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
 The current year’s budget is
formulated based on the
previous year’s budget, which
is just adjusted for any
variances experienced in the
past. Presumably, the
proposed programs and
expenditures in the previous
year are automatically
approved in the current year.
 Uses a “roll-over” approach.
 Prone to abuse.
vs. 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 “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
 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. 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 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