Government Accounting PDF

GOVERNMENT ACCOUNTING (PLANNING & BUDGETING) PLANNING- It can be viewed as an approach to problem solving. It provides a systematic way of viewing problems and developing short term and long-term solutions. ▪ It can also be viewed as a decision-making process used to help guide decisions...

GOVERNMENT ACCOUNTING (PLANNING & BUDGETING) PLANNING- It can be viewed as an approach to problem solving. It provides a systematic way of viewing problems and developing short term and long-term solutions. ▪ It can also be viewed as a decision-making process used to help guide decisions concerning future needs. ▪ Planning is an important process in the conduct of governmental activities. This process in fact sets the direction for certain courses of action in the entire bureaucracy. Planning as a management function involves a complex set of activities such as: "visualizing future situations, making estimates concerning them, identifying the issues, needs and potential danger points, analyzing and evaluating the alternative ways and means for reaching desired goals according to a certain schedule, estimating the necessary funds and resources to do the work and initiating action in time to prepare what may be heeded to cope with changing conditions and contingent events.” CONCEPTS OF BUDGETING Budget “Bouget” (Middle English) “Bulga” (Latin Word) is an action plan of government activities and programs. BUDGET- Master plan of the government. BUDGETING- the process of bringing together estimates of anticipated revenues and proposed expenditures implying the schedule of activities to be undertaken and the means of financing those activities. ▪ a process for it consists of a series of activities relating expenditures to a set of goals. PURPOSES OF THE BUDGET ▪ Macroeconomic Stabilization ▪ Provision of public goods ▪ Redistribution of wealth and reduction of poverty ▪ Pursuit of political objectives IMPORTANT FUNCTIONS OF BUDGET 1. Expenditure Control 2. Management and Efficiency 3. Planning for Service Requirements EXPENDITURE CONTROL This involves restraining expenditures to the limits of available finance and preserving the legality of transactions conducted by an agency. Expenditures must agree with appropriation. MANAGEMENT AND EFFICIENCY Budgets also serve as a tool to increase managerial control of operating units and to improve efficiency in agency operations. This focuses on the performance activities of governments hence, public budget serves as the control device for the government and identifies operational efficiency. PLANNING FOR SERVICE REQUIREMENTS Budget planning can be used as a decision - making tool for ensuring continuity of activities, developing new programs, and allocating resources among government activities. FEATURES OF BUDGET Equilibrium Comprehensiveness Annuality EQUILIBRIUM the budget must be balanced in terms of matching the levels of sources and uses of funds. It means allocating funds equitably among the sectors of the economy, the regions and the numerous government programs and projects. COMPREHENSIVENESS the budget should contain expenditures and revenues on a gross basis, showing the surplus available for debt retirement of the deficit to be met by new revenue legislation or borrowing. ANNUALITY the budget should embrace a fixed period of time wherein a fiscal year is established for the period from the first of January up to the thirty-first of December of each calendar year. GOVERNMENT ACCOUNTING CONCEPTS Introduction: The activities of a government affect the lives of its constituents and require great amount of resources which need to be controlled to be assured of the effective utilization thereof. Accounting is an effective tool of management in evaluating the performance of the different agencies of government. The performance of the public managers would depend on the most, on financial reports generated by the use of accounting systems. ACCOUNTING It is concerned with the processing of financial transactions of an entity. It generates and communicates necessary financial information to its users. It is, therefore, a process of recording, classifying and summarizing the financial transactions and communicating the results of its operations. GOVERNMENT ACCOUNTING The accounting system used in government offices to record and report their financial transactions is known as government accounting. It reveals how public funds have been generated and utilized for the welfare of the general public. is concerned with systematic and scientific recording of government revenues and expenditures. It is the systematic process of collecting, recording, classifying, summarizing and interpreting the financial transactions relating to the revenues and expenditures of government offices. It is concerned with keeping records of government revenues and their expenditure in different development and administrative works. It reflects the receipt and payment position of the public funds. It is the process of assembling, analyzing, classifying, recording data that is relevant to transactions and events affecting the government’s finances. (Michael Genito, 2017) Under Section 109, of the Presidential Decree (PD) no. 1445, defines Government Accounting as one that encompasses the process of analyzing, classifying, summarizing and communicating all transactions that are involved in the receipt and disbursement of all government funds and properties, and interpreting the results thereof.  Government accounting is a service activity. Its function is to provide quantitative information primarily financial in nature about the operations of the government, both national and local, to be used by the administration in making decisions for a more effective and efficient public service. Government accounting gives substance to the concept of public accountability of public officers and employees as regards: 1. Safeguarding government resources against loss or wastage; 2. Adherence to the requirements of law and administrative policies and regulations; 3. Economy and efficiency in operation; 4. Delivering the desired results of government programs and activities OBJECTIVES OF GOVERNMENT ACCOUNTING 1. To record financial transactions of revenues and expenditures related to the government organizations. 2. To avoid the excess expenditures beyond the limit of the budget approved by the government. 3. To make expenditures according to the appropriate act, rules and legal provisions of the government. 4. To provide reliable financial data and information about the operation of public fund. 5. To prevent misappropriation of government properties by maintaining the systematic records of cash and store items. 6. To facilitate for making auditing of the books of accounts. 7. To help for preparing different financial statements and reports. 8. To facilitate for estimating the annual budget by providing historical financial data of government revenues and expenditures. FEATURES OF GOVERNMENT ACCOUNTING Profit and Loss: Since government is a public institution, its main objective is to maintain law and order in the country. Therefore, the accounting system used by an institution is not supposed to reveal its profit and loss, but to reveal how public funds and properties have been used for that purpose. Government Regulations: Government accounting is maintained according to government rules and regulations. The financial policies, rules and regulations determine the system of government accounting. Double Entry System: Government accounting is based on the principles and assumptions of double entry system of book keeping. Accordingly, every government financial transactions are recorded showing their double effects. One aspect of the transaction is debited and the other aspect is credited for each government financial transaction. Budgetary Control Government accounting facilitates budgetary control. No government office can make expenditure more than the allocated budget amount. Banking Transaction All government transactions are supposed to be performed through banks. Auditing The concerned department of the government must audit the books of accounts maintained by government office so as to avoid misuse and misappropriation of public funds. GOVERNMENT ACCOUNTING STANDARDS & PRINCIPLES ❑ The Philippine Public Financial Management Reforms and significant changes in the field of accounting prompted the harmonization of the existing accounting standards with the international accounting standards. ❑ The Commission revised the New Government Accounting System (NGAS) Manual prescribed under Commission on Audit (COA) Circular No. 2002-002 dated June 18, 2002 to make it responsive to dynamic changes and modern technology. ❑ LEGAL BASIS The Government Accounting Manual (GAM) is prescribed by Commission on Audit (COA) pursuant to Article IX-D, Section 2 par. (2) of the 1987 Constitution of the Republic of the Philippines. “The Commission on Audit shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties. " ❑ COVERAGE GAM ✓ It presents the basic accounting policies and principles in accordance with the Philippine Public Sector Accounting Standards (PPSAS) adopted thru COA Resolution No. 2014-003 dated January 24, 2014 and other pertinent laws, rules and regulations. GAM ✓ It shall be used by all National Government Agencies (NGAs) in the: a. preparation of the general purpose financial statements in accordance with the PPSAS and other financial reports as may be required by laws, rules and regulations; and b. reporting of budget, revenue and expenditure in accordance with laws, rules and regulations. OBJECTIVES OF THE GAM ✓ The manual aims to update the following: standards, policies, guidelines and procedures in accounting for government funds and property; coding structure and accounts; and accounting books, registries, records, forms, reports and financial statements GENERAL PROVISIONS, BASIC STANDARDS AND POLICIES IN GOVERNMENT ACCOUNTING ❑ Public Sector Accounting Standards Board (PSASB) It was created in 2008 under COA Resolution No. 2008-12 dated October 10, 2008. It develops standards of the Philippine Public Sector Accounting Standards (PPSAS) and make use of, among others, the existing laws, financial reporting, accounting rules and regulations, and pronouncements issued by the International Public Sector Accounting Standards Board (IPSASB) ❑ Applicability of International Public Sector Accounting Standards (IPSAS) IPSAS, to be referred to as the Philippine Public Sector Accounting Standards (PPSAS). The PPSAS, as aligned with the prevailing international standards, provide quality accounting standards thereby enhancing the quality and uniformity in financial reporting by Philippine Public Sector entities and ensuring accountability, transparency and comparability of financial information with other public sector entities around the world. ❖ The Government Accounting Manual (GAM) for National Government Agencies (NGAs) is promulgated by the COA under the authority conferred to it by the Philippine Constitution. ❖ The GAM for NGAs was promulgated primarily to harmonize the government accounting standards with the International Public Sector Accounting Standards (IPSAS). Responsibility, Accountability And Liability Over Government Funds And Property Government resources must be utilized efficiently and effectively in accordance with law. The head of a government agency is directly responsible in implementing this policy. All other personnel entrusted with the custody of government resources are responsible to the head of the government agency, are accountable for the safeguarding thereof, and are liable for any losses. Government Accounting Responsibility Government Accounting responsibility emanates from the Constitution, laws, policies, rules and regulations. The Constitution of the Philippines, the fundamental law of the land, mandates: ✓ the keeping of the general accounts of the government, promulgation of accounting rules, and the submission of reports covering the financial condition and operation of the government. The following offices are charged with government accounting responsibility: 1. Commission on Audit (COA) 2. Department of Budget and Management (DBM) 3. Bureau of Treasury (BTr) 4. Government Agencies Commission on Audit (COA) ❑ Responsibilities of COA: ✓ Promulgate accounting and auditing rules ✓ Keep the general accounts ✓ Submit financial reports Department of Budget and Management (DBM) ❑ Responsibilities of DBM: ✓ Formulation and implementation of the national budget with the goal of attaining our national socioeconomic plans and objectives ✓ The efficient and sound utilization of government funds and revenues to effectively achieve the country’s development objectives. Bureau of Treasury (BTr) ❑ Responsibilities of BTr: ✓ Receive and keep national funds, manage and control the disbursements thereof ✓ Maintain accounts of financial transactions of all national government offices, agencies and instrumentalities ❑ Therefore, the BTr shall control and monitor the Notice of Cash Allocation (NCA) released by the DBM as well as the bank transfers it makes in replenishing its Modified Disbursement System (MDS) accounts. Government Agencies ❑ Responsibility of Government Agencies ✓ Maintain accounting books and budget registries which are reconciled with the cash records of the BTr and the budget records of the COA and the DBM ✓ Departments, bureaus, offices and other instrumentalities of the National Government including the Congress, the Judiciary, the Constitutional bodies, state universities and colleges, and other self-contained institutions and hospitals are required by law to have accounting units/divisions/departments of the Agency. BASIC ACCOUNTING AND BUDGET REPORTING PRINCIPLES ❑ The GAM requires each government entity to recognize and present its financial transactions and operations in conformity with the following; 1. General accepted government accounting principles in accordance with the PPSAS and pertinent laws, rules and regulations. COA Resolution No. 2014- 003 dated January 24, 2014 2. Accrual basis of accounting in accordance with the PPSAS Accrual basis means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid). 3. Budget basis for presentation of budget information in the financial statements Presentation of Budget Information in Financial Statements, requires a comparison of budget amounts and the actual amounts arising from the execution of the budget to be included in the financial statements of entities. It also requires disclosure of an explanation of the reasons for material differences between the budget and actual amounts. Compliance with the requirements of this standard will ensure that public sector entities discharge their accountability obligations and enhance the transparency of their financial statements by demonstrating: a. Compliance with the approved budget/s for which they are held publicly accountable; and b. Where the budget/s and the financial statements are prepared on the same basis, their financial performance in achieving the budgeted results. 4. Revised Chart of Accounts (RCA) prescribed by Commission on Audit (COA) The COA recognizes the need to revise the New Government Accounting System (NGAS) Chart of Accounts prescribed in COA Cir. No. 2004-0008 dated September 20, 2004. 5. Double entry bookkeeping It is a system of bookkeeping where every journal entry to account requires a corresponding and opposite entry to a different account. 6. Financial statements based on accounting and budgetary records The objectives of general purpose financial reporting in the public sector should be to provide information useful for decision making, and to demonstrate the accountability of the entity for the resources entrusted to it. 7. Fund cluster accounting Fund cluster refers to an accounting entity for recording expenditures and revenues associated with a specific activity for which accounting records are maintained and periodic financial reports are prepared. RESPONSIBILITY ACCOUNTING It is a system that relates the financial results to a responsibility center, which provides access to cost and revenue information under the supervision of a manager having direct responsibility for its performance. It is a system that measures the plans (by budget) and actions (by actual results) of each responsibility center. RESPONSIBILITY CENTER It is a part, segment, unit or function of a government agency, headed by a manager, who is accountable for a specified set of activities. National Government Agencies are basically cost centers, whose primary purpose is to render service to the public at the lowest possible cost. Cost centers are established to provide each government agency’s accessibility to cost information and to facilitate cost monitoring at any given period. OBJECTIVES OF RESPONSIBILITY ACCOUNTING Responsibility accounting aims to: a. ensure that all costs and revenues are properly charged/credited to the correct responsibility center so that deviations from the budget can be readily attributed to managers accountable therefor; b. provide a basis for making decisions for future operations; and c. facilitate review activities, monitoring the performance of each responsibility center and evaluation of the effectiveness of agency’s operations. UNIFIED ACCOUNTS CODE STRUCTURE (UACS) The objective of the government-wide Unified Accounts Code Structure (UACS) is to establish the accounts and codes needed in reporting the financial transactions of the National Government of the Republic of the Philippines. The UACS provides a framework for identifying, aggregating and reporting financial transactions in budget preparation, execution, accounting and auditing. The key purpose of the UACS is to enable the timely and accurate reporting of actual revenue collections and expenditures against budgeted programmed revenues and expenditures. BUDGETING SYSTEM The Budgeting System 1: Line-Item Budget 2: Performance Budget 3: Planning, Programming and Budgeting System 4: Zero-Base Budgeting Line-Item Budget This refers to a type of budget that gives emphasis on listing of object for itemized expenditures-supplies, personnel, equipment-without much regard for the purposes or programs/projects for which such items are proposed. In the Philippines, line-item budgeting in government was adopted through the enactment of Commonwealth Act (CA) no. 246, otherwise known as the Budget Act of 1937. Advantages: ▪ provided an administrative device in the control of costs of inputs to government activities and projects. ▪ efficiency in budget management was based on its ability to maintain ceilings per item of expenditure. Limitations: ▪ No special thought was given to accomplishment generated from such expenses ▪ Only inputs are emphasized. Performance Budget This refers to a budget emphasizing the programs or services conducted based on functions. It focuses attention to the general character and relative importance of the work to be done, the service to be rendered, rather than the things to be acquired. In the Philippines, performance budgeting was introduced as part of the Late Pres. Magsaysay by the Economic Survey Mission in 1950. The passage of RA No. 992 or the Revised Budget Act on June 4, 1954, formally launched the establishment of Performance budgeting in the country. ✓The act required that the whole country’s budgetary concept be based on functions, projects and activities in terms of expected results. Advantages: a.) the control of funds is in terms of outputs. b.) the people would be informed of the functions and activities or every office of the government in a single document-budget. Weaknesses: a.) Lack or absences of Work Managements. ✓These are units on which to base the financial requirements of government agencies. It measures the results of agency programs/projects/activities b. Problem on Personnel. ✓The lack or absence of personnel possessing the technical skills and competencies for performance budgeting which requires skills in management and cost accounting. c. Organization. ✓Overweight, overstaffed and inefficient bureaucracy certainly impeded the success of the performance budgeting. d. Legislative. ✓Lack of congressional support added to the unsuccessful implementation of performance budgeting due to the taking into account the realities of the political system. Planning, Programming and Budgeting System (PPBS) This is a rational decision-making technique which may be used to make more systematic decisions, given a set of objectives and information at hand. It emphasizes the long-term benefits and costs of program rather than the short-term. It is composed of program budgeting and systems analysis which typically involves cost/benefit studies. The PPBS doctrine was first initiated by the military in the Philippines in 1976, particularly by the Philippine Navy. Zero-Based Budgeting This refers to the yearly analysis, evaluating and justification of each activity, program or project starting from a “zero” performance level. It means that the analysis of the entire budget form a starting point or zero. The idea is to zero-in on only the most important elements, projects or activities for inclusion in the budget or on the least important or lowest priority activities which may be scrapped in the event that resources would not be enough. Features of ZBB: a. It is a total budget approach. ✓All activities proposed, whether an existing or new, are analyzed, evaluated and justified rather than just increased from current operating levels. b. It is based on need not want. ✓It requires that all activities proposed be analyzed and evaluated systematically without reference to past practices but should meet the needs of the agency. c. It re-allocates resources. ✓ZBB shows where resource should be allocated to ensure attainment of objectives. d. It identifies alternative ways and levels of performance and funding. ✓ZBB challenges each manager to look for alternative ways of performing an activity. The ZBB Process: 1. Development of decision package/activity justification document. ✓It is a document that identifies and describes a specific operation in a manner that enables management to evaluate and rank it against other operations competing for limited resources and to decide whether to approve or disapprove it. ✓It contains all three levels of performance and funding beside the following information: objectives, description of activity, alternative methods considered and output performance measurement. 2. Ranking. ✓It is the process by which higher level managers evaluate an array of activity levels in descending order of priority. The ZBB was introduced in the Philippines in 1977 during the preparation of the Calendar Year 1978 national budget. It was American in orientation but it was not introduced directly by then but by a group of Filipino officials who travelled to Washington.