. The

budget that is finally approved needs to be balanced: the total financing sources from

estimated revenues, appropriated fund balance, and appropriated reserves equaling the

amount of appropriations for expenditures. The local government publishes a notice,

and a public hearing on the budget is held. Again, alterations and revisions to the

budget may be necessary after completion of the public hearing.

Once all departments have submitted their budget requests, the budget officer is

responsible for reviewing them. The budget officer must understand the management

and fiscal policies of the city, the financial condition of the city, and the political climate

that influences the budget process. The budget officer creates a single budget

spreadsheet based on the requests from departments and the direction given by the

governing body. Expenditure details in this spreadsheet will include information on prior-
year actual expenditures, budgeted expenditures for the current fiscal year, actual

(estimated) expenditures for the current fiscal year, and a recommendation for the new

fiscal year. This detail will provide the city manager/administrator and elected officials

with a snapshot of spending in recent fiscal years and gives some perspective for the

budget request.

The budget officer and finance department for the city is responsible for predicting

the revenue sources and amounts for the upcoming fiscal year. Cities may rely on

several different types of revenue including:

 Property taxes

 Sales taxes

 Excise taxes

 Service charges and fees

 Fees for licenses and permits

 Fines and forfeitures

 Intergovernmental revenue

Most general fund revenue estimates involve a thorough examination of historical

revenue data, taking into account economic and financial conditions in the city, making

various assumptions about collections in the upcoming year, and applying good

judgment. The best guidance for projecting revenues in any category is to be

conservative in making estimates. It is much better to project a revenue number that is

too low than one that is too high, which would result in a deficit.
 To develop a financially sound budget that will withstand economic fluctuations,

generally accepted budgeting and finance practices recommend that city officials should

attempt to diversify revenue sources so that they do not become overly dependent on

one particular revenue source. Cities should also routinely evaluate revenue and fee

levels to make sure they are maximizing revenues from all sources. The four basic

considerations cities should make when deciding how to pay for city services are:

Acceptability – city officials should consider how the community as a whole

would be impacted by and react to the city’s use of a particular funding source.

Stability – city officials should attempt to maintain revenue sources that will

remain stable regardless of economic fluctuations or political changes.

Self-Sufficiency – cities should not become overly dependent on state or federal

grants to fund services.

Cost Efficiency – city officials must constantly perform a balancing act with

revenues to be sure that the best quality of services is provided most efficiently.

The manager will explain how the mayor and council’s priorities are being met

through the recommended budget. The presentation should also include an explanation

of any changes in the millage rate or anticipated changes in other revenue sources. At

this time, the city council may choose to add or delete items from the budget or make

other adjustments. The city council seeks to adopt a balanced budget that fulfills its

established goals.

The “first draft” of the budget is reviewed by the city manager, CAO, and/or

mayor, whose primary goal in the budget review process is to make sure that the

policies and priorities set by the mayor and council are met. The executive will review
recommended departmental budgets to ensure that each one is appropriate and not

excessive. Department heads may be asked to sit in on the budget review process at

this stage to explain any major increases or decreases in budget requests. The

executive’s goal is to anticipate any questions the council may have and prepare

responses to these questions. Adjustments to the budget are entered by the budget

officer, and the modified budget is prepared for review by the mayor and council. Some

cities may use a finance committee to review and make budget recommendations

before submitting a proposed budget to the city council.

Output

The requirements for advertising and conducting public hearings for local

government budget adoption one the day that the proposed budget is submitted to the

city council for consideration, a copy of the budget must be placed in a public location

that is convenient to the residents and made available to the media, upon request.

During the week the proposed budget is submitted to the council the city must

have a statement published in the local newspaper of where the proposed budget is

available for viewing along with a notice of the date, time, and location of a public

hearing for any resident to provide comments before the governing authority. The

statement shall be a prominently displayed advertisement or news article and shall not

be placed in that section of the newspaper where legal notices appear.  Notice shall be

published at least one week before the public hearing. At least one week prior to the

meeting of the city council at which adoption of the budget ordinance or resolution will
be considered, the city council must conduct a public hearing, at which time any

persons wishing to provide comments on the proposed budget may appear.

At least one week after the public hearing, the city council may move forward

with adopting a balanced governmental fund budget by ordinance or resolution at a

public meeting advertised in a local newspaper (not in the legal section) at least one

week before the meeting. To save on advertising costs, all notice requirements may be

combined into one ad. It is also good practice to post the information on the city’s

website. The format of the final budget and ordinance or resolution is up to the

discretion of the city, as long as it complies with state law.

Once the budget is adopted and the new fiscal year begins, the plans outlined in

the budget may be implemented. Department heads carry out their approved budgets,

and appropriations are spent to deliver services. The city manager or budget officer is

responsible for exercising general fiscal control over the budget, making sure

department heads stay within their budgets, providing regular reports on budget activity

to departments, and tracking actual revenues against forecasted amounts. Monthly

budget reports are also provided to elected officials.

Budget implementation and monitoring systems vary in complexity among city

governments. These systems allow city officials to:

 monitor, adjust, and control spending

 maximize effectiveness and efficiency, and

 develop long-term revenue and expenditure strategies.

Feedback
 The final part of the annual budget cycle is the annual external audit of all city

financial records. The audit involves an examination of the city’s accounting systems,

procedures, programs, and financial data from a city. The final product is a report issued

by an independent auditor describing how well a local government’s financial

statements describe its financial condition and the results of its operations.

The auditor reviews financial statements to provide an opinion on the city’s

financial condition, its control over financial reporting, and to test for the city’s

compliance with provisions and requirements of federal, state, and local laws,

regulations, contracts, and procedures.

Performance audits are designed to measure the efficiency of the performance of

various activities in each department. Program audits are useful in evaluating the overall

effectiveness of city programs. Both program and performance audits help city officials

make better decisions about whether services and programs are worth the investment

of revenues by the city.

Government officials entrusted with public resources have a responsibility to

provide a full accounting of their activities. Accounting systems provide the tools

necessary for city officials to assemble, analyze, track, and report financial information

so that it can be used for planning, decision making, compliance, and control. The

purpose of accounting is to provide financial information that is accurate, complete,

timely, and can be understood by users. The four parts of an accounting system

include:

 Source documents and forms – include invoices, receipts, time and

attendance reports, contracts, and purchase orders which record the

 details of every financial transaction including authorization for each

transaction.

 Journals – summaries of all transactions of a certain type in chronological

order (e.g., payroll journals record all payments to employees).

 Ledgers – based on the summary totals in journals, these show the

balance in any revenue, expenditure, or other account at any given time.

 Procedures and controls – include forms and instructions for classifying,

recording, and reporting financial transactions in source documents,

journals, and ledgers.

Operating environment

The budget authorizes and provides for control of financial operations. Upon

adoption, the expenditure levels in the comprehensive budget are enacted into law

through the appropriations ordinance of Biñan. Budget level refers to the level of detail

as well as the level of legal authority that is authorized for expenditure during the budget

period. Budget levels may vary depending upon local policy, management practices,

and the needs of your entity. These budget levels of appropriation typically come in two

different levels: the fund level budget and the department/program level budget.

Fund Level – This refers to an appropriation level at the broadest level of

authority. A fund level budget allows for the greatest amount of flexibility and therefore

requires monitoring throughout the budget cycle to ensure that actual expenditures fall

within the various program or department projections that were established during the

budget process. Fund level appropriations are typically used for special revenue, capital
project, and enterprise funds. Depending on the entity, they may also be used for the

general fund.

Department/Program Level – This refers to a budget appropriation level that

limits expenditures to department or program activities. During the budget development

process the various program managers and department heads will prepare budget

proposals that often fall within the same fund (general fund for example). These

programs and departments may be appropriated at this level as a tool for managing the

budget. In counties, where many of the programs and activities are managed by

separately elected public officials, it is required that the budget be appropriated at these

program levels. Examples of programs or activities that can be appropriated at the

department level are:

 Legislative

 Executive

 Clerk's Office

 Finance Department

 Police Department

 Fire Department

 Economic & Community Development

 Parks & Recreation

 Public Works

There is also a third alternative budget level known as the line-item level, but it is

typically used as a management tool for monitoring the budget after adoption and not as

a budget level appropriation.

The future

After the budget has been approved, it is generally the responsibility of the

governing board, budget officer, and department heads to see that services are

delivered within the limits provided in the budget. They closely monitor the progress of

actual revenues and expenditures throughout the year, and identify any variances that

might cause the local government or school district to end the year with a significant

surplus or deficit. The preparation of budget reports facilitates the monitoring of the

adopted and amended budget. A budget report shows the original budget, any

authorized amendments, actual transactions to date (i.e., revenues, expenditures, and

encumbrances listed by account code) and the differences between the amended

budget and actual transactions (shown as variances). Budget reports should be

prepared and reviewed as of the end of each month during the fiscal year. The reports

can also be enhanced with information that compares the amended budget to a

projected estimate of actual revenues and expenditures through the end of the year.

These projections can be prepared using historical data from prior years, quarterly

estimates contained in the original budget, input from department heads, or any other

relevant and reliable information.

The budget officer can also prepare a narrative explaining the numbers in the

budget report and recommending corrective actions if shortfalls are indicated. By using

these reports, local policymakers, administrators, and taxpayers can identify financial

trouble spots in advance. Such reports also help them to assess the performance of

departments and activities. To help monitor the progress of individual departments, it

might also be desirable to develop quarterly expenditure plans for major departments

based on the department’s budget and historical patterns.

Most local governments are permitted to put a sum in their budget for

unanticipated situations because budgeting is not an exact science. There are

restrictions imposed by various regulations on this sum, which is known as the

contingency account. This account is not permitted for direct charges. The money is

instead moved as needed to other appropriation accounts that are in danger of going

overdrawn. (Government Finance Officers Associations, 2021)

Wilson (2021) asserts that the strategic plan and budget continue to be crucial

components of the health of the majority of enterprises. The financial resources that

organizations can use to further implement their vision, purpose, and goals—more

frequently referred to as the strategic plan—are limited. The budget's goal is to direct

those financial resources toward carrying out that mission. Budget and strategic plans

frequently diverge in many firms.

Conclusion

Most organizations use budgets to organize their spending, plan their projects,

and allocate funds effectively. A firm can evaluate its revenue, its sources of revenue,

its expenses, its performance, and if it has enough money to continue expanding

operations by creating a budget. To make important financial decisions and make sure

a business functions effectively, it is crucial to comprehend what budgeting processes

are and how to create them. The tactical measures a business takes to create a

financial plan are its budgeting processes. These procedures are used by accounting
departments to manage their company's operations, particularly spending. To track a

company's earnings and expenses over a specific time period, you might use budgeting

procedures. A corporation can recognize income difficulties and take appropriate action

by using a thorough budgeting procedure. The budgeting process occurs regularly, as

budgets often change with time because businesses operate in fluctuating markets. You

may consider seasonal budgeting and review your budgets to make necessary changes

and mitigate potential issues affecting operations. Budget frameworks comprise

operating, cash and capital expenditure budgets, which result in budgeted income

statements, balance sheets and cash flow statements. Developing an effective

budgeting process can help you make decisions about a company's financial future.

Works Cited

Dinapoli, T. P. (2016). Local Government Management Guide: Understanding Budget

Process. Ofice of the New York State Comptroller.

Finance, A. G. (2020). The Budget Process. Retrieved from [Link]

Georgia Municipal Assiciaton. (2022). Retrieved from [Link]

Government Finance Officers Associations. (2021). Retrieved from [Link]

Municial Research and Services Center. (20223). Retrieved from Introduction to

Budgeting: [Link]

Ohio University. (2020). Retrieved from Understanding the budgeting process in the

public sector: [Link]

Roestel, M. V. (2016). A collaborative approach to budgeting and the impact of

budgeting process: A case study. Walden Dissertations and Doctoral Studies.

Wilson, T. M. (2021). Analyzing the budget and strategic plan relationship: A case study

approach. Georgia State University Business Administration Dissertations.