THE BUDGET

PROCESS
Learning Objectives:
1. Enumerate the steps in the budget process.
2. Describe briefly the principles of responsibility accounting.
The National Budget
Government accounting is primarily budgetary
accounting. Government accounting does not only aim to
provide information on past events and transactions but
also budget information in accordance with PPSAS 24.
The Philippine Constitution and other laws require
government funds to be utilized in accordance with a
national budget that is duly approved by legislation.
Government accounting, therefore, is concerned with
providing information useful in assessing the
conformance of utilizations of government funds with the
approved budget.
 The national budget (government budget) is the
government’s estimate of the sources and uses of
government funds within a fiscal year. This forms the
basis for expenditures and is the government’s key
instrument for promoting its socio-economic
objectives.

The formulation and eventual utilization of the

national budget are summarized in the budget cycle.
The Budget Cycle
The budget cycle has four phases, namely:

1. Budget Preparation
2. Budget Legislation
3. Budget Execution
4. Budget Accountability
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.
In 2011, the Philippine Government attempted to
start a new tradition by shifting from the old “incremental”
system of budgeting to the “zero-based budgeting”
approach. (The Philippine Public Transparency Reporting Project, January 11, 2011)
 Incremental budgeting vs. Zero-based Budgeting
⮚ The current year’s budget is ⮚ The current year’s budget is
formulated based on the formulated without regard
previous year’s budget, to the previous year’s
which is just adjusted for any budget. Government
variances experienced in the agencies are required to
past. Presumably, the justify their current year’s
proposed programs and proposed programs and
expenditures in the previous expenditures, irrespective of
year are automatically whether these are new or
approved in the current year. carried over from the
⮚ Uses a “roll-over” approach. previous year.
⮚ Prone to abuse. ⮚ Uses a “back-to-zero” or
“clean slate” approach.
⮚ Promotes efficient and
effective utilization of funds.
1.Budget call – The budget preparation starts when the
Department of Budget and Management (DBM) issues a
Budget Call to all government agencies. The budget call
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 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.
2. Budget hearings – Budget hearings are
conducted after the agencies submit their
budget proposals. Each agency defends its
budget proposal before 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”.
The “President’s Budget” contains the
following documents which are intended to assist the
Congress in their review and deliberation of the
proposed national budget:
a. President’s Budget Message – this contains the
President’s explanation of the country’s fiscal policy
and budget priorities.
b. National Expenditure Program (NEP) – this
contains the details of all the government entities’
proposed expenditures in the coming year.
c. Budget of Expenditures and Sources of Financing
(BESF) – this contains the estimated expenditures
accompanied by estimates of expected sources of
financing.
d. Other documents aimed to provide further
explanation of selected items in the NEP (e.g.,
details of key programs and projects and staffing
summary).
Relevant provision of law:

⮚ The President shall submit the proposed

budget to the Congress within 30 days
from the opening of every regular session.
(Art. VII, Sec. 22, Philippine Constitution)
Budget Legislation
Government funds shall only be spent in pursuance of
an appropriation made by law. Therefore, due process
must be undertaken to legalize the proposed budget.

4. House Deliberations – Upon receipt of the

President’s Budget, the House of Representatives
conducts hearings to scrutinize the various
agencies’ respective proposed programs and
expenditures. Thereafter, the House of
Representatives prepares the General
Appropriations Bill (GAB).
5. Senate Deliberations – The Senate conducts its own
deliberations on the GAB. These normally start after
the Senate receives the GAB from the House of
Representatives. However, for expediency, hearings in
the Senate start even as Representatives
deliberations are ongoing.
6. Bicameral Deliberations – After deliberations in
both houses are finished, a committee called the
Bicameral Conference Committee is formed to
harmonize any conflicts between the Representatives
and Senate versions of the GAB.
The harmonized GAB (‘Bicam” version)
is submitted back to both Houses for ratification. After
ratification, the final GAB is submitted to the President
for enactment.
7. President’s enactment – The President enacts the
budget, which is now known as the General
Appropriations Act (GAA). Before enactment though,
the President may exercise his veto power as
conferred to him under the Philippine Constitution.
Relevant provision of law:

⮚ When the proposed budget is not enacted

before the fiscal 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 decisions
related to the anticipated revenue or receipts for the budgetary
period. The approved budget consists of the following:

UACS Code
New General Appropriations 01
Continuing Appropriations 02
Supplemental Appropriations 03
Automatic Appropriations 04
Unprogrammed Funds 05
Retained Income/Funds 06
Revolving Funds 07
Trust Receipts 08
*The Unified Accounts Code Structure (UACS) refers to
the standard coding system used in the financial
reporting of the National Government.

⮚ 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 that require the incurrence of
obligations even beyond the budget year.
3. Supplemental Appropriations – are additional appropriations
authorized by the law to augment the original
appropriations which proved to be insufficient for their
intended purpose due to economic, political or social
conditions supported by Certification of Availability of Funds
from the BTr.
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 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 – receipts by any government agency acting as
trustee, agent or administrator for the fulfilment of some
obligations or conditions.
Relevant provision of law:

⮚ A special appropriations bill shall specify the purpose for

which it is intended, and shall be supported by funds actually
available as certified by the National Treasurer, or to be
raised by a corresponding revenue proposal therein. (Art. VI,
Sec. 25(4), Philippine Constitution)
⮚ No law shall be passed authorizing any transfer of
appropriations; however, the President, the President of the
Senate, the Speaker of the House of the Representatives, the
Chief Justice of the Supreme Court, and the heads of
Constitutional Commissions may, by law, be authorized to
augment any item in the general appropriations law for their
respective offices from savings in other items of their
respective appropriations. (Art. VI, Sec. 25(5), Philippine Constitution)
Budget Execution
Budget execution is the phase where government funds are
spent.

8. Release guidelines and BEDs – The DBM issues

guidelines on the release and utilization of funds while the
various agencies submit their Budget Execution Documents
(BEDs). A BED summarizes an agency’s fiscal year plans and
performance targets. It includes the following:
a. Physical and financial plan,
b. Monthly cash program,
c. Estimate of monthly income, and
d. List of obligations that are not yet due and demandable.
The following are the major recipients of the budget:
1. National Government Agencies (NGAs) – include all agencies
within the executive, legislative and judicial branches of
government, e.g., commissions, departments, Land Bank of the
Philippines, Social Security System, etc.
2. Local Government Units (LGUs) – include (a) autonomous regions,
(b) provinces and cities independent from a province, (c)
component cities (cities which are part of a province) and
municipalities, and (d) barangays.
3. Government Owned and Controlled Corporations (GOCCs) –
corporations that are owned or controlled, directly or indirectly,
by the government and vested with functions relating to public
needs.
The members of the Congress (Senators and Congressmen) and
the Judiciary Branch are also recipients of a portion of the
budget.

1. The portion received by members of the Congress is referred

to as the Priority Development Assistance Fund (PDAF)
a.k.a “Pork Barrel.” This is intended to fund priority
development programs of the government.
2. The portion received by members of the Judiciary is referred
to as the Judiciary Development Fund (JDF). At least 80%
of the fund is intended for the cost of living allowances of
the members and personnel of the Judiciary, the remainder,
not exceeding 20%, is for the acquisition and maintenance
of office equipment and facilities. (PD No. 1949)
In 2014, the Aquino Administration introduced the Disbursement
Acceleration Program (DAP) which aims to speed-up public spending.
The DAP is not a fund but a mechanism of releasing funds, particularly from
savings and unprogrammed funds.

⮚ Savings are available portions or balances of items under the General

Appropriations Act (GAA) which result from:
a) the completion or final discontinuance or abandonment of a
program, activity, or project;
b) unpaid compensation of vacant or unfilled positions and leaves of
absence without pay; or
c) the implementation of efficiency measures that enable agencies to
deliver services at lower cost.
Such savings may then be used to augment funds for programs,
activities, or projects which are included in the GAA. (i.e. nonexistent
budget items cannot be funded).

⮚ Unprogrammed funds
9. Allotment – The DBM formulates the Allotment
Release Program (ARP) to set the limit for
allotment releases during the upcoming year. This
is used as a control device to ensure that releases
conform to the national budget. Alongside, is a
Cash Release Program (CRP), which sets the
disbursement limits for the year, for each quarter
and for each month.
⮚ Allotment – is an authorization issued by the
DBM to government agencies to incur
obligations for specified amounts contained in
a legislative appropriation in the form of
budget release documents. It is also referred
to as Obligational Authority.
It is illegal for a government entity to incur
obligations without having first received the
“Allotment.” Moreover, the type and amount of
obligations to be incurred most conform to
those that are specified in the “Allotment.”

⮚ Obligation – is an act of a duly authorized

official which binds the government to the
immediate or eventual payment of a sum of
money. Obligation maybe referred to as a
commitment that encompasses possible
future liabilities based on current contractual
agreement.
 The following are the documents used in releasing
allotments to government agencies:

1. General Appropriations Act Release Document (GAARD) – serves

as the obligational authority for the comprehensive release of
budgetary items appropriated in the GAA, categorized as For
Comprehensive Release.

2. Special Allotment Release Order (SARO) – covers budgetary items

under For Later Release (negative list) in the entity’s submitted
Budget Execution Documents (BEDs), subject to compliance of
required documents/clearances. Releases of allotments for
Special Purpose Funds (e.g. Calamity Fund, Contingent Fund, E-
Government Fund, Feasibility Studies Fund, International
Commitments Fund, Miscellaneous Personnel Benefits Fund and
Pension and Gratuity Fund) are also covered by SAROs.
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.
10. Incurrence of Obligations – government agencies
incur obligations which will be paid by the
government, e.g., entering into contracts, hiring of
personnel, purchase of supplies, etc.
11. Disbursement Authority – the DBM issues
disbursement authority to the government agencies.
This is the point where government agencies obtain
access to the government funds.
The ff. are the documents used in
releasing disbursement authority to government
agencies:
12.Notice of Cash Allocation (NCA) – authority issued by
the DBM to central, regional and provincial offices
and operating units to cover their cash requirements.
2. Notice of Transfer of Allocation – authority issued by an
agency’s Central Office to its regional and operating
units to cover the latter’s cash requirements.
3. Non-Cash Availment Authority – authority issued by the
DBM to agencies to cover 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 the
DBM to agencies with foreign operations (e.g.,
Department of Foreign Affairs ‘DFA’) allowing them to
use the income collected by their Foreign Service Posts
to cover their operating requirements.
 Disbursements are most commonly made
through checks that are chargeable against the
account of the Treasurer of the Philippines (i.e.,
Treasury Single Account). Checks issued under this
scheme are called “Modified Disbursement
System (MDS) Checks.”

Other modes of disbursements include

payments through cash, commercial check, bank
transfer/bank credit, or credit card.
Remember the following:

1. - authorization by a legislative body

Appropriation to allocate funds for specified
purposes.
2. Allotment - authorization to agencies to incur
obligations (i.e., obligational
authority)
3. Obligation - amount contracted by an
authorized officer for which the
government is held liable.
4. - actual amount paid out of the
Disbursement budgeted amount.
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 Reports of Disbursements
b. Quarterly Physical Report of Operation
c. Statement of Appropriations, Allotments,
Obligations, Disbursements and Balances
d. Summary of Appropriations, Allotments,
Obligations, Disbursements and Balances By
Object of Expenditures
e. List of Allotments and Sub-Allotments
f. Statement of Approved Budget, Utilizations,
Disbursements and Balances
g. Summary of Approved Budget, Utilizations,
Disbursements and Balances by Object of
Expenditures
h. Quarterly Report of Revenue and Other
Receipts
i. Aging of Due and Demandable Obligations
13. Performance Reviews – The DBM and COA
perform periodic reviews of the agencies’
performance and budget accountability and report
to the President.

14. Audit – the COA audits the agencies.

 The budget reports, together with other budget

records, provide information in preparing the
Statement of Comparison of Budget and
Actual Amounts, which is one of the components
of a complete set of financial statements of a
government entity.
 Story: The Budget Cycle
I. Budget Preparation
Papa and Mama are leaving for a 1-month trip so they asked
you and your little sister to make an estimate of the money you
will need while they are gone (Budget Call). You started your
estimate by asking first Little Sister of her needs (‘bottom-up’
budgeting). Same time last year, Papa and Mama also went for
a 1-month trip and they had you made a similar estimate.
However, instead of giving them that old estimate, you decided
to make a new one in order to better reflect current
circumstances (‘zero-based’ budgeting).

You defended your estimate with Mama (Budget

hearings).
Mama submitted the estimate to Papa for approval
(Presentation to the Office of the President).
II. Budget Legislation
Papa consulted Lolo (a retired Lawyer) to review your
estimate (House Deliberations).
After reviewing the estimate, Lolo gave the estimate to
Lola (a retired CPA) for further study (Senate Deliberations).
Lolo and Lola had some disagreements, so they asked
Umpong, your dog, to harmonize the conflicts (Bicameral
Deliberations). After harmonizing the conflicts, Umpong
submitted the “Bicam” version of the estimate back to both
Lolo and Lola for ratification.
Lolo and Lola submitted the ratified estimate to Papa
for enactment (President’s enactment). Your approved
budget for the month is ₱100 (Appropriation).
III. Budget Execution
Papa left the money to Uncle. Uncle gave you guidelines on how the
money will be released to you. based on your estimates of the timing
of disbursements (Release guidelines BEDs).
Uncle told you that you can now incur obligations up to a
maximum of ₱80 (Allotment).
You then went to Aling Masing’s Store to purchase groceries,
good for 1 month, worth ₱50, on credit (Incurrence of Obligations).
Uncle gave you ₱25 cash to cover your cash disbursement
needs for the 1st week (Disbursement Authority – Notice of Cash
Allocation). You gave Little Sister her share of ₱5 (Notice of Transfer
of Allocation).

 Your disbursements in the 1st week were as follows:

-You: ₱5 installment payment to Aling Masing and ₱12 on personal
needs
- Little Sister: ₱5 on personal needs
Total disbursements in 1st week ₱22
III. Budget Accountability
Your budget accountability reports after the 1st week will show the
following information (Budget Accountability Reports):
- Appropriations: ₱100
- Allotment received: ₱80
- Unreleased appropriation: (₱100 - ₱80)= ₱20
- Obligations incurred: (₱50 to Aling Masing + ₱12 on your personal needs
+ ₱5 on Little Sister’s personal needs) = ₱67
- Unobligated allotment: (₱80 allotment - ₱67) = ₱13
- Disbursements: ₱22
- Unpaid Obligations: (₱67 obligations incurred - ₱22 disbursements) = ₱45
(Payable to Aling Masing)
- Unused NCA = (₱25 NCA - ₱22 disbursements) = ₱3

Uncle periodically updates Papa and Mama regarding your budget

execution through call and text (Performance Review).
Papa and Mama will audit you when they return (Audit).

- The End -
Responsibility Accounting
To better evaluate the budget accountability of an entity
government accounting adheres to the concept of
responsibility accounting.

Responsibility Accounting is a system of providing cost

and revenue information over which a manager has direct
control of. This enables the evaluation of a manager’s
performance based only on matters that are directly under his
control. Therefore budget deviations can be readily attributed
to the 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.
 Except for some which derive most of their income from
collection of taxes and fees, government agencies are basically
cost centers whose primary purpose is to render service to the
public the lowest possible cost.
Each of the managers of an agency that is a cost center
evaluated based on his ability to meet budgeted goals for
controllable costs. All costs are controllable by top
management because of the high extent of its authority. Fewer
costs are controllable in lower management levels because of
the decreased scope of authority.
Each government agency is assigned a responsibility center
code as follows:
Responsibility Center Code Structure
00 000 0000000 000

Organizations
Department
Agency
Lower Level
Operating Unit
Additional code for major office/department
Major Office/
Department
Example:
Commission on Audit (COA)
31 000 0100000 000

Commission on Audit
Agency (none)
Central Office
Additional code for major office/department
National Government
Sector
THANK YOU!