AC 41 – Advanced Financial Accounting and Reporting, Part 3

1st Sem, A.Y. 2019-2020 (2nd Hand-Out)

MANUAL ON THE NEW GOVERNMENT ACCOUNTING SYSTEM

For National Government Agencies

ACCOUNTING POLICIES

Sec. 1. OBJECTIVES OF THE MANUAL. The New Government Accounting System (NGAS)
Manual presents the basic policies and procedures; the new coding system; the accounting systems,
books, registries, records, forms, reports, and financial statements; and illustrative accounting entries to
be adopted by all national government agencies effective January 1, 2002. The objectives of the
Manual are to prescribe the following:

a. Uniform guidelines and procedures in accounting for government funds and property;
b. New coding structure and chart of accounts;
c. Accounting books, registries, records, forms, reports and financial statements; and
d. Accounting entries.

Sec. 2. COVERAGE. This Manual shall be used by all national government agencies.

Sec. 3. LEGAL BASIS. This Manual is prescribed by the Commission on Audit pursuant to Article IX-
D, Section 2 par. (2) of the 1987 Constitution of the Republic of the Philippines which provides that:
"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
therefore, 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".

BASIC FEATURES AND POLICIES

Sec. 4. BASIC FEATURES AND POLICIES. The NGAS has the following basic features and policies,
to wit:

a. Accrual Accounting. A modified accrual basis of accounting shall be used. Under this
method, all expenses shall be recognized when incurred and reported in the financial
statements in the period to which they relate. Income shall be on accrual basis except for
transactions where accrual basis is impractical or when other methods required by law.
b. One Fund Concept. This system adopts the one fund concept. Separate fund accounting
shall be done only when specifically required by law or by a donor agency or when
otherwise necessitated by circumstances subject to prior approval of the Commission.
c. Chart of Accounts and Accounts Codes. A new chart of accounts and coding structure with
eight mandatory digits shall be adopted. (See Revised Chart of Accounts, COA C2013-002,
Annex A, p 1-115.)
d. Books of Accounts. All national agencies shall maintain one set of books:

Regular Agency (RA) Books. These shall be used to record the receipt and utilized of
Notice of Cash Allocation (NCA) and other income/receipts which the agencies are
authorized to use and to deposit with Authorized Government Depository Bank (AGDB)
and the National Treasury. These shall consist of journals and ledgers, as follows:

Journals
* Cash Receipts Journal (CRJ)
* Cash Disbursement Journal (CDJ)
* Check Disbursement Journal (CkDJ)
* General Journal (GJ)

Ledgers
* General Ledgers (GL)
* Subsidiary Ledgers (SL) for:

* Cash
* Receivables
* Inventories
* Investments
* Property, Plant and Equipment

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 * Construction in Progress
* Liabilities
* Income
* Expenses

With the implementation of the computerized agency accounting system,

only the General Journal shall be used together with the ledgers by both
books.

The use of National Government (NG) books shall be discontinued and a

separate set of books shall be maintained by fund

e. Financial Statements. The following statements shall be prepared:

Statement of Financial Position, Statement of Financial Performance, Statement of
Changes in Net Assets/ Equity, Statement of Cash Flows and Notes to the FS.

The COA prescribed the adoption of 28 Philippine Public Sector Accounting

Standards (PPSAS) based on the International Public Sector AccountingStandards (IPSAS).

f. Two-Money Column Trial Balance. The two - money column trial balance
showing the account balances shall be used.

g. Allotment and Obligation. Obligation accounting is modified to simplify procedures in the

incurrence and liquidation of obligations and the recording of the budgetary accounts
(allotments and obligations incurred and liquidated). Separate registries shall be
maintained to control the allotments and obligations for each of the four classes of
allotments, namely:
* Registry of Allotments, Obligations and Disbursements – for PS, MOOE, CO and FE.
* Registry of Appropriation and Allotment (RAPAL)

This Registries shall be maintained by the Budget Unit of each entity.

The RAOD shall be maintained by fund cluster, by Major Final Output (MFO) or
Program/Activity/Project (PAP), and by allotment class.
Separate Registry shall be maintained for Overdraft/Obligations Incurred in
Excess of Allotment and for continuing appropriations (unreleased and
unobligated allotments). (Circular # 2015-002, March 19, 2015)

h. Notice of Cash Allocation (NCA). The receipts of NCA by the agency shall be recorded in
the books as debit to account "Cash- Modified Disbursement System (MDS), Regular"
and credit to account "Subsidy from National Government". (Refer to the latest issuance
by DBM as regards to releases of NCA) (COA-Circular#2013-002)

i. Financial Expenses. Financial expenses such as bank charges, interest expenses,

commitment charges and other related expenses shall be separately classified from
Maintenance and Other Operating Expenses (MOOE).

j. Perpetual Inventory of Supplies and Materials. Supplies and materials purchased for
inventory purpose shall be recorded using the perpetual inventory system. Regular
purchases shall be coursed thru the inventory account and issuances thereof shall be
recorded as the take place except those purchased out of Petty Cash Fund which shall be
charged directly to the appropriate expense accounts. (PPSAS 12)

k. Valuation of Inventory. Cost of ending inventory of supplies and materials shall be

computed the moving average method.

l. Maintenance of Supplies and Property, Plant and Equipment Ledger Cards. For
appropriate check and balance, the Accounting Units of agencies, as well as the Property
Offices, shall maintain Supplies Ledger Cards/Stock Cards by stock number and Property,
Plant and Equipment Ledger Cards/Property Cards by category of property, plant and
equipment, respectively.

m. Construction of Assets. For assets under construction, the Construction Period Theory
shall be applied for costing purposes. Bonus paid to the contractor for completing the work
ahead of time shall be added to the total cost of the project. Liquidated damages charged
and paid for by the contractor shall be deducted from the total cost of the project. Any
related expenses incurred during the construction of the project, such as taxes, interest,
license fees, permit fees, clearance fee, etc. shall be capitalized, and those incurred after
the construction shall form part of operating costs.

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 n. Public Infrastructures/Registry of Reforestation Projects. For agencies that construct
public infrastructures, such as roads, bridges, waterways, railways, plaza, monuments,
etc., and invest on reforestation projects, shall recognize the cost and the related
accumulated depreciation and impairment losses of existing public infrastructure assets
based on the Registry of Public Infrastructures (RPIs)previously maintained and the
estimated useful life as may be determined by competent authority. Registry of Public
Infrastructures (RPI). Registry of Reforestation Projects (RRP) shall no longer maintained.
(PPSAS 17)

Included in the standard are provisions to be followed regarding PPE controlled but not
owned by the entity, the effect on the recognition of depreciation as a result of the change
in the estimated residual value to 5% of the cost which will be applied prospectively, and
(PPSAS 31) the accounting policy on tangible assets with serviceable life of more than
one year but small enough to be considered as PPE, that revoked the threshold of
P10,000 for semi-expendable items, shall continue to be applied until amended.

o. Depreciation. The straight-line method of depreciation shall be used. Depreciation shall

start on the second month after purchase of the property, plant and equipment, and a
residual value equivalent to 5% percent of the purchase cost shall be set-up.

Public infrastructures/reforestation projects shall be charged of depreciation while

serviceable assets that are no longer being used shall not be charged of any depreciation.

p. Reclassification of Assets. Serviceable assets no longer being used shall be reclassified

to "Other Assets" account and shall not be subject to depreciation.

q. Allowance for Doubtful Accounts. An Allowance for Doubtful Accounts shall be set up for
estimated uncollectible trade receivables to allow for their fair valuation.

r. Elimination of Contingent Accounts. Contingent accounts shall no longer be used. All

financial transactions shall be recorded using the appropriate accounts. Cash shortages
and disallowed payments, which become final and executory, shall be recorded under
receivable accounts "Due From Officer and Employees" or "Receivables-
Disallowances/Charges", as the case may be. Additional provisions regarding contingent
assets and liabilities are discussed in PPSAS 19.

s. Recognition of Liability. Liability shall be recognized at the time goods and services are
accepted or rendered and supplier/creditor bills are received.

t. Interest Accrual. Whenever practical and appropriate, interest income and/or expense
shall be accrued and recognized in the books of accounts.

u. Accounting for Borrowings and Loans. All borrowings and loans incurred shall be recorded
to the appropriate liability accounts.

v. Elimination of corollary and negative journal entries. The use of corollary and negative
journal entries shall be stopped. Acquisition/Disposition of assets shall be debited/credited
to the appropriate assets accounts. If an error is committed, correcting entry to adjust the
original entry shall be prepared.

w. Petty Cash Fund. The Petty Cash Fund shall be maintained under the imprest system. As
such, all replenishment shall be directly charged to the expense account and at all times,
the Petty Cash Fund shall be equal to the total cash on hand and unreplenished
expenses. The Petty Cash Funds shall not be used to purchase regular inventory/items
for stock.

x. Foreign Currency Adjustment. Cash deposits in foreign currency and outstanding foreign
loans shall be computed at the exchange rate prescribed by the Bangko Sentral ng
Pilipinas at balance sheet date. The total cash deposits and foreign loans payable shall be
adjusted at the end of each month and any gain or loss on foreign exchange shall be
recognized. The subsidiary ledger for foreign currency obligations shall reflect appropriate
foreign currency in which the loan is payable. The liability shall be expressed both in the
foreign and local currency.

Sec. 5 General Accounting Plan. The General Accounting Plan (GAP) shows the overall
accounting system of a government agency/unit. It includes the source documents, the flow of

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transactions and its accumulation in the books of accounts and finally their conversion into financial
information/data presented in the financial reports.

The following accounting systems are:

a. Budgetary Accounts System;

b. Receipts/Income and Deposits System;
c. Disbursement System; and
d. Financial Reporting System

Budgetary Accounts System - The Budgetary Accounts System encompasses the processes of
preparing the Agency Budget Matrix (ABM), monitoring and recording of allotments received by the
agency from the DBM, releasing of Sub-Allotment Release Order (SARO- to Regional Offices (RO) by
Central Office (CO), issuance of Sub-SARO to operating units (OUs) by the RO and recording and
monitoring obligations.

Agency Budget Matrix (ABM) - The ABM refers to a document showing the disaggregation of agency
expenditures into components like, among others, by source of appropriation, by allotment class and by
need of clearance.

THE NATIONAL BUDGET

Government budget defined

A government budget is a plan for financing the government activities of a fiscal year prepared
and submitted by responsible executive to a representative body whose approval and authorization are
necessary before the plan can be executed. It is more than mere estimate or statement of receipts
and expenditures; it is a definite proposal to be approved or rejected.

Basically, budgeting is planning and controlling. Careful plans for the future should be laid and those
who direct the operation of the government must be held strictly responsible for carrying out the plan.

Purposes of budgeting:
1. Establish in advance the objective or end result of the budget period.
2. Provides the means of coordinating the activities of the various sub-divisions and departments
of the business.
3. Provide a period-to-period basis of comparison to show whether the plan is being realized and if
not realized indicate when changes must be made if current objectives are to be obtained.
4. To serve as basis for orderly management of public finances.

Fundamental Principles of Fiscal Operations

Budget activities are governed by legal provisions/fundamental principles relating to the financial
transactions and operations of the government. The principles, as provided for by law are:

1. No money shall be paid out of any public treasury or depository except in pursuance of an
appropriation law or other specific statutory authority;
2. Government funds or property shall be spent or used solely for public purposes;
3. Trust funds shall be available and may be spent only for the specific purpose of which the trust
was created;
4. Fiscal responsibility shall, to the greatest extent, be shared by all those exercising authority over
the financial affairs, transactions, and operations of the government agency;
5. Disbursements or disposition of government funds and property shall invariably bear the
approval of the proper officials;
6. Claims against government funds shall be supported with complete documentation;
7. All laws and regulations applicable to financial transactions shall be faithfully adhered to; and
8. Generally accepted principles and practices of accounting as well as of sound management and
fiscal administration shall be observed, provided they do not contravene existing laws and
regulations.

The Budget as the Framework of the Accounts

The budget is an estimate of the proposed expenditures for specified purposes and period, and
embodies the means of financing them during the same period. It provides the means for controlling
the estimated amounts to be raised as well as the proposed amounts to be spent for specified objects.
It is a program that guides all activities relating to collections and expenditures; It is the framework of
the accounts by which the transactions affecting such collections and expenditures shall be recorded;

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thus, the proper classification of income and expenditures should be reflected in the accounts so that
recorded data may give adequate support to future budget estimates.

Linkage Between Government Budgeting and State Accounting

A close linkage exists between government budgeting and state accounting. The accounting system
provides the essential information needed to make resource allocation decisions, monitor budgetary
performance, and assess the effectiveness of operations. The budget provides the framework within
which transactions should be recorded, classified and summarized in the accounting system to permit
comparison of actual results with budgeted standards.

A substantial output of the accounting system pertains to accountability reports needed to monitor
performance in the execution and accountability phases of the budgetary process. The content, form,
and other requirements of such reports are prescribed by the DBM. The Commission on Audit issues
rules and regulations that may be applicable when the reporting requirements affect accounting
functions.
What is a Balanced Budget?
It is a situation wherein the budget is equal or less than expected revenues. At present, the Philippine
National government operates on a deficiency. The optimal situation would be policies of government
that would increase revenues and decrease expenses. However, the national coffer is run by incurring
government deficits that entails borrowing of funds by the national government from outside sources.
Additional funding are from local and foreign borrowings.
Composition of Budgetary Accounts
 Appropriations - legal authorization directing payment of government funds for a special
purpose. This serves as a check and balance measure so government funds are only used for
intended projects.
 Allotment - authorization issued by the Department of Budget and Management (DBM) to allow
disbursements within a specified appropriation. The DBM is tasked to give the go signal for
agencies to disburse funds for projects that has been given funding by the national government.
Without the later, monies could not be disburse from other sources.
 Obligation - an act which binds an agency for the immediate payment of a sum of money from
the National Treasury. Once an obligation is issued, the government agency and 3rd parties are
assured of funds coming from the national coffers
Kinds of Budgets

1. As to Nature
a. Annual Budget – a budget which covers a period of one year. It is the basis of an annual
appropriation.

b. Supplemental budget – a budget which purports to supplement or adjust a previous budget

which is deemed inadequate for the purpose for which it is intended. This is the basis for a
supplemental appropriation.

c. Special budget – a budget of special nature and generally submitted in special forms on account
of the fact that itemizations are not adequately provided in the Appropriation Act or that amounts
are not at all included in the Appropriations Act.

2. As to Basis
a. Performance Budget – a budget emphasizing the programs or services conducted and based
on functions, activities and projects which focus attention upon the general character and nature
of the work to be done, or upon the services to be rendered, rather than the things to be
acquired, such as personal services, supplies and equipment. It is management-oriented
measures actual or estimated results in the basis, terms of benefits accruing to the public and
their costs.

b. Line-Item Budget – a budget the basis of which are the objects of expenditures such as salaries
and wages, travelling expenses, freight, supplies, materials and equipments, tec.

3. As to Approach and Technique

a. Zero-Based Budgeting – a process which requires systematic consideration of all programs,
projects and activities with the use of the defined ranking procedures. In ZBB, activities are
analyzed and presented in “decision packages” or key budgetary inclusions.

The term “zero-base” refers to the yearly analysis, evaluation and justification of each activity,
project or program, starting from a “zero” performance and budgeting level. ZBB does not
accept the prior year’s budget as a starting point for analysis. The analysis of the levels of
funding and performance as well as the expected impact of the objectives at each level will give
enough leeway for management to decide whether to eliminate entirely a low priority to make

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 way for a new one or to cut back the performance and funding level of the program to permit
another to expand.

b. Incremental Approach – a budget where only additional requirements need justification. It

focuses on analysis of incremental changes in the budget and may be done within the context of
performance and program budgeting.

c. Capital Budgeting Approach - a budgeting technique which consists of a two-tiered strategy, as

follows:

c.1 Setting a baseline budget that will correspond to the minimum level of operating
requirements at which each agency of the national government will be able to perform its basic
functions; and

c.2 Prioritization of the allocable balance (i.e. what is left of the budget ceiling after deducting
the baseline budget) among the proposed projects and programs of agencies.

Agency baseline – refers to the cost of performing regular agency functions, including an allowance
for inflation, but excluding the cost of non-recurring programs and projects.

Government-wide baseline – refers to the budget impact of decisions or policies enunciated by the
government that require priority funding. These items are not traditionally reflected in the
individual budgets of agencies but are shown as a lump sum to be distributed later on the basis
of prescribed rules or procedures.

Examples are:
a. Proposed salary adjustment
b. Miscellaneous personnel benefits, including retirement benefits
c. Mandatory allocations to local governments
d. Projected level of support to GOCCs
e. Estimated provisions for contingencies due to calamity, foreign exchange fluctuations
and other adjustments

FAPs baseline – refers to the budgetary requirements, of ongoing programs/projects with foreign
financial assistance.

Priority Program/Project Fund - the remaining balance after deducting the baseline budget
requirements of the national government.

4. Other forms of budget

a. Regional budgeting – is a budget prepared consistent with the regional organization of the
national government, wherein the DBM identifies by region the expenditures of government
agencies and releases funds also on a regional basis.

b. Long-term budget – is a budget prepared for a four or five year period or longer; longer range
estimate of revenue and expenditures requirements.

c. Key Budgetary Inclusions – refer to the financial commitments of agencies pertaining to a

budget year. KBIs are maintained for the purpose of (1) controlling major financial commitments
so that funds are not misappropriated or to prevent juggling of funds, (2) to disclose the funds
and have a clear picture of the expenditures; and (3) to track down a mandatory obligations and
insure funding of priority projects.

National Budget System

The National Budget System consists of the methods and practices of the government for planning,
programming and budgeting. It shall include the adoption of sound economic and fiscal policies and
the execution of the programs and projects geared towards the accomplishment of political, economic
and social objectives. Its primary concern is the availability and use of money to provide the services
required or expected from the government.

Legal Basis of the Budget System

The legal basis of the current national budget system is the Budget Reform Decree or PD No. 1177.
The first premise of the Budget Reform Decree is that the national budget is an instrument for
development and as such requires careful design and implementation of budget preparation,
legislation, execution and accountability.

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What is a national budget?

A national budget is the government’s estimate of its income and expenditures. It is the financial
translation of the program and projects that best promote the development of the country. It is what the
government plans 1) to spend for its programs and projects and 2) where the money will come from.
It is based on what the government thinks it will spend during the year and the sources of what it hopes
to have as funds either from the revenues or from borrowings with which to finance such expenditure.

On what is our national budget spent?

Our national budget is allocated for the implementation of various programs and projects, the
operation of government offices, payment of salaries of government employees and payment of public
debts. These expenditures may be looked at in terms of expense class, sector, implementing unit of
government and region.

Expenditures by expense class show how much is provided for:

1. Current operating expenditures – appropriations for the purchase of goods and services for the
conduct of normal government operations within a budget year (e.g. salaries, maintenance and
other operating expenses, interest payments etc.)

2. Capital outlays – appropriations for the purchase of goods and services the benefits of which
extent beyond the budget year and which add to the assets of government including
investments in the capital stock of government owned-or controlled corporations.

3. Net Lending – net advances by the national government for the servicing of government
guaranteed corporate debt and loans outlays by the national government to government
corporations; and

4. Debt amortization – contribution to the sinking fund which is utilized for principal repayment of
our loans.

How may a national budget affect the country’s life?

The national budget also serves as a stabilization role. It pump primes the economy, that is,
when the economy is in recession and private sector activity is weak, the government through its
budget speeds up and increases its spending. The intention is to stimulate demand for goods and
purchases and the creation of more job opportunities.

Conversely, during economic booms when the private sector is active and economic growth is
high, the government through the budget, assumes a more conservative spending, taxing, and
borrowing stance so as not to compete with the private sector in the demand for goods and credit. The
objective is to slow down the rise in interest rates and prices, and avoid overheating the economy.

Furthermore, the budget serves as a tool for the redistribution of the country’s financial
resources. This is most clearly manifested ion the sustained funding for the social services sector.
Through various social programs especially those targeted for the poor, the government hopes to raise
the rate of return on human capital; provide immediate relief to the needy; and extend better
opportunities for slef-help, livelihood and employment activities.

Why does the budget increase?

Expenditures may increase or decrease depending on the government’s policy of how much it
would like to put into the economy. The more the government intends to raise the country’s level of
development, the more expenditure rise.

Furthermore, the maturity of the country’s debt also determines the size of the budget and how
it differs from year to year. When the loans which were incurred in the past fall due, scheduled
payments for a given year are included in the year’s expenditure program. Also, government’s
assumption of liabilities of government corporation and financial institutions contributes to the increase
in the allocation of debt servicing. These, in turn, increase the budget deficit which contributes to
higher interest payments and a bigger over-all budget.

Commodity price increase equated to inflation also require that the budget be adjusted so that it
would still be able to buy the quantity of goods and services that the government is aiming for.

There are two major sources of our national budget: 1) revenues and 2) borrowings.

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 Revenues consist of tax and non-tax collections.
Tax revenues are classified as follows:
a. excise tax
b. license and business taxes
c. income taxes
d. import duties
e. other taxes and duties

Non-tax revenues include fees and service incomes of various government agencies,
foreign grants, including those from the sale of transferred, surrendered and privatized
assets by the Asset Privatization Trust and the Presidential Commission on Good
Government.

Borrowings come from domestic and foreign sources. Domestic borrowings are sources from
the auction of Treasury bills, notes and bonds. Foreign borrowings are classified either as
project and program loans being offered by foreign creditors such as the Asian
Development Bank and the International Bank for Reconstruction and Development.

Project loans are foreign loans obtained to finance a specific project such as the building of
roads or bridges, while

Program loans are multi-purpose foreign loans for the enhancement of a specific sector and
conditioned on basic changes in certain economic, monetary or fiscal policies, among
others.

Why does the government borrow from foreign sources? Why can’t it make do with what is
collected locally.

Our government has to provide for the requirements of capital outlays projects such as roads
and bridges, that are important to the attainment of our development objectives. In effect, capital
outlays are investments for continuous economic activities and for future expansions. They generate
local production and income.

Relying only on domestic or local resources to finance such projects will limit our government’s
capacity to provide this needed support. If the government takes too large a share of domestic
resources, local private demand will have less for their own projects and activities. As a result, credit
will be tight, interest charges will be high and prices of goods and services will go up.

The absence of a long-term domestic capital market and the limited savings in the country,
moreover, render the domestic resources insufficient to finance the enormous requirements of
development. By borrowing from foreign sources, the government takes advantage of long-term loans
which are readily available abroad with lower interest rates in international capital markets.

It should be emphasized that our national government uses borrowing proceeds solely to
finance carefully selected capital projects supportive of the country’s development goals. Wisely
chosen and efficiently implemented, these projects are expected to build up the productive capacity of
our economy and eventually pay back the loans obtained.
The national budget is composed of the funding requirements of all agencies, operations, and
activities that are needed to run the government.
BUDGET PROCESS

How is the government budgeting undertaken?

Government budgeting is undertaken using a process that consists of four (4) phases, namely:
1) budget preparation
2) budget legislation or authorization
3) budget execution or implementation
4) budget accountability or review

Budget Preparation

This process starts with the determination of budgetary priorities and activities guided by our national
development plan, within the ceilings or constraints imposed by available revenues and borrowing limits
and inclusion of amounts needed for approved priorities and activities into the expenditure levels.

The role of Development Budget Coordinating Committee (DBCC) is to review and approve the
macroeconomic targets, determines the overall expenditure levels, the revenue projections, the deficit

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 levels and the financing plan. The DBCC submits these to the Cabinet and to the President for
approval.

The members of the DBCC have the following specific responsibilities:

a.i.1. DBM - resource allocation and management
a.i.2. DOF - revenue generation and debt management
a.i.3. NEDA - overall macroeconomic policy
a.i.4. BSP – resource institution and is responsible for the monetary measures and policies.
a.i.5.
It is assisted by an Executive Technical Board (ETB) which serves as the clearing house of the DBCC.

Once approved, the DBM issued a Budget Call, a document reminding the different agencies in the
government to prepare their respective budgets in accordance with approved overall budget ceilings
and parameters. Upon receipt of the budget call, the agencies are also expected to have already
started conducting their own internal budget consultations to firm up and to fit in their departmental
plans and priorities for the specific year with the overall sectoral development strategy of government,
as laid down in the Medium Term Development Plan.

DBM hold consultations with agencies to set indicative expenditure ceiling of department or agencies
as set by DBCC to be used in preparation of official budget estimates to avoid and minimize bloated
agency budget proposal

Agencies issue guidelines to their regional offices which are expected to conduct regional budget
hearings with RDC and NGO. In this hearing, programs, plans and priorities in the regions are
reviewed which will be incorporated in the budget proposal.

The regional offices submit their RDC – approved budget to their respective head offices in Manila
which, in turn, collate all the regional budget proposals submitted by their different regional offices all
over the Philippines and consolidate these into a single agency budget proposal of the department.

The DBM conducts consultation-workshops with RDCs and department heads on their criteria for the
allocation of the agency budget to their regional offices. The intention is to ensure that the regional
distribution of the national budget is consistent with the development plans and directions of the
regions. This is in line with the allied policies of decentralization and creating greater popular
participation in government concerns.

The DBM then undertakes a series of review activities to evaluate the merits of the budget proposals
and determine the areas where possible cuts could be made. The objective is to make the overall
expenditure level consistent with that determined by the DBCC and approved by the President.

Budget Legislation or Authorization

The President submits the overall budget that he/she approved to Congress in the form of a detailed
Expenditure Program (National Expenditure Program) accompanied by the Budget of Expenditures and
Sources of Financing, The President’s Budget Message and the Regional Allocation of the Expenditure
Program.
A brief budget message stating the programs of government for the year, the national economic goals,
impact of expenditures to economic activity, funding proposals and debt ceiling, and Financial
Statements that show:
a.i.5.a.i.1. Appropriations for expenditures to support government programs and the funding sources of
revenues generated and borrowings;
a.i.5.a.i.2. Estimated receipts/revenues in the coming year;
a.i.5.a.i.3. Prior years’ actual expenditure, receipts, and appropriations;
a.i.5.a.i.4. Estimated expenditures and receipts for projects that are work in progress during the
fiscal year;
a.i.6. Financial condition of the National Treasury during the current and the ensuing fiscal year.

In Congress, the proposed budget goes first to the House of Representatives, which assigns the task
of initial budget review to its Appropriations Committee. The House Committee summons the different
national agencies of the government to explain and to justify their budget. The proposed budget is then
presented to the House Body as a bill (Gen. Appropriations Bill).

From the House of Representatives, the budget bill goes to the Senate and is referred to the Senate
Finance Committee. The Senate Finance Committee, likewise, asks the various agencies to explain
their respective budgets as contained in the budget bill. It then proposes amendments to the House
Budget Bill to the Senate Body for approval.

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 To thresh out differences and arrive at a common version, a conference committee is created
composed of members coming from both houses.

Once a common budget bill has been approved by both houses voting separately, it is submitted to the
President for signing into law. It then known as a General Appropriations Act., which mandates the
DBM, as the staff arm of the President to execute or implement the expenditures program.
Under the 1987 Constitution, it was indicated that, “No money shall be paid out of the National Treasury
except in pursuance of an appropriation mandated by law.” What this means is that, government funds
shall only be paid if there is a law authorizing payment, or a purpose that is indicated as to the manner
of use.
Budget Execution or Implementation
The accounting for budgetary funds starts at the commencement of the General Appropriation Act. The
act gives the legal authorization to fund the government projects and to finance government activities
for a certain time frame. A detailed rundown of expenses and revenues accruing for each agency is
prepared to state -- the character, purpose, and the detailed cost of each program of government
The budget serves as a framework to allocate funds for each project; hence, a proper accounting of all
sources of income and expenses should be reflected in the financial statements to support the budget
for the year. Upon the enactment of the General Appropriation Act (GAA), accounting for the budgetary
accounts starts by listing down the legal authorization in the use of public funds. These authorizations,
or Approved Appropriations, shall serve as the basis for the Department of Budget and Management
(DBM) to come up with government funding allocation for each government agencies to incur
obligations, and enter into 3rd party arrangements to commit funds for government projects.
This is the operational aspect of budgeting. After the President signs the GAA into law, the DBM
requires the different agencies of government to prepare the Agency Budget Matrix (ABM) to be
accompanied by the Annual Cash Program.

The allotment (based on the ABM) is the authority of the government agency to incur obligations and
enter into contract. It is possible that sometimes the allotment is issued for the funding of projects even
if these will take one year to finish. This is done to enable the agency to enter into contracts and begin
the projects. However, the releases of Notices of Cash Allocation (NCAs) is being modified. NCAs
to cover regular requirements of agencies shall be comprehensively released with a monthly
breakdown of NCA requirements of the agency receiving NCA directly from DBM. Basis of releases is
the Monthly Cash Program (MCP), a budget execution document, reflects the monthly disbursement
requirement of OUs.

To promote greater budget efficiency, NBC #556 issued guidelines for all government agencies to
execute their programs, activities and projects (P/A/Ps) and deliver planned results in a timely manner.
Likewise, the implementation of vital reforms during budget execution includes the following:
1) General Appropriation Act-as-release-Document (GAARD) to facilitate the procurement
process and bolster the efforts to minimize carry-over allotments in the succeeding year,
2) Unified Accounts Code Structure (UACS) to ensure efficient fund release, accounting and
reporting of financial transactions by agencies,
3) Performance-Informed Budgeting (PIB) to make clear to the public and legislators the outputs
and outcomes agencies are committing to deliver in exchange for their budgets,
4) Checkless Payment System (CPS) through Advise to Debit Account (ADA) to settle
government payables in a timely and transparent manner as well as ensure predictability of
disbursements.

The NBC No. 556, dated January 5, 2015 provides the guidelines on the releases of funds for FY 2015.
Pursuant to GAA RA No 10651, the validity of Appropriations and timeliness for PS is until December
31, 2015, while MOOE and CO is until December 31, 2016. For FY 2014 Continuing Appropriations;
MOOE and CO appropriations under RA 10633 until December 31, 2015 and all programmed amounts
under Automatic Appropriations for PS, MOOE, and CO shall be available for release and obligation up
to December 31, 2015, only. The validity of NCAs issued and credited to the regular MDS Sub-
Accounts of agencies/OUs for their regular operations, shall be valid until the last working day of the
3rd month of that quarter. NCA issued and credited to the specifically for payment utilized NCA
corresponding to the book balance (net of outstanding checks) shall automatically lapse at the end of
that month.

Other changes provided in NBC No. 556 are the use of income. Agencies which are already authorized
by law to retain a portion of their income collections for their operating requirements, however, are no
longer qualified to avail of the use of excess income.

DBM consider the following in determining excess income:

a.i.1. If excess revenue collections resulted from improved efficiency in operation or upgraded
service delivery.
a.i.2. If collections come from new fees and charges implemented.

AC 41 – 1st Sem, A.Y. 2019-2020 10

 a.i.3. Excess income is generated once actual income collected and deposited by the OU with
the BTr during the current year exceeds the revenue estimates under the FY 2015 BESF.

Guidelines in the issuance of disbursement authorities regarding NCAs and NCAA and CDC are
provided under DBM No 556.

DBM shall provide the MDS-GSB and agency concerned, a monthly schedule of the NCA releases, ex.
Monthly NCA requirement of the agency.

Upon receipt of the NCA, the MDS-GSB shall ensure that the amount programmed for the month, if
there is any, shall be credited immediately to the Regular MDS accounts of the agency. Thereafter, the
NCA requirements for the subsequent months shall be credited on the first working day of the month
consistent with the schedule to be provided by DBM.

The NCA specifies the maximum amount of withdrawal that an agency can make from the government
servicing bank for the period indicated.

DOF and DBM will meet every month to confirm or adjust the estimated cash availability and the
program of NCA releases. In the event that cash balance of the government reaches a level where the
budget cost cannot be met, DBM implements the across-the-board budget reduction.
(Refer to the DBM Circular Letter #556 for the guidelines of NCA Releases for FY 2015)

Budget Accountability

This refers to the evaluation of actual performance and initially approved work targets. Obligation
incurred, personnel hired and work accomplished are compared with the plans and targets submitted
by the agencies at the time that their respective budgets are prepared. This work is entrusted with the
DBM and COA.

Budget accountability is concerned with tracking and monitoring of actual expenditures, revenue,
assets and liabilities of the government and is carried out largely through the accounting function. It
consists of the periodic reporting by agencies of their performance, top management review of
government activities and the fiscal and policy implications, and the actions of the COA in assuming the
fidelity of officials and employees in the handling of receipts and expenditures.

Accounting for budgetary accounts

In order that the appropriation may be released, the agency, in consultation with the DBM, is
required to prepare and to submit the Agency Budget Matrix (ABM), the official document used as the
basis in the release of the obligational authority. This is prepared by appropriation/financing sources to
support expenditures to be made during the year broken down by allotment class/expenses. The ABM
shall contain, among others, the following information:

a. The amount to be released categorized under “Not Needing Clearance” column,

b. The amount that will be released through the issuance of Special Allotment Release Order (SARO)
categorized under “Needing Clearance” column including continuing appropriations based on the
Statement of Allotments, Obligations and Balances (SAOB).

An Annual Cash Program, which shall provide cash to finance the programs reflected in the
ABM and the prior year’s accounts payable, is also submitted with the ABM. Upon approval of the total
comprehensive release by the DBM, it will be released to the agency.

For request “Non-Needing Clearance”, the Notice of Cash Allocation (NCA) is issued as
requested. Pursuant to the Tax Remittance Advice (TRA) system as provided in Joint Circular No. 1-
200 of the DOF, DBM and COA dated January 3, 2000, the NCA released to the agency is reduced by
the amount of the taxes withheld to be remitted by the DBM for the Agency thru the TRA based on the
request of the agency duly supported by the Summary of Taxes Withheld (STW).

Control and Recording of Appropriations, Allotments. Obligations and the NCA

The COA does not journalize the appropriations. The control of the release of allotments and
the NCA shall be made by the DBM and the BTr, thru the registries that they shall maintain. The
Agency shall also monitor the allotments and the obligations it incurs in the registry that it shall also
maintain.

The agency shall journalize the NCA it receives as debit to Cash-MDS Regular and credit to
Subsidy from the National Government. In effect it identifies the share of the agency in the income of
the National Government.

AC 41 – 1st Sem, A.Y. 2019-2020 11

Records of the DBM
Upon the approval and issuance of the ABM and the SARO, the DBM shall enter the pertinent
data on releases for each government agency in the Registry of Appropriations and Allotments
(RAPAL). The DBM shall maintain the Registry of Allotments and NCA (RANCA) for the allotments and
the NCA issued to the agency. The RANCA shall be the control and monitoring record of the DBM and
shall furnish the BTr a copy of the NCA.

Records of the BTr

Upon receipt of the NCA from DBM, the BTr shall enter it in the Registry of NCA and
Replenishment (RENREP). It shall also enter the transfer of cash from its bank account(s) to the
appropriate MDS account.

Records of the Agency

Pursuant to COA Circular No. 2015-002, dated Mar 9, 2015, The following are the revised budget
forms and registries to be used/maintained by NGAs to facilitate the monitoring of budget information
and the preparation of the budget and accounting reports:
1. Obligation Request and Status (ORS)
2. Budget Utilization Request and Status (BURS)
3. Registry of Revenue and Other Receipts (RROR)
4. Registry of Appropriation and Allotments (RAPAL)
5. Registry of Allotments, Obligation and Disbursements (RAOD)
6. Registry of Budget, Utilization and Disbursements (RAUD)

Upon receipt of the approved ABM and ARO, the Budget Officer shall record the allotment to the
respective registries through the Allotment and Obligation Slips (ALOBS. The four registries for the
obligations it incurs:
- Registry of Allotment, Obligations and Disbursements(RAOD) – Capital Outlay
(RAODCO)
- Registry of Allotment Obligations and Disbursements(RAOD) – Maintenance and Other
Operating Expenses (RAODMO)
- Registry of Allotment Obligations and Disbursements(RAOD), – Personal Services
(RAODPS)
- Registry of Allotment, Obligations and Disbursements(RAOD- Financial Expenses
(RAODFE)

Accounting of Obligations:
Obligation refers to a commitment by a government agency arising from an act of a duly
authorized official which binds the government to the immediate or eventual payment of a sum of
money. The agency is authorized to incur obligations only in the performance of activities which are in
pursuits of its functions and programs authorized in appropriation acts/laws within the limit of the ARO.

The Head of the Requesting Unit shall prepare the Obligation Request (ObR) or Budget
Utilization Request (BUR) and Disbursement Voucher. He shall certify on the necessity and legality of
charges to appropriations/allotment under his direct supervision as well as the validity, propriety and
legality of supporting documents.

The Head of the Budget Unit shall certify the availability of allotment and obligations incurred in
the ObR or budget and utilization in the BUR. Obligations shall be taken up in the registries maintained
by the Budget Unit through the ALOBS prepared/processed by the office. The Budget Officer verifies
the completeness of the documents. If complete, then prepares the ALOBS. Verifies the availability of
the allotment based on the RAOs. If no allotment is available, returns the documents to the office
concerned, if there is an available balance of allotment to cover the obligations, prepares the ALOBS
and record in the appropriate RAOs.

The obligation is recognized and will be entered in the appropriate RAOD when the obligation is
incurred as evidenced by the approved ALOBS. Obligations shall be posted in the “Obligation Incurred”
column of the RAODs to arrive at the balance of allotment still available at a given period. There is no
need to prepare a new ALOBS for corrections/adjustments made by the accounting unit after the
processing of the claims but before payment is made.

Adjustment in the RAODs shall be effected thru a positive entry (if additional obligation is
necessary) or a negative entry (if reduction) in the Obligation Incurred column.

The Head of the Accounting Unit, for contract or purchase order, shall certify the availability of
funds based on the ObR or BUR duly certified by the Budget Officer and certify the availability of cash
and completeness of supporting documents in the DV.

AC 41 – 1st Sem, A.Y. 2019-2020 12

 A new ALOBS for the following adjustments of obligations as negative entries in the Obligation
Incurred column shall be made:
1. Refund of cash advance granted during the year;
2. Overpayment of expenses during the year;
3. Disallowances/charges which become final and executory

To support the negative entries, a certified copies of OR for the overpayment/refunds shall be
furnished to the Budget Unit.

The Accountant shall credit “Cash-MDS, Regular” each time a payment is made charged
against the NCA and debit the specific account being paid for, either asset or expense account.

Illustrative Entry:
a. Receipt of Allotment Posting in the allotment column to the respective registries.

b. Incurrence of obligation Posting in the obligation column of the RAOD’s

Ex. RAOD-PS for PS obligations or expenditures

Notice of Cash Allocation (NCA) specifies the maximum amount of withdrawal that an agency can
make from the National Treasury through the issuance of MDS checks or other authorized mode of
disbursement. This is issued by DBM based on the Annual Cash Program or as requested and
prescribed under the Modified Disbursement System (MDS).

Upon receipt of the NCA, the accountant shall record in the books as:

Cash- MDS, Regular 10104040 XX

Subsidy from National Government 40301040 XX

- Nothing Follows -

AC 41 – 1st Sem, A.Y. 2019-2020 13