AFAR -Part 3 PDF

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CHAPTER 1 - NEW GOVERNMENT ACCOUNTING SYSTEM (NGAS)“No money shall be paid out of the Treasury except in pursuance of an appropriation made by law.”IntroductionArticle IX-D, Section 2, par. 2 of the 1987 Constitution provides, that: “The Commission on Audit shall have exclusive authority, subject to...

Description

CHAPTER 1 - NEW GOVERNMENT ACCOUNTING SYSTEM (NGAS) “No money shall be paid out of the Treasury except in pursuance of an appropriation made by law.” Introduction Article IX-D, Section 2, par. 2 of the 1987 Constitution provides, that: “The Commission on Audit shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefore and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unreasonable expenditures, or uses of government funds and property.” Pursuant to this mandate, the Commission on Audit (COA) revised the existing government accounting system. The New Government Accounting System (NGAS) took effect last January 1, 2002. The shift to the new accounting system was prompted by the need to simplify the government accounting system, which was about half a century old, in order to facilitate the process of recording transactions and the preparation of financial reports, and ultimately, to computerize the entire government accounting system. In addition, the new system includes responsibility accounting. Government Accounting It encompasses the processes of analyzing, recording, classifying, summarizing and communicating all transactions involving the receipt, disposition and utilization of government funds and property and interpreting the results thereof. It also includes:  Bookkeeping referred to as analysis, recording and journalizing.  Posting/grouping/classifying of similar items.  Preparation of periodic financial reports.  Analysis of reports to determine their accuracy and adequacy, as well as the efficiency of agency operations. Distinguishing characteristic of government accounting is the requirement of a budget which shall be the basis for all expenditures. Budgeting is performed on a basis consistent with the revenue and appropriation system. The appropriation system provides for the control and ultimate disbursement of funds. Objectives 1. Provide information concerning past operation and present conditions. 2. Provide basis as guidance for future operation. 3. Provide control for the acts of public bodies and offices regarding receipts, disposition, and utilization of government funds and property. 4. Report and provide information on the financial condition and results of operation of government agencies to all persons concerned. Government Business vs. Private Business Business Government  As to purpose Render public service  As to ownership No defined ownership Governed by specific laws and  As to management regulations 

As to income

From collection of taxes and fees

New Government Accounting System (NGAS) 1

Private Accumulate profit Defined ownership Few limitations From services rendered and commodities sold

Is a simplified set of accounting concepts, guidelines and procedures designed to ensure correctness, completeness, and timeliness in the recording of government financial transactions, and production of financial reports. Objectives 1. Simplify government accounting. 2. Conform to international accounting standards. 3. Generate periodic and relevant financial reports for better monitoring of performance. Subjects 1. National Government – departments, bureaus, commissions, boards, state colleges and universities 2. Local Government - LGUs 3. Government-owned or controlled corporations - GOCCs Components 1. Basic Features 2. Coding Structure 3. Chart of Accounts 4. Books of Accounts

5. Accounting Records 6. Accounting Reports 7. Accounting Forms

Basic Features  Modified ACCRUAL ACCOUNTING Under this method, all expenses shall be recognized when incurred. Income shall be on accrual basis except for transactions where accrual basis is impractical or when other methods may be required by law.  RESPONSIBILITY CENTERS The NGAs and LGUs, as well as the GOCCs provide for responsibility centers.  ONE-FUND CONCEPT Under a one-fund concept, all government agencies shall maintain only one fund. To provide each government agency accessibility to cost information and to properly control and monitor cost incurred, responsibility centers and cost centers, with assigned codes, shall be set for each agency and its regional offices, including their programs, projects, and activities. Separate fund accounting shall be done only when specifically required by law or by a donor agency or when otherwise necessitated by circumstances subject to prior approval of the Commission.  BOOKS OF ACCOUNT All national agencies shall maintain two sets of books: Regular Agency (RA) and National Government (NG) books. Regular Agency Books (Whole Agency) shall be used to record the receipt and utilization of Notice of Cash Allocation (NCA) and other income/receipts which the agencies are authorized to use. Journals Ledgers  Cash Receipts Journal (CRJ)*  General Ledger (GL)  Cash Disbursements Journal (CDJ)*  Subsidiary Ledger (SL) for: Cash, Receivables,  Check Disbursements Journal (CkDJ)* Inventories, Investments, PPE, Construction-in General Journal (GJ) Progress, Liabilities, Income, Expenses

*Collecting and Disbursing Officers shall maintain for Agency’s respective sub-unit:  Cash Receipts Record  Cash Disbursement Record  Check Disbursement Record National Government Books shall be used to record cash receipts/collections which are required to be remitted to the Bureau of Treasury and Authorized Government Depositary Bank (AGDB). 2

Journals Ledgers  Cash Journal (Receipts and Remittances)  General Ledger  General Journal  NEW CHART OF ACCOUNTS AND ACCOUNT CODES A new chart of accounts and coding structure (COA Circular No. 2003-01 as amended by COA Circular No. 2008-01) with a three-digit account numbering system shall be adopted.  NOTICE OF CASH ALLOCATION (NCA) Receipt of NCA by an agency shall be recorded in the regular books of accounts: Dr Cash – National Treasury, Modified Disbursement System xx Subsidy Income from National Government

Cr xx

 ALLOTMENTS AND OBLIGATIONS Receipt of budgetary allotments from the DBM, as well as incurrence of obligations shall not be recorded in the regular books of accounts. Instead, they shall be separately recorded in the four (4) Registries of Allotments and Obligations (RAO), namely: - RAOCO - Registry of Allotments and Obligations – Capital Outlay - RAOMO - Registry of Allotments and Obligations – Maintenance and Other Operating Expenses - RAOPS - Registry of Allotments and Obligations – Personal Services - RAOFE - Registry of Allotments and Obligations – Financial Expenses  RECOGNITION OF LIABILITY Liability shall be recognized at the time the goods and services are accepted or rendered and supplier/creditor bills are received in accordance with the International Accounting Standards.  FINANCIAL EXPENSES Financial expenses such as bank charges, interest expense, commitment fees, and other related expenses shall be separately classified from Maintenance and Other Operating Expenses (MOOE).  REGISTRY OF PUBLIC INFRASTRUCTURES For agencies that construct public infrastructures, such as roads, bridges, plazas, monuments, etc., separate registries shall be maintained, such as: - RPI – Bridges - RPI – Roads - RPI – Parks, Plazas, etc. During construction, the above properties shall be recorded in the regular books of the concerned agency as Construction-in-Progress. Upon completion, they shall be transferred to appropriate RPI and removed from the agency’s regular books of accounts.  CONSTRUCTION OF ASSETS For assets under construction, liability shall be recognized as bills are received, based on Percentage of Completion. The construction period theory shall be applied for costing purposes.  DEPRECIATION The straight-line method of depreciation shall be used. The COA shall issue separate guidelines indicating, among others, the depreciable lives and residual or scrap values of various assets. For Leasehold Improvements, it shall be depreciated over the period of the lease or the life of the improvement whichever is shorter.  ALLOWANCE FOR DOUBTFUL ACCOUNTS AFDA shall be set-up for estimated uncollectible receivables. This will allow for a fair valuation of receivables prior to write-off.  INTEREST ACCRUAL Whenever applicable and appropriate, interest income and/or expense shall be accrued and recognized in the books of accounts. 

CONTINGENT ACCOUNTS 3

Contingent assets/liabilities are off-book items and shall be shown only in the notes to financial statements. However, if it has reasonable assurance of maturing into an actual liability, such amount shall be recognized in the books and the appropriate journal entry shall be made  ADJUSTING/REVERSING ENTRIES Corrections of erroneous journal entries shall not be affected by negative journal entries but by making the necessary reversing/adjusting entries, all in positive amounts.  COROLLARY/NEGATIVE JOURNAL ENTRIES The following shall no longer be used in the new accounting system. Acquisition of inventory, fixed assets and other assets shall be recognized as capital expenditures in the regular books of accounts, eliminating the need for corollary journal entries.  ACCOUNTING REPORTS The ff. reports shall be prepared: Report

Frequency

 Trial Balance

Monthly

 Balance Sheet

Quarterly

 Statement of Income and Expenses

Quarterly

 Cash Flow Statement - Balance Sheet Approach - Income Statement Approach

Quarterly

The NATIONAL BUDGET The national budget is the government estimate of its income and expenditure. It is what the government plans to spend for its programs and projects. It is based on what the government thinks it will spend during the year and the sources of what it hopes to have as funds, either from revenues or from borrowing, with which to finance such expenditure. Kinds of Budget 

As to Nature a. Annual Budget - basis of an annual appropriation. b. Supplemental Budget - purports to supplement/adjust a previous budget which is deemed inadequate for the purpose for which it is intended. This is the basis for supplemental appropriation. c. Special Budget - generally submitted in special forms on account on the fact that itemizations are not adequately provided in the Appropriation Act.

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As to Basis a. Performance Budget - budget emphasizing the programs/services conducted and based on functions, activities, and projects which focus attention upon the general character and nature of the work to be done, or upon services to be rendered, rather than upon the things to be acquired, such as personal services, supplies and equipment. It is a management-oriented which measure actual and estimated results in the basis, terms of benefits accruing to the public and their costs. b. Line-Item Budget - basis of which are the objects of expenditures such as salaries and wages, traveling expenses, freight, supplies, materials, equipment, etc.

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As to Approach and Techniques a. Zero-Base Budgeting - process which requires systematic consideration of all programs, projects and activities with the use of defined ranking procedures. Activities are analyzed and presented in “decision packages” or key budgetary inclusions. b. Incremental Approach - focuses analysis of incremental changes in the budget and may be done within the context of performance and program budgeting. 4

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Other forms a. Regional Budgeting - is prepared consistent with the regional organization of the national government, wherein the DBM identifies by region the expenditures of government agencies and releases funds also on a regional basis. b. Long-term Budget - longer-range estimate of revenue and expenditures requirements. c. Key Budgetary Inclusions – refer to financial commitments of agencies pertaining to a budget year. KBI’s are a maintained for the purpose of: 1. Controlling major financial commitments so that funds are not misappropriated or to prevent juggling funds. 2. Disclose the funds and have a clear picture of expenditures. 3. Track down mandatory obligations and insure funding of priority projects.

The Budget Process a. BUDGET PREPARATION This begins with the issuance of a “budget call” issued by the DBM. This document outlines the priority areas of government activity applicable to the budget year. It likewise reiterates the fiscal limits and approximate rate of increase in government ceilings 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. Regional basis is explicit in the budget process which requires the participation of agency regional offices/units, coordinated at the regional level under various Regional Development Councils (RDC) or autonomous regions. After the regional phase, budget proposals are submitted to the Central Offices where they are collated and received prior to submission to the DBM. Zero-Base Budgeting It is a process which requires systematic consideration of all programs, projects and activities with the use of defined ranking procedures. This approach has been adopted to correct traditional budgeting practices, strengthen performance budgeting and to maximize the use of available funds thru systematic, analytical and creative method of allocating resources. The term “zero-base” refers to the yearly analysis, evaluation and justification of each activity, project or program, starting from a “zero” performance and budgeting level. b. LEGISLATIVE AUTHORIZATION Refers to the second phase of the budget process relative to the enactment of General Appropriations Bill as based on the budget of “Receipts and expenditures” submitted by the President, i.e., the enactment of the Bill into an Appropriation Act pursuant to the provision of Section 29 (() of Article VII of the 1987 Constitution. To comply with this constitutional timetable, the President’s Budget is submitted to the legislature 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 for the coming year. The proposals are listed by the agency or lump sum fund and are detailed by budgetary function activities project. Each function is briefly described in the so-called appropriations 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. General Provisions are also provided in the Bill, representing the expenditure rules and conditions applicable to all agencies or to group of agencies. Budget briefings are conducted whereby the various heads of agencies would explain to the Congress the details of their respective budgets. No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three (3) days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal. (Sec. 26 (2), Art. VI) 5

Every bill passed by the Congress shall, before it becomes a law, be presented to the President. If he approves the same, he shall sign it; otherwise, he shall veto it and return the same with his objection to the House where it originated, which shall enter the objections at large in its Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all Members of such House shall agree to pass the bill, it shall be sent, together with the objections of the other House by which it shall likewise be reconsidered, and if approved by two-thirds of all Members of that House, it shall become a law. In all such cases, the votes of each House shall be determined by yeas and nays, and the names of the Members voting for or against shall be entered in its Journal. The President shall communicate his veto of any bill to the House where it originated within thirty (30) days after the date of receipt thereof; otherwise, it shall become a law as if he had signed it. (Sec. 27 (1), Art. VI) Appropriations are approved by the legislative body in the form of General Appropriations Law covering most of the expenditures of the government; Continuing Appropriations for various public works projects; Supplemental Appropriation laws which are passed from time to time, to adjust or correct an already existing appropriation; and certain automatic appropriations intended for fixed and specific purpose. c. BUDGET EXECUTION This covers the various operational aspects of budgeting, thus making budgeting serves as one of the principal tools of management control to ensure that public funds are spent only for specific purposes for which they are appropriated. The responsibility for monitoring of this phase is the Department of Budget and Management (DBM). The main objectives of budget execution are: (1) preserving legislative intent; (2) observing financial limitations; and (3) maintaining flexibility in governmental operations. Other requirements comprise of the following: establishment of obligational authority ceilings, the evaluation of work and financial plans for individual activities, the continuing review of governmental fiscal position, regulation of fund release, implementation of cash payment schedules and other related activities such as up-to-date planning and scheduling of activities. This phase covers the operational aspects of budgeting composed of: 1. Submission, evaluation and approval of Agency Budget Matrix and subsequent issuance of NCA based on the Agency’s Annual Cash Program. 2. Continuous monitoring and review of the government fiscal policies. 3. Cash management and monitoring and generally seeing to it that funds are available to support the approved agency functions and projects. The principal budget execution and control techniques used in the Philippines are the release of allotments to governmental agencies, the institution of positive retrenchment measures (including the outright slashing of appropriations in the event that actual revenues do not come up to anticipated levels), the mandatory setting up of reserves, and the institution of accounting and auditing requirement in public spending. d. BUDGET ACCOUNTABILITY The significance of this reporting process is clear, as only with it can the budget cycle be completed. Data on funds‘ use evidences the implementation of the legislative and appropriations intention and is a major basis of budget preparation and evaluation for the succeeding year. This phase consists of: 1. Periodic reporting by the agencies of performances under their approved budgets. 2. Top management review of government activities and the fiscal and policy implications thereof. 3. The action of the Commission on Audit is assuring the fidelity of officials and employees by carrying out of the intent of the National Assembly in regard to their handling of receipts and expenditures. The Budgetary Accounts and other definitions: Appropriation refers to an authorization made by law or other legislative enactment for payments to be made with funds of the government under specified conditions and/or for specified purposes.

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Allotment is an authorization issued by the DBM to an agency, which allows it to incur obligations within specified amount that is within a legislative appropriation. Obligations are commitments by a government agency arising from an act of a duly authorized official which bind the government to the immediate or eventual payment of a sum of money. Agency Budgetary Matrix (ABM) refers the document that shows the desegregation of agency expenditures into components like, am...