whole requirement- a bayotch

8/7/2019 whole requirement- a bayotch

1/19

2011

APIT, Abraham Jose

MONDRAGON, Rey Mark

Accounting 12.2

1/9/2011

UNIVERSITY OF THE PHILIPPINES:MOOEALLOCATION


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CHAPTER1

CASE BRIEF

The newly appointed Vice President for Planning and Finance

of the University of the Philippines is faced with the problem

of a reduced budget for Maintenance and Other Operating Expenses

(MOOE) for the CY 2000. As a first step, she reviewed the

previous years MOOE allocation and found herself unsatisfied

with the way the allocation was done. To address this matter,

she then called up a meeting with the unit heads of the

different autonomous campuses of UP to discuss the issue on the

reduced budget. Different problems and arguments were raised by

the said unit heads regarding the previous years budget. Thiswas then taken into consideration by the VP for Planning and

Finance in coming up with a formula that would objectively

allocate MOOE among the campuses. Additional data, considered as

important by the VP, were gathered to aid her in the process.

MANAGEMENTs DILEMMA

The MOOE budget allocation, as perceived by the Vice

President for Planning and Finance is inadequate in responding

to the different needs of the constituent universities. This is

because the bases for allocation included only few variables

(i.e., number of students, presence of laboratory requirements

per campus). There are also biases from the congressmen and DBM

that were considered in the budget allocation. Some of these

biases are political in nature. In addition, the proposed budget

of the different universities is subject to the influence of the

presidents thrusts. Hence, the heads of the units need to

integrate the priorities of the president in their proposedbudget.

With this, the VP is facing the dilemma of how will she

allocate the budget. Will it be following the previous

allocation which is inappropriate yet conforms the presidents


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thrusts or make her own allocation basis which she believes is

fair but might not get the presidents approval?

MANAGEMENTs QUESTION

Considering the dilemma above, how can the management of

UP, specifically the VP for Planning and Finance, achieve and

implement a more objective process of coming up a MOOE budget

allocation formula that is commensurate to the different needs

of the constituent universities and that will probably get the

presidents approval?

RESEARCH QUESTIONS

These are the research questions we would like to explore

in this case study:

a.What is MOOE and the common classifications of expensesincluded in it?

b.What are the most appropriate bases or critical variablesto be considered in allocating the appropriated MOOE budget

to the entire UP system?

c.Is the additional information gathered by the VP forPlanning and Finance adequate enough in order to create a

budget allocation that is reasonable considering the

circumstances at hand?

d.Why should a budget allocation made from the informationgathered by the VP for Planning and Finance be pursued even

if it may not otherwise be totally in accordance with what

the president wants?


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CHAPTER2

INDUSTRY

BriefDescription:

The Philippines is considered to be one of the most highly

educated middle-income countries. It has high enrollment rates

at all levels of education and it has achieved near universal

access to primary education (World Bank website 2008). The first

baccalaureate degree granting institution is the University of

the Philippines.

RegulatingAgencies:

On May 18, 1994 through RA No. 7722 or the Higher Education

Act of 1994 authored by Senator Francisco Tatad, the Commission

on Higher Education (CHED) is created. CHED is responsible in

the formulation and implementation of policies, plans and

programs for the development and efficient operation of the

higher education system in the country. The delivery of higher

education in the Philippines is provided by private and public

higher education institutions (HEIs).

Higher Education Institutions:

The Philippine Higher Education Institution is categorized

into: private and public. Each higher education adopts a certain

admission policy beyond the general requirement that all

candidates have to be graduates of secondary education. Some

institutions require passing an entrance exam and a medical

examination; others adopt open admission, but selective

retention.

Further, Philippines has relied on private institutions

and, at the turn of the century, private institutions have

increased in numbers. As of August 2010, there are 2,180 HEIs

geographically distributed over the country. There are a total

of 1,573 and 607 private and public HEIs, respectively.


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The Public HEIs, on the other hand, include: 110 SUCs

main campuses, 388 satellite campuses, 93 LUCs, 10 Other

Government Schools, one (1) CHED Supervised Institution (CHED-

ARMM) and five (5) special HEIs.

The State Universities and Colleges (SUCs) are chartered

public higher education institutions established by law,

administered and financially subsidized by the government. SUCs

have their own charters. The Board of Regents (BOR) for state

universities and a Board of Trustees (BOT) for state colleges

maintain the formulation and approval of policies, rules and

standards in SUCs. The Chairman of CHED heads these boards.

However, CHED Order No. 31 series of 2001 of the Commission en

banc, also authorizes CHED Commissioners to head the BOR/ BOT of

SUCs. Implementation of policies and management are vested on

the president, staff, and support units of the public higher

education institutions.

The local universities and colleges (LUCs) are those

established by the local government through resolutions or

ordinances. LUCs are financially supported by the local

government concerned. A CHED Supervised Institution (CSI) is

non-chartered public post-secondary education institution

established by law, administered, supervised and financially

supported by government. Other government schools (OGS) are

public secondary and post-secondary education institutions,

usually technical-vocational education institutions that offer

higher education programs. Special HEIs are directly under the

government agency stipulated in the law that created them. Theyprovide specialized training in areas such as military science

and national defense.

NatureofActivities:

The activities of an educational institution may be

classified as (1) instructional, (2) administrative, and (3)

auxiliary. Instructional activities include both resident &

extension instructions, public services, organized research, and

the operation of libraries. Administrative activities include

staffing and promotion, registration and enrolment, operation of

business office, and operation and maintenance of the

educational plant. Auxiliary activities include the operation of

residence halls, dining rooms, college unions and bookstores,

health centers, and athletic and cultural programs.


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Revenues in support of these different activities are

provided by such varied sources as contributions, governmental

appropriations, student fees, endowment income, and revenues

from the sale of goods & services.

AccountingPractices:

Considering these activities of the educational

institution, a modified accrual basis of accounting is

generally employed in summarizing the operations of the state

universities and colleges (SUCs). Since the primary purpose of

accounting for educational institutions is to report on the

stewardship of the funds and property entrusted, rather than to

determine the net profits and net worth (American Council of

Education). However, privately-owned institutions do not receive

any appropriations. Therefore, the accrual method is commonly

followed.

Depreciations, in addition, are rarely recognized on

properties that are used for educational functions by SUCs.

However, these are appropriate under following circumstances:

a.When certain properties of the educational plant render aservice function and the institution plans to replace

such properties from operating revenue.

b.When properties are identified with auxiliary enterprisesthat are expected to be self-supporting- bookstores,

cafeterias and dormitories, for example.

c.When properties are transferred to the educational unitunder the terms of endowment that limit expenditures from

endowment resources for general and specific purposes to

periodic net income after the recognition of

appropriation charges for depreciation.

Typesoffunds:

SUCs are highly subsidized by the government. Funds are

further grouped into: current fund (restricted and

unrestricted), loan funds, endowment and other nonexpendable

funds, annuity funds, plant funds- which is subdivided into:


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unexpended plant fund, retirement of indebtedness fund, and an

invested in plant section, and agency funds.

Current funds are composed of current resources that are to

be employed in meeting obligations arising from the general

operations of the educational institution, with or without

restrictions. Student fees and resources from gifts, for

example, that carry no specific limitations as to use, then, are

reported in the current unrestricted fund. On the other hand,

resources from gifts that can be spent only for specified

purposes, such as for the library, for scholarship, for an

athletic program, or for research, would be classified as

current restricted funds.

Loan funds consist of resources that are available for

loans to student. These funds originate from gifts which may be

built up over a period of time from student fees collected for

such purpose or from transfers from endowment fund whose income

is available for such purpose. However, loan fund balances will

change as a result of uncollectible loans, fund administrative

expenses and the like.

Endowment funds are formed when cash or other properties

are transferred to the institution under conditions that provide

only the income produced by such resources can be used for the

institution.

Annuity funds, on the other hand, are formed when cash and

other properties are transferred to the institution subject tothe requirement that specified payments be made to a designated

beneficiary during his lifetime. However, these funds are

sometimes included with endowment fund for accounting and

reporting purposes.

As indicated by its name, plant funds are resources related

to educational plant while agency funds are funds given to

educational institution which acts as an agent or trustee;

holding certain asset on behalf of others, for example, student

deposits and tax withholding amount.

RegulatoryConstraints:

Budgetary allocations and allotment received by SUCs depend

on the budget proposals made by the Department of Budget and

Management (DBM) which is duly approved by the Congress. It is


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then believed that some legislators want to allocate more funds

in the region that support their candidacy.

As of this year, SUCs will experience drastic cuts in their

budget if the Congress approves the Aquino governments 2011

budget proposal.

In the budget proposal submitted by the Department of

Budget and Management (DBM) to Congress last August 25, the

combined budget for 110 SUCs is cut by 1.7% from P23.8 billion

in 2010 to only P23.4 billion this year.

Among those with the biggest budget cuts are University of

the Philippines (-P1.39 billion or 20.11%), Philippine Normal

University (-P91.35 million or 23.59%), Bicol University (-

P88.81 million or 18.82%), University of Southeastern

Philippines (-P44.39 million or 20.03%), Central Bicol State

University of Agriculture (-P31.65 million or 15.91%).

Huge cuts are proposed in the budget for maintenance andother operating expenses (MOOE) of all but 15 SUCs, some by more

than 50%. The combined total operations budget for SUCs will be

cut by P1.1 billion, or by 28.16%.

Budget distribution:

The DBM has devised a scheme to check fund allocations for

each school through a system called normative clemency.

This is based on the three major types of government

expenditures: capital outlays which deal with financing buildingconstruction; personal services, which cover faculty salaries;

and maintenance and other operating expenditures, which cover

electricity, water, telephone, and janitorial services.

Normative clemency ensures that no SUC will have an excess

or lack of funds for all three types of expenses, because they

are mandated to submit proposed expenses to both the Commission

on Higher Education (CHED) and the DBM.

Tax Exemption:

Per section 30 of National Internal Revenue Code of the

Philippine, income from government educational institutions are

duly exempted from income tax.


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At present, the university has a total student population

of 53,285; 4,135 faculty, trained locally and abroad with 75%

having graduate degrees; administrative staff and personnel of

6,491; and 3,553 PGH staff.

The University is one of the three Universities in the

Philippines affiliated with the ASEAN University Network, and

the only Philippine university to be affiliated with the ASEAN-

European University Network and the Association of Pacific Rim

Universities.

The University has the highest financial endowment of all

educational institutions in the Philippines. In 2008, the entire

University system has a financial subsidy from the national

government of about PHP 6 billion. The total expenditure for the

same year, however, is PHP 7.2 billion, or approximately PHP

135,000 per student.

This estimated PHP 1.2 billion difference is supported by

other funds. These include general fund, revolving fund, trust

fund- student fees, and central fund. Central funds can be

tapped for the non-recurring expenses, for instance,

supplementary miscellaneous expenses. Central funds comprise of

general maintenance funds, faculty development funds, staff

development funds equipment fund, and reprogrammed or programmed

funds for PS, MOOE, or CO.

Trust fund, in addition, covers the laboratory fees,

educational development fees, library fees, athletic fees,

cultural fees, and medical fees paid by the students.

Admission, however, into the University's undergraduate

programs is very competitive, with over 60,000 students taking

the exam every year, with about 11,000 being accepted, an

admission rate of about 18%. Admission to a program is usually

based on the result of the UPCAT (UP College Admission Test),

and University Predicted Grade, which is an average of grades

obtained during high school and sometimes, a quota set by the

unit offering the program.

As it is funded partly by the Philippine government, and

private donations, the UP student shoulders a minimal tuition


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fee which is appropriately less than half than that of other

universities like the Ateneo de Manila, La Salle University and

the University of Santo Tomas, while providing a wider range of

courses and programs. At present, the estimated annual tuition

fee of UP is PhP 36,000 good for two terms at PhP 1,000 per

unit.

The Socialized Tuition and Financial Assistance Program

(STFAP) was implemented in response to the increase in tuition

in 1989. The program, proposed in 1988 by U.P. President Jose

Abueva and mandated by the President and Congress of the

Philippines, called for a radical departure from the old fee and

scholarship structure of UP, resulting in tremendous benefits

for low-income and disadvantaged Filipino students. The STFAP is

divided into four basic components: Subsidized Education,

Socialized Tuition, Scholarships and Student Assistantships.

Through the Socialized Tuition and Financial Assistance Program

(STFAP), more popularly known as Iskolar ng Bayan, students

avail of discounted tuition fees to full tuition fee waivers,

plus cash subsidies, according to their individual income

brackets.

Most colleges in the UP System offer scholarship

opportunities in different programs from the arts to the

sciences. Some of the scholarships available throughout the UP

System are the Oblation scholarship for the top fifty (50)

passers of the UPCAT, the UP Government Scholarship, the

Presidential Scholarship Grant, the Leadership Grant and variousprivate grants, all administered through the Office of

Scholarships and Student Services (OSSS).


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CHAPTER3

1.What is MOOE and the common classifications of expensesincluded in it?

Maintenance and Other Operating Expenses (MOOE) is one of

the general classifications of expenses in the operation of a

government institution. Other classifications include the

Personal Services, Capital Outlays and Financial Expenses.

MOOE includes expenses necessary for the regular operations

of a government agency like, among others, traveling expenses,

training and seminar expenses, water, electricity, suppliesexpense, maintenance of property, plant and equipment, and other

maintenance and operating expenses.

The Chart of Accounts of the New Government Accounting

System of the Philippines lists the following expense line items

as composing the MOOE:

a.Traveling Expensesb.Training and Scholarship Expensesc.Supplies and Materials Expensesd.Utility Expensese.Communication Expensesf.Professional Servicesg.Repairs and Maintenanceh.Subsidies and Donationsi.Confidential, Intelligence, Extraordinary and Miscellaneous

Expenses

j.Taxes, Insurance Premiums and other Feesk.Non-Cash Expenses (Bad debts, Depreciation, etc.)l.Other Maintenance and Operating Activities


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2.What are the most appropriate bases or critical variablesto be considered in allocating the appropriated MOOE budget

to the entire UP system?

Budget preparation is one of the difficult and time-consuming, yet also one of the indispensable and beneficial,

activities that an organizations management performs in line

with its vision, mission and goals. An organization can benefit

from creating a budget that shows how it plans to use its

resources and to make sure that its spending doesnt get out of

control. By carefully planning how the organization spends and

saves its resources, it shall have a better chance of reaching

its goals.

As ruled, allocations of funds for expenditures to SUCs

shall be based on Normative Funding, as detailed in a joint

circular dated 2004 authored by the heads of DBM and CHED. This

Normative Funding shall serve as a tool for planning, preparing,

implementing and checking the budgeting process of an SUC.

In the UP budget process, the VP for Planning and Finance

has the following responsibilities:

a.Reviews the consolidated budget prepared by the UPsBudget Office in the early phases of budget preparation.

This budget is to be submitted to DBM for review and

revisions in the preparation of the General

Appropriations Act(GAA);

b.After the submitted budget is approved by the Congressand the President of the Philippines, the VP reviews the

budget ceilings prepared by the Budget Office. The budget

ceilings are prepared for the UPSA units and the

autonomous campuses and shall be used in the preparation

of the Internal Operating Budgets (IOB) for said

units/campuses;

c.Helps in the preparation of IOB and reviews it beforerequesting the university president to recommend the IOB

to the Board of Regents (BOR).


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The MOOE appropriated is generally subdivided into two

parts: MOOE for academic programs and the UP system

administration (UPSA); and MOOE for autonomous campuses.

In the case presented, the allocation is on the ratio of

66:34 for the UPSA and for the campuses, respectively.Meanwhile, it is shifted into 62:38 in the following year. The

analysis is presented in the table that follows.

Maintenance and Other Operating Expenses (MOOE) Budget *

CY 1999 Ratio** CY 2000 Ratio

Academic programs & UPSA 602,124, 000 66% 403, 561, 000 62%

Autonomous campuses 313, 801, 000 34% 250, 000, 000 38%

TOTAL 915, 925, 000 100% 653, 561, 000 100%

*Budgets are based on the figures presented in the case.

**Ratios are rounded-off to nearest whole number.

The VP for Finance and Planning should have allocated the

MOOE on the same ratio as of the previous year for the following

reasons:

a. Any cut in the MOOE budget must be applied across theboard on a pro-rata basis using the previous allocation.It is quite unfair that academic programs & UPSA will

suffer a 33% decrease compared to the 20% decrease on

autonomous campuses; and,

b. Considering the thrust of higher authorities which is, UPbeing a premiere university, should be promoting graduate

programs. Thus, any cut-back will impair the programs. A

4% variance in the budget allocation, roughly 26 million,

will greatly affect the performances of academic

programs.

However, it will be reasonable also to make the allocation

on a ratio of 62:38 considering also the demand of the

autonomous campuses. Different UP campuses offer different

programs and perform the trifocal function of SUCs, that is,

instruction, research and extension services in varying degrees.


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Now, the task of the VP for Planning and Finance is the

preparation of a reasonable budget allocation of MOOE to UPs

constituent universities considering the budget cut. Critical

variables for budgeting should be properly taken into

consideration in order for the VP to achieve this goal.

To start, the VP may base this years budget on the

previous years actual expenses. Then, s/he may analyze the cost

drivers for MOOE for Instruction, MOOE for Research and MOOE for

Extension services by asking appropriate officers. These cost

drivers should be used in the allocation and should be as

detailed as possible in order to have a greater probability of

meeting actual expenditures. For example, the number of

buildings used to compute repairs may be broken down into number

of classrooms and adjusted for the age of such properties.

To be taken into analysis also is the varying degrees of

activities and achievements in the three functions of the

university. Priority allocation may be given to campuses whose

performance on a certain area might be greatly affected if

allocated a budget materially different from what it proposes

right from the start. For example, a campus suffers a decrease

in its licensure examination passing rate because of a reduced

budget for instruction. This is to ensure that the expenditure

funds go to where they are most worthy for.

After creating a preliminary budget based on these data,adjustments may be made based on the campus ability to generate

income or cash flows out of its available funds. For example, a

campus is doing well in research activities and surely needs

funds for it to maintain or improve this status. It may still be

allocated funds way below its proposed budget if it generates

surplus funds from other sources. These surplus funds may serve

as a complement to the appropriated budget.


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should also be reflected because some courses are costly

than the other in terms of MOOE;

b.Excluding the Research and REPS from the analysis becausethese data is most appropriate for MOOE for Research and

Extension;c.Detailing the number of buildings as to how many are used

only for instruction;

d.Detailing the classified buildings as to number ofclassrooms.

The above adjustments may be applied in the same logic to

MOOE for Research and for Extension.

It should be noted that the data presented are applicableonly in making the preliminary cost budgets. Adjustments to

reflect a campus liquidity and profitability advantages could

not be made using only these data. Hence, the VP may gather

the following data from the previous school year to address

this problem:

a.Statement of Operations of the individual campuses inorder to assess their profitability;

b.Statement of Cash Flows in order to have an idea of thedifferent sources of cash inflows and outflows and aswell as the magnitude of these cash flows;

c.Statement of Financial Position for the computation ofliquidity and other financial ratios that may be used in

the analysis.

4.Why should a budget allocation made from the informationgathered by the VP for Planning and Finance be pursued even

if it may not otherwise be totally in accordance with what

the president wants?

A budget allocation that would be made using the discussed

procedures should be pursued because of the following reasons:


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a.Budgeting based on detailed data is beneficial becausetheres a greater chance of meeting anticipated costs. Take

note that the budget would be used in calculating tuition

fees and other fees of the students. If the budgets

prepared are based on inappropriate drivers, the resulting

calculations for fees of students might be much higher or

lower, or fees of students in one campus might be much

higher or lower when compared to other campuses and may

prove inequitable.

The problem on budget cuts for SUCs is still around in

todays times. It is reflected in the recently approved

2011 national budget. The reduced budget for SUCs elicits

varied comments from the people (specially the students)

noting that increases instead for debt servicing, military

spending and corruption funds (pork barrel, dole-out andpatronage funds) were pursued.

We think that this way of budgeting would help carry

onone of the important roles of the State as stated in

Article 14, Section 1, of the Philippine Constitution,

which says that The State shall protect and promote the

right of all citizens to quality education at all levels

and shall take appropriate steps to make such education

accessible to all.

When equitable fees are charged by the University andother SUCs, theres a better chance for Filipinos to avail

of higher education and earn a degree considering that

private schools are a lot more expensive. This would

further help them land a job and improve the economic

status of the country. As observed, the effects are spilled

over positively.

b.The budgeting would, in effect, allow cost-sharing amongthe campuses. Since the constituent universities have thesame mandates and are under the same system, it is but

justifiable for them to undertake such kind of strategy.

This helps maximize the use of idle excess funds of other

campuses. But this does not mean that the less productive

campus would exploit the financial wellness of the other.

The System should also devise a scheme of giving job


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credits to the heads of a unit who performs well in terms

of income generation so that they would be inspired to

continue their ways. On the other hand, the heads of the

unit who performs subpar from expected should be monitored.

They should also be inspired to undertake revenue-

generating activities if these are feasible considering the

available funds under their control. The effects of these

strategies would likely result to the formation of a

management who always strives for the best and not just

settle for mediocrity.

c.If fees are equitable and when budgets allocated tocampuses are commensurate with what they need, then the

Universitys status as a premier university would likely be

improved because of the following:

- Satisfaction of students, hence, more and more studentswill likely be inspired to enroll

- Higher rates of graduates because of affordable fees- Catalyst for curbing unemployment rate of the country

because UP graduates will likely easily find a job

- Satisfaction of managers, hence, they will likely work withenthusiasm and thus would result to reaching organizational

goals

- An overall improvement in the financial status of the UPSystem

whole requirement- a bayotch

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