Module 1 Nature and Scope of the NGAS PDF

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SCHOOL OF BUSINESS AND ACCOUNTANCY NOT-FOR-PROFIT ENTITIES ANDSPECIALIZED INDUSTRIESMODULE 1 NATURE AND SCOPE OF THE NEW GOVERNMENT ACCOUNTING SYSTEMSLearning FocusNature and Scope of the New Government Accounting SystemAccounting is an effective tool in financial management. In evaluating the Agenc...

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ALDERSGATE COLLEGE SCHOOL OF BUSINESS AND ACCOUNTANCY

ACCOUNTING FOR GOVERNMENT, NOT-FOR-PROFIT ENTITIES AND SPECIALIZED INDUSTRIES

MODULE 1 NATURE AND SCOPE OF THE NEW GOVERNMENT ACCOUNTING SYSTEMS Learning Focus Nature and Scope of the New Government Accounting System Accounting is an effective tool in financial management. In evaluating the Agency performance vis-a-vis financial targets, a public manager largely depends on financial information generated by the accounting system. Considering the crucial role accounting information plays in enabling public managers to come up with appropriate and strategic decisions, it is imperative for the accounting system to be flexible and responsive to diverse needs of users. While the same must be comprehensive, it must also be simple to facilitate better understanding and appreciation, even by those who are not technically knowledgeable in accounting. Cognizant of the foregoing and of the need for an accounting system which will generate financial reports that reflect a more realistic picture of government operations, the Commission on Audit (COA), in exercise of the authority granted under Section 2(2), Article IX-D of the 1987 Constitution, prescribed the New Government Accounting System (NGAS). NGAS introduced the basic policies and procedures, the new coding system, the accounting systems, books, registries, records, forms, reports and financial statements to be adopted by all national government agencies effective January 1, 2002. Objectives Under the old government accounting system, accounting entries were made manually, thereby, necessitating the maintenance of numerous special journals complete with several wide columns. With so many journals and records to maintain, the manual accounting system proved complex and tedious. Moreover, the generated financial reports also provided financial information, which often proved ineffectual to those who do not have a background in government accounting. Hence, to expedite the process of recording transactions and to ensure the generation of functional and user-friendly financial reports, a shift to a simplified and updated accounting system was made. Specifically, the shift to the New Government Accounting System was made in order to respond to the need for the following: 1. The adoption of a system that is in conformity with International Accounting Standards; 2. Pursuit of eventual computerization, which will include responsibility accounting, thereby ensuring the generation of various reports that are useful to management, lawmakers and the general public; 3. Generation of relevant and periodic financial statements; and 4. Effective tool for managers and executives in effective and efficient monitoring of agency performance. Government Accounting Even under the new accounting system, government accounting is defined, pursuant to Section 109 of PD 1445, as one which "'encompasses the process of analyzing, recording, classifying, summarizing and communicating all transactions involving the receipt and disposition of government fund and property and interpreting the result thereof."

ALDERSGATE COLLEGE SCHOOL OF BUSINESS AND ACCOUNTANCY

ACCOUNTING FOR GOVERNMENT, NOT-FOR-PROFIT ENTITIES AND SPECIALIZED INDUSTRIES

Section 110, Presidential Decree 1445 sets down the following objectives of government accounting: 1. To produce information concerning past operations and present conditions; 2. To provide a basis for guidance for future operations; 3. To provide for control of the acts of public bodies and offices in the receipt, disposition fnd utilization of funds and property; and 4. To report on the financial position and the results of operations of government agencies for the information and guidance of all persons concerned. Information of past operations and present conditions will facilitate the evaluation of the performance of an agency from one period to another. The results of the evaluation may guide the manager on what course of action to take as regards future operation, as well as come up with a proper analysis of the funds needed for a project. Public officers are accountable for the resources entrusted to them. The accounting data will show whether or not the agency is achieving its mandates as well as its operational objectives. Moreover, the financial reports will also show the extent of the agency's financial and non-financial resources, which have useful lives. An evaluation of said information will enable the users to determine the "service potential" of the agency’s resources, as well as give an indication when additional resources need to be injected into the operation. The accounting data will also show the obligations of the agency and how such obligations have been incurred. The information should tell its users the sources of resources, which will meet these obligations. The information should show an analysis of the inflow and outflow of resources, especially of financial resources. Accounting Responsibility Accounting responsibility emanates from the Constitution, laws, policies, rules and regulations. The Constitution of the Philippines, the fundamental law of the land, mandates the keeping of the general accounts of the government, promulgation of accounting rules, and the submission of reports covering the financial condition and operation of the government. The offices charged with the accounting responsibility are the Commission on Audit (COA), the Department of Budget and Management (DBM), the Bureau of Treasury (BTr), and the government Agencies discharging the functions of government to enable it to attain its commitments to the Filipino people. Commission on Audit The Commission on Audit keeps the general accounts of the government, promulgates accounting rules and regulations, and submits to the President and Congress, within the time fixed by law (not later than the last day of September each year - Section 41, PD 1445), an annual report of the government, its subdivisions, agencies and instrumentalities, including government-owned or controlled corporations. In the performance of its functions, as mandated by Article IX-D, Section 2 par. (2) of the 1987 Constitution of the Philippines, to wit: 'The Commission on Audit shall have exclusive authority, subject to the limitation 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 unconscionable expenditures, or uses of government funds and properties," the Commission on Audit revised the previous government accounting system. Under the new accounting system, the Commission on Audit no longer journalizes the appropriation and allotment released by the Department of Budget and Management.

ALDERSGATE COLLEGE SCHOOL OF BUSINESS AND ACCOUNTANCY

ACCOUNTING FOR GOVERNMENT, NOT-FOR-PROFIT ENTITIES AND SPECIALIZED INDUSTRIES

The Department of Budget and Management Pursuant to Section 2, Chapter 1, Title XVII, Book IV of the Administrative Code of the Philippines (EO 292), "The Department of Budget and Management shall be responsible for the formulation and implementation of the National Budget with the goal of attaining our national socio-economic plans and objectives. The Department shall be responsible for the efficient and sound utilization of government funds and revenues to effectively achieve the country's development objectives." Consistent with the aforementioned mandate, the Department of Budget and Management is tasked to control and monitor appropriations and allotments through the registries it shall maintain: Registry of Appropriations and Allotments (RAPAL) and Registry of Special Purpose Fund Appropriation (RESPFA). Under the NGAS, it shall also maintain the Registry of Allotments and Notice of Cash Allocation (RANCA) for its control and monitoring of Notice of Cash Allocation releases. The Bureau of Treasury The Bureau of Treasury plays a pivotal role in the cash operations of the national government. Accounting rules and regulations pertaining to cash operations, collections, remittances and disbursements, including public borrowings, are issued by the Commission on Audit, jointly or with the concurrence of the Department of Finance and the Department of Budget and Management. Under the Revised Administrative Code, the Bureau of Treasury, as one of the operating bureaus of the Department of Finance is authorized to: 1. Receive and keep national funds, manage and control the disbursements thereof, and 2. Maintain accounts of financial transactions of all national government offices, agencies and instrumentalities. Under the new accounting system, the Bureau of Treasury shall maintain the Registry of NCA and Replenishments (RENREP) for control and monitoring of NCA released by the Department of Budget and Management. In addition, it shall monitor bank transfers it makes in replenishing its MDS accounts. The Government Agencies Departments, bureaus, offices and other instrumentalities of the National Government, including the Congress, the Judiciary, the Constitutional bodies, state colleges and universities, and other self-contained institutions and hospitals are required by law to have accounting units/divisions/departments, which are to be of the same level with other units/divisions/departments in the agency and under the direct supervision of the Head of the Agency. Accounting personnel shall (1.) maintain and keep current the accounts of the agency, (2.) provide advice on the financial condition and status of the appropriations and allotments of the agency as its Head may require, and (3.) to develop and conduct procedures designed to meet the needs of management. They shall perform the aforesaid duties in accordance with existing laws, rules, regulations, procedures and comply with the reporting requirements of the Commission on Audit, the Department of Finance and the Department of Budget and Management. Failure to comply with these requirements is sufficient ground for dismissal from the government service. Unlike in the old accounting system, the agency shall now journalize the Notice of Cash Allocation (NCA) it receives, which in effect, identifies the share of agency in the income of the national government. Under the new accounting system, the government agencies will no longer journalize its appropriations and allotments, instead, it shall maintain the following four registries for the allotments it receives and for the obligations it incurs: 1. Registry of Allotments and Obligations - Personal Services (RAOPS)

ALDERSGATE COLLEGE SCHOOL OF BUSINESS AND ACCOUNTANCY

ACCOUNTING FOR GOVERNMENT, NOT-FOR-PROFIT ENTITIES AND SPECIALIZED INDUSTRIES

2. Registry of Allotments and Obligations - Maintenance and Other Operating Expenses (RAOMO) 3. Registry of Allotments and Obligations - Capital Outlay (RAOCO) 4. Registry of Allotments and Obligations - Financial Expenses (RAOFE) BASIC FEATURES AND POLICIES OF NGAS The New government Accounting System (NGAS) is a simplified set of accounting concepts, guidelines and procedures designed to ensure correct, complete and timely recording of government financial transactions, and production of accurate and relevant financial reports. The basic features are as follows: Accounting Methods A modified accrual basis of accounting shall be used. Under this method, all expenses shall be recognized when incurred and reported in the financial statements in the period to which the\ relate. Income shall be recognized on accrual basis except for transactions where accrual basis is impractical or when other methods are required b\ law Under the old government accounting system, the basis of accounting are accrual basis and cash basis The constitution provides that all lawful expenditures and obligations incurred during the \ ear shall be taken up in the accounts of that year; thus, the accrual basis of accounting is applied As to income and revenue, there is no law or policy which expressly provides when income and revenue shall be recognized. As a practice, income and revenue are recognized when earned except in case of taxes, where revenues that remain unrealized at the close of the fiscal year shall not be recognized. Typically, taxes are estimated at the start of the coming year, but are not considered realized until actually collected. Since it is difficult to determine from whom, and how much of these taxes are collectible, the cash basis of accounting is applied. One Fund Concept In government accounting, fund is both a sum of money set aside for a specific purpose, and an independent fiscal and accounting entity. It is created by the Constitution and by legislative enactments, which direct that certain receipts be collected or collections generated and accounted for as a special resource to carry out specific activities or attain certain objectives. Under the old government accounting system, as provided by the Constitution, all income accruing to the agencies shall accrue to the General Fund of the government; and all money collected on any tax levied for a special purpose shall be treated as a Special- Fund. The NGAS adopts the one fund concept, and that is the general fund, which s generally available for all functions of government 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, in which case, a Special Purpose Fund may be created. Special Purpose Fund is a fund appropriated for purposes other than those provided in the regular funds of government agencies, such as: 1. Miscellaneous Personnel Fund – which is used to cover personnel benefits which are not provided for in the regular budget of the agency 2. Calamity Fund – which is used to cover relief, rehabilitation, reconstruction and other services in connection with calamities that may occur during the budget year 3. Organizational Adjustment Fund – which is used to cover budgetary requirements of a newly created organization, program/project/activity within an agency

ALDERSGATE COLLEGE SCHOOL OF BUSINESS AND ACCOUNTANCY

ACCOUNTING FOR GOVERNMENT, NOT-FOR-PROFIT ENTITIES AND SPECIALIZED INDUSTRIES

Chart of Accounts and Account Codes A new chart of accounts and coding structure with a three-digit account numbering system (as compared with the previous codes of six-digits) shall be adopted. Accounts titles have been changed and some titles have been added. There are no longer contingent accounts. Expenditures charged to capital outlay are no longer classified as expenses. Financial expenses have been categorized as separate expense items. Income accounts have been categorized into general income accounts and Agency specific income accounts. Responsibility Accounting Responsibility accounting is a system that relates the financial results to a responsibility center, which provides access to cost and revenue information under the supervision of a manager having direct responsibility for its performance. It is a system that measures the plans (by budget) and actions (by actual results) of each responsibility center. Responsibility center, on the other hand, is a part, segment, unit or function of a government agency, headed by a manager, who is accountable for a specified set of activities. Except for some, which derive most of their income from collection of taxes and fees, national government agencies are basically cost centers, whose primary purpose is to render service to the public at the lowest possible cost. Cost centers are established to provide each government agency's accessibility to cost information and to facilitate cost monitoring at any given period. While the use of subsidiary ledgers is sufficient to control cost, it requires considerable time to summarize the cost incurred by the agency for its different programs, projects, activities and offices/divisions; hence, responsibility accounting shall be done only under the computerized accounting system. Responsibility accounting aims to: 1. ensure that all costs and revenues are properly charged/credited to the correct responsibility center so that deviations from the budget can be readily attributed to managers accountable therefore; 2. provide a basis for making decisions for future operations; and 3. facilitate review activities, monitoring the performance of each responsibility center and evaluation of the effectiveness of agency's operations. The following are the concepts of responsibility accounting: 1. Responsibility accounting involves accumulating and reporting data on revenues and costs on the basis of the manager's action, who has authority to make the day-to-day decisions about the items; 2. Evaluation of a manager's performance is based on the matters directly under his control; 3. Responsibility accounting can be used at every level of management in which the following conditions exist: a. Cost and revenues can be directly associated with the specific level of management responsibility; b. Costs and revenues are controllable at the level of responsibility with which they are associated; and c. Budget data can be developed for evaluating the manager's effectiveness in controlling the costs and revenues. 4. The reporting of costs and revenues under responsibility accounting differs from budgeting in two aspects: a. A distinction is made between controllable and non-controllable costs. a1. A cost is considered controllable at a given level of managerial responsibility if that manager has the power to incur it within a given period of time. It follows that all costs are controllable by' top management because of the broad range of its activity, and fewer costs are controllable as one moves down to lower level of management responsibility because of the manager's decreasing authority. a2. Non-controllable costs are costs incurred indirectly and allocated to a responsibility level. b. Performance reports either emphasize or include only items controllable by individual manager.

ALDERSGATE COLLEGE SCHOOL OF BUSINESS AND ACCOUNTANCY

ACCOUNTING FOR GOVERNMENT, NOT-FOR-PROFIT ENTITIES AND SPECIALIZED INDUSTRIES

5. A responsibility reporting system involves the preparation of a report for each level of responsibility. Responsibility reports usually compare actual costs with flexible budget data. The reports show only controllable costs and no distinction is made between variable and fixed costs. 6. Evaluation of a manager's performance for cost centers is based on his ability to meet budgeted goals for controllable costs. In order to be effective in identifying the performance of a segment or unit of the agency under the control and responsibility of the segment's manager, the coding structure has been formulated as follows:

Books of Accounts The books of original entries such as: Journal of Collections and Deposits, Journal of Disbursements, Journal of Checks Issued, Journal and Analysis of Obligations, and Journal of Bills Rendered shall no longer be used. Only the General Journal shall be used. The books of original entry or journals, shall be used to record in time sequence, financial transactions and information presented in duly certified and approved accounting documents. The basis for recording in the journals shall be the Journal Entry Voucher (JEV) While agencies are waiting for the computerization of the accounting system, four special journals, in addition to the General Journal, shall be used, namely: (1.) Cash Receipt Journal (Regular Agency Books): (2.) Cash Journal (National Government Books): (3.) Check Disbursements Journal, and (4 ) Cash Disbursements Journal. Moreover, all national agencies shall maintain two sets of accounting books to wit: 1. Regular Agency (RA) Books These 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 and to deposit with Authorized Government Depositors Bank (AGDB) and the national tre...