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CHAPTER II

Group No. BSA7 Gillera, Razel Ann Dupaloc, Jasmine B. Ravinera, Ma. Katrina B.

CHAPTER II REVIEW OF RELATED LITERATURE This chapter presents academic articles and other bodies of literature that focus on several aspects that will give in the progression of this study. With the topic primarily pertaining to on the management of resources on selected government agencies located in Los Banos Laguna, the papers main aim is to find out how these government agencies allocate their funds that was given by the government from the national budget. The following reviewed studies and discussions were obtained from books, journals, dissertations, internet and other resources. Management Management, as defined by the Webster dictionary, is the art or act of managing something (http://www.merriam-webster.com/dictionary/management, July 30, 2012).

According to Sir Thomas More management (1478-1535) is consist of the interlocking functions of formulating corporate policy and organizing, planning, controlling, and directing an organization's resources to achieve the policy's objectives. Proper Management results to an efficient handling of resources and productive system of an organization. Mary Parker Follett (1920) stated that: Management is the art of getting done through people. This definition calls attention to the fact that managers achieve organizational goals by arranging for others to perform whatever tasks may be necessary - not by performing the tasks themselves. She was convinced that no one could become a whole person except as a member of a group. Thus, she took for granted Taylors assertion that labor and management shared a common purpose as members of the same organization. She believed, however, that the artificial distinction between managers and subordinates order givers and order takers obscured this natural partnership. She also argued that in order for management and labor truly to become part of one group, traditional views would have been abandoned. She believed leadership should not come

from the power of formal authority, as was traditional, but form the managers greater knowledge and expertise. Manager should simply be the person best equipped to head the group. Oliver Sheldon (1923) believed that: Management is generally bound to treat its subordinates with fairness and honesty, and beyond this each must combine the efficient values of scientific management with the ethics of service to community, according to three principles: 1. Policies, conditions, and methods of industry shall conduce to communal well-being. 2. Management shall endeavor to interpret the highest moral sanction of the community as a whole to give practical effect to those ideals of social justice which would generally be accepted by most unbiased portion of communal opinion. 3. Management shall take the initiative in raising the general ethical standard and conception of justice. Chester I Barnard (1938) asserted that: An organization can operate efficiently and survive only when both its goals and aims and needs of the individual working for it are kept in balance. To meet their personal goals within the confines of the formal organization, people come together in informal groups, such as cliques. To ensure its survival, the firm must utilize these informal groups effectively even if they at times work at cross purposes to managements objectives. Recognition of the importance and universality of the informal organization was a major contribution of management thought. Management in all business areas and organizational activities are the acts of getting people together to accomplish desired goals and objectives. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization a group of one or more people or entities or effort for the purpose of accomplishing a goal. Resourcing encompasses the deployment and manipulation of human resources, financial resources, technological resources and natural resources. Because organizations can be viewed as systems, management can also be defined as human action including design, to facilitate the production of useful outcomes from a system.

This view opens the opportunity to manage oneself, a prerequisite to attempting to manage others. Management can also refer to the person or people who perform the act(s) of management. Management can also be defined as directors and managers who have the power and responsibility to make decisions to manage an enterprise. As a discipline, management comprises the interlocking functions of formulating corporate policy and organizing, planning, controlling, and directing the firms resources to achieve the policys objectives. The size of management can range from one person in a small firm to hundreds or thousands of managers in multinational companies. In large firms the board of directors formulates the policy which is implemented be the chief executive officer. The management system is the framework of processes and procedures used to ensure that an organization can fulfill all tasks required to achieve its objectives. It is a framework based on a structured integration of best practice into operating systems frequently built around the Plan, Do, Check, Act cycle. A management system helps an organization to achieve these goals through such things as optimization of processes, management focus and disciplined of management thinking. This will help unlock the organizations potentials. Balancing these and other business requirements can be a difficult and discouraging process. That is where management systems can help, by unlocking the potential in the organization. Implementing an effective management system can help one to: 1. Manage your social, environmental and financial risks. 2. Improve operational effectiveness 3. Reduce costs; 4. Increase customer and stakeholders satisfaction 5. Protect your brand and reputation; 6. Achieve continual improvement;

7. Promote innovation; 8. Remove barriers t trade; and 9. Bring clarity to the market place. Through this one will be able to renew his/her organizations mission, strategies, operations, and service levels. Resources Resources are economic or productive factor required accomplishing an activity, or as means to undertake an enterprise and achieve desired outcome. Three most basic resources are land, labor, and capital; other resources include energy, entrepreneurship, information, expertise, management, and time. (businessdictionary.com) According to Dr. J. Floor Anthoni (2001) resources are used to run and to enhance society and that they have a tendency of running out, degrading or becoming polluted by being used; for that reason proper management, allocation and control is required in order to sustain and use effectively ones resources. Resources of a company or an organization also refer to assets owned. Michael Ganof and Saleha B. Khumawala (2009) stated that many capital assets of governments cannot be associated with revenues or savings. The highway or bridge being considered by the state will not yield cash benefit. Assets of the government may be more properly interpreted as liabilities for they will consume rather than provide resources. Granof (2009) also stated that government assets may be restricted to particular activities or purposes. Management of Resources refers to the skillful practice of controlling resources of an organization and proper allocation of the availability of supply. It is a process of using a company's resources in the most efficient way possible. Resource management can include ideas such as making sure one has enough physical resources for one's business, but not an overabundance so that products won't get used, or making sure that labor resource or the workers are assigned to tasks that will keep them busy and not have too much downtime. (Businessdictionary.com) Dr. Anthoni (2001) stated that by managing our resources, we distribute them more equitably, prolong their use, and conserve them for future generations.

Resource management is the efficient and effective deployment and allocation of an organization's resources when and where they are needed. Such resources may include financial resources, inventory, human skills, production resources, or information technology. Resource management includes planning, allocating and scheduling of resources to tasks, which typically include manpower, machines, money and materials. Resource management has an impact on schedules and budgets as well as resource leveling and smoothing. In order to effectively manage resources, organizations must have data on resource demands forecasted by time period into the future, the resource configurations that will be required to meet those demands and the supply of resources, again forecasted into the future. Forecasts should be as far out as is reasonable. Resource leveling, as it relates to inventory, is a resource management technique aimed at keeping the stock of resources on hand level, reducing both excess inventories and shortages. In project management, resource leveling is scheduling decisions, which are driven by resource management concerns, such as limited resource availability. As opposed to leveling, resource smoothing may not delay the project completion date, only particular activities within their float. (http://glossary.tenrox.com/ResourceManagement.htm, August 02, 2012) Government agencies are administrative units of government that are tasked with specific responsibilities. These agencies can be established by national, regional or local governments. Government agencies are entities distinct from government departments or ministries, but they often work closely with and report to one or more departments or ministries. Other government agencies operate independently, especially those with oversight or regulatory responsibilities. Any given government is likely to have hundreds of agencies with a variety of objectives and roles. A majority of government agencies are responsible for carrying out the policies of the establishing government. The agencies sometimes carry out the policies directly, and other times they do it indirectly through a process known as proxy administration. Through such things as contracting, loan guarantees and government-sponsored enterprises, agencies can deliver public goods and services or implement specific policies. (http://www.wisegeek.com/what-aregovernment-agencies.htm, July 30, 2012).

Accounting for budgetary accounts According to the book of Angelito R. Punzalan and Milagros M. Cardona (2011) Section 29 (1) article VI of the 1987 constitution provides, No money shall be paid out of the treasury except in pursuance of an appropriation by law. The aforecited lays down the legal bedrock for government accounting, particularly for budgetary accounts. It simply means that no public funds may be spent if there is no law authorizing the payment of money and specifying the purpose for which the same will be spent. Accordingly, it may be said that accounting for budgetary accounts formally commences upon enactment of the General Appropriations Act (GAA), which contains the legal authorization to use public money for the various programs, activities and projects of the national government. The approved appropriations are, in turn, the bases of the Department of Budget and Management (DBM) for issuing allotments or the authority of government agencies to incur obligations or enter into commitments to spend government funds. The level of allotments, on the other hand, defines the amount of cash allocations which shall be released by the DBM. Accounting System The General Accounting Plan (GAP) shows the overall accounting system of a government agency/unit. It includes the source documents, the flow of transactions and its accumulation in the books of accounts and finally the conversion into financial information/data presented in the financial reports. The following accounting systems are: 1. Budgetary Accounting System 2. Receipt/Income and Deposit System 3. Disbursement System 4. Financial Reporting System The National Budget Budgeting is basically planning and control. Planning involves the development of future objectives and the preparation of various budgets to achieve these objectives. Control involves the step taken by management to ensure that the objectives et down at the planning stage are

attained, and to ensure that all parts of the organization function are ina manner consistent with organizational policies. A government budget is a plan for financing the government activities for a fiscal year prepared and submitted by responsible executive to a representative body whose approval and authorization are necessary before the plan can be executed, It is a definite proposal of estimate or statement of receipts and expenditures of the government for the past and ensuing years, and should finish not only definite information regarding the general character, purpose and amount of governing expenditures, but also detailed data regarding the cost entailed in maintaining particular units of organization in performing particular units of organization and in performing particular activities. As stated, the budget is an estimate of the proposed expenditure for specified purposes and periods, and embodies the means of financing them during the same timeframes. It provides the means for controlling the estimated amounts to be raised, as well as, the proposed amount to be spent for specified objects. It is a program that guides all activities relating to collections and expenditures; it is the framework of the accounts by which the transactions affecting such collections and expenditures shall be recorded. Therefore, the proper classification of income and expenditures should be reflected in the accounts, so that the recorded data may give adequate support to future budget estimates. Form and Contents of the National Budget The budget proposal of the President shall include current operating expenditures and capital outlays. It shall comprise of such funds as may be necessary for the operation of the programs, projects and activities of the various departments and agencies. Section 22, Article VII of the Constitution of the Philippines provides that The President of the Philippines shall submit to Congress within 30 days from the operating of every regular session, as the basis of the general appropriation bill, a budget of expenditures and sources of financing, including receipts from existing and proposed revenue measures. The budget shall be presented to the Congress in such form and content as may be approved by the President and may include the following:

1. A budget message setting forth in brief the governments budgetary thrust for the budget year, including their impact on development goals, monetary and fiscal objectives, and generally on the implications of the revenue, expenditure and debt proposals; and 2. Summary financial statements setting forth: a. Estimated expenditures and proposed appropriations necessary for the support of the government for the ensuing fiscal year, including those financed from operating revenues and from domestic and foreign borrowings; b. Estimated receipts during the ensuing fiscal year under the laws existing at the time the budget is transmitted and under the revenue proposals, if any, forming part of the years financing program; c. Actual appropriation, expenditures and receipts during the last completed fiscal year; d. Estimated expenditures and receipts and actual or proposed appropriations during the fiscal year in progress; and e. Statements of the condition of the National Treasury at the end of the last completed fiscal year, the estimated condition of the Treasury at the end of the fiscal year in progress and estimated condition of the Treasury at the end of the ensuing fiscal year. Fundamental Principles of Fiscal Operations Budget activities are governed by legal provisions or fundamental principles relating financial transactions and operations of the government. The principles, as provided for by the law, are: 1. No money shall paid out of the public treasury or depository except in pursuance of an appropriation law or other specific statutory authority; 2. Government funds or property shall be spent or used solely for public purposes; 3. Trust funds shall be available and may be spent only for specific purposes for which the trust was created;

4. Fiscal responsibility shall, to the greatest extent, be shared by all those exercising authority over the financial affairs, transactions, and operations of the government agency; 5. Disbursements or disposition of government funds or property shall invariably bear the approval of the proper officials; 6. Claims against government funds shall be supported with complete documentation; 7. All laws and regulations applicable to financial transaction shall be faithfully adgered to; and 8. Generally accepted principles and practices of accounting, as well as, of sound management and fiscal administration shall be observed, provided they do not contravene laws and regulations. Kinds of Budgets 1. As to Nature a. Annual Budget a budget which covers a period of one year, It is the basis of annual appropriation. b. Supplement Budget a budget which supplement or adjust a previous budget which is deemed inadequate for the purpose it is intended. It is the basis for a supplemental appropriation. c. Special Budget a budget of special nature and generally submitted in special forms on account that itemizations are not adequately provided in the Appropriation Act or that the amounts are not all included in the Appropriation Act. 2. As to Basis a. Performance Budget a budget emphasizing the program or services conducted and based on functions, activities, and projects, which focus attention upon the general character and nature of work to be done, or upon the services to be rendered.

b. Line-Tem Budget a budget the basis of which are the objects of expenditures such as: salaries and wages. Travelling expense, freight, supplies and materials equipment, etc. Balanced Budget It is a budget where the proposed expenditures are equal to less than the estimated revenues. Currently, the government is operating with a budget deficiency. As such, it is serving government priorities to achieve a balanced budget by increasing revenues and cutting expenditures. THE BUDGET PROCESS 1. Budget Preparation This covers estimations of government revenues, the determination of budgetary priorities and activities within the constraints imposed by available revenues and by borrowing limits, and the translation of approved priorities and activities into expenditure levels. Estimates are prepared by the various government agencies, reviewed and finalized by the President of the Philippines, and then submitted to the Legislative Department as basis for the preparation of the annual Appropriation Act. The budget preparation begins with the issuance of a budget call by the Department of Budget and Management. This document outlines the priority areas of government activity applicable to the budget year, which begins a year and one month hence. It likewise reiterates the fiscal limits and approximate rates of increase in government ceiling applicable to the budget year and appearing in the developing plan, as updated in the long-term fiscal projection appearing in the latest Budget Message. The budget proposal shall be reviewed on the basis of their own merits and not on the basis of: 1. A given percentage or peso increase or decrease from a prior years budget level

2. A given percentage of the aggregate budget level; or 3. A similar rule of thumb that is not based on specific justification. The Department of Budget and Management summarizes the proposals and submits an analysis and recommendation on the agencies budget proposals, which are submitted to the President of the Philippines before finalization and submission to Congress. 2. Legislative Authorization It is the second phase of the budget process relative to the enactment of the General Appropriation Bills based on the budget of receipts and expenditures submitted by the President of the Philippines within 30 days from the opening of its regular session, as the basis of the general appropriation bill. The General Appropriation Bill presents the proposals of the president of the Philippines for new general appropriations in the coming year. The proposals are listed by agency or lump sum fund and are by the budgetary function activities/projects. Each function is briefly described in appropriation language. Any conditions governing agency expenditures are presented as Special Provisions applicable to the agency, which also identify the amount intended for the most significant activities of the agency. Budget Briefing is conducted whereby the various heads of agencies would explain to the congress the details of their respective budgets. Appropriations are approved by the legislative body in the form of: 1. A General appropriation Law which covers most of the expenditures of government; 2. Supplemental Appropriation laws that are passed from time to time to augment or correct al already existing appropriation; and 3. Certain automatic appropriations intended for fixed and specific purposes.

Continuing appropriations pertain to authorized amounts for MOOE and Capital Outlays (CO), the validity of which extend to one year following the year in which they were appropriated, hence, the term continuing appropriation. 3. Budget Execution and Operation The third phase of the budget process covers the various operational aspects of budgeting, thus making budgeting as one of the principal tools of management control to ensure that public funds are spent only for the specific purposes for which they intended. It includes the development of the operating budget, which indicates the program of work to be done or undertaken, the time within which it should be done, the manpower and other resources needed to carry out the work, and finally, the peso amounts required to accomplish the proposed programs. Thus, budget execution and operation serve as the medium through which plans for operation can be implemented using available resources and funds. Budget execution and operation is comprised, among others, of the following: the establishment of authority ceilings on obligations, the evaluation of work and financial plans for individual activities, the continuing review of government fiscal position, the regulation of fund releases, the implementation of cash payment schedules and other related activities such as updating of planning and scheduling of activities. The responsibility for monitoring budget execution and operation rests with the Department of Budget and Management and secondarily with the National Treasury. Budget execution and operation is concerned with the release of funds in the form of allotments and corresponding cash allocations, the continuing review of the budget program in the light of revenue and borrowings, prevailing economic conditions, as well as, the review of proposed uses of agency savings and other related activities. 4. Budget Accountability The last phase of budget process consists of the following: a. Periodic reporting by the government agencies of performances under their approved budget.

b. Top management review of government activities and the fiscal policy implementations thereof; and c. The actions of Commission on Audit in assuring the fidelity of officials and employees by carrying out the intent of the legislative regarding the handling of receipts and expenditures.

Data on uses of funds evidences the implementation of the legislative and appropriation intention and is a major basis of next years budget preparation and evaluation. Under Sec. 63, P.D. 1177, agency officials are held liable for failure to submit reports (i.e. trial balance, work and financial plans, special budgets, reports of operation and income, and other reports as may be necessary and required by the Department of Budget and Management) and shall automatically cause the suspension of payment of their salaries until they have complied with the information requirements. No appropriation authorized in the General Appropriation Act shall be made available to pay the salary of any official or employee, who violates the provisions of said section, in addition to any disciplinary action that may institutes against such erring official or employee. General Guidelines on the Release of Funds Pending the effective date of the new General Appropriation Act (GAA), national government agencies are authorized to incur overdraft in allotment for obligations corresponding to the actual requirement of their regular operations chargeable against the GAA, as re-enacted. A re-enacted budget pertains to the budget of the preceding year which, by operations of laws, becomes re-enacted and shall remain in force in effect until the general appropriation bill for the current year is passed by Congress. The re-enactment of the budget is a mechanism sanctioned by the Constitution to allow the use of public funds for regular operations pending the approval of the GAA. All unutilized allotments of agencies immediately before the effective date of the new GAA out of SAROs issued chargeable against the re-enacted GAA shall no longer be available for obligation. Upon the GAAs effective date, which is after fifteen days following the completion of its publication in the official Gazette or in a newspaper of general circulation, the Allotment Release Program may already established.

The Allotment Release Program (ARP), which determines the level of allotment releases for a given fiscal year, is composed of the following: 1. Obligations incurred, 2. Obligations authorized as overdraft, 3. Special allotment release order (SAROs) issued from the beginning of current fiscal year to the effectivity date of the current General Appropriation Act, and 4. Releases for the unprogrammed fund (UF). Allotment releases from the multi-user Special Purpose Funds (SPFs) such as: Calamity Funs, Contingent Fund, EGovernment Fund and others. Budget Allocation for Education in the Philippines Education sector will get the biggest chunk of the PhP 1.816 trillion proposed budget for 2012, with a total allocation PhP 308.9 billion, or 13.8 percent higher than the PhP 271.5 billion budget for 2011. The Department of Education (DepEd) takes the biggest share with PhP 238.8 billion, representing a sharp budgetary increase of 15.2 percent from its 2011 budget of PhP 207.3 billion. This increase, the largest in over a decade, is even larger than the 12.6 percent increase in 2011. As in previous years, DepEd remains on top of all departments. The proposed budget for basic education includes these allocations: PhP 17.4 billion for basic educational facilities including construction and repair or rehabilitation of 45,231 classrooms; procurement of more than 2.53 million school desks and chairs; and construction of 25,667 water and sanitation facilities. An additional PhP 1 billion shall be funded from the regular school building program. PhP 2.9 billion for the hiring of 13,000 more teachers to address current teacher shortage (which is on top of the PhP 8.9 billion allocation out of the Miscellaneous Personnel Benefits Fund (MPBF) PhP 2.6 billion for the procurement of 45.5 million textbooks and teachers manuals PhP 6.3 billion to support the expansion of Government Assistance to Students and Teachers in Private Education (GASTPE) to benefit one million grantees in 2012, increasing from 691,494 in 2010 and 757,401 in 2011

PhP 1.9 billion for the universal kindergarten program to benefit 1.7 million five-year old children served by the public school sector

The Civil Society Network for Education Reforms (E-Net Philippines) and Social Watch Philippines noted that despite having the biggest share in the national budget in the last years, the education budget allocation still lags behind required resources to catch up and meet the 2015 targets based on studies conducted by the National Economic Development Authority (NEDA) and the United Nations Development Programme (UNDP). International benchmarks endorsed by the United Nations Educational, Scientific and Cultural Organization (UNESCO) set the desirable level of total education expenditure at 6 percent of GDP and 20 percent of total public expenditure. Certainly, much more effort and resources will be needed to cover the shortfalls and underinvestment of the past several decades. Table 1. Summary of 2012 Alternative Budget Proposals for Education (FY 2012)
GAA 2011 Budget Item New teaching positions To achieve the ideal PTR of 1:35/40 Training & Development Allocate at least P3000 per for 2,263,128,000 2,879,249,000
3

NEP 2012

Variance E-Net Proposal (Proposal less NEP) 7, 761,000,000 4,881,751,000

269,023,000

269,098,000

1,500,000,000

1,230,901,995

500,000 teachers Comprehensive Medical/ Dental & Optical Health/TB medical Allocate at least P1000 per teacher 40,952,000 41,935,000 500,000,000 458,065,000

MOOE for Regional 24,753,871,000 Operations Allocate at least P1000 per elementary pupil (14.3M) and P1500 per high school pupil (5.8M) Alternative Learning System (ALS) Allocation for IP Education Madrasah Education 284,597,000 0 300,000,000

26,390,236,000

49,414,736,000

23,024,500,000

291,428,000 0 300,000,000

1,500,000,000 100,000,000 600,000,000

1,208,572,000 100,000,000 300,000,000

Education in Emergencies Gender Exemplars in schools Functional Literacy Program Development and Implementation in IP, Moro and urban poor communities (50-50 partnership with LGUs) P2,500/learner x 100,000 for 2012 TOTAL PROPOSAL

0 0 0

0 0 0

150,000,000 100,000,000 125,000,000

150,000,000 100,000,000 125,000,000

27,911,571,000

27,023,599,000

53,989,736,000

31,578,789,995

(http://www.socialwatchphilippines.org/images2/abi2012_educ.pdf, August 02, 2012) According to Manila Bulletin, the Department of Education (DepEd) gets the biggest allocation in the proposed P2.006-trillion national budget for 2013 as the Aquino administration aims to solve the shortage in teachers and classrooms by next year, according to Department of Budget and Management (DBM) Secretary Florencio Butch Abad. The DepEd gets P292.7 billion for 2013, or P55.9-billion more than its P238.8-billion budget this year. Following the DepEd in terms of budget allocation are: the Department of Public Works and Highways (DPWH) with P152.9-billion; Department of National Defense (DND), P121.6billion; Department of Interior and Local Government (DILG), P120.8-billion; Department of Agriculture (DA), P74.1-billion; Department of Health (DOH), P56.8-billion; Department of Social Welfare and Development (DSWD), P56.2-billion; Department of Transportation and Communications (DOTC), P37.1-billion; Department of Finance (DOF), P33.2-billion; and Department of Environment and Natural Resources (DENR), P23.7-billion. Abad said the DOF and the DENR got biggest increases while huge investments in the social services continue to have the largest constantly increasing share of the budget. He said the proposed 2013 budget provides for performance-based bonuses, ranging from P5,000 to P35,000 per employee.

We hope that the same concerns and support will be demonstrated by the Congress once again. Previously, we consulted leaders of Congress about the orientation and priorities in the budget and they support the administration in the allocation that we have provided in those areas so we hope that once again, we should be able to pass this budget before Christmas, he said. The 2013 proposed national budget of P2.006-trillion is higher than last year by 10.5 percent or about P190-billion. (http://www.mb.com.ph/articles/365406/education-gets-biggest-budgetallocation, August 03, 2012) Other countries biggest allocation Malaysia Allocates More Funds for Mineral and Geological Mapping. The Sarawak

government plans to help the Mineral and Geosciences Department (JMG) vie for bigger funds to enable the department to carry out more comprehensive mineral and geological mapping in the state. Second Resource Planning and Environment Minister Datuk Amar Awang Tengah Ali Hassan said the state was very rich in natural resources but much remained untapped. Awang Tengah added that this was where the department could play a role by conducting mineral and geological mapping to help the state and country identify natural resources, but the department would not be able to function without adequate funds from the government. In view of the significance of the department towards the development of the state, we will help vie for bigger allocations for JMG Sarawak, he said.

Awang Tengah, who is also Public Utilities Minister, said as of today the mineral mapping had only covered 70 per cent of the whole state while geological mapping had covered only 30 per cent. He said this at the Mineral and Geosciences Department excellence service award presentation at a leading hotel here yesterday. Awang Tengah said it could not be denied that JMG had helped Sarawak a lot, particularly in implementing a total of 138 alternative water supply projects in the state last year, mainly in rural areas which could not be supplied by the states main reticulation system. According to him, the projects implemented through the allocation of RM14.43 million from the Rural and Regional Development Ministry had benefited 3,629 people in rural areas.

(http://www.asmmag.com/201206293875/malaysia-allocates-more-funds-for-mineral-andgeological-mapping.html, August 03, 2012) Highlights of Japan Budget 2012-2013 3.5 trillion yen is expected to be earmarked for reconstruction related projects. Lesser requests will be accepted by the government. The budget is supposed to allocate 98.4 trillion yen for the 2012-13 fiscal, which is a record amount. This sum will be realized only if the requests from various national ministries are accepted. This is 1.8 percent higher than the sum allocated in the 2011-12 budget. Reconstruction related expenses would not be included while deciding the borrowing and spending targets. This money would be generated by increasing tax rates. 19 trillion yen would be spent in the coming 5 years for reconstruction of affected areas. Government will be focusing on putting in place a certain level of financial discipline across various levels. 3.51 trillion yen has been requested for various reconstruction related projects in Tohoku following the natural disasters of 11th March. Requests for local economic recovery and stimulus have amounted to 1.98 trillion yen. In the preceding allocation this sum was decided at approximately 700 billion. The biggest request of fund allotment has come from the Health, Labor and Welfare Ministry 29.30 trillion yen. The average age of Japans population has been increasing steadily and this has contributed to the surging social security expenses, which has in turn led to the demand. The finance ministry has asked for 204 tax cuts which have a combined worth of almost 910 billion yen; in 2011, 1.56 trillion yen had been earmarked for this purpose. The Ministry of Economy, Trade and Industry has asked for tax cuts pertaining to the automobile industry 721.8 billion yen. This sum will be used to spur car purchases in the domestic market. Of late the high value of the yen has affected the automobile companies profits. Requests to either deduct or end the exemption being granted to taxable income of married taxpayers have been registered. Some have also suggested increasing the tobacco tax rates but no specific amount has been stated. (http://finance.mapsofworld.com/budget/japan/, August 5, 2012)

Singapore The Singapore Police Force receives the highest budget allocation annually compared to the various departments of the Ministry of Home Affairs (MHA), regularly accounting for about 50% ot its annual budget. For the financial year 2006 (for the year beginning 1 April 2006), S$2.27 billion was budgeted to the MHA, of which 52.8%, or S$1.28 billion was allocated for the Police Programme. Actual expenses in the 2006 financial year was S$1.33 billion, of which S$1.14 billion was spent on operating expenditure (against the budgeted S$1.10 billion) and S$188.28 million on development expenditure (budgeted at $171.52 million). Manpower costs amounting to S$709.11 million continue to dominate the SPF's expenditure, accounting for 62.2% of its operating expenditure and 53.4% of total expenditure in FY2006. The latest budget for financial year 2008, S$1.38 billion was allocated to the Police Programme, or 47.2% of MHA's total budget of S$2.91 billion (The Ministry of Defence, in comparison, receives a S$10.08 billion budget allocation). This includes S$1.25 billion for Operating expenditure and $129.99 million for Development Expenditure. The main Development Expenditures expected in FY2008 included the installation of an electronic surveillance system, the building of an Integrated Tactical Training Centre and procurement of new Coastal Patrol Crafts for the Police Coast Guard.

(http://www.mof.gov.sg/budget_2006/expenditure_estimates/attachment/MHA_EE2006.pdf, http://www.mof.gov.sg/budget_2005/expenditure_estimates/attachment/MFA_AEE2005.pdf, http://www.mof.gov.sg/budget_2007/revenue_expenditure/attachment/MHA_EE2007.pdf, August 05, 2012)

Process of Government Fund Allocation Annual budget formulation cycle The annual budget formulation cycle can be divided into two phases: first, to set the overall budget parameters; second, to allocate resources to departments and agencies. Table 2. Budget formulation timetable (fiscal year = calendar year) March-April Formulating economic assumptions and revenue forecasts. Updating the medium-term expenditure framework. Preparing the Paper on Budget Strategy (PBS). April May Budget Call issued. Departments and agencies submit their spending bids. Technical budget hearings. Bilateral discussions between the Department of Budget and May-July Management (DBM) and departments and agencies. DBM bureaus assess bids and recommend levels of spending. The DBM Executive Review Board finalises recommended Late July levels of spending. Appeals by departments and agencies. Presidential approval of final budget proposal. Late July/early August Presidents State of the Nation address. Budget proposal submitted to Congress.

I.

Setting Budget Parameters First phase in the annual budget formulation cycle is to set the parameters for the

upcoming budget. This is a three-step process: Developing the economic assumptions and revenue forecasts.

Assessing the continuing costs of existing programmes, through a medium-term expenditure framework. Identifying the uses of the resultant fiscal space through a Paper on Budget Strategy.

Economic assumptions and revenue forecasts. The lead responsibility for overall economic assumptions lies with the National Economic Development Authority. The lead responsibility for the revenue forecasts lies with the Department of Finance and its Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC). Their proposals are discussed and endorsed by the Development Budget Co-ordinating Committee as the official budget parameters. This generally takes place in March and establishes the level of resources available for the upcoming budget, forming the bedrock for the budget system. Recent experience in the Philippines shows that revenues have been less than estimated. This serves to undermine the integrity of the budget process. However, the situation is not a classic case of making optimistic revenue projections.

The key issue in the Philippines is that the tax effort of the two key revenue collection agencies the Bureau of Internal Revenue and the Bureau of Customs is limited due to compliance and corruption issues as discussed in Section 1.1.2 above. The BIR and the BOC make their own projections based on historical experience of collection. The BIR and the BOC submit their forecasts to the Department of Finance, which insists on using forecasts based on progress in raising the tax effort. These assumptions are used in the budget but the progress in this area has been limited, and actual revenue has fallen short. This issue is known throughout government and clouds the entire budget process, as it is generally known that in-year adjustments will need to be made in view of actual revenue. It is acknowledged that it is imperative to improve the performance of the revenue-collecting agencies for the sake of the integrity of the budget process.

Medium-term expenditure framework (MTEF) The Department of Budget and Management is in the process of establishing a mediumterm expenditure framework known as forward estimates to show the baseline cost of continuing existing policies. The difference between the forecast revenue and the baseline costs reveals the amount of fiscal space available for new projects. The MTEF was originally introduced in 1999, but it did not fare well. Rather than being introduced as an analytical tool to assist the annual budget process, it was designed as a set of fixed multi-year expenditure ceilings and presented as such to the Congress for approval. In technical terms, this was an extremely ambitious objective when first introducing an MTEF. It was in fact akin to introducing multi-year budgeting as opposed to a medium-term expenditure framework. In any case, the Congress rejected this approach as usurping its constitutional authority in the annual budget process. The MTEF was re-introduced in 2006, this time designed as an analytical tool. The MTEF consists of the upcoming budget and two years beyond. The second year should roll over and become the basis for that years budget with a new out-year being added. The MTEF is still a work in progress, however, as the quality of the forward years information is being improved. Upgrading technical skills for effectively using the MTEF is taking place both at the Department of Budget and Management and in spending departments.

There are several challenges in implementing an MTEF in the Philippines: First, a significant share of the budget is accounted for by capital projects, which are by their nature one-off. Aside from their specific capital outlay profile and resulting operating costs, they do not lend themselves to the MTEF concept of baseline cost of continuing existing policies. Second, there is a systemic issue with revenue forecasting, as discussed above, which inflates the MTEF in terms of fiscal space for new expenditures. Third, a high degree of flexibility is permitted in the implementation of the budget, both to claw back expenditures in view of actual revenue receipts and because of extensive in -year reallocations, as discussed later in this report. Fourth, a great effort is needed to keep the MTEF up-to-date throughout the year in view of the above. Otherwise, the MTEF risks becoming obsolete and there would in effect be a need for a new MTEF each year, rather than having an updated rolling one in place. Fifth, great importance is thus placed on the MTEF being integrated into the same units that deal with the annual budgeting, rather than being placed in a special unit. Such units will have the most ready access to the information and will have an incentive to keep it up to date because they see value for themselves in doing so. Having the MTEF follow the same format as the annual budget fosters this, as it makes the linkages between the two natural. The budget for the current year has generally acted as the starting point, with onetime changes being made for inflation, non-recurring expenditures, demographic change, operating costs of completed projects, and so on, in order to show the cost of continuing existing programmes. Again, these are one-time changes, not part of a rolling exercise. However, progress is being made each year in this direction. Paper on Budget Strategy (PBS). The economic assumptions/revenue forecasts combined with the MTEF yield the amount of fiscal space available for the upcoming budget. The Department of Budget and Management prepares a Paper on Budget Strategy to

discuss the uses of additional resources deemed available. This is also a new initiative, that originated in 2006. The PBS is an internal document used as a basis for discussion within the Development Budget Co-ordinating Committee (DBCC) for deciding on priority sectors for the use of new resources. The President endorses the recommendations of the DBCC. Since its inception, three priority sectors have been consistently identified: education, health and infrastructure development. In 2008, agriculture and welfare were added because of the global rice crisis. The PBS is over 20 pages in length. It discusses the macroeconomic outlook and fiscal targets, the Presidents priorities, current achievements and challenges in achieving the plan, and options for priority sectors. The revenue forecasts, the medium-term expenditure framework, and the Paper on Budget Strategy remain in the background throughout the budget process rather than forming the basis for top-down allocation at the beginning of the budget formulation process. II. Allocating Resources The second phase in the annual budget formulation cycle is the actual allocation of resources to departments and agencies. This is also a three-step process: 1. The issuance of a budget call to all government agencies. 2. Submissions and review of spending bids by the DBM. 3. Final political decision making on resource allocation. Budget call The annual budget process officially starts with the issuance of the Budget Call by the Department of Budget and Management usually in late April to guide all government agencies in budget preparation activities. It is organised into five parts: 1. Overall direction on economic goals and fiscal target. 2. Priority areas of government activity, programmes and projects. 3. Budget ceilings to departments/agencies. 4. Guidelines in formulation of agency budget proposals given prescribed forms.

5. Calendar of budget preparation activities. The first two points elaborate on the conclusions by the President of the options presented in the Paper on Budget Strategy (PBS). The budget ceilings refer only to the baselines for continued services, i.e. what is called for in the medium-term expenditure framework. The ceilings are subdivided into four categories: salaries, non-salary operating, capital and transfers. The ceilings are presented in aggregate for the total of a departments budget, including indicative ceilings for its subsidiary agencies. Departments are free in fact, encouraged to reallocate funds, although this is very limited in practice. The last two points (guidelines and calendar) involve administrative housekeeping issues concerning the conduct of the budget round. Immediately after the Budget Call, the DBM convenes the heads of all government departments and agencies in a budget forum. This is to further elaborate on the contents of the Budget Call and to clarify any issues departments may have. Submission and review of proposals. In May, departments submit their proposals for funding, both in terms of amending their ceilings for continuing operations and requesting funds for new initiatives. These proposals are without exception in excess of any reasonable expectation for actual funding. The review of the proposals takes place in formal technical budget hearings. Departments will highlight their proposals and offer a summary of their agencies proposals. In some cases, departmental secretaries attend these meetings. Each agency will then explain in detail its specific proposals, accompanied by a representative of its department. It should be highlighted that these are not forums for negotiations, but simply an official submission of the proposals to the Department of Budget and Management. The National Economic Development Authority (the planning agency) does not participate in these hearings except in the case of major capital investments. A series of bilateral exchanges on the proposals takes place from May to July between

departments and agencies and their respective Budget and Management Bureau. It should also be noted that a separate discussion by the same officials is taking place on the implementation of the current budget which invariably affects the discussion about next years budget. Practices vary with regard to how departments deal with their subsidiary agencies in these exchanges. In most cases, however, agencies have a direct relationship with the DBM. Each Budget and Management Bureau will then submit its assessments of the proposals and recommend funding levels for their respective departments and subsidiary agency to the Executive Review Board. This is an internal DBM body consisting of the Secretary, undersecretaries and assistant secretaries of the DBM. The submission of the assessments is a formal procedure with specific forms and protocols and is by no means an automatic endorsement of the recommendations of the Bureaus. The Executive Review Board will often seek revisions for the funding levels of specific programmes. The DBM consults with the President and the Development Budget Co-ordinating Committee at this stage. An update of the economic assumptions and revenue forecasts will also be made available at this time. Final decision making The decisions of the Executive Review Board are submitted to the Cabinet at a meeting in July where each secretary sees his/her proposed level of funding for the first time. At the same time, the DBM transmits its proposed levels of funding to the agencies within each department. Departments and agencies then have three days to appeal the decisions of the DBM. The appeals take the form of bilateral discussions between the Secretary of the DBM and the secretaries of departments. These requests are consolidated and the Executive Review Board meets again to consider them. In some cases, the President may become directly involved and endorse a request. The final touches on the budget proposal are made following the Presidents State of the Nation address, which marks the opening of the Philippine Congress in late July-early August. The government must submit its budget within 30 days of the State of the Nation

address and generally does so shortly after the address. This time is also used to finalise technical details and the budget documentation. (Blondal, 2010) Funds An absolute Government Agencys resource is dependent on the budget that the government will allocate for them. A fund is formally defined as: A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances and changes therein. Which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. -----Earl R. Wilson, Ph.D., CPA and Susan C. Kattelus, Ph.D., CPA, CGFM Wilson, et al. (2009) gave three types of funds: 1. Governmental Fund - comprises five types of funds: General funds, Special Revenue Fund, debt service fund, capital projects funds and permanent funds. a. General funds although it may be called by a different name revenue fund, general operating fund or current fund. Other governmental funds will be created when needed. Most departmental activities, such as those of police and fire, public works, parks and recreation, culture, education and social service, as well as general government support services, such as the city managers office, finace personnel and data processing and typically accounted for in the general fund. Unless a financial resource is required to be accounted for in a different fund type, it is usually accounted for in the general fund. b. Special Revenue Fund Tax or grant revenues or private gifts legally restricted for a particular operating purpose, such as the operation of a library maintenance or roads and bridges.

c. Debt Service Fund Governments that have bond obligations outstanding and certain other types of long-term general liabilities may be required by law or bond covenants to create this fund. Its purpose is to account for financial resources segregated for the purpose of making principal and interest payments on general long term debt. Some governments account for all debt service on general longterm debt in their General Fund, but governments ordinarily create one or more debt service finds if they have general lone-term debt.

General long term debt is distinguished from long-term debt issued and serviced by a proprietary or fiduciary fund. Because those funds follow accounting principles similar to those of for-profit entities, interest and principal on debt issued by proprietary of fiduciary funds and payable from the revenues of those funds in accounted for in those funds rather than in a debt service fund. d. Capital Projects Fund Governments often engage in capital projects to accommodate a growing population or to place existing capital assets. These projects typically incolve major construction of items such as buildings, highways or bridges, or parks. To account for tax or grant revenues, or bond proceeds earmarked for a capital project, as well as payments to architects, engineers. Construction contractors and suppliers. e. Permanent fund is used to account for permanent endowments created when a donor stipulates that the principal amount of a contribution must be invested and preserved but earnings on amounts so invested can be used for some public purpose. 2. Proprietary Funds a. Enterprise Funds to account for operations that are financed and operated in a manner similar to private business enterprises- where the intent of the governing body is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges or

where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriated for capital maintenance, public policy, management control, accountability or other purposes. b. Internal Service Funds to account for the financing of goods or services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, on a cost reimbursement basis. 3. Fiduciary Funds These are trust and agency funds that are used to account for assets held by a government unit in a trustee capacity or as agent for individuals, private organizations and other governmental units. These include Agency Funds, Pension Trust Funds, Investment Trust Funds and Private- purpose trust Funds. Government units should establish and maintain those funds required by law and sound financial administration. Only the maximum number of funds consistent with legal and operating requirements should be established, however because unnecessary funds result in inflexibility, undue complexity and inefficient financial administration. Resources of the Government Nobert Bermosa (2012) described the National Budget as the bread and butter of the government. He further defined the National Budget as the money or public fund utilized by government in all its activities, projects and operations. The fund comes from the monetary amount collected by the Bureau of Internal Revenue (BIR). This government agency has the authority and responsibility to collect taxes, tariffs, services fee, fine, penalties and others. The most important source of funds of the National Budget are the taxes people pay as defined by Win and Susan Ballada (2012): 1. Income Tax - Foremost and primary source of fund for the National Budget is the Income Tax. It is based on citizenship, residence and source of income. This tax is imposed to the Filipino people, the state, tourists and corporations.

2. Excise Tax - Excise tax is the tax collected to the producers, retailers, businesses that sell special products such as cigar & cigarette, gasoline, petroleum, cars, mineral products and others.

3. Inheritance Tax - Inheritance Tax is another source of fund for the National Budget. It is the amount collected to people who inherited properties based on the amount or appraisal of the inheritance.

4. Percentage Tax - Percentage Tax is the amount imposed by the Bureau of Internal revenue to contractors, hotel owners, restaurants, recreational institutions, winnings such as Lotto and products from the forests.

5. Miscellaneous Tax - Miscellaneous Tax is another source of fund for the National Budget. It is the amount collected to banks, premium insurance, franchise and financial companies.

6. Value Added Tax - Value Added Tax or VAT is the tax from all the products being sold, exchanged and bartered; commercial services; and, importation of products. Commercial ads for Television and radios, videoke bars, malls, restaurants and many others pay Value Added Tax. The amount collected is 10% of the product or service price.

7. Residence Tax - Residence Tax is the tax paid by Filipinos every year. It is usually obtain from the Municipal/city hall. The amount paid is based on the income of the individual.

8. Others - The film-making industry also pays taxes and all citizens with motor vehicle pay taxes by registering their vehicle to the Land Transportation Office or LTO.

9. Expanded Value Added Tax or E-VAT - Expanded Value Added Tax or EVAT is an additional burden to the tax-paying public. The BIR imposed 12% additional tax to selected services and products such petroleum products

and fastfood chains. The amount collected is not included to the National Budget but it goes straight to the President's Special Fund. SOURCES OF INCOME Based on the book of Punzalan, et. al (2011) income covers all revenues and receipts collected or received forming the gross accretion of funds of the local government; while revenue refers to income derived from the regular system of taxation enforced under the authority of law or ordinance, and as such, accrue regularly every year. Therefore, income encompasses revenue. Receipt is income realized from operations and activities of the local government, or those received by it in the exercise of its corporate functions. It also refers to authorized contributions or aids from other entities except provisional advances for budgetary purposes. Loans for specific projects or activities are considered as receipts. The main sources of income of local government units are as follows: 1. Tax revenues, fees and charges. 2. Share from Internal Revenue Collections. 3. Share from National Wealth. The sources of income are further classified into general income accounts and specific income accounts. The following shall comprise the general income and specific income accounts applicable to local government units: General Income Accounts: 1. Subsidy from other local government units. 2. Subsidy from other funds. 3. Subsidy from special accounts. 4. Sales revenue. 5. Dividend revenue. 6. Interest Income. 7. Gain on sale of securities.

8. Gain on sale of assets. 9. Sale of confiscated goods and properties. 10. Foreign exchange gains. 11. Miscellaneous operating and service income. 12. Fines and penalties government service and business operations. 13. Income from grants and donations.

Specific Income Accounts: 1. Property taxes 2. Taxes on goods and services. 3. Other taxes. 4. Other specific income. Tax Revenue Tax collections comprise the biggest percentage of revenue collected. Its biggest contributor is the Bureau of Internal Revenue (BIR), followed by the Bureau of Customs (BOC). Tax effort as a percentage of GDP has averaged at roughly 13% for the years 2001-2010. (National Internal Revenue Code, 2011) Tariffs and Duties Second to the BIR in terms of revenue collection, the Bureau of Customs (BOC) imposes tariffs and duties on all items imported into the Philippines. According to Executive Order 206, returning residents, Overseas Filipino Workers (OFWs) and former Filipino citizens are exempted from paying duties and tariffs. (Bureau of Customs, 2011) Non-Tax Revenue Non-tax revenue makes up a small percentage of total government revenue (roughly less than 20%), and consists of collections of fees and licenses, privatization proceeds and income from other state enterprises. (National Internal Revenue Code, 2011) The Bureau of Treasury

The Bureau of Treasury (BTr) manages the finances of the government, by attempting to maximize revenue collected and minimize spending. The bulk of non-tax revenues comes from the BTrs income. Under Executive Order No.449, the BTr collects revenue by issuing, servicing and redeeming government securities, and by controlling the Securities Stabilization Fund (which increases the liquidity and stabilizes the value of government securities) through the purchase and sale of government bills and bonds. (National Government Financing, 2011) Privatization Privatization in the Philippines occurred in three waves: The first wave in 1986-1987, the second during 1990 and the third stage, which is presently taking place. The governments Privatization Program is handled by the inter-agency Privatization Council and the Privatization and Management Office, a sub-branch of the Department of Finance. (The Philippine Privatization Program, 2011) PAGCOR The Philippine Amusement and Gaming Corporation (PAGCOR) is a government-owned corporation established in 1977 to stop illegal casino operations. PAGCOR is mandated to regulate and license gambling (particularly in casinos), generate revenues for the Philippine government through its own casinos and promote tourism in the country. (Pagcor, 2011) Synthesis Management of Resources is vital for the sustenance of the government since the funds are the primary source for their budget. The Philippine governments highest priority for the allocation of budget is the sector for education, where they appropriate the biggest portion, from the National Budget. The government generates its income from taxes, customs, tariffs, etc. The budget begins from formulating economic assumptions and revenue forecasts, afterwards a Budget Call is issued. From that, different Government Owned and Controlled Corporations (GOCC) or Departments and Agencies submit their spending bids where they conduct technical budget hearing. The Department of Budget and Management (DBM) and GOCC or Departments and Agencies conduct a bilateral discussion among them where DBM assess bids and recommend possible levels of spending. After the Bilateral discussion the DBM

finalizes the recommended levels of spending for the departments and agencies, from this they may appeal and discuss further the allocation of budget. Once the levels of spending have been agreed both by the DBM and departments or agencies The President approves the final budget proposal and statement of the nation address and finally the budget proposal is submitted to the congress. Government Agencies priorities in allocation of funds provided by the government differ from the focus of their respective projects and activities for public purpose. The same goes for different countries, their focus and main concern are the basis for their priorities in management of resources or appropriation of their funds. The Philippines has a compound system of classification of budget appropriations. First appropriations are classified as programmed or unprogrammed. Programmed funds are allocated to departments and agencies for specific projects, activities and programmes. Other appropriations are designated either as general or automatic continuing the latter applies mainly to capital investments. A significant share of all appropriations is in the form of special purpose funds. Upon approval of the budget, the Department of Budget and Management approves a detailed agency budget matrix for each department and agency. This is the comprehensive allotment release which provides the legal authority to obligate/disburse funds up to a specific monetary limit. Typically, the DBM will authorize 75% of the total appropriation. In case in-year adjustments need to be made to preserve the overall fiscal target, the DBM has a 25% cushion in terms of authorized expenditures. It is possible to reallocate funds with the approval of the DBM. Some degree of reallocation is permitted without the need for DBM approval. For example, within maintenance expenditure, appropriations can be freely shifted from one object to another. Budgeting in the Philippines is on an obligations/cash basis. The government accounting system is on an accrual basis.