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Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Jai Leonard I.

Carinan

Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Government budget -is the financial plan of a government for a given period, usually for a fiscal year, which shows what its resources are, and how they will be generated and used over the fiscal period. - The budget is the government's key instrument for promoting its socioeconomic objectives. - It can influence the level and direction of economic activity, including the social and political behavior of the people - For advance countries, the budget has become a tool for economic growth and instrument with which to attain full employment and stability - For less developed countries, it has become a means for economic development, to bring about an increase in the per capita real income of the people The National Government budget (also known simply as the budget) - refers to the totality of the budgets of various departments of the national government including the NG support to Local Government Units (LGUs) and Government- Owned and Controlled Corporations (GOCCs). -It is what the national government plans to spend for its programs and projects, and the sources of what it projects to have as funds, either from revenues or from borrowings with which to finance such expenditures. Contents of the Budget The national budget is allocated for the implementation of various government programs and projects, the operation of government offices, payment of salaries of government employees, and payment of public debts. These expenditures are classified by Expense class: Personal services, like salaries and wages, social security contributions, overtime pay, etc.; Maintenance and other operating expenditures, such as traveling expenses, supplies and materials, water, illumination and power Services, rent, etc.; Interest payments; Allotments to Local Government Units; Subsidies to government-owned and controlled corporations Sectoral - social services, economic services, defense, general public services, and debt burden) Implementing unit of government. -specific department or agency

Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Jai Leonard I. Carinan

The planning-programming-budgeting system (PPBS) is a concept that stresses the importance of establishing a strong linkage between planning and budgeting. It emanates from the policy of the government to formulate and implement a national budget that is an instrument of national development, reflective of national objectives, strategies and plans. Under the PPBS concept, the budget is anchored on the degree by which the accomplishment of economic plans and the attainment of target contained in the Medium-Term Philippine Development Plan (MTPDP) and the Medium-Term Public Investment Program (MTPIP) are supported. Budgetary procedure Budget Preparation The preparation of the annual budget involves a series of steps that begins with the determination of the overall economic targets, expenditure levels, revenue projection and the financing plan by the Development Budget Coordinating Committee (DBCC). The DBCC is an inter-agency body composed of the DBM Secretary as Chairman and the Bangko Sentral Governor, the Secretary of the Department of Finance, the Director General of the National Economic and Development Authority and a representative of the Office of the President as members. The major activities involved in the preparation of the annual national budget include the following: a. Determination of overall economic targets, expenditure levels and budget framework by the DBCC; b. Issuance by the DBM of the Budget Call which defines the budget framework; sets economic and fiscal targets; prescribe the priority thrusts and budget levels; and spells out the guidelines and procedures, technical instructions and the timetable for budget preparation; c. Preparation by various government agencies of their detailed budget estimates ranking programs, projects and activities using the capital budgeting approach and submission of the same to DBM; d. Conduct a budget hearings were agencies are called to justify their proposed budgets before DBM technical panels; e. Submission of the proposed expenditure program of department/agencies/special for confirmation by department/agency heads. f. Presentation of the proposed budget levels of department/agencies/special purpose funds to the DBCC for approval. g. Review and approval of the proposed budget by the President and the Cabinet; h. Submission by the President of proposed budget to Congress. To meet the Constitutional requirement for the submission of the President's budget with 30 days from the opening of each regular session of Congress, the budget preparation phase is guided by a budget calendar.

Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Jai Leonard I. Carinan

Budget Authorization In accordance with the requirements of the Constitution, the President submits his/her proposed annual budget in the form of Budget of Expenditure and Sources of Financing (BESF) supported by details of proposed expenditures in the form of a National Expenditure Program (NEP) and the President's Budget Message which summarizes the budget policy thrusts and priorities for the year. 1. In Congress, the proposed budget goes first to the House of Representatives, which assigns the task of initial budget review to its Appropriation Committee. 2.The Appropriation Committee together with the other House SubCommittee conduct hearings on the budgets of departments/agencies and scrutinize their respective programs/projects. Consequently, the amended budget proposal is presented to the House body as the General Appropriations Bill. 3.While budget hearings are on-going in the House of Representatives, the Senate Finance Committee, through its different subcommittees also starts to conduct its own review and scrutiny of the proposed budget and proposes amendments to the House Budget Bill to the Senate body for approval. 4.To thresh out differences and arrive at a common version of the General Appropriations Bill, the House and the Senate creates a Bicameral Conference Committee that finalizes the General Appropriations Bill. Under the constitution the president may veto any particular item or items of an appropriation bill. If two-third of the members of the House and the Senate voting separately, override the veto, then the bill becomes a law as if the president signed it General Appropriations Act The General Appropriations Act (GAA) is the legislative authorization that contains the new appropriations in terms of specific amounts for salaries, wages and other personnel benefits; maintenance and other operating expenses; and capital outlays authorized to be spent for the implementation of various programs/projects and activities of all departments, bureaus and offices of the government for a given year. Budget Execution Budget execution deals with the management and administration of the approved General Appropriation Act. 1. Budget implementation starts with the release of funds to the agencies. To accelerate the implementation of government programs and projects and ensure the judicious use of budgeted government funds, the

Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Jai Leonard I. Carinan

government adopted the Simplified Fund Release System (SFRS) beginning 1995. the SFRS is a policy-driven system which standardized the release of funds across agencies which are similarly situated in line with specific policy initiatives of the government. 2. Following the SFRS, the agency budget matrix (ABM) is prepared by the DBM in consultation with the agencies at the beginning of each budget year, upon approval of the annual General Appropriations Act. The ABM is a disaggregation of all the programmed appropriations for each agency into various expenditure categories. As such, the ABM serves as a blueprint which provides the basis for determining the timing, composition and magnitude of the release of the budget. 3. Based on updated resources and economic development thrusts and consistent with the cash budget program, the Allotment Release Program (ARP) which prescribes the guidelines in the prioritization of fund releases is prepared. 4.The ARP serves as basis for the issuance of either a General Allotment Release Order (GARO) or a Special Allotment Release Order (SARO), as the case maybe, to authorize agencies to incur obligations. 5. Subsequently, the DBM releases the Notice of Cash Allocation (NCA) on a monthly or quarterly basis. The NCA specifies the maximum amount of withdrawal that an agency can make from a government bank for the period indicated. 6.The Bureau of the Treasury (BTr), replenishes daily the government servicing banks with funds equivalent to the amount of negotiated checks presented to the government servicing banks by implementing agencies. 7. The release of NCAs by the DBM is based on: 1) the financial requirements of agencies as indicated in their ABMs, cash plans and reports such as the Summary List of Checks Issued (SLCI); and 2) the cash budget program of government and updates on projected resources. 8. Agencies utilize the released NCAs following the "Common Fund" concept. Under this concept of fund release, agencies are given a maximum flexibility in the use of their cash allocations provided that the authorized allotment for a specific purpose is not exceeded. Project implementation is thus made faster. Adjustments are made on the budget even during implementation primarily because of the following: Enactment of new laws - Within the fiscal year, new legislations with corresponding identified new revenue sources are passed which necessitate adjustments in the budget program.

Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Jai Leonard I. Carinan

Adjustments in macroeconomic parameters - The macroeconomic targets considered in the budget are periodically reviewed and updated to reflect the impact of recent developments in the projected performance of the national economy and on the set fiscal program for the year. The relevant indicators affecting the budget aggregates include the following: the Gross National Product (GNP), inflation rate, interest rate, foreign exchange rate, oil prices, and the level of imports. Thus, a sensitivity measure on the impact of these parameters on the budget will determine whether recent macroeconomic developments have a negative or favorable effect on the budget. Change in resources availabilities - Budget adjustments are undertaken when additional resources becomes available such as new grants, proceeds from newly negotiated loans and grants. Corresponding budget adjustments are also made when resources generation falls below the targets. Accountability/Auditing Cognizant of the fact that no propitious results can be obtained, even with maximum funding, if agency efficiency is low and funds are wastefully spent, systems and procedures are set in place to monitor and evaluate the performance and cost effectiveness of agencies. 1. These activities are subsumed within the fourth and the last phase of the budget process-the budget accountability phase. At the agency level, budget accountability takes the form of management's review of actual performance or work accomplishment in relation to the work targets of the agency vis--vis the financial resources made available. 2. Also, detailed examinations of each agency's book of accounts are undertaken by a resident representative of the Commission on Audit (COA) to ensure that all expenses have been disbursed in accordance with accounting regulations and the purpose(s) for which the funds have been authorized.

Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Jai Leonard I. Carinan

Budgetary Procedure 1. Budget Preparation

2. Budget Authorization

3. Budget Execution

4. Accountability and Auditing

Budget Formulation and Enactment


Legislative Body President Submits proposed annual budget to congress with his/her Budget Message which summarizes the budget policy thrusts and priorities for the year. DBCC Determination of the overall economic targets, expenditure levels, revenue projection and the financing plan by this council

Bicameral conference
House of the Representatives

Senate

These is were both houses unify there respective proposed budget

DBM

Reviews proposed projects and budget of respective dept and offices

Committee on Appropriations

These committees conduct budget hearings and deliberations

Committee on Appropriations or Finance

Dept, offices

Specific Projects proposed

Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Jai Leonard I. Carinan

KINDS OF BUDGET Administrative Budget - it includes the collection and disposition of all funds which belong exclusively to the government. However, it omits the income and outgo of the so-called trust and similar funds administered by the government. This budget states for each fund the amount actually appropriated for, and obligations actually incurred for expenditure by, each agency; interfund transfer are also included. Consolidated Cash Budget It includes everything shown in the administrative budget, plus trust funds. All cash transactions between the government and the public are shown. Transactions not involving payment of money to, or receipt of money from, the public are included. The consolidated cash budget is more useful guide for evaluating the effects of the governments fiscal operations on the economy. National Economic Budget It is the type of budget which reflects the impact of the governments taxing and spending activities on the economy. It tabulates the main economic transactions in the following major sectors of the economy: consumers, businesses, international and governmental. For example, taxes are shown as they accrue rather tan as they are collected. Capital Budget It provides a vehicle for financial planning over a period of years. It separates financing for capital outlays from current operating expenses. The capital budget group transactions according to character which has been traditionally defined to mean a distinction based on the time element. It thus contributes to financial soundness since there is assurance that funds foe needed improvement will be available. Program Budget It is a means by which program officials are constantly reminded of the objectives for which they are responsible and by which they can determine progress, in terms of time, money, man-hours and materials, towards these objectives. This budget provides data not found in traditional budgets. It also enables policymakers to evaluate the relative cost and effectiveness of alternative projects largely through operational analysis and quantitative economics, thus deciding on the most advantageous use of programs. It is sometimes known as performance budget. However, some textbooks make a distinction between the program budget and the performance budget in that the former looks forward into the future while the latter looks back to the past. Different Types of Budget Line Item Budget is a highly detailed budget. It is often adopted with the idea of a greater control over expenditures. It gets its name for the fact that it expresses each kind and quantity of expenditures and revenues as a single item on one line of budget. The format has been criticized for being too rigid as it poses difficulties is adapting to changing conditions that may develop during the fiscal years. It is in contrast to the program and performance budgets which

Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Jai Leonard I. Carinan

are more flexible in that they budget by program and performance budgets which are more flexible in that they budget by program rather than by the individual components of the program. Program Budgeting is the budgeting for the delivery of a particular program. The focus is on the purpose of the program and its outcome rather than the components of the program. As is the case in line items budgets, it pays less attention to the specific spending items of the program and more on its expected output. They allow for more flexibility. Performance Budgeting it uses statement of missions, goals and objectives to explain why the money is being spent. It is a way to allocate resources to achieve specific objectives based on program goals and measured results. The key to understanding performance-based budgeting lies beneath the word result. In this method, the entire planning and budgeting framework is result oriented. There are objectives and activities to achieve these objectives and these form the foundation of the overall evaluation. Planning Programming Budgeting System (PPBS) is a concept that stresses the importance of establishing a strong linkage between planning and budgeting. It emanates from the policy of the government to formulate and implement a national budget that is an instrument of national development, reflective of national objectives, strategies and plans. Under the PPBS concept, the budget is anchored on the degree by which the accomplishment of economic plans and attainment of target contained in the Medium-Term Philippine Development Plan (MTPDP) and the Medium-Term Public Investment Program (MTPIP) are supported. Zero Based Budgeting (ZBB) System a method of budgeting expenditures in which each expenditure is justified on its overall merits rather than being based on the budget for the previous year. A zero-base budget is most often proposed (but seldom implemented) for governments. Governments generally establish budget expenditures based on expenditures for the previous year.

Lecture Notes VIII Philippine Budgeting Process, Approach and Techniques Jai Leonard I. Carinan

Required Video Review Philippine Center For National Budget Legislation http://budgetlegislation.com/interactive.php Required Reading Book VI National Government Budgeting http://www.openlexproject.com/political/administrative-law/book-vi-nationalgovernment-budgeting/ References: Romualdez, Eduardo Sr. E., Yoingco, Angel Q. and Cosem, Antonio O. Philippine Public Finance, Manila, Philippines, G10 Enterprise, 1994 http://www.dbm.gov.ph/dbm_publications/Primer_govt/B2.pdf

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