Government Budgeting and Accounting

• The General Accounting Plan (GAP) illustrates a government agency's overall accounting system.
• It incorporates source documents, transaction flows, accumulation in accounting books, also their conversion into financial data for financial reports.

Accounting Systems:

• Budgetary Accounts System
• Receipts/Income and Deposits System
• Disbursement System
• Financial Reporting System

Budgetary Accounts System

• Involves the preparation of the Agency Budget Matrix (ABM).
• Encompasses monitoring and recording of allotments from the DBM.
• Also encompasses the issuance of the Sub-Allotment Release Order (SARO) to Regional Offices (RO) by Central Office (CO).
• Includes the issuance of Sub-SARO to operating units (OUs) by the RO, as well as, recording and monitoring obligations.
• Budgetary Accounts consist of appropriations, allotments, and obligations
• Appropriations are authorizations by law for government payments under specified conditions or purposes.
• Appropriations are monitored and controlled by the DBM and COA through registries and control worksheets, respectively.
• The Agency Budget Matrix (ABM) disaggregates agency expenditures by source of appropriation, allotment class, and clearance needs.

Government Budget

• A government budget is a financial plan for government activities during a fiscal year that is prepared and submitted by the executive branch to a representative body for approval and authorization.
• Budgeting involves both planning and controlling.
• Budgets establish objectives, coordinate activities, provide a basis for comparison, and serve as a basis for orderly management of public finances.

Fundamental Principles of Fiscal Operations

• No money can be paid from public funds without an appropriation law or statutory authority.
• Government funds must be used solely for public purposes.
• Trust funds are available and may only be spent for the specific purpose for which the trust was created.
• Fiscal responsibility is shared by those with authority over government financial affairs.
• Disbursements of government funds require approval from proper officials.
• Claims against government funds must have complete documentation.
• All financial transaction laws and regulations must be followed.
• Generally accepted accounting principles, sound management, and fiscal administration practices should be observed, unless they violate existing laws and regulations.
• The budget is an estimate of proposed expenditures and means of financing for a specific period.
• It controls estimated amounts to be raised and spent for specific objects.
• The budget guides all activities related to collections and expenditures.
• It is a framework for recording transactions, and therefore, income and expenditure classifications should be reflected in the accounts.

Government Budgeting and State Accounting

• Government budgeting and state accounting are closely connected.
• Accounting systems provide information for resource allocation, budget performance monitoring, and operational effectiveness assessment.
• The budget provides the framework for recording, classifying, and summarizing transactions to allow comparison of actual results with budgeted standards.
• Accountability reports are the substantial output of the accounting system.
• DBM prescribes the content, form, and other requirements of accountability reports.
• COA issues applicable rules and regulations when reporting requirements affect accounting functions.

Kinds of Budgets

As to Nature

• Annual Budget: Covers a period of one year and is the basis of an annual appropriation.
• Supplemental Budget: Adjusts a previous budget deemed inadequate, serving as the basis for a supplemental appropriation.
• Special Budget: Has a special nature and is submitted in special forms due to inadequate itemizations in the Appropriation Act or amounts not included in the Appropriations Act.

As to Basis

• Performance Budget: Emphasizes programs or services based on functions, activities, and projects, focusing on the general character and nature of work or services rendered. It measures actual or estimated benefits accruing to the public and their costs.
• Line-Item Budget: Based on objects of expenditure such as salaries, wages, travelling expenses, freight, supplies, materials, and equipment.

As to Approach and Technique

• Zero-Based Budgeting: Systematically considers all programs, projects, and activities using defined ranking procedures where activities are analyzed and presented in "decision packages". It analyzes, evaluates, and justifies each activity, project, or program yearly, starting from a "zero" performance and budgeting level, where prior year's budget is not a starting point. The analysis of funding and performance levels allows management to decide whether to eliminate a low priority or cut back performance and funding levels to permit another program to expand.
• Incremental Approach: Only additional requirements need justification and focuses on the analysis of incremental changes in the budget, potentially within the context of performance and program budgeting.
• Capital Budgeting Approach: Consists of a two-tiered strategy, setting a baseline budget for the minimum level of operating requirements for each agency. It also includes prioritization of the allocable balance (remaining budget ceiling after deducting the baseline budget) among the proposed projects and programs of agencies.

Types of Baselines

• Agency Baseline: The cost of performing regular agency functions, including an allowance for inflation, but excluding the cost of non-recurring programs and projects.
• Government-wide Baseline: The budget impact of government decisions or policies requiring priority funding, not traditionally reflected in individual agency budgets but shown as a lump sum to be distributed later based on prescribed rules or procedures, for example, proposed salary adjustments or mandatory allocations to local governments.
• FAPs Baseline: Budgetary requirements of ongoing programs/projects with foreign financial assistance.
• Priority Program/Project Fund: The remaining balance after deducting the baseline budget requirements of the national government.

Other forms of budget

• Regional budgeting that is prepared consistent with the regional organization of the national government, with the DBM identifying expenditures of government agencies by region and releasing funds on a regional basis.
• The long-term budget is prepared for a four or five year period or longer with longer range estimate of revenue and expenditures requirements.
• Key Budgetary Inclusions are financial commitments of agencies pertaining to a budget year that are maintained for the purpose of controlling major financial commitments to prevent misappropriation or juggling of funds, to disclose the funds and have a clear picture of the expenditures, and to track down mandatory obligations and insure funding of priority projects.

The National Budget System

• The National Budget System includes the government's methods and practices for planning, programming, and budgeting.
• This also includes the adoption of sound economic and fiscal policies and the execution of programs and projects geared towards political, economic, and social objectives.
• Its primary concern is the availability and use of money to provide the services required or expected from the government.
• The legal basis of the current national budget system is the Budget Reform Decree or PD No. 1177.
• The decree views the national budget as an instrument for development, requiring careful design and implementation of budget preparation, legislation, execution, and accountability.
• A national budget is the government’s estimate of its income and expenditures and is the financial translation of the programs and projects that best promote the development of the country.
• A national budget is based on planned expenditure and expected funds from revenues or borrowings.
• The national budget is allocated for the implementation of various programs and projects, the operation of government offices, payment of salaries and public debts.
• Expenditures can be looked at by expense class, sector, implementing unit, and region.

Expenditures by Expense Class:

• Current operating expenditures e.g. (salaries) are the appropriations for normal government operations within a budget year.
• Capital outlays are the appropriations for goods and services extending beyond the budget year, adding to government assets, including investments in government-owned corporations’ capital stock.
• Net Lending is net advances by the national government for the servicing of government guaranteed corporate debt and loan outlays to government corporations.
• Debt amortization is contribution to the sinking fund which is utilized for principal repayment of loans.
• The national budget can function to stabilize the economy, as the government speeds up and increases its spending when the economy is in recession to stimulate demand for goods and job creation.
• On the other hand, the government assumes a more conservative spending, taxing, and borrowing stance during economic booms, to avoid competing with the private sector and slow down the rise in interest rates and prices, and avoid overheating the economy.
• The budget is a tool for redistributing the country's financial resources, particularly through sustained funding for the social services sector to raise the rate of return on human capital, provide immediate relief to the needy, and extend better opportunities for self-help, livelihood, and employment activities.

Budget Increases

• Expenditure may increase or decrease depending on the government’s policy of how much it would like to put into the economy
• The more the government intends to raise the country’s level of development, the more expenditure rise.
• Furthermore, the maturity of the country’s debt also determines the size of the budget and how it differs from year to year.
• Commodity price increase also require that the budget be adjusted so that it would still be able to buy the quantity of goods and services that the government is aiming for.

Sources for the National Budget

• The Government generally has two major sources of funds: 1) revenues and 2) borrowings
• Revenues consist of tax and non-tax collections
• Tax revenues are classified as excise tax, license and business taxes, income taxes, import duties, and other taxes and duties
• Non-tax revenues include fees and service incomes of various government agencies, foreign grants, including those from Asset Privatization receipts.
• Borrowings come from domestic and foreign sources
• Domestic borrowings come from the auction of Treasury bills, notes and bonds
• Foreign borrowings are classified as project and program loans being offered by foreign creditors.
• Project loans are foreign loans obtained to finance a specific project while Program loans are multi-purpose foreign loans.
• Our government has to provide for the requirements of capital outlays projects such as roads and bridges, that are important to the attainment of our development objectives.
• The absence of a long-term domestic capital market and the limited savings in the country, moreover, render the domestic resources insufficient to finance the enormous requirements of development.
• By borrowing from foreign sources, the government takes advantage of long-term loans which are readily available abroad with lower interest rates in international capital markets.
• National government uses borrowing proceeds solely to finance capital projects that are supportive of the country’s development goals.

Test your knowledge of the Budgetary Accounts System, Agency Budget Matrix (ABM), and the role of government budgets. Explore appropriations, SARO, and COA's monitoring role. Understand the relationship between budgeting, planning, and controlling in government finance.