PRE 8 GOVERNMENT ACCOUNTING
Module 1
Lecture Guide 1 : Overview and Budget Process in Government Accounting
Government Accounting – the processes of analyzing, recording, classifying,
summarizing, and communicating all transactions involving the receipt and
disposition of government funds and property and interpreting the result thereof.
The objective of government accounting are :
a. To produce information concerning past operation and present conditions.
b. To provide a basis for guidance for future operations.
c. To provide for control of the acts of public bodies and officers in the receipt,
disposition and utilization of funds and property.
d. To report on the financial position and the results of the operation of government
agencies for the information of all the people concerned.
Government Accounting place greater emphasis on the following :
a. Sources and utilization of government funds.
b. Responsibility, accountability, and liability of entities entrusted with government
funds and properties.
c. The sources of government funds include receipts from taxes and other fees
borrowing and grants from other governments and international bodies.
d. The utilization of government funds includes expenditures on programs, projects,
unanticipated losses from calamities and the like.
Responsibility, Accountability and Liability Over Government Fund and
Property
1. Government resources shall be utilized efficiently and effectively in accordance
with the law. The head of a government agency is directly responsible for
implementing this policy and is primarily responsible for government resources
entrusted to his agency. Those who are entrusted with the possession of
government resources are directly responsible to the head of the agency.
2. All those who are exercising authority over a government agency shall share fiscal
responsibility.
Accountability Over Government Fund and Property
1. A Government officer entrusted with the possession of government resources is
responsible for the safekeeping therefore in accordance with the law. Every
accountable officer shall be properly bonded.
2. The transfer of government funds from one officer to another shall except as
allowed by law be made only after the authorization of the COA. The transfer shall
be properly documented in an invoice and receipt.
Liability Over Government Fund and Property
1. The unlawful use of government resources shall be the personal liability of the
employee found to be directly responsible thereof.
2. Every accountable officer shall be liable for all losses resulting from the unlawful
use of negligence in the safekeeping of government resources.
3. No accountable office shall be relieved from liability merely because he has acted
under the direction of a superior officer in unlawfully utilizing the government
resources entrusted to him unless before that act, he has notified the superior
officer in writing, that the utilization is illegal. The superior officer shall be
primarily liable while the accountable officer who fails to serve the required
notice shall be secondarily liable.
4. An accountable officer shall immediately notify the COA of any loss of government
funds from unforeseen events (force majeure) within 30 days. Failure to do so will
not relieve the officer of liability.
Accounting Responsibility
The following officers are in-charge with government accounting responsibility :
Commission on Audit (COA)
 Has the exclusive authority to promulgate accounting and auditing rules and
regulations.
 Keeps the general accounts of the government , supporting voucher and other
documents.
 Submit financial reports to the President and Congress.
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Department of Budget and Management (DBM)
The Department of Budget and Management (DBM) is responsible for the formulation
and implementation of the national budget with the goal of attaining the nation’s
socio-economic objective.
Bureau of Treasury (BTr)
The Bureau of Treasury functions under the Department of Finance and is the cash
custodian of the government. The BTr is authorized to :
 Receive and keep national funds and manage and control the disbursement
thereof; and
 Maintain accounts of financial transactions of all national government
offices, agencies, and instrumentalities.
The Government Agencies
Government agencies refer to any department, bureau, or office of the national
government or any of its branches and instrumentalities or any political subdivision
as well as any government owned or controlled corporation (GOCC), including its
subsidiaries or other self-governing board or commission of the government .
The government agencies are responsible for directly implementing the project and
performing the functions delegated by the government.
Each agency (entity) shall maintain accounting books and budget registries which are
reconciled with the cash record of the BTr and the budget records of the COA and
DBM. Government agencies are required by law to have accounting
units/divisions/departments.
The GAM for NGAs
The Government Accounting Manual for National Government Agencies (GAM for
NGAs) was promulgated primarily to harmonize the government accounting
standards with international accounting standards, particularly the international
public sector accounting standard (IPSAS). The IPSASs are based on the International
Financial Reporting Standard (IFRS).
LEGAL BASIS
The GAM FOR NGAs is promulgated by the Commission on Audit (COA) based on the
authority conferred to it by the Philippine Constitution.
COVERAGE
a. Preparing the general-purpose financial statement in accordance with the
Philippine Public Sector Accounting standard (PPSAS) and other financial
reports as may be required by laws, rules and regulations; and
b. Reporting of budget, revenue, and expenditures in accordance with laws,
rules, and regulations.
OBJECTIVE
The GAM for NGAs aims to update the following :
a. Standards, policies, guidelines, and procedures in accounting for government
funds and property.
b. Coding structure and accounts.
c. Accounting books, registries, records forms, reports, and financial statements.
BASIC ACCOUNTING AND BUDGET REPORTING PRINCIPLES
The financial records and reports of government entities shall comply with the
following :
1. Philippine Public Sector Accounting Standards (PPSAS) and relevant law, rules,
and regulations.
2. Accrual Basis of Accounting
Under the accrual basis of accounting, transactions are recognized when they occur
(and not only when cash is received or paid) therefore transactions are recognized in
the period to which they relate.
3. Budget basis for presentation of budget information in the financial statements
4. Revised Chart of Accounts Prescribed by COA
5. Double Entry Bookkeeping
6. Financial statements based on accounting and budgetary records; and
7. Fund Cluster Accounting.
The books of accounts are maintained by fund cluster (according to the type of fund
being accounted for) as follows :
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For example, separate accounting books (Journals and Ledgers) and budget registries
shall be maintained for Regular Agency Fund. Another separate accounting books and
budget registries shall be maintained for foreign Assisted Project Funds and so on.
QUALITATIVE CHARACTERISTICS OF FINANCIAL REPORTING
Information reported shall meet the qualitative characteristics. Qualitative
characteristics are the attributes that make information useful to users.
1. Understandability – information is understandable when users can reasonably be
expected to comprehend its meaning . Accordingly, users are assumed to have :
a. Reasonable knowledge to the entity activities ; and
b. Willingness to study the information.
2. Relevance - Information is relevant if it can assist users in evaluating past present
or future events or in confirming or correcting past evaluations. To be relevant,
information must also be timely.
3. Materiality – materiality affects the relevance of information. Information is
material if its omission or misstatement could influence the decision of users,
Materiality depends on the nature or size of the item or error, judged in the
circumstances of its omission or misstatement.
4. Timeliness - Information loses its relevance if there is undue delay in its
reporting. The complexity of an entity’s operations is not a sufficient reason for
failing to report on a timely basis.
5. Reliability – reliable information is free from material error and bias and can be
depended on by users to represent faithfully that which it purports to represent
or could reasonably be expected to represent.
6. Faithful Representation – for information to represent faithfully transactions and
other events, it should be presented in accordance with the substance of the
transactions and other events and not merely their legal form.
7. Substance Over Form - The substance of transactions or other events is not
always consistent with their legal form. If information is to represent faithfully the
transactions and other events that it purports to represent, it is necessary that
they be accounted for and presented in accordance with their substance and
economic reality, and not merely their legal form.
8. Neutrality – information is neutral if it is free from bias, information shall not be
selected or presented in manner that is designed to influence the user’s decision
to achieve a predetermined outcome.
9. Prudence - the exercise of a degree of caution when making estimates under
conditions of uncertainty. Such that assets or revenue are not overstated, and
liabilities or expenses are not understated.
10. Completeness – information should be complete within the bounds of materiality
and cost.
11. Comparability - information is comparable when users can identify similarities
and differences between that information and information in other reports.
Comparability requires users must be informed of the entity policies , changes to
those policies and the effect of those changes and that financial statements show
corresponding information for preceding periods.
COMPONENT OF GENERAL-PURPOSE FINANCIAL STATEMENTS
The complete set of general-purpose financial statements consists of :
a. Statement of Financial Position
b. Statement of Financial Performance
c. Statement of changes in Net Assets/ Equity
d. Statement of Cash flow
e. Statement of Comparison of Budget and Actual Amounts and
f. Notes to the Financial Statements, comprising a summary of significant
accounting policies and other explanatory notes.
ELEMENTS OF FINANCIAL STATEMENTS
ASSET
Assets are resources controlled by an entity as a result of past events, and from which
future economic benefits or service potential and expected to flow to the entity.
The key feature of an assets are :
a. The benefit must be controlled by the entity;
b. The benefit must have arisen from a past event and
c. Future economic benefit or services potential must be expected to flow to the
entity.
Control means the ability to benefit from an asset or prevent others from benefitting
from that asset. Benefit means the ability to use or exchange lease sell or use the asset
to settle liabilities or distribute it to owners.
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Past Event – A transaction or event giving rise to control of future economic benefits
must have occurred. A mere intention to acquire assets in the future doesn’t result to
the recognition of assets in the present.
RECOGNITION OF AN ASSET
An asset is recognized when :
a. It is probable that the future economic benefit will flow to the entity.
b. The asset has a cost or value that can be measured reliably.
Probable inflow of future economic benefits :
a. The chance of benefit arising is more likely rather than less likely(e.g., greater
than 50%).
b. Benefit can be expected based on available evidence or logic.
RELIABLE MEASUREMENT
a. Valuation method is free from material error or bias.
b. Faithful representation of the asset’s benefits.
c. Reliable information will, without bias or undue error faithfully represent
those transactions and events.
LIABILITIES
Liabilities are present obligations of the entity arising from past events, the settlement
of which is expected to result in an outflow from the entity of resources embodying
economic benefit or service potential.
EQUITY
Net assets/Equity – is the residual interest in the assets of the entity after deducting
all its liabilities.
REVENUE
Revenue is the gross inflow of economic benefits or service potential during the
reporting period when that inflow results in an increase in net assets/equity, other
than increases relating to the contribution from owners.
Contribution from Owners – are future economic benefits that have been contributed
to the entity by external parties which do not result to liabilities of the entity and for
which the contributor obtain interest in the net assets of the entity (i.e., right to
dividends and right to net assets in cases of liquidation).
Revenue Fund – comprise all funds derived from the income of any agency of the
government and available for appropriation or expenditure in accordance with law.
EXPENSES
Expenses are decrease in economic benefits or service potential during the reporting
period in the form of outflows or consumption of assets or incurrence of liabilities
that result in decreases in net asset/equity, other than those relating to distributions
to owners.
Distributions to owners are future economic benefits distributed by the entity to its
owners, either as a return on investment or as a return of investment.
Lecture Guide 2 : The Budget Process
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 according with PPSAS 24.
The national budget (government budget ) is the government’s estimate of the
sources and uses of government’s funds within a fiscal year. This forms the basis
expenditure and is the government key instrument for promoting its socio-economic
objective.
The formulation and eventual utilization of the national budget are summarized in the
budget cycle.
THE BUDGET CYCLE
BUDGET PREPARATION
The budget preparation in the Philippines uses a bottom-up approach. Under the
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.
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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 target, the agency budget ceiling and
other guidelines in the completion and submission of agency budget proposal.
Relevant Terms :
 Balanced Budget – prepared in such a way that estimated revenue exceed
estimated expenditures. Its actual revenue exceed actual expenditures, the
government earns a surplus. If expenditure exceed revenues, the government
incurs a deficit.
 Annual Budget - cover 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 appropriation act.
 Line Item Budget- focuses on specific expenditures such as salaries and
wages travel expenses, freight , supplies material and equipment.
 Performance Budget- a plan of activities to be undertaken including their
related cost with the emphasis on meeting targets and desired results. The
focus is on the work to be done or services to be rendered.
 Obligation 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 Hearings
Budget hearings are conducted after the agencies submit their budget proposal. Each
agency defends its budget proposal before the DBM. The DBM deliberates on the
budget proposal makes recommendations and consolidates the deliberated proposal
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.
Presentation to the Office of the President
The President and Cabinet members review the proposed budget . After the President
approve 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 Budget.
The President Budget contains the following documents which are intended to assist
the Congress in their review and deliberation of the proposed national budget.
 President’s Budget Message - this contains the Presidents explanation of the
country fiscal policy and budget priorities.
 The National Expenditure Program (NEP) contains the details of all the
government entities proposed expenditures in the coming year.
 Budget of Expenditures and Sources of Financing (BESF) – this contains the
estimated expenditures accompanied by estimates of expected sources of
financing.
 Other documents aimed to provide further explanation of selected items in
the NEP (detailed of key programs and projects and staffing summary).
BUDGET LEGISLATION
Government funds shall only be spent in pursuance of the appropriation made by law.
Therefore, due process must be undertaken to legalize the proposed budget.
a. House Deliberation – Upon receipt of the President’s Budget, the House of
Representation conducts hearings to scrutinize the various agencies
respective proposed programs and expenditures. Thereafter the house of
Representative prepares the General Appropriation Bill (GAB).
b. Senate Deliberations - The Senate conduct its own deliberations on the GAB
from the House of Representatives. However, for expediency, hearing in the
Senate start even as Representatives deliberation are ongoing.
c. Bicameral Deliberation - After deliberations in both houses are finished, a
committee called the Bicameral Conference Committee is formed to
harmonize any conflict between the Representative 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.
d. President’s Enactment – The President enacts the budget which is now
known as the General appropriation Act. (GAA). Before enactment though, the
President may exercise his veto power as conferred to him under the
Philippine Constitution.
THE APPROVED BUDGET
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Approved Budget is the expenditures 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 :
New General Appropriations 01
Continuing Appropriation 02
Supplemental Appropriation 03
Automatic Appropriations 04
Unprogrammed Funds 05
Retained Income/ Funds 06
Revolving Funds 07
Trust Receipts 08
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 authorization for incurring obligation
during a specified budget year, as listed in the GAA.
2. Continuing Appropriations – are the authorizations to support obligations for a
specific purpose or projects which require the incurrence of obligations even
beyond the budget year.
3. Supplemental Appropriations – are additional appropriation authorized by law to
augment the original appropriation 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 authorization programmed annually or for
the same other period prescribed by law which do not require periodic action by
Congress.
5. Unprogrammed Funds – are standby appropriation 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
Expenditure and Sources of Financing (BESF) submitted by the President of
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 expenditure incurred by virtue of said business type
activity shall be charge 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.
BUDGET EXECUTION
This is the phase where the government funds are spent.
Release Guidelines and BED – The Department of Budget Management (DBM)
issues guidelines on the release and utilization of funds while the various agencies
submit their Budget Execution Document(BEDs). A BED summarizes an agency fiscal
year plans and performance target. It includes the following :
a. Physical and Financial Plan
b. Monthly Cash Program
c. Estimates of Monthly Income, and
d. List of obligations that are not yet due and demandable.
The following are the major recipients of the budgets :
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 city (cities which are part
of a province) and municipalities and (d) barangays.
3. Government Owned and Controlled Corporation (GOCCs) – corporations that are
owned or controlled, directly or indirectly, by the government and vested with
functions relating to public needs.
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 devise
to ensure that release conform to the national budget . Alongside is a Cash Release
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Program (CRP) which sets the disbursement limits for years, for each quarter and for
each month.
It is an authorization issued by the DBM to government agencies to incur obligation
for
specified amount contained in a legislative appropriation in the form of budget
release document. It is also referred to as Obligational Authority.
It is illegal for a government entity to incur obligation without having first received
the
“allotment”. Moreover, the type and amount of obligations to the 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 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) – serve as the
obligational authority for the comprehensive release of budgetary item
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 Benefit Fund and Pension and Gratuity Fund are also
covered by SAROs.
3. General Allotment Release Order (GAR0) – 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 a competent
authority i.e., Retirement and Life Insurance Premium.
Incurrence of Obligations – Government agencies incur obligations which will be
paid by the government, e.g., entering contracts, hiring of personnel, purchase of
supplies etc.
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 specified 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 DBM to agencies to cover the
liquidation of their actual obligations incurred against available allotments for
availment of proceeds from loan/grants through supplier’s credit/constructive
cash.
4. Cash Disbursement Ceiling – authority issued by the DBM to agencies with foreign
operation (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 made through checks that are chargeable against the
accounts of the Treasurer of the Philippines (i.e., Treasury Single Account). Checks
issued under this scheme are called “ Modified Disbursement system (MDS)
check.
BUDGET ACCOUNTABILITY
This phase occurs concurrently with the Budget Execution phase. As the Budget is
being
executed. It is regularly monitored to determine the conformation of actual results
with planned targets.
Budget Accountability Reports – Government agencies are required to submit the
following accountability reports :
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 a. Monthly Report of Disbursements – show 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. The Quarterly Physical Report of Operations show the agency’s physical
accomplishments in each quarter vis-a 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 allotments, and unpaid obligations.
d. Summary of Appropriation, Allotments, Obligation, disbursement 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 – show 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 utilization, Disbursements and Balances, this
report is prepared by agencies that have authority to use their revenue. It
shows the budgeted revenue the utilization and disbursement thereof and the
utilized amount.
g. Summary of Approved Budget Utilization - Disbursements and Balances by
Object of Expenditures. Similar to “F” above but provides details of
expenditures.
h. Quarterly Report of Revenue and Other Receipts – shown the actual revenues
and other receipts remitted to the BTr and deposited in authorized
government depository banks in each quarter.
Report “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 Due and Demandable obligation – show the names of creditors the
amount owed to them and the number of days these obligations are
outstanding. This report is to be submitted to the COA and DBM within 30
days after the end of the year.
A consolidated Statement of Allotments obligation and Balance per Summary of
Appropriations, based on reports “c” and “d’ above. Shall be submitted on or before
February 14, of the following year.
Performance Reviews – The DBM and COA perform periodic review of the agency’s
performance and budget accountability and report to the President.
Audit – The COA audits the agencies.
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 managers accountable, therefore.
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 a government agency,
headed by a manager, who is accountable for a specified set of activities.
 controllable cost - 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 at the lowest possible cost.
Each of the managers of an agency that is a cost center is evaluated based on his
ability to meet budgeted goals for controllable cost . All costs are controllable by top
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management because of the high extent of its authority. Fewer costs are controllable
in lower management levels because of the decrease scope of authority.