Table of Contents
CHAPTER 1
CASE BRIEF
MANAGEMENT’s DILEMMA
MANAGEMENT’s QUESTION
RESEARCH QUESTIONS
CHAPTER 2
INDUSTRY
Brief Description:
Regulating Agencies:
Nature of Activities:
Accounting Practices:
Types of funds:
Regulatory Constraints:
NATURE OF THE ENTITY
CHAPTER 3
References:
CHAPTER 1
CASE BRIEF
The newly appointed Vice President for Planning and Finance of the University of the Philippines is faced with the problem of a reduced budget for Maintenance and Other Operating Expenses (MOOE) for the CY 2000. As a first step, she reviewed the previous year’s MOOE allocation and found herself unsatisfied with the way the allocation was done. To address this matter, she then called up a meeting with the unit heads of the different autonomous campuses of UP to discuss the issue on the reduced budget. Different problems and arguments were raised by the said unit heads regarding the previous year’s budget. This was then taken into consideration by the VP for Planning and Finance in coming up with a formula that would objectively allocate MOOE among the campuses. Additional data, considered as important by the VP, were gathered to aid her in the process.
MANAGEMENT’s DILEMMA
The MOOE budget allocation, as perceived by the Vice President for Planning and Finance is inadequate in responding to the different needs of the constituent universities. This is because the bases for allocation included only few variables (i.e., number of students, presence of laboratory requirements per campus). There are also biases from the congressmen and DBM that were considered in the budget allocation. Some of these biases are political in nature. In addition, the proposed budget of the different universities is subject to the influence of the president’s thrusts. Hence, the heads of the units need to integrate the priorities of the president in their proposed budget.
With this, the VP is facing the dilemma of how will she allocate the budget. Will it be following the previous allocation which is inappropriate yet conforms the president’s thrusts or make her own allocation basis which she believes is fair but might not get the president’s approval?
MANAGEMENT’s QUESTION
Considering the dilemma above, how can the management of UP, specifically the VP for Planning and Finance, achieve and implement a more objective process of coming up a MOOE budget allocation formula that is commensurate to the different needs of the constituent universities and that will probably get the president’s approval?
RESEARCH QUESTIONS
These are the research questions we would like to explore in this case study:
- What is MOOE and the common classifications of expenses included in it?
- What are the most appropriate bases or critical variables to be considered in allocating the appropriated MOOE budget to the entire UP system?
- Is the additional information gathered by the VP for Planning and Finance adequate enough in order to create a budget allocation that is reasonable considering the circumstances at hand?
- Why should a budget allocation made from the information gathered by the VP for Planning and Finance be pursued even if it may not otherwise be totally in accordance with what the president wants?
CHAPTER 2
INDUSTRY
Brief Description:
The Philippines is considered to be one of the most highly educated middle-income countries. It has high enrollment rates at all levels of education and it has achieved near universal access to primary education (World Bank website 2008). The first baccalaureate degree granting institution is the University of the Philippines.
Regulating Agencies:
On May 18, 1994 through RA No. 7722 or the Higher Education Act of 1994 authored by Senator Francisco Tatad, the Commission on Higher Education (CHED) is created.The CHED oversees the higher education system. It is an agency attached to the Office of the President of the Philippines for administrative purposes.
CHED is responsible for administering and supervising both public and private higher education institutions in the Philippines. Higher education institutions establish and maintain their own internal organization. The framework of their organization is generally divided into two areas, namely: policy formulation and policy implementation. The formulation and/or approval of all policies, rules and standards in the school is the main function of the Governing Board. The implementation of policies and the management of the school operations are vested in the administration headed by the President.
The SUC's autonomy is assured by their individual charters. They are authorized to open curricula and institutional programs, and award their own degrees. However, on July 22, 1997, a landmark legislation was made enacting into law Republic Act 8292 otherwise known as the "Higher Education Modernization Act of 1997."
This Act provides among others for the uniform composition and powers of the governing boards of SUCs with the Chairman of CHED as the Chair of the governing boards of all SUCs (previously chaired by the DECS Secretary). With this new set-up, in effect this places all SUCs under the supervision, policy and development mandate of CHED. This enables the CHED to exert influence or provide proper guidance on the quality and directions of the academic programs as well as on the internal operations of the SUCs.
The private institutions, on the other hand, experience some degree of freedom only when their programs are Level III accredited. This means they are already deregulated and can initiate reforms in their curricular offerings without the need for CHED's approval. Otherwise, private schools have to apply for permit from CHED to open a course, and they have to apply for recognition of their programs in order to be allowed to graduate their students. Recognition of programs is granted if the institutions have fully complied the minimum requirements prescribed by CHED.
With regard to awarding of certificate, diploma or degree to students, this is done only if all academic requirements have satisfactorily been completed by the students. After verification of the information, the CHED issues a "Special Order" number which is noted in the student's transcript of records.
In the case of CHED-supervised institutions and local universities and colleges, the CHED monitors the implementation of policies, rules and standards. These institutions have to secure authority from CHED if they want to open a course. If their program offerings have the necessary authority from CHED (or DECS previously), their graduates are automatically recognized.
Higher Education Institutions:
The Philippine Higher Education Institution is categorized into: private and public. Each higher education adopts a certain admission policy beyond the general requirement that all candidates have to be graduates of secondary education. Some institutions require passing an entrance exam and a medical examination; others adopt open admission, but selective retention.
Further, Philippines has relied on private institutions and, at the turn of the century, private institutions have increased in numbers. As of August 2010, there are 2,180 HEIs geographically distributed over the country. There are a total of 1,573 and 607 private and public HEIs, respectively.
The Public HEIs, on the other hand, include: 110 SUCs main campuses, 388 satellite campuses, 93 LUCs, 10 Other Government Schools, one (1) CHED Supervised Institution (CHED-ARMM) and five (5) special HEIs.
The State Universities and Colleges (SUCs) are chartered public higher education institutions established by law, administered and financially subsidized by the government. SUCs have their own charters. The Board of Regents (BOR) for state universities and a Board of Trustees (BOT) for state colleges maintain the formulation and approval of policies, rules and standards in SUCs. The Chairman of CHED heads these boards. However, CHED Order No. 31 series of 2001 of the Commission en banc, also authorizes CHED Commissioners to head the BOR/ BOT of SUCs. Implementation of policies and management are vested on the president, staff, and support units of the public higher education institutions.
The local universities and colleges (LUCs) are those established by the local government through resolutions or ordinances. LUCs are financially supported by the local government concerned. A CHED Supervised Institution (CSI) is non-chartered public post-secondary education institution established by law, administered, supervised and financially supported by government. Other government schools (OGS) are public secondary and post-secondary education institutions, usually technical-vocational education institutions that offer higher education programs. Special HEIs are directly under the government agency stipulated in the law that created them. They provide specialized training in areas such as military science and national defense.
Nature of Activities:
The activities of an educational institution may be classified as (1) instructional, (2) administrative, and (3) auxiliary. Instructional activities include both resident & extension instructions, public services, organized research, and the operation of libraries. Administrative activities include staffing and promotion, registration and enrolment, operation of business office, and operation and maintenance of the educational plant. Auxiliary activities include the operation of residence halls, dining rooms, college unions and bookstores, health centers, and athletic and cultural programs.
Revenues in support of these different activities are provided by such varied sources as contributions, governmental appropriations, student fees, endowment income, and revenues from the sale of goods & services.
Accounting Practices:
Considering these activities of the educational institution, a “modified accrual basis” of accounting is generally employed in summarizing the operations of the state universities and colleges (SUCs). Since the primary purpose of accounting for educational institutions is to report on the stewardship of the funds and property entrusted, rather than to determine the net profits and net worth (American Council of Education). However, privately-owned institutions do not receive any appropriations. Therefore, the accrual method is commonly followed.
Depreciations, in addition, are rarely recognized on properties that are used for educational functions by SUCs. However, these are appropriate under following circumstances:
- When certain properties of the educational plant render a service function and the institution plans to replace such properties from operating revenue.
- When properties are identified with auxiliary enterprises that are expected to be self-supporting- bookstores, cafeterias and dormitories, for example.
- When properties are transferred to the educational unit under the terms of endowment that limit expenditures from endowment resources for general and specific purposes to periodic net income after the recognition of appropriation charges for depreciation.
Types of funds:
SUCs are highly subsidized by the government. Funds are further grouped into: current fund (restricted and unrestricted), loan funds, endowment and other nonexpendable funds, annuity funds, plant funds- which is subdivided into: unexpended plant fund, retirement of indebtedness fund, and an invested in plant section, and agency funds.
Current funds are composed of current resources that are to be employed in meeting obligations arising from the general operations of the educational institution, with or without restrictions. Student fees and resources from gifts, for example, that carry no specific limitations as to use, then, are reported in the current unrestricted fund. On the other hand, resources from gifts that can be spent only for specified purposes, such as for the library, for scholarship, for an athletic program, or for research, would be classified as current restricted funds.
Loan funds consist of resources that are available for loans to student. These funds originate from gifts which may be built up over a period of time from student fees collected for such purpose or from transfers from endowment fund whose income is available for such purpose. However, loan fund balances will change as a result of uncollectible loans, fund administrative expenses and the like.
Endowment funds are formed whencash or other properties are transferred to the institution under conditions that provide only the income produced by such resources can be used for the institution.
Annuity funds, on the other hand, are formed when cash and other properties are transferred to the institution subject to the requirement that specified payments be made to a designated beneficiary during his lifetime. However, these funds are sometimes included with endowment fund for accounting and reporting purposes.
As indicated by its name, plant funds are resources related to educational plant while agency funds are funds given to educational institution which acts as an agent or trustee; holding certain asset on behalf of others, for example, student deposits and tax withholding amount.
Regulatory Constraints:
Budgetary allocations and allotment received by SUCs depend on the budget proposals made by the Department of Budget and Management (DBM) which is duly approved by the Congress. It is then believed that some legislators want to allocate more funds in the region that support their candidacy.
As of this year, SUCs will experience drastic cuts in their budget if the Congress approves the Aquino government’s 2011 budget proposal.
In the budget proposal submitted by the Department of Budget and Management (DBM) to Congress last August 25, the combined budget for 110 SUCs is cut by 1.7% from P23.8 billion in 2010 to only P23.4 billion this year.
Among those with the biggest budget cuts are University of the Philippines (-P1.39 billion or 20.11%), Philippine Normal University (-P91.35 million or 23.59%), Bicol University (-P88.81 million or 18.82%), University of Southeastern Philippines (-P44.39 million or 20.03%), Central Bicol State University of Agriculture (-P31.65 million or 15.91%).
Huge cuts are proposed in the budget for maintenance and other operating expenses (MOOE) of all but 15 SUCs, some by more than 50%. The combined total operations budget for SUCs will be cut by P1.1 billion, or by 28.16%.
Budget distribution:
The DBM has devised a scheme to check fund allocations for each school through a system called “normative clemency.”
This is based on the three major types of government expenditures: capital outlays which deal with financing building construction; personal services, which cover faculty salaries; and maintenance and other operating expenditures, which cover electricity, water, telephone, and janitorial services.
Normative clemency ensures that no SUC will have an excess or lack of funds for all three types of expenses, because they are mandated to submit proposed expenses to both the Commission on Higher Education (CHED) and the DBM.
Tax Exemption:
Per section 30 of National Internal Revenue Code of the Philippine, income fromgovernment educational institutions are duly exempted from income tax.
NATURE OF THE ENTITY
The University of the Philippines is the national university of the country. It was established on June 18, 1908, an act of the First Philippine Legislature. Act No. 1870, otherwise known as the "University Act", specified the function of the University, which is to provide advanced instruction in literature, philosophy, the sciences, and arts, and to give professional and technical training.
At present, the University of the Philippines System is composed of seven constituent universities (CU) located in 12 campuses around the country. These are UP Diliman, UP Los Banos, UP Manila, UP Visayas, UP Mindanao, UP Open University, and UP Baguio. UP Diliman is the flagship campus of the university and offers the most number of courses.
Each constituent university of UP is headed by a chancellor, who is elected on a three-year term by the Board of Regents. The governance of the University is vested in the Board of Regents of the University of the Philippines System. The board, with its 12 members, is the highest decision-making body of the U.P. system.
The Chairperson of the Commission on Higher Education (CHED) serves as the Board's acting Chairperson while the President of the University of the Philippines is the Co-Chairperson. The Chairpersons of the Committees of Higher Education of the Senate and the House of Representatives are members of the UP Board of Regents which are concurrent with their functions as committee chairpersons.
The University offers 246 undergraduate degree programs and 362 graduate degree programs, more than any other university in the country. The flagship campus in Diliman offers the largest number of degree programs, and other campuses are known for specific programs. The University has 57 degree-granting units throughout the system, which may be a College, School or Institute that offers an undergraduate or a graduate program.
At present, the university has a total student population of 53,285; 4,135 faculty, trained locally and abroad with 75% having graduate degrees; administrative staff and personnel of 6,491; and 3,553 PGH staff.
The University is one of the three Universities in the Philippines affiliated with the ASEAN University Network, and the only Philippine university to be affiliated with the ASEAN-European University Network and the Association of Pacific Rim Universities.
The University has the highest financial endowment of all educational institutions in the Philippines. In 2008, the entire University system has a financial subsidy from the national government of about PHP 6 billion. The total expenditure for the same year, however, is PHP 7.2 billion, or approximately PHP 135,000 per student.
This estimated PHP 1.2 billion difference is supported by other funds. These include general fund, revolving fund, trust fund- student fees, and central fund. Central funds can be tapped for the non-recurring expenses, for instance, supplementary miscellaneous expenses. Central funds comprise of general maintenance funds, faculty development funds, staff development funds equipment fund, and reprogrammed or programmed funds for PS, MOOE, or CO.
Trust fund, in addition, covers the laboratory fees, educational development fees, library fees, athletic fees, cultural fees, and medical fees paid by the students.
Admission, however, into the University's undergraduate programs is very competitive, with over 60,000 students taking the exam every year, with about 11,000 being accepted, an admission rate of about 18%. Admission to a program is usually based on the result of the UPCAT (UP College Admission Test), and University Predicted Grade, which is an average of grades obtained during high school and sometimes, a quota set by the unit offering the program.