budget 101.docx

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Budget 101

Budget Preparation Budget Legislation Budget Execution Budget Accountability
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There are four phases in managing the National Budget: preparation, legislation, execution, andaccountability. During the preparation phase, the Executive prepares the proposed National Budget. Thisis followed by the legislation phase where the Congress authorizes the General Appropriations Act. In the

execution phase, agencies utilize their approved budgets and during the accountability phase, theexecutive monitors and evaluates the use of the budget.

Budget Preparation

This starts with the Budget Call and ends with the Presidents submission of the proposed budgetto Congress.

What is the Budget Call?

What is Early Preparation? What is Stakeholder Engagement? What is Bottom-Up Budgeting? What are Technical Budget Hearings? What is the Executive Review? What is Consolidation, Validation, and Confirmation? What is a Presentation to President and Cabinet? What is the Presidents Budget?

1. The Budget Call

At the beginning of the budget preparation year, the Department of Budget andManagement (DBM) issues the National Budget Call to all agencies (including state universities andcolleges) and a separate Corporate Budget Call to all GOCCs and GFIs.

The Budget Call contains budget parameters (including macroeconomic and fiscal targets and agencybudget ceilings) as set beforehand by the Development Budget Coordination Committee (DBCC); andpolicy guidelines and procedures in the preparation and submission of agency budget proposals.
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Early Preparation

Under the Aquino Administration, the DBM has established a new tradition ofbeginning the Budget Preparation phase earlier, to ensure that the National Budget is enacted on time.Under the new Budget Preparation Calendar, the Budget Call is issued in December (versus around April inthe past); and the submission of the Presidents budget a day after the State of the Nation Address (in

contrast to earlier practice where it is submitted during the late in the 30-day window that the Constitutionprescribes).

2. Stakeholder Engagement

A new feature in budget preparations which seeks to increase citizen participationin the budget process, departments and agencies are tasked to partner with civil society organizations(CSOs) and other citizen-stakeholders as they prepare their agency budget proposals. This new process,which was piloted in the preparation of the 2012 National Budget, is now being expanded towards

institutionalization.
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Departments and GOCCs Mandated to Conduct CSO Consultations

ORIGINAL SET (Piloted in 2012) NEW SET (Starting 2013)

Department of Health

Department of Education

Department of Social Welfare andDevelopment

Department of Public Works and Highways

Department of Agriculture

Department of Agrarian Reform

National Food Authority

National Housing Authority

National Home Mortgage and Finance Corp.

Department of Tourism

Department of Transportation and Communication

Department of Interior and Local Government

Department of Justice

Department of Labor and Employment

Department of Environment and NaturalResources

Light Rail Transit Authority

National Electrification Administration

National Irrigation Administration

Note: All other departments and agencies are highly encouraged to undertake the process.

Bottom-Up Budgeting


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For the first time in history, the National Budget for 2013 will be prepared using abreakthrough bottom-up approach. As opposed to the conventional way of allocating resources from top tobottom, grassroots communities will be engaged in designing the National Budget.

The Aquino government, through the Cabinet Cluster on Human Development and Poverty Reduction, hasidentified 300 to 400 of the poorest municipalities and will engage these in crafting community-level poverty

reduction and empowerment plans. This initial salvo of bottom-up budgeting will focus on ruraldevelopment programs and the conditional cash transfer program, and will thus involve DA, DAR, DENR,DSWD, DepEd and DoH. These agencies will then include the community plans in their proposed budgets.

3. Technical Budget Hearings

These are conducted after departments and agencies submit their AgencyBudget Proposals to the DBM. Here, agencies defend their proposed budgets before a technical panel ofDBM, based on performance indicators on output targets and absorptive capacity. DBM bureaus then

review the agency proposals and prepare recommendations.
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4. Executive Review

The recommendations are presented before an Executive Review Board which iscomposed of the DBM Secretary and senior officials. Deliberations here entail a careful prioritization ofprograms and corresponding support, vis--vis the priority agenda of the national government.Implementation issues are also discussed and resolved.

5. 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 ofFinancing (BESF). As part of the consolidating process, the deliberations by the DBCC will determine theagency and sectoral allocation of the approved total expenditure ceiling, in line with the macroeconomicand fiscal program. Heads of major departments are invited to this meeting.

6. Presentation to President and Cabinet

The proposed budget is presented by DBM, togetherwith the DBCC, to the President and Cabinet for further refinements or reprioritization. After the President
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and Cabinet approve the proposed National Expenditure Plan, the DBM prepares and finalizes the budgetdocuments to be submitted to Congress.

7. The Presidents Budget

The budget preparation phase ends with the submission of the proposed nationalbudgetthe Presidents Budgetto Congress. The Presidents Budget consists of the followingdocuments, which help legislators analyze the contents of the proposed budget:

Presidents Budget Message (PBM)This is where the President explains the policy framework and priorities in the budget.

Budget of Expenditures and Sources of Financing (BESF) Mandated by the Constitution, this contains the macroeconomic assumptions, public sector context(including overviews of LGU and GOCC financial positions), breakdown of the expenditures andfunding sources for the fiscal year and the two previous years.

National Expenditure Program (NEP)This contains the details of spending for each department and agency by program, activity orproject, and is submitted in the form of a proposed General Appropriations Act.

Details of Selected Programs and ProjectsThis contains a more detailed disaggregation of key programs, projects and activities in the NEP,especially those in line with the national governments development plan.

Staffing SummaryThis contains a summary of the staffing complement of each department and agency, includingnumber of positions and amounts allocated for the same.

Budget Legislation

Alternatively called the budget authorization phase, this starts upon the House Speakers receiptof the Presidents Budget and ends with the Presidents enactment of the General AppropriationsAct.

What are House Deliberations? What are Senate Deliberations?
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What are Bicameral Deliberations? What is Ratification and Enrollment? What is the Veto Message? What is Enactment? What are Reenacted Budgets?

1. House Deliberations

The House of Representatives, in plenary, assigns the Presidents Budget to the House AppropriationsCommittee. The Committee and its Sub-Committees then schedule and conduct hearings on the budgets ofthe departments and agencies and scrutinize their respective programs and projects. It then crafts theGeneral Appropriations Bill (GAB).

In plenary session, the GAB is sponsored, presented and defended by the Appropriations Committee andSub-Committee Chairmen. As in all other laws, the GAB is approved on Second and Third Reading beforetransmission to the Senate. (Note: In the First Reading, the Presidents Budget is assigned to theAppropriations Committee.)

2. Senate Deliberations

As in the House process, the Senate conducts its own committee hearings and plenary deliberations on theGAB. Budget deliberations in the Senate formally start after the House of Representatives transmits theGAB. For expediency, however, the Senate Finance Committee and Sub-Committees usually starthearings on the GAB even as House deliberations are ongoing.
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The Committee submits its proposed amendments to the GAB to plenary only after it has been formallytransmitted by the House.

3. Bicameral DeliberationsOnce both Houses of Congress have finished their deliberations, they will each constitute a panel to theBicameral Conference Committee. This committee will then discuss and harmonize the conflictingprovisions of the House and Senate Versions of the GAB. A Harmonized Version of the GAB is thusproduced.

4. Ratification and Enrollment

The Harmonized or Bicam Version is then submitted to both Houses, which will then vote to ratify the finalGAB for submission to the President. Once submitted to the President for his approval, the GAB isconsidered enrolled.

5. The Veto Message

The President and DBM then review the GAB and prepare a Veto Message, where budget items subjectedto direct veto or conditional implementation are identified, and where general observations are made.
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Under the Constitution, the GAB is the only legislative measure where the President can impose a line-veto(in all other cases, a law is either approved or vetoed in full).

6. Enactment

When the GAA is not enacted before the fiscal year starts, the previous years GAA is automaticallyreenacted. This means that agency budgets for programs, activities and projects remain the same. Fundingfor programs or projects that have already been terminated is realigned for other expenditures. Becausereenactments are tedious and prone to abuse, the Aquino Administrationwith the support of Congress

has committed to ensure the timely enactment of a new GAA every year.
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Reenacted Budgets

When the GAA is not enacted before the fiscal year starts, the previous years GAA is automaticallyreenacted. This means that agency budgets for programs, activities and projects remain the same. Fundingfor programs or projects that have already been terminated is realigned for other expenditures. Becausereenactments are tedious and prone to abuse, the Aquino Administrationwith the support of Congresshas committed to ensure the timely enactment of a new GAA every year.

Budget ExecutionThis is where the peoples money is actually spent. As soon as the GAA is enacted, the governmentcan implement its priority programs and projects.

What are the Release Guidelines and Program? What are Budget Execution Documents? What is Allotment and Cash Release Programming? What is Allotment Release? What are Incurring Obligations? What does the GAA as Allotment Release mean? What are Cash Allocations? What is Disbursement?

1. Release Guildelines and Program
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The budget execution phase begins with DBMs issuance of guidelines on the release and utilization offunds.

2. Budget Execution Documents (BEDs)

Agencies are required to submit their BEDs at the start of budget execution. These documents outlineagency plans and performance targets. These BEDs include the physical and financial plan, monthly cash

program, estimate of monthly income, and list of obligations that are not yet due and demandable.

3. Allotment and Cash Release Programming

To ensure that releases fit the approved Fiscal Program, the DBM prepares anAllotment Release Program (ARP) to set a limit for allotments issued to an agency and on the aggregate.The ARP of each agency corresponds to the total amount of the agency-specific budget under the GAA, aswell as Automatic Appropriations. A Cash Release Program (CRP) is also formulated alongside that to seta guide for disbursement levels for the year and for every month and quarter.
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4. Allotment Release

Allotments, which authorize an agency to enter into an obligation, are either released by DBM to allagencies comprehensively through the Agency Budget Matrix (ABM) and individually via Special AllotmentRelease Orders (SAROs).

ABM. This document disaggregates all programmed appropriations for each agency into two mainexpenditure categories: not needing clearance and needing clearance. The ABM is thecomprehensive allotment release document for appropriations which do not need clearance, orthose which have already been itemized and fleshed out in the GAA.

SARO.Items identified as needing clearance are those which require the approval of the DBM orthe President, as the case may be (for instance, lump sum funds and confidential and intelligencefunds). For such items, an agency needs to submit a Special Budget Request to the DBM withsupporting documents. Once approved, a SARO is issued.
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5. Incurring Obligations

In implementing programs, activities and projects, agencies incur liabilities on behalf of the government.Obligations are liabilities legally incurred, which the government will pay for. There are various ways that anagency obligates: for example, when it hires staff (an obligation to pay salaries), receives billings for the

use of utilities, or enters into a contract with an entity for the supply of goods or services.

The GAA as Allotment Release

The Aquino Administration plans to design the annual General Appropriations Act as the comprehensiveallotment release document itself. This is being pursued in order to significantly speed-up the process ofreleasing the Budget and implementing the programs and projects that it funds.The 2013 National Budget,currently being prepared, is being designed in such way. This entails the disaggregation of all budget itemsinto full detail, as well as the elimination of all lump-sum funds, save for a few exceptions such as theCalamity Fund. In other words, this reform significantly reduces the need for SAROs.


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6. Cash Allocation

To authorize an agency to pay the obligations it incurs, DBM issues a disbursement authority. Most of thetime, it takes the form of a Notice of Cash Allocation (NCA); and in special cases, the Non-Cash AvailmentAuthority (NCAA) and Cash Disbursement Ceiling (CDC).

NCA. This is a cash authority issued periodically by the DBM to the operating units of agencies tocover their cash requirements. The NCA specifies the maximum amount of cash that can be

withdrawn from a government servicing bank for the period indicated. The release of NCAs byDBM is based on an agencys submission of its Monthly Cash Program and other requireddocuments.

Others Disbursement Authorities. In contrast to NCAs, NCAAs are issued to authorize non-cashdisbursements. CDCs are meanwhile issued to departments with overseas operations, allowingthem to use income collected by their foreign posts for their operating requirements.

7. Disbursement

This is the final step of the budget execution phase, where government monies are actually spent. TheModified Disbursement Scheme is mostly used, where disbursements of national government agencieschargeable against the Treasury are made through government servicing banks, such as the Land Bank ofthe Philippines.

The budget process, of course, does not end when government agencies spend public funds: each andevery peso must be accounted for to ensure that is used properly, contributing to the achievement of socio-economic goals.
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Budget Accountability

This phase happens alongside theBudget Executionphase. Through Budget Accountability, theDBM monitors the efficiency of fund utilization, assesses agency performance and provides a vital

basis for reforms and new policies.

What are Performance Targets and Outcomes? What are Budget Accountability Reports (BARs)? What does No Report, No Release mean? What does Review of Agency Performance mean? What is an Audit? What is the Performance-Based Incentive System?

1. Performance and Target Outcomes

Agencies are held accountable not only for how these use public funds ethically,but also on how these attain performance targets and outcomes using available resources. Theseperformance measures are set alongside the preparation of the National Budget; and these are indicated inthe OPIF Book of Outputs (See previous section on Public Expenditure Management). Prior to theexecution of the enacted National Budget, these performance targets are firmed up during the preparationof BEDs.
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2. Budget Accountability Reports (BARs)

Submitted by agencies on a monthly and quarterly basis, BARs are requiredreports that show how agencies used their funds and identify their corresponding physicalaccomplishments. These include quarterly physical and financial reports of operations; quarterly incomereports, a monthly statement of allotments, obligations and balances; and monthly report of disbursements.

No Report, No Release

Starting 2012, the DBM will be withholding certain fund releases to agencies if these fail to submit theirBudget Accountability Reports. In particular, these will be funds from the Miscellaneous Personnel BenefitsFund (MPBF) for compensation adjustments under the Salary Standardization Law, provisions for unfilled

positions and employee clothing allowances. These funds to be withheld are only limited to agenciesMPBF allotments so that only the agencies are penalized and that the implementation of critical programsand projects will not be disrupted. Errant and compliant agencies will also be posted online for publicscrutiny.
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3. Review of Agency Performance

The DBM regularly reviews the financial and physical performance of agencies.Actual utilization of funds and physical accomplishments, as indicated in the agencies BARs, are evaluatedagainst their targets as identified via OPIF and in the agencies BEDs. Agency Performance Reviews(APRs) are conducted quarterly or every semester, as the case may be. An annual Budget PerformanceAssessment Review (BPAR) is conducted to determine each agencys accomplishments and performanceby the year-end. The DBM regularly reports results to the President.

4. Audit

Auditing is not within the DBMs jurisdiction, and is instead lodged under theCommission on Audit (COA). Nonetheless, auditing is critical in ensuring agency accountability in the useof public funds. The DBM uses COAs audit reports in confirming agency performance, determiningbudgetary levels for agencies and addressing issues in fund usage.
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5. Performance-Based Incentive System

The DBM is also in the process of establishing a performance-based incentive system which willrecognize and reward good performance among government employees to help improve the efficiencyof service delivery across all government institutions.