Statement of Reform Objectives

The PFM reform program seeks to clarify, simplify, improve and harmonize the financial management processes and information systems of the public sector and, as necessary, reengineer and integrate the relevant systems in the COA, DBM, DOF and implementing agencies. The desired result is that the national government is able to perform its functions of maintaining fiscal discipline, fund allocation efficiency and operational efficiency for effective delivery of public services.

By 2015, it is envisioned that the core GIFMIS and a Treasury Single Account will be functioning to provide decision makers with the following benefits:

  1. Real-time on-line monitoring and control of obligations and their direct links to cash disbursements for more effective financial control and accountability;
  2. Consolidated financial management reporting requirements, using harmonized classification of budgetary, treasury and accounting accounts with standardized definitions for fiscal terminologies, as follows:
    • Budgetary accounts – appropriations, allotments, obligations and expenditures
    • Treasury accounts – cash flow statement of the National Treasury
    • General ledger accounts – assets, liabilities, equity, income and expenses
    • A single treasury account that provides BTr a more effective way of cash management, a more economical system for cash disbursements, and enables it to reconcile bank balances and remove revenue and expenditure floats;
    • A predictable and streamlined allotment and cash release programs throughout the year to support the operations of implementing agencies based on reliable cash forecasting and programming by DBM and the BTr;
    • Regular in-year reports on the status of budget execution, and timely year-end audit reports of agency financial and physical operations which will be used in the budget preparation process, the Congressional debate on agency budgets and performance, and the public’s participation in the budget process; and,
    • Systematic recording and reporting of all liabilities of government entities including guaranteed and contingent liabilities to enable national government to manage its financial exposure.

Conceptual Framework

The financial transactions of the government can be characterized as a linear flow of activities from budget formulation, authorization, execution, accounting and reporting of expenditures, and monitoring and audit. Each main activity generates information and reports that are illustrated in the graph below:

Figure 1: PFM Process, Activity and Document flow

ABM Agency Budget Matrix MDS Modified Disbursement System
ACIC Advice of Checks Issued and Cancelled NCA Notice of Cash Allocation
AGSB Authorized Government Servicing Bank NEP National Expenditure Program
BTr Bureau of the Treasury SAOB Statement of Allotment, Obligations and Balances
GAA General Appropriations Act SARO Special Allotment Release Order
LAP List of Accounts Payable SLCIC Summary List of Checks Issued and Cancelled
LDDAP List of Due and Demandable Accounts Payable

There are critical gaps between the vertical columns of activities and reports because each is governed by a set of rules and procedures that have their respective system of collecting and analyzing data to complete said activities. For instance, the appropriated budget or GAA gives the level of authorized spending for agencies but funding availability is actually determined through DBM’s budget release orders. Historically, amounts released are much lower than appropriated, due mainly to the chronic shortfall in revenues. Moreover, the amount of appropriations is usually difficult to determine due to the prevalence of reenacted budgets and substantial amounts of funds carried over from the previous year.

The system of budget execution generates budget accountability reports from spending agencies which do very little to explain the real financial performance of the agencies and the overall status of budget obligations and balances. This is partly the result of the disconnect between budget execution, reporting and monitoring. Financial reports are not presented in the same structure and expenditure classifications as the budget, hence making the analysis of agency budget performance impossible. The system is also found by the COA to be vulnerable to double-payment of accounts payable, non-transparent realignment of funds, and diversion of funds to unintended uses.

It follows that with the fragmentation of processes, financial information systems are also splintered, duplicative, exclusive and inaccessible to some important users. The tendency is for each oversight agency to develop its own set of data requirements, reporting formats, and definition of terms. The result is a messy traffic of documents and duplicative reporting requirements. Oversight agencies are unable to validate reports and the analysis is hindered by different budget and accounting classifications. The figure below illustrates this situation:

Figure 2: “Dealing with the Messy Traffic of PFM Reporting Activities”

The government intends to replace this with a systematic and orderly flow of shared data to support PFM requirements. The objective is to use the GIFMIS to solve government’s fragmented financial management system, underpinned by the effective integration of processes between COA, DBM and BTr, at its initial phase. Simplification of procedures and harmonization of reporting requirement will increase the chances of beneficial application of available integrated FMIS solutions to reduce development time and cost (by considering, for instance, off-the-shelf software package solutions).

The figure below shows a typical model of a modular but integrated financial management information system.

Figure 3: “Integrated Financial Management Information System”

At the most recent planning workshop held in Tagaytay City on January 13-14, 2011, the group identified specific objectives and strategies for clusters of related activities in preparation for the tasking of groups that will carry them out. These are the proposed PFM reform projects and four of them are initially envisaged: Budget reporting and performance management, treasury cash operations, contingent liabilities, and GIFMIS conceptual framework.  Composite sub-committees consisting of organic personnel of COA, DBM and DOF/BTr were already created to work on the four projects.