MODULE 3

LOCAL FISCAL ADMINISTRATION

Lesson 1 Local Taxation and Revenue Generation

Lesson 2 Local Budgeting and Expenditure Management

Lesson 3 Local Government Accounting

Lesson 4 Local Borrowings

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 INTRODUCTION

The local fiscal administration deals with the systems, processes,

officials, and personnel and the policy environment governing
intergovernmental, and inter-local fiscal relations.

This module will discussed thoroughly the different tiers of the

government and the respective officials and offices with the local level and
elaborate the functions in the LGU as well.

LEARNING OBJECTIVES

At the end of the lesson, the students shall be able to:

1. Determine the structure of the local government unit.
2. Analyze the different powers and functions of the local
government units.
3. Classify the local appointive officials either as mandatory, optional or
not applicable in different tiers of LGUs
4. . Discuss the different functions of local appointive officials

 DIRECTIONS/ MODULE ORGANIZER

There are three lessons in the module. Read and understand each lesson
carefully then answer the activities to find out how much you have
benefited from it. Work on these activities carefully and submit your output
to the instructor/professor.

In case you encounter difficulty, discuss this with the instructor during
the consultation hour via online.

Good luck and happy reading!

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Lesson 1

 LOCAL TAXATION AND REVENUE

GENERATION

Taxation

Taxation is defined as the act of levying upon a citizen by the taxing

authority or the government for purposes of supporting the sustaining its
programs and projects. Thus, taxation is considered as the “lifeblood” of
the government.

Purpose of Taxation

The main reason for imposing taxes upon the citizens is for the
government to to be able to deliver the basic services to the people in the
community. The government cannot run the administrative affairs without
funds being collected from the people and other business establishments.
Mostly, the government generates its income from taxes. Thus, this imply
the simply imply the importance of taxes for the existence of the
government.

Taxation has four main purpose or effects. These are the four (4) R’s,
namely:

1. Revenue. This refers to the collection of sum of money for purposes

of spending to the services.
2. Redistribution. This a way of transferring wealth from the richer to
the poorer persons.
3. Repricing. This is a way which encourages/discourages consumption.
4. Representation. The rulers tax citizens, who then demand
accountability. This is in consonance with the American slogan that “no
taxes, no representation”. This is the impact of collecting taxes from the
citizens, thus, this demand greater accountability to the taxing authority.

National Tax Law

The 1987 Philippine Constitution sets limitations on the exercise of the

power to tax. The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation. (Article VI, Section
28, paragraph 1)

Tax law in the Philippines covers national and local taxes. National taxes
refer to national internal revenue taxes imposed and collected by the

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national government through the Bureau of Internal Revenue (BIR) and local
taxes refer to those imposed and collected by the local government.

As mentioned in the Section 2, Article X of the 1987 Philippine

Constitution, “the territorial and political subdivision shall enjoy local
autonomy”. Thus, the local government units such as the province, city,
municipality, and barangay has given the power to generate its revenues.

Local Government Tax Law

Local government taxation in the Philippines is based on the

constitutional grant of the power to tax to the local governments. Local
taxes may be imposed, as the Constitution grants, to each local government
unit, the power to create its own sources of revenues and to levy taxes,
fees, and charges which shall accrue to the local governments (Article X,
Section 5). With respect to national taxes, local Government units shall
have a just share, as determined by law, in the national taxes which shall be
automatically released to them (Article X, Section 6).

Here is the list of local government taxes in the Philippines

Provinces:
♦ Tax on transfer of real property ownership. A tax on the sale, donation,
barter, or on any other mode of transferring ownership or title of real
property at the rate of not more than fifty percent (50%) of one percent
(1%) of the total consideration involved in the acquisition of the property or
of the fair market value in case the monetary consideration involved in the
transfer is not substantial, whichever is higher. The sale, transfer or other
disposition of real property pursuant to R.A. No. 6657 shall be exempt from
this tax.
(Section 185, Art. 1 Chapter 2 Book II of LGC)

♦ Tax on business of printing and publication. A tax on the business of

persons engaged in the printing and/or publication of books, cards, posters,
leaflets, handbills, certificates, receipts, pamphlets, and others of similar
nature, at a rate not exceeding fifty percent (50%) of one percent (1%) of
the gross annual receipts for the preceding calendar year. The receipts from
the printing and/or publishing of books or other reading materials
prescribed by the Department of Education, Culture and Sports, as school
texts or references shall be exempt from the tax. (Section 136 Art. 1
Chapter 2 Book II of LGC)

♦ Franchise tax. A tax on businesses enjoying a franchise, at a rate not

exceeding fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction. (Section 137 Art. I Chapter 2 Book
II of LGC)

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♦ Sand and gravel tax. A tax levied and collected not more than ten
percent (10%) of fair market value in the locality per cubic meter of
ordinary stones, sand, gravel, earth, and other quarry resources, as defined
under the National Internal Revenue Code, as amended, extracted from
public lands or from the beds of seas, lakes, rivers, streams,creeks, and
other public waters within its territorial jurisdiction. The proceeds of the
tax on sand, gravel and other quarry resources shall be distributed as
follows: Province - 30%; Component city or municipality where the sand,
gravel, and other quarry resources are extracted - 30%; and Barangay where
the sand, gravel, and other quarry resources are extracted - 40%. (Section
138 Art. I Chapter 2 Book II of LGC)

♦ Professional tax. A tax on each person engaged in the exercise or practice

of his profession requiring government examination at such amount and
reasonable classification as the sangguniang panlalawigan may determine
but shall in no case exceed Three hundred pesos (P=300.00). (Section 139
Art. I Chapter 2 Book II of LGC)

♦ Amusement tax on admission. Tax to be collected from the proprietors,

lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty
percent (30%) of the gross receipts from admission fees (Section 140 Art. I
Chapter 2 Book II of LGC)

♦ Annual fixed tax per delivery truck or van of manufacturers or producers

of or dealers in certain products. An annual fixed tax for every truck, van or
any vehicle used by manufacturers, producers, wholesalers, dealers or
retailers in the delivery or distribution of distilled spirits, fermented liquors,
soft drinks, cigars and cigarettes, and other products as may be determined
by the sangguniang panlalawigan, to sales outlets, or consumers, whether
directly or indirectly, within the province in an amount not exceeding Five
hundred pesos (P500.00). (Section 141 Art. I Chapter 2 Book II of LGC)

Municipalities:

 Tax on business on (a) manufacturers, assemblers, repackers,

processors, brewers, distillers, rectifiers, and compounders of liquors,
distilled spirits, and wines or manufacturers; (b) wholesalers,
distributors, or dealers in any article of commerce of whatever kind or
nature; (c) exporters, and on manufacturers, millers, producers,
wholesalers, distributors, dealers or retailers of essential commodities;
(d) retailers; (e) contractors and other independent contractors; (f)
banks and other financial institutions; (g) peddlers engaged in the sale
of any merchandise or article of commerce; and (h) any business, not
otherwise

 Fees and charges on business and occupation and, except as reserved to

the province in Section 139 of this Code

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 Fishery rental or fees and charges. Municipalities shall have the

exclusive authority to grant fishery privileges in the municipal waters
and impose rentals, fees or charges

 Fees for sealing and licensing of weights and measures; and Community
tax.

Cities:

 The city may levy and collect among others any of the taxes, fees and
other impositions that the province or municipality may levy and
collect.

Barangays:

 Taxes and fees on stores or retailers with fixed business establishments

with gross sales or receipts of the preceding calendar year of Fifty
thousand pesos (P=50,000.00) or less, in the case of cities and Thirty
thousand pesos (P=30,000.00) or less, in the case of municipalities, at a
rate not exceeding one percent (1%) on such gross sales or receipts

 Service charges for services rendered in connection with the regulation

or the use of barangay-owned properties or service facilities such as
palay, copra, or tobacco dryers;

 Barangay Clearance - No city or municipality may issue any license or

permit for any business or activity unless a clearance is first obtained
from the barangay where such business or activity is located or
conducted;

 Other Fees and Charges: (1) On commercial breeding of fighting cocks,

cockfights and cockpits; (2) On places of recreation which charge
admission fees; and (3) On billboards, signboards, neon signs, and
outdoor advertisements.

Fundamental Principles of LGU Tax Powers.

The following fundamental principles shall govern the exercise of the taxing
and other revenue raising powers of local government units:
(a). Taxation shall be uniform in each local government unit;
(b). Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer's ability
to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or in
restraint of trade;

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(c). The collection of local taxes, fees, charges and other impositions shall
in no case be let to any private person;
(d). The revenue collected pursuant to the provisions of this Code shall
inure solely to the benefit of, and be subject to disposition by, the local
government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; and,
(e). Each local government unit shall, as far as practicable, evolve a
progressive system of taxation.

Common Revenue-Raising Powers

(1) Service Fees and Charges. - Local government units may impose and
collect such reasonable fees and charges for services rendered.
(2) Public Utility Charges. - Local government units may fix the rates for
the operation of public utilities owned, operated and maintained by them
within their jurisdiction.
(3) Toll Fees or Charges. - The sanggunian concerned may prescribe the
terms and conditions and fix the rates for the imposition of toll fees or
charges for the use of any public road, pier or wharf, waterway, bridge,
ferry or telecommunication system funded and constructed by the local
government unit concerned: Provided, That no such toll fees or charges
shall be collected from officers and enlisted men of the Armed Forces of
the Philippines and members of the Philippine National Police on mission,
post office personnel delivering mail, physically-handicapped, and disabled
citizens who are sixty-five (65) years or older. When public safety and
welfare so requires, the sanggunian concerned may discontinue the
collection of the tolls, and thereafter the said facility shall be free and
open for public use.

Collection of Taxes

 The tax period of all local taxes, fees and charges shall be the calendar
year.
 All local taxes, fees, and charges shall be paid within the first twenty
(20) days of January or of each subsequent quarter, as the case may be.
The sanggunian concerned may, for a justifiable reason or cause, extend
the time for payment of such taxes, fees, or charges without surcharges
or penalties, but only for a period not exceeding six (6) months
 The sanggunian may impose a surcharge not exceeding twenty-five
percent (25%) of the amount of taxes, fees or charges not paid on time
and an interest at the rate not exceeding two percent (2%) per month of
the unpaid taxes, fees or charges including surcharges, until such
amount is fully paid but in no case shall the total interest on the unpaid
amount or portion thereof exceed thirty-six (36) months
 All local taxes, fees, and charges shall be collected by the provincial,
city, municipal, or barangay treasurer, or their duly authorized
deputies. The provincial, city or municipal treasurer may designate the
barangay treasurer as his deputy to collect local taxes, fees, or charges

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Procedure for Approval and Affectivity of Tax ordinances and Revenue

Measures
(1) Public hearings shall be conducted for the purpose prior to the
enactment;
(2) Any question on the constitutionality or legality of tax ordinances or
revenue measures may be raised on appeal within thirty (30) days from the
affectivity thereof to the Secretary of Justice who shall render a decision
within sixty (60) days from the date of receipt of the appeal;
(3) The aggrieved party may file appropriate proceedings with a court of
competent jurisdiction after lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal.
(4) Publication of Tax ordinances and Revenue Measures shall be made after
10 days of approval for 3 consecutive days in a newspaper of local
circulation, posted in at least two (2) conspicuous and publicly accessible
places and furnish certified true copy of ordinance to local treasurers for
public dissemination.

 LEARNING ACTIVITY

1.1
Is the power of taxation inherent in the local government?Explain. (3
points for coherence, 2 points for organization)

1.2
In a graphic organizer, identify the taxes that belongs to the National
Government and LGUs.

1.3
Make a power point presentation regarding your respective municipality.
The presentation should contain a maximum of 5 slides with the
following content on each slide: a short background on the
economy/product of the municipality, financial performance for the year
2019 and 2020, sources of revenue.

1.4
Choose one LGU from other countries and in the Philippines.
Make a comparative analysis on the sources of its revenues. Identify the
best practices and problems with respect to sourcing out revenues. What
are the measures to address the problems encountered by the LGUs.

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Lesson 2

 LOCAL BUDGETING AND EXPENDITURE

MANAGEMENT

The budgeting phase of the planning process resolves the question:

‘’How
Much money or fund is available for each program, project or activity?”

All decision makers and planners are faced with the dilemma of
harmonizing what they want with what their organization can afford. Every
organization is faced with problem of adjusting needs against available
resources. But a problem arises when resource are scarce but needs are
great.

Definition of Budgeting Orientation

Budgeting is the process of allocating financial resources for intended
Programs, projects, services, and activities to empower the organization to
carry out stated goals and objectives (Briones, 1996). The product of this
process is the financial or budget plan of the institution.

Budgeting concepts mostly originate from government. Budgeting

approaches or modes and techniques used in the Philippine government are
characterized into three major orientations, namely: 1) control, 2)
management, and 3) planning.

Control-orientation in budgeting is the process of enforcing or applying

limitation and conditions that are set in the budget and in appropriation and
at the same time securing compliance with the spending restrictions
imposed by central authorities. Management- oriented budgeting involves
the use of budgetary authority at both agency levels to ensure the efficient
use of resources in the conduct of the authorized activities. The focus is on
the agency out – what is being done and produced and what cost and how
performance compare with the budget goal. Thus, it is more concerned with
operations and results that control, that is, with the efficiency rather then
the legality of expenditures.
Finally, planning-orientation in budgeting is the process of
determining public objectives and the evaluation of alternative programs.
To use the budget for planning authorities must have the information
concerning the purpose and effectiveness to the program. They should also
be infirmed of multi-year spending plans and of the linkage between
planning , spending, and public benefits (Schick,2021)

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Basis of local budgeting

1. Local budge plans and goals shall, as far as practicable, be harmonized
with national development plans, goals and strategies in order to optimize
the utilization of resources and to avoid duplication in the use of fiscal and
physical resources.

2. Local budgets shall operationalize approved local development plan.

3. Local governments shall formulate sound financial plans. The local

budgets shall be based on functions, projects and activities in term of
expected results

4. Budgets f LGU’s shall include a brief description of the functions, projects

and activities for the ensuing fiscal plans; expected results for each
function, and activities; and the nature of work to be performed, including
the objects of expenditure for each function, project and activity.

Development plan for cities and municipalities

1. Comprehensive development plan (CDP)

A multi-sectoral plan formulated at the city/municipal level embodying
the vision, sectoral goals, objectives development strategies, and policies
contains corresponding PPAs which serve as primary inputs to investment
programming and subsequent budgeting and implementation

2. Local development investment program

A programming document shall be prepared when the PDPFP for
provinces and Investment programming covers 3 to 6 years - six-year rolling
program at the provincial level which coincides with the time frame

3. Annual Investment Program

Another document to be submitted by the LDC to the LFC as mandated
under Article 410 of the IRR to R.A No. 7160
Prepared and approved during the fiscal year before budget preparation
(basis for the preparation of Annual and Supplement budgets)
It refers to the annual slice of LDIP which constitutes the total resource
requirements for all PPAs – regular operating requirements of the plan
budget annual investment program

Approaches in Budget
There are four budgeting methods used in Philippines since
1937 briones (1996 enumerates these as follows: 1) line-item budgeting; 2)
performance budgeting; and 3) planning, programming and budgeting
system (PPBS); and 4) zero-based budgeting (ZBB)

1. Line-item budgeting

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The line-item budgeting spproach emphasizes listing of objects for

itemized expenditure such as personnel, supplies, and equitments without
much regard for the porpuse of programs or projects for which such items
are proposed. It also controls expenditures at the department or agency
level giving emphasis on the accounting aspect of the government
operations in term of items bought or paid (Miclat, 2005)

2. Performance budgeting
In the performance budgeting, objects of wxpwnditures are
grouped into categories related to the spacific, and the development of
product cost measurements of activities or services so that managers can
measure the effeciency or productivity of spending agencies (Ibid.)

3. Planning, Programming and Budgeting system

PPBS is an answer to the need for an allocation of resources and the
undertaking of government policy, program analysis, anad cost utility
analysis to improve the policy decision process of government. The scheme
requires agency managers to identify program objectives, develop
measuring outpt, calculate total program costs over the long-run, prepare
detailed multi-year programand financial plans, and analyze the costs and
benefits of alternatives programdesigns. The system provides a strong
linkage between planning and budgeting(lbid.).

4. Zero-based Budgeting
ZBB is an operating, planning, and budgeting method which requires
every agency manager to justify his entire budget systems in detail and
transfers the burden of proof to each manager why he should spend any
money. It underscores the analysis of all budegetray expenditures to answer
effectiveness in achieving organizational goals. The term “zero-based”
refers to the yearly analysis, evalution,and justification0f each
program/project/activity starting from zero performance level.
The idea is to “zero-in” on only the most important activities ij the
program or project for inclusion in the budget or on the least important or
lowest priority activities which may be removed in the event that resources
are not sufficient. In this way, the most important programs and projects
are allocated enough funding rather than distrivute the resource thinly
among the many activities and achieve nothing in the end (lbid.).

The Budget Cycle in General

A budget is a financial plan. It is an estimate of institution’s income
and expenditures for a define future, e.g. fiscal year. It is what the
institution plan to spend for its priority programs and projects. Thus the
local budget is the financial translation of approved local government plans
and programs which are supposed to be supported by the resources of the
government.

The government budget cycle consists of four phases, namely: 1)

budget preparation, 2) budget legislation or authorization, 3) budget
execution or implementation, and 4) budget accountability:

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1. Budget Preparation

This involves the formulation or devisement of a local budget

based on budgetary priorities and activities given available revenues and
borrowing limits.
The Development Budget Coordination Committee (DBCC, an
interagency body , conducts consultations and studies on fiscal and financial
issues with the objective of determining overall exppnditure levels, revenue
projection, deficit levels, and the financial plan. These are then forwarded
to the cabinet and the president for a pproval. Afer approval by the
president, the Department of Budget and management (DBM) issues a
budget call. The call ussually issued in November directs the different
agencies to prepare their respective budget proposals in accodance with
approved budget ceilings.

2. Budget Authorization or Legislation

in the phase of the budget cycle, the budget is reviewed by the house
of representatives and followed by the senate through consultation and
justification by department and agency heads of their budget proposals.
Conflicting provisions are worked out and harmonized by a conference
committee. Once a common budget bill has been approved by both
chambers, its submitted to the President for approval. The product of the
President’s approval of the proposed budget legislation is the general
appropriations act (GAA)

3. Budget Execution
This phase of budget cycle is he implementation of the
general appropriations ordinance. The department of budget and
management (DBM) implements the local budget through the administrative
supervision of the president. The Bureau of Treasury of the Department of
Finance (DOF) coordinates with the DBM so that cash releases by the latter
are based on collected revenues by DOF.

Expenditures by Class and Object

The local budget is allocated and earmarked for the implementation of

various government programs and projects, the operation of government
offices and payments of salaries of government officials and employees,
maintenance and operations, and payment of public debts. These
expenditures may be in terms of expense class, budgetary object, sector,
and implementing unit of local government and in the region.

Briones (1969) enumerates two different expense classes and several

services budgetary objects under each class. These are:

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1. Current Operating Expenses (COE)

COE’s are appropriations for the purchase of goods and services

for the conduct of normal operations within a budget year. The different
budgetary objects are:

2. Capital Outlays (CO)

COs are appropriations for the purchase of goods and services the
benefits of which go beyond the budget year which add to the government
physical assets. These include infrastructure projects such as construction of
roads, school building, laboratories, gymnasiums, sports facilities and
others. The acquisition of equipment like laboratory apparatuses, computer
units and peripherals, duplicating machines, motor vehicles, and other falls
under CO.

Budgeting Structure and Processes

In a local government, the budgeting process is as important as

planning. But budgeting can only proceed with a strategic plan. There has
got to be a budget council to undertake budgeting activity. But the more
logical thing to do is to integrate the Planning Council and The Budget
Council into one.

Actual costing of programs, projects and activities for annual action

plans, on one hand, and short- or long-term plans, on the other, differ. For
the former, certain traditional indicators and rules and regulations should
be determined and observed, like enrolment, class size, cost per student by
educational level, and number of faculty members and support staff.

The more radical indicators are output- or outcome-oriented ones,

such as number of graduated who passed the licensure examinations,
number of employed graduates or trainees and others. Examples or rules
and regulations are set expenditures ceilings, moratorium on some expense
class and budgetary objects, and austerity policies. Undoubtedly, these
indicators and regulations dictate the amount of budgetary expenditures a
university or collage is allocated in a given year (Miclat, 2005).

For two-year and beyond plans, the more practical way of budgeting is
making projections by expense class and budgetary objects. The results of
such projections indicate which expense classes and objects are used more
often and those used sparingly by the agency.

Projections can be made if previous data and statistics preferably

during the last five years are made available.

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There are several ways of making projections. The more popular ones
are geometric rate of growth, exponential growth rate, average annual
percent increase, and Sprague formula. Depending on which type of
projections one adopts or uses, rates of increase are arrived at Projections
made under each expense class and budgetary objects as well as on the
total budget estimates for each operating year should be explained. Said
reasons should include various parameters on such areas as social,
economic, political, natural and technological. With these parameters, more
realistic rates of projections can be set and adopted.

 LEARNING ACTIVITY

1.1
1. Explain the relationship between planning and budgeting

1.2
2. Compare and contrast national budgeting and local budgeting

1.3
What will happen if the LGU fails to pass an appropriation ordinance for the calendar
year?

1.4
What do we mean by bottom - up planning and budgeting?

1.5

Conduct an interview with the Barangay Officials or Municipal Officials or any

representatives. In the interview, ask the officials how they plan/allocate their
budget. Part of the interview, ask them also as to what approaches they adopted in
their budgeting.

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Lesson 3

 LOCAL GOVERNMENT ACCOUNTING

Financial Control
It is control of financial resources as flow into the organization, and flow
out by the organization. Top management financial control uses the balance
sheet, income statement, and financial analyses of these documents. As
money is spent, statement are updated to reflect how much was spent, how
it was spent, and what It obtained.

Fiscal year and local government units

The official fiscal year of local government units shall be period
beginning with the first day of January and ending with the thirty-first day
of December of the same year. (SEC. 353 of the Local Government Code of
the Philippines )

Who is Accountable for the Local Government Funds?

 Any officer of the local government unit whose duty permits or requires
the possession or custody of local governments funds
 Other local officers who, though not accountable by the nature of their
duties, may likewise be similarly held accountable and responsible for
local government funds through their participation in the use or
application thereof

The Local Finance Committee

 Local planning and development officer,
 Local budget officer
 Local treasurer

Function of the Local Finance Committee

 Determine the income reasonably projected as collectible for the
ensuing fiscal year;
 Recommend the appropriate tax and other revenue measures borrowings
which may be appropriate to support the budget;
 Recommend to the local chief executive concerned the level of the
annual expenditures and the ceilings of spending for economic, social,
and general services based on the approved local development plans;

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 Recommend to the local chief executive concerned the proper

allocation of expenditures for each development activity between
current operating expenditures and capital outlays;
 Recommend to the local chief executive concerned the amount to be
allocated for capital outlay under each development activity or
infrastructure project and publicly accessible places in the provinces,
cities, municipalities, and barangays
 Assist the Sangguiniang Panlalawigan in the review and evaluation of
budget of component cities and municipalities in the case of provincial
finance committee, the barangay budgets in the case of city or
municipal finance committee, and recommend the appropriate action
thereon;
 Assist the sanggunian concerned in the analysis and review of annual
regular and supplement budgets of the respective local government unit
to determine compliance with statutory and administrative
requirements;
 Conduct semi-annual review and general examination of cost and
accomplishments against performance standards applied in undertaking
development projects. A copy of this report shall be furnished the local
chief executive and the sanggunian concerned, and shall be posted in
conspicuous places

Function of the LGU Accountants and Treasurers

 Maintain separate books and depository accounts, respectively, for each
fund in tier custody or administration under such rules and regulations
as the commission on audit may prescribe.
 Maintain depository accounts in the name of their respective local
government units with banks, preferably government-owned, locate in
or nearest to their respective areas of jurisdiction.
 Keep personal monies separate and distinct from local public funds in
their custody; and
 Shall not make profit out of public money or otherwise apply the same
to any use not authorized by law or ordinance.

Auditorial Visitation

The books, accounts, papers, and cash of local treasurer, accountant,

budget officer, or other accountable officers shall at all times be open for
inspection of the Commission on Audit or its duly authorized representative,
in case an examination of the accounts of a local treasurer discloses a
shortage in cash which should be on hand, it shall be the duty of the
examining officer to 1) to seize the office and its contents, 2) notify the
COA, the local chief executive concerned, and the local accountant. The
local treasurer or accountable officer found with such shortage shall be
automatically suspended from office.

Summary of Income and Expenditure

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Local treasurers, accountants, budget officers and other accountable

officers shall, within thirty(30) days from the end of each fiscal year, post in
at least three (3) publicly accessible and conspicuous places in the local
government unit summary of all revenues collected and funds received
including the appropriations and disbursements of such funds during the
preceding fiscal year

 LEARNING ACTIVITY

1
What is the relationship between accounting and auditing? 10 points

Examine the financial statement of your own LGU. List down your observations as
part of your financial analysis.

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Lesson 4

 LOCAL BORROWINGS

What is local borrowing?

 Implementation of local government’s investment projects depends
on their ability to raise the necessary funds from the combination of
own resources and external financing. Debt financing enables the
municipalities to carry out , more infrastructure projects in a
shorter period of time as compared to the financing from own funds.
However, the risks associated to borrowing have to be well
understood and documented in terms of their potential impact on
local budget in the future. This, before borrowing is undertaken , it
is recommended that each local government has in place a debt
management strategy and a written debt policy. The debt
management strategy should ensure that the local government
maintains at all times an adequate level of indebtedness which
would not impair the its financial stability and would enable it to
implement the investment objectives.

Debt indicators
Due to the large amount of debt that the National Government (NG) has
incurred, the Bureau of Treasury publishes data of the allocation and
grouping of categories regularly. Divided generally into two categories,
these are:

1. National Government Debt, which includes both outstanding debt and

guaranteed debt of domestic and external origin:and
2. National Government Debt Service, which includes both principal
payments and interest payments of debt paid domestically and externally.

Under each category, other types of data are also included for domestic
debt, these data are as follow;
1. By maturity
2. (short-term, medium-term, long-term)

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LOCAL GOVERNMENT STRUCTURE, ORGANIZATION, AND DEVELOPMENT

3. By type of borrowing (Treasury bills, Treasury Bonds/Notes, Loans,

others)
4. By type of liability (Direct Liabilities, Assumed Liabilities

For external debt, these data are as follow:

1. By maturity (medium-term, long-term)
2. By creditor type (multilateral, bilateral, commercial, foreign debt
securities)
3. By type of securities (Loans, US Dollar bonds/notes, Eurobonds, Yen
bonds, Peso denominated bonds)
4. By type of currency (US dollar, Japanese yen, Euro, French franc,
Deutsche mark, Php, Other currencies
5. By type of Liabilities (Direct Liabilities such as loans and foreign debt
securities, assumed liabilities

Requirements for Local Borrowings

Under the Local Government Code (LGC), local governments may
contract loans, credits, and other forms of, operation, or maintenance of
public facilities, infrastructure, housing projects, the acquisition of real
property, and the implementation of other capital investment projects,
subject to terms and conditions as may be agreed upon by the LGU and the
lender. The proceeds from such expenditures for dept servicing up 20% of its
annual regular income.
Every loan application must comply with the requirements of the
DOF , the Bureau of Local Government finance (BLGF), and the Bangko
Sentral ng Pilipinas (BSP)

A. Certification by the BLGF of an LGU’s (I) net debt service and (II)
borrowing capacity ceilings, per DOF Local Finance Circular No. 1-2012
1. Letter-request from local Chief executive (LCE) indicating the selected
lending, terms and conditions of the proposed loan (repayment period and
interest rate), and the specific purposes of the proposed loan.
2. Approved and uploaded statement of receipts and expenditures for the
past 3 years
3. Certification of absence of loan/s, when applicable
4. Certification of existing and approved loans, when applicable
5. COA Annual Audit Certificate for the past 3 years with no adverse findings
against the LGU (supported by Pre-closing trial Balance, Balance Sheet, and
Statement of income and Expenditures)
6. Certification by the local accountant that the LGU has not incurred
default in the payment of existing loan amortization
7. Certification from the secretary of the Sanggunian that the proposed
project to be financed by the loan included in the Approved Annual
investment Plan for the current year
8. Authenticated copy of the Ordinance/Resolution authorizing the LCE to
negotiate and contract a loan behalf of the LGU
9. For loan application related to foreign-assisted projects: Certified
Statement of Income (DBM LBP Form no.1) and statement of Fund Operation
(DBM LBP Form No.8)

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LOCAL GOVERNMENT STRUCTURE, ORGANIZATION, AND DEVELOPMENT

10. Certification issued by the lending institution that it shall not be

requiring LGU deposits as compensating as compensating balance for the
loan if such lending institution is (i) not an authorized government
depository bank or (ii) an authorized government depository bank required
to obtain the prior approval of the DOF per Department Order No.27-05
11. DILG seal of good housekeeping award to the LGU (Seal of Good
Financial Housekeeping
12. Proof of Compliance with the DILG full disclosure policy, per DILG MC
No. 2010-83

B. Requesting for the BSP Monetary Board (MB) Opinion (to be submitted
by the LGU OR by the lending bank on behalf of the LGUs to BSP), per
BSP Circular No. 769 s. 2021:

 Letter by the LGU, or lending bank on behalf of its client LGU’s

requesting for the MB opinion on the proposed loan , and providing
information on the terms and conditions of the proposed loan (I.e, loan
amount, purpose of loan [Whether for infrastructure or importation of
equipment, etc.], interest rate, maturity, fees and other changes).
 Certification on the dept service and borrowing capacity of the LGU
obtained from the Department of finance - Bureau of local government
finance (DOF-BLGF)
 Designation of a contact person/s responsible for coordinating with the
BSP along with contact information, and a Sangguniang Resolution on
the specific acts/services he/she has been authorized to perform.
 Indication of the lending bank on the source of the funds to be lent to
the LGU.

C. Release of loan proceeds (to be submitted by LGU to the lending

institution)

 Upon approval of the loan agreement: Ordinance ratifying the loan

agreement, including the terms and conditions of the loan, entered into
by and between the local government unit and the lending institution.
 Other applicable requirements under the LGC, such as the provincial
validation of the municipality/city ordinance, if applicable, or
municipality/city validation of barangay ordinance.
 A waiver on the confidentiality of investment and bank deposits,
whether in peso or foreign currency. Such waiver should be duly
executed by the mayor or governor or barangay chairman as the case
may be, and supported by a duly-executed “waiver resolution”.

D.Request of MB opinion on LGU borrowing to be obtained from other

financial institutions not under the supervision of the BSP

 All documentary requirements and information under B and C shall be

submitted to the BSP by the borrowing LGU, together with its request

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for MB opinion, in case the loan will be obtained from the other lending
institutions not under the supervision of the BSP

E. Post-borrowing reports
 The borrowing LGU, or its duly authorized representative or through the
lending bank, shall submit to the BSP a post-borrowing report that will
indicate the actual amount of the domestic borrowing as well as the
final terms and conditions thereof within 30 calendar days from the full
release of loan proceeds and other reports as may be required by the
BSP.
 In addition, the local treasurer is required by the BLGF to submit a post
borrowing report.

 LEARNING ACTIVITY

Conduct a case study to your respective LGU with regard to their past
and existing loan agreement with international, national, or private
institutions/entities. The case study will contain the following: (50
points)
A. Introduction
B. Discussions
C. Conclusions/Recommendation

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