CANA’s A-Z of Public Finance Terms

THE MORE WE UNDERSTAND AND the more people understanding, the more we can actively monitor, engage and ensure transparency and accountability.

This is just an initial compilation of the Citizen Action Network for Accountability. Please help us to add, update and improve this list by sending in your ideas, terms and links for inclusion. Click on the highlighted words for more information and relevant links.


APPROPRIATIONS: An appropriation is the legal authority for Government to spend funds for a specific purpose. Automatic appropriations include things like international and national debt service interest payments, civil service pensions and Internal Revenue Allotments (IRA) among others. Automatic appropriations do not need specific authorization since they have already been authorized through previous legislation. The section dealing with new appropriations is that part of the budget subject to Congressional approval. New appropriations in the approved 2010 budget stand at PhP 914 billion. This is P3.7 billion less than 2009. New appropriations make up only 59 percent of the budget and are themselves made up of programmed and un-programmed funds.

AUDITS: There are three types of audit: the Compliance Audit; the Financial Audit and the Performance Audit. All three are equally critical to ensure that public funds are ultimately spent to best effect. Unfortunately, in the Philippines, for various reasons – many to do with limited resources and a lack of compliance by departments – most effort to date has focused on aspects of the financial audit and in checking actual receipts match up with financial statements.

The World Bank provides a good definition of the three audits. Compliance audit points to the checks carried out to evaluate how well the organization complies with and adhere to relevant policies, laws, directions, plans, and procedures. The compliance emerges as the basic element of conducting an audit. Financial audit is relevant to assessing the internal control systems that ensure the quality of accounting information and financial reporting. Financial audits include financial statement, accounts, accounting, receipts, and other financially-related issues. Financial statement audits provide reasonable assurance about whether the financial statements of an audited entity present fairly the financial position, results of operations, and cash flows in conformity with the accounting standards. Financial audits also include determining whether (1) financial information is presented in accordance with established or stated criteria, (2) the entity has adhered to specific financial compliance requirements, or (3) the entity\\\'s internal control structure over financial reporting and/or safeguarding assets is suitably designed and implemented to achieve the control objectives. Performance audit aims to review whether a particular activity is completed in a way that has produced effective, efficient, and economic results. It is viewed as an objective examination of evidence for providing a reasonable assessment of an organization’s performance.

Source: Keeping an Eye on Sub-national Governments: Internal Control and Audit at Local Levels


BIDS AND AWARDS COMMITTEE (BAC): This is a group of 5 to 7 government officials who take charge of the conduct and entire process for an agreed public procurement call. At least two members of the public are to be invited to witness the proceedings according to the terms of the 2003 Government Procurement Reform Act (see PROCUREMENT). The members of the public are obliged to prepare a report on the process as witnessed and also sign a document if they believe the process was correct and lawful. The BAC is responsible for ensuring a proper planning process as much as ensuring the bids are opened publicly and the award goes to the winner according to the law.

BUDGET: The national budget is the financial plan of the government for a given financial year. A well-functioning budget is essential for a well-functioning society and has a direct impact on the livelihood of all citizens. Weak budget management and weak systems results in weak accountability. The 2010 national budget for the Fiscal Year 2010 submitted to Congress amounted to PhP 1.541 trillion (USD 33.5 billion).

Understanding the budget is the first step towards influencing it. Influencing the budget means influencing economic policy. The more civil society can understand and demystify the budget, the more it can influence economic priorities and help allocate resources the best effect. While the government has the responsibility to produce the budget it should never be a closed process: The more secretive the process, the greater the potential for corruption and waste.

Whenever referring to the budget, we should be sure of its status. For example, are we talking about a proposed budget or an approved (enacted budget)? This leads us to the budget cycle which has four main stages: Preparation, Enactment, Execution and Reporting.

BUDGET PREPARATION: It is important to know and understand how budgets are put together each year. We should be asking the following: Do budgets start from the basis of what was agreed (or proposed to Congress) the previous year? How do they differ and evolve from one year to the next and on what basis? What is the decision making process for that? How do they reflect new strategies, thinking, learning (based on previous audit reporting) and new priorities? Are the economic data, the assumptions and the forecasts used all accurate? In the preparation stage there is a lot media, civil society and the public at large can do to help ensure budget preparation is not a closed and secretive process. It is, after all, one of the most important public finance documents there is. If we don’t know or understand that, we will not be in any better position to help build transparency and accountability.

BUDGET ENACTMENT: This is where the budget is discussed, altered and ultimately approved by Congress. In the event it is rejected (or more typically, lawmakers run out of time), the government can implement a reenacted budget until its successor is approved. This allows the government to effectively reallocate a lot of funding as it sees fit for the period concerned given most if not all of the previous year’s projects will have been both completed and funded by the previous year’s budget. The enactment stage of a budget offers the public an ideal opportunity to ensure debate focuses upon ensuring the budget meets the collective national interest and is not an opportunity “pork barrel,” localized or other vested interests.

BUDGET EXECUTION: The policy and plan of the government is carried out through the program and the spending. There is ample opportunity for the public to be actively involved in active monitoring and ensuring quality control of the work. With costly infrastructure projects this can mean ensuring the specifications are fully met and monitoring all work and expenditure carried out by sub contractors. Delays, increases in expenditure, substandard work, procurement issues, poor management and waste are all areas which need to be publicly monitored and reported.

BUDGET REPORTING (and Audit Performance): This is when government auditors account and assess budget spending for effectiveness. Some government auditors say this part of the budget process is not well understood or covered by the media. Some former heads of the Commission on Audit also say that more effective auditing is necessary to ensure effectiveness: The public (media, civil society and the general public) can help ensure there is a full audit that includes looking at relevance and value for money --not just expenditure. The media can also ensure audit information is properly disseminated and understood widely for reasons of learning and accountability.

BUDGET TIMING: The budget has to be submitted to Congress for consideration and debate by the President within 30 days of the State of the Nation Address which falls on the third week of July. The formal names of the documents submitted that jointly make up the budget are the Budget of Expenditure and Sources of Income (BESF); the Budget Message; the National Expenditure Program (NEP) and the Staffing Summary. The submission is sent to both the House of Representatives and the Senate on the same day and is also known collectively as the General Appropriations Bill (GAB). If and when it becomes law, the budget is also known as the General Appropriations Act (GAA).

BUREAU OF INTERNAL REVENUE: This is the government body legally responsible for assessing and collecting all internal (national) revenue taxes and charges. Over the years it has been accused of poor enforcement and efficiency in collecting taxes. In 2009 the BIR suffered a shortfall in projected revenue of PhP 55 billion (USD 1.1 billion). Former BIR commissioner turned Representative Liwayway Vinzons-Chato recently recommended its abolition in favor of the Philippine Revenue Authority – a new body which would have wider powers including responsibility for collecting customs tax. In 2006, the newly appointed BIR head Jose Mario Bunag claimed the agency was collecting only 70 per cent of what was due. He put much of the blame on “well known individuals and companies” and complained that many were too well connected to be successfully prosecuted. Bunag was also reported as saying the key to improving the performance of the BIR was “publicity.” Seen as a strong reformer by many, Bunag was subsequently forced out of his job by senior government officials.

BUDGET EXPENDITURE AND SOURCES OF FINANCE (BESF): This is one of four documents submitted by the President to Congress that jointly make up the budget.


CORRUPTION: Corruption is typically defined as being the abuse of power or position for private benefit. It is a more comprehensive term that graft. Private businesses and public officials may equally be accused of corruption, since the crime is essentially the abuse of laws for private gain. Corruption does not simply concern the illegal use of public money even though this is what the Philippine Public Transparency Reporting Project is currently focused on. Separate from corruption is the illegal use of public funds. With the latter, if proven, laws have been broken and funds have not been used according to the law that appropriated them, yet no private gain was involved. Therefore it is not correct to allege corruption in all cases of illegal public spending. Opinions about the causes of corruption are varied. Many people however agree with the equation presented by Robert Klitgaard:

Corruption = Monopoly Power + Discretion – Accountability

Corruption ultimately thrives where leaders are either unwilling or unable to manage the government machine for the public good. In his Anti-Graft Guidebook, former Commission on Audit Commissioner Sofronio Ursal writes: “When leaders…repeatedly deviate from established standards, their followers will eventually come to regard such deviations either as tolerable exceptions to the rule, or as new norms of behavior to be emulated.”

While many blame corruption on cultural traditions and cultural legacies, others believe that to be a convenient excuse rather than a reason. Ultimately corruption happens and continues to thrive because people both as individuals and as a group allow it to.

A 2008 Social Weather Station survey found the majority of people surveyed in Manila, Cebu and Davao agreeing with the statement that there was ‘a lot of corruption’ in the public sector. It also found less than one in every three people in Manila believing the main national departments and agencies were ‘sincere’ in fighting corruption. The Office of the President was perceived to be the most ‘insincere’ in fighting corruption.

Citing a report from the Economist Intelligence Unit in 2004, The Philippine Star claimed that between PhP 160 to 240 billion (USD 3.5 to 5.2 billion) or around 20 per cent of the national budget was lost to corruption. The same percentage was cited by then President Joseph Estrada according to a Philippine Daily Inquirer story in 1998. While the figure of 20 per cent is still frequently cited by commentators and public figures, institutions like the World Bank and the Asian Development Bank typically refrain from publishing estimates because a reliable figure is probably impossible to determine because of the nature of the crime.

COMMISSION ON AUDIT: The COA is the country’s supreme audit body. It serves to: (a) examine, audit and settle accounts relating to the revenues, receipts and expenditures and other uses of funds and property owned by the government; (b) submit a report covering the financial condition and operation of the government and its agencies and to recommend measures necessary to improve their effectiveness and efficiency: and (c) provide information on the affairs of the government so as to promote accountability, transparency, economic, productivity and effectiveness.

The Commission is a constitutional (not a presidential) body and so its powers and independence derive from the Constitution and not the government. Its budget however is set by Congress and its commissioners are appointed by the President for a seven-year term. Former commissioners have likened the organization to a dinosaur which is desperately in need of reform. They have also suggested that while the Commission is good at basic auditing practices –such as ensuring filed receipts match reported income, it is not so effective at delivering on its overall remit as set down by the Constitution. It is not therefore effective in determining overall value for money or driving change and improvements in government fiscal behavior (see performance audit). Attempts to audit and check on departments like the BIR have been reportedly thwarted. This is despite the Constitution clearly stating that:

“The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle 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, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters, and on a post- audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. (Article IX, D Section 2).


DISBURSEMENTS: Public funds can only be released or disbursed by the National Treasury if they has been duly appropriated by law and as part of the overall appropriation (budget) agreed and passed into law by Congress.

DISALLOWANCE: According to Article IX-D of the Constitution, ‘irregular, unnecessary, excessive, extravagant or unconscionable expenditures or uses of government funds and properties’ may be disallowed by the Commission on Audit which is also provided ‘exclusive authority’ to define the scope, methods and techniques of its audits and ‘examinations’.

DISCRETIONARY FUNDING: See Special Purpose Funding.

DEPARTMENTAL EXPENDITURE: While many people might think the budget is largely taken up by departmental expenditure –it actually constitutes only a small part of it. While the 2010 budget represents an increase of 8 percent from 2009, departmental expenditure has actually decreased from 2009 and currently stands at PhP 659 billion (USD 14.3 billion). Meantime Special Purpose Funds were increased in 2010 by 23.22 percent and now enjoy a total budget of PhP 881.87 billion (USD 19.17 billion). According to the 2010 submitted budget , the Department of Education was due to receive PhP 172.8 Billion (USD 3.7 billion, inclusive of the School Building Program); the Department of Public Works and Highways was to get PhP 105.2 billion (USD 2.3 billion); the Department of the Interior and Local Government to receive PhP 65.4 billion (USD 1.42 billion); the Department of National Defense, PhP 57.7 billion (USD 1.25 billion); and the Department of Agriculture (inclusive of its Agricultural and Fisheries Modernization Program), PhP 37.8 Billion (USD 821 million).

DEVELOPMENT BUDGET COORDINATION COMMITTEE: The DBCC is composed of the Finance, Budget and Socioeconomic Planning secretaries, and a representative each from the central bank and Malacañang Palace. It meets to review and recommend various spending levels and allocations to the President including economic and social operating activities, debt servicing and capital outlays.


FRAUD: Documentation and election fraud are just two examples of fraudulent practices which are rife in the Philippines. Documentation fraud of various kinds in both the public and private sector is a critical problem: In December 2009, the British Embassy reported that banking documentation fraud accounted for 21 percent of all cases of fraud encountered by their visa officials.

FREEDOM OF INFORMATION: Free access to information is guaranteed by the Constitution – but is not yet codified by law. The result is the right to information is very much protected in principle – but not in fact. Despite judicial affirmation of such a right, the lack of a clear and defining law has helped to ensure denial of access to official information remains widespread across the country. A clear enabling law supporting freedom of information and the public right to know has yet to be passed. A FOI bill heralded by many legislators as one of the most important to have come before the 14th Congress failed to pass into law on in February 2010 when the House of Representatives failed to vote on it before adjourning. The Bill had already been voted through by the Senate.

FUNDAMENTAL PRINCIPLES OF THE GOVERNMENT AUDITING CODE (as taken verbatim from Section 4 of the Code: 1) No money shall be paid out of any public treasury or depository except in pursuance of an appropriation law or other specific statutory authority: (2) Government funds or property shall be spent or used solely for public purposes: (3) Trust funds shall be available and may be spent only for the specific purpose for which the trust was created or the funds received: (4) Fiscal responsibility shall, to the greatest extent, be shared by all those exercising authority over the financial affairs, transactions, and operations of the government agency: (5) Disbursements or disposition of government funds or property shall invariably bear the approval of the proper officials:(6) Claims against government funds shall be supported with complete documentation: (7) All laws and regulations applicable to financial transactions shall be faithfully adhered to: (8) Generally accepted principles and practices of accounting as well as of sound management and fiscal administration shall be observed, provided that they do not contravene existing laws and regulations.


GRAFT: The term is often used interchangeably with corruption by many, yet is probably better used to describe illicit benefit gained from public office alone.


ILLEGAL USE OF PUBLIC FUNDS: With the latter, if proven, laws have been broken and funds have not been used according to the law that appropriated them, yet no private gain was involved. Therefore it is not correct to allege corruption in all cases of illegal public spending. - income, intelligence funds, Internal Revenue Allotments (IRA).


LIFESTYLE CHECKS: See Statement of Assets and Liabilities

LOCAL GOVERNMENT SPENDING AND FINANCIAL CONTROL: According to the World Bank, “despite of the enactment of the 1991 Local Government Code to devolve more responsibilities to sub-national governments, the internal control environment and institutional arrangements for financial accountability (in the Philippines) remain extremely weak at the local level.” The Philippines was one of only seven countries selected for inclusion in a 2006 Washington-based report into the quality of auditing and financial controls in developing countries at the local government level. In particular, in the Philippines, it found “weak internal control environment, non-existent audit, and lack of timely financial information.”

The problems, it stated were largely down to a “lack of compliance with laws, rules and regulations, fraud and irregularities and overpaid public purchase and procurement.”


PHILIPPINE GOVERNMENT ELECTRONIC PROCUREMENT SYSTEM (PhilGEPS): It is the central port where the government publishes its procurement calls for all goods, projects and services. You can visit it at

PROCUREMENT: Public procurement is the acquisition of goods and services for public purposes and covers everything from which company wins the contract to build a highway or seaport to which provides government offices with stationary. Typically, the cost of procurement around the world takes up between 15 and 30 per cent of a country’s Gross Domestic Product (GDP). Historically the Philippines has suffered huge problems with corruption over procurement. Indeed, a World Bank report has maintained that the perception that the Philippines has been perceived as one of the most corrupt nations in Asia “may have stemmed from reports and studies of corruption in public procurement.”

The Government Procurement Reform Act of 2003 (Republic Act 9184) was designed to try and rationalize rules around procurement at both the national and local level and to make the same law and processes applicable equally to goods, infrastructure projects and consulting services. The Act, also known as the GPRA, was passed into law with the help of Procurement Watch, Inc. (PWI) and with very strong encouragement from the international donor community.

Under RA 9184, bidding to deliver work, services or goods is “open to participation by any interested party,” with the process including “advertisement, pre-bid conference, eligibility screening of prospective bidders, receipt and opening of bids, evaluation of bids, post-qualification and award of contract, the specific requirements and mechanics...”

Under the law, the winning bid is that one which meets the “minimum specifications at the lowest price.”

For more information about the law and process surrounding Public Procurement including the composition of and requirements for the Bids and Award Committee, click here.

Despite improvements in the public procurement process, the law still allows for non-competitive bidding. This opens the process up to possible abuse.

 Non competitive bidding includes limited source bidding, direct contracting and repeat ordering. While repeat ordering may lead to efficiencies and savings in terms of the process (for example if the BAC wishes to make a bulk re-order of stationery), it reduces transparency and can lead to attempts at price fixing or manipulation. Limited source bidding and direct contracting work against the spirit of public procurement despite their inclusion in the 2003 law: The media and the public should therefore closely monitor and question all attempts to issue government awards under these kinds of calls as they are more prone to abuse.

Transparency International has published a very useful handbook on combating corruption in public procurement which can be read and downloaded here.

POWER OF THE PURSE: The “power of the purse,” as defined by James Madison, one of the founders of the US Constitutional system, belongs to Congress and is subject only to the veto power of the President. The President may propose the budget, but still the final say in the matter of appropriations rests with Congress. The Supreme Court (235 SCRA 506), has unequivocally upheld the primacy of Congress to decide and determine the budget, finding: “The power of appropriation carries with it the power to specify the project or activity to be funded under the appropriation law. It can be as detailed and as broad as Congress wants it to be.


REVENUE: Determining realistic revenue targets is crucial in planning the appropriate level of public spending. Overestimating revenues worsens the deficit and destabilizes the overall economic position.


SPECIAL PURPOSE FUNDS (SPF): Referred to by some as the Presidential Pork Barrel, these flexible funds comprise more than half of the new allocations in the 2010 budget (PhP 881,879,847 billion out of a total PhP 1.541 trillion). While a large part of special purpose funds goes directly to servicing government debt and is therefore an automatic allocation, billions of pesos are earmarked for new allocations which are not broken down in the 2010 National Expenditure Program beyond single line explanations on the Department of Budget and Management website. Thus more than PhP 35 billion is being allocated as budgetary support to government corporations in 2010; PhP 6.940 billion is going towards the Priority Development Assistance Fund and more than PhP 76 billion allocated to the Miscellaneous Personnel Benefits Fund. Exactly half of the 14 line items in the 2010 Special Purpose Funds show round number allocations – for example, exactly one billion pesos is earmarked for the Government E Fund; exactly 5 billion pesos is earmarked for AFP modernization and a further one billion pesos to the General Fund Adjustment. A further PhP 800 million pesos is earmarked for the Contingent Fund. This is separate from the PhP 2 billion allocated to the Calamity Fund.

Under President Estrada who was removed from office on corruption charges, special purpose funds comprised 39 per cent of the budget. Currently they stand at 52 per cent. The result is less funding is being made available for basic services like education or social care. Many media commentators and former public officials complain that Congress is systematically failing in its duty by failing to subject the issue of Special Purpose Funds to rigorous debate.

STATEMENT OF ASSETS AND LIABILITIES AND NETWORTH (SALN): Under the Constitution, all public officials and employees are obliged to file statements of assets and liabilities in an attempt to combat corruption. However, the point of them and their practical value remains negligible because the judiciary, and in particular the Supreme Court has continually ruled against their public disclosure. According to the Philippine Center for Investigative Journalism which has reported extensively on SALNs, the Supreme Court even turned down requests from the Office of the Ombudsman for the self declarations of two judges.

“A public officer or employee shall, upon assumption of office and as often thereafter as may be required by law, submit a declaration under oath of his assets, liabilities, and net worth. In the case of the President, the Vice-President, the Members of the Cabinet, the Congress, the Supreme Court, the Constitutional Commissions and other constitutional offices, and officers of the armed forces with general or flag rank, the declaration shall be disclosed to the public in the manner provided by law.”

Only officials and employees who serve in an honorary capacity (i.e. without pay), or who are temporary or contract employees are exempt. The law demands that the statement includes the current market value of all property and all kinds of money and investments (cash, accounts, stocks and bonds), as well as financial liabilities and also financial connections and business interests “whether as proprietor, investor, promoter, partner, shareholder, officer, managing director, executive, creditor, lawyer, legal consultant or adviser, financial or business consultant, accountant, (or) auditor.”

Also sometimes referred to as lifestyle checks, the SALN actual consists of two forms: the Baseline Declaration and the Annual Declaration. The Philippine Civil Service Commission website publishes the forms as well as an extensive guide on how to fill them in.

The origins of the SALN stem from the Republic Act of 1379 dating from 1955 which stipulated that any property unlawfully gained during public service has to be forfeited. It was followed in 1960 with the Republic Act 3019 – also known as the Anti-Graft and Corrupt Practices Act with a specific section (section 7) on the need for regular filing of statements of assets and Liabilities. The law now stipulates that the declaration must include the assets of the employee’s spouse alongside those of all children under 18.<

The Office of the Ombudsman writes in more about the SALN here.

In August 2009, the PCIJ published an extensive report and accompanying documents suggesting that President Arroyo’s declared net worth increased by 2,000 per cent since she first became a senator. It also claimed that the President’s annual SALNs are far less detailed than those of her predecessors. You can read the PCIJ report here.


TAXES: The Bureau of Internal Revenue has a very poor record of collection – particularly from the business and political elite. Many international financial experts cite inefficient tax collection as evidence of an inept administration and underlying structural problems in a country’s administration. Poor tax collection results in an increase in the levying of indirect or consumption taxes. Imposing such taxes (i.e. on fuel or transport) has a disproportionate effect on the poor as well as on those who dutifully file their tax returns.


UN-PROGRAMMED FUNDS: These can only be used if revenues exceed targets (i.e. new sources of real income are identified). Programmed funds are thus the only ones actually covered in the budget by identified revenue. While departmental budgets have gone down in the 2010 budget, Special Purpose Funds have been increased 23.22 percent despite the World Bank questioning their legality and transparency.

UNLAWFUL EXPENDITURE: See Illegal Expenditure

Compiled by the Philippine Public Transparency Reporting Project