What’s the difference between Obligations and Disbursements?

(Part 2 of 3 parts article)

This is the continuation of our article entitled “What’s the difference between appropriations and allotments?” In the said article, we compared appropriation with a whole pizza and that allotment is a piece of the pizza.

We’ll use again the pizza example but this time to compare obligations and disbursements. This time, we’ll assume that the pizza will be ordered, eaten and afterwards will be paid.

Remember that appropriations and allotment are both obligational authorities given by Congress and the Department of Budget and Management, respectively, to government agencies to enter into contracts or incur liabilities.

It is a given that before you go to a pizza store, you have money with you to pay for a pizza. In other words, you can afford to order a pizza. Once the pizza has been served to you and you ate the same, you have to pay for or you have an obligation to pay for the pizza before you can get out of the store. Thus, you will get the money out from your pocket to pay for the pizza. Obligations and disbursements work in the same way.

Technically, obligations are liabilities of certain amount legally incurred and committed to be paid for by the government either immediately or in the future.

For instance, when government agencies procure goods such as office supplies or materials, or services such as security services or janitorial services, they commit or promise to pay the supplier a certain amount using the allotment (i.e., obligational authority) issued to them by the DBM. The liability of the government agency to pay the supplier is called obligation. Government agencies use the allotments issued to them by the DBM whenever they incur obligation.

There are several types of obligational authority. One type is the General Appropriations Act as Release Order (GAARO). The GAARO means the GAA itself serves as the authority of government agencies to incur obligations, except for items that require fulfillment of conditions before they can be utilized. (more on this later)

The GAA as obligational authority has been adopted by the government in recent years to facilitate faster implementation of government programs and projects. Unlike in previous years where agencies need to wait for the DBM to release their Agency Budget Matrices (ABM) before they can start spending, now agencies can spend their respective budget immediately upon the effectivity of the GAA.

A Special Allotment Release Order (SARO), is another type of obligational authority. SARO is released by the DBM only when the government agency concerned has complied with the conditions set for the release of the funds. SARO covers items in the national budget that have not been released through the GAARO.

The other type of obligational authority is a General Allotment Release Order (GARO) which is used to comprehensively release funds for the goverment’s share in the Retirement and Life Insurance (RLIP) of goverment employees. The RLIP is more commonly known as the fund for the pension of government employees when they retire from government service.

Please take note that in incurring obligations, using allotment and appropriations, there is no actual flow of money involved yet. The actual flow of money happens when the government pays for the goods or services delivered or rendered to it by a supplier.

Simply, disbursements happen when the pizza is paid.

Disbursements refer to the actual withdrawal of cash from the National Treasury due to the encashment of checks issued by government agencies to suppliers or the transfer of cash from the agency’s account to the supplier’s account, in payment for the goods and services the government procured.

Disbursement may also refer to settlement of government obligations either in the currency, check or constructive cash such as the issuance of Tax Remittance Advice (TRA) for the remittance to BIR of taxes withheld from employees and suppliers and Non-Cash Availment Authority for direct payments made by international financial institutions to suppliers and consultants of foreign assisted projects.

Simply stated, disbursement is the payment of the obligation incurred by the government.

In our next article, which is the last part of this three parts article, we will explain to you the difference between Due and Demandable Obligations (DDO) and Not Yet Due and Demandable Obligations (NYDDO).

For now, it is important to note that the difference between obligations and disbursements results to either DDO and NYDDO. It is also important to note that appropriations, allotments, obligations, and disbursements are accounted for using the Budget and Financial Accountability Reports (BFARs) which can be found here.

What is the difference between Appropriations and Allotments?

What is the difference between Due and Demandable Obligations and Not Yet Due and Demandable Obligations?