CHAPTER 2

THE BUDGET PROCESS

The national budget (government budget) is the government’s estimate of the

sources and uses of government funds within a fiscal year.

The formulation and eventual utilization of the national budget are summarized in the
budget cycle.

Budget Cycle Budget Process

P - Budget Preparation 1. Budget Call

2. Budget Hearing
3. Presentation of the Office of the
President

L - Budget Legislation 4. House Deliberations

5. Senate Deliberations
6. Bicameral Deliberations
7. President’s Enactment

E - Budget Execution 8. Release Guidelines and BEDs

9. Allotment
10. Incurrence of Obligations
11. Disbursement Authority

A - Budget Accountability 12. Budget Accountability Reports

13. Performance Reviews
14. Audit

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 BUDGET PREPARATION

The budget preparation in the Philippines uses a “bottom-up” approach”.

Under “bottom-up” budgeting, several parties participate in the budget preparation,

starting from the lowest to the highest levels of the government.

In 2011, the Philippines Government attempted to start a new tradition by shifting from
the old “incremental” system of budgeting to the “zero-based budgeting” approach.

Incremental budgeting vs. Zero-based budgeting

* The current year’s budget is formulated * The current year’s budget is formulated
based on the previous year’s budget, without regard to the previous year’s
which is just adjusted for any variances budget.
experienced in the past.
* Government agencies are required to
* Uses a “roll-over” approach. justify their current year’s proposed
programs and expenditures, irrespective
* Prone to abuse. of whether these are new or carried over
from the previous year.

* Uses a “back-to-zero” or “clean slate”

approach.

* Promotes efficient and effective

utilization of funds.

1. Budget Call
The budget preparation starts when the Department of Budget and Management (DBM)
issues a Budget Call to all government Agencies.

Relevant terms:
Balanced budget – prepared in such a way that estimated
revenues exceed estimated expenditures.

If actual revenues exceed actual expenditures, the

government earns a surplus.

If expenditures exceed revenues, the government incurs a

deficit.

Annual budget – covers a period of one year and forms the

basis for the annual appropriation.

Special budget – provides for items not adequately covered

or not included in the general appropriation act.

Line item budget – focuses on specific expenditures such as

salaries and wages, travel expenses, freight, supplies,
materials and equipment.

Performance budget – a plan of activities to be undertaken,

including their related costs, with the emphasis on meeting
targets and desired results. The main focus is on the work to
be done or services to be rendered.

Obligation budget – focuses on expenditures incurred in the

current year which are to be paid either in the same year or in
the following year.

2. Budget hearing

 Budget hearing are conducted after the agencies submit their budget proposals.
  Each agency defends its budget proposal before the DBM.

 The DBM deliberates on the budget proposals, makes recommendations, and

consolidates the deliberated proposals

 The DBM then submits 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 approves the proposed budget, the DBM finalizes the budget
documents to be submitted to the Congress. At this point, the proposed budget is
referred to as the “President’s Budget”.

Relevant provision of law:

The President shall submit the proposed budget to the

Congress within 30 days from the opening of every regular
session.
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BUDGET LEGISLATION

4. House Deliberations

Upon receipt of the President’s Budget, the House of Representatives conduct hearings
to scrutinize the various agencies’ respective proposed programs and expenditures.

Thereafter, the House of Representatives prepares the General Appropriations Bill

(GAB).
5. 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.

6. Bicameral Deliberations

 After deliberations in both houses are finished, a committee called the Bicameral
Conference Committee is formed to harmonize any conflicts between the
Representatives and Senate version of the GAB.
 The harmonized GAB is submitted back to both Houses for ratification.
 After ratification, the final GAB is submitted to the President for enactment.

7. President’s enactment

The President enacts the budget which is now known as the General Appropriations Act
(GAA).

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 – are annual authorizations
for incurring obligations during a specified budget year.

2. Continuing Appropriations – are the authorizations to

 support obligations for a specific purpose or project, such as
multi-year construction projects which require the incurrence
of obligations even beyond the budget year.

3. Supplemental Appropriations – are additional

appropriations authorized by law to augment the original
appropriations which proved to insufficient for the intended
purpose.

4. Automatic Appropriations - are the authorizations

programmed annually or for some other period prescribed by
law which do not require action by Congress.

5. Unprogrammed Funds – are standby appropriations

authorized by Congress in the annual GAA.

6. Retained Income / Funds – collection which are

authorized by law to be used directly by agencies concerned
for their operation or specific purposes.

7. Revolving Funds – receipts derived from business-type

activities of departments/agencies which are authorized by
law to be constituted as such.

8. Trust Receipts – receipts by any government agency

acting as trustee, agent, or administrator for the fulfilment of
some obligations or conditions.

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BUDGET EXECUTION

This is the phase where government funds are spent.

8. Release guidelines and BEDs

The DBM issues and guidelines on the release and utilization of funds while the various
agencies submit their Budget Execution Documents (BEDs).

Budget Execution Documents – summarizes an agency’s

fiscal year plans and performance targets.

The following are the major recipients of the budget:

1. National Government Agencies (NGAs) – include all
agencies within the executive, legislative, and judicial
branches of government, for example, commissions,
departments, Land Bank of the Philippines, SSS, etc.

2. Local Government Units (LGUs) – include

 autonomous regions
 provinces and cities independent from a province
 component cities (cities which are part of a province)
 municipalities
 barangays

3. Government Owned and Controlled Corporations

(GOCCs) – corporations that are owned or controlled, directly
or indirectly, by the government and vested with functions
relating to public needs.

9. Allotment

The DBM formulates the Allotment Release Program (ARP) and Cash Release
Program (CRP) to set the limit for allotment releases during the upcoming year.

Allotment Release Program – is used as control device to

ensure that releases conform to the national budget.

Cash Release Program - sets the disbursement limits for the

year, for each quarter and for each month.
 Allotment – is an authorization issued by the DBM to
government agencies to incur obligations for specified
amounts contained in a legislative appropriation in the form of
budget release documents. It is also referred to as
Obligational Authority.

Obligation – is an act of a duly authorized official which binds

the government to the immediate or eventual payment of a
sum money.

10. Incurrence of Obligations

Government agencies incur obligations which will be paid by the government, for
example, entering into contracts, hiring of 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 the government funds.

The following are the documents used in releasing

disbursement authority to government agencies:

1. Notice of Cash Allocation (NCA)

- issued by the DBM to central/ regional/ provincial
offices and operating units to cover their cash requirements.
- specifies the maximum amount of cash that can be
withdrawn from a government servicing bank in a certain
period.

2. Notice of Transfer of Allocation

- 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

- issued by the DBM to agencies to cover the
liquidation of their actual obligations incurred against available
allotments for availment of proceeds from loans/grants
through supplier’s credit/constructive cash.

4. Cash Disbursement Ceiling

- issued by the DBM to agencies with foreign operation
(for example, DFA) allowing them to use the income collected
by their Foreign Service Posts to cover their operating
requirements.

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Remember the following
Appropriation – authorization by a legislative body to allocate
funds for specified purposes.

Allotment – authorization to agencies to incur obligation/

obligation authority

Obligation – amount contracted by an authorized officer for

which the government is held liable.

Disbursement – actual amount paid out of the budgeted

amount.

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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 Report

Government agencies are required to submit the following

accountability reports:

1. Monthly Report of Disbursements – shows the

disbursements of the entity during the month.

2. Quarterly Physical Report of Operation – shows the

agency’s physical accomplishments in a given quarter vis-à-
vis its physical targets.

3. Statement of Appropriations, Allotments, Obligations,

Disbursements and Balances – shows the agency’s
authorized appropriations, allotments received, obligations
incurred, disbursements made and the balances of
unreleased appropriations, unobligated allotments, and
unpaid obligations.

4. 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.

5. 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.

6. 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.
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.