The Budget Cycle
The budget cycle has four phases, namely:
1. Budget Preparation
2. Budget Legislation
3. Budget Execution
4. Budget Accountability
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 to 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.
Budget Preparation
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
The current year's budget is formulated based on the previous year's budget, which is just
adjusted for any variances experienersd in the past. Presumably, the proposed programs and
expenditures previous in year the are automatically approved in the current year.
Uses a "rell-iner" approach. Prone to abuse.
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.
Uses a "huck-to-are" or "clean slate" approach. Promotes efficient and effective utilization of
funds.
Budget Preparation
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 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 estimated revenues exceed estimated
expenditures. If actual revenues 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 - 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 Preparation
2. Budget hearings - Budget hearings are conducted after the agencies submit their budget
proposals. Each agency defends its budget NGA 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.
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 referred to as the
"President's Budget.
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).
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.
When the proposed budget is not enacted before the fiscal year starts, 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)
THE APPROVED BUDGET
Approved Budget is the expenditure authority derived from appropriation laws, government
ordinances, and other decision related to the anticipated revenue or receipts for the budgetary
period. The approved budget consists of the following:
UACS Code
02
03
04
05
06
07
08
New General Appropriations
Continuing Appropriations
Supplemental Appropriations
Automatic Appropriations
Unprogrammed Funds
Retained Income/Funds
Revolving Funds
Trust Recripts
Appropriation-is the authorization made by a legislative body to allocate funds for purposes
specified 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 a Certification of Availability of Funds from
the BTr.
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.
6. Retained Income Funds-collections which are authorized by law to be used directly by
agencies concerned for their operation or specific purposes.
7. Revolving Funds receipts derived from business-type activities of departments/agencies
which are authorized by law to be constituted as such and deposited ited 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.
8. Trust Receipts by any government agency acting as trustee, agent or administrator for the
fulfilment of some obligations or conditions.
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 agenties 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, eg, commissions, departments, Land Bank of the
Philippines, Social Security System, etc.
Budget Execution
2. Local Government Units (LGUS) - include
(a) autonomous regions,
(b) (b) provinces and cities independent from a province,
(c) (c) component cities (cities which are part of a province) and municipalities, and
(d) (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.
Budget Execution
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 Cast Release Program (CRP), which
sets the disbursement limits forth year, for each quarter and for each month.
Allotment is an authorization issued by the DBM 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.
Documents for allotments
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.)
Documents for allotments
• 3. General Allotment Release Order (GARO) is 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.
Budget Execution
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.
Documents in releasing disbursement authority to NGA
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.
2. Notice of Transfer of Allocation-authority issued by an agency's Central Office to its regional
and operating unit to cover the latter's cash requirements.
3. Non-Cash Availment Authority-authority issued by the DBM to agencies to cover the
liquidation of their actual obligations incurred against available allotments for availment of
proceeds from loans/grants through supplier's credit/constructive cash.
4. Cash Disbursement Ceiling-authority issued by ed by the DBM 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 the operating requirements.
Disbursements are most commonly made through checks that are chargeable against the
account of the Treasurer of the Philippines (ie., 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.
Keys to remember in Budget Execution
Appropriation
authorization by a legislative body to allocate funds for specified purposes
Allotment
authorization to agencies to incur obligations.
Obligation
amount contracted by an authorized officer for which the government is held liable.
Disbursement actual amount paid out of the budget
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-à-vis its physical targets.
Budget Accountability
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, unobligated allotments, and unpaid obligations.
unreleased appropriations
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.
f. Statement of Approved Budget, Utilizations, Disbursements and Balances this report is
prepared by agencies that have authority to use their revenue. It shows the budgeted revenue,
the utilizations and disbursements thereof, and the unutilized amount.
g. 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 in a given
quarter.
Reports 'b' to 'h' above are 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.
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.
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 manager accountable therefor.
Responsibility accounting requires the identification of responsibility centers and the distinction
between controllable and Non-controllable costs.
Responsibility center is a part, segment, unit or function of 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.
Each of the managers of an agency that is a cost center is evaluated based on his ability to
meet budgeted goals for controllable costs.