Basics of Budgeting_dbm

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IV. Basics of Budgeting


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IV. Basics of Budgeting

a. The National Budget

The National Budget is the financial translation of approved government plans and programs

which are to be supported by government resources (revenues and borrowings).

Budgeting enables the government to plan and manage its scarce financial resources in order

to support the priority programs and projects aimed at promoting economic growth and providing

basic services to the people. In other words, it is in budgeting where the government seeks to

put its money where its mouth is.

Income, Expenditures, Deficit. The national budget consists of the estimated income

and planned expenditures in a given year.

The governments income is composed of tax and non-tax revenues. Tax revenues include

individual and corporate income taxes, value-added tax on the sale of goods and services,

special taxes such as the motor vehicle tax and travel tax, among others. Non-tax revenuescome from fees, charges and other collections of government in exchange of services it

rendered, penalties imposed, among others. In certain cases, non-tax revenues also include

the privatization of government assets.

Meanwhile, expenditures are the

implementation costs of programs,

activities, and projects. Expenditures

may be classified as operating

expenses or those incurred in the

exercise of government

administration, regulatory or servicefunctions; or capital expenses that

refer to the purchase of goods and

services, the benefits of which extend

beyond the fiscal year and which add

to the governments assets.

When the governments income is not

sufficient to finance the expenditures,

government incurs a fiscal deficit. In

this situation, government resorts to

borrowing from domestic and foreignsources.


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Coverage. The national budget covers the totality of the budgets of national government

agencies: not only those of the Executive branch, but also of the Legislative and Judicial

branches as well as other Constitutional bodies such as the Civil Service Commission,

Commission on Elections, and the Commission on Audit.

The national budget also covers the budgetary support that the national government gives

to local government units (LGUs), in particular, the Internal Revenue Allotment (IRA); as

well as to government-owned or controlled corporations (GOCCs) and government

financial institutions (GFIs).

Components. The National Budget for a given year is composed of the following:

New General Appropriations this is legislated by Congress and enacted by the

President for every fiscal year as the General Appropriations Act (GAA). The GAA

enacts bothprogrammedand unprogrammedgeneral appropriations. Programmedappropriations are those which are supported by corresponding resources; while

unprogrammed appropriations refer to stand-by authority which can only be released

when revenue collections exceed revenue targets.

Automatic Appropriations under specific laws, certain types of expenditure (e.g.

interest payments, LGUs IRA) are automatically appropriated.

ContinuingAppropriations these are unexpended/unreleased balances of previous

years GAA which continue to be valid until the subsequent year. Currently,

appropriations for capital outlays and maintenance and other operating expenditures

have a validity of two years.

Three-Year Perspective. Even as the National Budget is prepared annually, the

government adopts a three-year perspective. Using the Forward Estimate process, the

government takes account of future costs of approved and ongoing programs as well as

valid commitments. This process ensures that in managing its resources, the National

Government acts strategically and not in a shortsighted manner.

b. The National Budget Cycle

Basics on Budgeting


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There are four phases in the management of the National Budget:

1. Preparation Executive prepares the proposed National Budget;

2. Legislation Congress authorizes the General Appropriations Act;

3. Execution Agencies utilize their approved budgets;

4. AccountabilityExecutive monitors and evaluates the use of the budget.

These phases overlap in continuing cycles every year. For instance, while the Executive is

implementing the budget for the current year, it is also preparing the budget for the next fiscal

year or defending it before Congress. Meanwhile, the execution and accountability phases are

implemented simultaneously throughout the year.

Budget Preparation. This phase of the Budget Cycle starts with the issuance of a Budget Call,

and ends with the Presidents submission of the proposed budget to Congress.

1.0 The Budget Call At the beginning of the budget preparation phase, the Department

of Budget and Management (DBM) issues the National Budget Call to all agencies

(including state universities and colleges) and a separate Corporate Budget Call to

all GOCCs and GFIs.

The Budget Call contains budget parameters (including macroeconomic and fiscal

targets, and agency budget ceilings) as approved by the Development Budget

Coordination Committee (DBCC); and policy guidelines and procedures in thepreparation and submission of agency budget proposals.

The DBM also conducts Budget Fora with agencies and other stakeholders to further

explain and discuss the budget parameters, policy guidelines and procedures for

the preparation of the agency budget proposals.

2.0 Stakeholder Consultations As a new feature of the budget preparation process,

departments and agencies have been tasked to consult with civil society organizations

(CSOs) and other citizen-stakeholders in preparing their budget proposals. These

consultations are done at the national level and regionally via the Regional

Development Councils (RDCs). Consultations with RDCs have also been introducedin order to incorporate regional development plans in the agency budget proposals.


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FY 2012 BUDGET PREPARATION CALENDAR

ACTIVITY DATE

1. Issuance of Budget Call December 30, 2010

2. Budget Forum

i. National Government Agencies January 6, 2011 AMii. DBM Officials and Staff January 7, 2011 AMiii. Corporate Budget Forum January 7, 2011 PM

3. DBM-RO/Agency ROs Budget Forum on theFY 2012 National Budget January 10 & 11, 2011

4. Issuance of Indicative Budget Ceilings and Macroeconomic Assumptionsand Fiscal Targets January 28, 2011

5. Consultations with Regional Development Councils/Civil Society February, 2011Organizations of Agencies On-going Programs and Projects

6. Deadline of Submission of B.P. Form No. 201 A, B, C - Past Years March 15, 2011Actual Obligation and Current Year Appropriation

7. Deadline of Submission of FY 2012 Budget Proposals April 8, 2011

8. Technical Budget Hearings with Agencies April 11-22, 2011

9. DBM Budget Review May 9-31, 2011

10.DBCC Deliberation June 16-17, 2011

11. Confirmation of Budgets with Agencies June 21-22, 2011

12.Presentation to the President and the Cabinet of the FY 2012 Proposed June 29, 2011Budget Levels of Department/Agency/Special Purpose Funds

13.Finalization of National Expenditure Program (NEP), Budget of Expenditures June 29-July 6, 2011and Sources of Financing (BESF) Tables, Staffing Summary, Budget Message,Details of Selected Programs/Projects, Organizational PerformanceIndicator Framework (OPIF) Book

14.Printing of FY 2012 Budget Documents July 8-21, 2011

15.Submission of the FY 2012 Budget Documents to the President July 22, 2011

16.Submission of the Presidents Budget to Congress July 26, 2011

Basics on Budgeting

New Budget Preparation Calendar. Starting with the preparation of the proposed

2012 National Budget, the DBM has established a new Budget Preparation

Calendar which moves the process earlier: The Budget Call issuance to January

(versus around April in the past); and the submission of the Presidents budget a

day after the State of the Nation Address (unlike before when it is done at thelatter part of the 30-day period that the Constitution prescribes).


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This new process, which seeks to create greater space for citizens in the budget

process, was piloted in the preparation of the proposed budget for 2012.

3.0 Technical Budget Hearings and Executive Review. After departments and agencies

submit their Agency Budget Proposals to the DBM, Technical Budget Hearings are

conducted. During these hearings, agencies defend their proposed budgets before

CSO and RDC Consultations: Pilot Departments and GOCCs

Department of Education

Department of Health

Department of Social Welfare and Development

Department of Public Works and Highways

Department of Agriculture

Department of Agrarian Reform

National Food Authority

National Housing Authority

National Home Mortgage and Finance Corporation

a technical panel of DBM on the basis of performance indicators or output targets

and absorptive capacity.

After this, the DBM bureaus review the agency proposals and craft recommendations.

These are then presented before an Executive Review Board, composed of the

Secretary, all Undersecretaries and Assistant Secretaries. Deliberations before the

Executive Review Board entail a careful prioritization of programs and corresponding

support, vis--vis the priority agenda of the national government. Implementation

issues are also discussed and resolved.

4.0 Consolidation, Validation and Confirmation. DBM then consolidates the

recommended agency budgets and recommendations into a National Expenditure

Program and a Budget of Expenditures and Sources of Financing (BESF). Part of

the consolidation process is the deliberations by the DBCC to determine the agencyand sectoral allocation of the total expenditure ceiling approved in line with the

macroeconomic and fiscal program. The heads of major departments may be invited

to this meeting.

5.0 Presentation to President and Cabinet. The proposed budget is presented by DBM,

together with the DBCC, to the President and Cabinet for further refinements or

reprioritization. After the President and Cabinet approve the proposed National

Expenditure Plan, the DBM prepares and finalizes the budget documents to be

submitted to Congress.


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6.0 The Presidents Budget. The budget preparation phase ends with the submission of

the proposed national budgetthe Presidents Budgetto Congress. The

Presidents Budget consists of the following documents, which help legislators analyze

the contents of the proposed budget:

a. National Expenditure Program (NEP) This document, containing the detailsof spending of each department and agency by program, activity or project, is

submitted in the form of a proposed General Appropriations Act.

b. Details of Selected Programs and Projects This contains more detailed

disaggregation of key programs, projects and activities in the NEP to flesh out

lump-sum allocations in terms of project listing and their locations.

c. Budget of Expenditures and Sources of Financing (BESF) Mandated by the

Constitution, this document contains the macroeconomic assumptions, public

sector context (including overviews of LGU and GOCC financial positions),

breakdown of the expenditures and funding sources for the budget year, the

current and the previous years.

d. Staffing Summary This contains a summary of the staffing complement of

each department and agency; including number of positions and amounts

allocated for the same.

e. Presidents Budget Message (PBM) This is a document where the President

explains the policy framework and priorities in the budget.

Budget Legislation. The legislation or authorization phase starts upon the House

Speakers receipt of the Presidents Budget and ends with the Presidents enactment of

the General Appropriations Act.

1. House Deliberations. The House of Representatives, in plenary, assigns the

Presidents Budget to the House Appropriations Committee. The Committee and its

Sub-Committees then schedule and conduct hearings on the budgets of the

departments and agencies and scrutinize their respective programs and projects. It

then crafts the General Appropriations Bill (GAB).

Basics on Budgeting

BUDGET LEGISLATION PROCESS

House

Hearing/Debate

(Aug-Nov)

House approval

and Submissionto Senate

(Nov)

Senate Hearing/

Debate

(Aug-Nov)

Senate

Approval

(Dec)

Conference

Committee

(Dec)

President

signs the GAA

(Dec)


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In plenary session, the GAB is sponsored, presented and defended by the

Appropriations Committee and Sub-Committee Chairmen. As in all other laws, the

GAB is approved on Second and Third Reading before transmittal to the Senate.

(Note, the First Reading is when the GAB is assigned by the House Speaker to the

Appropriations Committee)

2. Senate Deliberations. As in the House process, the Senate conducts its own

committee hearings and plenary deliberations on the GAB. Budget deliberations in

the Senate formally start after the House of Representatives transmits the GAB. But

for expediency, the Senate Finance Committee and Sub-Committees usually start

hearings on the GAB even simultaneously as House deliberations are still ongoing.

The Committee submits its proposed amendments to the GAB to plenary only after

it has been formally transmitted by the House. A Senate Version is thereafter approved

on Second and Third Reading.

3. Bicameral Deliberations and Ratification. Once both Houses of Congress have

finished their deliberations, they will each constitute a panel to the Bicameral

Conference Committee. This committee will then discuss and harmonize the

conflicting provisions of the House and Senate versions of the GAB. After which, a

harmonized version of the GAB is produced.

The Harmonized or Bicam version is then submitted to both Houses, for ratification,

through votation, to come up with the final GAB to be submitted to the President.

4. Enrollment, Veto and Enactment. Once submitted to the President for his approval,

the GAB then is considered as enrolled.

The President and DBM then review the GAB and prepare a Veto Message, as

necessary. Under the Constitution, the GAB is the only legislative measure where

the President can effect a line-veto (usually, a law is either approved or vetoed in

Reenacted Budgets. When the GAA is not enacted before the fiscal year

starts, the previous years GAA is automatically re-enacted until such time

that a new GAA is enacted. In other words, the budgets of agencies for

their programs, activities and projects remain the same. Funding for

programs or projects that have been terminated already is realigned forother expenditures. As this process of reenactment is tedious and prone

to abuse, the Aquino Administrationwith the support of Congresshas

committed to ensure a fresh GAA enacted on time every year.

full). The budget legislation phase ends when the General Appropriations Act (GAA)

is signed by the President into law.

Ideally, enactment should happen not later than December 31 of the GAAs fiscal

year. Else, the previous years budget is reenacted in part; or worse, in full if no newbudget is approved.


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3. Allotment Release: ABM and SARO. The release of an allotment means that the

appropriated budget of each agency is made available to them for their use. The

allotments are released through the Agency Budget Matrix (ABM) and Special

Allotment Release Orders (SAROs): documents that authorize the agency to enter

into an obligation or commitment.

ABM. This document disaggregates all the programmed appropriations for each

agency into two main expenditure categories: not needing clearance and needing

clearance. The ABM serves as the comprehensive allotment release document for

appropriations which are not needing clearance or those which have already been

itemized and fleshed-out in the GAA. The ABM is prepared by the DBM in consultation

with the agencies concerned.

SARO. Items which are categorized as needing clearance are those which, under

specific laws and regulations, require the approval of the DBM or the President or

are subject to compliance with certain documentary requirements, as the case may

be (for instance, lump sum funds and confidential and intelligence funds). For such

items, an agency needs to submit a Special Budget Request to the DBM, with

supporting documents. Once approved, a SARO is issued. The SARO is a specific

authority issued to an agency to incur obligations not exceeding a given amount

during a specified period for the purpose indicated.

4. Incurring Obligations. In implementing programs, activities and projects, agencies

incur liabilities on behalf of the Government. Obligations are liabilities legally incurred

and committed to be paid for by the government either immediately or in the future.

There are various ways that an agency obligates: for example, when it hires staff

(an obligation to pay salaries), avails of utilities (water, electricity, etc.), or enters

into a contract with an entity for the supply of goods or services.

5. Settlement of Obligations/Disbursement. To pay the obligations incurred by agencies,

the DBM issues a disbursement authority in the form of a Notice of Cash Allocation

(NCA), Non-Cash Availment Authority (NCAA) and Cash Disbursement Ceiling (CDC).

NCA. This document is a cash authority directy issued periodically by the DBM to

operating units of agencies (central, regional and provincial offices) to cover their

cash requirements. The NCA specifies the maximum amount of cash that an agency

can withdraw from a government servicing bank for the period indicated. The release

of NCAs by DBM is based on the submission by the agency of its Monthly CashProgram and other required budget execution documents. Starting 2010, NCAs for

operating expenditures have been issued for a six-month period but with monthly

breakdown.

NCAA. As NCAs cover cash disbursements, NCAAs cover for what are referred to

as non-cash disbursements. The NCAA is a document issued by DBM to a

government agency to account for the cash equivalent of loan proceeds availed of

through suppliers credit or constructive cash.

CDC. This is an authority issued by the DBM to departments with overseas operations,

such as the Department of Foreign Affairs and Department of Labor and Employment,to utilize the income collected by their foreign posts to cover for their operating

requirements but not to exceed the released allotment to the said post.


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Budget Accountability. This phase of the budget cycle happens alongside the

budget execution phase. It is a crucial phase, for it is where the DBM monitors the

efficiency of governments fund utilization, assesses agency performance and

provides a vital basis for budget preparation and policy- and reforms-making.

Basics on Budgeting

Budget Accountability Reports (BARs). Agencies are required to submit monthly

and quarterly BARs, which are reports on how the agencies have utilized funds

released to them and their corresponding physical accomplishments. These BARs

include: quarterly physical and financial reports of operations; quarterly report of

income, monthly statement of allotments, obligations and balances; and monthly

report of disbursements.

The BEDs and BARs are used by DBM as basis in conducting the APR, a tool to

measure agency performance. The APR assesses agency performance in terms of

its financial utilization, physical accompishment of targeted outputs, as well as

revenue generation. The APR will give DBM information as to how and what cost

government provides for goods and services to the public to track resource leakages

and implementation delays and identify possible solutions thereon. It also serves

as guide in deciding whether reallocation of funds or additional release is necessary.

Audit. The conduct of audit is not the responsibility of the DBM but of the Commission

on Audit (COA), the supreme audit authority of the government. Nonetheless, audit

is an important step in ensuring the agencies accountability in the use of publicfunds. The DBM uses the COAs audit reports in confirming agency performance,

determining the budgetary levels of agencies and addressing issues in the use of

public funds.

REPORT DUE DATE FREQUENCY

1. Quarterly Physical Report of On or before the 10th day

Operation (BAR 1) of the following quarter Quarterly

2. Quarterly Financial Report of -do- -do-

Operation (BAR 2)

3. Quarterly Report of Income (BAR 3) -do- -do-

4. Statement of Allotments,

Obligations and Balances (BAR 4) On or before the 10th day Monthly

5. Monthly Report of Disbursements of the following month - do -}

Report Budget Accountability

Scheme Under Results -

oriented Budgeting

required to be submitted

(BEDs & BARs)

Review of agency reports

by the DBM to be used for:

- Evaluation of request

for fund release

- performance assestment

- input for budget preparation

Report on agency

performance,

suggestions for

improvement,

recommendations

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