PA-112-Module-for-Finals PDF

LESSON 4: SALIENT FEATURES OF GOVERNMENT ACCOUNTING AND GOVERNMENT AGENCIES A. Fund, Obligation, Cash Disbursement Ceiling B. Government Agencies C. Government Accounting Cycle 4.1 Salient Features of Government Accounting and Government Agencies Government accounting is an integral component of public financial management, focusing on the efficient use of public funds, transparency, and accountability. In the Philippines, government accounting is governed by constitutional mandates, national laws, and various issuances of oversight agencies such as the Commission on Audit (COA) and the Department of Budget and Management (DBM). Salient Features of Government Accounting The key features: Government officials and employees are held accountable for the efficient and lawful use of public funds. 1987 Philippine Constitution, Article XI, Section 1: "Public office is a public trust. Public officers and employees must at all times be accountable to the people..." Presidential Decree No. 1445 (Government Auditing Code of the Philippines): Section 101: Defines the responsibility of public officials for the safekeeping and use of government funds. Public access to financial information is mandated to ensure the proper management of public funds. Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees), Section 8: Requires full disclosure of financial transactions to the public. 4.2 Uniformity and Standardization Accounting standards are uniform across all government entities for consistency and comparability. Legal Basis: o Philippine Public Sector Accounting Standards (PPSAS): Based on international accounting standards tailored for government use. 4.3 Budgetary Accounting Government accounting integrates budgeting to ensure that expenditures do not exceed authorized appropriations. General Appropriations Act (GAA): Provides annual guidelines for budgetary allocations and accounting. 4.4 Use of the Accrual Basis of Accounting The Philippine government adopts the accrual basis of accounting for recording financial transactions, ensuring all revenues and expenses are recognized in the period they occur. COA Circular No. 2015-007: Enforces PPSAS, which includes accrual accounting. 4.5 Audit and Oversight Financial transactions are subject to regular audits by COA to ensure legality, accuracy, and efficiency. 1987 Philippine Constitution, Article IX(D): Empowers COA to audit all financial accounts of government agencies. 4.6 Salient Features of Government Agencies Government agencies in the Philippines are structured to implement programs, projects, and policies that promote national development and public welfare. A. Hierarchical Structure Government agencies operate within a hierarchical structure, with clear lines of authority and responsibility. Examples: National Government Agencies (NGAs): E.g., Department of Education (DepEd), Department of Health (DOH). B. Local Government Units (LGUs): Provinces, cities, municipalities, and barangays. 4.7 Accountability to the Public Agencies are required to disclose performance, expenditures, and the use of public funds. Mechanisms: Citizen Participatory Audit (CPA) by COA: Involves citizens in the audit process. 4.8 Budgetary and Performance-Based Management Government agencies follow a performance-based budgeting system. Executive Order No. 201 (2016): Institutionalizes the results-based performance management system. 4.9 Procurement and Expenditure Control Agencies follow standardized procurement processes to ensure transparency and efficiency. Republic Act No. 9184 (Government Procurement Reform Act). Current Examples” 1. In 2023, the COA flagged irregularities in LGU expenditures, citing incomplete supporting documents for transactions amounting to PHP 25 million. This highlights the importance of proper documentation and adherence to government accounting rules. 2. The Department of Public Works and Highways (DPWH) implemented PPSAS-compliant reporting systems in 2022, ensuring financial statements are comparable and consistent across agencies. 3. COA’s 2022 audit of the Department of Agriculture revealed PHP 3 billion in unliquidated cash advances, prompting calls for stricter compliance with accounting standards. 4.10 Fund, Obligation, and Cash Disbursement Ceiling a. Fund A fund is a sum of money or other resources set aside for a specific purpose, governed by laws or regulations. Examples: o General Fund: For the general operations of the government. o Special Funds: Allocated for specific activities or projects, such as the Education or Health Fund. Presidential Decree No. 1445 (Government Auditing Code of the Philippines), Section 3: Defines "fund" as a collection of money for a specific purpose. b. Obligation An obligation refers to a commitment made by a government agency to pay for goods or services, charged against a specific budget allocation. Types: o Personal Services: Salaries and benefits. o Maintenance and Other Operating Expenses (MOOE): Day-to-day operational expenses. o Capital Outlay: Investments in infrastructure or equipment. General Appropriations Act (GAA): Outlines rules on incurring obligations within an approved budget. c. Cash Disbursement Ceiling (CDC) The CDC is a limit set by the Department of Budget and Management (DBM) on the amount a government agency can disburse from its allocated funds within a specific period. Purpose: o To prevent overspending. o To align disbursements with available cash resources. o National Budget Circulars (NBCs) issued by DBM. Example: In 2023, the DBM imposed CDCs on all agencies to control cash flow during mid-year financial constraints. Agencies had to prioritize critical obligations, deferring non-essential disbursements. 4.11 Government Agencies Government agencies are administrative units responsible for implementing programs, enforcing laws, and delivering services aligned with national policies. They include: o National Government Agencies (NGAs): Departments such as DepEd, DOH, and DPWH. o Local Government Units (LGUs): Provinces, cities, municipalities, and barangays. o Government-Owned and Controlled Corporations (GOCCs): Organizations with corporate charters performing commercial functions, e.g., GSIS, SSS. a. Key Features of Government Agencies 1. Policy Implementation: Agencies translate national development plans into actionable programs and services. 2. Budget and Expenditure Management: Agencies receive annual appropriations through the GAA. 3. Reporting and Accountability: Agencies submit financial reports to oversight bodies like COA and DBM. 4. Compliance with Procurement Laws: All procurement activities must follow RA No. 9184 (Government Procurement Reform Act). Current Example: The Department of Social Welfare and Development (DSWD) spearheads disaster relief and poverty reduction programs, leveraging its allocated budget and partnerships with LGUs and NGOs. 4.12 Government Accounting Cycle The Government Accounting Cycle involves a systematic process for recording, analyzing, and reporting government financial transactions. a. Stages in the Government Accounting Cycle 1. Budget Authorization: The cycle begins with the enactment of the GAA, which authorizes appropriations for government operations. 2. Recording of Obligations: Agencies record commitments and obligations in their books of accounts. 3. Disbursement: (1) Disbursements are made through cash advances or payments to suppliers, contractors, or employees. (2) Supporting documents include vouchers, contracts, and receipts. 4. Recording of Transactions: Transactions are entered into the Journal of Entry Vouchers (JEV) and classified according to the Chart of Accounts. 5. Posting to Ledgers: Transactions are posted to the General Ledger and subsidiary ledgers for proper tracking. b. Financial Reporting: Agencies prepare financial statements, such as: o Statement of Financial Performance (income and expenses). o Statement of Financial Position (assets and liabilities). c. Audit and Oversight: COA audits the financial reports to ensure legality, accuracy, and adherence to accounting standards. Presidential Decree No. 1445, Section 110: Mandates adherence to accounting principles and reporting standards. COA Circular No. 2021-003: Outlines government accounting and reporting requirements. Current Example: In 2023, COA's audit of LGUs revealed discrepancies in cash advances and unliquidated obligations, prompting recommendations for stricter compliance with the accounting cycle. LESSON 5: EXPENDITURES, DISBURSEMENTS, ACCOUNTING AND ACCOUNTABILITY In the Philippines, government accounting adheres to principles and rules established to ensure that public funds are utilized appropriately, efficiently, and lawfully. The prohibitions against expenditures are rooted in various laws, regulations, and issuances. Here are the key prohibitions, along with their sources: 5.1. Prohibitions Against Expenditures Government agencies and offices must operate within budgets approved by Congress or local legislative bodies. Any spending outside of the authorized appropriations is considered illegal. 1987 Constitution, Article VI, Section 29(1), 1987 Philippine Constitution: "No money shall be paid out of the Treasury except in pursuance of an appropriation made by law." ▪ General Appropriations Act (GAA): Annually enacted by Congress to specify appropriations for government programs, ensuring accountability and transparency in the allocation of public funds. 5.2. Irregular, Unnecessary, Extravagant, Excessive, or Unconscionable Expenditures (IUEEU) i. Irregular expenditures are those that deviate from established laws, guidelines, or procedures. ii. Unnecessary expenditures are those not essential to achieving government objectives. iii. Extravagant and excessive expenditures involve spending beyond what is reasonable or necessary. iv. Unconscionable expenditures refer to unreasonable costs given prevailing conditions. ▪ Administrative Code of 1987 (Executive Order No. 292), Book VI, Chapter 5, Section 81: Prohibits these types of expenditures in government operations. ▪ COA Circular No. 2012-003: Provides clear examples of IUEEU expenditures and emphasizes that all government spending must be justified, economical, and necessary. 5.3. Misuse of Public Funds Public funds must be used exclusively for their intended purpose. Misusing funds allocated for specific projects or activities is a breach of public trust and can lead to criminal liability. ▪ Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act), Section 3(e): Penalizes acts of misusing government funds, leading to undue injury to the government or giving unwarranted benefits. ▪ Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees): Mandates that public officials ensure the efficient, effective, and honest use of public resources. 5.4. Absence of Proper Documentation All government expenditures must be supported by documents such as receipts, purchase orders, vouchers, and contracts to ensure the legality and legitimacy of the transactions. ▪ COA Circular No. 96-004: Outlines the documentary requirements for government disbursements to prevent fraud and irregularities. ▪ Presidential Decree No. 1445 (Government Auditing Code of the Philippines), Section 4(6): States that no funds shall be disbursed without complete supporting documentation. 5.5. Overpayment or Excess Payments Payments exceeding the agreed or authorized amount are prohibited. This includes overpayment to suppliers, contractors, or service providers and must be recovered immediately. ▪ COA Circular No. 2012-001: Highlights the need for accurate validation of claims to prevent overpayment. ▪ Presidential Decree No. 1445, Section 43(2): Holds officials accountable for any excess or erroneous payments and mandates their recovery. 5.6. Payments for Services or Goods Not Delivered Government agencies cannot release payments for goods or services not yet delivered, rendered, or completed. This prohibition protects public funds from being misappropriated. ▪ COA Circular No. 97-002: Requires certification and verification of actual delivery or completion of services before payment. ▪ Presidential Decree No. 1445, Section 3: Requires accurate reporting and certification of goods received or services rendered. 5.7. Conflict of Interest in Transactions Public officials and employees are prohibited from engaging in transactions where they have personal interests, directly or indirectly, to avoid corruption and ensure fair dealings. ▪ Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees), Section 7: Prohibits conflicts of interest and requires public officials to disclose their financial interests. ▪ Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act), Section 3(h): Declares it unlawful for public officers to have a direct or indirect financial interest in government contracts. 5.8. Violation of Procurement Laws All procurement activities must follow the provisions of the Government Procurement Reform Act to ensure transparency, fairness, and value for money. Violations such as splitting of contracts, sole sourcing without justification, and non-competitive bidding are prohibited. ▪ Republic Act No. 9184 (Government Procurement Reform Act): Establishes standardized procedures for procurement and ensures accountability in public spending. ▪ COA Circulars: Provide additional auditing guidelines to ensure compliance with procurement laws. 5.9 Use of Appropriated Funds and Savings. A. Appropriated Funds Definition: Appropriated funds refer to public funds set aside by law, specifically through the General Appropriations Act (GAA), for specific programs, activities, and projects of government agencies. 1987 Philippine Constitution: Article VI, Section 29(1): "No money shall be paid out of the Treasury except in pursuance of an appropriation made by law." Presidential Decree No. 1445 (Government Auditing Code of the Philippines): Section 84: Public funds must only be spent for public purposes authorized by law. ✓ Principles: 1. Legality: Funds must be used strictly for purposes specified by law. 2. Fiscal Responsibility: Agencies must use funds economically and only for essential and lawful purposes. 3. Specificity: Funds appropriated for one purpose cannot be used for another unless authorized by law. B. Savings of Government Funds Savings refer to the portions of appropriated funds that remain unspent after completing a project, fulfilling a purpose, or achieving savings through cost-cutting measures. C. Rules Governing Savings: 1987 Philippine Constitution: Article VI, Section 25(5): Authorizes the President, Senate President, House Speaker, Chief Justice, and heads of constitutional commissions to realign savings within their budgets to cover deficiencies in other items of appropriations. Administrative Code of 1987 (Executive Order No. 292): Defines savings and provides the authority to use them in specific instances, such as augmentation of deficient items. General Appropriations Act (GAA): Each year’s GAA provides specific rules on identifying and using savings. For example, it allows agencies to declare savings from completed projects, discontinued activities, or efficiency measures. D. Permitted Uses of Savings: o Augmentation: Savings can be used to augment items with deficiencies within the same office’s appropriations, provided such augmentation is authorized by law. o Contingency: Savings may address unforeseen events or emergencies, subject to legal limits. o Restrictions: Savings cannot fund unauthorized new projects or programs. E. Prohibitions and Misuse Unauthorized reallocation or realignment of funds is prohibited. Using savings for projects outside the appropriations framework constitutes a misuse of public funds. F. Misuse Penalties: Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act): Penalizes public officials for illegal realignment or diversion of funds. Administrative Code of 1987: Provides disciplinary action against public officials who misuse appropriated funds. G. Oversight and Monitoring ✓ Commission on Audit (COA): o Ensures that appropriated funds and savings are used in accordance with the law. o Conducts post-audit reviews to verify proper usage. ✓ Department of Budget and Management (DBM): Oversees the release and reallocation of appropriated funds. 5.10 Prohibition Against Advance Payments and Cash Advances. Strict rules govern advance payments and cash advances to prevent misuse, safeguard public funds, and ensure accountability. These rules are embedded in the Constitution, laws, and regulations, with oversight provided by the Commission on Audit (COA). A. Advance Payments - Advance payments refer to the disbursement of funds before the completion of a service, delivery of goods, or performance of contractual obligations. (Generally, advance payments are disallowed in government transactions to ensure funds are only disbursed upon actual delivery or performance.) Presidential Decree No. 1445 (Government Auditing Code of the Philippines): Section 88: "No money shall be paid on account of any contract under which no services have been rendered or goods delivered." Republic Act No. 9184 (Government Procurement Reform Act): Section 4: Prohibits advance payment except in certain cases (e.g., mobilization fees for infrastructure projects). COA Circular No. 97-002: Requires proof of delivery or performance before payment. Exceptions: Mobilization Fees: Up to 15% of the contract amount may be paid in advance for infrastructure projects under RA No. 9184, provided that a guarantee is posted. Subscription Services: Payments for subscriptions, software licenses, or memberships may be allowed upfront, subject to approval. B. Cash Advances - Cash advances are funds released to officers or employees to cover specific expenditures in service of government operations. Cash advances must not be released for unauthorized purposes and must be liquidated promptly. Presidential Decree No. 1445: Section 89: Only permanent, accountable officers can receive cash advances. COA Circular No. 97-002: Limits cash advances to specific purposes (e.g., official travel, special events). ▪ Requires liquidation of cash advances within prescribed periods: ▪ 30 days for local travel. ▪ 60 days for foreign travel. ▪ Immediately upon completion of the activity. COA Circular No. 2012-004: Imposes sanctions for delayed or non-liquidation of cash advances. C. Prohibited Uses: Paying for private or personal expenses. Using cash advances for activities outside the approved scope or timeframe. Holding unliquidated cash advances for extended periods. D. Oversight Mechanisms Commission on Audit (COA): Conducts post-audit reviews to check compliance with rules on advance payments and cash advances. Internal Audit Divisions: Monitors liquidation and accountability of cash advances within agencies. Examples: 1. Irregular Advance Payments in Procurement: A 2023 COA report flagged a local government unit (LGU) for releasing a 50% advance payment for a construction project without sufficient guarantees. The payment was deemed irregular as it exceeded the allowed mobilization fee under RA No. 9184. 2. Unliquidated Cash Advances: A state university was called out in a 2022 audit for unliquidated cash advances amounting to PHP 10 million. Employees had failed to account for funds released for travel and operational expenses, violating COA Circular No. 2012-004. 3. COVID-19 Pandemic-related Violations: In 2021, a national agency faced scrutiny for releasing advance payments to contractors for personal protective equipment (PPE) procurement without ensuring actual delivery. This led to overpricing concerns and investigation. 5.11. Accountable Employee for Local Government Funds Accountable employees in local government units (LGUs) are officers or staff designated to handle, manage, or oversee public funds and property. Their responsibilities and liabilities are governed by constitutional provisions, national laws, and local government regulations to ensure proper accountability and transparency. ▪ Accountable Officer: An accountable officer is any official or employee entrusted with the custody, control, or management of public funds or property. ▪ Scope of Responsibility: Includes disbursement, collection, and safekeeping of funds. Applies to local treasurers, accountants, budget officers, cashiers, and other employees designated to handle public funds or properties. A. Legal Framework ✓ 1987 Philippine Constitution: Article XI, Section 1: "Public office is a public trust." This mandates government employees, including those in LGUs, to act with accountability and integrity. ✓ Presidential Decree No. 1445 (Government Auditing Code of the Philippines): ▪ Section 101: Accountable officers are personally liable for any loss or improper use of government funds. ▪ Section 102: Provides that the safekeeping and proper use of government funds are the personal responsibility of the officer entrusted with them. Republic Act No. 7160 (Local Government Code of 1991): Section 311: Defines the duties of accountable officers, including local treasurers and property custodians. ▪ Section 340: Prohibits the use of public funds for personal purposes. Commission on Audit (COA) Rules: COA Circular No. 97-002: Governs the accountability and liquidation of cash advances and other funds handled by accountable officers. B. Duties and Responsibilities of Accountable Employees 1. Collection of Revenues: Local treasurers are responsible for collecting local taxes, fees, and other revenues. 2. Disbursement of Funds: Ensuring funds are disbursed in accordance with the appropriations set by the Sangguniang Panlalawigan, Sangguniang Bayan, or Sangguniang Barangay. 3. Safekeeping of Public Funds and Properties: Safeguarding collections, public funds, and government property. 4. Reporting and Liquidation: A) Submitting accurate and timely financial reports. B) Liquidating cash advances within the prescribed period. C. Liabilities of Accountable Employees 1. Civil Liability: Accountable officers may be required to reimburse any losses due to negligence, fraud, or unauthorized transactions. 2. Criminal Liability: Misappropriation of public funds or failure to liquidate accounts may lead to charges under: Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act). Revised Penal Code, Article 217 (Malversation of Public Funds). 3. Administrative Liability: Neglect of duty, failure to account for public funds, or engaging in irregularities may result in suspension, dismissal, or disqualification from public office. D. Oversight and Monitoring 1. Commission on Audit (COA): Conducts regular audits of LGU accounts. 2. Local Chief Executives (Governors, Mayors): Oversee financial operations in their jurisdictions. 3. Sanggunian Oversight Committees: Monitor LGU budgets and expenditures. E. Current Examples of Issues: 1. Unliquidated Cash Advances: In 2022, COA flagged multiple LGUs for unliquidated cash advances, amounting to millions of pesos. For example, an LGU treasurer in Mindanao faced administrative charges for failing to liquidate PHP 5 million released for a local festival. 2. Loss of Public Funds: In 2023, a municipal treasurer in Luzon was suspended for failing to account for PHP 2.5 million in collected business taxes. COA discovered discrepancies between the reported collections and bank deposits. 3. Misuse of Local Government Funds: A barangay official in Metro Manila was charged with malversation for diverting PHP 500,000 of barangay funds to personal use in 2021. 5.12 Prohibition Against Pecuniary Interest and Reception and Entertainment in Philippine Government Settings The prohibition against pecuniary interest and certain forms of reception and entertainment is rooted in the principles of transparency, accountability, and ethical conduct in public service. A. Prohibition Against Pecuniary Interest "Pecuniary interest" refers to having a financial stake or involvement in transactions, contracts, or arrangements that could affect a government official or employee's impartiality or integrity. 1987 Philippine Constitution: i. Article XI, Section 1: "Public office is a public trust." ii. Article IX(D), Section 2(b): Prohibits public officials from having financial interests in transactions involving public funds. Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act): Section 3(h): Prohibits public officials from directly or indirectly having financial interest in any government transaction or contract. Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees): Section 7: Prohibits public officials from owning, controlling, or benefiting from a business or private enterprise that may conflict with their official duties. Examples of Prohibited Activities: 1. A government official holding shares in a company bidding for a government contract. 2. An employee authorizing a payment to a company owned by a close relative. 3. A public servant receiving financial benefits or kickbacks from suppliers or contractors. 5.13 Prohibition Against Reception and Entertainment This refers to the misuse of public funds for excessive, unnecessary, or unauthorized receptions, celebrations, and entertainment activities. Presidential Decree No. 1445 (Government Auditing Code of the Philippines): Section 83: Public funds must be used only for lawful and essential purposes. COA Circular No. 2012-003: Defines unnecessary and extravagant expenditures, including excessive spending on receptions and entertainment. Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees): Section 4(a): Requires government officials to practice austerity and avoid wasteful expenditures. A. Prohibited Activities: 1. Spending public funds on lavish meals or accommodations for guests during non-essential events. 2. Using government resources for private celebrations, such as birthday parties or weddings. 3. Excessive allocation for cultural or ceremonial activities beyond what is reasonably necessary. B. Liabilities for Violations Civil Liability: Erring officials may be required to reimburse any public funds spent on unauthorized transactions or entertainment. Criminal Liability: Violators may face charges under: 1. RA No. 3019 (Anti-Graft and Corrupt Practices Act). 2. Revised Penal Code, Article 217 (Malversation of Public Funds). Administrative Liability: Penalties include suspension, dismissal, or permanent disqualification from holding public office. C. Oversight Mechanisms 1. Commission on Audit (COA): Audits government transactions to identify irregularities in spending. 2. Office of the Ombudsman: Investigates and prosecutes public officials for violations of anti-graft laws. D. Current Examples 1. Conflict of Interest in Government Contracts: o In 2023, a government procurement officer was charged for awarding a multimillion-peso contract to a company where their spouse was a major shareholder. The COA flagged the transaction as a clear violation of RA No. 3019. 2. Extravagant Spending on Receptions: o A 2022 audit revealed that an LGU in Visayas spent PHP 2 million on unnecessary receptions for visiting officials. COA classified the expenditure as extravagant and ordered the officials to refund the amount. 3. Unauthorized Use of Funds for Personal Celebrations: o A barangay captain in Metro Manila faced administrative charges in 2021 after using barangay funds to host a birthday party. The COA determined the expense was illegal under PD No. 1445 and RA No. 6713. E. Best Practices for Compliance 1. Conflict of Interest Disclosure: Officials must disclose any personal financial interests that could create conflicts, as required under RA No. 6713. 2. Austerity Measures: Avoid lavish spending on non-essential activities and ensure all expenses serve a valid public purpose. 3. Audit and Monitoring: Establish internal controls to monitor expenditures and ensure compliance with legal and ethical standards. 5.14. Approval of Vouchers The approval of vouchers - It ensures that public funds are disbursed only for lawful, necessary, and properly documented purposes. Government accounting laws and regulations govern the preparation, review, and approval of vouchers to maintain transparency, accountability, and efficiency. a. Definition and Purpose of Vouchers Voucher: A voucher is a written document that authorizes the payment of public funds, supported by official documents proving the validity of the transaction (e.g., invoices, receipts, purchase orders). Purpose: 1. To provide a basis for disbursement. 2. To serve as evidence of payment. 3. To ensure compliance with laws, rules, and regulations on the use of public funds. b. Legal Framework Presidential Decree No. 1445 (Government Auditing Code of the Philippines): 1. Section 4: Stipulates that no money shall be disbursed except in pursuance of an appropriation authorized by law and upon proper certification. 2. Section 85: Requires all disbursements to be evidenced by duly approved vouchers and supporting documents. Commission on Audit (COA) Circular No. 2012-001: Mandates the use of vouchers in all government disbursements and outlines the requirements for their preparation and approval. Republic Act No. 9184 (Government Procurement Reform Act): Ensures that vouchers related to procurement are supported by valid contracts, inspection reports, and other necessary documents. c. Approval Process for Vouchers 1. Preparation: Vouchers are prepared by the concerned department, supported by documents such as invoices, receipts, and certifications of budget availability. 2. Review: The internal auditor or budget officer reviews the completeness and legality of the documents attached. 3. Approval: The head of the agency, or an authorized official, approves the voucher. The approving authority is responsible for ensuring the legality and correctness of the disbursement. 4. Certification by the Accountant: The government accountant certifies the availability of funds and the correctness of the disbursement prior to payment. 5. Payment: Once approved, the voucher is forwarded to the cashier or treasurer for the release of funds. d. Liabilities of Approving Officials Legal Provisions: o Presidential Decree No. 1445: Officials who approve illegal or improper disbursements are held personally accountable. o Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act): Approving fraudulent vouchers can result in criminal liability. Types of Liabilities: o Civil Liability: Reimbursement of improperly disbursed funds. o Criminal Liability: Penalties for malversation of funds. o Administrative Liability: Suspension, dismissal, or disqualification from office. e. Common Issues in Voucher Approval 1. Incomplete Documentation: o Vouchers are sometimes processed without complete supporting documents, such as inspection reports or receipts. 2. Irregular or Unauthorized Transactions: o Payments made without legal appropriation or contractual basis. 3. Delays in Approval: o Prolonged approval processes that hinder operational efficiency. 4. Fraudulent Practices: o Officials approving vouchers for ghost projects or fictitious transactions. f. Current Examples 1. Flagged Vouchers in LGUs: o In 2023, the COA flagged an LGU for processing PHP 15 million worth of vouchers without proper supporting documents, including official receipts and budget certifications. The disbursement was deemed irregular and subject to refund. 2. Unauthorized Payments: o A government agency in 2022 was criticized for approving vouchers for payments to a contractor who had not completed the project, violating provisions under RA No. 9184. 3. Fraudulent Transactions: o In 2021, COA uncovered anomalies in a provincial government where vouchers were approved for fictitious suppliers, resulting in the misappropriation of PHP 5 million. g. Best Practices for Voucher Approval 1. Strict Adherence to Regulations: Ensure compliance with PD No. 1445, RA No. 9184, and COA Circulars. 2. Regular Training: Train employees on voucher preparation and approval requirements. 3. Internal Control Measures: Strengthen the review process and accountability mechanisms to detect irregularities. 4. Automation: Use electronic systems for voucher preparation and approval to minimize errors and delays. 5.15. Official Authorized to Draw Checks for Payment of Obligations In the Philippine government, specific officials are authorized to draw checks, ensuring accountability and transparency in financial transactions. They play a vital role in disbursing funds while adhering to legal and institutional guidelines. The authorization of officials to draw checks ensures accountability and transparency in the Philippine government. Measures like dual signatures, documentation, and audits reduce misuse and ensure funds are used for legitimate purposes. Examples include LGU practices and national agency operations. a. Authorized Officials: Regular Government Agencies 1. Agency Head or Designated Official: o The agency head (e.g., Secretary, Regional Director) or a formally designated official is authorized to approve disbursement vouchers. o Check issuance, however, is performed by the designated as Authorized Signatory. 2. Cashier or Disbursing Officer: o Responsible for physically issuing checks or facilitating electronic payments. o Acts as the primary handler of government funds allocated for obligations. b. Local Government Units (LGUs) 1. Local Chief Executive (LCE): o The Mayor (city/municipality) or Governor (province) approves disbursement vouchers. 2. Treasurer: o Authorized to issue checks for obligations, countersigned by the LCE or other authorized officials. c. Commission on Audit (COA) Involvement COA ensures that all disbursement processes comply with regulations and that obligations are backed by sufficient documentation before payment. d. Legal Basis 1. Presidential Decree No. 1445, Section 86 (Government Auditing Code of the Philippines): Payments must be approved and checks issued only by authorized officials. 2. Local Government Code of 1991, Section 305 (Republic Act No. 7160): Provides guidelines for LGU fiscal responsibilities, including check issuance. 3. Department of Budget and Management (DBM) Guidelines: Issuances outline specific signatory roles in check and fund management. Example: NBC No. 583 (2011): Specifies the roles of agency heads, accountants, cashiers, and disbursing officers in ensuring the proper use of released allotments and issuing checks. 4. COA Circulars: Set detailed rules for the documentation and accountability of officials involved in disbursement processes. Examples: COA Circular No. 2012-001: Prescribes policies and guidelines on the prevention of irregular, unnecessary, excessive, extravagant, and unconscionable (IUEEU) expenditures. COA Circular No. 97-002: Provides guidelines on the granting, utilization, and liquidation of cash advances. COA Circular No. 2017-001: Mandates the submission of complete supporting documents for all disbursements. COA Circular No. 2009-006: Defines the liability of public officials and employees involved in financial transactions. COA Circular No. 2020-006: Promotes the use of electronic systems for auditing and financial management in light of digital transformation and modern practices. e. Process of Check Issuance 1. Obligation Recording: Obligations are recorded in the books of accounts, ensuring that funds are available. 2. Approval of Disbursement Voucher: Disbursement vouchers undergo review and approval by the authorized official. 3. Preparation of Check: The disbursing officer prepares the check or electronic fund transfer document. 4. Countersigning: Checks are countersigned by another authorized official (e.g., Treasurer, LCE) to ensure dual control. 5. Release to Payee: The check or electronic payment is issued to the creditor, supplier, or beneficiary. f. Current Examples 1. Department of Education (DepEd): Regional Directors are authorized to approve vouchers for school projects. Checks are drawn by the agency cashier or finance officer, and countersigned by the Regional Accountant. 2. Local Government Units: In Quezon City, the Mayor approves large-scale infrastructure project payments, while the City Treasurer signs check for payments, ensuring proper fund utilization. 3. Social Amelioration Program (SAP): During the COVID-19 pandemic, LGU Treasurers issued checks for SAP beneficiaries, countersigned by the Mayor, ensuring compliance with disbursement guidelines. g. Key Accountability Measures 1. Dual Signatures: Checks require two signatures to prevent unauthorized disbursements. 2. Supporting Documents: Payments are backed by vouchers, receipts, and other proof of obligation. 3. Audits by COA: Regular audits ensure compliance with financial management rules. 5.16 General Liability for Unlawful Expenditures Unlawful expenditures involve the improper, unauthorized, or illegal use of public funds or resources, officials and employees responsible for such expenditures are held accountable under various laws, rules, and regulations. Liability may include administrative, civil, or criminal penalties, depending on the severity of the offense. a. Legal Frameworks: The following laws and policies establish liability for unlawful expenditures: Presidential Decree No. 1445 (Government Auditing Code of the Philippines) Section 103: Provides that any public official or employee who authorizes, approves, or incurs expenditures without proper authority or in violation of laws and regulations is liable for the amount spent. Section 106: Mandates that public officers handling public funds must act with diligence and in accordance with law. Revised Penal Code of the Philippines (Act No. 3815) Article 217: Penalizes malversation of public funds, whether through negligence or willful misconduct. Article 220: Penalizes illegal use of public funds or property (technical malversation). Administrative Code of 1987 Provides general guidelines for financial management in government and imposes penalties for violations. Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) Penalizes public officials who cause undue injury to the government or any private party through evident bad faith, gross inexcusable negligence, or corrupt practices. COA Circular No. 2012-001 Defines irregular, unnecessary, excessive, extravagant, and unconscionable (IUEEU) expenditures and holds officials accountable for these. b. Liabilities: 1. Administrative Liability: Includes suspension, dismissal, or demotion from government service, often imposed after investigation by the Office of the Ombudsman or the Civil Service Commission. 2. Civil Liability: The official may be required to restitute or reimburse the government for unlawful expenditures. 3. Criminal Liability: Officials can face imprisonment, fines, or both, depending on the violation. c. Accountability of Officials Responsible Officials: Officials directly involved in approving or implementing unlawful expenditures, such as heads of agencies, accountants, and cashiers. Supervisory Officials: Those who fail to exercise due diligence in overseeing subordinates or prevent irregular practices. d. Current Examples COA Reports on Unliquidated Cash Advances: In recent COA reports, several government agencies and LGUs were flagged for failure to liquidate cash advances and for spending beyond authorized budgets. For example: COVID-19 Response Funds: COA flagged agencies for excessive spending on overpriced personal protective equipment (PPEs) in 2021. Officials involved face investigations and potential liabilities. Malversation Cases: In 2022, local government officials in a Visayan province were charged with malversation for diverting funds meant for disaster relief to personal accounts. Unauthorized Travel Expenses: COA identified unauthorized travel allowances in 2023 within a national agency, resulting in administrative sanctions for those responsible. 5.17 Posting of the Summary of Income and Expenditures The posting of the summary of income and expenditures is a transparency measure required of Philippine government agencies and local government units (LGUs) to promote accountability and openness in financial transactions. It allows citizens to monitor how public funds are generated and utilized, ensuring compliance with good governance principles. a. Legal Framework ✓ Local Government Code of 1991 (Republic Act No. 7160) - Section 352 (Posting of the Summary of Income and Expenditures): 1) Requires all LGUs to post the summary of their income and expenditures at least once every quarter in a conspicuous place in the municipal, city, or provincial hall. 2) The purpose is to inform the public about the financial operations of the LGU and foster transparency in the use of public funds. ✓ Presidential Decree No. 1445 (Government Auditing Code of the Philippines) Stipulates that public funds must be accounted for, with summaries of financial transactions made accessible to stakeholders, including the general public. ✓ COA Circular No. 2009-006: Reinforces the obligation of government entities to ensure transparency by making financial information available to the public. ✓ Freedom of Information (FOI) Executive Order No. 2, Series of 2016: Encourages proactive disclosure of public financial information by government agencies, including income and expenditures. c. Importance of Posting Financial Summaries 1. Transparency: Provides citizens with accessible information on government income and expenditures. 2. Accountability: Enables the public to hold officials accountable for the use of public funds. 3. Citizen Participation: Encourages active engagement and oversight by citizens in governance. 4. Good Governance: Demonstrates adherence to ethical and responsible financial practices. d. Implementation Guidelines 1. Who Should Post? All LGUs, government-owned or controlled corporations (GOCCs), and agencies mandated by law. 2. What Should Be Posted? Quarterly summary of: ▪ Income: Taxes, fees, grants, and other revenues. ▪ Expenditures: Salaries, operating expenses, capital outlays, and other disbursements. 3. Where to Post? Conspicuous places such as: ▪ Municipal or city halls. ▪ Barangay centers. ▪ Official websites (as applicable). 4. Frequency: At least once every quarter, or as prescribed by the Department of the Interior and Local Government (DILG) or COA. e. Current Examples: Compliance by LGUs Example: The Quezon City government regularly posts financial summaries on its official website and city hall bulletin boards. This practice is part of its “Open Governance Initiative. Example: Cebu City has posted its quarterly financial summaries in barangay halls and its official Facebook page to reach a broader audience. f. National Government Agencies Agencies like the Department of Education (DepEd) and Department of Health (DOH) use their official websites to post financial reports, ensuring compliance with transparency laws. g. Citizen Participatory Audit (CPA) CPA initiatives have utilized publicly posted financial summaries to engage citizens in auditing local government projects, such as infrastructure and disaster response efforts. LESSON 6: BUDGET PROCESS 6.1 The National Budget Government accounting is primarily budgetary accounting. Provide budget information about past events and transactions and budget information in accordance with PPSAS 24. The national budget (government budget) is the government’s estimate of the sources and uses of government funds within a fiscal year. 6.2 The Budget Cycle 1. Budget preparation 2. Budget legislation 3. Budget execution/operation 4. Budget Accountability A. Budget Preparation Uses a “bottom-up” approach. Several parties participate in the budget preparation, starting from the lowest to the highest levels of government. Government agencies. Tasked to increase citizens-stakeholders participation in the budget preparation. “Top-down budgeting. Wherein the budget preparation starts from the agency heads. In 2011. Attempted to shift from the old “Incremental” system to a “Zero-Based Budgeting” approach. 1. Budget call. Issued by the DBM to all government agencies contains the next fiscal year’s targets, the agency’s budget ceiling, and guidelines for the completion and submission of agency budget proposals. 2. Budget hearings. Conducted after agencies submit their budget proposals. Each agency defends the budget proposal before the DBM. The DBM Deliberates on the budget proposal, make recommendations and consolidates the deliberated proposal into the National Expenditure Program (NEP) and Budget of Expenditures and Sources of Financing (BESF). DBM will submit 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's approval, the DBM finalizes and submits the budget to Congress within 30 days from the opening of every regular session. (Art. VII. Sec. 22.) “President’s Budget” a) President 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). Illustration: Excerpts from President’s Budget Message B. 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. 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). 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. Bicameral Deliberations After deliberations in both houses are finished, a committee, called the Bicameral Conference Committee, is formed to harmonize any conflicts between the House of Representatives and Senate versions of the GAB. o 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. 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 Congress. (Art. VI, Sec. 25(7), Philippine Constitution) The Approved Budget The 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: 1. New General Appropriations (UACS Code 01): Annual authorizations for incurring obligations during a specified budget year, as listed in the GAA. 2. Continuing Appropriations (UACS Code 02): Authorizations to support obligations for a specific purpose or project, such as multi-year construction projects, even beyond the budget year. 3. Supplemental Appropriations (UACS Code 03): Additional appropriations authorized by law to augment the original appropriations which proved insufficient due to economic, political, or social conditions. 4. Automatic Appropriations (UACS Code 04): Authorizations programmed annually or for some other period prescribed by law, not requiring periodic action by Congress. 5. Unprogrammed Funds (UACS Code 05): Standby appropriations that may be availed only when specific conditions occur, such as revenue collections exceeding targets or new revenues being collected. 6. Retained Income/Funds (UACS Code 06): Collections authorized by law to be used directly by agencies for specific purposes. 7. Revolving Funds (UACS Code 07): Receipts derived from business-type activities of agencies, deposited in a government depository bank, and used for obligations related to said activities. 8. Trust Receipts (UACS Code 08): Receipts held in trust by government agencies to fulfill obligations or conditions. Relevant Provisions 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 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) C. Budget Execution This 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 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. 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 and municipalities, and (d) Barangays. 3. Government-Owned and Controlled Corporations (GOCCs) – Corporations owned or controlled, directly or indirectly, by the government and vested with functions relating to public needs. Recipients of a Portion of the Budget: 1. Congress Members (Senators and Congressmen): o Receive the Priority Development Assistance Fund (PDAF), a.k.a. "Pork Barrel," which funds priority development programs. 2. Judiciary Members: o Receive the Judiciary Development Fund (JDF). At least 80% of the fund is intended for cost-of-living allowances for members and personnel, while up to 20% is used for office equipment and facilities. (PD No. 1949) Disbursement Acceleration Program (DAP): Introduced in 2014 by the Aquino Administration to speed up public spending. Savings refer to available portions under the General Appropriations Act (GAA), while unprogrammed funds cover items not initially budgeted. 9. Allotment The DBM formulates the Allotment Release Program (ARP) to set the limit for allotment releases during the year. This ensures releases conform to the national budget. It is complemented by the Cash Release Program (CRP) to set disbursement limits for the year. Allotment: Authorization issued by the DBM to government agencies to incur obligations. It is also referred to as Obligational Authority. Obligations must conform to the specific "Allotment." Obligation: An act by an authorized official binding the government to pay a sum of money immediately or eventually. Documents for Releasing Allotments: 1. General Appropriations Act Release Document (GAARD): Serves as the obligational authority for comprehensive release of budgetary items categorized as For Comprehensive Release. 2. Special Allotment Release Order (SARO): Covers items For Later Release (negative list) subject to compliance with required documents/clearances. Fund, International Commitments Fund, Miscellaneous Personnel Benefits Fund, and Pension and Gratuity Fund are also covered by SAROs. 3. General Allotment Release Order (GARO) 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 the need of special clearance or approval from competent authority (e.g., 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 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 government funds. The following are the documents used in releasing disbursement authority to government agencies: 1. Notice of Cash Allocation (NCA) Authority issued by the DBM to central, regional, and provincial offices and operating units to cover their cash requirements. o Specifies the maximum amount of cash that can be withdrawn from a government servicing bank in a certain period. o Based on the agency’s submitted Monthly Cash Program. 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 the 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) allowing them to use the income collected by their Foreign Service Posts to cover their operating requirements. Disbursements are most commonly made through checks 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 cash, commercial check, bank transfer/debit, or credit card. Key Terms to Remember: 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. D. 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 Report of Disbursements Shows the disbursements of the entity during the month, classified according to the type of disbursement authority. Submitted to the COA and DBM within 30 days after the end of each month. b. Quarterly Physical Report of Operation Shows the agency’s physical accomplishments in a given quarter vis-à-vis its physical targets. c. Statement of Appropriations, Allotments, Obligations, Disbursements, and Balances Shows the agency’s authorized appropriations, allotments received, obligations incurred, disbursements made, and balances of unreleased appropriations, unobligated allotments, and unpaid obligations. d. Summary of Appropriations, Allotments, Obligations, Disbursements, and Balances by Object of Expenditures Similar to (c) but provides details of expenditures (e.g., salaries, wages, traveling expenses). e. List of Allotments and Sub-Allotments Shows the allotments received by the agency from the DBM and the sub-allotments issued by the agency’s Central Office or Regional Office to lower operating units. f. Statement of Approved Budget, Utilizations, Disbursements, and Balances — This report is prepared by agencies that have authority to use their revenue. It shows the budgeted revenue, the utilizations and disbursements thereof, and the unutilized amount. g. Summary of Approved Budget, Utilizations, Disbursements, and Balances by Object of Expenditures — Similar to 'f' above but provides details of expenditures. h. Quarterly Report of Revenue and Other Receipts — Shows the actual revenues and other receipts remitted to the BTr and deposited in authorized government depository banks in a given quarter. ❖ Reports 'b' to 'h' above are prepared on a quarterly basis and are submitted to the COA and DBM within 30 days after the end of each quarter. i. Aging of Due and Demandable Obligations — Shows the names of creditors, the amounts owed to them, and the number of days these obligations are outstanding. This report is submitted to the COA and DBM within 30 days after the end of the year. ❖ A Consolidated Statement of Allotments, Obligations, and Balances per Summary of Appropriations (based on reports 'c' and 'd' above) shall be submitted on or before February 14 of the following year. 13. Performance Reviews — The DBM and COA perform periodic reviews of the agencies’ performance and budget accountability and report to the President. 14. Audit — The COA audits the agencies. ❖ The budget reports, together with other budget records, provide information in preparing the Statement of Comparison of Budget and Actual Amounts, which is one of the components of a complete set of financial statements of a government entity. LESSON 7: PROBLEMS IN APPLYING PROGRAM BUDGETING IN GOVERNMENT 7.1 Definition of Program Budgeting in Government Program budgeting is an approach to public financial management that organizes government expenditures based on programs rather than traditional line-item categories. Programs are defined as groups of related activities or tasks aimed at achieving specific objectives or outcomes for citizens. 7.2 Types of Program Budgeting: a. Presentational - Performance information is presented but not directly used in decision-making. b. Direct - Performance data is tightly linked to budget allocation. c. Performance-Informed Budgeting - Performance results influence, but do not solely determine, budget decisions. 7.3 Goals of Program Budgeting 1) Transparency - Provides clear insights into how government resources are spent and the outcomes achieved. 2) Operational Efficiency - Encourages agencies to choose cost-effective methods for delivering services. 3) Accountability - Helps hold government agencies responsible for delivering outcomes. 4) Improved Fiscal Discipline - Supports prioritization of expenditures by focusing on programs with the greatest societal benefits. 7.4 Problems in Applying Program Budgeting in Government A. Technical Challenges 1. Accommodating Programs in Existing Accounting Systems: Many financial systems are not designed for program-based tracking, making adaptation difficult and costly. Alternative approaches like spreadsheets or external tools are used but lack full integration and scalability. 2. Data and Measurement Issues: Lack of robust performance measurement systems. Difficulty in generating valid, reliable, and timely data on program outcomes. Risk of overloading or manipulating performance data to meet targets. B. Informational Challenges 1. Gaps in Performance Information: Missing or incomplete performance indicators and targets. Indicators often fail to align with higher-level societal outcomes. Examples of overstated program performance due to inadequate metrics (e.g., ignoring dismissed cases in legal success rates. 2. Accessibility and Usability: Limited access to consolidated performance information. Fragmented or outdated data undermines decision-making and oversight. C. Decisional Challenges 1. Limited Use of Performance Data: Despite being available, performance data is rarely a primary basis for budget decisions. The persistence of traditional line-item and incremental budgeting methods weakens the focus on results. 2. Political and Ideological Influences: Budgeting decisions often prioritize political, ideological, or constituency interests over performance metrics. D. Institutional Challenges 1. Lack of Integrated Framework: Absence of unified guidelines to align agency outputs and outcomes with government priorities. Existing tools like the Budget Priorities Framework and OPIF are not institutionalized in law, risking their discontinuation with administrative changes. 2. Capacity Constraints: Insufficient technical skills among staff to implement performance-based budgeting. Agencies lack the resources and manpower to design effective programs and analyze data. E. Cultural and Incentive-Related Issues 1. Resistance to Change: Fear among stakeholders of losing funding for their programs. Concerns about transparency expose inefficiencies. 2. Unintended Consequences of Incentives: Performance-based bonuses may lead to "gaming" of data or focus on easier-to-achieve outputs. LESSON 8: TRIAL BALANCE, FINANCIAL REPORTS AND STATEMENTS 1. Trial Balance and its purpose 2. Income Statement 3. Balance Sheet 4. Statement of Cash Flow 8.1. Trial Balance And Its Purpose A trial balance (TB) is a listing of general ledger accounts with their corresponding debit and credit balances. The accounts are listed in the order in which they appear in the Revised Chart of Accounts (RCA), with the debit balances in the left column and the credit balances in the right column. The TB shows the equality of debit and credit balances of all GL accounts as at the given period. It is prepared and submitted monthly, quarterly, and annually. At the end of the fiscal year, the pre-closing and the post-closing trial balances shall be prepared The preparation of a TB shall serve the following purposes: 1. To prove the mathematical equality of the debits and credits after posting; 2. To check the accuracy of the postings; 3. To uncover errors in journalizing and posting; and 4. To serve as the basis for the preparation of the financial statements. 8.2. Adjusting Journal Entries Adjusting journal entries (AJEs) are made at the end of an accounting period to allocate revenue and expenses to the period in which they occurred. Required every time a financial statement is prepared to make the statement truly reflective of the financial condition of the entity at a given period. Two main types of Adjustments a. Accrued Items – these are the adjusting entries for economic activities already undertaken but not yet recorded as asset and revenue accounts or liability and expense accounts. a.1. Asset/Revenue Adjustments – These involve assets and income that exist at the end of the accounting period but are not yet recorded. a.2. Liability/Expense Adjustment – These involve liabilities and expenses, which already exist at the end of the accounting period but are not yet recorded. B. Deferred items – These are adjusting entries transferring data previously recorded in the asset account to the expense account or data previously recorded in the liability account to the revenue account. B.1. Asset/Expense Adjustments – These involve prepaid expenses portion of which shall be recorded as expenses of the agency at the end of the accounting period. These also include bad debts and depreciation. B.2. Liability/Revenue Adjustments – These involve unearned revenue where the agency receives the asset, usually cash, even before the income is actually earned. 8.3 Other Adjustments The following adjustments shall also be made (if applicable) for fair presentation of the results of operation of the entity in the financial statements: a. Unused NCA (National) b. Petty Cash Fund c. Unreleased Commercial Checks d. Allowance of Impairment Losses of Asset Accounts e. Depreciation Expenses f. Other Adjustments 8. 4 Reversion of Unused Notice of Cash Allocation For NGAs receiving subsidies from the national government in the form of NCA, adjusting journal entries shall be made for the reversion of the unused or utilized NCA at the end of the accounting period. The Entry for lapsed regular NCA and those issued for the payment of accounts payable/retirement gratuity/terminal leave. Shall be: (For Unused NCA – issued for the release of performance/bidders/bail bonds, which were deposited with the National Treasury. A JEV shall be drawn for the following journal entry. 8.5. Petty Cash Fund Adjustments Year-End Reporting for Petty Cash Fund Unreplenished Expenses o Report all expenses at year-end. o Submit supporting documents to the Accounting Division. o Recognize expenses for the correct period. If No Replenishment is Made: o Prepare a Journal Entry Voucher (JEV). o Record expenses with a credit to "Petty Cash." If Replenishment is Made: o Record expenses with a credit to the appropriate cash account. (Refer to journal entries in Chapter 5, Cash Advance for Petty Operating Expenses.) 8.6. Adjustments for Unreleased Commercial Checks Preparation and Submission: Cashier prepares a Schedule of Unreleased Commercial Checks. Submit the schedule to the Accounting Division/Unit. Year-End Process: All unreleased checks at year-end are reverted to cash accounts. A Journal Entry Voucher (JEV) is prepared to: o Restore the cash equivalent of unreleased checks. o Recognize the appropriate liability/payable account. Accounting Entry: Debit: Cash Credit: Liability/Payable Account Title Account Code Debit Credit Cash in Bank, Local Currency, Current 10102020 xxx Accounts Payable 20101010 xxx Note: There shall be no physical cancellation of the checks. 8.7 Restoration and Reversal of Unreleased Commercial Checks Supporting Document for Financial Statements: o The JEV for cash restoration forms part of the supporting documents submitted to COA at year-end. Reversal in the New Year: o At the start of the year: ▪ Prepare a new JEV to reverse the previous entry. ▪ Recognize the availability of checks for release. Exclusion: o Not applicable to the account "Cash-Modified Disbursement System (MDS)": ▪ No actual cash exists with the Government Servicing Banks (GSBs). 8.8 Restoration and Reversal of Unreleased Commercial Checks Impairment Losses and Allowance for Impairment Losses (GAM Section 9). Recognition of Impairment Losses: o If the collectability of a revenue amount becomes uncertain: ▪ Recognize the uncollectible amount as an expense (impairment loss). ▪ Do not adjust the original revenue recognized. Evaluation of Accounts Receivable: o Conduct ongoing assessments based on: ▪ Historical bad debts. ▪ Customer/recipient creditworthiness. ▪ Current economic trends. ▪ Changes in payment activity. Allowance for Bad Debts: o Provide an allowance for both known and estimated bad debts. Illustration: Per aging of the accounts, the required allowance is ₱20,000, while the beginning balance of the allowance for impairment loss is ₱15,000. No other transactions transpired. The adjusting entry to take up bad debts expense is as follows: Account Title Code Debit Credit Impairment Loss – Loans & Receivable 50503020 5,000 Allowance for Impairment - AR 10301011 5,000 8.9 Depreciation Expenses Depreciation of Property, Plant, and Equipment o Systematic allocation of the depreciable amount over the asset’s useful life. o Useful life is based on the expected utility to the entity and requires judgment. Key Principles (PPSAS No. 17): o Depreciation is recognized even if the fair value exceeds the carrying amount, provided: ▪ Residual value does not exceed the carrying amount. Annual Review Requirements: o Residual value and useful life must be reviewed at least annually. o If estimates change: ▪ Account for changes as a change in accounting estimate. ▪ Apply changes currently and prospectively. 8.10 Depreciation Methods Depreciation methods allocate the depreciable amount of an asset systematically over its useful life. Common Methods: o Straight-Line Method: ▪ Allocates an equal amount each year over the asset’s useful life. o Diminishing Balance Method: ▪ Allocates higher depreciation in earlier years and decreases over time. o Units of Production Method: ▪ Allocates depreciation based on the asset’s usage or production output. Illustration: The accounting records of Agency ABC show the following depreciable assets, with 5% salvage value, using the straight-line method: Assets Cost Useful Life Depreciation Buildings ₱50,000,000 50 ₱950,000 Assets Cost Useful Life Depreciation Machinery ₱150,000 5 ₱28,500 Office Equipment ₱100,000 5 ₱19,000 Furniture & Fixtures ₱75,000 10 ₱7,125 Motor Vehicles ₱10,000,000 10 ₱950,000 Books ₱10,000 5 ₱1,900 Adjusting Entries for Depreciation: 1. Buildings & Other Structures Account Title Code Debit Credit Depreciation Expense – Buildings 50501040 ₱950,000 Accumulated Depreciation – Buildings 10604011 ₱950,000 2. Machinery & Equipment Account Title Code Debit Credit Depreciation Expense – Machinery 50501050 ₱28,500 Accumulated Depreciation – Machinery 10605011 ₱28,500 3. Office Equipment Account Title Code Debit Credit Depreciation Expense – Office Equipment 50501050 ₱19,000 Accumulated Depreciation – Office Equipment 10605021 ₱19,000 Account Title Code Debit Credit Depreciation Expense - Fur., Fixtures & Books 50501070 7,125 Accum. Depreciation - Fur. & Fixtures 10607011 7,125 Depreciation Exp. - Trans. Equip 50501060 950,000 Accum. Dep’n - Motor Vehicles 10606011 950,000 Depreciation Exp. - Fur., Fixtures & Books 50501070 1,900 Accum. Dep’n - Books 10607021 1,900 8.11 Pre-Closing Trial Balance o Prepared after posting Adjusting Journal Entries (AJEs) to the General Ledger (GL). o Also called the Adjusted Trial Balance. Purpose: Shows the adjusted balances of all accounts for a given period. Requirements: The Trial Balance (TB) must be supported by Subsidiary Ledger (SL) schedules. 8.12 Closing Journal Entries Closing journal entries close out balances of nominal/temporary and intermediate accounts at the year-end. 1. Balance all revenue accounts to the "Revenue and Expense Summary" account. 2. Balance all expense accounts to the "Revenue and Expense Summary" account. 3. Balance the "Revenue and Expense Summary" to the "Accumulated Surplus/(Deficit)" account. 4. Balance all "Cash-Treasury/Agency Deposit, Regular" accounts to "Accumulated Surplus/(Deficit)." 5. Prepare other closing entries. o For interim financial statements (e.g., quarterly), closing entries are prepared but not recorded in the books. 8.13 Post-Closing Trial Balance Prepared at year-end after closing entries are posted to the GL. Only real (balance sheet) accounts retain balances since revenue and expense accounts are closed. 8.14 Purpose of Financial Statements Financial statements represent the financial position and performance of an entity. General purpose statements aim to provide information for resource allocation, decision-making, and demonstrating accountability by reporting: 1. Financial resources' sources, allocations, and uses. 2. Financing activities and cash requirements. 3. Financial condition and changes therein. 4. Performance metrics such as service costs, efficiency, and accomplishments. 8.15 Purpose of Financial Statements 1. Predict resources required for operations and risks involved. 2. Assess compliance with budgets and financial limits set by legislation (PPSAS 1). Key Elements of Financial Statements 1. Assets 2. Liabilities 3. Net assets/equity 4. Revenue 5. Expenses 6. Changes in net assets/equity 7. Cash flows 8. Comparison of budget vs. actual amounts (Par. 17, PPSAS 1). 8.16 Responsibility for Financial Statements a. Individual Entity/Department FSs: o Prepared by: ▪ Head of the entity/department (Central Office, Regional Office, or Operating Unit) ▪ Authorized representative, jointly with the head of the finance/accounting division/unit b. Department/Entity FSs as a Single Entity: o Prepared by: ▪ Head of the entity/department (COF) ▪ Head of the finance unit, jointly 8.17 Statement of Management Responsibility for Financial Statements Purpose: Serves as the covering letter for transmitting financial statements. Recipients: o Commission on Audit (COA) o Department of Budget and Management (DBM) o Other oversight agencies o Relevant parties Acknowledges Responsibility: Preparation and presentation of financial statements. Signatories: Director of Finance and Management Office or Comptrollership Office, or Chief of Office with direct supervision of accounting/financial transactions, and Head of Agency or an authorized representative. 8.18 Components of General-Purpose Financial Statements Key Requirements for Financial Statements Identification and Distinction: o Financial statements must be identified and distinguished from other information in the same document. Prominently Displayed Information: 1. Name of the reporting entity (or other means of identification) and any changes since the last reporting date. 2. Scope: Individual entity or group of entities. 3. Reporting date or period covered by the financial statements. 4. Fund cluster name. 5. Reporting currency. 6. Level of rounding used in presenting amounts (e.g., thousands, millions). Guidelines on Rounding: o Acceptable to present in thousands or millions of the reporting currency. o Conditions: ▪ Disclose the level of rounding. ▪ Ensure material information is not omitted. 8.19 A complete set of financial statements (condensed and by fund cluster) to be submitted by an entity shall include the following: a. Statement of Financial Position b. Statement of Financial Performance c. Statement of Changes in Net Assets/Equity d. Statement of Cash Flows e. Statement of Comparison of Budget and Actual Amounts f. Notes to the Financial Statements, comprising a summary of significant accounting policies and other explanatory notes For the purpose of preparing the Annual Financial Report: all national government agencies shall submit to the Government Accountancy Sector, COA detailed financial statements and trial balances by fund cluster. 8.20 Qualitative Characteristics of Financial Reporting An entity shall present information, including accounting policies, in a manner that meets the following qualitative characteristics enumerated in PPSAS 1, Presentation of Financial Statements: a) Understandability - Information is understandable when users with reasonable knowledge of the entity and its environment, and a willingness to study, can comprehend it. b) Relevance - Information is relevant if it aids in evaluating events or confirming past evaluations and is provided in a timely manner. c) Materiality - The relevance of information depends on its nature and materiality. Information is material if its omission or misstatement could impact users' decisions, with materiality determined by the item's nature or size. d) Timeliness - Financial statements lose usefulness if not provided within a reasonable time after the reporting date. Delayed information, though reliable, may lack relevance for timely decision- making. e) Reliability - Information is reliable if it is free from material error and bias and can faithfully represent the entity's transactions. f) Faithful Representation - Information must represent transactions and events faithfully, not just their legal form. g) Substance Over Form - The substance of transactions must align with economic reality and not just legal formalities. h) Neutrality - Information is neutral if free from bias. It should not aim to achieve predetermined results. i) Prudence - Involves caution in making estimates, avoiding overstatement of assets or understatement of liabilities. j) Completeness - Financial statements should be complete, within materiality and cost boundaries. k) Comparability - Information is comparable when it allows for comparisons across entities and time periods. Users must be informed of any policy changes and their effects. 8.21 Financial Reporting System for the National Government Consists of accounting systems on an accrual basis and budget reporting systems on a budget basis under the statutory responsibility of the NGAs, Bureau of the Treasury (BTr), Department of Budget and Management (DBM), and the COA, as follows: 1. Each entity of the National Government (NG): Maintains a complete set of accounting books by fund cluster, reconciled with the records of cash transactions maintained by the BTr. 2. BTr: Accounts for cash, public debt, and related transactions of the NG. 3. Entities: Maintain budget registries reconciled with the budget records maintained by the DBM and the Government Accountancy Sector (GAS) of COA. 4. COA (through GAS): o Maintains budget records showing the overall approved budget of the NG and its execution/implementation. o Consolidates FSs and budget accountability reports from all NGAs and the BTr into an Annual Financial Report (AFR) as required by Section 4, Article IX-D of the 1987 Philippine Constitution. o Prepares other financial reports required by law for oversight agencies. 8.22 Statement of Cash Flows ✓ Summarizes cash flows from operating, investing, and financing activities during a given period. It identifies cash inflows, outflows, and the cash balance at the reporting date. ✓ This information allows users to assess: 1. The entity's ability to generate cash and cash equivalents. 2. The entity's cash flow needs. Key Points: Cash Equivalents: Held for short-term commitments, not for investments. o Criteria: Short maturity (≤3 months), readily convertible to cash, low risk of value change. o Excludes equity investments unless they are, in substance, cash equivalents. Disclosure Requirements: o Components of cash and cash equivalents. o Reconciliation of cash flow statements with financial position items. o Disclosure of restricted cash/equivalents. Operating Activities Primarily derived from the entity's cash-generating activities. Examples: Taxes, goods, and services revenues. Reporting Methods: 1. Direct Method (Preferred): o Shows gross receipts and payments. o Requires reconciliation of surplus/deficit with net cash flows. 2. Indirect Method: Adjusts accrual-based figures for non-cash transactions. Other Key Notes: o Funds that cannot be separated into operational, financing, or investing flows must still be disclosed under operating activities in the notes. 1. Cash inflows from operating activities include, among others: o Cash receipt of assistance and subsidy from other NGAs, LGUs, and GOCCs. o Receipt of NCA. o Collection of income and revenues, including tax revenues, service and business income, shares, grants, donations, and prior year's income. o Collection of loans, leases, and other receivables, including receivables from audit disallowances. o Cash receipt of trust liabilities and other trust receipts. o Receipt of inter-entity and intra-entity fund transfers. o Receipt of advance payments, refunds, and other deferred credits. 2. Cash outflows from operating activities include, among others: o Year-end closing of remittances/deposits to the National Treasury. o Cash payments of expenses, including replenishment of PCF. o Cash payments to suppliers for goods and services. o Cash payments for purchases of consumable biological assets. o Grant of cash advances. o Prepayments and deposits. o Payment of accounts payable. o Payments representing financial assistance/subsidy. o Remittances of personnel benefit contributions and mandatory deductions. o Cash payments related to litigation settlements. o Release of inter/intra-entity fund transfers. o Other cash disbursements included in the computation of surplus/deficit. Investing Activities: These involve the acquisition and disposal of non-current assets and other investments not included in cash equivalents. Examples include purchasing PPE, short- and long-term investments, and other non-current assets. Investing activities provide insights into the resources allocated to support future service delivery. 1. Cash inflows under investing activities include, among others: o Cash receipts from sales/disposals of PPE, intangibles, investment property, and other long- term assets. o Cash receipts from the sale of stocks, bonds, interests in joint ventures, and other investments. o Collection of long-term loans (excluding advances and loans of a public financial institution). o Proceeds from matured/returned investments. o Cash receipts from futures contracts, forward contracts, and other financial instruments (excluding those held for trading). 2. Cash outflows under investing activities include, among others: o Cash payments to acquire PPE, intangibles, and other long-term assets (including capitalized development costs and self-constructed PPE). o Cash payments to acquire equity or debt instruments of other entities and interests in joint ventures. o Cash advances and loans made to other parties (excluding those made by public financial institutions). o Cash payments for futures contracts and other financial instruments (excluding those held for trading). Financing Activities: Activities related to equity capital or borrowings, including transactions involving equity and non- current liabilities. Examples include: o Proceeds from issuing debentures, loans, notes, bonds, and other borrowings. o Cash repayments of amounts borrowed. Cash payments by a lessee for reducing outstanding liabilities related to a finance lease. Cash Flow Reporting Guidelines: Net cash increase/decrease from operating, investing, and financing activities, along with the opening cash balance, should equal the year-end cash balance as per the Statement of Financial Position. Net basis reporting is allowed for: o Cash flows involving quick turnovers, large amounts, and short maturities (e.g., short-term investments). o Activities involving acceptance/repayment of deposits, placements/withdrawals with financial institutions, or loans and advances with fixed maturities. Exclusions from Cash Flow Statements: Transactions that do not require cash (e.g., conversion of debt to equity) should be disclosed separately in financial statements to ensure clarity. Cash Flows in Foreign Currency Recording in Functional Currency: o Apply the exchange rate at the date of cash flows to convert foreign currency amounts. o For foreign-controlled entities, use the exchange rate prevailing at the time of the transaction. Unrealized Gains/Losses: o Not considered cash flows. o Report only the effect of exchange rate changes on cash and cash equivalents in the cash flow statement. Presentation in Cash Flow Statement: o Reconcile cash and cash equivalents at the beginning and end of the period. o Report separately from operating, investing, and financing activities. o Include any differences if cash flows were reported using end-of-period exchange rates. Citations and References: 1. 1987 Philippine Constitution: o Article VI, Section 25(5) and Section 29(1). o Article XI, Section 1; Article IX(D), Section 2(b). 2. Presidential Decree No. 1445 (Government Auditing Code of the Philippines): o Sections 4, 83, 84, 85, 88, 89, 101, and 102. 3. Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act): o Sections 3 and 3(h); penalties for illegal disbursements. 4. Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and Employees): o Sections 4(a), 7, and 8. 5. Republic Act No. 9184 (Government Procurement Reform Act): o Section 4 and relevant IRR provisions. 6. Republic Act No. 7160 (Local Government Code of 1991). 7. COA Circulars: o 97-002: Payment and liquidation rules. o 2012-001: Guidelines on government spending. o 2012-003: Unnecessary, extravagant, and wasteful expenditures. o 2012-004: Specific rules on cash advances. o 2009-006: Relevant financial guidelines. 8. General Appropriations Act (GAA): Annual legislation, DBM. 9. Freedom of Information Executive Order No. 2, Series of 2016 (FOI Philippines). 10. Administrative Code of 1987 (Executive Order No. 292): o Book VI, Chapter 5, Sections 82–84. 11. Philippine Public Sector Accounting Standards (PPSAS). 12. Government Accounting References: o Government Accounting 2022 Edition (Cardona M. and Punzalan A.). o Government Accounting and Accounting for Non-Profit Organizations (Millan Zeus Vernon). 13. Revised Penal Code (Act No. 3815). 14. Quezon City Government's official website. 15. Performance Budgeting Reforms: PB2021-05. 16. Department of Budget and Management Circulars: DBM Website. 17. Manuals On New Government Accounting System (NGAS) 18. Compliance Audit Manual (COA website) 19. Financial Audit Manual (COA website) 20. Government Accounting Manuals (COA website) 21. PB2021-05_Institutionalizing_Performance_Budgeting_Reforms_in_the_Phil 22. Fundamentals of Public Budgeting and Finance (Aman Khan)

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