MARIKINA POLYTECHNIC COLLEGE

Graduate School

Budgeting System
Castro, Digna A.
Discussant
 Budgeting System
Learning Outcomes
o Discuss different Budgeting System being used in the government.
o Discuss issues on the strength and weakness of the different
Budgeting System.

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Budgeting System
o Line Item Budgeting and Object of Expenditures
o Lump Sum Budgeting
o Program – Planning Budgeting

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Budgeting System
o A budget system consists of the elements that show how
money is spent within a company for the short and long
terms. Companies use budget systems to accomplish
goals for growth and sustainability with the finances at
hand.
o The major objectives of budget systems include
coordination, allocation of resources and general
planning for operations.

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Line Item Budgeting

Line Item Budget – a budget the basis of which are the

objects and expenditures such as salaries and wages, travelling
expenses, freight, supplies, materials, equipment etc.

Line Item Budgeting – emphasizes listing of objects for

itemized expenditure such as personnel, supplies, and
equipment without much regard for the purpose of programs
or projects for which such items are proposed.

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Example of line-item budget

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Advantages of a Line-Item Budget

o Simplicity
o One advantage of line-item budgeting is that it offers
simplicity. You can easily budget for each area or
department of your company based on historical
expenditures required in previous years. If the amount of
these expenditures has been consistent over a period of
years, line-item budgeting can offer a simple and reliable
means of anticipating expenses for the coming year. The
simplicity can also save time and effort in budget
preparation, as much of the necessary data is readily
available.

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Advantages of a Line-Item Budget

o Easy Justification
o Another advantage of a line-item budget is that it can be
easy to justify the expenditures. Because proposed
expenditures are based on historical needs, there is often
little dispute among departments within the organizations,
as the trends have been well established over time. If one
department requests an abnormal increase over previous
years, the department head is forced to support her
request. As the business owner, this can help you maintain
tight budgetary control, as you are reducing the possibility
of frivolous spending.

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Advantages of a Line-Item Budget

o Flexible Control

o Line-item budgeting can give a large organization flexible use

of budgetary control, giving flexibility to some programs and
not others based on defined criteria. For example, if line items
are broad in scope, such as facility operations, salaries and
benefits, and administrative costs, an administrator could
write her own line items under each broad item. A school
principal could use a broad line item for salaries to choose the
number of teachers, professional staff and support staff to hire
each school year according to the school's needs as long as this
staffing plan fits the total salary funding level and applicable
laws.
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Advantages of a Line-Item Budget

o Reliance of Past Data

o Line-item budgeting is easy to model after past budgets and
other historical data. When writing a line-item budget, the
budget maker can consider whether program sites, business
activities and departments should receive the same level of
funding as the previous year or an increase or decrease by line
item. Historical data might include sample budgets from other
organizations. For example, the principal of a new elementary
school could begin with the budget of another elementary
school in the same district with the same enrollment and
curriculum offerings.

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Disadvantages of a Line-Item Budget

o Lack of Analysis
oA potential disadvantage of line-item budgeting is that it
may create only a superficial analysis of expenditures.
Budget preparers may simply accept the status quo, using
the thought process that since this budgeting method
worked well in previous fiscal years, it should continue to
be effective for the coming year. This may eliminate the
opportunity to take an in-depth look at each line item to
determine if the proposed expenditure is truly necessary
or if funds could be allocated more efficiently.

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Disadvantages of a Line-Item Budget

o Spending Rush
oA line-item budget may result in your departments
unnecessarily spending unused funds near the end of the
fiscal year. Employing the concept of "use it or lose it,"
department heads may feel that if they have too much
money left over at the end of the year, their budget could
be slashed in the upcoming year. It's possible that the
excess funds could have been put to better use in other
areas of the company.

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Philippine Experience of line-item budget
o During the legislation or authorization phase of the
line-item budget, the legislature wielded so much
influence on agencies of their choice.

o Through the line-item budget, the lawmakers were

able to pinpoint “objects of future choice” especially
those referring to new positions.

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Object of Expenditures

What is the expenditure program?

The expenditure program is that portion of the national
budget that refers to the current operating expenditures
(COE), and capital outlays (CO), necessary for the operation
of the various government departments and agencies.

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Object of Expenditures

What are expenditures?

Expenditures are obligations that the government incurs that must be
paid during or after the year when they were incurred. The term
expenditure is more generic than "expense" in that the latter refers to
items of expenditure that are current. Expenditures are classified in
various ways:
1. By expense class and object of expenditures;
2. By sector;
3. By recipient entities;
4. By region

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Object of Expenditures

What are current operating expenditures?

Current Operating Expenditures (COE) are amounts budgeted for
the purchase of goods and services for normal government
operations within the budget year. These cover Personal Services
(PS) and Maintenance and Other Operating Expenses (MOOE).
PS refer to the provisions for the payment of salaries, wages and
other compensation/benefits. They cover permanent, temporary,
contractual and casual employees of the government. MOOE
refers to recurring expenses to cover day-to-day requirements of
agencies to carry out their regular operations

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Object of Expenditures

What are objects of expenditures?

Under COE and CO are various objects of expenditures, which specify
the types of expense that are incurred by an agency. The usual expense
classes for the MOOE are: the intelligence fund (object code 200-19),
travel (200-02), utilities such as communication services (200-03),
repair and maintenance of government facilities (200-04), supplies and
materials (200-07), supplies rents (200-08), water, illumination and
power (200-14), gasoline, oil and lubricants (200-23). For CO, the more
commonly-used objects of expenditures are land and land
improvements (300-04), buildings and structures outlay (300-05),
information technology equipment (300-38), and furniture fixtures,
equipment and books outlays (300-36).

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Lump Sum Budgeting

o A lump sum is a single payment of money, as opposed to

a series of payments made over time (such as an annuity).
Lump Sum Budgets
o The phrase “lump sum budget” refers to very general,
non-specific approach to budgeting which leaves a great
deal of discretion to the owner of the grant. As opposed to
a more specific line item budget where the salaries and
fringe benefits are broken out by individual, a lump sum
budget might group them together into one round figure:
$35,000.

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Lump Sum Budgeting

Lump Sum Budgets

o Though the lump sum budget might have categories of
spending, those might be very generally defined. For instance,
there might be $50,000 in a Research Project category. This
broad category could include salary, travel and equipment
depending on the specific project that is eventually funded.
o Typicallylump sum budgets are supported by foundations
where the financial reporting may not be as rigorous and the
use of funds may be much more flexible than would be
required on a federal grant.

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Example of Lump Sum Budget

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Planning Programming Budgeting
System
What is the planning-programming-budgeting system (PPBS)?
The planning-programming-budgeting system (PPBS) is a concept
that stresses the importance of establishing a strong linkage between
planning and budgeting. It emanates from the policy of the
government to formulate and implement a national budget that is an
instrument of national development, reflective of national objectives,
strategies and plans. Under the PPBS concept, the budget is anchored
on the degree by which the accomplishment of economic plans and
the attainment of target contained in the Medium-Term Philippine
Development Plan (MTPDP) and the Medium-Term Public
Investment Program (MTPIP) are supported.

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PPBS: THE PHILIPPINE EXPERIENCE

o The introduction of PPBS brought a damaging gap between

publicity and performance. In the US, agencies went through
the motions of preparing PPBS documents.
o In the Philippines, after the declaration of Martial Law in
September 1972, P.D No. 1 called for the reorganization of the
entire government system in accordance with the Integrated
Reorganization Plan recommended by the Presidential
Commission on Reorganization—formulate

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PPBS: THE PHILIPPINE EXPERIENCE

o The same P.D. provided for the creation of the NEDA chaired by the
president himself. The Philippine Navy attempted to work out a PPBS
model for entire Department of National Defense in 1976.
o As a result of PPBS, Filipino scholars and experts read papers in
seminars on the possible usefulness of PPBS in the Philippine setting.
o Philippine Association of Government Budget Administration
(PAGBA) devoted several conferences.

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PPBS: THE PHILIPPINE EXPERIENCE

o Even the Career Executive Service Development Program

undertaken by the Development Academy of the Philippines
invariably included an overview of the PPBS in its course modules.
o Local budget officials were very careful about openly advocating
PPBS, perhaps due to the earlier experiences with performance
budgeting. However, they admitted the usefulness of the system in
this sense:
a. PPBS provides a clear linkage between planning and budgeting; and
b. PPBS offers techniques which might help solve the problem of
resource allocation and setting of positions.

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Advantages of PPBS

1. PPBS provides clear information on objectives of organization:

With PPBS, administrative departments are enabled to
understand which targets they must have. At the end of the day,
they can also know whether they were successful in obtaining
such targets. Because of its informative property, PPBS also
enables both public and Approval Body to evaluate the budget
and be aware of programs and their financial resources.
2. PPBS shows responsibility centers in the administration: As
earlier stressed, the TBS is concerned with departmental
structures that consider its activities in the line of departmental
basis. PPBS has however objectives that are also responsibility
center of activities. It would make clear that who are responsible
with the objective of the budget.

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Advantages of PPBS

3. It helps decision-makers to decide on programs: As PPBS

searches more than one alternative to fulfill one objective, it
assists decision-makers, during its preparation and
operation, to evaluate alternatives and decide on the best
one for the target of the budget's objectives (Eckstein,
1973:28).
4. PPBS provides opportunity to find out programs that are
overlapping with each other and therefore it prevents
resources from extravagant spending.

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Advantages of PPBS

5. PPBS considers on long-term effects of programs: Cost of

new program would be seen unnecessary for the first year.
But rational man should consider the whole life of any
program that needs to be completed. It is the PPBS that
takes the whole life of project into account in the annual
basis as well.
6. PPBS provides opportunity for decision-makers to
allocate resources by considering cost/benefits of program
elements.

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Disadvantages of PPBS

1. Although PPBS focuses on objectives to find out what can

be done, it does not however consider how these objectives
would be done (Pyhrr, 1973:149).
2. PPBS needs some systematic system information so that
it can perform its objectives. If decision-makers, who want
to implement PPBS, have not got required systems
information, that would cause authorities not to succeed.
From the practices of implementing PPBS in the USA, it was
illustrated that it is the main subject caused PPBS to fail.

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Disadvantages of PPBS

3. When PPBS evaluates cost of objectives, it mostly tends

to get information and data from decisions taken both at
level of planning and programming. It does not consider
existing political decisions and their alternatives (Pyhrr,
1973:149).
4. PPBS does not seem as capable of defining programs in
their priorities (Pyhrr, 1973:149).
5. Most attention of PPBS is to focus on new programs
and/or existing programs that have faced necessary
increases (Pyhrr, 1973:149).

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Disadvantages of PPBS

6. There would be some difficulties in operating PPBS as it

needs more calculations and long-term systematic
information. Supposing that a person in one department has
several tasks and each of those tasks belongs to different
programs. In this case, there would be needs to allocate costs
of his/her involvement in relevant programs. In the light of
above argument, the question must be asked is how can
PPBS assist decision-makers to make budget?

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 Thank you 

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