PUBLIC ACCOUNTING AND BUDGETING

Introduction to Public Accounting and  To come up with financial

Budgeting reports pertaining to the results
of operations of various
 Introduction government agencies that are for
dissemination to the public.
It deals with the role, dynamics,
politics and processes involved in the Objectives of Philippine Budget System
public accounting and budgetary  To carry on all government
functions and associated public activities under a comprehensive
accounting and budget preparation fiscal plan developed, authorized
methods. Fiscal interrelationships of and executed in accordance with
national and local levels of the Constitution, prevailing
government. statutes and the principles of sound
public management
 Definition of Government  To provide for the periodic review
Accounting and Budgeting and disclosure of the budgetary
status of the Government in such
Government Accounting - is defined detail so that persons entrusted by
as one which encompasses the process law with the responsibility as well
of analyzing, recording, classifying, as the enlightened citizenry can
summarizing, and communicating all determine the adequacy of the
transaction involving the receipt and budget actions taken,
disposition of government funds and authorized or proposed, as well
property, and interpreting the results as the true financial position of
hereof. (Section 109 of PD 1445). the Government.

Government Budgeting - is the  Government offices involved and

critical exercise of allocating revenues their roles
and borrowed funds to attain the
economic and social goals of the Commission on Audit (COA)
country. It also entails the
management of government The Commission on Audit shall have the
expenditures in such a way that will power, authority, and duty to examine,
create the most economic impact from audit, and settle all accounts pertaining
the production and delivery of goods to the revenue and receipts of, and
and services while supporting a expenditures or uses of funds and
healthy fiscal position. property, owned or held in trust by, or
pertaining to, the Government, or any of
 Objectives of Government its subdivisions, agencies, or
Accounting and Budgeting instrumentalities, including government-
owned or controlled corporations with
Objectives of Government Accounting original charters, and on a post-audit
 To produce relevant financial basis:
information about past and present a. constitutional bodies,
transactions of government commissions and offices that
 To serve as basis for decision have been granted fiscal
making for future operations autonomy under this
 To serve as the control mechanism Constitution;
for the receipt, disposition and b. autonomous state colleges and
utilization of government funds and universities;
properties
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c. other government-owned or
controlled corporations and their Department of Budget and
subsidiaries; and Management (DBM)
d. such non-governmental entities
receiving subsidy or equity, The DBM, created under Executive Order
directly or indirectly, from or through the (EO) No. 25 dated April 25, 1936, is
Government, which are required by law or mandated under this Order and by
the granting institution to submit to such subsequent issuances to promote the
audit as a condition of subsidy or equity. sound, efficient and effective management
However, where the internal control and utilization of government resources
system of the audited agencies is (i.e., technological, manpower, physical
inadequate, the Commission may adopt and financial) as instrument in the
such measures, including temporary or achievement of national socioeconomic
special pre-audit, as are necessary and and political development goals.
appropriate to correct the deficiencies. It
shall keep the general accounts of the Following are the general functions of the
Government and, for such period as may Department:
be provided by law, preserve the vouchers 1. Formulates the overall resource
and other supporting papers pertaining application strategy to match the
thereto. (Article IX-D, Section 2(1) of the government’s macroeconomic policy;
1987 Philippine Constitution) 2. Prepares the medium-term
expenditure plan, indicating the
Following are the principal duties of the programming, prioritization, and
Commission: financing ofcapital investment and
1. Examine, audit and settle all accounts current operating expenditure
pertaining to the revenue and receipts requirements of medium-term sectoral
of, and expenditures or uses of funds development plans;
and property owned or held in trust by, 3. Undertakes the formulation of the
or pertaining to, the government. annual national budget in a way that
2. 2. Promulgate accounting and ensures the appropriate prioritization
auditing rules and regulations and allocation of funds to support the
including those for the prevention annual program of government;
and disallowance of irregular, 4. Develops and administers a national
unnecessary, excessive, extravagant or accounting system essential to fiscal
unconscionable expenditures, or uses management and control;
of government funds and properties. 5. Conducts a continuing study of the
3. Submit annual reports to the President bureaucracy and assesses as well as
and the Congress on the financial makes policy recommendation on its
condition and operation of the role, size, composition, structure and
government. functions to establish a government
4. Recommend measures to improve the bureaucracy imbued with a spirit of
efficiency and effectiveness of public service;
government operations. 6. Establishes the rules and
5. Keep the general accounts of procedures for the management of
government and preserve the vouchers government organization resources
and supporting papers pertaining i.e., physical, manpower and other
thereto. resources, formulates standards of
6. Decide any case brought before it organizational program performance;
within 60 days and undertakes or provides services
7. Performs such other duties and in work simplification or
functions as may be provided by law. streamlining of systems and
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procedures to improve efficiency and

effectiveness in government
operations;•Conceptualizes and
administers the government’s
compensation and position
classification plan; and
7. Monitors and assesses the physical
as well as the financial operations
of local government units and
Government-Owned and/or Controlled
Corporations

 Legal basis

o Republic Act No. 992 (Revised Budget

Act)
o
o "Art. VI, Sec. 29. No money shall be
paid by the Treasury except in
pursuance of an appropriation made
by law."

o Section 22, Article VII of the

Constitution states that: "The
President shall submit to the Congress
within 30 days from the opening of
every regular session, as the basis of
the general appropriation bill (GAB), a
budget of expenditures and sources of
financing including receipts from
existing and proposed revenue
measures."

o Article IX-D, Section 2 par. (2) of the

1987 Constitution of the Republic of
the Philippines which provides that:

“The Commission on Audit shall

have exclusive authority, subject to
the limitations in this Article, to
define the scope of its audit and
examination, establish the
techniques and methods required
therefor, and promulgate
accounting and auditing rules and
regulations, including those for the
prevention and disallowance of
irregular, unnecessary, excessive,
extravagant, or unconscionable
expenditures, or uses of
government funds and properties".
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Government Accounting and Budgeting after the practices and experiences of the
Process western public financial institutions.

Overview of the Budget System  Evolution of the Philippine Budget

System
 Origin of the Budget System
The budget process in the Philippines
The term “budget” originated from the evolved from the early years of the
Middle English word bouget that had American Regime up to the passage of the
derived from the Latin word bulga (which Jones Law in 1916.
means bag or purse).
A Budget Office was created within the
The concept of budgeting has not been the Department of Finance by the Jones Law
product of recent economies. In reality, to discharge the budgeting function, and
financing public goals and activities was was given the responsibility to assist in
an idea that existed from the creation of the preparation of an executive budget for
the State. submission to the Philippine Legislature.

To protect the people, the territory and As early as under the 1935 Constitution,
sovereignty of the State, its government a budget policy and a budget procedure
must perform vital functions that were established, and subsequently
required public expenditures. strengthened through the enactment of
laws and executive acts.
At the beginning, enormous public
expenditures were spent for war activities, E.O. No. 25, issued by President Manuel
preservation of peace and order, security, L. Quezon on April 25, 1936 created the
administration of justice, religion, and Budget Commission to serve as the
supply of limited goods and services. agency that carried out the President’s
responsibility of preparing the budget.
In order to finance those expenditures,
the State raised revenues through taxes Commonwealth Act (CA) No. 246, the first
andimpositions. Thus, budgeting became budget law, went into effect on January 1,
necessary to allocate public revenues for 1938 and established the Philippine
specific government functions. budget process.

The State’s budgeting mechanism The law also provided a line-item budget
eventually developed through the years as the framework of the Government’s
with the growing functions of its budgeting system, with emphasis on the
government and changes in its market observance of a “balanced budget” to tie-
economy. up proposed expenditures with existing
revenues.
The Philippine Budget System has been
greatly influenced by western public CA No. 246 governed the budget process
financial institutions. This is because of until the passage on June 5, 1954 of
the country’s past as a colony Republic Act (RA) No. 992, whereby
successively of Spain and the United Congress introduced performance-
States for a long period of time. budgetingto give importance to functions,
projects and activities in terms of
Many aspects of the country’s public expected results.
fiscal administration, including its Budget
System, have been naturally patterned
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RA No. 992 also enhanced the role of the public funds are spend only for the
Budget Commission as the fiscal arm of specific purposes for which they are
the Government. intended. It includes the development
of the operating budget which
The 1973 Constitution and various indicates the program of work to be
presidential decrees directed a series of done or undertaken, the time within
budgetary reforms that culminated in the which it should be done, the
enactment of Presidential Decree (PD) No. manpower and other resources needed
1177 that President Marcos issued on to carry out the work, and finally the
July 30, 1977, and of PD No. 1405, issued peso amounts required to accomplish
on June 11, 1978. the proposed programs. Thus, budget
execution and operation serve as the
PD No. 1405 converted the Budget medium through which plans for
Commission into the Ministry of Budget, operation can be implemented using
and gave its head the rank of a Cabinet available resources and funds.
Member.
4. Accountability
The Ministry of Budget was later renamed It is the last phase of budget
the Office of Budget and Management process which consist of the following:
(OBM) under EO No. 711. o Periodic reporting by the
government agencies of
The OBM became the DBM pursuant to performances under their approved
EO No. 292 effective on November 24, budget;
1989. o Top management review of
government activities and the fiscal
 The Philippine Budget Cycle policy implementations thereof; and
o The actions of Commission on Audit
1. Budget Preparation in assuring the fidelity of officials
Estimates are prepared by the and employees by carrying out the
various government agencies, reviewed intent of the legislative regarding
and finalized by President of the the handling of receipt and
Philippines, and then submitted to the expenditures.
Legislative Department as basis for the
Preparation of the Annual While distinctly separate, these processes
Appropriation Act. overlap in the implementation during a
budget year.
2. Budget Legislation
The enactment of the General Budget Preparation
Appropriation Bills based on the
budget of receipt and expenditures 1. Determination of overall economic
submitted by the President of the targets, expenditure levels and budget
Philippines within 30 days from the framework by the DBCC;
opening of its regular session, as the
basis of the general appropriation bill. 2. Issuance by the DBM of the Budget
Call which defines the budget
3. Budget Execution framework; sets economic and fiscal
The third phase of the budget
targets; prescribe the priority thrusts
process covers the various operational
and budget levels; and spells out the
aspects of budgeting, thus making
budgeting as one of the principal tools guidelines and procedures, technical
of management control to ensure that
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instructions and the timetable for  How much does the agency need to
budget preparation; keep a program running?
Budget Call – contains budget
parameters earlier set by the 5. DBM bureaus thereafter review the
Development Budget Coordination Agency Budget Proposals and come up
Committee (DBCC) as well as policy with recommendations for the
guidelines and procedures to aid Executive Review Board, comprised by
government agencies in the the DBM Secretary and the DBM’s
preparation and submission of their senior officials.
budget proposals.
The discussions of the Executive
Kinds of Budget Call:
Review Board cover the prioritization of
National Budget Call – addressed to all programs and their corresponding
agencies, including state universities support vis-à-vis the priority agenda of
and colleges; the National Government, and their
implementation.
Corporate Budget Call – addressed to
all government-owned and –controlled 6. DBM bureaus thereafter review the
corporations (GOCCs) and government Agency Budget Proposals and come up
financial institutions (GFIs). with recommendations for the
Executive Review Board, comprised by
3. Preparation by various government
the DBM Secretary and the DBM’s
agencies of their detailed budget
senior officials.
estimates ranking programs, projects
and activities using the capital
The discussions of the Executive
budgeting approach and submission of
Review Board cover the prioritization of
the same to DBM; programs and their corresponding
support vis-à-vis the priority agenda of
To boost citizen participation, the
the National Government, and their
current administration has tasked the implementation.
various departments and agencies to
partner with civil society organizations
7. The DBM next consolidates the
and other citizen-stakeholders in the recommended agency budgets into the
preparation of the Agency Budget
following:
Proposals.
 National Expenditure Program
4. Conduct a budget hearings were
(NEP) – provides the details of
agencies are called to justify their
spending for each department and
proposed budgets before DBM
agency buy program, activity or
technical panels;
project (PAP), and is submitted
inthe form of a proposed General
 How much does an agency need to
Appropriation Act (GAA);
operate daily?
 How did the agency spend its
 Budget of Expenditures and
budget and deliver on previous
Sources of Financing (BESF)
targets?

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The Details of Selected Programs and To meet the Constitutional requirement

Projects is the more detailed for the submission of the President's
disaggregation of key PAPs in the NEP, budget with 30 days from the opening of
especially those in line with the each regular session of Congress, the
National Government’s development budget preparation phase is guided by a
plan. budget calendar.

The Staffing Summary provides the

staffing complement of each
department and agency, including the Two categories of Public or
number of positions and amounts Government Expenditures:
allocated.
1. Capital Expenditures or Outlays –
8. Presentation of the proposed budget expenses whose usefulness lasts for
levels of department/agencies/special more than one year, and which add to
purpose funds to the DBCC for the assets of the Government,
approval. including investments in the capital of
government-owned or controlled
9. Review and approval of the proposed corporations and their subsidiaries
budget by the President and the
Cabinet; 2. Current Operating Expenditures –
purchases of goods and services in
10. Submission by the President of current consumption the benefit of
proposed budget to Congress. which does not extend beyond the
fiscal year. The two components of
Once the NEP and the BESF are current expenditures are those for:
approved by the President and the  Personal Services (PS)
Cabinet, the DBM prepares the budget  Maintenance and Other Operating
documents for submission to Expenses (MOOE)
Congress.

The budget documents consist of:

Public or Government Expenditures are
 President’s Budget Message – broadly grouped according to their
through which the President functions into:
explains the policy framework and
budget priorities; 1. Economic Development Expenditures
– i.e., expenditures on agriculture and
 BESF – mandated by Section 22, natural resources, transportation and
Article VII of the Constitution, communications, commerce and
which contains the macroeconomic industry, and other economic
assumptions, public sector context, development efforts
breakdown of the expenditures and
funding sources for the fiscal year 2. Social Services or Social Development
and the two previous years Expenditures – i.e., government outlay
on education, public health and
 NEP medicare, labor and welfare and others

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3. General Government or General Public 4. Extraordinary income (i.e.,

Services Expenditures – i.e., repayment of loans and advances
expenditures for the general made by government corporations
government, legislative services, the and local governments and the receipts
administration of justice, and for and shares in income of the Bangko
pensions and gratuities Sentral ng Pilipinas, and other
receipts); and,
4. National Defense Expenditures – i.e., 5. Public borrowings (i.e., proceeds of
sub-divided into national security repayable obligations generally with
expenditures for the maintenance of interest from domestic and foreign
peace and order creditors of the Government in general,
including the National Government
5. Public Debt and its political subdivisions).

Public expenditures may further be The main sources of revenue of LGUs

classified according to the nature of are as follows:
funds:
1. General Fund 1. Tax revenue
2. Special Fund Compulsory contributions to finance
3. Bond Fund government activities.

2. Service and Business Income

On the other hand, public revenues Revenues from exchange transactions.
complement public expenditures and
cover all income or receipts of the 3. Transfers, Assistance and Subsidy
government treasury used to support Transfers represent receipts of the LGU
government expenditures. counterpart or equity share, the unspent
appropriations for Disaster Risk
In the Philippines, public revenues are Reduction and Mitigation Fund, transfers
generally derived from the following from national government agencies and
sources, to wit: other local government units.
1. Tax revenues (i.e., compulsory Assistance and subsidy represent the
contributions to finance government amount of funds/assets transferred from
activities); the National Government, Local
2. Capital revenues (i.e., proceeds from Government Units, Government Owned
and/or Controlled Corporations without
sales of fixed capital assets or scrap
specific purpose. Likewise, these are
thereof and public domain, and gains
financial assistance from other funds,
on such sales like sale of public lands, General Fund Proper/other special
buildings and other structures, accounts and other local economic
equipment, and other properties enterprises.
recorded as fixed assets);
3. Grants (i.e., voluntary contributions 4. Shares, Grants and Donations
and aids given to the Government for Shares represent LGU share from the
its operation on specific purposes in income from operations of PAGCOR and
the form of money and/or materials, PCSO. These are recognized as income
and do not require any monetary upon receipt of the funds.
Grants and donations refer to aids
commitment on the part of the
from the private sector or international
recipient);
institutions without specific purpose. The
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aid or donation may be in cash and in

kind. Donations in cash shall be
recognized in Philippine currency.
Receipts in foreign currency shall be
converted into Philippine currency at the
date of receipt. Aids or donations in kind
shall be recognized at fair value of the in
kind donations upon the transfer of the
legal title.
Grants from concessionary loans is the
non-exchange revenue recognized when
the LGU secure borrowings at below
market terms. This is the difference
between the loan proceeds and the fair
value of the loan on initial recognition.
This grant is a paper income, thus, not
considered for budget purposes.

5. Gains
Gain is the difference between the fair
value of the assets and the carrying cost of
the asset. The gain may be a paper income
or an actually realized income.

6. Miscellaneous Income