MPM 107
Public Budgeting Dr. Dave Cababaro Bueno Dean, Graduate School Professor VI
Course Description • Public Budgeting covers the theory and prac-tice of public budget preparation and review, governmental accounting and auditing, and political issues in the budget process. The course includes consideration of capital bud-geting, revenue estimation, and the history of budget reform efforts.
Course Learning Outcomes 1) To explore the theoretical, political, historical and managerial context in which public budgeting has developed in the Philippines, thereby providing socialization into the discipline;
Course Learning Outcomes 2) To understand the ways that the budgeting process has been adapted and modified overtime and in different organizations to meet changing needs, thereby preparing students for professional success;
Course Learning Outcomes 3) To review and practice the major processes and techniques used in budgeting, thereby further providing a foundation for professional success and entry into the public administration profession;
Course Learning Outcomes 4) To understand the role that constraints play in determining the success of a public budget. 5) To prepare budget plan/ proposal for a specific organization using the budget principles and processes.
Meaning, Scope and Models of Public Budgeting
• Public Budgeting is a field of Public Administration and a discipline in the academic study thereof. • Budgeting is characterized by its approaches, functions, formation, and type.
• The authors Robert W. Smith and Thomas D. Lynch describe public budgeting through four perspectives.
1.The politician sees the budget process as "a political event conducted in the political arena for political advantage". 2.The economist views budgeting as a matter of allocating resources in terms of opportunity cost where allocating resources to one consumer takes resources away from another consumer.
• The role of the economist, therefore, is to provide decision makers with the best possible information. 3. The accountant perspective focuses on the accountability value in budgeting which analyzes the amount budgeted to the actual expenditures thereby describing the "wisdom of the original policy".
4. Smith and Lynch's public manager's perspective on a budget is a policy tool to describe the implementation of public policy.
• Further, they develop an operational definition:
• A "budget" is a plan for the accomplishment of programs related to objectives and goals within a definite time period, including an estimate of resources required, together with an estimate of resources available, usually compared with one or more past periods and showing future requirements.
• Leading Definitions
• Practical: "A plan for financing an enterprise or government during a definite period, which is prepared and submitted by a responsible executive to a representative body (or other duly constituted agent) whose approval and authorization are necessary before the plan may be executed." ~Frederick A. Cleveland
• Leading Definitions
•Theoretical: The leading question: "On what basis shall it be decided to allocate budget (pesos) to activity A instead of activity B?" ~V. O. Key Jr.
• Leading Theorists and Contributions
• Frederick Cleveland: constructed a practical definition of budgeting. • William F. Willoughby: describes the purpose of a budget document.
• V. O. Key, Jr.: sparked the normative question regarding how scarce resources ought to be distributed to unlimited demands. • Verne B. Lewis: argued for a budgeting theory based on economic values; strongly contributing to the study of public finance.
• Richard A. Musgrave: the Father of Public Finance; identified the three roles of government in the economy: allocation of resources, distribution of goods and services, and economy stabilization.
• Aaron Wildavsky: suggested that budgetary decision making is largely political, rather than based on economic conditions.
Donald Kettl:
• Decision about how much of society’s resources we want to take from the private sector to use for problems of broader public interest.
• Allen Schick: outlined the three functions of budgeting:
Strategic Planning; deciding on the goals and objectives of an organization. Management Control; management's process of assuring effective and efficient accomplishment of goals and objectives laid out via strategic planning.
ďƒźOperational Control; focused on proper execution of specific tasks that provide the most efficient and effective means of meeting the goals and objectives ordered by management control.
• Approaches to Budgeting • A brief note on Systems Theory applied to Political Science: Inputs enter the governmental system that produces outputs which--in turn--are related to outcomes.
• The conversion of inputs to outputs is a measure of efficiency as the measurement of contributing inputs to impacting outcomes is a measure of efficacy. • Line Item Budgeting is arguably the simplest form of budgeting, this approach links the inputs of the system to the system.
• These budgets typically appear in the form of accounting documents that express minimal information regarding purpose or an explicit object within the system.
• Program Budgeting takes a normative approach to budgeting in that decision making--allocating resources--is determined by the funding of one program instead of another based on what that program offers. This approach quickly lends itself to the PPBS budgeting approach.
• PPBS Budgeting or--Program Planning Budgeting System--is the link between the line-item and program budgets and the more complex performance budget. As opposed to the more simple program budget, this decision making tool links the program under consideration to the ways and means of facilitating the program.
• This is meant to serve as a long-term planning tool so that decision makers are made aware of the future implications of their actions. • These are typically most useful in capital projects.
• The planning portion of the approach seeks to link goals to objects or expected outcomes from specific outputs, which are then sorted into programs that convert inputs to outputs; finally, the budgeting of PPBS helps determine how to fund the program.
• Performance Based Budgeting attempts to solve decision making problems based on a programs ability to convert inputs to outputs and/or use inputs to affect certain outcomes.
• Performance may be judged by a certain program's ability to meet certain objectives that contribute to a more abstract goal as calculated by that program's ability to use resources (or inputs) efficiently--by linking inputs to outputs--and/or effectively-by linking inputs to outcomes.
•A decision making--or allocation of scarce resources-problem is solved by determining which project maximizes efficiency and efficacy.
• Zero-based budgeting is a response to an incremental decision making process whereby the budget of a given fiscal year (FY) is largely decided upon by the existing budget of FY-1. In contrast to incrementalism, the allocation of scarce resources-funding--is determined from a zerosum accounting method.
• In government, each function of a department's section proposes certain objectives that relate to some goal the section could achieve if allocated x pesos.
• Flexible Freeze is a budgeting approach pioneered by President George H. W. Bush as a means to cut government spending. Under this approach, certain programs would be affected by changes in population growth and inflation.
• Program Assessment Rating Tool (P.A.R.T.) is an instrument developed to measure and assess the effectiveness of programs that review the program’s purpose and design, strategic planning, program management, and program results and accountability.
• The scores are rated from effective (ranging between 85 and 100 points), moderately affective (70-84 points), adequate (50-69 points), and ineffective (0-49 points).
• Priority Based Budgeting is a response to poor economic conditions. As opposed to incremental budgeting, where resource allocation is determined based on marginal shifts in costs, priority based budgeting fixes the amount of governmental resources and then allocates resources across the various programs.
• The programs receive their allocation based on their priority; priorities may include safe and secure communities, health, education, and community development among others. Outcome assessment then determines the efficacy of the programs. Although this approach is pro-democratic, critics suggest the administration of this process is extremely difficult.
• Functions of a Budget Document • As a policy document, a government's budget is designed as a plan for implementing its policy. • Traditionally, budgets served as a more rigid tool to implement policy in a retrospective setting. The functions associated with these values are listed under the
• Functions of a Budget Document
• Traditional Model and are control, management, and planning. • The Modern Model, taking a less rigid approach, has replaced the control function with the monitoring function, the management function with the steering function, and the planning function with the strategic brokering function.
• Traditional Model • Control: using the budget document to control expenditures to maximize accountability. This function is most commonly associated with line-item budgets.
• Traditional Model • Management: using the budget document to manage organizations and personnel. This function is focused on performance and efficiency. This function is most commonly associated with performance budgets.
• Traditional Model • Planning: using the budget document as a plan to achieve some goal. The focus of this function is on the outcome and effectiveness of a program. This function is most commonly associated with program and PPBS budgets.
• Modern Model • Monitoring: as a response to the traditional control function, the monitoring function focuses on the consequences of expenditures.
• Modern Model • Steering: as a response to the traditional management function, the steering function serves as a guide for managing.
• Modern Model • Strategic Brokering uses the budget document as a means of constantly looking for possible directions and reacting to the environment.
• Values in Budgeting • Three values are generally discussed in the literature of public budgeting; accountability, efficiency, and efficacy.
• Accountability focuses on the inputs going into the system or program in action and is best characterized by the Line-Item budgeting approach. It is best suited for the control and monitoring functions of a budget.
• Values in Budgeting
• Efficiency focuses on the process of the system or program and its conversion of inputs (resources) into outputs (policy). It's focus on the process makes this value appropriate for performance budgets and most inline with management and steering functions.
• Values in Budgeting
• Efficacy focuses on outputs and outcomes, measuring the impact of policy. This value follows both the program budget and PPBS budget approaches and coincides with the planning and strategic brokering functions.
• Six Steps of the Budgetary Process; simplified • Typically, the budget cycles occurs in four phases. • The first requires policy planning and resource analysis and includes revenue estimation.
• The second phase is referred to as policy formulation and includes the negotiation and planning of the budget formation. • The third phase is policy execution which follows budget adoption is budget execution—the implementation and revision of budgeted policy.
• The fourth phase encompasses the entire budget process, but is considered its fourth phase. This phase is auditing and evaluating the entire process and system. • See the associated points below:
• Revenue Estimation performed in the executive branch by the finance director, clerk's office, budget director, manager, or a team. • Budget Call issued to outline the presentation form, recommend certain goals.
• Budget Formulation reflecting on the past, set goals for the future and reconcile the difference. • Budget Hearings can include departments, sections, the executive, and the public to discuss changes in the budget.
• Budget Adoption final approval by the legislative body.
• Budget Execution amending the budget as the fiscal year progresses.
• Types of Public Budgets • Operating budgets are those documents that describe the expenditures and revenues during a given period for the functioning of an organization.
• Types of Public Budgets • Capital budgeting is the process of planning for future purchases above a certain cost threshold or extended life span. This budget is typically accompanied by a Capital Improvement Plan that describes a timeline for acquisition and payment of debt.
Importance of Budget 1. Instrument for development - political tool: a tool for exercising power and for decision making(Budget Politics) - socio-economic tool: raising resources and allocating them to achieve socio-economic goals (Budgets and the Economy)
- human development tool: financing public goods and services that enhance human development (Budgets and Human
2. Instrument for good governance
- administrative tool: assignment of authorities and responsibilities to government units to perform budgeted tasks - performance measurement tool: exacting desired results from authorized expenditures
Budgets and the Economy • Resource generation – Taxation and income distribution – Debt policy and stabilization
• Resource allocation
– Budget allocation for competing priority needs. – Budget commitments vs. available headroom. – Multiyear expenditure planning and budgeting – Expenditure incidence, results and impact
• Employment and wage policy – Government as biggest single direct employer; government employment to population ratio.
– Compensation structure generally uncompetitive particularly at middle and executive levels
•Budget process • A budget process refers to the process by which governments create and approve a budget, which is as follows:
• The Financial Service Department prepares worksheets to assist the department head in preparation of department budget estimates • The Administrator calls a meeting of managers and they present and discuss plans for the following year’s projected level of activity.
•
Budget process
• The managers can work with the Financial Services, or work alone to prepare an estimate for the departments coming year.
• The completed budgets are presented by the managers to their Executive Officers for review and approval. • Justification of the budget request may be required in writing.
•
Budget process
• In most cases, the manager talks with their administrative officers about budget requirements. • Adjustments to the budget submission may be required as a result of this phase in the process.
• Budgeting refers to the setting of the expenditure with respect to the organization’s core function which is responsible for the overall functionality of the firm. • Budgeting is the setting and allocation of the capital which is then used in the proper way to achieve the set or designated targets of the firm.
• Budgeting needs to be very much focused and clearly prepared that cover all of the financial constraints in that sense that any of the investment that would be planned in the future will cover the financial targets of the firm.
• Its viability should be in due course of the firm’s overall strategic financial plan, the routine and daily occurring expenses will have their proportionate allocation that if any investment will be in its way that will not hurt any of the scheduled existing expenses of the firm.
• Budgeting needs to be done in a proper and meaningful way that it covers all the financial targets of the company, these targets needs to be achieved so as to be called the successful budgeting. • Financial budgeting is also referred as the investment appraisal that finalizes and clearly shows that the investment through which the firm will be going through must have fulfill all the financial targets.
• Revenue Estimation performed in the executive branch by the finance director, clerk's office, budget director, manager, or a team. • Budget Call issued to outline the presentation form, recommend certain goals. • Budget Formulation reflecting on the past, set goals for the future and reconcile the difference.
• Budget Hearings can include departments, sections, the executive, and the public to discuss changes in the budget. • Budget Adoption final approval by the legislative body. • Budget Execution amending the budget as the fiscal year progresses.
• Constitutional economics • Constitutional economics is the study of the compatibility of economic and financial decisions within existing constitutional law frameworks, and such a framework includes government spending on the judiciary which in many transitional and developing countries is completely controlled by the executive.
• It is useful to distinguish between the two methods of corruption of the judiciary: corruption by the executive branch, in contrast to corruption by private actors. • The standards of constitutional economics can be used during annual budget process, and if that budget planning is transparent then the rule of law may benefit.
• The availability of an effective court system, to be used by the civil society in situations of unfair government spending and executive impoundment of previously authorized appropriations, is a key element for the success of the rule-of-law endeavor.
•Budget theory is the academic study of political and social motivations behind government and civil society budgeting. • Classic theorists in Public Budgeting include Henry Adams, William F. Willoughby, V. O. Key, Jr., and, more recently, Aaron Wildavsky. Notable recent theorists include Baumgartner and Jones--Frank R. Baumgartner and Bryan D. Jones, Richard Fenno, Allen Schick, Dennis Ippolito, Naomi Caiden, Irene Rubin, James D. Savage, Thomas Greitens and Gary Wamsley.
•Budget theory was a central topic during the Progressive Era and was much discussed in municipal bureaus and other academic and quasi-academic facilities of that time such as the nascent Brookings Institution.
•The executive budget is a financial innovation designed to empower city mayors and city managers with the capacity to implement needed policy reforms in the Progressive Era.
• Since that time, the executive budget has become a tool by which the president has been able to substantively shape policy and draw power to the president from Congress, which was originally charged with "holding the purse"(and still is constitutionally, as there is no federallegislative authority to change the constitution outside the amendment process or for congress to legislate away their authority).
•This has resulted in an ever increasing role and power base for what is now called the Office of Management and Budget.
• Thus, • Theory: a framework for accumulating knowledge
• Normative, descriptive, positive ▫ normative -- what should be ▫ descriptive -- what is ▫ positive -- what will be (predictions)
• V. O. Key 1940 question in search of normative theory: “On
what basis should it be decided to allocate X pessos to activity A instead of B”
• Wildavsky ▫ descriptive theory: incrementalism how decisions are made (process or outcome?) how strategies selected main theory today but partially discredited
• Rubin • Field lacks good theory ▫ need to merge political and technical ▫ recognize importance of process ▫ complexity of disciplines
Examples of Budget Theory Questions ďƒźhow much can revenue estimates be politicized before other means are found?
ďƒźhow much of the political can be treated technically without loss of political accountability?
Examples of Budget Theory Questions
how does the political or technical become more dominant at one stage or another or in various circumstances? when does executive v legislative have upper hand? does citizen participation in resource allocation increase support for government?
Traditional v. Contemporary Budgeting Traditional • focus on control • centralized • private exercise of admin power • line item format • formulas • minimal flexibility for managers • accountability for inputs
Traditional v. Contemporary Budgeting Contemporary • Focus on policy/performance • decentralized • public sharing of information • program format • priorities • maximum flexibility for managers • accountability for outcomes
Ethical Issues in Public Budgeting • Technical aspects of budgeting ▫ withhold or distort information • Political aspects of budgeting ▫ political ethics issues—who benefits? who pays?
Ethical Issues in Public Budgeting • Traditional budgetary ethics ▫ appropriate use of funds
• Contemporary budgetary ethics ▫ appropriate use of discretion ▫ ethical use of information for accountability
Four Principles of Budget Process Reform
• Principle #1: Overall Spending Should Be Capped at a Set Level • Families understand spending caps. Every year, millions of families sit down at their kitchen tables and evaluate how much they can afford to spend. A family's wish list almost always exceeds what it can afford; therefore, the family must prioritize in order to remain underneath the cap. Setting limits is never easy: However, responsible budgeting keeps these families solvent in the long run.
• Lawmakers could create separate levels for mandatory and discretionary spending, utilizing distinct levels or growth formulas. Alternatively, they could set a single "omnicap" that applies to all federal spending. • An omnicap would have the advantage of allowing trade-offs between mandatory and discretionary spending--thus promoting flexibility and simplicity.
• Principle #2: The Annual Budget Should Present a Full Picture of Future Obligations • Families also understand the costs of long-term financial commitments. They can quickly calculate how much they owe on their mortgage, car, and other long-term obligations, and when those obligations will be fully paid. Importantly, families cannot commit to new financial obligations without demonstrating that they can pay for them. For example, potential homeowners must make a substantial down payment and show that they can afford the monthly payments.
• Businesses operate under similar fiscal constraints. A business is required to disclose the size and scope of its obligations on financial statements so that shareholders, oversight entities, and potential investors can understand the true nature of its financial condition and can make informed decisions. It must report all long-term obligations, including liabilities associated with pension and retirement health care plans--similar in nature to Social Security and Medicare--while a measure of their growth is counted against the business's bottom line.
• While measuring these types of liabilities is much more difficult than reporting the liability on a contract or mortgage, excluding this information from financial reports can grossly misrepresent a business's financial viability and lead to poor decisions by management and boards. Including the best estimate of such liabilities--and their annual impact on the bottom line--is superior to implying that no obligation exists by excluding such calculations because they are imprecise and difficult to estimate.2 In this way, every business is required to pay today in order to fulfill its obligations for tomorrow.
• A positive first step would be to include a measure of all future obligations in the federal budget, just as businesses are required to do. This would contain a breakdown of contractual liabilities, such as debt, and social insurance liabilities, such as Medicare and Social Security. • If budgets began including these measures, policymakers would no longer be able to ignore these liabilities and could begin budgeting for their costs and initiate the reforms necessary to keep these financial commitments manageable.
• Principle #3: The President Should Be Involved Throughout the Budget Process • If two parties are expected to negotiate a detailed agreement on a complex subject within a nine-month period, separating them until the end of the ninth month makes little sense. It makes even less sense for one side to spend a great deal of time working out the smallest details of its offer without first having forged the basic structure of an agreement with the other side. Yet, Congress and the President currently use this method to write the federal budget.
• Principle #4: Budget Decisions Should Include Strong Enforcement. • Budget restraints without strong enforcement are paper tigers. Restraints are intended to force Congress to make some uncomfortable tradeoffs in order to preserve the nation's long-term economic health. However, Members of Congress typically take the easy path of seeking loopholes that bypass restraints, thus avoiding difficult choices. Consequently, rules are only strong as their weakest link.
Public Budget As Decision-Making Process
Decision - Making Models:
Incremental Change Model Satisfying Model Ideal Rational Model Stages of Problem Solving Model
 Many People use these theories or models as their guide to reform public budgeting.  To understand these theories or models , a criterion must be developed to judge them and the concept of conceptual models itself must be explained.
A conceptual model can viewed as a tool which enables the user to understand and deal with complex phenomena.
A tool can be judged “good’ or ‘bad” in terms of the user’s purpose.
Professionals should judge conceptual models or theories in terms of the model’s usefulness in helping them accomplish their tasks. These tasks must be accomplished within a decision-making context largely induced by the ideologies of the culture.
Decision-making models can be judged in terms of their applicability to the decision-making environment of the public budget person. Some major and commonly noted decision-making models are the Incremental Change Model, the Satisfying Model, and the Ideal Rational Model. To this list, a provocative but little-cited model called the “Stages of Problem Solving” can be added.
Incremental Model:
 This model is used for descriptive and normative purposes ( The former refers to a model which is constructed for purposes of explaining and/or predicting the consequences of policy choices while the latter is constructed for purposes of optimizing the attainment of some utility ).
Incremental Model:  The model tells us that the best predictor of what will happen in the future is what we are doing now.
 Our focus shall be on the normative use of the model.
Main Features of this model:  Style of policy - making based on small, marginal changes from existing policies.
 It narrows the area open to dispute, thereby reducing conflicts, and that it is consistent with the principles of conservatism
• Budget processes were seen as stable, predictable, changing little from year to year and based on well defined roles that could represented by relatively simple decision rules. • In developing a budget, the agency takes the role of an advocate and the budget reviewer takes the role of accommodates
 This model is an excellent tool for understanding the political environment of public policy making, but it is not useful for explaining the more technical difficulties associated with analysis.
The Satisfying Model:
 Select first acceptable alternative, the acceptable is the standard for judgment.  This model dramatically emphasizes that decisions are made under pressure, and sever limitations make achieving even a satisfactory alternative a significant accomplishment.
The Rational Model:  The model systematically breaks decision-making down into six phases:
1. Establish a complete set of the operational goals, with relative weights allocated to the different degrees to which each may be achieved;
2. Establish a complete inventory of other values and resources with relative weights; 3. Prepare a complete set of the alternative policies open to the policy maker 4. Analyze the alternative policies by making a valid predictions of the cost and benefits of each alternative;
5. Calculate the outcome ( net expectations ) of each alternative; and 6. Compare the net expectations and make a selection.  The problem with this model is that the best alternative often cannot be achieved because of practical concerns ( lack of time ).
Stages of Problem Solving Model: Phases
1. Perception that a problem exists. This permits the possibility of multiple value perspectives; 2. Considering the solutions; 3. Analyze the alternatives;
4.Decide whether to reconsider the nature of the problem or to plan resolve the problem; and
5. Evaluation of outcomes.
Phases 4 and 5 are not part of the rational model.
From evaluation, the decision maker may either start over by reconsidering the problem or re-plan his or her actions steps.
Comparative analysis of the four models:  The incremental model is an excellent tool for understanding the political environment of public policy making.
 The public budget person can better understand how the budget process is dominated by the strategies employed by and the conflicts that arise among participants.
 Proponents of this model argued: ďƒźThat a process which concentrates on an increment is preferable to one that attempts to review the whole budget because it moderates conflict, reduces search costs, stabilizes budgetary roles and expectations, and reduces the amount of time that officials must invest in budgeting .
 The Satisfying and Ideal - Rational Models are useful for understanding the difficulties associated with decision-making.  The Satisfying Model dramatically emphasizes that decisions are made under pressure, and
 The Stages - of - Problem Solving Model can be contrasted to the IdealRational Model. In the problem solving model, the starting point is the perception that a problem exists, thus permitting one to consider the significance of culture, time, and perspective. By contrast, in the rational model the starting point is the definition of one’s goals. Next, in the problem-solving model, the person formulates the problem.
 Defines alternatives, gathers information, and tests proposals. In the rational model, the next steps cited are defining alternatives and gathering information. In the problem-solving model, the last steps are planning action, taking action steps, and evaluating outcomes.
 Again in contrast, the rational model is limited to deciding a given matter with the intention of maximizing goals. The rational model dose not extend to taking action steps and evaluating outcomes.  Another distinction is that the rational model dose not have reconsideration as a factor, whereas the problemsolving model does.
 The problem-solving model can help people working in public budgeting understand the nature of analysis.  The rational model serves as the primary theoretical explanation of how analysis should conducted, but the rational model can not be attained.
 The problem-solving model serves as an alternative theoretical explanation of how analysis should be conducted in the budgetary process.  The model permits cycles of defining one’s problem, producing alternatives, and testing alternatives.
 It implicitly recognizes that any given analysis will depend upon the ingenuity of the analysts, the kind of data available to them, the amount of resources at their command in undertaking the analysis, and other factors. Also the problem solving model helps the public budget person relate budgeting, management-byobjectives, progress reporting, accounting, auditing, and program evaluation.
Guidelines for Expenditure Management
Important Terms • Appropriation • The budget as approved by the legislature for a line item of spending. The budget law gives the executive branch the authority to incur obligations, which become due during the budget year up to a specified amount for specified purposes within a financial period (usually one fiscal year).
• Below-the-line items
• These are below the line drawn to establish the deficit between revenues and expenditures; correspondingly, above-the-line items comprise expenditures and revenues. Belowthe-line items thus normally relate to the financing of the deficits.
• Budget provision
• The amount of appropriation proposed or approved for a line item or for a higher aggregate set of line items, such as a subprogram, program, sector, etc. • Commitment • The placement of a purchase order or signing of a contract or other agreement for the provision of goods or services.
• Contingency reserve • A small portion of the total budget that is set aside for expenditures on unexpected needs or emergencies, not appropriated in other budget lines.
• Entitlement • Any spending program where expenditure is open-ended (usually transfer/grant payments) and where recipients must be paid or given transfers/grants, if they meet certain criteria. Some common examples are found in social security programs, unemployment programs, and poverty programs.
• Extrabudgetary funds • Accounts held by government bodies but not included in the governmental budget; expenditures from such accounts are often financed by earmarked revenues or user fees and charges.
• Organic budget law • A law specifying the schedule and procedures by which the budget should be prepared, approved, executed, accounted for, and final accounts submitted for approval. • Outturn • Actual revenues and outlays on expenditures.
• Payment order
• Authorization for payment against a bill or invoice made by officials of line ministries, the ministry of finance, and others.
• Planning reserve • A small portion of total planned budget expenditure that is (notionally) set aside by the ministry of finance before the budget is formulated, and then allocated to budget line items by the cabinet according to perceived policy priorities on individual sectors, programs, etc.
• Provisional appropriation • Legislation that permits an expenditure to get under way before the actual budget appropriation, without any further authorization procedures. This is most commonly used at the start of the fiscal year (e.g., when the legislature has not yet finalized the budget).
• Quasi-fiscal operations • Activities of the central bank (or possibly other state-owned financial or nonfinancial enterprises) that are in nature similar to fiscal actions pursued by the government. Although undertaken at the direction of the government, they are usually financed by the banks or state enterprises but not included in the government's budget. Examples include credit to commodity boards (or other entities) at below-market interest rates, and central bank expenditures on the bailout of failing banks.
• Reconciliation • Usually, the process of checking payment orders issued by a government agency against actual payments according to bank statements; (reconciliation can also apply to other stages of the expenditure process, such as commitments made and payment orders issued).
• Special accounts • Accounts recording transactions of an "exceptional" character that are made outside the normal procedures for expenditure approval and recording; many refer to temporary accounts (such as advances), or to transactions whose authority is questionable or to the accounts of formal extrabudgetary funds or "below-the-line" accounts.
• Special funds
• Usually similar to extrabudgetary funds, but sometimes refer to funds financed by earmarked revenues/user charges that are within the government's budget. • Supplementary appropriation • Legislation passed during the budget year to provide for expenditures additional to the original budget.
• Suspense accounts • A type of special temporary account used to record balances, or correct mistakes in amounts, that have not yet been "posted" to the relevant line item. Such transactions often include payments of adjustable advances, until the final amount chargeable is known.
• Verification • Once a bill for goods or services has been received, the relevant line ministry/spending agency must confirm that the bill is correct and that the goods or services have in fact been received. At this point, the bill becomes a liability of the public sector; in accrual accounting terms, an expenditure is recognized even though the bill has not yet been paid.
• Virement • The process of transferring expenditure provision from one line item to another during the budget year. To prevent misuse of funds, spending agencies must normally go through administrative procedures to obtain permission to make such a transfer.
• Warrant • A release of all, or more commonly a part, of the total annual appropriation on a quarterly or monthly basis that allows a line ministry or spending agency to review commitments.
Introduction • Economists working on fiscal policy and fiscal management need a good understanding of how the expenditure side of the budget is planned, prepared, and executed.
• The guidelines cover what such individuals need to know to:
ďƒźensure that consistent data on planned and past public expenditures are prepared in a consolidated format, compatible with a macroeconomic framework;
ďƒźassess the adequacy of budget preparation procedures, in particular the level and composition of public expenditure planned before the budget year starts;
ďƒźanalyze whether the budget execution system can deliver planned spending within the budget aggregates; whether any steps are necessary to strengthen expenditure control; and how to intervene to enable any necessary in-year adjustments to be made to planned spending; and
ďƒźassess whether there are adequate cash planning and management arrangements for a government to meet its fiscal targets on borrowing and prevent sudden, unanticipated borrowing that could disrupt achievement of monetary policy targets or undermine monetary discipline.
The Expenditure Aggregates and Data Sources • Before considering how the expenditure side of the government's budget is planned, prepared, and executed, it is necessary first to clarify the coverage and sources of data on public spending.
• Three basic questions: What is the appropriate definition of government expenditure from a macroeconomic perspective? What are the data sources for public expenditure aggregates? How can expenditure projections for a short-term perspective best be prepared?
What government activities should be covered? • When considering the macroeconomic impact of government expenditures, fiscal transparency demands that the economist work with a very broad definition of the government sector.
• While several different aggregates may be referred to in IMF programs, "General Government Fiscal Operations" (GGFO), or general government for short, is usually identified as best suited to the macroeconomic perspective.
• This aggregate covers the activities of all levels of government (central and state level), and the quasi-fiscal operations of nongovernment entities. General government should thus reflect the overall magnitude of government operations, the aggregate burden of taxation, the allocation of public resources, and the size of the government borrowing requirement.
• Projected general government expenditures can normally be prepared by consolidating inputs from a series of spreadsheets, covering at a minimum the central government, aggregate state and local governments, and social security expenditures within any separate fund.
• In some cases, however, other important government transactions (besides social security) take place through special or "extrabudgetary" funds (e.g., road funds or health funds).
• In others there are quasi-fiscal operations undertaken through the banking system (e.g., subsidized loans to state-owned enterprises). • Those preparing general government tables should, ideally, try to identify all such transactions, quantify their magnitude, and include them within the consolidated total.
Classifications of Expenditure Transactions 1. by administrative responsibility--the ministry, department, or spending agency that undertakes the expenditure; 2. by economic category--defined by Government Financial Statistics standards;
3. by function (e.g., health, education)-defined by the United Nations; and
4. by program (e.g., by policy goals and objectives).
Budget Preparation
Fiscal economists and general budget advisors need to know: ďƒźwhat is the framework in which budget decisions are made; ďƒźwho is responsible for planning and preparing the budget;
ďƒźwhat are the basic steps;
Fiscal economists and general budget advisors need to know:
ďƒźwhat are the typical weaknesses in procedures and how can these be overcome; and ďƒźhow can changes in budget plans be programmed and targeted?
• Budget planning and preparation are (or should be) at the heart of good public expenditure management. • To be fully effective, public expenditure management systems require four forms of fiscal and financial discipline:
ďƒźcontrol of aggregate expenditure to ensure affordability; that is, consistency with the macroeconomic constraints; ďƒźeffective means for achieving a resource allocation that reflects expenditure policy priorities;
ďƒźefficient delivery of public services (productive efficiency); and ďƒźminimization of the financial costs of budgetary management (i.e., efficient budget execution and cash and debt management practices).
What is the framework in which budget decisions are made? • Budget preparation is a process with designated organizations and individuals having defined responsibilities that must be carried out within a given timetable. This process is normally established and controlled by a legal and regulatory framework.
• To understand the budget preparation process in a given country, it is important to: ďƒźassess the basic soundness by judging the budget preparation system against certain internationally accepted standards or "budget principles";
ďƒźknow where to find the rules governing the budget preparation process; and ďƒźfrom those rules, identify who has the responsibility for what elements of the budget preparation process.
Recognizing the usefulness of budget principles • Based on the objective macroeconomic assessment of available revenues and financing, ideally, the expenditure budget should aim to be comprehensive, transparent, realistic, policy-oriented, and allow for clear accountability in budget execution.
• The soundness of budget systems can be judged by the following: 1. Comprehensiveness
Is the coverage of government operations complete? Are estimates gross or does netting take place?
2. Transparency
ďƒźHow useful is the budget classification? Are there separate economic and functional classifications that meet international standards? ďƒźIs it easy to connect policies and expenditures through a program structure?
3. Realism ďƒźIs the budget based on a realistic macroeconomic framework?
ďƒźAre estimates based on reasonable revenue projections? How are these made, and by whom?
ďƒźAre the financing provisions realistic? ďƒźIs there a realistic costing of policies and programs and hence expenditures (e.g., assumptions about inflation, exchange rates, etc.)
How are future cost implications taken into account? Is there a clear separation between present and new policies?
How far are spending priorities determined and agreed under the budget process?
Three Key Characteristics 1. Annuality • A budget is prepared every year, covering only one year; voted every year; and executed over one year.
2. Unity • Revenue and expenditure should be considered together to determine annual budget targets.
2. Unity • The budget should cover all government agencies and other institutions undertaking government operations, so that the budget presents a consolidated picture of these operations and is voted on, as a whole, in the parliament.
3. Universality • All resources should be directed to a common pool or fund, to be allocated and used for expenditures according to the current priorities of the government.
Knowing the rules • The constitution is the highest in the legal hierarchy. Although it deals only with broad principles, the constitution may clarify three important aspects: (1) the relative powers of the executive and legislative branches with respect to public finances;
(2) the definition of the financial relations between national and subnational levels of government; and
(3) the requirement, for example, in Commonwealth systems, that all public funds be paid into designated accounts, and that these funds be spent only under the authority of a law.
• The organic law is usually the main vehicle for establishing principles of public financial management. • These laws may take the form of a single law that guides budget preparation, approval, execution, control, and auditing.
• They are called "organic" because they relate to organizational matters and systems, and do not therefore require annual reenactment. • Moreover, they can often be modified only under certain conditions, such as qualified parliamentary majority.
• Financial regulations. The organic budget law also gives to the government, or the minister responsible for public finance, the authority to issue detailed regulations and instructions.
• The constitution, the budget organic law, and financial regulations are permanent and form the legal framework within which the annual budget law, which includes the revenue and expenditure estimates for a given year, is prepared, approved, executed, and audited.
The Framework that Regulates the Budget: What Do You Need to Know? • The following summarizes some of the key questions on the overall budget preparation framework. 1. What is the budget timetable?
2. How are budgeting powers distributed between the executive and legislative branches?
legislative power to propose spending power of amendment one vote--global vote on spending executive powers to limit spending below appropriations
3. How are budgeting powers distributed within the executive? number of agencies involved; who does what? agenda for setting budget negotiations; how is this determined? structure of negotiations--who has veto power?
4. How are activities funded? revenue accounts borrowed resources Extra-budgetary mechanisms multiple funds contingency funds special funds
• Any legislative limits on: expenditure? deficit? borrowing? carryover of spending authority to next year?
• Any earmarking?
special or hypothecated funds constitutional or legal commitments on specific public services (education, health)
Principles and Subprinciples of the Budget Process 1. Establish broad goals to guide government decision-making.
ďƒźAssess community needs, priorities, challenges and opportunities.
ďƒźIdentify opportunities and challenges for government services, capital assets, and management. ďƒźDevelop and disseminate broad goals.
2. Develop approaches to achieve goals. ďƒźAdopt financial policies. ďƒźDevelop programmatic, operating and capital policies and plans. ďƒźDevelop programs and services that are consistent with policies and plans. ďƒźDevelop management strategies.
3. Develop a budget consistent with approaches to achieve goals. ďƒźDevelop a process for preparing and adopting a budget. ďƒźDevelop and evaluate financial options. ďƒźMake choices necessary to adopt a budget.
4. Evaluate performance and make adjustments. ďƒźMonitor, measure and evaluate performance.
ďƒźMake adjustments as needed.
Budget Execution
• For fiscal economists, the key issues on budget execution are always whether deficit targets are likely to be met, and whether any budget adjustments (both on the revenue and expenditure sides) agreed at the preparation stage (or in-year) are being implemented as planned.
• On the expenditure side of the budget, the key issues are whether the outturn is likely to be within the budget figure; whether any changes in expenditure priorities (as against past patterns) are being implemented in specific areas as planned; and whether any problems are being encountered in budget execution, such as the buildup of payment arrears.
• Thus, for fiscal economists and general budget advisors, the key questions are: What are the different stages of the budget execution process? Who is responsible for budget execution?
How can budget appropriations be revised during the year?
How good is the information on outturn expenditure? What are the problems encountered in budget execution procedures and how can these be overcome?
ďƒźHow can expenditures be adjusted in-year? ďƒźHow should "good governance" be pursued?
What are the different stages of the budget execution process?
1. The authorization stage • Once a budget is approved, departments are authorized to spend money, consistent with the legal appropriations for each line item.
2. The commitment stage • This is the stage where a future obligation (liability) to pay is incurred. • The precise definition of commitment varies not only from one system to another but even among those wellversed in public sector accounting.
3. The verification stage
• This signifies that goods have been delivered fully or partially according to the contract, or the service has been rendered and the bill has been received. Physical delivery can precede verification by some period of time.
• The spending agency making the purchase usually has the financial and the administrative responsibility to check the bill; that is, to verify that the supply has been received in full compliance with any terms or conditions.
• The bill at this stage is recognized as a liability of the public sector, in an accrual accounting sense, and is therefore an important stage of the expenditure process.
4. Payment authorization or payment order stage
• This stage may have a different significance in different systems. • The payment officer is normally a public accountant and has specific responsibilities in terms of the expenditure process for authorizing the payment of verified bills.
• After verification of the bill, the spending unit must then hand it on to this public accountant, and request that the bills be paid; payment orders are normally centralized at the ministry of finance.
5. Payment stage
• At this stage, the bill is paid--by cash, check, or electronic transfer. • In some systems, the payment is made through a single ministry of finance account in the central bank or in a designated bank.
• In others, the payment is undertaken through the commercial banking system via bank accounts held in the names of individual line agencies. (This latter approach can make it more difficult for the ministry of finance to reconcile its accounts with those of the banking sector.)
6. Accounting stage • The cash transactions are recorded as complete in the books, which allows a reconciliation from the cash based "above-the-line" fiscal accounts with the financing of any deficit "below the line."
Who is responsible for budget execution?
• Budget implementation, in the sense of delivering services by undertaking expenditures, is the responsibility of the spending agencies, within regulatory controls set by the ministry of finance.
• While financial information on budget execution is usually available on a centralized basis in the finance department, the data are collected either through the line agency of finance controls in the system. These information flows must be identified; and they may differ substantially depending on the systems.
What are the problems encountered in budget execution procedures? ďƒźthe multiplication of exceptional procedures that bypass expenditure control arrangements;
the difficulty in reconciling bank statements with budget accounts and thus in obtaining reliable and timely data on cash expenditures; the accumulation of payment arrears; the lack of fund consolidation; and difficulty in managing and accounting for aid flows.
How should good governance be pursued?
every action is transparent; every participant is held accountable; every action is properly documented and reported; and every action can be subject to independent, professional, and unbiased audit and review.
Public Financial Accountability: The Case of the Philippine Bureau of the Treasury
Accountability in Public Finance “Public accountability is the foundation of integrity. It cuts to the soul of government. It unmasks the government of the day of whatever façade it wears.” - Words of Francisco S. Tantuico Jr., former chairman of the Commission on Audit of the Philippines
• The Constitution of the Philippines describes public accountability thus:
“Public Office is a public trust. Public Officers and employees must at all times be accountable to the people, serve them with utmost responsibility, integrity, loyalty and efficiency, act with patriotism and justice and lead modest lives”.
• Accountability is…the evolution of the actions of appointed career officials in terms of whether their actions are within or outside the bounds of their authority. It may be promoted through the imposition of external controls and through the inculcation of self-regulating values. Ledivina V. Cariño, U.P.
Levels of Administrative Accountability- CariĂąo 1.) Traditional Accountability, which focuses on the regularity of fiscal transaction and faithful compliance as well as the adherence to legal requirements and administrative policies.
2.) Managerial Accountability,
which is concerned with efficiency and economy in the use of funds, property, manpower, and other resources.
3.) Program Accountability, which
pays attention to the results of government operations. 4.) Process Accountability, which
emphasizes procedures and methods of operations.
Public Financial Accountability and Audits • is promoted primarily through the conduct of regular audits. • Traditional audits include legal and compliance audit.
• These are generally limited to audits that examine the legality of financial transactions as well as compliance with established rules, regulations, and procedures. • Performance audits look into actual outputs of agencies in relation to programmed goals.
• Concepts of performance audit have been further developed into program results audit and value-for-money audits.
Financial Accountability and Reporting • Reporting to oversight entities, the President, the legislature, and the public is an important and indispensable component of financial accountability.
• In the Philippines, specific laws require all heads of offices and agents of government to submit reports on the status of their accomplishments.
• R.A. No. 6713, the Code of Conduct for Civil Servants in the Philippines, which was issued on 20 February 1989, requires all heads of offices and agencies of the government and government-owned or -controlled corporations (GOCCs) to submit and render their annual performance reports.
• Section 62 of Presidential Decree No. 1177, a law that has become a part of the Philippine Administrative Code of 1997, also requires all heads of agencies and offices of the government to submit a semiannual report of their accomplishments, both work and financial results, to monitor the efficiency and effectiveness with which budgeted funds are being utilized.
• Individual audits of all government agencies and instrumentalities are consolidated into three main reports: the consolidated audit reports on national government agencies, GOCCs, and local government units.
• These audit reports are submitted to both houses of Congress (the House of Representatives and the Senate), as well as to the President • of the Philippines.
Strengthening Financial Accountability: The Role of the Media and of Civil Society • Reports that are regularly submitted to the different oversight agencies of the government as well as to the legislature and the executive compose the formal reporting system. It is assumed that these reports eventually reach the public.
• Increased participation of civil society in governance has resulted in greater public concern for financial accountability. Thus, the public expects and demands that it be informed regularly and promptly on the financial status of the government, as well as the performance of financial agencies.
• The media—radio, television, and print media as well as electronic media—serve as an essential conduit for informing the public. Because of their reach and access to different sectors of society, the media are frequently utilized as a mechanism for speedy and timely reporting to the public on government operations.
• Thus, reports that are regularly submitted to different oversight institutions promptly reach the public. Examples are the regular cash operations report on revenues, expenditures, and the cash deficit in relation to programmed goals; the report on the state of the public debt; and the quarterly reports on economic performance.
•Since these important reports reach the public at the same time that oversight officials receive them, public reaction is instantaneous.
• Oftentimes, public debates ensue, impelling officials to explain to the citizens the meaning and implications of developments in the financial system. • There have been occasions when policies have been modified in response to public reaction.
• The impact of increased public participation in finance through the media is twofold. • First, the public is kept up-to-date on financial policies, programs, and accomplishments. • It is able to react and even debate with policymakers.
• Secondly, public officials now recognize that their ultimate accountability is not only to oversight institutions but to the public itself. • They learn to consult affected sectors of society and to communicate with them.
• The Philippines has had one of the most dynamic civil societies. • Nongovernment organizations, private voluntary organizations, and political movements have been instrumental in bringing to public attention issues of public finance and accountability.
How Accountability Promotes Aggregate Fiscal Discipline • In the Philippines as well as in other countries, formal mechanisms ensure accountability and promote fiscal discipline.
• The Development Budget Coordination Committee is one such mechanism.
• It is composed of the Department of Budget and Management (DBM), the National Economic and Development Authority, the Department of Finance (DOF), the Bangko Sentral ng Pilipinas, and the Bureau of the Treasury.
•It provides the linkage between planning and budgeting and establishes the aggregate targets for the annual government expenditure program and ceilings of government spending for the various sectors.
• Another mechanism that promotes financial accountability in the Philippines is the Cash Programming and Monitoring Committee (CPMC), created in accordance with the DOFDBM Circular No. 1-90A on 19 November 1990.
• It is headed by the Treasurer of the Philippines. • The CPMC was created to provide closer coordination between DOF and DBM in the release of funds based on the short-term calculation of cash availability.
•It is directly responsible for controlling the release of the Notices of Cash Allocation visà -vis the inflow of revenues, as well as ensuring that the deficit target is not exceeded.
• The CPMC also facilitates the management of cash balances by the Bureau of the Treasury and rationalizes the flotation of government securities while encouraging agencies to optimize cash utilization in the implementation of priority programs and activities of the government.
Two features OF Fiscal Discipline • First is efficient and effective monitoring and reporting as required by law, rules, and regulations. Reports on fiscal performance are submitted monthly. These are the cash operations report and the report on the public debt.
• The cash operations report is submitted by the Treasurer of the Philippines to the Secretary of Finance. • It contains information on levels of revenue, expenditure, and borrowing on a monthly basis, thus allowing fiscal performance to be monitored on a monthly basis.
• The report also enables policymakers to identify well-performing as well as underperforming agencies, leading to corrective action or to agency commendation, thus exercising fiscal discipline on a timely basis and dealing with problems before they get out of hand.
• Second, fiscal discipline is enhanced by regular monitoring done by media and civil society. • Mention was earlier made of two reports that are submitted monthly by the Bureau of the Treasury: the cash operations report and the report on the public debt.
• Days before these reports come out, members of the media bombard the BTr and the Department of Finance with calls, to get the numbers first and come out with scoops. • Once the reports are out, the results are avidly discussed on radio, TV, and print media.
• Civil society organizations then take over and put pressure on policymakers if performance has been less than satisfactory. • At present, the Bureau of the Treasury prepares preliminary reports every two weeks to keep the Secretary of Finance update. This enables him to take immediate action if there are danger signs.
Effect of Media
•Constant watching by media and civil society makes fiscal agencies more sensitive to public reaction and enhances discipline.
• As a result, both the Bureau of the Treasury and the Department of Finance keep an eagle eye on fiscal performance, knowing that the size of the monthly cash deficit is considered by the public as an indicator of good performance as well as fiscal discipline.
Leadership and Public Financial Accountability • In addition to formal mechanisms, media, and civil society, leadership plays a crucial role in promoting financial accountability.
•Agencies identified as “flagships” of accountability were known to be headed by people who themselves actively initiated strategies and tactics to bring about accountability.
The Philippine Bureau of the Treasury (BTr) • The functioning of the BTr illustrates how the combination of formal mechanisms, media, civil society, and leadership can bring about financial accountability in the Philippines.
•The BTr is a member of the cluster of agencies within the Department of Finance. •It is known as the custodian of all government funds.
•The BTr is also very active in national policy formulation, particularly in financial management, public borrowing, and capital market development.
• The Bureau is responsible for the management of the assets and liabilities of the national government, as well as the fidelity bonding of all accountable government officers and/or personnel.
•The Bureau also prepares the annual financing program of the national government.
Conclusion • Fiscal and financial outturns depend on a variety of factors other than the financial accountability systems. • However, the accomplishments in the Philippines in recent years owe much to the working system of financial accountability.
• The Philippine experience, specifically the Bureau of the Treasury, has shown that public financial accountability can be achieved through a combination of the following factors: ďƒźstrong legal basis, organizational structure, rules, regulations, and procedures;
ďƒźregular monitoring and reporting to the public through the media and civil society organizations; ďƒźappropriate information technology system and timely processing of reliable information;
ďƒźstrong leadership committed to ensuring public financial accountability—a leadership committed to promoting good governance.
REPUBLIC ACT NO. 992 AN ACT TO PROVIDE FOR A BUDGET SYSTEM FOR THE NATIONAL GOVERNMENT
• Section 1. Title of this Act. — This Act shall be known as "The Revised Budget Act."
• Section 2. Declaration of policy. — It is hereby declared the policy of Congress that the whole budgetary concept of the Government be based on functions, activities, and projects, in terms of expected results.
• THE BUDGET COMMISSION • Section 4. There is hereby created an office to be known as the Budget Commission under the executive control and supervision of the President.
• There shall be in the Commission a Budget Commissioner and a Deputy Budget Commissioner who shall be appointed by the President with the consent of the Commission on Appointments.
• The Deputy Budget Commissioner shall perform such duties as the Commissioner may designate, and during the absence or incapacity of the latter, shall act as Commissioner.
• Section 6. The functions and powers of the Commission shall be as follows: a.To prepare the Budget and other appropriation proposals under such policies as the President may adopt.
b. When directed by the President, shall make a detailed study of the departments and establishments for the purpose of enabling the President to determine what changes, with a view to securing greater economy and efficiency in the conduct of the public service:
(1) the existing organization, activities and methods of business of such departments or establishments, (2) the appropriations therefor, (3) the assignment of particular activities to particular services, or
(4) the regrouping of services.
• The results of such study shall be embodied in report or reports to the President, who may transmit to Congress such report or reports or any part thereof with his recommendations on the matters covered thereby.
c. Under such regulations as the President may prescribe, (1) every department or agency shall furnish the Budget Commission such necessary information as the Commission may from time to time require and
(2) the Commissioner and Deputy Commissioner, or any employee of the Commission when duly authorized, shall, for the purpose of securing such information, have access to, and the right to examine, any books, documents, papers, or records of any such department or agency.
d. To develop programs and to issue regulations and orders for the improved gathering, compiling, analysis, publication, and dissemination of relevant and necessary statistical information for any purpose by the departments and agencies. Such regulations and orders shall be adhered to by said departments and agencies.
e. To furnish, at the request of any committee, of either House of Congress having jurisdiction over revenue or appropriations, such assistance and information as such committee may require.
• THE BUDGET • Section 7. Submission. — The President shall, in accordance with section nineteen (1), Article VI, of the Constitution, submit within fifteen days of the opening of each regular session of Congress a budget of receipts and expenditures which shall be the basis of the general and other appropriations bills.
• Section 8. Form and content. — The Budget shall consist of two parts — (1) the current operating expenditures, and (2) the capital outlays. — Each part of the Budget shall comprise the general fund and all classes of special, operating trust funds, and bond funds under the care and control of the different departments and agencies.
• The Budget shall embody as appendices the proposed General Appropriation Act, the Public Works Act, and other appropriation Acts to cover the budget proposals.
• The Budget shall also contain: (a) a budgetary message setting forth in brief the significance of the appropriations proposed: (b) a brief summary of the functions and activities of the Government; and
(c) summary financial statements setting forth: (1) the estimated expenditures and proposed appropriations necessary for the support of the Government for the ensuing fiscal year;
(2) The estimated receipts during the ensuing fiscal year under laws existing at the time the Budget is transmitted, and under the revenue proposals, if any, contained in the Budget; (3) the actual appropriations, expenditures, and receipts during the last completed fiscal year;
(4) the estimated expenditures and receipts and actual or proposed appropriations during the fiscal year in progress; (5) balanced statements of the condition of the National Treasury at the end of the last completed fiscal year.
(6) all essential facts regarding the bonded and other long-term obligations and indebtedness of the Government; and (7) such other financial statements and data as are deemed necessary or desirable in order to make known in all practicable detail the financial conditions of the Government.
Section 9. Change in the form of the Budget. — Whenever any change is made by law in the form of the Budget, the President, in addition to the Budget, shall transmit to Congress such explanatory notes and tables as may be necessary to show where the various items embraced in the Budget of the prior fiscal year are contained in the new Budget.
• Section 10. Submission of budget estimates by departments and agencies. — Each head of department or agency shall submit his request for appropriations to the Budget Commissioner on or before a date he shall determine and in accordance with such regulations as he may issue in conformity with the general requirements of this Act.
• Budget estimates for all operating departments and agencies shall be divided into two primary categories — the current operating expenditures and the capital outlays — prescribed on the basis of major functions, activities, and projects.
• Section 13. Balanced Budget. — The ordinary income shall be used primarily to provide for the current operation of the Government. • Except in case of a national emergency or serious financial stress, the existence of which has been duly proclaimed by the President.
• the total authorized appropriations for the current operations shall not exceed the ordinary income; and, unless extraordinary circumstances justify it, the total estimated ordinary income shall not only cover the total estimated appropriations for current operations and capital outlays but it shall leave a reasonable surplus besides.
• No appropriations for the current operations and capital outlays of the Government shall be proposed, unless the amount involved is covered by the ordinary income, or unless it be supported by a proposal creating an additional source of funds or revenue, sufficient to cover the same.
• Likewise, no appropriation for any other expenditures, the amount of which is not covered by the estimated income from the existing sources of revenues or available current surplus, may be proposed unless it be supported by a proposal creating an additional source of fund sufficient to cover the same.
• BUDGET EXECUTION AND CONTROL • Section 14. Use of appropriated funds. — All moneys appropriated for the various functions, activities and projects in terms of expected results, shall be available solely for the specific purposes for which appropriated, and for no other.
• Section 15. Allotment of appropriations. — To prevent the incurrence of deficits, authorized appropriations shall be allotted in accordance with the procedure outlined hereunder:
(a) No appropriation authorized for any department and agency of the Government shall be available for expenditure until the head of each department or agency shall have submitted to the Budget Commissioner a request for allotment of funds showing the estimated amounts needed for each function, activity, or purpose.
(b) Each fiscal year shall be divided into four quarterly allotment periods beginning, respectively, on the first day of July, October, January, and April: Provided, That in any case where the quarterly allotment period is found to be impracticable, the Commissioner may prescribe a different period suited to the circumstances but not extending beyond the end of the fiscal year.
(c) Each request for allotment shall be reviewed by the Budget Commissioner and the respective amounts therein shall be allotted for expenditures, provided the estimate therein is within the terms of the appropriations as to amount and purposes, having due regard for the probable future needs of the bureau, office or agency.
(d) At the end of each quarter, each department or agency must report to the Commissioner the current status of its appropriations, the cumulative allotments, obligations, expenditures, and unliquidated obligations and unobligated and unexpected balances; and the results of expended appropriations.
(e) The Commissioner shall have authority also at any time to modify or amend any allotment previously made by him. In case he shall find at any time that the probable receipts from taxes or other sources for any fund will be less than were anticipated and that as a consequence the amount available for the remainder of the term of the appropriations,
or for any allotment period will be less than the amount estimated or allotted therefor, he shall with the approval of the President, and after notice to the department or agency concerned, reduce the amount or amounts to be allotted so as to prevent deficits.
(f) The Commissioner shall promptly transmit records and modifications thereof to the Auditor General, the Chairman of the Committee on Finance of the Senate and the Chairman of the Committee on Appropriations and Chairman of the Committee on Ways and Means of the House of Representatives and the Secretary of Finance.
(g) The Commissioner shall maintain control records showing: quarterly by funds, accounts, and other pertinent classifications, the amounts appropriated, the estimated revenues, the actual revenues or receipts,
the amounts allotted and available for expenditures, the unliquidated obligations, actual balances on hand, and the unencumbered balances of the allotments for each agency of the Government.
Section 21. Liability for illegal expenditures. — Every expenditure or obligation authorized or incurred in violation of the provisions of this Act or of the General and special provisions contained in the annual general or any other Appropriation Acts shall be void.
• Every payment made in violation of said provisions shall be illegal and every officer or employee authorizing or making such payment, or taking part therein, and every person receiving such payment shall be jointly and severally liable to the Government for the full amount so paid or received.
• If any officer or employee of the Government shall knowingly incur any obligation or shall authorize or make any expenditure in violation of the provisions herein referred to or take part therein, it shall be ground for his removal by the officer appointing him, and if the appointing officer be other than the President and shall fail to remove such officer or employee,...
• ...the President shall exercise such power of removal after giving notice of the charges and opportunity for hearing thereon to the accused officer or employee and to the officer appointing him.
• Section 22. Accrual of income to unappropriated general fund. —all income accruing to the departments and agencies by virtue of the provisions of existing laws, orders, and regulations shall be deposited in the National Treasury or in any duly authorized depository of the Government by the officers or employees receiving them, and,.....
• ... except receipts pertaining to special and trust funds shall accrue to the unappropriated general fund of the Government.
WRITTEN ASSIGNMENTS
Short Paper #1 (800 to 1200 words) • In this paper, critique one or more of the major concepts and theories. This can include budget systems or approaches, budgeting behavior, budget format and presentation, the role of the analyst in budgeting, or a host of other topics. You should evaluate your subject from whatever experiential base you possess, including that which is composed primarily of common sense. Strive to address the utility to practitioners of the ideas discussed regarding the basics of budgeting.
Short Paper #2 (800 to 1200 words) • Discuss the desirability and feasibility of keeping the budget balanced over the course of a four year period (e.g. a business cycle) that could begin in FY 2011.. Indicate that you understand the magnitude of the measures necessary by citing specific portions of the budget, including revenues and expenditures that must be altered to accomplish balance.
Short Paper #2 (cont.) • Be sure to include actual numbers in your analysis to support your thesis and demonstrate your understanding of the budget "problem." Address the politics of balancing the budget and whether process reform is effective or desirable. Critique other concepts discussed in class as well if you wish.
Budget Exercise • The class will be assigned separate responsibilities as individuals and or groups to prepare and present budget recommendations using the materials provided in the Public Budgeting. The budget exercise handouts (translate: budget forms and instructions) will be distributed.
Budget Exercise (cont.) • Your presentations will include detailed handouts for the instructor and a "gap" analyst and a summarized handout for the class. The objective for the class is to prepare a balanced budget.