EXPLAINER: WHAT’S A COMMON FUND SYSTEM POLICY?

The Common Fund System (CFS) is a budgeting policy imposed by the DBM to optimize the use of cash allocated to the national government agencies.

Th CFS policy should not be confused with the policy on frontloading of available appropriations as the latter pertains to the optimal utilization of appropriations/allotments while the former pertains to the policy on the optimal utilization of cash allocation. The two policies are completely different things.

Related: What does “FRONTLOADING OF APPROPRIATIONS” (really) Mean?

In NBC 573 — the guidelines for the release of funds for FY 2018 — the CFS is still upheld until this year. The policy can be traced back as far as before fiscal year 2011.

Section 5.2.2.1 of said NBC provides:

“Applying the Common Fund System to optimize the use of the available NCAs under the Regular MDS Sub-Account, NCAs released to agencies under this account can be used to cover payment of both current year and prior years’ A/Ps of all creditors (external and internal) provided that PS requirements and mandatory MOOE are fully funded.” (boldfacing supplied)

The common knowledge about the CFS is that Agencies can use the funds issued to them under the Regular MDS-sub account to pay their obligations regardless of the allotment class (i.e., PS, MOOE, FINEX, CO) to which the obligation was charged. Although this is correct, in fact, the reason for not specifying the specific allotment class (i., PS, MOOE, FINEX, CO) in the NCA document (unlike in the previous years) is for flexibility in the NCA utilization (i.e., payment of any object across allotment classes, as they become due and demandable), there is one thing that you should know about the policy.

Let’s take a look again at the last phrase of Section 5.2.2.1 of NBC 573, it says — provided that PS requirements and mandatory MOOE are fully funded. What does the phrase mean? To answer this, it pays to go back to previous Circulars imposing the CFS policy to better understand the statement.

In NBC 545 — the guidelines for the release of funds for FY 2013 — the CFS policy was explained as follows:

“Section 3.7.2.1 To maximize flexibility in the use of available NCAs, the Common Fund System policy shall be adhered to.

Section 3.7.2.2 Under said System, after satisfying the agencies’ regular operating requirements as reflected/considered in their MCP, the cash allocation balances under the Regular MDS Account shall be used to cover payment of current year’s accounts payable (A/Ps), i.e., goods and services which have been delivered during the year, regardless of the year when the covering obligations were incurred.” (boldfacing supplied)

Considering the foregoing provisions, the use of the CFS policy under NBC 545, in view of NBC 573, applies only after the Agency has satisfied its regular operating requirements. The policy presupposes that the Agency has excess cash (after paying its regular operating requirements) to pay its emerging accounts payables. The paramount rationale of the CFS policy is to optimize the use of cash — that is to use excess cash, so as not to be reverted to the National Treasury, to pay emerging obligations, regardless of allotment class, which were not considered when the Agency’s Monthly Disbursement Program (MDP) was prepared.

Thus, the CFS policy cannot actually be applicable to Agencies which have deficiency in cash, meaning, there is no excess cash to pay emerging obligations or those which were not included in the cash programming of the Agency. Technically, the CFS is not applied (not applicable) in the regular utilization of the cash programmed by the Agency through its MDP inasmuch as, as a general rule, the Agency should follow its MDP. The CFS policy applies only when, after paying all its regular operating requirements, the Agency has excess cash to pay other obligations, regardless of the allotment class, which were not considered when the MDP was prepared.

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