The Commission on Audit is mandated in Section 4, Article IX-D of the Philippine Constitution to submit to the President and the Congress the Annual Financial Report (AFR) of the National Government. This function is performed by the Government Accountancy and Financial Management Information System (GAFMIS) Sector. On the other hand, Section 41 of Presidential Decree No. 1445 requires that such report be submitted not later than September 30 of each year.

Under Section 3(2), Article X-D of the same Constitution, the COA is vested with the exclusive authority to promulgate, among others, accounting rules and regulations. With this authority and with the objective to ensure proper presentation in the financial statements of government agencies, COA Accounting Circular Letter No. 2007-002 dated January 19, 2007 implementing COA Accounting Circular No. 2006-001 dated November 9, 2006 was issued. The COA Accounting Circular Letter provides the guidelines on the conversion of certain cash transactions and other accounts under the New Government Accounting System and submission of yearend financial statements and other reports/schedules for inclusion in the AFR.

This year’s financial data were taken from the 433 or 99.31 percent of the 436 Pre-closing Trial Balances (PTCBs) expected from the 328 departments/offices/agencies of the National Government, including the Autonomous Regional Government in Muslim Mindanao. The financial statements were submitted by the 327 departments/agencies or 99.7 percent of the total 328 agencies of which 52 agencies’ PCTBs were generated using the computerized New Government Accounting System (e-NGAS)

1.0     FINANCIAL CONDITION

2.0     RESULTS OF OPERATIONS

For the fiscal year ended December 31, 2007, the NG earned total revenue/income of 1,159.98 billion and incurred total expenses of 762.53 billion. Moreover, the net subsidy granted to government agencies and Non-Government Organizations (NGOs)/ Peoples Organizations (POs) amounted to a negative 260.54 billion while the net gain realized reached 171.9 billion resulting to a Net Income of 308.81 billion.

2.1     Revenue/Income – 1,159.98 billion

This year’s income exceeded the projected level of 1,118.76 billion by  3.68 percent or 41.22 billion and the prior year’s actual revenue/income of 1,007.8 billion by 152.18 billion or 15.1 percent. Total revenue/income of 1,159.98 billion excluded subsidies from NGAs, LGUs, and other Funds which are shown in separate category. Revenue/Income sources are: Tax Revenue – 921.39 billion and Non - Tax Revenue – 238.6 billion. The comparison between programmed revenue/income with actual performance is shown in Table IV- 1.



 2.1.1  Tax Revenue – 921.39 billion

From 850.31 billion of the previous year, total tax revenue rose to 921.39 billion, higher by 71.08 billion or 8.36 percent. Component-wise, Income Taxes registered the biggest amount at 330.47 billion or 35.87 percent followed by Import Duties at 187.44 billion or 20.34 percent and Value Added Tax at 166.52 or 18.07 percent.

Compared to the programmed level of 973.58 billion, a variance of 52.19 billion or 5.36 percent was noted.  Actual tax revenue earned by the BIR amounting to 714.2 billion was lower by 27.07 billion or 3.65 percent compared to the targeted level of 741.27 billion and collections of the BOC of 207.5 billion was short by 15.75 billion or 7.06 percent from the projected amount of 223.25 billion.  The composition of Revenue/Income by source and by collecting agent is presented in Chart IV-2.

    

In Chart IV-2, Tax Revenue contributed the biggest portion of the pie at 79.43 percent and Non-Tax Revenue shared 20.57 percent.

2.1.2  Non-Tax Revenue – 238.6 billion

Current year’s non-tax revenue exceeded the programmed level by 93.41 billion or 64.34 percent. Compared to the 2006 amount of 157.49 billion, non-tax revenue posted an increment of 81.11 billion or 51.5 percent. Under this category, Other Income which accumulated to 136.52 billion and Service Income of 69.8 billion, ranked first and second highest, respectively.

2.2     Expenses – 762.53 billion

Total expense of the NG slightly rose to 762.53 billion. This year’s level is composed of Personal Services – 343.39 billion, Maintenance and Other Operating Expenses (MOOE) – 141.28 billion, and Financial Expenses – 277.86 billion. Total expenses increased by 2.36 billion or 0.31 percent than the 760.18 billion reported in 2006. Chart IV-3 shows the composition of expenses by class.



2.2.1  Personal Services – 343.39 billion

The National Government spent 343.39 billion in Personal Services, which is bigger by 18.44 billion or 5.68 percent compared to last year’s level of 324.95 billion. The bulk of this amount was incurred by the following three departments: DepED – 114.8 billion or 33.43 percent, DND – 70.76 billion or 20.61 percent and DILG – 57.16 billion or 16.64 percent.

2.2.2  Maintenance and Other Operating Expenses – 141.28 billion

At 141.28 billion, this year’s MOOE exhibited an increment of 28.83 billion or 25.64 percent over the 2006 level of 112.45 billion. Among the departments/offices which incurred significant MOOE were the following: DPWH – 15.25 billion, DILG – 14.57 billion and DepED – 14.31 billion. Component wise, Supplies and Materials registered the biggest share of 28.54 billion or 20.2 percent while Repairs and Maintenance of 20.89 billion accounted for 14.79 percent of the total.

2.2.3  Financial Expenses – 277.86 billion

The bulk of this expense category was spent for Interest Expenses on domestic and foreign loans of 271.65 billion, representing 97.77 percent of the total Financial Expenses. Other components are: Documentary Stamp Tax Expenses – 5.14 billion, Other Financial Charges – 753 million, Commitment Fees – 177 million and Bank Charges – 139 million.

This year’s Financial Expenses was lower by 44.93 billion or 13.92 percent than 322.78 billion incurred in previous period.

2.3     Net Income from Current Operations – 675.31 billion

Net income from current operations registered an increment of 104.9 billion or 18.39 percent due to the rise in revenue by 152.18 billion, particularly from tax revenue – 71.08 billion and non-tax revenue – 81.11 billion. The growth was however, offset by the increase of 2.35 billion in total expenses.

2.4     Net Subsidy – (260.54) billion

This year’s negative Net Subsidy of 260.54 billion is bigger by 54.84 billion or 26.66 percent than 2006 negative amount of 205.7 billion. Negative Net Subsidy is the resulting difference between subsidy from and to which shows the following balances: NGAs – (18.31) billion, NGOs/POs – (0.3) billion, LGUs – (193.95) billion and GOCCs – (47.97) billion.

2.5     Net Gain (Loss) – 171.9 billion

Net Gain of 171.9 billion increased by 94.74 billion or 122.78 percent compared to 77.16 billion in 2006. This is due mainly to the appreciation of the peso.

2.6     Net Income – 308.81 billion

The NG’s net income of 308.81 billion exhibited an increment of 189.73 billion. Over the last five years, an average growth in Net Income was reported at 96.47 billion or 136.73 percent as shown in Table IV-2 below.

3.0     CASH FLOWS

The cash balance of the NG as of December 31, 2007 as shown in the Condensed Statement of Cash Flows for the RA and NG Books reached 327.82 billion, posting an increment of 95.94 billion or 41.37 percent.

The total inflows from Operating, Financing and Investing Activities 4,223.15 billion while total outflows aggregated to 4,128.07 billion, providing an overall cash of 95.08 billion. With the beginning balance of 232.74 billion, the available cash resources totaled 327.82 billion.

The levels of cash inflows and cash outflows under the three activities in the Consolidated Cash Flows of RA and NG Books are presented in Chart IV-4.

3.1     Cash Inflows – 4,223.15 billion

Total cash inflows for fiscal year 2007 increased by 627.58 billion or 17.45 percent from 3,595.57 billion in the previous year. The breakdown of inflows is as follows: Operating – 1,958.86 billion or 46.38 percent, Investing Activities – 693.69 billion or 16.43 percent and Financing Activities – 1,570.6 billion or 37.19 percent.

3.1.1 Operating Activities – 1,958.86 billion

As in prior years, inflows under Operating Activities registered the highest amount of 1,958.86 billion, 238.03 billion or 13.83 percent more than the previous year’s level of 1,720.83 billion due mainly to the receipt from all sources of income/revenues of 1,047.92 and receipt of Notice of Cash Allocations by NGAs from the DBM amounting to 772.63 billion.

3.1.2  Investing Activities – 693.69 billion

An increase in the aggregate cash inflows under the Investing Activities was posted at 235.73 billion or 51.47 percent compared to 457.96 billion in 2006.  This was brought about by the huge redemption of long term investments for 676.46 billion or 97.52 percent, higher by 248.35 billion or 58.01 percent than in the previous year.  Other factors that contributed to the increase were: proceeds from terminated treasury bills - 7.49 billion, sale of marketable securities, stocks and bonds - 4.08 billion, collections of revenues and receivables from MRT - 2.1 billion, proceeds from sale of PPE - 1.35 billion, and proceeds from repayment of long-term loans by GOCCs/GFIs - 1.22 billion.

3.1.3  Financing Activities – 1,570.6 billion

Under the Financing Activities, a total cash inflows of 1,570.6 billion was reported or an increment of 153.82 billion  or 10.86 percent compared to 1,416.78 billion last year. This consisted of 1,566.64 billion or 99.75 percent cash received from proceeds of domestic and foreign loans. Ninety nine percent or 1,564.78 billion was accounted for by the Department of Finance-Bureau of the Treasury (DOF-BTr) as receipt of proceeds from domestic and foreign loans of the NG.

3.2     Cash Outflows – 4,128.07 billion

The NGAs recorded an aggregate cash outflows of 4,128.07 billion which is higher by 15.68 percent or 559.65 billion compared to the 2006 figure of 3,568.42 billion.  The components of the cash outflows are: Operating Activities – 1,646.36  or 39.88 percent,  Investing Activities – 716.15 billion or 17.35 percent and Financing Activities – 1,756.67 billion or 42.77 percent.

3.2.1  Operating Activities – 1,646.36 billion

The cash outflows under the Operating Activities of 1,646.36 billion was higher by 235.63 billion or 16.7 percent compared to 1,410.73 billion of 2006. The bulk of the cash outflows under these activities are due mainly to the replenishments of negotiated MDS checks of 753.17 billion.

3.2.2  Investing Activities – 716.15 billion

An increase of 50.75 percent or 241.09 billion from 475.06 billion cash outflows was posted under the Investing Activities. The bulk of cash outflows as reported by the DOF-BTr were for Investments in Stocks and Bonds of 634.21 billion or 88.56 percent.

3.2.3  Financing Activities – 1,765.67 billion

Total cash outflows under the Financing Activities of 1,765.67 grew by 82.94 billion or a mere 4.93 percent. As in previous year, the payment of domestic and foreign loans reported by the DOF-BTr got the lion’s part at 1,761.11 billion.

3.3  Net Cash provided by (Used in) Operating, Investing and Financing
       Activities – 95.08 billion

The consolidated Statement of Cash Flows (RA and NG Books) as of December 31, 2007 showed net cash provided by all the activities of 95.08 billion which is more than twice the 27.16 billion of 2006 balance.