CONCEPT OF FUNDS

Fund refers to:

– Sum of money or other assets

convertible to cash
– Other resources set aside for a purpose
– Used for the payment of expenditures,
obligations or purposes
 A fund is set aside for the
purpose of:

– Carrying out specific activities

– Attaining certain objectives in
accordance with special regulations,
restrictions, or limitations
– Constitutes an independent fiscal and
accounting entity
Government fund are generally
classified into:

– General Fund
– Special Fund
– Trust Fund
Funds used to account for such
monies and resources received by
and disbursed from the local
treasury:

– General Fund
Fund available for the payment
of expenditures, obligations or
purpose not specifically declared
by law as accruing and
chargeable to, or payable from,
any other fund:
– General Fund
Other account maintained in the
General Fund:

– Special accounts
Special accounts in the General
Fund are the following:

– Public utilities and other economic

enterprise
– Loans, interests, bond issues, and other
contributions for specific purposes
– Development projects funded from IRA &
such other special accounts
The additional tax rate on real
properties known as Special
Education Fund is:

– 1% of the assessed value of the real

property
The Special Education Fund is
shared by the following:

– Provinces/cities
– Municipalities
– Barangays
The proceeds of the Special
Education Fund shall be
allocated for:
– Operation and maintenance of public
schools
– Construction & repair of school buildings
– Sports development
Trust fund consists of:

– Private and public monies in the

possession of the LGU
– Money received as guaranty for the
fulfillment of some obligation
– Used for the specific purpose for which it
was created
The utilization of local funds shall
be governed by the following
fundamental principles:
– No money shall be paid out except in pursuance
of an appropriation ordinance or law
– Local funds shall be spent solely for public
purposes ordinance or law
– Shall not be paid out except in the fulfillment of
the purpose for which the trust was created or
the funds received
Who shares the fiscal responsibility
in the utilization of the local funds?

– Those exercising authority over the

financial affairs, transactions, and
operations of the LGUs
– Those bonded officers whose duties
permit or require the possession or
custody of local funds
 CONCEPT OF
APPROPRIATION,
ALLOTMENTS,
OBLIGATIONS AND
EXPENDITURES
Under Sec. 306 (b) of the LGC
which was reiterated in Section
73 of the LTOM, an
appropriation refers to:
– An authorization made by ordinance,
directing the payment of goods and
services from the local government
funds under specified conditions or
for specific purposes
Under Sec. 140, Book III, Vol. I of
the GAAM, appropriations may be
classified as:

– Annual, continuing and

supplemental
It is a specified amount for salaries,
wages & sundry expenses, etc.

– Annual budget
It is made available to support
obligations for a specified
purpose or project, i.e.,
infrastructure equipment and
could be incurred even beyond
the budget year:

– Continuing budget
Supplemental budget is defined as
follows, except:

– Financial plan embodying the

estimate of income and
expenditures for one FY
Sec. 74 of the LTOM and Sec 336 of
the LGC on use of appropriated
funds and savings states that:

– The Sanggunian by ordinance, may authorize

the presiding officer of the Sanggunian, to
adjust any item in the approved annual budget
for their offices, from savings in other items
which is in the same expense class of
appropriations.
Under Sec. 75 (B) , it is an
authorization issued by the
Local Chief Executive to a
department/ office of the LGU,
which allows to incur obligations
for specified amounts within the
appropriation.

– Allotment
As stated in Page 88 of UBOM for
LGUs, the control devices used in
the allotment system called the
Local Budget Matrix is defined as:

– Yearly overall financial plan of the LGU

equivalent to its approved appropriation
disaggregated into components or
categories.
The tools used for cash
programming are:

– Cash Flow Forecast

– Cash Flow Analysis
Use of having a cash program:

– Management of funds such that is available when

needed for payment of obligations
– Released allotment are adequately covered by cash
or future collections
– Provide information for control of expenditures and
future planning of activities
Defined as targeted units of work
under each PPA as found in page
95 of the UBOM for LGUs.

– Physical performance target

The provisions of Sec 76 (A) of the
LTOM state that obligation is:

– The amount committed to be paid by the

LGU for any lawful act made by an
accountable officer for and in behalf of the
LGU concerned
Steps in the obligation process:

– Head of the requesting office prepares the obligation request

and disbursement vouchers and certifies on the necessity and
legality of charges to appropriation and allotment under his
direct supervision
– Local budget officer certifies as to the existence of available
appropriation that has been legally made for the purpose
– Local accountant certifies the obligation of allotment and
completeness of supporting documents
Any corrections/adjustment made after
the processing of the claims but before
payment is made shall be affected either
through:

– A positive entry or negative entry in the

obligations incurred column of the
Registries of Appropriations, Allotments
and Obligations
Constitutes all payments during a
given period either in currency, by
check, through bank and electronic
transfers, telegraphic transfers, letter
of credit, credit/debit cards and other
non-conventional modes of payment

– Disbursement
Sec. 154, Book III, Vol. 1 of the
GAAM provide provisions for:

– Government expenditures
Sec. 306 (f) of the LGC provides that
Current Operating Expenditures
includes purchase of goods and services
within the fiscal year for:

– Personal Services
– Maintenance and Other
Operating Expenses
Type of government expenditures
which is beyond the fiscal year
and which adds to the asset
according to Sec. 306 (d) of the
LGC:

– Capital Outlays
Sec 351 of the LGC provides that
expenditures of Funds or use of property
in Violation of Title V (Local Fiscal
Administration) of the ________ and
other laws shall be a personal liability of
the official or employee responsible
thereof:

– Local Government Code of 1987

 Removal from service of LGU official or
employee incurring any obligation, or
authorizing any expenditure in
violation of the provisions of the
Administrative Code of 1987 (E.O. No.
292) or taking part therein shall be
done by:
– The appointing official and upon his
failure to remove such
official/employee, the President
The following types of local
expenditures shall not be allowed:

– Irregular expenditures
– Unnecessary expenditures
– Extravagant expenditures
The following are definitions of an
irregular expenditures, except:

– Incurred without conforming to

prescribed usages and rules of discipline
– Transaction conducted in a manner that
deviates or departs from, or which does
not comply with standards set
The following are considered
irregular expenditures:
– Payments of claims not in accordance with the prescribed
modes of procurement
– purchase of items from jobbers or middlemen hence
violating government policy to acquire directly from
reputable manufacturers or their licensed distributors
– payment of split requisitions, purchase orders, vouchers
or checks, unless properly authorized by the payee
Expenditures which could not
pass the test of prudence or the
obligations of a good father of a
family, thereby not responsive to
the exigencies of the service are
considered:

– Unnecessary expenditures
Expenses made without
knowledge or sense of what is
right, reasonable and just not
guided or restrained by
conscience is called:

– Unconscionable expenditures
 The following are considered a
prohibition on disbursement:

– Advance payment (include services/goods)

– Expenditures for religious or private
purposes
– Expenses for reception and entertainment
except: foreign government/authorize by
the president
Funds belonging to other branches
of government, private entities
deposited with local treasurer for a
specific purpose but was used by
him other than those which the
funds were intended is called:

– overdraft
Basic requirements in the
disbursement of the General fund
and the Special Education:
– Certification as to existence of appropriation – by
LOCAL BUDGET OFFICER
– Certification as to necessity, legality, as well as to
the validity, propriety and legality of supporting
documents – by REQUESTING DEPARTMENT
HEADS HAVING CONTROL OF FUNDS
– Certification that funds are available – of the
LOCAL TREASURER
Under Sec 81 of the LGC, the
following are the basic
requirements in the
disbursements of Trust Funds,
except:

– Approval by the Local

Sanggunian or the
Administrator of the Fund
Under Section 82 of the LTOM, the
original copy of the Disbursement
Voucher will be kept by the:

– Accounting Unit
Guidelines in the disbursement
of checks:
– Checks shall be drawn by the Local Treasurer and
countersigned by the Local Administrator
– For Sanggunian expenditures, checks drawn shall be
countersigned by the provincial Vice Governor , the
City Mayor, the municipal Vice-Mayor, as the case
may be
– Checks shall always be payable to a specific person
or entity and never to “cash“ or “Bearer”
Mutilated check

– Spoiled check
Stale Check

– When it is outstanding for over

six months from date of issue, or
as prescribed by the government
authorized depository bank
 Lost Check:

– Misplaced, waylaid or left behind inadvertently or

negligently by the payee or holder, or by the custodian or
carrier and after diligent search cannot be found or
located;
– Fortuitous event such as fire, perils or travel, flood or
typhoon or other causes due to force majeure and after
diligent search cannot be found or located
– Theft or robbery
Small payments for maintenance
and operating expenses which
cannot be paid conveniently by the
checks or those needed to be paid
immediately as provided under Sec.
173 (a) 4, Book III, Vol. GAAM

– Petty operating expenses

Section 339 of the LGC state
that:

– No cash advance should be granted

to any local official or employee,
elective or appointive, unless made
in accordance with COA rules and
regulations
Cash advances for intelligence
and confidential expenses are
granted to:

– Local Chief Executives

The general guidelines in the grant
and utilization of cash advance are
provided under:

– COA Circular No. 92-382

Guidelines for the disbursement
of checks:
– Duly appointed or designated disbursing officers may
perform disbursing functions
– Transfer of cash advance from one accountable officer to
another shall not be allowed
– Cash advance shall be fully reported as soon as the
purpose for which it was given has been served
Supporting document for cash
advance of official local travel:

– Travel order
Liquidation of cash advance for
payroll, petty operating expenses,
field operating expenses and official
travel:
– Salaries, wages, etc. shall be liquidated within 5 days after
each 15 day/end of the month pay period
– Petty operating Expenses and Field Operating Expenses shall
be liquidated within 20 days after the end of the year; subject
to replenishment as frequently as necessary during the year
– Official Travel - liquidate cash advance within 60 days after
return to the Philippines (foreign travel) or within 30 days of
his return to his permanent official station (official local
travel)
Liquidation of cash advance for
salaries and wages:

– Report of disbursement
– Duly signed payrolls and/or
vouchers
Description of intelligence and/or
confidential expenses:
– Amount of goods and services used or consumed in
connection with defense, peace and order
– Internal security or counter insurgency, usually involving
covert or classified operations, psychological warfare
and surveillance operation
– Other specified intelligence and confidential operations
of the local government units
Intelligence and/or confidential
expense may be in the form of:

– Payment of rewards
Liquidation of cash advance for
confidential/intelligence
expenses should be:

– Liquidated within one (1) month

from the date the cash advance is
received
The following are true on the
handling, custody and disposition
of Cash Book for cash advances by
the accountable officer
– Newly appointed/designated Accountable Officer
shall start with a new cash book
– Maintain separate cashbooks for salaries, wages,
allowances, etc., and for petty operating expenses
– Reconcile the book balance with the cash on hand
daily
Type of disbursement that shall be
maintained under the Imprest
System

– Disbursement out of
petty cash fund
Disbursement through Direct
Payment is made:
– When contract account/delivery of equipment is paid directly to
the bank account of the contractor/supplier from the proceeds
of loan or bond flotation deposited in the servicing bank of the
LGU
– When a disbursement Voucher is prepared for direct payment
supported by all the required documents
– When certification by the requesting officer, the Local Budget
Officer and the Local Accountant and approval of the Local Chief
Executive on the Obligation Request and the Disbursement
Voucher are be strictly followed
In the procedure for Direct
Payment System, the local
treasurer prepares Authority for
Direct Payment, which he/she
signs and countersigned by the:

– Local Administrator
DISBURSEMENT OF LOCAL
FUNDS
Constitute all payments during a
given period either in currency, by
check, through bank and electronic
transfers, telegraphic transfers,
letters of credit, credit/debit cards
and other non-conventional modes
of payment:
– disbursement
The beginning of the Official
fiscal year:

– 1st day of January

The ending of the official fiscal
year:

– 31st day of December

Basis for the disbursements of
LGU funds for the fiscal year:

– Annual or supplemental
appropriations
Section of RA 7160 that covers
all charges against the fund of
the LGU for Current
Operating Expenditures and
Capital Outlays

– Section 77
Term used for an expenditure of
funds or use of property in violation
of the Title V (Local Fiscal
Administration) of the Local
Government Code of 1987

– Liability for unlawful

expenditures
These are expenses incurred in
violation of the law, irregular
expenditures, or violation of
applicable rules and regulations
other than the law:

– Illegal expenditures
 Irregular expenditures

– Expenditures that do not adhere to established rules,

regulations, procedural guidelines, policies, principles or
practices that have gained recognition in law;
– Payments of claims not in accordance with the prescribed
modes of procurement;
– Reimbursement of expenses incurred by person other than
the authorized representative of the LGU for attending
conferences, meetings and other official functions
Irregular expenditures

– Payment of split requisitions, purchase orders, vouchers or

checks, unless properly authorized by the payees;
– Payment of office equipment and property without proper
identification or inventory markings;
– An expense without knowledge or sense of what is right,
reasonable and just not guided or restrained by conscience
Unnecessary expenditures

– An expenditure which could not pass the test

prudence or the obligations of a good father of a
family, thereby not responsive to the exigencies of the
service;
– When grant of overtime pay for work that is not
urgent in nature as to require completion within a
specified time or that can be undertaken during
regular office hour
Excessive expenditures

– An unreasonable expense/s incurred

at an immolate quantity or
exorbitant price
– Pertains to the variables of Price and
Quantity
 Extravagant Expenditures

– An expenditure incurred without restraint,

judiciousness and economy, exceeds the
bounds of propriety and immoderate,
prodigal, lavish, luxurious, wasteful, grossly
excessive and injudicious
Unconscionable Expenditures

– An expenditure that is unreasonable and

immoderate expense incurred in
violation of Sec. 1156, Book III, Vol. 1,
GAAM
Basic requirements on
disbursements of General Fund
and SEF
– Certification as to existence of appropriation – LOCAL
BUDGET OFFICER
– Certification as to necessity, legality, as well as to the
validity, propriety and legality of supporting documents -
REQUESTING DEPARTMENT HEADS
– Certification that allotment has been obligated and
supporting documents are completed - LOCAL
ACCOUNTANT
– LOCAL TREASURER’s certification that funds are available
Basic requirement in the
disbursement of Trust Fund
– Certification by the local treasurer that funds are
available for disbursements
– Certification by the local accountant that supporting
documents are complete
– Approval by the LCE/authorized representative or
the administrator of the fund
 Local Accountant

– Responsible in the stamping of date of

receipt on the disbursement voucher and
assign a number to the DV
 Local Treasurer

– Verifies the propriety of the certifications &

approvals required on the disbursement by
voucher and issues corresponding checks;
– Responsible in the preparation and signing
of checks countersigned by the Local
Administrator
Disbursement by checks shall
always be payable to:

– Specific person or entity

Checks shall be crossed for
deposit to the account of the:

– payee
Countersigns the checks in the
municipalities where there is no
Administrator:

– Municipal Mayor
Number of months from date of
issue, or as prescribed by the
government authorized depository
bank when checks shall be
considered as stale checks:

– 6 months
Approves cash advances for official
local travel less than 30 days which
shall be supported by a travel order:

– Office/Bureau Head
Allowance entitled to a government
personnel travelling abroad as
provided under the United Nations
Development Program Index:
– Daily subsistence allowance
Number of days every 15 day/end of
the month pay period within which
the cash advances for salaries and
wages, commutable allowances and
honoraria shall be liquidated
– 5 days
Number of days after the end of the
year within which petty operating
expenses and field operating
expenses shall be liquidated; subject
to replenishment as frequently as
necessary during the year.

– 20 days
Number of days after return to
his/her permanent official station
within which cash advances for
official local travel should be
liquidated

– 30 days
Number of days after return to the
Philippines within which cash
advances for official foreign travel
should be liquidated (Sec. 16, E.O.
248, as amended by Sec. 14, E.O.
298)
– 60 days
 Supporting documents needed
for the liquidation of salaries and
wages:
– Report of disbursement
– Duly signed payrolls and/or vouchers
– Pertinent supporting documents, such
as daily time record, approved leaves
of absence
Number of canvass from accredited
suppliers needed to support the
liquidation of current operating
expenses:
– 3 canvass
Expenses of goods & services used
or consumed in connection with
defense, peace & order, counter
insurgency, involving covert or
classified operations, psychological
warfare and other surveillance
operations of LGUs:

– Intelligence & confidential

expenses
Confidential/intelligence expenses
from the date the cash advance is
received the should be liquidated
within…
– 1 month
The amount of petty cash payment
supported by official receipts and
other documents must not exceed…

– P 1,000.00
Prepares authority for direct
payment, for his/her signature
countersigned by the Local
Administrator/Municipal Mayor

– Local Treasurer
Approves allowances which may be
granted for an official travel abroad:

– Department of Foreign
Affairs
FUND MANAGEMENT
PRACTICES
It is viewed as the exercise of
economic, political and
administrative authority to manage
a country’s/local government’s
affairs at all levels

– Good governance
Good governance is about
efficiency in the:
– Management of public funds
– Demand for high standards of integrity
– Values of transparency and
accountability
A monthly schedule of anticipated
receipts and disbursements of the
LGU for the fiscal year showing
the beginning and ending cash
balances of each month:
– Cash Flow Forecast
Shows cash overage/surplus or
cash shortage/deficit on a monthly
or periodic basis, so timely
decisions can be made on
precedent cash utilization:

– Cash Flow Analysis

Cash Flow Forecast is prepared:

– At the beginning of the year and

revised as needed
Classification of Activities in the
Cash Flow Forecast, that includes
receipt of cash from bank loans,
proceeds from the floatation of
bonds & receipts from other types of
borrowings:

– Cash Flow from

Financing Activities
Classification of Activities in the
Cash Flow Forecast, that pertains
to the receipts from the sale,
acquisition or purchase of long
term investments such as real
estate, machinery, and other
Plant, Property and Equipment:

– Cash Flow from

Investing Activities
Classification of Activities in the
Cash Flow Forecast, that pertains
to the receipts and disbursements of
cash out of, regular and primary
operations of the LGU such as
collections of taxes, share from IRA,
payment to creditors and
employees, etc.
– Cash Flow from Operating Activities
Cash Receipts Forecast and Cash
Disbursement Forecast are:

– Supporting Schedules of the Cash Flow

Forecast
A schedule of all income collections
and other receipts to be prepared by
all collecting units:
– Cash Receipts Forecast
A schedule of all expenditures to be
prepared by the local treasury
personnel in charge of expenditures
and disbursements:
– Cash Disbursement
Forecast
Activities in the preparation of
the Cash Flow Forecast includes:
– Listing of all accounts payable and outstanding obligations to
determine when they will become due and demandable
– Listing of all the regular and recurring expenses such as
payroll, rental, securities and janitorial services, etc…
– Estimates and monthly schedule of variable expenses such as
travel, supplies and material, service contracts, etc…
Estimate of other revenues based on
the past collection performances of
the LGU and payments for interest
and principal loans and borrowings,
capital outlay and other materials
expenses is done:
– monthly
A monitoring tool used to guide the
LCE, the Local Treasurer, and the
Local Budget Officer to control the
releases of allotment depending on
the collection/expenditure
performance during the period:
– Cash Flow Analysis
It shows highs and lows in cash
inflows and cash outflows on a daily
basis:

– Daily Cash Flow

Important fiscal decisions and
policies could be promptly
introduced and implemented by
the use of:
– Cash Flow Forecast and Cash
Flow Analysis
Important fiscal decisions and
policies could be promptly
introduced and implemented given
the data thru the local treasurer’s
effort:
– Excess in the collection of taxes and other
revenues
– Excess in the disbursements
– Large amount of idle cash that may be
invested
May be prepared by the Local
Treasurer on a daily basis in
addition to the monthly Cash Flow
Forecast and monthly Cash Flow
Analysis:
– Daily Cash Flow
Number of Day’s Usage in Cash
is equal to:

– Average cash requirement per day

Average cash requirement is
equal to:

– Number of working days in one year

Investment Payback Period is
equal to:

– Annual cash inflow from operations

Refers to the length of time or
number of years it will take to
recover the initial outlay for a
project:

– Payback period
The amount of cash a project is
expected to generate annually:

– Annual Cash Flow from Operations

If the economic life is just equal
to the payback period:

– The investment would not be bringing

in any income and may even be
considered a losing proposition since
the time value of money is disregarded
If the payback period is shorter than
the economic life of the asset:

– The LGU is expected to realize profit or

investment return between the payback
period and the economic life
 Method in the evaluation of capital
investment proposals considers the
time value money:

– Discounted cash flow method

Refers to the expected increase in its peso
value considering the prevailing interest
rates, the passage of time, and opportunity
cost of capital and similar factors:

– Time value of money

In order to assess the viability and
profitability of an investment or capital
project, the present value of the expected
cash inflow must:
– Be determined before they are compared
with the present value of investment
Refers to the total of all the present
values of 1 to be received at regular
intervals in the future:

– Present value of an annuity

Rate at which an investment is earning and
it is also the rate which equates the present
value of cash returns with the present value
of an initial investment

– Discounted rate of return

The two basic steps in computing the
Discount Rate of Return are:

– Determine the payback period

– Locate the same in the present value of the
annuity table taking into account the economic
life of the investment
It represents the excess of the present value
of annual cash returns over the present
value of the initial capital investment:

– Net present value

Ratio of the present value of annual cash
returns discounted at the lowest acceptable
rate to the present value of the initial
investment cost:

– Present value index

Present Value is also defined as the ratio of
the required investment under the rate
required by management to the investment
requirement for the project under evaluation.
Thus,…
– The higher the Present Value Index,
the higher must be the rate of return
on the project under review
The viability and approvability of a project
and its funding from long-term debt should
be assessed based on the following factor/s:

– Nature of the project and uses of funds

– Cost-benefit analysis of the project
– Expenditure plan and sources of debt sourcing
The custodian of all funds of the LGU
including funds sourced from loans and
other types of indebtedness, and should be
involved in the overall debt management
strategy of the LGU:
– Local Treasurer
On debt management policies, the LGU
should:
– Adopt effective debt management policies that recognize
the capital improvement needs of the LGU
– Maintain effective debt management policies that
recognize the capital improvement needs of the LGU
– Adopt and maintain the taxpayer’s ability to pay while
taking into account existing legal, economic, financial and
debt market considerations
Capital projects related to economic
enterprise operations should be financed by:

– Debt to be repaid from available revenue

sources earmarked for said project
In case the LGU issues bonds and other
debt instrumentalities, it shall:
– Ensure that an adequate system of internal control exists so as to
provide reasonable assurance as to compliance with appropriate
laws, rules and regulations with its outstanding debts;
– Not construct or acquire a public facility if its unable to adequately
provide for the subsequent annual operation and maintenance costs
of the facility;
– Market its debt through the use of competitive bidding whenever
deemed feasible, cost effective and advantageous to do so.
Accountability, Responsibility and Liability
of Local Treasurers and Property