Pursuant to Section 4, Article IX-D of the 1987 Philippine Constitution, the Commission on Audit (COA) submits to the President and Congress, within the time fixed by law, an Annual Report covering the financial condition and operations of the Government. With this mandated function, COA, the Government Accountancy and Financial Management Information System (GAFMIS) Sector in particular prepares the Annual Financial Report (AFR) for the three sectors of the government (national, local and corporate).

Further, the Commission on Audit under Section 2(2), Article IX-D of the 1987 Constitution is given the exclusive authority to promulgate, among others, accounting rules and regulations. To ensure the promulgation of accounting standards that are attuned to international standards, the Philippine Government Accounting Standards (PGAS) was approved by this Commission under COA Resolution No. 2006-006 dated January 31, 2006.

Relative to this resolution, COA Accounting Circular No. 2006-001 dated November 9, 2006 was issued prescribing the policies on the recording of certain transactions under the cash accounts and the use of appropriate accounts under the New Government Accounting System to ensure proper presentation in the financial statements of government agencies.

To carry out the provision of the Circular on the conversion of accounts, COA Accounting Circular Letter No. 2007-002 dated January 19, 2007 was issued providing guidelines on the submission of year-end financial statements and other reports/schedules for inclusion in the AFR for fiscal year 2006 and onwards.

The AFR for fiscal year 2006 was based on the 445 or 99.55 percent of the 447 Consolidated/ Pre-closing Trial Balances (C/PTBs) expected to be received from the 331 departments/offices of the National Government including the Autonomous Regional Government in Muslim Mindanao. Out of the 445 C/PTBs received, 399 pertain to Regular Agency (RA) and 46 to National Government (NG) books. The agencies that were not able to submit are: (1) National Labor Relations Commission and (2) Adiong Memorial Polytechnic State College (Fund 164).

1.0     FINANCIAL CONDITION

2.0     RESULTS OF OPERATIONS

For the year ended December 31, 2006, the NG realized a net income of 119.09 billion. This is the difference between the total revenue/income and the aggregate of expenses, net balance of subsidies and net gain(loss). Compared to 2005 level of 19.31 billion, the net income this year was significantly higher by 516.81 percent or 99.78 billion.

Total revenue/income this year amounted to 1,007.80 billion and the total expenses incurred reached 760.18 billion. On the other hand, the net subsidy granted to government agencies and NGOs/POs totaled 205.70 billion while the net gain realized reached 77.16 billion, resulting to a net income of 119.09 billion.

In the last five years, the highest net income was exhibited in fiscal year 2006 with 119.09 billion or 516.81 percent while the largest deficit was registered in 2004 with 344.18 billion.

2.1     Revenue/Income – 1,007.80 billion

The actual total revenue/income of 1,007.80 billion is higher by 168.89 billion or 20.13 percent compared to 2005 of 838.91 billion as shown in Chart IV-2. Details of the total revenue are as follows: Tax Revenue – 850.31 billion and Non-Tax Revenue – 157.49 billion. Excluded from the total income are subsidies from NGAs, LGUs and Other Funds.

In the last five years, the highest growth was registered in fiscal year 2006 with 20.13 percent or 168.89 billion.

 

The actual total revenue/income of 1,007.80 billion earned during the year surpassed the programmed level of 974.12 billion by 33.68 billion or 3.46 percent as presented in Table IV-1.

2.1.1  Tax Revenue – 850.31 billion

The actual Tax Revenue during the year reached 850.31 billion, higher by 155.11 billion or 22.31 percent than 2005 figure of 695.19 billion. The increase in collection performance was ascribed to the following revenue measures implemented by the present administration: increased Information Technology Payment gateways; revival of the electronic raffle Premyo sa Resibo project in partnership with PAGCOR, Philwest Telecommunications Expansion of the BIR Contact Center to enhance customer services; and establishment in region across the country of e-Lounges which are equipped with networked computer facilities which can be used by taxpayers for their payments, for downloading of BIR forms, or in applying for Tax Identification Number.

Compared, however, to the targeted level of 881.62 billion, a shortfall of 31.31 billion or 3.55 percent was noted.

 

Actual tax revenue of 652.75 billion earned by BIR was below the target by 22.60 billion or 3.35 percent. Similarly, the BOC collections of 195.78 billion was also short of the programmed level of 197.64 billion by 1.86 billion or 0.94 percent. Chart IV-3 reflects the composition of Revenue/Income by source and by collecting agents.

2.1.2  Non-Tax Revenue – 157.49 billion

Due to the efforts exerted by various income generating agencies, non-tax revenue soared to 157.49 billion surpassing the projected amount of 92.51 billion by 64.98 billion or 70.24 percent. The huge increment in this revenue category contributed to the overall impact exceeding the total programmed revenue for fiscal year 2006 by 33.68 billion or 3.46 percent.

As in previous year, Other Income of 89.62 billion and Service Income of 53.29 billion, ranked first and second largest components, respectively. Compared to the 2005 amount of 143.72 billion, non-tax revenue exhibited an increase of 13.78 billion or 9.59 percent.

2.2     Expenses – 760.18 billion

The NG’s aggregate expenses of 760.18 billion consisted of Personal Services – 324.95 billion or 42.75 percent, Maintenance and Other Operating Expenses (MOOE) – 112.45 billion or 14.79 percent and Financial Expenses – 322.78 billion or 42.46 percent. Excluded in the total amount are: Subsidy to NGAs, LGUs, GOCCs, NGOs/POs and Losses which are shown in separate caption. Shown in Chart IV-4 is the composition of expenses.

Compared to total expenses last year of 705.82 billion, an increment of 54.36 billion or 7.70 percent was noted.

2.2.1  Personal Services – 324.95 billion

Of the total Personal Services of 324.95 billion, almost 33.42 percent was spent again by the following departments due to their huge number of government personnel: DepED – 68.65 billion or 43.23 percent, DILG – 22.16 billion or 13.95 percent and DND – 17.78 billion or 11.2 percent. Salaries and Wages – Regular of civilian employees totaling 116.67 billion and those of military/uniformed personnel of the National Government amounting to 67.04 billion constitutes the biggest among Personal Services expense items.

2.2.2  Maintenance and Other Operating Expenses – 112.45 billion

Total MOOE spent to finance other operating requirements and maintenance of facilities and equipment rose to 112.45 billion from 92.10 billion in 2005, higher by 20.34 or 22.10 percent. Component-wise, the following expenses registered substantial amounts: Supplies and Materials – 22.36; Repairs and Maintenance – 14.89 billion; Taxes, Insurance and Other Fees – 13.19 billion and Donations – 10.20 billion.

Of the total supplies and materials of 22.36 billion, the following departments reported substantial amounts aggregating 17.60 billion: DILG – 5.58 billion; DND – 4.17 billion; DOH – 2.72 billion; DepED – 2.50 billion; SUCs – 1.32 billion and DA – 1.31 billion. As in the previous year, the top spenders on gasoline, oil and lubricants were DND and DILG with 0.83 billion and 0.63 billion, respectively.

On the other hand, the substantial expenses on repairs and maintenance were reported by the following: DPWH – 8.40 billion; DND – 2.05 billion; DOTC – 0.99 billion; DepED – 0.60 billion; DILG – 0.49 billion and SUCs. – 0.48 billion.

2.2.3  Financial Expenses – 322.78 billion

Total expenses incurred to cover financing activities went up to 322.78 billion from 314.78 billion in 2005, the bulk of which pertains to Interest Expenses of 315.24 billion or 97.66 percent. Loss on Guaranty is excluded from the total since it is separately presented under the Gain/Loss category. Other details of Financial Expenses are: Documentary Stamps Expenses – 5.03 billion, Other Financial Charges – 2.30 billion, Commitment Fees and Bank Charges – 0.21 billion.

The combined Financial Expenses, which is 34.10 percent of the total current operating budget of 946.69 billion, was higher by 8.01 billion or 2.54 percent than the 2005. The increment was contributed mainly by Interest Expenses which reflected a growth of 8.02 billion.

2.3     Net Income from Current Operations – 570.41 billion

Due to enormous increase in revenues of 168.89 billion and the net gain realized of 77.16 billion, net income from current operations for fiscal year 2006 displayed a vast increment of 122.54 billion or 27.36 percent of 447.87 billion of the previous period.

2.4     Net Subsidy – (205.70) billion

The negative net subsidy of the NG increased to 205.70 billion from 204.50 billion in 2005, higher by 1.20 billion. Net Subsidy is the resulting difference between Subsidy from and to NGAs – 8.66) billion, Subsidy from and to LGUs – (172.13) billion, Subsidy to GOCCs – (23.7) billion and Subsidy to NGOs/POs – (0.2) billion.

2.5     Net Income – 119.09 billion

The highest net income of the NG was registered in 2006 with 119.09 billion, the sixth time a positive net income was attained in the last eleven years (Table IV-2). The amount of 119.09 billion is the difference between the total revenue of 1,007.80 billion plus net gain of 77.16 billion less current operating and financial expenses of 760.18 billion and net subsidies of  205.70 billion.

The net gain of 77.16 billion was realized after deducting from gain on FOREX generated from revaluation of foreign loans, sale of securities and disposed assets totaling 85.76 billion the combined loss of 8.59 billion incurred on guaranty of foreign loans and loss of assets.

3.0     CASH FLOWS

The cash balance as of December 31, 2006 as shown in the Condensed Statement of Cash Flows reached 231.88 billion, posting a growth of 12.91 percent or 26.51 billion.

Total Inflows from operating, financing and investing activities amounted to 3,595.57 billion while total outflows aggregated to 3,568.42    billion, providing an overall cash of 27.16 billion during the year. With the beginning balance of 204.73 billion, the available cash totaled 231.88 billion.

Chart IV-5 shows the levels of cash inflows, cash outflows and cash provided by the three activities in both the RA and NG Books.

3.1     Cash Flows – RA Books

3.1.1 Cash Inflows – 789.26 billion

Total inflows under Operating Activities demonstrated the highest amount of 775.32 billion or 98.23 percent of the total cash inflows due mainly to the receipt of Notice of Cash Allocation by NGAs from the DBM amounting to 661.05 billion. The remaining balance of 13.94 billion or 1.77 percent is shared by Investing and Financing Activities.

3.1.2  Cash Outflows – 781.60 billion

The Cash Outflows recorded under RA Books totaling 730.83 billion or 93.50 percent pertains to Operating Activities. As in previous year, major components under this category include payment of operating expenses – 322.97 billion, grant of subsidies to LGUs – 172.43 billion, settlement of accounts payable – 36.47 billion, remittance of salary deductions to GOCCs – 57.02 billion, inter-agency fund transfers – 21.46 billion and intra-agency fund transfers – 30.48 billion.

3.2     Cash Flows – NG Books

3.2.1  Cash Inflows – 2,806.31 billion

The supply of cash of the NG came mainly from domestic and foreign loans of 1,413.78 billion and from revenue collections of 871.71 billion. The bulk of the cash loans was provided by domestic sources amounting to 1,193.80 billion or 84.44 percent while 200.54 billion or 14.18 percent came from foreign lending institutions. Cash Inflows from redemption of long-term investments and sale of marketable securities, stocks and bonds amounting to 441.03 billion also contributed significantly to the overall cash inflows.

3.2.2  Cash Outflows – 2,786.82 billion

As in previous year, huge outflows pertain to the following: payment of domestic and foreign loans – 1,681.37 billion, replenishment of negotiated MDS Checks – 630.60 billion and investments in stocks and bonds – 425.55 billion aggregating 2,737.52 billion or 98.23 percent.

By category, total cash outflows was reported as follows: Financing Activities – 1,681.37 billion; Operating Activities – 679.89 billion and Investing Activities – 425.55 billion.