POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

BACHELOR’S DEGREE ON PUBLIC ADMINISTRATION

LOPEZ, QUEZON BRANCH

INSTRUCTIONAL MATERIAL FOR PUAD 20083

COMPILED BY:

ISAIAS B. UBANA II PhD

Course Specialist
 Polytechnic University of the Philippines
Lopez, Quezon Branch

COURSE INFORMATION

I. Course Code : PUAD 20083

II. Course Title : Public Accounting and Budgeting
III. Credit : Three (3) units
IV. Course Specialist : Hon. Isaias B. Ubana II, PhD

V. General Course Objective:

This course introduces the concept and general principles of public accounting and
auditing in the national and local government. The course discusses the function, objectives,
and features of public accounting including the generally accepted (State) accounting and
reporting standards, policies and principles.

VI. Course Outcome/s:

At the end of the course, students are expected to:

1. Be familiar the concept of public accounting and auditing its relation to the general operations
of the national and local government.

2. Acquire the essential learning as to the relationship of accountability, responsibility and

authority as it relates to accounting and auditing principles and standards in the context of
Philippine Public Administration.

3. Seek to apply in their personal lives and in their dealings with institutions of government such
features of accountability, authority, responsibility and transparency leading towards good
citizenship and productive citizens of the community and of the Republic.

VII. Learning Outcomes:

Module 1: Understand the various concepts and issues related to Government accounting and
the importance of accountability and assertions.

Module 2: Acquire knowledge in the various state accounting principles being implemented in
the Philippine Government System in relation to revenue generation and disbursement of public
funds.

Module 3: Learn the basic government accounting system as it is applied in the context of the
Philippine local governments.

Module 4: Learn the intricacies of State Auditing including its scope and functions and the
general framework and functions of the Commission on Audit (COA as the principal government
agency enforcing audit standards and accountability.

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 TABLE OF CONTENT

COURSE INFORMATION -------------------------------------------------------- 1

TABLE OF CONTENT ---------------------------------------------------------------- 2
COURSE OUTLINE ----------------------------------------------------------------- 3
GRADING SYTEM ----------------------------------------------------------------- 4
COURSE METHODOLOGIES -------------------------------------------------- 4
REFERENCE MATERIALS -------------------------------------------------- 4
EXAMINATION/ASSESSMENT -------------------------------------------------------- 5

MODULE 1: CONCEPTS AND ISSUES -------------------------------------- 6

A. Government Accounting Defined ---------------------------------------- 6

B. Functions and Objectives of Government Accounting ------------- 9
C. Salient Features of Government Accounting ------------------------ 12
D. Relationship between Accountability, Responsibility and Authority - 14
E. Assertions -------------------------------------------------------------------- 15
MODULE 2 – STATE ACCOUNTING PRINCIPLES ------------------------- 17

A. Sources of support (Primary & Secondary) --------------------------- 17

B. General Provisions, Basic Standards and Policies ------------------- 19
C. Principles for Revenue ---------------------------------------------- 22
D. Principles for Disbursement of Public Funds --------------------- 23
MODULE 3 – GOVERNMENT ACCOUNTING SYSTEM FOR
LOCAL GOVERNMENT UNITS (LGUS) ----------------------------------- 25

A. Basic Features and Policies --------------------------------------- 25

B. Budgetary Accounts -------------------------------------------------- 27
C. Borrowings ----------------------------------------------------- 30
D. Trial Balance, Financial Reports and Statements ------------- 39
E. Special Funds -------------------------------------------------- 41

MODULE 4 – STATE AUDITING ------------------------------------ 43

A. Definition of State Accounting -------------------------------------- 43

B. Classification of Audit --------------------------------------------- 43
C. Scope of Audit ---------------------------------------------------- 44
D. Legal Framework of the Commission on Audit (COA) --------------- 45
E. Functions of the Commission on Audit (COA) ------------------ 46

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 V. Course Outline:

Module 1: Concepts and Issues

 Government Accounting Defined

 Functions and Objectives of Government Accounting
 Salient Features of Government Accounting
 Relationship between Accountability, Responsibility and Authority
 Assertions

Module 2: State Accounting Principles

 Sources of support (Primary & Secondary)

 General Provisions, Basic Standards and Policies
 Principles for Revenue
 Principles for Disbursement of Public Funds

Module 3: Government Accounting System for Local Government Units (LGUs)

 Basic Features and Policies

 Budgetary Accounts
 Borrowings
 Trial Balance, Financial Reports and Statements
 Special Funds

Module 4: State Auditing

 Definition of State Accounting

 Classification of Audit
 Scope of Audit
 Legal Framework of the Commission on Audit (COA)
 Functions of the Commission on Audit (COA)

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VI. Course Requirement and Grading System:

1. Class Standing 50%

2. Examination/s 50%

TOTAL 100%

VII. Course Methodologies:

1. Lecture
2. Class Participation: Discussion
3. Examination

VIII. Reference Materials:

1. Presidential Decree 1445, otherwise known as: “ORDAINING AND INSTITUTING A

GOVERNMENT AUDITING CODE OF THE PHILIPPINES”.
2. Philippine Public Sector Accounting Standards, Volumes 1-3, Published by the
Commission on Audit (COA).
3. General Auditing Manual, Volumes 1-3, Published by the Commission on Audit
4. Ursal, S.B., (2008), Philippine Government Auditing. Good Governance Books, Quezon
City
5. Budget Operations Manual for Local Government Units (2016 Edition), Bureau of Local
Government Finance (BLGF), Department of Finance (DOF),

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 EXAMINATION/ASSESSMENT

Mid-Term Examinations:

1. What are the three systems of state accounting in the Philippines under the New
Government Accounting System (NGAS)?
2. What are three (3) types of governmental organizational units:
3. What are Generally Accepted (State) Accounting Principles?
4. What are two (2) sources of support (primary and secondary sources)?
5. What is an Accrual basis?

Final Examinations:

1. What is the one fund concept in local government accounting?

2. Explain the General Accounting Plan in the Local Government Unit?

3. What are the main sources of income of LGUs?

4. Explain the concept of State Auditing?

5. Enumerate and explain the different scopes of State Audit:

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 Module 1
Concepts and Issues
INTRODUCTION
Public office is a public trust and that public officers and employees must at all times be
accountable to the people, the 1987 Philippine Constitution provides.
This captures the essence of government accounting and auditing as instruments of
administrative control and accountability.
STATE ACCOUNTING: DEFINITION and SCOPE
State accounting is the process of analyzing, recording, classifying, summarizing and
communicating all transactions involving the receipt and disposition of government funds and
property and interpreting the results thereof.
Accounting and financial management systems are established as key points of control.
Accountability requirements are satisfied in part by internal controls dealing with the
handling of financial transactions.
These controls are set up to ensure that all financial transactions are in compliance with
applicable laws and regulations.
All assets, funds and resources are safeguarded by same controls against waste, loss or
improper use.
State accounting is relevant to management for decision-making in the areas of
planning, budgeting and a basis for internal control.
The accounting system provides data useful for administrative control of program
operations and for the evaluation of planned performance and accomplishment of program
objectives.
State accounting is seen mainly as an accountability device for public receipts and
expenditures. Performance measurement and managerial functions seem, however, to be
neglected.
STATE ACCOUNTING SYSTEMS in the PHILIPPINES
The three systems of state accounting in the Philippines under the New Government
Accounting System (NGAS) are as follows:
a. National Government Accounting

This is used by the different departments, bureaus, offices, and the regional offices and
operating units or field offices of these agencies.
The legislature appropriates fund, the Bureau of the Treasury acts as the bank, the
government agency spends the money and keeps a record of its operating costs, and the
Commission on Audit (COA) keeps a general account or maintains the surplus accounts in
relation to the sources and releases of appropriations, the adjusting and closing entries on the
expenditures and income by the different government agencies.

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 The COA consolidates the trial balances and financial statements submitted by the
national government agencies at the end of each year into the annual financial report of the
national government.
b. Local Government Accounting
This is used by the provinces, cities and municipalities.
At the end of each fiscal year, the local government units (LGUs) submit their trial
balances and financial statements to COA for consolidation into the annual financial report for
local governments.
c. Commercial Accounting
This system strictly follows the commercial accounting system adopted by private
corporations.
The COA consolidates the financial statements submitted by the government-owned
and/or controlled into the annual financial report of GOCCs.
FUND ACCOUNTING
A fund is a fiscal and accounting entity with a self balancing set of accounts recording
cash and other financial resources, together with all related liabilities and residual equities or
balances, and changes therein, which are segregated for the purpose of carrying on specific
activities or attaining certain objectives in accordance with special regulations, restrictions, or
limitations.
Fund Accounting is a system used by non-profit organizations, particularly governments.
The main purpose is stewardship of financial resources received and expended in compliance
with legal requirements. Financial reporting is directed at the public rather than investors.
Presidential Decree 1177 (July 30, 1977) expresses the "one-fund" concept requiring
that all income and revenues of the government must accrue to the General Fund so that they
can be freely allocated to fund programs and projects of government.
The NGAS adopts the one-fund concept.
Separate fund accounting is done only when specifically required by law or by a donor
agency or when otherwise necessitated by circumstances.
The concept needs only one set of books of accounts with the appropriate ledger
accounts for specific projects using the project or the responsibility center code.
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 a direct responsibility for its performance.

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 It is a system that measures the plans (by budgets) and actions (by actual results) of
each responsibility center.
The following are the purposes of Responsibility Accounting

a. 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.
b. Provide a basis for making decisions for future operations.
c. Facilitate the review of activities, monitoring the performance of each responsibility
center, and evaluation of the effectiveness of agency’s operations.
FINANCIAL REPORTING SYSTEM
NGA financial reporting system includes the preparation and submission of trial
balances, financial statements and other reports needed by fiscal and regulatory agencies.
The financial statements and their supporting schedules are the products of the
government accounting processes.

These are the principal means by which the information accumulated and processed in
the government accounting system is periodically communicated to the users of the information.
The financial statements to be prepared under NGAS are:
• Balance Sheet
• Statement of Income and Expenses
• Statement of Government Equity (not required in Local Government Units)
• Statement of Cash Flows
Balance Sheet: statement showing the financial condition of an agency “as of” a certain date.
• It illustrates an agency’s financial health. It also includes information on the three
elements of financial position – assets, liabilities and government equity.
• It is called a Balance Sheet because the Assets must equal (balance) the Liabilities and
Government Equity.
• It is prepared from information taken directly from the year-end Post-Closing Trial
Balance.
Statement of Income and Expenses: the result of operations of an agency for a given period.
• It comprises the revenue/income, expenses and net income/loss.
• This statement shows the surplus or deficit for the current fiscal year.
• It is prepared from information taken directly from the Pre-Closing Trial Balance.

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 Statement of Government Equity: the financial transactions which resulted in the change
in Government Equity account at the end of the year.
Statement of Cash Flows: statement summarizing all the cash activities of an agency.
This includes the operation, investment and finance activities of the agency and provides
information on the cash receipts and cash payments during the period. The purpose of the
Statement of Cash Flows is to give relevant information on the agency’s overall cash position,
liquidity and solvency. With the Statement of Cash Flows, managers, investors, and creditors
easily assessed if the agency could meet its obligations in operating, investing and financing
activities.
The National Government of the Philippines

The government is the largest financial organization in terms of assets, liabilities, capital,
sources of income and items of expenditures.
Largest entity in terms of number and quality of personnel, facilities and
instrumentalities, which are used to serve the social, political and economic needs of the nation.
The government has as many departments, commissions or offices as necessary to be
able to carry out its functions:
promotion of social welfare, development of national wealth, defense of the state from internal
and external aggression, promotion of justice, promotion of trade and industry, general
government and protection of private rights of the people.
Government Accounting Defined (Section 109 of PD 1445)
Government Accounting encompasses the processes of analyzing, recording,
classifying, summarizing and communicating all transactions involving the receipt and
disposition of government funds and property and interpreting the results thereof.
Government accounting is a service activity.
Three (3) types of governmental organizational units:

 National Government Unit(LGU) – are agencies that includes all departments, bureaus,
offices, boards, commissions, councils state colleges and universities.
• Local Government Unit(NGAs)- political subdivisions of the Philippines having
substantial control over local affairs, consisting of provinces, cities, municipalities and
barangays.
• Government Owned or Controlled Corp(GOCC)- are agencies organized by law or
pursuant to law, vested with functions relating to public needs whether government or
propriety in nature, owned by the government directly or through its instrumentalities
either wholly or, where applicable as in case of stock corporation, to the extent of at least
fifty one % of its capital stock.

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FUNCTIONS OF GOVERNMENT ACCOUNTING
To provide quantitative information primarily financial in nature about the operations of the
government, both national and local, to be used by the administration in making decisions for a
more effective and efficient public service.
OBJECTIVES
1. To provide quantitative information concerning past operations and present conditions.
2. To provide a basis for guidance for future operations.
3. To provide for control of the account of public entities and officers in the receipt, disposition
and utilization funds and properties, and
4. To report on the financial position and the result of the operations of the government
agencies for the information of all persons concerned.
Users of Government Accounting Information:
1. The General public or citizenry
2. The Governing and oversight bodies: The President, Cabinet, COA, Legislative Body.
3. The managers/administrators who are in-charge of carrying out the policy and daily
conduct of government affairs.
4. The students of public finance
5. The resource providers of the government such as:
6. Donors or grantors
7. Lenders, suppliers and employees whose main concern is to know whether the
government can pay its obligations to them.

DISTINCTIONS BETWEEN GOVERNMENT AND COMMERCIAL ENTERPRISES

1.Ownership - Private enterprises are owned by a relatively few stockholders, partners,
or owners. The government represent the entire people in a given community.

2. Purpose - Private enterprises are organized primarily to make profits. The government is set
up mainly to render service at lowest possible cost to its constituents.

3. Organization - The organization of a private enterprise is a succession of authority and

responsibility starting from its stockholders who delegate them to a duly elected board of
directors which in turn organize its own staff of officers in whom the responsibility of managing
the affair of business is reposed. The responsibility and authority of a government entity in our
system lies in Congress.

4. Financing - Private enterprise is supported for its finance primarily by the voluntary
contribution from its members or stockholders which constitute as their share of capital or
investment in the business. The government is vested the exclusive right to demand involuntary
contributions from its constituent in the form of taxes.
5. Income - In private enterprise, the capital investment of stockholders are made to generate
return in the form of profits for services rendered or good sold. The government which is

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organized primarily to render service, cannot make profits on the services it renders. To support
the estimated annual cost of government, taxes are levied.

DISTINCTION BETWEEN GOVERNMENT AND COMMERCIAL ACCOUNTING

1. Objective –
CA – is geared towards income measurements aside from control of company resources.
GA - is control of government funds to see to it that they are properly utilized and provide
data to management for decision.

2. Basis of Accounting -
CA – either cash or accrual method is used but not a combination of both.
GA - the modified accruals basis of accounting is used.
3. Preparation of periodic reports –
CA – Statement of Financial position, Statement of Cash Flows
GA - Balance sheet, statement of income and expenses, statement of government
equity and statement of cash flows.
4. Control Mechanism –
CA – none
GA – Fund accounting, obligation accounting and CDC accounting
5. Books of Accounts –
CA - only one set is kept
GA - two books are kept (a) Regular Agency (RA) Book and (b) National
Government (NG) Books.
6. As to accounts and transactions –
CA - Nominal and Real Accounts are used.
GA - includes budgetary accounts such as Appropriation, Allotments and Obligations
are maintained.
7. Source of Accounting practice and procedures –
CA - dictated by nature of business and policies of management
GA - laws, rules and regulations
Decision-making Process in Government
The decision-making process in government is an important aspect of the environment
of state accounting because accounting information is intended to be useful in making economic
decisions and in making reasoned choices among alternative courses of action. The ultimate

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authority for decision-making in the Philippine government rests with the people. This authority
is exercised through duly elected representatives, acting as agents of the people. It is the
sovereign right of the people to change them if the authority is misused or abused.
The President, as chief executive, formulates national policies, which specify the goals of
government and determine the courses of action that the government should take in different
aspects of public affairs. On the basis of national policy, the President submits a budget to the
legislative body for consideration and processed until approved and passed into a law. At all
levels of government, decision-making should comply with existing laws and regulations.
Questions and issues involving the settlement of money claims, determination of dispute or
settlement of a controversy on the issue as to legality and/or propriety of such claims are
submitted for resolution to the COA in connection with the discharge of its audit function.
Questions involving legal interpretation and/or application of law are submitted for decision to
the courts.
Salient Features of Government Accounting

The financial resources of the Government are very limited. It relies heavily on collected
taxes. This means that it has to operate through a system of fiscal and accounting controls. The
following control mechanisms adopted as sub-systems of government accounting are not
adopted in commercial accounting:
• Fund Accounting
• Obligation Accounting
• Cash Disbursement Ceiling (CDC) Accounting
Fund Accounting. A fund is a sum of money or other resources set aside for the purpose of
carrying out specific activities or attaining certain objectives in accordance with specific
regulations, restriction, and limitations.
The two major classification of funds as to purpose for which they may be used:
1. General Fund – one which is generally available for all functions of the government.
2. Special Fund - one which, by legislative action, segregates specified revenues for limited
purposes.

Obligation Accounting. As a control mechanism of government accounting system,

obligation accounting provides the ceiling of the maximum extent by which an agency can incur
obligations or commit the resources of the government in the performance of its functions.
With obligation accounting, an agency can operates only within the amount actually
released to it by the DBM, which is within or covered by the amount approved appropriation.
Obligation accounting refers to the accounting practice, procedures and techniques for
recording obligations in the government.
Cash Disbursement Ceiling Accounting. The cash disbursement ceiling accounting is
another control mechanism of government accounting system. The cash operations of the
government under the cash disbursement ceiling accounting are limited within the boundaries of

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the appropriations release to government agencies in the form of allotments, and any additional
amount granted by the DBM to liquidate or pay existing valid obligation.
Accounting Responsibility - Under PD 1445, accounting responsibility for all government
funds and property is entrusted, immediately and primarily, to the head of the government
agency or office. It is the duty of the head of the agency to take reasonable steps to minimize, if
not to avoid the risk of losses, defalcations and other types of irregularities in the utilization of all
government resources (to safeguard the resources of the government under his custody) and
periodic reporting to concern authorities. His responsibility, however, is supervised by higher
authorities and government bodies. The officer in possession or custody of government funds or
property by reason of his duties are accountable for the safekeeping thereof. As such, he shall
be properly bonded.
The Head of the agency is made immediately and primarily responsible for all government
funds and property pertaining to his agency.
Secondary responsibility is made to rest on the persons entrusted with the actual
possession or custody of the funds or property. They are the accountable officers and are
immediately responsible to the agency head.The imposition of primary responsibility on the
agency head for government funds and property is in keeping with the concept of fiscal
responsibility which now lodge with agency head.

The head of the agency shall exercise the diligence of a good father or a family in supervising
accountable officers to prevent the incurrence of loss of government funds and property,
otherwise, he shall be jointly and solidarily liable with the person primarily accountable
thereof. Although supervisory work of government accounting is vested upon to the Commission
on Audit, accounting responsibilities in the government, by virtue of the provision of the
Constitution of the Philippines, laws, Presidential Decrees and other issuances, are shared
primarily by the Commission on Audit(COA), Department of Budget and Management, (DBM),
Department of Finance (Bureau of Treasury) and government agencies.
The Commission on Audit serves as the external auditor of the government agencies.
It is a constitutional office and its mandates are provided in Section 2, Art. IX-D of the
1987 Constitution of the Philippines. “The COA shall examine, audit and settle all accounts
pertaining to revenues or receipts and expenditures or uses of government funds and property,
keeps the general accounts of the national government, prescribes the standard chart of
accounts, promulgates accounting rules and regulations and exercise technical supervision over
the accounting functions of each agency. The office is mandated by the Constitution to submit
to the President and the legislative body within the time frame fixed by law, an annual audit
report of the government, its subdivision, agencies and instrumentalities including government
owned or controlled corporations and recommend measures necessary to improve efficiency
and effectiveness”.
The DBM is responsible for the design, preparation, and approval of the accounting
systems of government agencies, determines the accounting and other item of information
needed to monitor budget performance and assess effectiveness of the agency operation. It
prescribes the forms, schedules of submission and other component of reporting system
needed to accomplish and submit the required information. It acts on agencies’
recommendations for the modification or changes to prescribed systems for procedures to effect

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simplicity and/or meet the requirements of the peculiarities of the agencies concerned. It
approves the Agency Budget Matrix and issues the allotments to agencies in accordance with
the approved budget and issues Notice of Cash Allocation.
The Bureau of Treasury (BTr) performs banking function for the national government. It
receives and keeps government funds, controls the disbursements thereof and maintain
accounts of the financial transactions of national government agencies. It is required to prepare
and submit to the COA and other fiscal activities, a daily statements of cash receipts,
disbursements and fund balances in the National Treasury.
The National Government Agencies (NGAs) consist of various organizational units
such as departments, bureaus, commissions, boards, offices, tribunals, councils, institutions,
state colleges or universities and establishments. These agencies are required to establish and
maintain a system of accounting for their financial resources and operation in accordance with
pertinent rules and regulations. Accounts should be kept in such details as is necessary to meet
the need of agency management and furnish information to fiscal and control agencies such as
COA, DBM and BTr.
Relationship between Accountability, Responsibility and Authority
Accountability is the obligation of a public officer/employee to answer for the
responsibility conferred on him/her. It is her Responsibility to respond to the concerns of
individuals or groups, the public he/she is to serve, within the overall context of his/her
obligations for which he/she has the appropriate Authority. In government, authority is often
used interchangeably with the term "power". However, their meanings differ: while "power" is
defined as 'the ability to influence somebody to do something that (s)he could not have done',
"authority" refers to a claim of legitimacy, the justification and right to exercise that power.
Accountability Requirements From Public Officer/Employees
Section 1 of PD 1445 provide: “It is the declared policy of the State that all government
resources shall be managed, expended and utilized in accordance with law and regulations and
safeguard against loss or wastage through illegal or improper disposition, with a view to
ensuring efficiency, economy and effectiveness in the operations of government. The
responsibility to see to it that such policy is faithfully adhered to rests directly with the chief or
head of the government agency concerned.” This declaration articulates the concern of the state
for the safekeeping of the public’s resources. It focuses on how the resources shall be handled
by those given the public trust to manage, spend or use such resources.
Pursuant to this policy the State requires from public officers and employees the following:
1.Compliance with laws and regulations
- Laws and rules
- Agency policies
- Agency manuals of operations; and
- Provisions of contracts, MOA
2.Safeguarding of government resources from loss and waste

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3.Achieving goals and objectives
Assertions of Compliance with Accountability Requirements

When public officers and employees submit to the Commission their transactions,
accounts, financial reports and statements and other performance and operation reports, they
are asserting or claiming that they have complied with the foregoing accountability
requirements.
What is Assertions?
Assertion is the expressed or implied representation by management that is reflected in
their transactions, accounts, financial statements, records, reports and that they are claiming
that they have complied with the accountability requirements of the state policy.
Assertions on Compliance with Laws and Rules
When expenditures, disbursements, receipts and collections are reported to the
appropriate authorities, management is making claim that so much amount has been disbursed
or so much amount have been collected in payment of goods and services received or rendered
in accordance with laws, rules, applicable policies and practices.
Assertion on Resources Duly Safeguarded
When the agencies issue their financial reports and statements they are asserting the
following:
1.Existence or Occurrence - This deals with whether assets or liabilities of the audited agency
actually exist at a given date, and whether recorded transactions have occurred during the given
period.
2. Completeness – This deals with whether all transactions and accounts that should be
presented in the financial statements are included.
3.Rights and Obligations - This deals with whether assets are actually owned by the agency
and liabilities are the obligation of the agency at a given date.
4.Valuation or Allocation - This deals with whether or not the asset, liability, revenue and
expenses components have been included in the financial statements at appropriate amounts.
5.Presentation and Disclosure – This deal on whether particular components of the financial
statements are properly classified, described and disclosed.
Assertions on Achievement of Goals and Objectives (Performance or Value for Money
Accountability)

When the agencies prepare and submit to proper authorities their reports on the
performance of an activity or a project, the agency is asserting that they used and managed the
resources for that activity or project in an economical, efficient and effective manner.
Performance of government entities is measured from the point of view of economy, efficiency
and effectiveness.

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Economy refers to the reasonableness of cost incurred. Measuring economy will determine
whether the agency has been performing at the least possible cost or under the terms most
advantageous to the government.
Efficiency refers to the relationship between goods or services produced and resources used to
produce them. The measurement of efficiency involves the determination of whether an agency
is managing or utilizing its resources in an efficient manner as well as establishing the causes of
any inefficiencies, including inadequacy in management information systems, administrative
procedures or organizational structure.
Effectiveness is concerned with the relationship between the outputs and the goals of the
agency. Measuring effectiveness will determine whether the desired results are achieved,
whether the objectives set by the agency are met, and whether the agency has considered
alternatives that yield desired results at a lower cost.

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 Module 2
State Accounting Principles
Generally Accepted (State) Accounting Principles
Accounting principles are propositions, a general law or rule adopted, which on the basis
of reasons, demonstrated usefulness and general acceptance as the best way of carrying out
the function and achieving the objectives of financial accounting.
Objectives:
1. Guide the accountants in identifying, measuring and communicating financial accounting
information;
2. Assure proper reporting and reasonable degree of uniformity and comparability among
the financial statements of different government entities; and
3. Provide auditors with the framework for making judgment about the fairness of financial
statements on the basis of some uniform standards.
Significant differences in principles between state accounting and commercial accounting:
1. Government activities are non-profit oriented;
2. State accounting places greater emphasis on accountability, stewardship and
control; and
3. State accounting is based on laws, rules and regulations.
A principle is generally accepted if it has substantial authoritative support. There are two
sources of support: primary and secondary sources
Primary sources:
1. Pronouncement of the Commission on Audit - COA is mandated by the Philippine
Constitution to promulgate accounting rules and regulations to facilitate the keeping and
enhance the informational value of the accounts of the government.
2. Provision of law - Sec. 112 of the PD 1445 provides that generally accepted accounting
principles should be observed in government accounting entities a provided they do not
contravene existing laws and regulations.
Secondary source:
From the pronouncements and issuances by other government agencies. The
Government Auditing Code of the Philippines requires that each government agency
shall record its financial transactions and operations in conformance with the generally
accepted accounting principles and accordance with pertinent laws and regulations.
The principles to be followed by government entities includes the following:

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 1. The accounts of the agency shall be kept in such detail and at the same time be
adequate to furnish the information needed by fiscal or control agencies of the
government.
2. The highest standard of honesty, objectivity and consistency shall be observed in the
keeping of accounts to safeguard against inaccurate or misleading information.
3. The government accounting system shall be on double-entry basis with the general
ledger in which all financial transactions are recorded, Subsidiary record shall be kept
where necessary.
4. The Chart of Accounts has three-digit coding system and provides for responsibility
accounting.
5. The Chart of Accounts categorizes Personal Services, Maintenance and Other
Operating Expenses and Financial Expenses as Expenses, obligation charged to capital
outlay are recorded to appropriate asset accounts when the liability and the payment are
taken-up.
6. Matching Principles, The principle that requires the matching of revenues and expenses
is adopted.
-Modified accrual method is used
-Depreciation accounting for property, plant and
equipment using the straight line method is followed.
- Allowance for doubtful accounts is taken up. Dormant accounts are transferred of a
separate registry,
- Asset method is followed for prepaid expenses.

7. On financial statement:
1. Fairness of presentation – this refer to the overall propriety of disclosing financial
information. Full disclosures in financial aspects requires observance of the
standards of reporting.
2. Compliance – the report shall be in accordance with prescribed government
requirements and international accounting standard of reporting.
3. Timeliness – all needed reports shall produced promptly to be of maximum
usefulness.
4. Usefulness – financial reports shall be carefully designed to present information
that is needed and useful to reports users.
8.Obligation accounting is modified, allotments and obligations are no longer journalized.
Separate registries are maintained to control these accounts and the appropriation.
9. All lawful expenditures and obligation incurred during the year shall be taken up as accounts
of that year.
Recent developments brought about by the Philippine Public Financial Management
Reforms and significant changes in the field of accounting prompted the harmonization of the

18
existing accounting standards with the international accounting standards. This Commission
revised the New Government Accounting System (NGAS) Manual prescribed under
Commission on Audit (COA) Circular No. 2002-002 dated June 18, 2002 to make it responsive
to dynamic changes and modern technology.
Sec. 1. Legal Basis. The Government Accounting Manual (GAM) is prescribed by COA
pursuant to Article IX-D, Section 2 par. (2) of the 1987 Constitution of the Republic of the
Philippines which provides that:
“The Commission on Audit shall have exclusive authority, subject to the limitations in this Article,
to define the scope of its audit and examination, establish the techniques and methods required
therefor, 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". (Underscoring
supplied)
Sec. 2. Coverage. This Manual presents the basic accounting policies and principles in
accordance with the Philippine Public Sector Accounting Standards (PPSAS) adopted thru COA
Resolution No. 2014-003 dated January 24, 2014 and other pertinent laws, rules and
regulations. It includes the Revised Chart of Accounts (RCA) prescribed under COA Circular
No. 2013-002 dated January 30, 2013, as amended; the accounting procedures, books,
registries, records, forms, reports, and financial statements; and illustrative accounting entries. It
shall be used by all National Government Agencies (NGAs) in the:
a). preparation of the general purpose financial statements in accordance with the PPSAS and
other financial reports as may be required by laws, rules and regulations; and
b.) reporting of budget, revenue and expenditure in accordance with laws, rules and regulations.
Sec. 3. Objective of the Manual. The Manual aims to update the following:
a.) standards, policies, guidelines and procedures in accounting for government funds and
property;
b.) coding structure and accounts; and
c.) accounting books, registries, records, forms, reports and financial statements.
Chapter 2
GENERAL PROVISIONS, BASIC STANDARDS AND POLICIES
Sec. 1. Scope. This chapter covers the general provisions from existing laws, rules and
regulations; and the basic standards/fundamental accounting principles for financial reporting by
national government agencies.
Sec. 2. Definition of Terms. For the purpose of this Manual, the terms used as stated

below shall be construed to mean as follows:

a).Accrual basis – means a basis of accounting under which transactions and other events are
recognized when they occur (and not only when cash or its equivalent is received or paid).
Therefore, the transactions and events are recognized in the accounting records and

19
recognized in the financial statements of the periods to which they relate. The elements
recognized under accrual accounting are assets, liabilities, net assets/equity, revenue, and
expenses.
b). Assets – are resources controlled by an entity as a result of past events, and from which
future economic benefits or service potential are expected to flow to the entity.
c). Contributions from owners – means future economic benefits or service potential that have
been contributed to the entity by parties external to the entity, other than those that result in
liabilities of the entity, that establish a financial interest in the net assets/equity of the entity,
which:
1. conveys entitlement both to (i) distributions of future economic benefits or service
potential by the entity during its life, such distributions being at the discretion of the
owners or their representatives; and to (ii) distributions of any excess of assets over
liabilities in the event of the entity being wound up; and/or
2. can be sold, exchanged, transferred, or redeemed.
d). Distributions to owners – means future economic benefits or service potential distributed by
the entity to all or some of its owners, either as a return on investment or as a return of
investment.
e). Entity – refers to a government agency, department or operating/field unit. It may be referred
to in this GAM as an agency.
f). Expenses – are decreases in economic benefits or service potential during the reporting
period in the form of outflows or consumption of assets or incurrence of liabilities that result in
decreases in net assets/equity, other than those relating to distributions to owners.
g). Government Accounting – encompasses the processes of analyzing, recording, classifying,
summarizing and communicating all transactions involving the receipt and disposition of
government funds and property, and interpreting the results thereof. (Sec. 109, Presidential
Decree (P.D.) No. 1445)
h). Government Budget – is the financial plan of a government for a given period, usually for a
fiscal year, which shows what its resources are, and how they will be generated and used over
the fiscal period. The budget is the government's key instrument for promoting its socio-
economic objectives. The government budget also refers to the income, expenditures and
sources of borrowings of the National Government (NG) that are used to achieve national
objectives, strategies and programs.
i). Liabilities – are firm obligations of the entity arising from past events, the settlement of which
is expected to result in an outflow from the entity of resources embodying economic benefits or
service potential.
j). Net assets/equity – is the residual interest in the assets of the entity after deducting all its
liabilities.
k). Revenue – is the gross inflow of economic benefits or service potential during the reporting
period when those inflows result in an increase in net assets/equity, other than increases
relating to contributions from owners.

20
l). Revenue funds – comprise all funds derived from the income of any agency of the
government and available for appropriation or expenditure in accordance with law.
(Section 3, P.D. No. 1445)
Sec. 3. Responsibility, Accountability and Liability over Government Funds and Property
a. Responsibility over Government Funds and Property
1.) It is the declared policy of the State that all resources of the government shall be managed,
expended or utilized in accordance with laws and regulations, and safeguarded against loss or
wastage through illegal or improper disposition, with a view to ensuring efficiency, economy and
effectiveness in the operations of government. The responsibility to take care that such policy is
faithfully adhered to rests directly with the chief or head of the government agency concerned.
(Sec. 2, P.D. No. 1445)
2.) 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. (Sec. 4(4),
P.D. No. 1445)

3.)The head of any agency of the government is immediately and primarily responsible for all
government funds and property pertaining to his agency. Persons entrusted with the possession
or custody of the funds or property under the agency head shall be immediately responsible to
him, without prejudice to the liability of either party to the government. (Sec. 102, P.D. No. 1445)

b. Accountability over Government Funds and Property

1. Every officer of any government agency whose duties permit or require the
possession or custody of government funds or property shall be accountable therefor and for
the safekeeping thereof in conformity with law. Every AO shall be properly bonded in
accordance with law. (Sec. 101, P.D. No. 1445; Section 50, Chapter 9, Subtitle B, Book V,
Executive Order (E.O.) No. 292)
2. Transfer of government funds from one officer to another shall, except as allowed by
law or regulation, be made only upon prior direction or authorization of the Commission or its
representative. (Sec. 75, P.D. No. 1445)
3. When government funds or property are transferred from one AO to another, or from
an outgoing officer to his successor, it shall be done upon properly itemized invoice and receipt
which shall invariably support the clearance to be issued to the relieved or outgoing officer,
subject to regulations of the Commission.
(Sec. 77, P.D. No. 1445)
c. Liability over Government Funds and Property
1. Expenditures of government funds or uses of government property in violation of law
or regulations shall be a personal liability of the official or employee found to be directly
responsible therefor. (Sec. 103, P.D. No. 1445)
2. Every officer accountable for government funds shall be liable for all losses resulting
from the unlawful deposit, use, or application thereof and for all losses attributable to negligence
in the keeping of the funds. (Sec. 105(2), P.D. No. 1445)

21
 3. No AO shall be relieved from liability by reason of his having acted under the direction
of a superior officer in paying out, applying, or disposing of the funds or property with which he
is chargeable, unless prior to that act, he notified the superior officer in writing of the illegality of
the payment, application, or disposition. The officer directing any illegal payment or disposition
of the funds or property shall be primarily liable for the loss, while the AO who fails to serve the
required notice shall be secondarily liable. (Sec. 106, P.D. No. 1445)

4. When a loss of government funds or property occurs while they are in transit or the loss
is caused by fire, theft, or other casualty or force majeure, the officer accountable therefor or
having custody thereof shall immediately notify the Commission or the auditor concerned and,
within 30 days or such longer period as the Commission or auditor may in the particular case
allow, shall present his application for relief, with the available supporting evidence. Whenever
warranted by the evidence, credit for the loss shall be allowed. An officer who fails to comply
with this requirement shall not be relieved of liability or allowed credit for any loss in the
settlement of his accounts. (Sec. 73, P.D. No. 1445)
Sec. 4. Fundamental Principles for Revenue. All revenues accruing to the NGAs shall be
governed by the following fundamental principles:
a. Unless otherwise specifically provided by law, all revenues accruing to an entity by
virtue of the provisions of existing law, orders and regulations shall be
deposited/remitted in the National Treasury (NT) or in any duly authorized
government depository, and shall accrue to the General Fund (GF) of the NG. (Sec.
65(1), P.D. No. 1445)

b. Except as may otherwise be specifically provided by law or competent authority, all

moneys and property officially received by a public officer in any capacity or upon
any occasion must be accounted for as government funds and government property.
(Sec. 42, Chapter 7, Title I(B), Book V, E.O. No. 292)

c. Amounts received in trust and from business-type activities of government may be

separately recorded and disbursed in accordance with such rules and regulations as
may be determined by a Permanent Committee composed of the Secretary of
Finance as Chairman, and the Secretary of Budget and Management and the
Chairman, COA, as members. (Sec. 65(2), P.D. No. 1445)

d. Receipts shall be recorded as revenue of Special, Fiduciary or Trust Funds or Funds

other than the GF, only when authorized by law as implemented by rules and
regulations issued by the Permanent Committee. (Sec. 66, P.D. No. 1445)

e. No payment of any nature shall be received by a collecting officer without

immediately issuing an official receipt in acknowledgement thereof. The receipt may
be in the form of postage, internal revenue or documentary stamps and the like,
officially numbered receipts, subject to proper custody, accountability, and audit.
(Sec. 68(1), P.D. No. 1445)

f. Where mechanical devices (e.g. electronic official receipt) are used to acknowledge
cash receipts, the COA may approve, upon request, exemption from the use of
accountable forms. (Sec. 68 (2), P.D. No. 1445)

22
 g. At no instance shall temporary receipts be issued to acknowledge the receipt of
public funds. (Sec. 72, GAAM Volume I)

h. Pre-numbered ORs shall be issued in strict numerical sequence. All copies of each
receipt shall be exact copies or carbon reproduction in all respects of the original.
(Sec. 73, GAAM Volume I)
i. An officer charged with the collection of revenue or the receiving of moneys payable
to the government shall accept payment for taxes, dues or other indebtedness to the
government in the form of checks issued in payment of government obligations, upon
proper endorsement and identification of the payee or endorsee. Checks drawn in
favor of the government in payment of any such indebtedness shall likewise be
accepted by the officer concerned. At no instance should money in the hands of the
CO be utilized for the purpose of cashing private checks. (Sec. 67(1) and (3), P.D.
No. 1445)
Sec. 5. Fundamental Principles for Disbursement of Public Funds. Section 4 of P.D. No.
1445, the Government Auditing Code of the Philippines, provides that all financial transactions
and operations of any government entity shall be governed by the following fundamental
principles:
a. No money shall be paid out of any public treasury or depository except in
pursuance of an appropriation law or other specific statutory authority.
b. Government funds or property shall be spent or used solely for public purposes.
c. Trust funds shall be available and may be spent only for the specific purpose for
which the trust was created or the funds received.
d. 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.
e. Disbursement or disposition of government funds or property shall invariably bear
the approval of the proper officials.
f. Claims against government funds shall be supported with complete
documentation.
g. All laws and regulations applicable to financial transactions shall be faithfully
adhered to.
h. 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.

Sec. 6. Basic Government Accounting and Budget Reporting Principles. Each entity shall
recognize and present its financial transactions and operations conformably to the following:
a. generally accepted government accounting principles in accordance with the
PPSAS and pertinent laws, rules and regulations;
b. accrual basis of accounting in accordance with the PPSAS;
c. budget basis for presentation of budget information in the financial statements
(FSs) in accordance with PPSAS 24;

23
 d. RCA prescribed by COA;
e. double entry bookkeeping;
f. financial statements based on accounting and budgetary records; and
g. fund cluster accounting.

Sec. 7. Keeping of the General Accounts. The COA shall keep the general accounts of the
Government and, for such period as may be provided by law, preserve the vouchers and other
supporting papers pertaining thereto, pursuant to Section 2, par. (1), Article IX-D of the 1987
Philippine Constitution.

24
 Module 3
Government Accounting for Local Government Units
SALIENT POINTS OF THE NEW GOVERNMENT ACCOUNTING SYSTEM MANUAL
For Local Government Units
Objectives of the Manual. – The New Government Accounting System Manual presents the
basic policies and procedures; the new coding system and chart of accounts; the accounting
books, reports/forms and financial statements, and illustrative accounting entries to be adopted
by all local government units effective January 1, 2002.
The objectives of the Manual are to prescribe the following:
a) Uniform guidelines and procedures in accounting for government funds and property;
b) New coding structure and new chart of accounts; and
c) New accounting books, reports/forms, financial statements and accounting entries.
Coverage. – This Manual shall be used by all local government units (LGUs).
Legal Basis. – This Manual is prescribed by the Commission on Audit pursuant to Article IX-D,
Section 2 par. (2) of the 1987 Constitution of the Republic of the Philippines which provides that:
"The Commission on Audit shall have exclusive authority, subject to the limitations in
this Article, to define the scope of its audit and examination, establish the techniques and
methods required therefor, 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".
BASIC FEATURES AND POLICIES
Basic Features and Policies. – The new government accounting system has the following basic
features and policies, to wit:
Accrual Accounting. A modified accrual basis of accounting is used. Under this method, all
expenses shall be recognized when incurred. Income shall be on accrual basis (e.g. Share
from Internal Revenue Collections) except for transactions where accrual basis is impractical
(e.g. Market Fees) or when other methods may be required by law.
One Fund Concept. This system adopts the one fund concept. 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. As required under
Sections 308, 309 and 310 of the Local Government Code, separate books shall be maintained
for the General Fund, Special Education Fund and Trust Fund.
Special Accounts in the General Fund. Special accounts in the General Fund complete with
subsidiary ledgers, shall be maintained for the following:
• Public utilities and other economic enterprises;
• Loans, interests, bonds issued, and other contributions for specific
purposes;

25
 • Development projects funded from the Share in the Internal Revenue
Collections; and
• Such other special accounts which may be created by law or ordinance.
Chart of Accounts and Account Codes. A new coding structure and a new chart of accounts
with a three-digit account numbering system shall be adopted.
Books of Accounts. The Books of Accounts are as follows:
Journals
• Cash Receipts Journal (CRJ)
• Cash Disbursements Journal (CDJ)
• Check Disbursements Journal (CKDJ)
• General Journal (GJ)
Ledgers
• General Ledger (GL)
• Subsidiary Ledgers, where applicable for:
• Cash
• Receivables
• Inventories
• Investments
• Property, Plant and Equipment
• Liabilities
• Income
• Expenses

All the above records shall be maintained by the accounting unit of the LGUs. However,
treasurers and disbursing officers shall also maintain their respective cash records such as:
• Cashbook – Cash in Treasury
• Cashbook – Cash in Bank
• Cashbook – Cash Advances

The Treasurers/Collectors shall prepare the Report of Collections and Deposits (RCD)
daily and the Report of Accountability for Accountable Forms (RAAF) monthly. Financial
Statements. The following statements shall be prepared:
• Balance Sheet
• Statement of Income and Expenses
• Statement of Cash Flows

Notes to Financial Statements shall accompany the above statements.

Trial Balance. The two money-column trial balance shall be used.
Recognition of Liability. Liability shall be recognized at the time goods and services are
accepted or rendered and supplier/creditor bills are received.
Accounting for Borrowings and Loans. All borrowings and loans incurred shall be recorded
direct to the appropriate liability accounts.

26
General Accounting Plan. – The General Accounting Plan shows the overall accounting cycle
in the Local Government Unit.
Transactions shall emanate from the different offices/departments of the local
government units (LGUs). These offices/departments will provide/produce the source
documents and other accounting forms leading to the perfection of the transaction, whether it be
budgetary, collections or disbursements. The source documents and accounting forms shall be
the basis for the preparation of reports by the Office of the Treasurer. The Office of the
Accountant shall record the transactions to the registries or to the corresponding books of
original entry. Posting to the books of final entry and preparation of the financial reports shall
also be undertaken by the Office of the Accountant.
BUDGETARY ACCOUNTS
Budgetary Accounts. – Budgetary accounts are composed of appropriations, allotments and
obligations.
Accounting for Appropriations. – Appropriation refers to an authorization made by ordinance,
directing the payment of goods and services from local government funds under specified
conditions or for specific purposes.
GENERAL ACCOUNTING PLAN

27
Accounting Procedures for Budgetary Accounts. – Summarized hereunder is the process in
accounting for budgetary accounts:

PERSON/ UNIT
PROCESS
RESPONSIBLE

a. Records in the appropriate RAAOs the approved

appropriation per Appropriation Ordinance. Office of the Accountant

b. Forwards the advice of allotments to the Office of the

Accountant and returns the work plan to the concerned
departments/ offices. Office of the Budget Officer

c. Enters the allotments in the RAAOs. Office of the Accountant

d. Prepares ALOBS based on disbursement

vouchers/purchase requests and/or supporting documents.
Signs the appropriate box for requesting office. Forwards the Heads of departments/offices
same to the Office of the Budget Officer.

e. Certifies the ALOBS as to the existence of

appropriations based on the appropriation ordinance. Assigns
ALOBS number and forwards the same to the Office of the Budget Officer
Accountant.

f. Certifies the ALOBS as to the obligations of allotments.

Records the obligation in the appropriate column of the
RAAOs and in the Status of Obligation portion (Obligation) of Chief Accountant
the ALOBS.

g. Records paid disbursement vouchers in the Status of

Obligation portion (Payments) of the ALOBS. Any balance
appearing in the ALOBS after full payment of obligations shall Office of the Accountant
form part of unobligated allotment. Adjust accordingly the
amount of recorded obligations in the RAAOs.

h. At the end of each month, reconcile records on Budget Officer and

allotments available for obligation. Chief Accountant

28
Depository Accounts. – Local treasurer shall maintain depository accounts in the name of their
respective local government units with banks, preferably government-owned, located in or
nearest to their respective areas of jurisdiction. Earnings of its depository accounts shall accrue
exclusively thereto.
Remittance of Government Monies to the Local Treasury. – Officers of the local government
authorized to receive and collect monies arising from taxes, revenue, or receipts of any kind
shall remit the full amount received and collected to the treasury of such local government unit
which shall be credited to the particular account or accounts to which the monies in question
properly belong
Sources of Income of LGUs. – The main sources of income of LGUs are as follows:

 Tax revenues, fees and charges

 Share from Internal Revenue Collections
 Share from National Wealth

The sources of income are further classified into general income accounts and specific income
accounts.
General Income Accounts. – The following shall comprise the General Income Accounts
applicable to LGUs:
o Subsidy from Other LGUs
o Subsidy from Other Funds
o Subsidy from Special Accounts
o Sales Revenue
o Dividend Income
o Interest Income
o Gain on Sale of Securities
o Gain on Sale of Assets
o Sale of Confiscated Goods and Properties
o Foreign Exchange (FOREX) Gains
o Miscellaneous Operating and Service Income
o Fines and Penalties – Government Services and Business Operations
o Income from Grants and Donations

Specific Income Accounts. – The following major classification comprise the specific income
accounts for LGUs:
a) Property Taxes
b) Taxes on Goods and Services
c) Other Taxes
d) Other Specific Income

Basis of Recording Real Property Tax/Special Education Tax. – Real Property Tax
Receivables/Special Education Tax Receivables shall be established at the beginning of the
year based on Real Property Tax Account Register/Taxpayer’s index card. At the beginning of
the year, the Treasurer shall furnish the Chief Accountant of a duly certified list showing the

29
name of taxpayers and the amount due and collectible for the year. Based on the list, the Chief
Accountant shall draw a Journal Entry Voucher (JEV) to record the debit to Real Property Tax
Receivable/Special Education Tax Receivable and crediting to Deferred Real Property Tax
Income/Deferred Special Education Tax Income.
Upon collection of Real Property Taxes from taxpayers, the account Deferred Real Property Tax
Income/Deferred Special Education Tax Income shall be debited while the Real Property Tax
Income due to the municipality is recognized/credited. The share of the Province and Barangay
shall also be credited to Due to LGUs.
Every end of the week, thereafter the Municipal Accountant shall furnish the Provincial
Accountant with a summary of the JEVs showing the breakdown of the amounts Due to LGUs.
The summary, which shall be supported with copies of the JEVs, shall be the basis of the
Provincial Accountant to draw the JEV taking up the RPT Income. The account Due from LGU
shall be debited and Real Property Tax Income credited.
At the end of the month, the Municipal Accountant shall likewise prepare the Abstract of Real
Property Tax to facilitate the distribution of real property tax collection. A copy of the abstract
shall be furnished the Provincial Accountant, for purposes of reconciliation with the weekly
summary of JEVs.
Other Receipts. – Other receipts of the local government units shall be comprised of, but not
limited to, the following:
a) Borrowings
b) Sale of Property, Plant and Equipment
c) Refund of Cash Advances
d) Receipt of Performance/Bidders’ Bonds

Borrowings. – Borrowings are proceeds of repayable obligations, generally with interest from
the bank, national agency, another local government unit, and private sector. All borrowings
incurred shall be recorded direct to the appropriate liability accounts. Upon receipt of the advice
from the bank or lending agency informing the release of the proceeds, the Accountant shall
draw a Journal of Entry Voucher taking up the transaction.
Sale of Property, Plant and Equipment. – Sale of property, plant and equipment refers to the
proceeds from the sale of land, buildings, equipment, furniture and other similar property which
are recorded in the books as Property, Plant and Equipment. The appropriate Property, Plant
and Equipment account shall be credited upon transfer of ownership.
Refund of Cash Advances. – Cash advances for official travel shall be taken up as a
receivable from the concerned official or employee. Refunds made shall be credited to the
receivable account previously set up. Cash advances for salaries and wages shall be recorded
as debits to the account Cash – Disbursing Officer. Any refund made shall be credited to this
account.
Receipt of Performance Bonds. – Performance bond posted by contractor or supplier to
guaranty full and faithful performance of the their work may be in the form of cash, certified
check or surety. Performance bond in cash or certified check shall be acknowledged by the
issuance of official receipt and recorded in the books by the Accountant drawing a JEV for the

30
purpose. In case of surety bond, an acknowledgment receipt shall be issued by the authorized
official.
Reporting for Collections and Deposits. – Collectors/tellers shall issue a receipt to
acknowledge collections made. The receipt maybe in the form of pre-numbered Official
Receipts, or cash tickets and the like. At the close of each business day, these collectors/tellers
shall accomplish the Report of Collections and Deposits (RCD) in four copies.
The original and two copies, together with the duplicates of the official receipts issued,
shall be submitted to the treasurer/cashier to whom the cash collected shall be turned over.
The fourth copy of the RCD shall be retained by the collector/teller concerned. Barangay
Treasurers deputized to collect taxes imposed by provinces, cities and municipalities shall follow
the same procedures in turning over their collections to the treasurer/cashier concerned.

PERSON / UNIT
PROCESS
RESPONSIBLE

Receive payment from taxpayers/ creditors and issue

Official Receipt (OR). Prepare Report of Collections
Collector/Teller
and Deposits. Remit to the Liquidating Officer (if one is
designated) or Treasurer.

Check remittances and verifies accountable forms of

collectors/tellers. Consolidates collections and remits Liquidating Officer
to the Treasurer/Cashier. Prepares RCD.

Receive remitted collections, consolidates the same

and prepares RCD. Records in the Cashbook – Cash in Treasurer
Treasury.

Deposit collections in the appropriate bank account per

authorized depository bank. Records deposit in the Treasurer
Cashbook – Cash in Bank.

Forward RCD to Accounting Unit with copies of ORs

Treasurer
and validated deposit slips.

Prepare Journal of Entry Voucher and record in the

Accountant
Cash Receipt Journal.

31
 Acct.
Particulars Account Title Debit Credit
Code

INCOME

1. Real Property Tax – Basic

A. Books of the Municipality

Real Property Tax

a. Setting-up of RPT Receivable
Receivable 124 1,000
RPT = P1,000 Deferred Real
RPT Sharing: Municipal - 40% Property Tax Income 448 1,000
Province - 35%
Barangay - 25%

b. Receipt of Cash in Treasury 101 100

Real Property Tax
Payment
Receivable 124 100

Deferred Real Property Tax

c. Distribution of Collection
Income 448
RPT Sharing: 100
Real Property Tax 711 40
Municipal - 40% Due to LGUs 431 60
Province - 35%
Barangay - 25%

Cash in Bank – LCCA 110

d. Deposit of Collections 100
Cash in Treasury 101 100

e. Remittance of Share Due to LGUs 431

35
(Province) Cash in Bank – LCCA 110 35

Due to LGUs 431

f. Remittance of Share (Barangay) 25
Cash in Bank – LCCA 110 25

B. Books of the Province

a. Upon receipt of the Summary

Due from LGUs 131
of the JEV from the Municipal 35
Real Property Tax 711 35
Accountant

Cash in Bank – LCCA 110

b. Upon receipt of share 35
Due from LGUs 131 35

32
2. Operating and Service Income

a. Receipt of Income Cash in Treasury 101 100

Receipts from Markets 783 90
Garbage Fees 772 10

Cash in Bank – LCCA 110

b. Deposit of Collections 100
Cash in Treasury 101 100

3. Share from Internal Revenue Collections

a. Receipt of Notice of Funding Cash in Bank –LCCA 110

Check Issued from the DBM and Share from Internal Revenue 1,000
credit memo from Collections 746 1,000
the bank for Share from Internal
Revenue Collections

b. Receipt of Notice of Funding Due from NGAs 130

1,000
Check Issued Share from Internal
from the DBM for Share from
Revenue Collections 746 1,000
Internal Revenue Collections

4. Grants and Donations

a. Receipt of grants and donations Cash in Treasury 101 100
in cash Income from Grants and
(Donations in kind shall be booked- Donations 651 100
up using the appropriate asset
account)

b. Receipt of grants and donations Motor Vehicles 218 800

in kind - Invested Equity 537 800
Motor Vehicle:

Original Cost P1,000 (At the end of Year)

Less: Acc. Depn. 200 Invested Equity 537 800
Book Value P 800 Government Equity 501 800

33
5. BORROWINGS
a. Receipt of borrowed funds from Cash in Bank –LCCA 110
bank - Loans Payable – Current, 1,000
Principal - P1,000 Domestic 403 1,000
Bank Charges - 10 Bank Charges 951 10
Interest Expense- 12 Interest Expenses 952 12
Cash in Bank –LCCA 110 22

Cash in Treasury 101

b. Receipt of borrowed funds from
Loans Payable – Current, 1,000
other agency -
domestic 403 1,000
Principal - P1,000 Interest Expenses 952 6
Interest Expense - 6 Cash in Bank – LCCA 110 6

Loans Payable – Current,

c. Payment of loan amortization
Domestic 403 200
Cash in Bank - LCCA 110 200

6. SUBSIDIES

a. Subsidy from Other Funds (General Fund to Special Education Fund)

GENERAL FUND BOOKS

Transfer of subsidy to Special

Subsidy to Other Funds 897
Education Fund (Aid to SEF to 500
Cash in Bank – LCCA 110 500
finance its projects)

SPECIAL EDUCATION FUND BOOKS

Receipt of subsidy funds from Cash in Treasury Subsidy from 101

500
Other funds Other
Funds 605 500

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b. Special Accounts (subsidy from General Fund proper to Operation of Public Market)

BOOKS OF GENERAL FUND PROPER

Subsidy to Special
Transfer of subsidy to Special Account
Accounts 898 500
Cash in Bank – LCCA 110 500

BOOKS OF SPECIAL ACCOUNT (OPERATION OF PUBLIC MARKET)

Receipt of subsidy from Cash in Bank – LCCA

110 500
General Fund Proper Subsidy from Special
Accounts 606 500

7. REFUND OF CASH ADVANCES

a. Cash Advance by an Officer for Local Travel

Due from Officers &

a. To take up the cash advance
Employees 128 10
Cash in Bank – LCCA 110 10

Cash in Treasury 101

b. To take up refund of cash advance Due from Officers & 10
Employees 128 10

b. Cash Advance by a Disbursing Officer for Salaries and Wages

a. To take up the cash advance Cash – Disbursing Officers

107 10
Cash in Bank – LCCA 110 10

b. To take up refund of cash advance Cash in Treasury 101 10

Cash – Disbursing Officers
107 10

8. RECEIPT OF CASH BONDS

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a. To take up receipt of performance Cash in Treasury 101 50
bond in cash Performance/ Bidders/ Bail
Bonds Payable 414 50

b. To take up deposit of performance Cash in Bank – LCCA 110 50

bond Cash in Treasury 101 50

c. To take up refund of performance Performance/ Bidders/ Bail

bond Bonds Payable 414 50
Cash in Bank – LCCA 110 50

Disbursements. – Disbursements refer to the settlement of government payables/obligations

by cash or by check.
Typical transactions for which disbursements are made are as follows:
1. Personal Services
2. Maintenance and Other Operating Expenses
3. Capital Outlay
4. Financial Expenses
Disbursements shall be covered by Disbursement Vouchers (DV) or payrolls and paid
either by check or in cash. The Allotment and Obligation Slip (ALOBS) shall be an integral part
of the DV.

Check Disbursement Process. – The steps in disbursements through issuance of check is

shown below:

PERSON / UNIT
PROCESS
RESPONSIBLE

a. Gather supporting documents, and approved ALOBS,

Concerned Office
prepare DV and forward to Head of Department.
b. Sign Box A of DV and submit to the Accounting Unit. Supervisor/Head of
Department
c. Check completeness of documents, assign number to
DV, sign Box B and forward to Treasurer. Accounting Unit

d. Verify claim, certify cash availability (Box C) and

Treasurer
forward to approving officer.

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 Note: If funds are not available, return to Accountant for
recording in the books as Accounts Payable (AP). For AP,
JEV shall be prepared by Accounting Unit and JEV
number reflected in the DV. JEV for AP is recorded in
General Journal. Accountant retains copy of DV and
forwards to Treasurer.

e. Approve transaction (Box D) and forward DV to Local Chief Executive or

Cashier. authorized approving officer

f. Prepare, sign check and forward check with DV to

countersigning officer. Treasurer

g. Countersign check and forward to Accountant for Administrator/ Vice-Mayor

preparation of the Accountant’s Advice of Local Check for the Local Sanggunian
Disbursements. Disbursements

h. Prepare Accountant’s Advice of Local Check

Disbursements and submit to bank. Return DV, check
Accountant
and supporting documents to Cashier/Treasurer.

i. Record check in the Check Register and release check

to claimant. Record disbursement in Cashbook – Cash in
Bank. Prepare Report of Checks Issued. Forward RCI with Treasurer
DV and supporting documents to Accounting Unit.

j. Prepare the JEV based on individual checks/voucher;

sign “Prepared By” portion (approved by Chief
Accountant), and record JEV in the Check Disbursements
Accounting Unit
Journal. Post monthly to the General Ledger/Subsidiary
Ledgers.

k. Forward RCI, DV, supporting documents and JEV to the

Accountant
Office of the Auditor.

Cash Disbursement Process. – Disbursement process for payment of salaries and wages out
of cash advances is as follows:

PERSON / UNIT
PROCESS
RESPONSIBLE
a. Processing of Payrolls to be paid by cash is the same
as that of steps (a) to (e) for check disbursements. Concerned offices

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b. Gather duly certified and approved payrolls to be paid
out of cash advance. Prepare DV for cash advance
Office of the Treasurer
corresponding to the net amount of payroll/s. Sign Box A
of DV and submit to the Accounting Unit.

c. Check completeness of documents/ previous cash

advance liquidated, assign number to DV, sign Box B and
Accounting Unit
forward to Approving Officer.

d. Approves DV and forward to Treasurer for preparation

Local Chief Executive
of checks.
e. Prepare and sign check, and forward check with DV to
countersigning officer. Treasurer

f. Countersign check and forward to Accountant for

preparation of Advice. Administrator

g. Prepare Accountant’s Advice of Local Check

Disbursements and return DV, check and supporting
Accountant
documents to Cashier/Treasurer.

h. Encash check and pay claimants. Record disbursement

Treasurer/ Disbursing Officer
in Cashbook – Cash Advances.

i. Return unused cash to the Treasurer/ Cashier. An

official receipt (OR) shall be issued by the
Treasurer/Cashier to acknowledge the return of unused
cash and indicate check no. of cash advance granted on
Disbursing Officer
the face of OR. Record the refund as credit to cash
advance and attach OR to the Cashbook – Cash
Advances.

j. Prepare Report of Disbursement, attach paid payrolls/

supporting documents and copy of OR for unused cash
advance returned to Treasurer/Cashier. Sign "Certified
Disbursing Officer
Correct” portion of Report of Disbursement and submit to
Accounting Unit.

k. Prepare JEV to record the liquidation of cash advance.

Record JEV in the Cash Disbursements Journal (CDJ).
Accountant
Post monthly to the General Ledger/ Subsidiary Ledger.

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 l. Forward Report of Disbursement and supporting
Accountant
documents including JEV to the Office of the Auditor.

Purchase or Construction of Property, Plant and Equipment. – Property, plant and

equipment include land and land improvements, buildings, equipment, motor vehicles, books,
machineries, ordnance, etc. and public infrastructure. These are charged against
appropriations/allotments for capital outlay when obligated.

Property, plant and equipment acquired through purchase shall include all costs incurred to
bring it to the location necessary for its intended use, like transportation, freight, installation
costs, etc. In the books of accounts, the purchase is immediately recorded as asset

Miscellaneous Transactions. – Miscellaneous transactions refer to transactions that are

unique and not recurring in the ordinary course of operations of the government. These
transaction types seldom take place or ideally should not happen at all. The following maybe
considered miscellaneous transactions:

1. Loss of Cash and Property Accountability

2. Cash Overage
3. Dishonored Check
4. Lost/Destroyed/Stale/Obsolete and Fraudulently Encashed Check
5. Settlement of Suspensions/Disallowances/Charges
6. Refund of Overpayments

Suspensions, Disallowances and Charges. – Disallowances and charges shall be taken up in

the books of accounts only when they become final and executory. The Accountant shall
prepare the Journal of Entry Voucher (JEV) to take up the Receivable – Disallowances and
Charges and credit the appropriate expense account for the current year or prior years’
adjustment if pertaining to expenses of previous years.
Cash settlement of disallowances shall be recorded thru the JEV by debiting Cash in Treasury
and crediting the Receivable – Disallowances and Charges account.
Suspensions in audit and settlement thereof shall not be recorded in the books of accounts.
TRIAL BALANCE, FINANCIAL REPORTS AND STATEMENTS

Trial Balance. – Trial balance is a list of all the general ledger accounts and their
balances at a given time. The accounts are listed in the order in which they appear in the ledger,
with the debit balances in the left column and credit balances on the right column.
Purpose of the Trial Balance. – The trial balance is prepared:To prove the mathematical
equality of the debits and credits after posting;To uncover errors in journalizing and posting;
and As basis for the preparation of the financial statements.
Status of Appropriations, Allotments and Obligations. – The status of appropriations,
allotments and obligations is a schedule prepared showing the appropriation, allotments and

39
obligations of each function, program project and activity. Separate schedules shall be
prepared for current appropriation and for continuing appropriations using the following column
headings:

Function/Program/ Appropriations Allotment Obligation Unobligated

Project/ Activity Balance

Interim Reports. – Interim reports are financial statements required to be prepared at any given
period or at a financial reporting period shorter than a full financial year, without closing the
books of accounts. The following interim financial statements and the Notes to Financial
Statements shall be prepared and submitted quarterly:

a. Balance Sheet;
b. Statement of Income and Expenses; and
c. Statement of Cash Flows
The interim reports shall be prepared employing the same accounting principles used for annual
reports. Adjusting entries shall be prepared for the interim period.

To facilitate the preparation of the interim financial statements, the use of the worksheet is
recommended. Worksheet. – A worksheet is the accountants informal device for accumulating
and sorting information needed for the financial statements. It is a columnar sheet of paper
used to adjust the account balances and prepare the financial statements.
The use of the worksheet facilitates the end-of-period accounting and reporting process. Also, it
helps accountants prepare the financial statements on a more timely basis. The following
worksheet format shall be used:

Name of LGU
Worksheet
As of ____________, 20_____

Statement of
Accounts Trial Balance Adjustments Adjusted Income & Balance
T/B Expenses Sheet
Title Code Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

Statement of Management Responsibility for Financial Statements. Statement of

Management Responsibility for Financial Statements shows the agencies’ responsibility for the
preparation and presentation of its financial statements. The statement shall be signed by the
Chief Accountant and the Head of the Agency or his authorized representative. It shall form an
integral part of the financial statements, all of which shall be transmitted to the concerned
agencies.

Year-end Financial Statements. – Local accountants shall prepare at the end of the year the
following financial statements for each fund:

40
 a. Balance Sheet;
b. Statement of Income and Expenses; and
c. Statement of Cash Flows
The Chief Accountant shall likewise prepare the consolidated financial statements for all
funds and the Notes to the Financial Statements.

Balance Sheet. – The Balance Sheet shows the financial condition of the agency at a specific
date. It presents information on the assets, liability and the government equity of the agency.

Statement of Income and Expenses. – The Statement of Income and Expenses shows the
income and expenses of the agency at the end of a particular period. It presents the detailed
information of the income and expenses recognized during the period covered.

Statement of Cash Flows. – The Statement of Cash Flows shows the agency’s cash activities.
It reports cash receipts and cash payments and net change in cash resulting from operating,
investing and financing activities of an agency during a period, in a format that reconciles the
beginning and ending cash balances.

Notes to the Financial Statements. – The Notes to the Financial Statements are the
accountant’s means of amplifying or explaining the items presented in the main body of the
statements. These are explanatory notes on the accounts and/or accounting policies which will
give additional information value to the financial statements. In the Notes, the accountant is
expected to report the economic substance rather than the legal form of the transactions and to
make adequate disclosure.

The Notes to Financial Statements include the following:

1. Summary of significant accounting policies adopted and followed by the reporting entity;
2. Narrative descriptions or detailed analyses of amounts shown on the face of the balance
sheet, statement of income and expenses and statement of cash flows;
3. Customary or routine disclosure – which are information about measurement bases of
important assets, restrictions on assets, contingent assets/liabilities, important long term
commitments not recognized in the body of the statements, etc.;
4. Disclosures of changes in accounting principles- changes in accounting principles,
practices or methods of applying them; and
5. Disclosures of subsequent events – disclosure of events that affect the agency directly
and that occur between the date of, or end of the period covered by, the financial
statements and date of completion of the statements are necessary; if knowledge of the
events might affect the interpretation of the statements, even though the events do not
affect the propriety of the financial statements themselves.

SPECIAL FUNDS
Special Education Fund. – The Special Education Fund (SEF) consist of the proceeds of one
percent (1%) tax on the assessed value of real property in addition to the basic real property
tax, which a province or city, or a municipality within the Metropolitan Manila Area, may levy and
collect.

41
Application of Proceeds of the Additional One Percent (1%) Special Education Fund Tax.
–

(a) The proceeds of the additional one percent (1%) real property tax accruing to special
education fund shall be automatically released to the local school boards.
(b) In case of provinces, the proceeds of the special education fund shall be divided equally
between the provincial and municipal school boards.
(c) Said proceeds shall be allocated as determined and approved by the local school boards
concerned only for the following purposes:

1. Operation and maintenance of public schools;

2. Construction and repair of school buildings, facilities and equipment;
3. Educational research;
4. Purchase of books and periodicals; and
5. Sports development.

(Article 363 of the IRR of the Local Government Code)

Special Education Fund Budget. – The Local School Board shall determine in accordance
with the criteria set by DECS, the annual supplementary budgetary needs for the operation and
maintenance of public schools within the province, city, or municipality as the case maybe, and
the supplementary local cost of meeting such needs, which shall be reflected in the form of an
annual school board budget corresponding to its share of the proceeds of the special levy on
real property constituting the special education fund and such other sources of revenue as the
Local Government Code and other laws or ordinances may provide. (Article 184(b)(1) of the
IRR of the Local Government Code)

The division superintendent, city superintendent, or district supervisor, as the case maybe, shall
prepare the budget of the school board concerned. Such budget shall be supported by
programs, projects and activities of the school board for the ensuing fiscal year. A majority of all
the members shall be necessary to approve the budget. (Article 184(f) of the IRR of the Local
Government Code)

The annual school board shall give priority to the following:

1. Construction, repair and maintenance of school buildings and other facilities of public
elementary and secondary schools;
2. Establishment and maintenance of extension classes when necessary; and
3. Holding of sports activities at the division, district, municipal, and barangay levels.

Definition of Trust Fund. –

Trust Fund shall consist of private and public monies which have officially come into the
possession of the local government or of a local government official as trustee, agent or
administrator, or which have been received as a guaranty for the fulfillment of some
obligation. A trust fund shall only be used for the specific purpose for which it was
created or for which it came into the possession of the local government unit.

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 Module 4
State Auditing
STATE AUDITING

State auditing is the analytical and systematic examination and verification of financial
transactions, operations, accounts, and reports of any government agency for the purpose of
determining their accuracy, integrity, authenticity, and satisfying the requirements of law, rules
and regulations and the managerial norms 3Es (economy, efficiency, effectiveness).

Fundamental in auditing is its restriction to take the place of internal control system.
It is incumbent on management to institute adequate operational procedures and
controls against irregularities and improprieties and encourage adherence to adopted policies
and other requirements. In the public finance cycle, auditing comes in after planning, budgeting,
implementing, controlling, and reporting phases. However, in some countries, audit is done
immediately once the plan is completed and goes through the culminating activity of
government action. In spite of its immediacy in action, auditing remains in the realm of post
audit. As long as it focuses on evaluating management activities, auditing is never categorized
as pre-audit.

CLASSIFICATION OF AUDIT

Audit is classified, as follows:

1. Internal Audit
2. External Audit
3. Pre-Audit
4. Post-Audit

Internal audit is an independent appraisal activity within an organization for the review
of operations as a service to management. It is also a managerial control that measures and
evaluates the effectiveness of existing control mechanisms.The internal auditors are employees
of the organization. They are the “eyes” and “ears” of management and report directly to top
officials.

External audit examines the books of accounts and records of an organization. It is

conducted by an independent third party (an auditor). Its objective is to ensure that they have
been properly maintained, are accurate and comply with established concepts, principles, and
accounting standards, and give a true and fair view of the financial condition of the organization.

The external auditor is distinguished from internal auditors:

(a) the internal auditor’s primary responsibility is appraising an organization’s risk

management strategy and practices, management control frameworks and governance
processes, and does not express an opinion on the organization’s financial statements;

(b) auditor is to express an opinion on the organization’s financial statements whether they
are free or not of material misstatements.

43
 Pre-audit reviews and examines the financial transactions such as disbursements or
any management decision involving money matters before their consummation of the financial
transaction or payments. It is an integral part of the accounting and payment process. In
instances where the risk of management errors and irregularities is high, pre-audit is adopted as
an auditing control measure in addition to the regular post-audit.

Post-audit is the examination of financial transactions that have been consummated or

paid. This is to determine among others their compliance with legal and regulatory
requirements. It traces the transactions on the books of accounts to ascertain the accuracy of
the accounting entries and may be expanded to embrace the audit of economy and efficiency as
well as program results.

SCOPE OF STATE AUDIT

The scope of audit in government include:

a. Compliance audit
b. Financial audit
c. Performance audit

Compliance Audit determines whether or not management’s performance conforms to

the regulatory, legal or statutory requirements.

Financial Audit determines whether the financial statements of the auditee organization
present fairly the financial position and the results of financial operations in accordance with
generally accepted accounting principles and standards.

Performance audit examines and diagnoses policies, organization and operation of a

government organization. It measures accomplishment with plan, results with standards, and
practice with policy. This objective looks into what is being done and how well it is being done
and matches it with the plans, policies and standards and, most important, to understand the
reasons for positive variances or negative deviations from those plans, policies and standards.

These three types of audit (financial, compliance and performance) overlap. Put together, the
three types of audit becomes a comprehensive audit.

An audit may vary in scope. Compliance may be required in every transaction so test of
compliance to rules, regulations and laws follows.

Financial audit has legal deadlines but may be undertaken even more frequently as the need
arises.

Performance audit at varying extent may be undertaken at longer periods apart from the time of
the two other audit or as directed by proper authority.

44
Therefore, a government unit shall, at certain periods, have varying scope audits unless a
comprehensive audit is conducted.

A comprehensive audit includes the following elements:

1.Fiscal accountability involves fiscal integrity, full disclosure and compliance to applicable
laws and regulations.

2.Managerial accountability is concerned with efficiency and economy and the use of public
funds, property, manpower, and other resources.

3.Programme accountability is concerned with whether government programs and activities

effectively achieved the objectives established with regard to costs and results.

LEGAL FRAMEWORK OF THE COMMISSION ON AUDIT

The Commission on Audit is the supreme audit institution of the Philippines.Its power
includes the examination and review of operation of the government and its instrumentalities.
COA’s legal basis on its powers and functions are:

a. The 1987 Constitution of the Philippines (Part D, Article IX) mandates the keeping of
government accounts, the promulgation of accounting rules, the audit of financial reports, and
the submission of reports covering the Government’s financial operations and position.

b. The State Audit Code (Presidential Decree No. 1445, promulgated on 11 June 1978) codifies
all existing laws on government auditing and outlines the organization of the Commission on
Audit.
It specifies COA’s powers and responsibilities which include prescribing accounting and
auditing rules and regulations whenever the reporting requirements of the Budget Commission
pursuant to a budget law affect accounting functions; regulating the requirement for, and the
submission of accounting reports; etc.

c. The Administrative Code of 1987 embodies the major structural, functional and procedural
principles and rules of governance (Provisions on the Commission on Audit is on Subtitle B,
Title I of Book No. V).

d. The 1977 Budget Reform Decree (Presidential Decree No. 1177) defines “government” as
being the national government, including the Executive, the Legislature, the Judiciary and the
Constitutional Commissions.

e. Delineating Primary and Joint Responsibilities of Government Wide Service Agencies and
Establishing the Mechanism Thereof (Presidential Decree No. 1376), specifying the primary
responsibilities of government-wide service agencies with respect to the following activities:
Audits, Management Consultancy, Training, Debt Recovery, Accounting and Staffing

45
The authority and powers of COA to audit are directed to the following entities:

a. National government
b. Political subdivisions, agencies and instrumentalities
c. Government-owned or controlled corporations, their subsidiaries, other self-governing boards,
commissions, or agencies of the government
d. Non-governmental entities subsidized by the government
e. Entities funded by donations through the government
f. Entities required to pay levies or government share
g. Entities for which the government has put up a counterpart fund or those partly funded by the
government
h. At COA’s initiative, the audit confined only to funds or subsidies which come from or through
the government:
• non-government entities subsidized by the government
• those required to pay levies or government share
• those which have received counterpart funds from the government or partly funded by
donations through the government
i. Non-government entities, upon Presidential direction, whose loans are guaranteed by the
government, the audit to be confined only to the government’s contingent liability.
COA’s functions are:

a.) Auditorial function

b.) Limited accounting function
c.) Custodial function
d.) Rule-making for accounting and auditing
e.) Rule-making for the prevention and disallowance of irregular, unnecessary, excessive,
extravagant or unconscionable expenditures
f.) Quasi-judicial function
g.) Recommendatory function for improving efficiency and effectiveness
h.) Reportorial function

46