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Quezon City Executives and

Legislators Planning Course

May 26, 2017


Carino Hall, 3/F SURP Bldg., E. Jacinto St., Planning is not Optional
UP Diliman, Quezon City

Managing the Local Government


Financial Resources

Jose Arnold M. Tan, CESO V


Acting Deputy Executive Director
Bureau of Local Government FInance
Introduction

Purpose of the Local Government Code

The code is meant to transform Local Government


Units (LGUs) into self-reliant
communities and active partners
in nation-building by giving them
more powers, authority,
responsibilities and resources

Local Government Code of 1991


Introduction

What is decentralization?

Decentralization is the transfer of power and


authority from the central
institution to the lower or local
levels of government system. It has
three forms, namely: devolution,
deconcentration, and
debureaucratization
Local Government Code of 1991
Introduction

What does decentralization hope to achieve?

Decentralization hopes to achieve the economic


Development at the regional and
levels, as the local chief executives
are given more freedom in carrying
out their own programs that are
suitable to the conditions in their
respective areas.
Local Government Code of 1991
Introduction

What is Resource Management?

Resource management is the efficient and effective


deployment and allocation of an organization's
resources when and where they are needed.
Such resources may include
financial resources, inventory,
human skills, production
resources, or information
technology.
Legal Bases

Sec 5. Article X of the Constitution

Each local government unit shall have the power to


create its own sources of revenues and to levy taxes, fees and
charges subject to such guidelines and limitations as the
Congress may provide, consistent with basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusive
to the local government.

The guidelines and limitations mentioned in Section 5 are


spelled out in R.A. 7160 which provides the legal basis for the
taxing and revenue-raising powers of local governments

The revenue-raising powers of LGUs authorized under the code


are not self-executory, the local sanggunians as the local taxing
authority must enact the needed enabling ordinance
Legal Framework

Local Govt
Code and
Other Laws

Constitution
Sources of Revenue of LGUs

Internal Sources External Sources

Taxes, Fees and Charges Central Transfers


Income from Local Enterprises Loans and other forms of credit
Private Sector Partnership

LGU Resources
Financial Profile of Quezon City

Income of Quezon City (In Million Pesos)


25,000.00

20,000.00

15,000.00

10,000.00

5,000.00

-
2010 2011 2012 2013 2014 2015 2016

Local Source External Source


Financial Profile of Quezon City

Quezon City's Current Income vs. Current Expenditures (In Million Pesos)
25,000.00

20,000.00

15,000.00

10,000.00

5,000.00

-
2010 2011 2012 2013 2014 2015 2016

Income Expenditure
Managing Local Government Financial Resources

Sourcing of Funds

Allocating of Funds
Using of Funds

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Managing Local Government Financial Resources

Sourcing of Funds

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Fundamental Principles in Revenue Collections

a. Local revenue is generated only from sources expressly authorized


by law or ordinance, and collection thereof shall at all times be
acknowledged properly. (Sec. 305(c), LGC)
b. All monies officially received by a local government officer in any
capacity or on any occasion shall be accounted for as local funds,
unless otherwise provided by law (Sec. 305(d), LGC)
c. The revenue collected pursuant to the pertinent provisions of the
Local Government Code of 1991, shall inure solely to the benefit of,
and be subject to disposition by, the local government unit levying
the tax, fee, charge or other imposition unless otherwise
specifically provided therein (Sec. 130(d), LGC); and
d. Every officer of the local government unit whose duties permit or
require the possession or custody of local funds shall be properly
bonded, and such officer shall be accountable and responsible for
said funds and for the safekeeping thereof in conformity with the
provisions of law. (Sec. 305(f), LGC)

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Factors Affecting Revenue Collection

Limited personnel
Political intervention
Lack of mobility and logistics
Low tax ethics
Inadequate records-keeping and management system
Inadequate reporting and information systems
Inadequate training and skills of personnel in-charge of
assessment and collection
Outdated local revenue code and schedule of market
value

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Local Revenue Mobilization Template

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Roles of Local Officials in Revenue Generation

Local Chief Executive Local Sanggunian


Licensing and Permits
Executive Direction & Control Licensing and Permits
Tax Authority
Licensing and Permits Enabling ordinance, rules & policies

Local Finance Committee


Licensing and Permits
Income projections
Recommendations on tax/ revenue
measures

Income From Local Sources


Licensing and Permits
Tax Revenue Non-Tax Revenue

Local Treasurer Local Assessor


Licensing and Permits
Collection of all local taxes, fees and charges Appraisal and assessment of real
Tax information property for taxation purposes
Examination of books of accounts
Collection by enforcement of remedies
Other Local Officials
Managing Local Government Financial Resources

Allocating of Funds

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LGU Budgetary Requirements/Limitations

a. The aggregate amount appropriated shall not exceed the


estimates of income.
b. Debt servicing shall not exceed twenty percent (20%) of the
regular income of the local government unit concerned;
c. Each local government unit shall appropriate in its annual budget
no less than twenty percent (20%) of its annual internal revenue
allotment for development projects.
d. In the case of provinces, cities, and municipalities, aid to
component barangays shall be provided in amounts of not less
than One thousand pesos (P1,000.00) per barangay.
e. Five percent (5%) of the estimated revenue from regular sources
shall be set aside as an annual lump sum appropriation for
unforeseen expenditures arising from the occurrence of calamities:

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LGU Budgetary Requirements/Limitations

f. Personal services of a local government unit for one (1) fiscal year
shall not exceed forty-five percent (45%) in the case of first to
third class provinces, cities and municipalities, and fifty-five
percent (55%) in the case of fourth class or lower, of the total
annual income from regular sources realized in the next preceding
fiscal year.
g. The annual appropriations for discretionary purposes of the local
chief executive shall not exceed two percent (2%) of the actual
receipts derived from basic real property tax in the next preceding
calendar year.
h. PPAs attribution to Gender and Development (RA 9710), Senior
Citizens and Persons with Disabilities (RA 9994), Acquired Immune
Deficiency Syndrome (RA 8504) and Protection of Children (RA
9344)

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Local Budget Process

Preparation
Accountability

Authorization
Execution

Review

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Budget Preparation

Budget preparation is the first phase of the local budget


process.

It involves cost estimation per PPA


preparation of budget proposals
executive review of budget proposals
preparation of the LEP and the Budget Message.

This phase starts with the issuance of the Budget Call,


and ends with submission of the Executive Budget to
the Sanggunian on or before October 16 of each year
Budget Authorization

Budget Authorization is the second phase in the local


budget process. This phase starts from the time the
Sanggunian receives the Local Expenditure Program
(LEP) submitted by the LCE, and ends with the
enactment of the Appropriation Ordinance and approval
thereof by the LCE.

Authorization of the budget is done through an


Appropriation Ordinance enacted by the Local
Sanggunian in accordance with the fundamental
principle that, No money shall be paid out of the local
treasury except in pursuance of an Appropriation
Ordinance or law (Section 305 (a), RA No. 7160).
Budget Review

Budget Review is the third phase in the local budget


process. Its primary purpose is to determine whether the
Appropriation Ordinance has complied with the budgetary
requirements and general limitations set forth in the Local
Government Code of 1991, as well as provisions of other
applicable laws. It starts from the time the reviewing
authority receives the Appropriation Ordinance for review
and ends with the issuance of the review action.

DBM shall review the appropriation ordinance of provinces


and highly urbanized cities while the sangguniang
panlalawigan shall review the appropriation ordinances of
component cities and municipalities
Budget Execution

The execution of the budget shall be in accordance with existing


rules, laws and regulations. After the usual recording of
appropriations in the proper registries, the execution of the budget
involves the release of allotments, the certification of available
appropriations and cash, the recording of actual obligations and
disbursements of funds for approved PPAs and the delivery of
goods and services to target clients in the most efficient, effective,
economical and ethical way.

A critical aspect of this phase is the collection of funds to ensure


that cash is available for payment of obligations and further
ensuring that disbursements do not exceed appropriations. While
seemingly a separate activity, the collection and/or receipt of
revenues are considered an integral part of Budget Execution.
Budget Accountability

It involves the use of a management control techniques to assist


in tracking receipts of income/revenues and controlling
expenditures. The five (5) phases of the budget is incomplete
without accountability. This mechanism provides a venue for the
LCE, Local Sanggunian and stakeholders to be continuously
informed of the status of implementation of PPAs being funded by
public funds. It covers the monitoring and analysis of all financial
transactions, the recording of budgetary accounts in the registries,
recording in the books of accounts of all receipts and expenditures
and financial reporting of their current status. An integral part of
accountability is the evaluation of the financial and physical
performance of the LGU. This review and assessment of
performance is necessary to introduce improvements and reforms
to make the budget more transparent to the people and
stakeholders.
Managing Local Government Financial Resources

Using of Funds

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Unlawful Expenditures

a. Irregular Expenditures
b. Unnecessary Expenditures.
c. Excessive Expenditures
d. Extravagant Expenditures
e. Unconscionable Expenditures

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Unlawful Expenditures

a. Irregular Expenditures The term "Irregular Expenditure"


signifies an expenditure incurred without adhering to
established rules, regulations, procedural guidelines, policies,
principles or practices that have gained recognition in laws.
Irregular expenditures are incurred if funds are disbursed
without conforming to prescribed usages and rules of
discipline.

Salary & wages Contract with insufficient appropriation


Honoraria Reimbursement
RATA Donation to CSOs
Christmas Bonus Payment of Contracts
Loyalty award Use of public funds for private purpose
Payment of CNA Payment of salary beyond the PS cap
Hiring of consultants
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Unlawful Expenditures

b. Unnecessary Expenditures. The term unnecessary


expenditures pertains to expenditures which could not pass
the test of prudence or the diligence of a good father of a
family, thereby denoting non-responsiveness to the exigencies
of the service. Unnecessary expenditures are those not
supportive of the implementation of the objectives and mission
of the agency relative to the nature of its operation.

Hiring of redundant consultants


Purchase of high end gadgets
Replacement of serviceable equipment
Continuous repair of car beyond economic repair
Grant of overtime pay for non urgent work

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LGU Unlawful Expenditures

c. Excessive Expenditures.The term "excessive expenditures"


signifies unreasonable expense or expenses incurred at an
immoderate quantity and exorbitant price. It also includes
expenses which exceed what is usual or proper, as well as
expenses which are unreasonably high and beyond just
measure or amount.

Overpricing of purchases
Payment of repair of government equipment at 30% more
of the cost
Purchase of supplies and materials exceeding the 3-months
requirements
Excessive expenditures in the celebration of Christmas,
anniversary and other special occasions
Excessive allowances to participants of lakbay-aral, seminar

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LGU Unlawful Expenditures

d. Extravagant Expenditures. The term "extravagant


expenditure" signifies those incurred without restraint,
judiciousness and economy. Extravagant expenditures
exceed the bounds of propriety. These expenditures are
immoderate, prodigal, lavish, luxurious, grossly excessive,
and injudicious

Purchase of wines, liquors, cigars


Payment for rent of expensive halls or rooms in luxury
hotels or restaurants for seminars
Conduct of out-of-town meeting which can be made in the
office
Hiring of expensive vans, cars, aircraft
Use of expensive decorative lamp posts and similar items
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LGU Unlawful Expenditures

e. Unconscionable Expenditures. The term


"unconscionable expenditures" pertains to
expenditures which are unreasonable and
immoderate, and which no man in his/her right
sense would make, nor a fair and honest man
would accept as reasonable, and those incurred in
violation of ethical and moral standards
Grant of exorbitant and unreasonable bonuses or allowance
Live-in seminar in five-star hotels with significant number of
participants and unreasonable period of time
Payment of excessive and unreasonable retirement benefits
Purchase of items exceeding the requirements, not needed and
left unused
Overpricing in significant amounts exceeding 100%
Payment for repairs of government equipment exceeding 100% of
the current market value of the same or similar equipment 32
Fundamental Principles in Management of Funds

a. No money shall be paid out of the local treasury except in pursuance of an


appropriations ordinance or law.
b. Local government funds and monies shall be spent solely for public
purposes.
c. Local revenue is generated only from sources expressly authorized
by law or ordinance, and collection thereof shall at all times be
acknowledged properly.
d. All monies officially received by a local government officer in any
capacity or on any occasion shall be accounted for as local funds,
unless otherwise provided by law.
e. Trust funds in the local treasury shall not be paid out except in
fulfillment of the purpose for which the trust was created or the
funds received.

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Fundamental Principles in Management of Funds

f. Every officer of the local government unit whose duties permit or


require the possession or custody of local funds shall be properly
bonded, and such officer shall be accountable and responsible for
said funds and for the safekeeping thereof in conformity with the
provisions of law
g. Local governments shall formulate sound financial plans, and local
budgets shall be based on functions, activities, and projects, in
terms of expected results
h. Local budget plans and goals shall, as far as practicable, be
harmonized with national development plans, goals, and strategies
in order to optimize the utilization of resources and to avoid
duplication in the use of fiscal and physical resources
i. Local budgets shall operationalize approved local development
plans

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Fundamental Principles in Management of Funds

j. Local government units shall ensure that their respective budgets


incorporate the requirements of their component units and provide
for equitable allocation of resources among these component units
k. National planning shall be based on local planning to ensure that
the needs and aspirations of the people as articulated by the local
government units in their respective local development plans are
considered in the formulation of budgets of national line agencies
or offices
l. Fiscal responsibility shall be shared by all those exercising authority
over the financial affairs, transactions, and operations of the local
government units
m. The local government unit shall endeavor to have a balanced
budget in each fiscal year of operation

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Fundamental Principles in Management of Funds

n. No contract involving the expenditure of public funds shall be


entered into unless there is an appropriation therefor, the
unexpended balance of which, free of other obligations, is sufficient
to cover the proposed expenditure. (Sec. 85 (1), P. D. No. 1445)
o. Trust Funds shall be available and may be spent only for the
specific purpose for which the trust was created or the funds
received. (Sec. 4(3), P.D. No. 1445)
p. Disbursements or disposition of government funds or property shall
invariably bear the approval of the proper officials. (Sec. 4(5), P.D.
No. 1445)
q. Claims against government funds shall be supported with complete
documentation. (Sec. 4(6), P.D. No. 1445)

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Fundamental Principles in Management of Funds

r. All laws and regulations applicable to financial transactions shall be


faithfully adhered to. (Sec. 4(7), P.D. No. 1445)
s. 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. 4(8), P.D. No. 1445)
t. Expenditures of government funds or uses of government property
in violation of law or regulations shall be the personal liability of the
official or employee found to be directly responsible therefor

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Any Question