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PHILIPPINE GOVERNMENT’s
Journey TowardsAccrual Accounting
ASIA PUBLIC SECTOR ACCOUNTING & REPORTING CONFERENCE14 September 2015 – Kuala Lumpur, Malaysia
By:LUZVI PANGAN CHATTO
Director IVCommission on Audit
Republic of the Philippines
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Presentation Outline
PART I: The Accounting Reforms: The beginnings
PART II: Progress and Challenges: What we havedone so far and what are the challenges wefaced
PART III: Lessons Learned: What should have beendone or avoided
PART IV: Moving Forward: Where we need to go
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PART I
The Accounting Reforms:
The beginnings
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Public Expenditure and FinancialAccountability (PEFA) Diagnostics: Evaluated PFM system against benchmarks of a
good PFM of the Organisation for Economic Co-operation and Development (OECD) and WorldBank (WB)
Conducted by WB and AusAID
PEFA Assessment Report released in 2010
2007 PFM System Evaluation
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6 Benchmarks of a Good PFM
Credibility of the budget
Comprehensiveness and transparency
Policy-based budgeting
Predictability and control in budgetexecution
Accounting, recording and reporting
External scrutiny and audit
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PFM Cycle and Gaps
budget not results-based
lack of funding predictability
weak budget oversight by Congressand the public
weak cash management system
no common budgetary and accounting classification
weak monitoring of contingent liabilities
lack of budget credibility
PREPARATION
EXECUTION
ACCOUNTABILITYAUTHORIZATION
* Based on 2007 PEFA Assessment
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Findings on PEFA Assessment
Budget classification was reasonable; BUTclassifications for budget executionreporting and accounting differed frombudget classification.
Most other aspects of comprehensivenessand transparency were good.
However, public access to key fiscalinformation was limited.
Comprehensiveness and Transparency
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Weakest part of the PFM system. Accounts reconciliations often not undertaken. Comprehensive data on resources to service
delivery units not collected. Departmental in-year budget reports not
compatible; hence not comparable with theconsolidated budget.
COA’s annual consolidated financial reportinadequate, as departmental financial statementswere based on pre-closing trial balances and onlypartially audited.
Findings on PEFA Assessment
Accounting, Recording, and Reporting
PFM Reform Roadmap (2011-2016)
Master plan for modernizing the financialmanagement system of the government
Improve efficiency, accountability andtransparency of public fund use
Contribute to good governance and fiscaldiscipline as a strategy for inclusive growthand poverty reduction
Jointly formulated and approved by fiscaloversight agencies (COA, DBM, DOF-BTr) from 2009 to 2011
For 2015 to 2016, updated roadmap designis moving its focus from policy toimplementation
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PFM Strategies and Outputs
OutputsTreasury
SingleAccount
GIFMISReal TimeFinancial
Information
1. Build upCredibility
of PFM
2. ReviewFund ReleaseProcedures
3. CapacityBuilding for
Congress andCSOs
4. ImproveTreasury CashManagementOperations
5. Developand
ImplementGIFMIS
ContingentLiabilities
BetterManagementof Contingent
Liabilities
ResultsBased
Budgeting
PFM REFORMS ROADMAP
MajorStrategies
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PFM Reform Projects
PFM
Reforms
Roadmap
GovernmentIntegratedFinancial
ManagementInformation
System(GIFMIS) Budget
Reportingand
PerformanceStandards
(BRPS)
Accountingand
AuditingReforms
ImprovedTreasury
CashManagementOperations
LiabilityManagement
CapacityBuilding
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Accounting and Auditing Reform Project
A key PFM reform project led by COA
Aims at:
harmonizing accounting and auditing ruleswith international standards
improving participatory audit of multi-sectoralprograms and projects
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Accounting and Auditing Reform Project
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PART II
Progress and Challenges…..
What we have done so far;
What are the challenges we faced
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Rolling Out Key PFM Reforms
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Creation and Functions of the PSAcSB
Creation: Created under the 2008 COA Organization Restructuring
pursuant to the 1987 Philippine Constitution which vests onthe COA the exclusive authority to promulgate accountingrules and regulations
Functions: Assist the Commission Proper in formulating and
implementing public sector accounting standards Establish and maintain linkages with international bodies,
professional organizations and academe on accountingrelated fields on financial management
18
ASDOS-N ASDOS-L
Government AccountancyOffice
ASDOS-C TAHDS
GAS-N I LGAS CGAS
GAS-N II PDMAS
Accounting Systems Development
Other Services Office
Accounting Systems Developmentand
Other Services Office
Office of theAssistant Commissioner
Office of theAssistant Commissioner
07/01/201514 Sept. 2015 Philippine Government’s Journey Towards Accrual Accounting 18
Government Accountancy SectorORGANIZATIONAL STRUCTURE
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Keeping theGeneral Accountsof the Government
Performing OtherFunctions/Services
Submitting an AnnualFinancial Report covering the
financial condition andoperation of the Government
PromulgatingAccounting Rulesand Regulations
GOVERNMENTACCOUNTANCY
SECTOR
As mandated by the 1987 Constitution, GAS assists COA in:
Major Functions of COA-GAS
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Promulgation of Accounting Rules and Regulations
Key Activities: Conduct continuous study and evaluation of
accounting standards both international and local;
Formulate/Recommend policies, rules andregulations on government accounting forimplementation in the NGAs, LGUs and GOCCs; and
Act as secretariat for the COA’s Public SectorAccounting Standards Board (PSAcSB) concerningNGAs, LGUs and GOCCs.
Key Accomplishments on the following areas:
PhilippinePublic SectorAccountingStandards(PPSAS)
Revised Chartof Accounts (RCA)
Guidelines on Conversionof the Philippine
Government Chart ofAccounts (PGCA) to the
RCA
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Promulgation of Accounting Rules and Regulations
GovernmentAccounting Manual
(GAM) for NGAs
Issuance of COACirculars
Installation/Implementation ofEnhanced eNGAS
and eBudget Systemto implement PPSAS,
RCA and UACS
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Promulgation of Accounting Rules and Regulations
PhilippinePublicSector
AccountingStandards(PPSAS)
PPSAS Development and Adoption Process:
Studied andevaluated
applicabilityof 32 IPSASin Philippine
setting
Decided/Found that 28IPSAS wereapplicable inthe PhilippineGovernment
Operation
Developed 25PPSAS and
PAG andexposeddrafts to
stakeholders/interested
parties
Reviseddrafts of 25PPSAS and
PAG based oncomments/
suggestionsof FGD
participants/stakeholders
Adopted 25PPSAS andPAG under
COAResolution
2014-003 datedJanuary 24,
2014, effective1 January 2014
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Promulgation of Accounting Rules and Regulations
Considerations/Factors in Developing PPSAS
Existing laws, financial reporting, accounting rulesand regulations;
Pronouncements issued by the IPSAS Board;
Best accounting practices, both local andinternational;
Capacity of agencies to comply with PPSAS;
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Promulgation of Accounting Rules and Regulations
Considerations/Factors in Developing PPSAS
Fundamental issues –
? Where an accounting principle or a significantelement of a disclosure requirement containedin IPSAS is considered to be in conflict with thePhilippine laws, rules and regulations
this would be regarded as a fundamental issueand the accounting principle or disclosurerequirement may be changed.
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Promulgation of Accounting Rules and Regulations
Considerations/Factors in Developing PPSAS
Statutory authority –
? Where the international standard deviates fromthe Philippine regulatory or legislativeenvironment
Philippine Application Guidance (PAG) shall beissued accordingly.
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Promulgation of Accounting Rules and Regulations
Considerations/Factors in Developing PPSAS
Disclosure requirements –
Disclosure requirements may be amended whenthe amendments are regarded as beingsignificant for improving the presentation of thematter.
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Promulgation of Accounting Rules and Regulations
Considerations/Factors in Developing PPSAS
PPSAS Numbering –
The PPSAS is assigned the same number as the IPSAS tomaintain the link.
Where a PPSAS is developed and there is no equivalentIPSAS, the Standard will be assigned a number in aseries of PPSAS starting with 101.
When IPSASB subsequently issues the equivalentStandard as an IPSAS, the 100 series PPSAS will bewithdrawn and reissued as a PPSAS with the IPSASnumber.
Standards of PPSAS have equal authority regardless ofthe numbering used.
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Promulgation of Accounting Rules and Regulations
PhilippinePublicSector
AccountingStandards(PPSAS)
ActionNo. ofIPSAS
Adopted and implemented in
2014 (Nos. 1-6, 8, 9, 12, 13, 14, 16,
17, 19-21, 23, 24, 26, 27, 28-32)
25
Being evaluated, for possible
adoption in 2015 (Nos. 18, 22, 25)3
Not adopted (No. 7, 10, 11) 3
Superseded (No. 15) 1
Total (2012 Edition) 32
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Promulgation of Accounting Rules and Regulations
PhilippinePublicSector
AccountingStandards(PPSAS)
PPSASNo. ofPPSAS
Volume I (Nos. 1-6, 8, 9, 12, 13) 10
Volume II (Nos. 14, 16, 17, 19-21, 23,
24, 26, 27)10
Volume III (Nos. 28-32) 5
Total 25
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Promulgation of Accounting Rules and Regulations
Key Accomplishments:
RevisedChart ofAccounts
(RCA)
RCA for National GovernmentAgencies (NGAs)
Revised the New Government AccountingSystem (NGAS) Chart of Accounts prescribedin September 2004
Provided new accounts for the adoption of thePPSAS to enhance the accountability andtransparency of the financial reports, andensure comparability of financial information
Adopted the RCA for NGAs in January 2013,to be implemented effective 1 January 201 4
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Promulgation of Accounting Rules and Regulations
Key Accomplishments:
RevisedChart ofAccounts
(RCA)
RCA for Local Government Units(LGUs)
Exposed proposed RCA for LGUsfor comment users/stakeholders inJuly 2015
For Government-Owned orControlled Corporations(GOCCs)Proposed RCA for GOCCs forexposure by September 2015
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Promulgation of Accounting Rules and Regulations
Key Accomplishments:
Issued under COA Circular No.2014-003 dated April 15, 2014
Provided guidelines and reviseddescription/title of accounts for theproper implementation of new andrevised accounting policies
Guidelines onConversion ofthe PhilippineGovernment
Chart ofAccounts (PGCA)
to the RCA
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Promulgation of Accounting Rules and Regulations
Key Accomplishments:Exposed draft GAM in March and
April 2015
Revised draft GAM based on FGDparticipant’s comments/recommendations in May-June 2015
Submitted revised GAM toCommission Proper for approval inJuly 2015
GAM approved on September 4,2015
GovernmentAccountingManual for
NGAs
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Promulgation of Accounting Rules and Regulations
Key Accomplishments:
Issuance ofCOA Circular
on AccountingMatters
COA CircularNo./Date
Subject
2015-002,March 9, 2015
Supplemental Guidelines on thePreparation of Financial Statements for2014, in line with PPSAS and UACSImplementation
2015-003,April 16, 2015
Classification of all Government BusinessEnterprises (GBEs) or Non-GBEs for thepurpose of determining the applicableFinancial Reporting Framework in thepreparation of their FS and PrescribingGuidelines therefore.
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Promulgation of Accounting Rules and Regulations
Key Accomplishments:
Enhanced Electronic Budget System
Enhanced Electronic NewGovernment Accounting System
Installation/Implementationof EnhancedeNGAS andeBudget Systemto implementPPSAS, RCA andUACS
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Submission of Constitutionally-requiredAnnual Financial Reports
Key Accomplishments:
Annual Report onAppropriations,
Allotments, Obligationsand Disbursements
Annual FinancialReports
Annual Financial Reportsfor: National Government
Local GovernmentUnitsGovernment-Owned or
Controlled Corporations
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Submission of Constitutionally-requiredAnnual Financial Reports
Key Accomplishments:
ANNUAL FINANCIAL REPORTINGSYSTEM
BUDGET AND FINANCIALACCOUNTABILITY REPORTING
SYSTEM
• Development and Implementation of User-friendlyWeb-based AFRS and BFARS
Capacity-Building/
Trainings onPPSAS and the
RCA
Trained 1,327accountants ofNGAs
Trained 1,144trainers-auditors onPPSAS
Trained 1,030 Auditors fromCOA Regional Offices
Customized PPSASTraining for 10 NGAs
Started preparingeLearning Modules for
PPSAS (PPSAS 16)
Key Accomplishments
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Capacity Building
Key Accomplishments:
Prepared Capacity-Building/Training Plan andCourseware on GAM for the following targetparticipants:
– COA and Agency Executives–2-day training
– COA Auditors and Agency Accountants–5-day training
– Agency Budget Officers and other FinancePersonnel – 2-day training
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Capacity Building
32
283
45
238
305
13
292
44
588
58
530
76
Total no. of trained Participants
No. of COA Participants
No. of participants from Agencies
No. of Agencies
As of 15 August 2015 2014 2015 Total
Conducted Functional and Technical Training onEnhanced eNGAS and eBudget System
Key Accomplishments:
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Capacity Building
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Capacity Building
Online tutorial for Annual Financial Reporting System andBudget and Financial Accountability Reporting System
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Challenges FS/reports of LGUs and GOCCs for 2014 were not yet
PPSAS-compliant due-to phased implementation ofPPSAS and revision/updating of RCAs.
Not all agency personnel concerned and COA auditorshave attended capacity building on PPSAS, RCA, UACSdue to varied reasons (e.g., time and fundingconstraints)
GAM for NGAs has just been approved on September 4,2015; GAM for LGUs and GOCCs have yet to beprepared.
Adoption of the 3 PPSAS (No. 18, 22 and 25) in 2015, asenvisioned, may not be possible.
Conversion of accounts using manual and computerizedapplications
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PART III
Lessons Learned…..
What should have beendone or avoided
Gains achievedThe process of development and adoption of
PPSAS is considered timely, acceptable andresponsive to the demands for PFM reforms.
The PPSAS, as aligned with the prevailinginternational standards, provide qualityaccounting standards, thereby:
enhancing the quality and uniformity in financialreporting by Philippine public sector entities, and
ensuring accountability, transparency and comparabilityof financial information with other public sector entitiesaround the world.
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Lessons Learned
What should have been done
Revision of Charts of Accounts and updating ofGovernment Accounting Manuals for use byNGAs, LGUs and GOCCs immediately after theapproval of the PPSAS
Timely issuance of supplemental guidelines onthe preparation of FS for 2014, in line with PPSASand UACS implementation
Intensified Capacity building to ensure smoothimplementation of PPSAS, RCA and accounting-related
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Lessons Learned
What should have been done
Immediate enhancement of existing applicationsystems to conform to PPSAS, RCA, UACS andimplementation of enhanced versions to facilitateconversion of databases.
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Lessons Learned
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PART IV
Moving forward…..
Where we need to go
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The Administration has identified the need for reform irreversibility.
- Irreversibility begins with effective implementation;
Government agencies take responsibility for delivering reformoutputs, and turning outputs into improved practices that agenciesbuy into.
- Sustainability can then be enhanced
through embedding reforms in legislationand ensuring that the responsibility formaintaining and monitoring policy isembedded in oversight agencies.
Moving Forward: Planned Next Steps
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Moving Forward: Planned Next Steps• Focus is now on implementation
from the design phase.
• Comprehensively adopted by thePFM Committee on May 13, 2015
• Includes adoption of the Budgetand Treasury Management System(BTMS) as a new approach for theintegration of the Government’sFMIS
• Highlights the need to reconstituteand expand the governancestructure
• With the reforms now moving intoimplementation, it is important toformally embed reform functionsinto agencies on a permanentbasis.
Budget Cycle: Preparation and Execution7. Assist agencies to use UACS correctly.8. Strengthen performance orientation of budget management.9. Strengthen cash management.
1. Draft PFM Law.2. Establish Comptroller General to develop and oversee financial management policies.
3. Conduct contingent liabilities analysis as basis for policy framework.Policy
Process
People &Organisations
Technology
BenefitsAllocation Efficiency | Operational Efficiency | Fiscal Discipline | Transparency
Oversight and spending agencies put new policies, processes,systems and skills into practice.
The Updated PFM Roadmap Summary (2015-2016)
10. Implement systems for improved budget preparation and execution.11.Implement comprehensive human resource information system.
Information Frameworks4. Refine and stabilise the unified account code structure.5. Refine reporting requirements.6. Maintain accounting and audit standards.
12.Develop and pilot curriculum with sustainable delivery model.
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Moving Forward: Planned Next Steps
Intensify capacity building; continue the preparation ofeLearning modules
Fast track the preparation of the RCAs and GAM forLGUs and GOCCs to support PPSAS implementation
Enhance eNGAS and eBudget System for LGUs andGOCCs to make them PPSAS and RCA-compliant andintensify implementation thereof.
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Moving Forward: Planned Next Steps
Continue the study/evaluation of other IPSASs forpossible adoption effective January 1, 2016:
No. Description
18 Segment Reporting
22 Disclosure of Financial Information about the GeneralGovernment Sector
25 Employee Benefits
34 Separate Financial Statements
35 Consolidated Financial Statements
36 Investments in Associate and Joint Ventures
37 Joint Arrangements
38 Disclosure of Interests in Other Entities
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Moving Forward: Planned Next Steps
Establish and maintain linkages withinternational bodies, professional organizationsand academe on accounting related fields onfinancial management through knowledgesharing, attendance in conferences, conventionsand fora and other capacity-building events
Upgrade/Maintain application systems tofacilitate timely, quality, and reliable accountingand other financial reports, and promoteaccountability and transparency in governmentoperations
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Questions?
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