PS 103: Philippine Public Administration

LESSON 2

DEALING WITH PUBLIC FISCAL ADMINISTRATION AND PERFORMANCE MECHANISM

Module Learning Objectives:

At the end of the module, the students are expected to:
a. Understand the role of fiscal administration;
b. Identify the functions of different agencies in formulation, implementation,
and evaluation of fiscal policies; and
c. relate the control mechanisms to the objectives of fiscal management

FISCAL ADMINISTRATION

 It is a field of public administration which refers to the formulation,

implementation and evaluation of policies and decisions on taxation and
revenue collection and administration; resources allocation; budgeting; and
auditing. It is also concerned with public expenditures, accounting and debt
management.
 Government budgeting is the critical exercise of allocating revenues/income
and borrowed funds to accomplish and attain social, political, and economic
goals and provide for much needed public services.

Fiscal Policies

 These are programs of action involving the system of government expenditures

and revenue administration.
 It is designed to effectively manage all financial resources and then systemizing
all processes to relate for the developmental goals of the public sector.

Fiscal Transparency

 Fiscal transparency is recognized as a requisite of a well-functioning public fiscal

policy. It defines the scope, functions and responsibilities of the government in
making public fiscal information accessible for the budget information and
execution.
 This includes the past, present and future activities of the government that
determine fiscal policies and outcomes.

As stated by Baldrich (2005):

 Assuming the integrity of fiscal procedures, a transparent fiscal environment limits

corruption and diversion and, therefore, facilitates development and increase in
living status.

12 Standards of Financial Stability and its Categories

1) Transparency Standards (data, fiscal, and monetary and financial policy
transparency)

2) Financial Sector (banking supervision, securities, insurance, payment systems and

anti-money laundering)

3) Market-integrity for the Corporate Sector (corporate governance, accounting,

auditing, and insolvency and creditors' rights).

The Code on Good Practices on Fiscal Transparency (CGPFT)

 It was initiated by World Bank (WB) and International Monetary Fund (IMF) in the
late 1990s and provided four principles:

a) Clarity of roles and responsibilities of the government

b) Public availability of information
c) Open budget preparation, execution and reporting
d) The assurances of integrity

 The IMF in 1999 stated about the Code in this line: "fiscal transparency should
make those responsible for the design and implementation of fiscal policy more
accountable. The stronger, more credible fiscal policies that follow would
attract the support of a well-informed public, result in more favorable access to
capital markets, and reduce the incidence and severity of crisis."

FISCAL ACCOUNTABILITY

 Article XI. Section 1 of the 1987 Philippine Constitution provides for public
accountability, thus: “Public Office is a public trust. Public officers and
employees must at all times be accountable to the people, serve them with
utmost responsibility, integrity, loyalty and efficiency, act with patriotism and
justice and lead modest lives.”
 In the words of Francisco S. Tantuico Jr.: "Public accountability is the foundation
of integrity. It cuts to the soul of government. It unmasks the government of the
day of whatever façade it wears."
 Ledivina V. Cariño: "...the evolution of the actions of appointed career officials
in terms of whether their actions are within or outside the bounds of their
authority. It may be promoted through the imposition of external controls and
through the inculcation of self-regulating values."

4 Levels of Administrative Accountability (Dean Cariño)

1) Traditional accountability- focuses on the regularity of fiscal transaction and faithful

compliance as well as the adherence to legal requirements and administrative policies.

2) Managerial accountability- concerned with efficiency and economy in the use of

funds, property, manpower, and other resources.
3) Program accountability- pays attention to the results of government operations

4) Process accountability- emphasizes procedures and methods of operations.

 Prof. Briones further added that public financial accountability is promoted

primarily through the conduct of regular audits:
a. Traditional Audits- include legal and compliance audit. These are
generally limited to audits that examine the legality of financial transactions as
well as compliance with established rules, regulations, and procedures.
b. Performance Audits- look into actual outputs of agencies in relation to
programmed goals. Concepts of performance audit have been further
developed into program results audit and value-for-money audits.

The Bureau of the Treasury has shown that public financial accountability can be
achieved through a combination of the following factors:

1) Strong legal basis, organizational structure, rules, regulations and procedures.

2) Regular monitoring and reporting to the public through the media and civil society
organizations.

3) Appropriate information technology system and timely processing of reliable

information.

4) Strong leadership committed to ensuring public financial accountability-a leadership

committed to promoting good governance.

Fiscal Trends

 The issue regarding the increasing government debts has always been a major
concern in the growth and development of our country's economy. This still
depends on how the government distributed its budget among different sectors
of the economy.
 A balanced budget is ideal in that it ensures the public that the government is
able to maximize all of its resources and that there is zero surplus or deficit.

BUDGETARY MANAGEMENT IN THE PHILIPPINES

1. Development Budget Coordinating Committee (DBCC)

 It is a cabinet-level interagency committee which formulates the policy

framework for the National Budget and determines the level of deficit to
establish the priorities and the amount of allocation for the sectors.
 The DBCC consists of a representative of the Office of the President and the
heads of the chief economic agencies of government: the DBM, the National
Economic and Development Authority (NEDA), the Department of Finance, and
the Bangko Sentral ng Pilipinas. The head of the DBM acts as chairperson, and
the head of NEDA as co-chair.
2. Department of Finance (DOF)
Mandate: The DOF is responsible for the sound and efficient management of the
financial resources of the government by formulating, institutionalizing, and
administering fiscal policies in coordination with other agencies of the government;
generating and managing the financial resources of government; supervising the
revenue operations of all local government units; and reviewing, approving, and
managing all public sector debt, domestic or foreign. It is also responsible for the
rationalization, privatization, and public accountability of corporations and assets
owned, controlled, or acquired by the government.

 Bureau of Internal Revenue (BIR)

Mandate: The BIR shall be under the supervision and control of the (DOF) and its
powers and duties shall comprehend the assessment and collection of all
national internal revenue taxes, fees, and charges, and the enforcement of all
forfeitures, penalties and fines connected therewith, including the execution of
judgments in all cases decided in its favor by the Court of Tax Appeals and the
ordinary courts.

Framework for Taxation

 An explicit legal basis for all taxes is provided in the constitution and in the
National Internal Revenue Code.
 Comprehensive Tax Reform Program (CTRP) was established in 1998 to
lower the chronically high tax-evasion rates and improve the country's tax
administration by stamping out corruption in BIR.
 Lateral Attrition System institutionalizes a system of incentives for revenue-
collecting officials who meet or exceed targets and of sanctions for those
who fail.
 Bureau of Customs
Functions: Assessment and collection of the lawful revenues from imported
articles and all other dues, fees, charges, fines and penalties accruing under the
tariff and customs laws; and prevention and suppression of smuggling and other
frauds upon the customs.
 Bureau of Treasury
Function: Assist in the formulation of policies on borrowing, investment and
capital market development.

3. Department of Budget and Management (DBM)

 It is the lead agency for budget assessment, distribution, and operation in the
Philippines and tasked organization that influences the spending behavior and
management of resources of agencies towards transparency, equity, and
accountability.
  Anchoring on Strategic Management Approach to public administration, the
Department sealed its mission toward the achievement of its institutional
relevance by focusing on the following tactical roles and responsibilities:

a) Fiscal Discipline- to ensure that the government as a whole "lives within its
means." They are subject to reliable and realistic revenue forecasts being
delivered by its partner in economic management.
b) Effective Resource Allocation- to ensure that government expenditures, after
meeting the basic needs of turning the nation's wheels, will be channelled
towards strategic requirements for Millennium Development Goals (MDGs).
c) Efficient Government Operations- to ensure that quality government goods
and services are delivered on time and at the least cost.

4. National Economic and Development Authority (NEDA)

 It is the country’s premier social and economic development planning and
policy coordinating body primarily responsible for formulating continuing,
coordinated and fully integrated social and economic policies, plans and
programs.

5. Bangko Sentral ng Pilipinas (BSP)

 Its primary objective is to maintain price stability conducive to a balanced and
sustainable growth of the economy and employment. It shall oversee the
payment and settlement systems in the Philippines, including critical financial
market infrastructures, in order to promote sound and prudent practices
consistent with the maintenance of financial stability.

6. Commission on Audit (COA)

 The Commission on Audit is an independent constitutional commission

established by the Constitution of the Philippines.

It assumes the following responsibilities:

1. Examines, audits, and settles all accounts pertaining to the revenue and receipts of,
and expenditures or uses of funds and property owned or held in trust by, or pertaining
to, the government.

2.Promulgates 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.

3. Submits annual reports to the President and the Congress on the financial condition
and operation of the government.

4. Recommends measures to improve the efficiency and effectiveness of government

operations.
5. Keeps the general accounts of government and preserve the vouchers annice
supporting papers pertaining thereto.

6. Decides any case brought before it within 60 days. Performs such other duties and
functions as may be provided by law.

7. The New Government Accounting System (NGAS) introduced in January 2002, is

designed to simplify government accounting, improve the efficiency of monitoring
public sector performance, and increases the transparency of government audits
through civil society involvement thorough framework shifts from cash- to accrual-
based accounting and introduces modifications to the obligation-accounting
techniques

Figure 1. Agencies concerned in the formulation, implementation,

and evaluation of Fiscal Policies in the Philippines and their functions

Development Budget - formulates the policy framework for the National Budget.
Coordinating -determines the level of deficit to establish the priorities
Committee (DBCC) and the amount of allocation for the sectors.

Composition DBM DOF NEDA BSP OP

Bureau of Internal
Revenue (BIR)
- implementation of policies
on TAXATION and TARIFF
Department of Bureau of
Finance (DOF) Customs (BOC)

- custodian of
Bureau of
Government Funds
Treasury (BOT)

Department of Budget
- leads the formulation of expenditure
and Management
policies as well as borrowing
(DBM)

- central planning body

National Economic
and Development
Authority (NEDA) - prepares/ prescribes the programs, projects
and activities of government and how these
prioritized and financed
 Bangko Sentral ng - major actor in fiscal policy process to ensure
Pilipinas (BSP) that monetary policies are in consonance with
fiscal policy decisions

Commission on Audit - examines, audits, and settles all accounts

(COA) pertaining to the revenue and receipts of, and
expenditures or uses of funds and property
owned or held in trust by, or pertaining to, the

FRAMEWORK FOR BUDGETARY ACTIVITIES

 Comprehensive budget laws and publicly available administrative rules govern

the disbursement of public funds in the Philippines. The President is required by
the constitution to submit an annual budget proposal to Congress each fiscal
year.
 The Development Budget Coordination Committee (DBCC) and the BSP-
determines the desirable level of expenditure and debt for the president's
budget submission, in the context of the medium-term fiscal plan, whose
formulation is mandated by EO 292.
 Government funds are allocated to individual departments on the basis of
budget estimates that each head of department, government agency and
public corporation must submit to the DBM.
 The estimates are submitted to Congress as the president's budget, in the form
of the National Expenditure Program (NEP) and the Budget of Expenditures and
Sources of Financing (BESF)."

Figure 2. The National Budget Cycle

PREPARATION

ACCOUNTABILITY LEGISLATION

EXECUTION

2 Principal Objectives of the Budget System

 To carry on all government activities under a comprehensive fiscal plan

developed, authorized and executed in accordance with the constitution,
prevailing status and principles of sound public.
  To provide for a periodic review and disclosure of the budgetary status of the
government in such detail that officials entrusted by the law with the
responsibility of the financial position of the government.

As a part of expenditure management, the Government introduced the passage of the

Government Procurement Reform Act (GPRA) on 2003 to address:

a) Proliferation of laws on public sector procurement, which facilitated rent-seeking and

inefficiencies.

b) Reorganizing and strengthening agency and local government bids and award
committees and procurement units.

c) Strengthening the system of rewards and punishments in the performance of the

procurement function, and establishing a merit-based civil service, among others.

FISCAL CONTROL MECHANISMS

Four Justifications for Expenditure Control through the Budget

1) Prevent Misappropriation of Funds

2) Control to Implement Prospective Policy
3) Ensure the Wisdom and Propriety of Expenditure
4) Prevent Deficits

Appropriations

 Authorization made by the legislative body to allocate funds for purposes

specified by the legislative or similar authority.

Kinds of Appropriations

a. New General Appropriations- annual authorizations for incurring obligations during a

specified budget year, as listed in the GAA.

b. Continuing Appropriations- authorizations to support obligations for specified purpose

 Multi-year appropriations- appropriation for a DEFINITE period in excess of 1 year

 No-year appropriation- appropriation for an INDEFINITE period of time.

c. Supplemental Appropriations- additional appropriations authorized by the law to

augment the insufficiency.

d. Special Appropriations- for a particular purpose which has not been included in the
annual appropriations act on account of lack of material time.

e. Contingent Appropriations- for emergency expenditures

f. Deficiency Appropriations- to cover any deficit, overdraft or deficiency incurred over

the amount originally authorized.