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BUDGETING REFORMS and

THE BUDGET CYCLE

Ma. Geraldine G. Mala-ay

BUDGET REFORMS

BUDGETING REFORMS

refers to a government review and modification of its budgeting process.

aims to strengthen the institutions, mechanisms and processes involved in budget preparation, authorization, execution and accountability

BENIGNO SIMEON AQUINO III

World War II, also known as the Second World War, was a global war that lasted

"Separating the Chaff from the Grain"

"SEPARATING THE CHAFF FROM THE GRAIN"

FISCAL RESPONSIBILITY ACT

FISCAL RESPONSIBILITY ACT

AN ACT INSTILLING FISCAL DISCIPLINE IN THE PUBLIC SECTOR BY SPECIFYING PRINCIPLES OF RESPONSIBLE FINANCIAL MANAGEMENT AND PROMOTING FULL TRANSPARENCY AND ACCOUNTABILITY IN GOVERNMENT REVENUE, EXPENDITURE AND BORROWING PROGRAMS

PROGRAM BUDGET APPROACH

PROGRAM BUDGET APPROACH

IS A BUDGETING TOOL WHERE ALL BUDGETARY INFORMATION IS ORGANIZED AROUND THE CITY'S PROGRAMS AND SERVICES. THE BUDGET WILL SHOW THE COSTS OF THE PROGRAM, THE REVEBUES THAT THE PROGRAM GENERATES, AS WELL AS SHOWING A WAY TO EVALUATE THE PROGRAM'S EFFECTIVENESS AND OUTPUTS THROUGH PERFORMANCE METRICS.

PUBLIC PRIVATE PARTNERSHIP

PUBLIC PRIVATE PARTNERSHIP

ARE COOPERATIVE VENTURES OR CONTRACTUAL AGREEMENTS BETWEEN PUBLIC AGENCIES AND PRIVATE PARTNERS WITH CLEARLY DEFINES OBJECTIVES TO ADDRESS A PUBLIC OR SOCIAL NEED.

ZERO-BASE BUDGETING REFORMS

ZERO-BASE BUDGETING REFORMS

IS A BUDGETING TECHNIQUE IN WHICH ALL EXPENSES MUST BE JUSTIFIED FOR A NEW PERIOD OR YEAR STARTING FROM ZERO, VERSUS STARTING WITH THE PREVIOUS BUDGET AND ADJUSTING IT AS NEEDED.

REDUCE BUDGETARY SUPPORT TO GOCCS

THE GOVERNMENT GRANTS SUBSIDIES TO GOCCS AS A WAY TO COVER OPERATIONAL EXPENSES THAT ARE NOT SUPPORTED BY THEIR OWN REVENUES.

REDUCE BUDGETARY SUPPORT TO GOCCS

RAISE TAX EFFORT

IS A MEASURE OF A COUNTRY'S OWN EFFORT TO RAISE TAXES.

RAISE TAX EFFORT

STRENGTHENING PERFORMANCE MONITORING AND APPRAISAL SYSTEM

STRENGTHENING PERFORMANCE MONITORING AND APPRAISAL SYSTEM

EXECUTIVE ORDER 80, WHICH SEEKS TO STRENGTHEN PERFORMANCE MONITORING AND APPRAISAL SYSTEMS, IS ONLY A MARGINALLLY USEFUL TOOL FOR IMPROVING PERFORMANCE RATHER THAN IMPROVING BUDGET ALLOCATION. IT REWARDS PERFORMANCE THROUGH THE GRANT OF PERFORMANCE-BASED BONUSES. IT WAS PRECEDED BY ADMINISTRATIVE ORDER 25, WHICH AIMS TO RATIONALIZE, HARMONIZE, STREAMLINE, SIMPLIFY, INTEGRATE, AND UNIFY EFFORTS TO MONITOR PERFORMANCE OF GOVERNMENT AGENCIES.

BOTTOM-UP BUDGETNG APPROACH

BOTTOM-UP BUDGETING APPROACH

IS AN EXTENSION OF PREVIOUS INITIATIVES TO INVOLVE THE REGIONAL DEVELOPMENT COUNCILS IN THE BUDGET PROCESS; IT APPEARS TO BE MORE OF A POLITICAL TOOL TO GET THE SUPPORT OF FAVORED CIVIL ORGANIZATIONS.

GAA AS BASIS FOR OBLIGATIONAL AUTHORITY

GAA AS BASIS FOR OBLIGATIONAL AUTHORITY

THE GENERAL APPROPRIATIONS ACT (GAA) IS ONE OF THE MOST IMPORTANT LEGISLATIONS THAT CONGRESS ANNUALLY PASSES. IT DEFINES THE ANNUAL EXPENDITURE PROGRAM OF THE NATIONAL GOVERNMENT AND ALL OF ITS INSTRUMENTALITIES. THE EXPENDITURE PROGRAM INCLUDES ALL PROGRAMS AND PROJECTS THAT ARE SUPPOSED TO BE FUNDED OUT OF GOVERNMENT FUNDS FOR THE YEAR.

THE BUDGET CYCLE

THE BUDGET CYCLE

A budget cycle is the time frame a budget covers, with companies using monthly, quarterly and/or annual budget cycles to control costs and streamline administrative duties. Government agencies are also regular users of budget cycles to help them control costs.

Key Players

Key Players

House of Representatives

Senate

Department of Budget and Management

TIMELINE

BUDGET PREPARATION

PROGRAM CONVERGENCE

AGENCY TIER 2 PROPOSALS

May of Prior Fiscal Year

Before Tier 1&2 Proposals

TIER 1 DELIBERATIONS

CITIZEN ENGAGEMENT

March of Prior Fiscal Year

Before Tier 1&2 Proposals

Agencies submit both their proposed Tier 1 and Tier 2 budgets through the Online Submission of Budget Documents System.

Lead and contributing agencies for each program priority of the government (for example, tourism) meet and synergize their proposed budgets to meet target outcomes

Agencies engage citizens as they prepare their proposed budgets, through the Budget Partnership Agreements with civil society organizations (CSOs), Bottom-Up Budgeting (BUB), and other participatory budgeting mechanisms.

the agency and DBM agree on the resources that will be required to continue implementing already existing activities, projects, and programs. The primary output of this phase of budget preparation will be an approved budget for all ongoing activities.

BUDGET CALL

TIER 2 DELIBERATIONS

January of Prior Fiscal Year

June to July of Prior Fiscal Year

AGENCY TIER 1 PROPOSALS

CONSOLIDATION, VALIDATION AND CONFIRMATION

February of Prior Fiscal Year

Like in Tier 1, the DBM conducts TBH and ERB to review the Tier 2 proposals of agencies. Other government bodies are also involved in reviewing such proposals.

sets the parameters and procedures to guide agencies in preparing their respective proposed budgets.

July of Prior Fiscal Year

Agencies prepare the forward estimates (FEs) or current costs of their ongoing programs and projects and submit these for the “Tier 1” stage of 2TBA.

The DBM validates the approved budgets and consolidates these into the Budget of Expenditures and Sources of Financing (BESF) and other budget documents.

BUDGET PRIORITIES FRAMEWORK

THE PRESIDENT'S BUDGET

April of Prior Fiscal Year

July to August of Prior Fiscal Year

PRESENTATION TO THE PRESIDENT AND CABINET

RDC CONSULTATIONS

This document spells out the economic forecasts and fiscal targets for the budget year, the total cost of ongoing spending under Tier 1, and identifies the fiscal space: the available resources for new programs and projects or the expansion of existing ones.

The 1987 Constitution mandates the President to submit the Proposed Budget to Congress within 30 days from the opening of the regular session of Congress.

Before Tier 1&2 Proposals

July of Prior Fiscal Year

Agencies consult with Regional Development Councils to make sure that their respective budget proposals are aligned with the regions’ development needs and priorities.

The DBM, DoF, and NEDA, with the BSP (as the DBCC) present the proposed Budget before the President and the Cabinet for discussion and approval.

BUDGET LEGISLATION

BICAMERAL DELIBERATIONS

November to December of Prior Fiscal Year

RATIFICATION AND ENROLMENT

HOUSE DELIBERATIONS

December to Prior Fiscal Year

August to October of Prior Fiscal Year

After the House and the Senate approve their versions of the GAB, they each form a panel of lawmakers that will constitute the Bicameral Conference Committee or Bicam.

The Committee on Appropriations of the House of Representatives holds public hearings on the proposed Budget. The Committee then sponsors the recommended General Appropriations Bill (GAB) before the House in plenary. Once approved, the House transmits the GAB to the Senate.

The Harmonized or “Bicam” version of the GAB is then submitted back to both Houses, which then vote to ratify the final GAB. Both Houses then submit or “enrol” the ratified GAB to the President.

ENACTMENT

December of Prior Fiscal Year

SENATE DELIBERATIONS

Budget legislation ends when the President signs the GAA into law. Prior to this, the President may veto or set conditions for implementation of certain items in the GAA, which are then specified in the President’s Veto Message.

September to November of Prior Fiscal Year

Unlike normal legislation, the Constitution first requires the House to approve the GAB before the Senate considers the same.

BUDGET EXECUTION

ALLOTMENT RELEASE

January (Comprehensive) and Throughout Fiscal Year

CASH ALLOCATION

EARLY PROCUREMENT ACTIVITIES

October to December of Prior Fiscal Year

January (Comprehensive) and Throughout Fiscal Year

With the GAA-as-Release Document, the enacted Budget itself serves as the allotment release for all budget items except those contained in a negative list that are issued the Special Allotment Release Orders (SAROs) after agencies comply with the documentary requirements.

Agencies are required to prepare their Annual Procurement Plans and other bid documents before the new fiscal year starts. Early bidding allows agencies to award their approved projects as soon as the new GAA takes effect.

The DBM issues disbursement authorities, such as the Notice of Cash Allocation (NCA), to authorize an agency to pay the obligations it incurs.

OBLIGATION

Thoughout Fiscal Year

Agencies incur liabilities that the national government will pay for, as they implement programs, activities, and projects. Agencies incur obligations when they hire new staff or enter into a contract with suppliers of goods and services that are subject to a transparent and competitive procurement process.

DISBURSEMENT

Throughout Fiscal Year

BUDGET PROGRAM

Monies are paid out from the Treasury to settle obligations that government incurred for the delivery of services to citizens. To ease the payments process, the DBM introduced checkless and cashless disbursement schemes.

October to Decemebr of Prior Fiscal Year

Agencies submit Budget Execution Documents to outline their financial plans and performance targets for the year.

BUDGET ACCOUNTABILITY

AGENCIES' ACCOUNTABILITY REPORTS

CITIZEN ENGAGEMENT

IN-YEAR REPORTS

Monthly and Quarterly

Throughout Fiscal Year

Agencies submit Financial Accountability Reports on a monthly or quarterly basis, as required by the DBM and the COA. These reports are submitted online through the Unified Reporting System.

The DoF and the DBM regularly publish snapshots of the government’s fiscal performance, revenue collections, debt, and expenditures.

To empower citizens during Budget Accountability, the government ensures transparency--agencies disclose their budgets, reports, and other relevant information through the Transparency Seal; and make available data in open format.

AUDIT

Within the Following Fiscal Year

The COA reviews the accounts of each agency to ascertain if public funds are used properly, according to the law and standards, and with value-for-money. The COA produces audit reports for each agency; a whole-of-government Annual Financial Report; as well as Special Audit Reports.

PERFORMANCE TARGETS

January of Fiscal Year

PERFORMANCE REVIEW

Throughout Fiscal Year

Budget accountability starts with the setting of targets that agencies are to be held accountable for. With the Performance-Informed Budget, the GAA now contains the targeted outcomes, outputs and performance indicators of each agency.

The DBM reviews the financial and physical performance of agencies against their targets. Review mechanisms include: the ZBB, to evaluate the efficiency and effectiveness of programs; and the FTDUs, to closely monitor agencies’ performance and address bottlenecks proactively.

DBCC MID-YEAR REPORT

By September of Fiscal Year

DBCC YEAR-END REPORT

Within the Following Fiscal Year

The DBCC publishes a comprehensive report on macroeconomic developments, the fiscal situation of the national government, and the performance of key programs and projects.

MONITORING AND EVALUATION

Throughout Fiscal Year

Compared to the Mid-Year Report, the Year-End Report provides more discussions and details about actual revenue and expenditure outturns against program, and the financial and physical performance of priority programs.

Agencies must have internal control mechanisms to ensure that public funds are spent and accounted for properly.

TYPES OF BUDGET

ZERO-BASED BUDGET (ZBB)

ZERO-BASED BUDGET

is a budgeting technique in which all expenses must be justified for a new period or year starting from zero, versus starting with the previous budget and adjusting it as needed.

WHY IS IT IMPORTANT?

The aim of a zero-based budget is to make sure that your income, minus all your overheads, equals zero (income – expenses = zero). This method of budgeting allows you to easily adapt your budget each month if your expenses change.

ADVANTAGES

When every expense is carefully scrutinized, the highest revenue-generating activities are prioritized. Expenses are often reduced because ZBB helps to prevent the misallocation of resources that happens when a budget grows incrementally over time.

INCREMENTAL BUDGET

INCREMENT BUDGET

is the process of creating a new budget by making minor changes to the current budget. An incremental budget uses the current year’s budget as a baseline, which finance teams then adjust by incremental amounts.

WHY IS IT IMPORTANT?

Incremental budgets work well for companies with predominantly static expenditures since this budgeting approach ensures funding remains stable over longer periods of time. That's what makes incremental budgeting a good option for businesses working on long-term projects that require multiple years of funding.

ADVANTAGES

• Flexibility

• Easy and Simple Process to Implement

• Reasonable for Companies with Stable and Consistent Production Levels

• Consistency

• Provides greater transparency

ACTIVITY BASED BUDGETING

Activity-based budgeting is a planning system under which costs are associated with activities, and expenditures are then budgeted based on the expected activity level. This approach differs from the more traditional budgeting system, where existing cost levels are adjusted for inflation and major revenue changes in order to derive the annual budget.

ACTIVITY BASED BUDGET

WHY IS IT IMPORTANT?

WHY IS T IMPORTANT?

It brings about efficiency in an organizations activities. This is because activities are scrutinized for the purpose of adjusting cost drivers. Budget is prepared based on the identified productive activities. This saves the company from costs related to unnecessary activities.

ADVANTAGES

  • Budget insights allow better product, process, or activity costing and decision making, and better resource allocation to support priorities
  • Lower level managers and employees can discuss in operational terms instead of financial terms
  • Increased traceability and transparency that allows balancing capacity
  • Integration of budgets with other management initiatives

FLEXIBLE BUDGET

Budgets that can be adjusted depending upon revenue and cost changes throughout the fiscal year, accounting for expected unpredictability.

FLEXIBLE BUDGET

WHY IS IT IMPORTANT?

It helps in setting the expected costs, revenues, and profitability of the business. Further, since the flexible budget is not rigid, it can be adjusted according to the actual activity level at the end of the accounting period and used for variance analysis.

ADVANTAGES

The greatest advantage that a flexible budget has over a static budget is its adaptability. In the real world, change is real and it is constant. A flexible budget can handle that reality and better position a company for the challenges of the marketplace.

LINE-ITEM BUDGET

LINE-ITEM BUDGET

A line item budget is a form of budget presentation that clusters proposed expenses by department or cost center. This method of aggregation more easily shows which departments and cost centers are absorbing the bulk of an entity's funds. The presentation typically shows the actual expenditure or budget from the prior period for comparison purposes, so that one can quickly see if there are significant changes budgeted from the prior period.

WHY IS IT IMPORTANT?

First, it helps a business understand whether its income is sufficient to cover its expenses. Second, a line item budget makes it easy to verify when a single item exceeds the budget or comes in under budget. Finally, a line item budget helps finance managers obtain information about which detailed expenses roll up into each of the major functions of a business; this is important to determine if one department is performing worse financially than others.

ADVANTAGES

Line-item budgeting offers decision-makers an incremental, or step-by-step, approach to budgeting. Budget makers can use a line-item budget to make specific decisions, such as changing funding levels of programs being phased out to provide money for new programs or making cuts to budgeted expenses because of changes in organizational policies.

REFERENCES

  • https://cpbrd.congress.gov.ph/173-resources/for-legislators/17th-congress-legislative-agenda-tracker/agenda-and-briefers/795-budget-reform-act
  • https://www.dbm.gov.ph/wp-content/uploads/Executive%20Summary/2016/Budget%20Cycle.pdf
  • https://www.oracle.com/ph/performance-management/planning/zero-based-budgeting/#:~:text=Advantages%20of%20zero%2Dbased%20budgeting,-ZBB%20has%20many&text=When%20every%20expense%20is%20carefully,budget%20grows%20incrementally%20over%20time.
  • https://www.mosaic.tech/post/incremental-budgeting
  • https://rgao.upm.edu.ph/award-set-up-2/how-to-prepare-lib-cash-program/
  • https://econ.upd.edu.ph/pre/index.php/pre/article/download/903/803
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