EXECUTIVE ORDER NO. 518
EXECUTIVE ORDER NO. 518 -
ESTABLISHING A PROCEDURE FOR THE PREPARATION AND APPROVAL OF THE
OPERATING BUDGETS OF GOVERNMENT OWNED OR CONTROLLED CORPORATIONS
WHEREAS,
national government policy calls for the formulation of a national
resource budget, representing the totality of government revenue,
expenditure and debt;
WHEREAS, the volume of public resources and activities undertaken by
government corporations are such that a formal mechanism is necessary
to ensure that the budgets of government corporations are consistent
with the national development plan and follow the budgetary standards
and guidelines adopted for agencies of the national government and
local government units;
WHEREAS, Sec. 22 of P.D. No. 1177, known as the Budget Reform Decree
of 1977, provides for review and approval of the budgets of government
owned or controlled corporations under certain conditions;
WHEREAS, all government-owned or controlled corporations require
national budget support, either in the form of direct outlays or
guarantees;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,
by virtue of the powers vested in me by the Constitution do hereby
Order:
Section 1. Title. — This Order shall be known as the
“Government Corporate Budget Executive Order of 1978.”
PART
I
Introductory Provisions
Sec. 2. Declaration of Policy. — It is hereby
declared policy that the budgets of all components of government shall
be supportive of national objectives and development plans and that in
pursuance thereof, the budgets of government-owned or controlled
corporations shall be supportive of and consistent with the budgets of
the ministries, bureaus, offices and agencies of the national
government.
The budgets of government-owned or controlled corporations shall
observe the budget, organization and compensation policies and
guidelines which govern agencies of the national government and which
are contained in pertinent budget and compensation laws, rules and
regulations.
The budget process of government corporations shall observe the concept
of flexible budgeting and as such shall allow immediate adjustment to
changes in economic and business conditions.
Corporations that earn a profit shall be allowed greater flexibility in
terms of administrative expenses and compensation but corporations that
incur losses shall be subject to the same conditions and guidelines as
those that govern regular agencies of the government: Provided,
however, that exceptions may be allowed with the approval of the
President/Prime Minister in the case of corporations that are at the
initial stages of operation and which are expected to show a profit
within a reasonable period of time.
Sec. 3. Definition of Terms. — As used in this
Order:
a.
“Government” means the National Government, including the Executive,
the Legislative and the Judicial Branches, and the Constitutional
Commissions. It includes, among its branches and instrumentalities,
local governments and government-owned or controlled corporations;
b.
“Government-owned or controlled corporations” are corporations created
by law as agencies of the State for narrow and limited purposes, either
owned wholly by the state or wherein the Government is a majority
stockholder, in cases of stock corporations, or otherwise, agencies so
created where no stocks are issued but whose affairs are conducted by a
duly constituted board and which perform proprietary functions. This
term shall include all corporations, including financial institutions,
owned or controlled by the National Government performing government
and/or proprietary functions, but excluding state universities and
colleges;
c. “Subsidiary
Corporations” are affiliated or secondary corporations which are
created and administered by a principal/parent agency for the purpose
of helping achieve the objectives of the latter;
d.
“Appropriation” is an authorization under Acts of Congress,
Presidential Decrees, or other Legislative enactment, allowing
obligations to be incurred and payments to be made with funds of the
Government under specified conditions and/or specified
purposes.
e.
“Allotments” are authorizations issued by the Ministry of the Budget to
an agency which allow the latter to incur obligations within a
specified amount, as duly authorized by a Legislative appropriation;
f.
“Obligations” are amounts which are committed to be paid by Government
originating from a Legislative appropriation, which arise from an act
of a duly authorized administrative officer which binds the government
to the immediate or eventual payment of a sum of money;
g. “Current
Operating Expenditures” refer to appropriations for the purchase of
goods and services for current consumption, the benefits of which are
expected to terminate within a specified fiscal year;
h. “Capital
Outlays” are appropriations spent for equipment and fixed assets and
other objects of a more or less durable nature, whose benefits usually
extend beyond one fiscal year;
i. “Subsidy”
means the amounts granted to government-owned or controlled
corporations from the General Fund, to cover operational expenses that
are not supported by corporate revenues or to cover corporate deficits
and losses;
j. “Equity”
refers to the amount received by government-owned or controlled
corporations as payment of capital subscriptions and generally capital
investment of the national government in said corporations and which
form part of their capitalization;
k. “Internally
generated funds” are funds obtained from net revenues, funds arising
from depreciation provisions, income from investment in securities,
sale of corporate property, and other transactions performed in the
course of corporate activity;
l. “External
sources of funds” are those that are obtained from such sources as
foreign and domestic borrowings, contributions from the National
Government in the form of subsidy or capital subscription payments,
funds generated through sale of stocks to the public, and donations
from private individuals or institutions;
m. “Financial
institutions” shall refer to the Central Bank of the Philippines, the
Development Bank of the Philippines, the Philippine National Bank, the
Government Service Insurance System, the Social Security System, the
Land Bank of the Philippines, the Philippine Amanah Bank, and other
government financial institutions.
PART
II
Operating Budgets
Sec. 4. Fiscal Year. — The fiscal year of
government-owned or controlled corporations shall be the period
beginning with the first day of January and ending with the
thirty-first day of December of each calendar year.
Sec. 5. Budget Calendar and Format. — The budgets
of government-owned or controlled corporations shall be consistent in
format and timing with that of the National Government budget, except
as these may be modified to suit the peculiarities of individual
corporations. These budgets shall be formulated on the basis of an
obligational authority and/or a cash basis of accounting, or variations
thereof as may be duly approved under pertinent law.
Sec. 6. Operating Budget. — Each government-owned
or controlled corporations shall prepare an operating budget consisting
of (1) estimates of revenues, (2) estimates of expenditure, and (3)
estimates of borrowings. The expenditure estimates shall cover current
operating and capital expenditures. The operating budget of each
government owned or controlled corporation shall be prepared following
such procedure and guidelines as may be determined by the
President/Prime Minister. They shall be prepared prior to the beginning
of the fiscal year and recommended by the Governing Board of the
Corporation, for consideration and final approval by the
President/Prime Minister.
Sec. 7. Projected Financial Statements. — The
operating budgets of government owned or controlled corporations shall
be accompanied by a projected Balance Sheet, Profit and Loss Statement,
Cash Flow Statement, and such other financial projections as may be
required, together with the underlying assumptions adopted in making
the projections.
Corporations, including financial institutions, shall submit as an
attachment to their operating budget proposals, the projected sources
and uses of funds statement for the budget year, an estimated sources
and uses of funds statement for the current year, and an actual
statement of sources and uses of funds for the preceding year. The
latter two submissions shall be accompanied by comparative data on the
approved funds flows established for the said year.
The operating budget proposal shall be accompanied by an assessment of
the economic and business conditions which will have a bearing on the
corporation’s operations.
Sec. 8. Financial Institutions. — The operating
budgets of government financial institutions shall be subject to the
review and approval process provided under this Act: Provided, That
rediscounting, lending and borrowing transactions of these institutions
shall not be considered as part of their operating budgets for purposes
of this Order: Provided, Further, That capital outlays included within
the scope of the budget review and approval process herein provided
shall include permanent investments, such as equity investments in
subsidiaries or affiliated companies, land acquisition, building
construction, land improvements, and the like: Provided, Finally, That
loans granted to other financial institutions which have the effect of
increasing the fringe benefits or compensation of the staff of the
original lending institutions or for purposes of allowing the
implementation of capital projects for use of the institution shall be
considered as part of the operating budget governed by this
Order.
Sec. 9. Long Term Budget. — The Governing Board of
an institution shall prepare a long term budget consisting of estimates
of income, expenditure and debt for the budget year and at least the
subsequent four-year period. In the case of capital outlays, budget
estimates shall be prepared to cover the cost of capital projects
scheduled over the five year period beginning with the budget year.
Sec. 10. Budget Flexibility. — Supplemental
budgets may be proposed by corporations for approval, only when
supported by adequate funding sources. The approval of supplemental
budgets shall observe the same procedures as those established for the
principal operating budget of the corporation: Provided, That in lieu
of a system of supplemental budgets, the President/Prime Minister may
approve a flexible budget system for individual corporations, which
would allow automatic changes in expenditure level to accompany changes
in revenue, raw material or other direct expenses: Provided, Further,
That the President/Prime Minister may delegate to the Governing Board,
the authority to change allocations within limits and under such
conditions as he may specify.
Sec. 11. Changes in the approved Budget. — Changes
in the approved principal or supplemental budgets shall be made only
with the approval of the President/Prime Minister, subject to the
provisions under Sec. 10 of this Order.
Sec. 12. Objects of Expenditure. — The operating
budget of corporations shall include a specification of estimates of
expenditure by object and shall include an organization chart and an
itemization of personal services. Positions may be created or
reclassified, and reorganization affected, only when approved by the
Governing Board under such guidelines and/or procedure as may be issued
by the President/Prime Minister: Provided, That reclassification and
the creation of positions shall be within approved budget levels:
Provided, Further, That any such changes shall be in accordance with
pertinent position classification and compensation laws.
Sec. 13. Contributions and Donations. — A
government owned or controlled corporation may grant donations, in kind
or in cash, to institutions or persons authorized to receive public
funds in the form of donations or contributions, within the limitations
of its budget as approved under this Order: Provided, That
contributions and donations shall be made only if the operating
revenues of the corporation, net of expenses, are sufficient to cover
these.
Sec. 14. Trust Funds. — Each corporation shall
submit to the President budget estimates covering the income and
expenses associated with funds administered, managed, or held in trust
by the government-owned or controlled corporation: Provided, That
transactions relating to the receipts, disbursements, or generally the
disposition of the principal and accumulated net income of such Trust
Funds shall not be considered as forming part of the corporation’s
operating budget.
Sec. 15. Expenditure Authority. — No
government-owned or controlled corporation shall incur obligations or
make payments for current operating or capital expenditures after the
beginning of each calendar year without a budget as approved under this
Order.
Sec. 16. Subsidiaries. — The operating budget of a
government owned or controlled corporations shall be accompanied by
similar operating budgets of its subsidiaries and affiliated companies:
Provided, That the budget of subsidiaries of financial institutions
other than the Central Bank of the Philippines that are classified as
acquired assets under Central Bank regulations, shall be excluded from
the scope of this Section .
Sec. 17. Cash Dividends. — Each corporation shall
declare at least five per cent of net earnings of each year as cash
dividends: Provided, That cash dividends accruing to the National
Government shall be received by the Treasury and recorded as income of
the General Fund: Provided, Further, That the fraction of net earnings
that shall be declared by a corporation as cash dividends may be
changed by the President/Prime Minister upon recommendation of the
Minister of Finance: Provided, Finally, That this Section shall not
apply to the Government Service Insurance System, the Social Security
System, and those government owned or controlled corporations whose
profit distribution is provided for by their respective charters or by
special law.
Sec. 18. Accounting Method. — The budget and
accounting process of government owned or controlled corporations shall
be expressed in terms of the obligational authority and/or the cash
budget concept, or as otherwise provided under budget and accounting
laws.
Sec. 19. Compensation. — Policies and rates on
salaries, wages, allowances, per diems, consultant’s fees, overtime
pay, and other forms of compensation, including allowances and fringe
benefits, of government-owned or controlled corporations, shall be
determined in accordance with the position classification and
compensation and salary schemes as prescribed by P.D. No. 985 and other
pertinent compensation law: Provided, That transportation facilities,
housing, retirement plans, financing programs, and other fringe
benefits shall be subject to such guidelines as may be approved by the
President/Prime Minister, as provided by P.D. No. 985.
Sec. 20. Additional Allowances and Emoluments. —
Officials and employees of a parent corporation who are detailed with a
subsidiary corporation, or vice versa, may receive only such allowances
and other emoluments as may be approved in accordance with P.D. No. 985
and other pertinent compensation law.
PART
III
Equity Investment
Sec. 21. Budgetary Requests. — Government owned or
controlled corporations may propose the payment of capital stock
subscriptions of the National Government and the allocation of subsidy
payments in the form of a budgetary request submitted in response to
the annual budget call issued by the Ministry of the Budget in the
preparation of the annual General Appropriations Bill: Provided, That
corporate equity investments shall be within the limit of the
authorized capital stock of the requesting corporation: Provided,
Further, That the budgetary request of corporations shall be submitted
in such format and following such timetable as may be determined by the
Minister of the Budget: and Provided, Finally, That the requests for
equity investment shall be accompanied by projected financial
statements and by details of the proposed projects for which the
requested government equity investments is intended.
Sec. 22. Fund Releases. — Funds appropriated for
government equity investments and subsidies shall be released upon
submission of Special Budgets as provided by Sec. 40 of P.D. No. 1177.
The usage of such funds shall be specified, including the projects to
be implemented or undertaken with equity investments.
PART
IV
Accountability
Sec. 23. Legislative Submission. — The Minister of
the Budget shall prepare a summary of approved operating budgets of
government-owned or controlled corporations. He shall submit this
summary to the Batasang Pambansa on or before the last day of March of
each year.
Sec. 24. Performance Reports. — Government-owned
and controlled corporations, including financial institutions, shall
submit a separate annual report of financial performance as compared
with the approved budget, explaining performance in terms of work and
financial results. Reports shall likewise be submitted for subsidiaries
and affiliates of these corporations. The Minister of the Budget shall
prescribe the content of such reports which shall include information
on corporate solvency, liquidity and profitability and the status of
capital projects being undertaken by the corporation. Reports
pertaining to a given fiscal year shall be submitted on or before June
30 of the following year, through the Ministry of the Budget and the
President/Prime Minister, to the Batasang Pambansa, together with
comparative data for the preceding year and the approved budget for the
current year.
Sec. 25. Reports on Guaranty Obligations. —
Government-owned or controlled corporations shall periodically report
to the Minister of Finance and to the Minister of the Budget on the
status of obligations they have entered into and which are backed by
government guarantee.
PART
V
Final Provisions
Sec. 26. Rules and regulations. — The rules and
regulations for the implementation of this Order shall be issued by the
Minister of the Budget.
Sec. 27. Board Action. — The representatives of
the National Government or the Governing Boards of government owned or
controlled corporations shall pass the Resolutions and otherwise adopt
such action as may be necessary to comply with this Executive Order.
Sec. 28. Effectivity. — This Order shall take
effect upon its approval, subject to transitional measures for the CY
1979 budget year as may be duly approved under the rules and
regulations issued pursuant to this Order.
Done in the City of Manila,
this 23rd day of January, in the year of Our Lord, nineteen hundred and
seventy-nine.
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