THE BUDGET PROCESS 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)

THE NATIONAL BUDGET

Incremental budget vs. Zero based budgeting
Government accounting is primarily budgetary accounting. Government accounting does - The current year’s budget is - The current year’s budget is
not only aim to provide information on past events and transactions but also budget formulated based on the previous formulated without regard to the
information in accordance with PPSAS 24. year’s budget, which is just adjusted previous year’s budget.
for any variances experienced in the Government agencies are required
The Philippine Constitution and other laws require government funds to be utilized in
past. Presumably, the proposed to justify their current year’s
accordance with a national budget that is duly approved by legislation. Government
programs and expenditures in proposed programs and
accounting, therefore, is concerned with providing information useful in assessing the
expenditures.
conformance of utilization of government funds with the approved budget.
the previous year are automatically Irrespective of whether these are
The national budget (government budget) is the government’s estimate of the sources and approved in the current year. new or carried over from the
uses of government funds within a fiscal year. This forms the basis for expenditures and is - Uses a “roll- over” approach. - previous year. Uses a “back-to-zero”
the government’s key instrument for promoting its socio- economic objectives. - Prone to abuse or “clean slate” approach.
- Promotes efficient and effective
The formulation and eventual utilization of the national budget are summarized in the
utilization of funds
budget cycle.

The Budget Cycle

1. Budget call – The budget preparation starts when the Department of
The budget cycle has four phases, namely: 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
1. Budget Preparation agency’s budget calling, and other guidelines in the completion and submission of
2. Budget Legislation agency budget proposals.
3. Budget Execution
4. Budget Accountability Relevant terms:
• Balanced Budget – prepared in such a way that estimated revenues exceed
Budget Preparation estimated expenditures. If actual revenues exceed actual expenditures, the
The budget preparation in the Philippines uses a “bottom-up” approach. Under “bottom- government earns a surplus. If expenditures exceed revenues, the government
up” budgeting, several parties participate in the budget preparation, starting from the incurs a deficit.
lowest to the highest levels of the government. Government agencies are also tasked to • Annual budget – covers a period of one year and forms the basis for the
increase the participation of citizen- stakeholders in the budget preparation. The opposite annual appropriation.
of “bottom-up” budgeting is “top-down” budgeting – wherein the budget preparation starts • Special budget – provides for items not adequately covered or not included
from the agency heads. 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 Budget Legislation
related costs, with the emphasis on meeting targets and desired results. The
Government funds shall only be spent in pursuance of an appropriation made by law.
main focus is on the work to be done or services to be rendered.
Therefore, due process must be undertaken to legalize the proposed budget.
• 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. 4. House Deliberations – Upon receipt of the President’s Budget, the House of
Representatives conducts hearings to scrutinize the various agencies’ respective
2. Budget hearings – budget hearings are conducted after the agencies submit
proposed programs and expenditures. Thereafter, the House of Representatives
their budget proposals. Each agency defends its budget proposal before the DBM.
prepares the General Appropriations Bill (GAB).
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 5. Senate Deliberations – The Senate conducts its own deliberations on the
the proposed budget to the President. 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
3. Presentation to the Office of the President – The President and Cabinet Representatives deliberations are ongoing.
members review the proposed budget. After the President approves the proposed
budget, the DBM finalizes the budget documents to be submitted to the Congress. 6. Bicameral Deliberations – After deliberations in both houses are finished, a
At this point, the proposed budget is referred to as the “President’s Budget.” committee called the Bicameral Conference Committee is formed to harmonize any
conflicts between the Representatives and Senate versions of the GAB.
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: The harmonized GAB (“Bicam” version) is submitted back to both Houses for
ratification. After ratification, the final GAB is submitted to the President for
a. President’s Budget Message – this contains the President’s explanation of enactment.
the country’s fiscal policy and budget priorities.
b. National Expenditure Program (NEP) – this contains the details of all the 7. President’s enactment – The President enacts the budget, which is now
government entities’ proposed expenditures in the coming year. known as the General Appropriations Act (GAA). Before enactment though, the
c. Budget of Expenditures and Sources of Financing (BESF) – this contains the President may exercise his veto power as conferred to him under the Philippine
estimated expenditures accompanied by estimates of expected sources of Constitution.
financing.
d. Other documents aimed to provide further explanation of selected items in
the NEP (e.g. Relevant provision of law:
details of key programs and projects and staffing summary).
- 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
Relevant provision of law:
current year until a new general appropriations bill is passed by the Congress.
- The President shall submit the proposed budget to the Congress within 30 days (Art. VI, Sec 25(7),
Philippine Constitution)
from
the opening of every regular session. (Art. VII, Sec. 22, Philippine Constitution)
The Approved Budget
5. Unprogrammed Funds – are standby appropriations authorized by Congress
Approved Budget – is the expenditure authority derived from appropriation laws,
in the annual GAA which may be availed only when any of the following
government ordinances, and other decisions related to the anticipated revenue or receipts
instances occur:
for the budgetary period. The approved budget consists of the following:
UACS Code a. Revenue collections exceed the original revenue targets in the
New General Appropriations 01 Budget of Expenditures and Sources of Financing (BESF) submitted by the
Continuing Appropriations 02 President to the Congress;
Supplemental Appropriations 03 b. New revenues are collected or realized from sources not originally
Automatic Appropriations 04 considered in the BESF; or
Unprogrammed Funds 05 c. Newly- approved loans for foreign- assisted projects are secured or
Retained Income/Funds 06 when conditions are triggered for other sources of funds such as perfected
loan agreements for foreign assisted projects.
Revolving Funds 07
(source: http://www.dbm.gov.ph/?page_id=7366)
Trust Receipts 08
6. Retained Income/Funds – collections are authorized by law to be used
 The Unified Accounts Code Structure (UACS) refers to the standard coding directly by agencies concerned for their operations or specific purposes
system used in financial reporting of the National Government.
7. Revolving Funds – receipts derived from business-type activities of
- Appropriation – is the authorization made by a legislative body to allocate funds for departments/agencies which are authorized by law to be constituted as such
purposes specified by the legislative or similar authority. and deposited in an authorized government depository bank. These funds shall
be self-liquidating and all obligations and expenditures incurred by virtue of said
1. New General Appropriations – are annual authorizations for incurring business- type activity shall be charged against said fund.
obligations during a specified budget year, as listed in the GAA.
8. Trust Receipts – receipts by any government agency acting as trustee, agent
2. Continuing Appropriations – are the authorizations to support obligations or administrator for the fulfillment of some obligations or conditions.
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 probed 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.
Relevant provisions 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.
- No law shall be passed authorizing any transfer of appropriations; however, the
President, the President of the Senate, the Speaker of the House of

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
This is the phase where government funds are spent.
‘8. Release guidelines and BEDs – the DBM 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.
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 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.
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 rational 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 following are the documents used in releasing disbursement authority to
government agencies:
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 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 Ceilling – 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 debit, or credit card.
Remember the following:
1. Appropriation - Authorization by a legislative body 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. Disbursement - Actual amount paid out of the 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 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 accomplishment in a given quarter vis- á- vis its physical targets.
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 unreleased appropriations, unobligated
allotment, and unpaid obligations.

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.
A Consolidated Statement of Allotments, obligations and Balances per
Summary of Appropriations (based on reports ‘c’ and ‘d’ above) shall be
submitted on or before February 14 of the following 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
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 lhad some disagreements, so they asked Umpong, your dog, to harmonize
the conflicts (Bicameral Deliberations). After harmonizing the conflict, 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 Uncle periodically updates Papa and Mama regarding your budget execution through call
enactment). Your approved budget for the month is P100 (Appropriation). and text (Performance Review).

III. Budget Execution Papa and Mama will audit you when they return (Audit).

Papa left the money to Uncle. Uncle gave you guidelines on how the money will be -The End-
released to you, based on your estimates of the timing of disbursements (Release
__________________________________________________________________________
guidelines and BEDs).
Notice that appropriation,
Uncle told you that you can now incur obligations up to a maximum of P80 (Allotment).
allotments and disbursements
You then went to Aling Masing’s Store to purchase groceries good for 1 month, worth authorities are systems of
P50, on credit (Incurrence of Obligations) budgetary controls. Instead of
releasing the allocated funds of
Uncle gave you P25 cash to cover your cash disbursement needs for the 1 st week P100 to you all at once, it is
(Disbursement Authority – Notice of Cash Allocation). You gave Little Sister her share of released on a piecemeal basis,
P5 (Notice of Transfer of Allocation). based on your estimate of the
timing of needs (Budget
 Your disbursement in the 1st week were as follows:
Execution Documents ‘BEDs).
- You: P5 installment payment to Aling Masing and
This is to prevent the
P12 on personal needs. - Little Sister: P5 on incurrence of overdraft (i.e.
personal needs - Total disbursement in 1st week P22. obligations exceeding the
IV. Budget Accountability appropriated funds).

Your budget accountability reports after the 1 st week will show the following information
(Budget Accountability Reports):

- Appropriation: P 100
- Allotment received: P80
Responsibility Accounting
- Unreleased appropriation: (P100 – 80) = P20
- Obligations incurred: P50 to Aling Masing + P 12 on your personal needs + P5 on To better evaluate the budget accountability of an entity government accounting adheres to
Little Sister’s personal needs) = P 67 the concept of responsibility accounting.
- Unobligated allotment: ( P80 – P67) = P 13 Responsibility accounting is a system of providing cost and revenue information over which
- Disbursements: P 22 a manager has direct/control of. This enables the evaluation of a manager’s performance
- Unpaid Obligations: ( P67 obligations incurred – P 22 disbursements) = P45 based only on matters that are directly under his control. Therefore, budget deviations can
(payable to Aling Masing) be readily attributed to the managers accountable therefor.
- Unused NCA = (P25 NCA – P22 disbursements) = P 3
Responsibility accounting requires the identification of responsibility centers and the
distinction between controllable and non- controllable costs.
(Source: Government Accounting and Accounting for non- profit organization by Zeus Vernon B. Milan, 2018)