Budget Process for Government Corporations

Policy, purpose, and budget principles

The budgets of all components of government must be supportive of national objectives and development plans.
Government-owned or controlled corporation budgets must be supportive of and consistent with the budgets of the ministries, bureaus, offices, and agencies of the national government.
Government-owned or controlled corporation budgets must observe budget, organization, and compensation policies and guidelines governing agencies of the national government found in pertinent budget and compensation laws, rules, and regulations.
The budget process must follow the concept of flexible budgeting, allowing immediate adjustment to changes in economic and business conditions.
Profit-making corporations are allowed greater flexibility in administrative expenses and compensation, while loss-incurring corporations are subject to the same conditions and guidelines as regular government agencies.
Exceptions may be allowed with the approval of the President/Prime Minister for corporations at the initial stages of operation expected to show a profit within a reasonable period of time.

Definitions and coverage of entities

“Government” means the National Government, including the Executive, Legislative, Judicial branches, and Constitutional Commissions, and it includes local governments and government-owned or controlled corporations.
“Government-owned or controlled corporations” are corporations created by law as State agencies for narrow and limited purposes, wholly owned by the State or where the Government is a majority stockholder in stock corporations, or otherwise such agencies whose affairs are conducted by a duly constituted board and that perform proprietary functions.
The term includes all corporations, including financial institutions, owned or controlled by the National Government performing government and/or proprietary functions, but it excludes state universities and colleges.
“Subsidiary Corporations” are affiliated or secondary corporations created and administered by a principal/parent agency to help achieve the objectives of the latter.
“Appropriation” is authorization under Acts of Congress, Presidential Decrees, or other legislative enactments allowing obligations to be incurred and payments to be made with Government funds under specified conditions and/or purposes.
“Allotments” are authorizations issued by the Ministry of the Budget to an agency to incur obligations within a specified amount authorized by a legislative appropriation.
“Obligations” are committed amounts to be paid by Government arising from an act of a duly authorized administrative officer that binds the Government to immediate or eventual payment of a sum of money.
“Current Operating Expenditures” are appropriations for the purchase of goods and services for current consumption whose benefits terminate within a specified fiscal year.
“Capital Outlays” are appropriations for equipment and fixed assets and other durable objects whose benefits extend beyond one fiscal year.
“Subsidy” means amounts granted to government-owned or controlled corporations from the General Fund to cover operational expenses not supported by corporate revenues or to cover corporate deficits and losses.
“Equity” refers to the amount received by government-owned or controlled corporations as payment of capital subscriptions and national government capital investment forming part of their capitalization.
“Internally generated funds” include funds from net revenues, depreciation provisions, income from investment in securities, sale of corporate property, and other transactions performed in the course of corporate activity.
“External sources of funds” include foreign and domestic borrowings, contributions from the National Government in the form of subsidy or capital subscription payments, sale of stocks to the public, and donations from private individuals or institutions.
“Financial institutions” refer to the Central Bank of the Philippines, Development Bank of the Philippines, Philippine National Bank, Government Service Insurance System, Social Security System, Land Bank of the Philippines, Philippine Amanah Bank, and other government financial institutions.

Operating budget preparation and format

The fiscal year of government-owned or controlled corporations begins on January 1 and ends on December 31.
The budgets must be consistent in format and timing with the National Government budget, except modifications allowed to suit the peculiarities of individual corporations.
Budgets must be formulated on the basis of an obligational authority and/or a cash basis of accounting, or variations duly approved under pertinent law.
Each government-owned or controlled corporation must prepare an operating budget consisting of:
- (1) estimates of revenues;
- (2) estimates of expenditures covering current operating and capital expenditures; and
- (3) estimates of borrowings.
The operating budget must be prepared prior to the beginning of the fiscal year, and it must be recommended by the Governing Board for consideration and final approval by the President/Prime Minister.
Government-owned or controlled corporations must accompany operating budgets with:
- a projected Balance Sheet,
- projected Profit and Loss Statement,
- projected Cash Flow Statement,
- other financial projections required, and
- the underlying assumptions.
Including financial institutions, corporations must submit as attachments:
- projected sources and uses of funds for the budget year,
- estimated sources and uses of funds for the current year, and
- actual statement of sources and uses of funds for the preceding year,
- with the latter two submissions accompanied by comparative data on the approved funds flows established for those years.
Operating budget proposals must include an assessment of economic and business conditions bearing on the corporation’s operations.
In addition to preparing an operating budget, each governing board must prepare a long term budget consisting of estimates of income, expenditure, and debt for the budget year and at least the subsequent four-year period, and capital outlay estimates must cover the cost of capital projects scheduled over the five-year period beginning with the budget year.
Corporations must prepare and submit budget estimates to ensure that they have an approved budget before incurring obligations or making payments for current operating or capital expenditures (see Expenditure authority).

Approval, budget flexibility, and changes control

Operating budget procedures must be established by the President/Prime Minister and require Governing Board recommendation and President/Prime Minister final approval.
Supplemental budgets may be proposed for approval only when supported by adequate funding sources.
Supplemental budget approval must observe the same procedures as those for the principal operating budget, unless the President/Prime Minister approves a flexible budget system for an individual corporation allowing automatic changes in the expenditure level to accompany changes in revenue, raw material, or other direct expenses.
The President/Prime Minister may delegate to the Governing Board authority to change allocations within limits and under conditions specified by the President/Prime Minister.
Changes in approved principal or supplemental budgets may be made only with approval by the President/Prime Minister, subject to the flexibility rules under Budget Flexibility.

Special rules for financial institutions and expenditures

Financial institutions’ operating budgets are subject to the review and approval process, but rediscounting, lending, and borrowing transactions are not considered part of the operating budgets for purposes of this Order.
Capital outlays within the review and approval process must include permanent investments such as equity investments in subsidiaries or affiliated companies, land acquisition, building construction, land improvements, and similar permanent investments.
Loans granted to other financial institutions are considered part of the operating budget when the effect is to increase the fringe benefits or compensation of the staff of the original lending institution, or when made for purposes allowing implementation of capital projects for use of the lending institution.
The operating budget must specify estimates of expenditure by object and must include an organization chart and itemization of personal services.
Positions may be created or reclassified, and reorganization may be affected only when approved by the Governing Board under guidelines and/or procedure issued by the President/Prime Minister.
Creation or reclassification of positions must be within approved budget levels and must comply with pertinent position classification and compensation laws.
No government-owned or controlled corporation may incur obligations or make payments for current operating or capital expenditures after the beginning of each calendar year without an approved budget under this Order.

Subsidiaries, trust funds, dividends, and accounting

Each government-owned or controlled corporation’s operating budget must be accompanied by similar operating budgets of its subsidiaries and affiliated companies.
The operating budgets of subsidiaries of financial institutions other than the Central Bank of the Philippines classified as acquired assets under Central Bank regulations must be excluded from coverage under the subsidiary-budget requirement.
Each corporation must declare at least 5% of net earnings of each year as cash dividends.
Cash dividends accruing to the National Government must be received by the Treasury and recorded as income of the General Fund.
The fraction of net earnings declared as cash dividends may be changed by the President/Prime Minister upon recommendation of the Minister of Finance.
The cash-dividend requirement does not apply to the Government Service Insurance System, the Social Security System, and those government-owned or controlled corporations whose profit distribution is provided in their respective charters or by special law.
Budgeting and accounting must be expressed in terms of the obligational authority and/or cash budget concept, or as otherwise provided under budget and accounting laws.
Trust fund budget estimates must be submitted to the President covering income and expenses associated with funds administered, managed, or held in trust by the government-owned or controlled corporation.
Transactions relating to receipts, disbursements, and disposition of the principal and accumulated net income of trust funds must not be treated as part of the corporation’s operating budget.

Compensation and administrative emoluments limits

Policies and rates on salaries, wages, allowances, per diems, consultant fees, overtime pay, and other compensation, including allowances and fringe benefits, must follow position classification and compensation and salary schemes prescribed by P.D. No. 985 and other pertinent compensation laws.
Transportation facilities, housing, retirement plans, financing programs, and other fringe benefits must follow guidelines approved by the President/Prime Minister under P.D. No. 985.
Officials and employees of a parent corporation detailed with a subsidiary corporation (or vice versa) may receive only allowances and other emoluments approved in accordance with P.D. No. 985 and other pertinent compensation law.

Donations, equity requests, and fund release mechanics

A government-owned or controlled corporation may grant donations in kind or in cash to institutions or persons authorized to receive public funds as donations or contributions, within its approved budget limits.
Donations and contributions are allowed only if the corporation’s operating revenues, net of expenses, are sufficient to cover the donations and contributions.
Government-owned or controlled corporations may propose payment of National Government capital stock subscriptions and allocation of subsidy payments as a budgetary request submitted in response to the annual budget call issued by the Ministry of the Budget for preparation of the annual General Appropriations Bill.
Corporate equity investments must be within the limit of the authorized capital stock of the requesting corporation.
Equity investment budgetary requests must be submitted in a format and timetable determined by the Minister of the Budget.
Equity investment requests must be accompanied by projected financial statements and details of the projects for which the requested government equity investments are intended.
Funds appropriated for government equity investments and subsidies must be released upon submission of Special Budgets as provided under Section 40 of P.D. No. 1177.
Special budgets must specify the usage of such funds, including the projects to be implemented or undertaken with equity investments.

Accountability and reporting to government

The Minister of the Budget must prepare a summary of approved operating budgets of government-owned or controlled corporations.
The Minister of the Budget must submit the summary to the Batasang Pambansa on or before the last day of March of each year.
Government-owned and controlled corporations, including financial institutions, must submit an annual separate report of financial performance compared with the approved budget, explaining performance in terms of work and financial results.
Reports must be submitted for subsidiaries and affiliates of these corporations.
The Minister of the Budget must prescribe report content, including information on corporate solvency, liquidity, and profitability, and the status of capital projects being undertaken.
Reports for a given fiscal year must be submitted on or before June 30 of the following year, through the Ministry of the Budget and the President/Prime Minister, to the Batasang Pambansa, together with comparative data for the preceding year and the approved budget for the current year.
Government-owned or controlled corporations must periodically report to the Minister of Finance and the Minister of the Budget on the status of obligations entered into that are backed by government guarantee.

Implementation rules and board compliance

The Minister of the Budget must issue rules and regulations for implementing the Order.
Representatives of the National Government or the Governing Boards of government-owned or controlled corporations must pass resolutions and take other action necessary to comply with the Executive Order.