Financial Management of Parliament Act proposed amendments: Senior Parliamentary Legal Advisor briefing

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Finance Standing Committee

10 June 2013
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Committee was briefed on the Financial Management of Parliament Amendment Bill.  The Bill was a result of a ruling of the Constitutional Court and was to amend the Financial Management of Parliament Act (No. 10 of 2009) so as to deal with the financial management of provincial legislatures. Some of the procedures in tabling reports were also to be streamlined.

Members raised discussions over the accounting standards to be followed.  There had been consensus on the proposals at the Speakers' forum, but provinces might raise objections to the Bill.  Some felt that the reporting channels should be clarified, as a corrupt official might delay the process.  Some technical changes to the Bill were put forward.  There was discussion over whether the legislation should extend to the National House of Traditional Leaders, as it also used state funds

Members felt that it would be better to have legislation finalised by the date set by the Constitutional Court.  Presenting a report might not satisfy the requirements of the Court, and the Court might not accept any request for an extension, as there had already been a period of eighteen months given.  Members suggested that it might save time if the Bill was first introduced in the National Council of Provinces.  Members also felt that the two Houses should work together, and public hearings would be held if there were sufficient requests to make oral submissions.

The Senior Parliamentary Legal Advisor was mandated to explore the possibility of entertaining the Committee’s proposals. 

Meeting report

The Chairperson welcomed Members and guests, particularly the new Committee Secretary.  He noted the presence of Members of the National Council of Provinces (NCOP), and stressed that they were welcome to participate in the meeting.  As a result of a case in the Constitutional Court (ConCourt), the Committee had been mandated by the National Assembly (NA) to revise the Financial Management of Parliament Act (No. 10 of 2009).

Financial Management of Parliament Amendment Bill: Senior Parliamentary Legal Advisor briefing
Adv Frank Jenkins, Senior Legal Adviser to Parliament, presented the Financial Management of Parliament Amendment Bill. The ConCourt had ruled in a case in 2012 that provincial legislatures did not have the competency to to introduce legislation to manage their own financial affairs. Parliament could regulate financial matters in provincial legislatures either by national legislation or by delegating such powers.  All parties involved were instructed to report on what measures had been taken to implement this ruling by 9 September 2013.  The current legislation ruled that members of the Executive Authority, the Chair and Deputy Chairperson of the NCOP might not serve on the Parliamentary Oversight Authority (POA).  A conflict of interest might arise.  If the POA were to operate as a committee, there would be public involvement and the image of Parliament would have to be considered.  A forum had been held with the Speakers of the various legislatures.

Adv Jenkins said that the draft budget of Parliament must go to the POA.  Funds not spent could be retained, but the spending of such funds would have to be approved.  The Amendment would make this clear.  The main issue in the Annual Report was the workflow.  What happened in practice was that the accounting officer received the audit report and included this in the annual report.  The financial reporting mechanism of Parliament should be consistent with the rest of the public service.

Adv Jenkins said that the new drafting unit had been responsible for drafting the Bill.  He then turned to the Bill.  Clause 1 was the arrangement of the Bill.  Clause 2 would amend the Preamble to the Act, and gave the explanation regarding the provincial legislatures.  Clause 3 would introduce a definition of Parliament, including both the NA and NCOP, and definitions of provincial annual budgets and provincial legislatures.  This would amend Section 1 of the Act.  Clause 4 would amend Section 2 of the Act, and would contain the objects of the Act.  A reference to Parliament creating accounting norms and standards for provincial legislatures would be deleted.  Clause 5 would introduce a new Section 3.  The new Section 3 would be a mechanism to ensure that the Act remained as it was, but included the provincial legislatures and their structures in the understanding of Parliament.  This was all consistent with the ConCourt ruling.

Adv Jenkins said that the restriction on the membership of the oversight committee in the existing Section 4 would be removed by Clause 6 of the Bill.  Schedule 2 to the Act dealt with a code of ethics for the executive, including matters relating to a conflict of interest.

Adv Jenkins said that Clause 7 would amend Section 17 in the principal Act which had not taken earlier changes into account.  The proposal from the projects offices was to bring back components of the Section which seemed to have been deleted.  Existing Committees could be used.  Parliament's ‘own funds’ were those raised by donations, or not spent in the previous financial year (FY).  These were not returned to the National Revenue Fund, but Parliament needed to approve the expenditure of these funds.  Parliament itself had to make this approval and not the executive or a Committee.

Adv Jenkins said that Section 58 of the Act spoke to the audit report, and would be amended by Clause 8.  There was a conflict with Section 40.  This Section would now refer to an Accounting 'Officer' rather than 'Authority'.  The work flow process would be determined.  The Accounting Officer would be responsible for including the audit report in the Annual Report.  This workflow had to be consistent with that in the public service.  The Accounting Officer would be responsible for acquiring the audit report.  Any explanation of why the audit report was delayed would have to be tabled in the House.  A new sub-Section would be included to make this an explicit duty.  No person would be allowed to alter the report once the Accounting Officer had received the audit report.

Adv Jenkins said that Section 59 would be changed by Clause 9 of the Bill.  The wording would be amended to reflect earlier changes.  The Accounting Officer would now be obliged to submit financial statements to the Auditor-General within two months after the end of the FY, who in turn would have two months to audit the statements.  The report should be tabled in Parliament within one month of the Accounting Officer receiving the audit report.  At present the Financial Management of Parliament Act (No. 10 of 2009), Section 60(1) said that the Executive Authority must table the annual report in Parliament within five working days of receiving it. The amendment would bring the Act into line with the Public Finance Management Act (PFMA) (No. 1 of 1999). 

Adv Jenkins said that Clause 10 would replace Section 60.  This specified that the Executive Authority must table the Annual Report, including financial statements and the audit report, within one month, and no longer within five working days, after the Accounting Officer had received the audit report.  Clause 11 would amend Section 62 to oblige the Executive Authority to report consistently with Section 60(1). 

Adv Jenkins said that those were the significant amendments.  Clause 12 would amend the PFMA to be consistent with the removal of the financial powers previously delegated to provincial legislatures.  In the initial draft of the principal Act it seemed that a reference to the generally accepted accounting standards applicable to Parliament had not been included, and this would be corrected.  The Executive Authority would exercise control and not the Minister of Finance.

Adv Jenkins said that the name of the Act would be changed to include a reference to Provincial legislatures.  Schedule 1 of the principal Act would be repealed, as this referred to the financial powers of provincial legislatures.  Clause 15 would amend the long title of the Act.  Legal advice was that the Bill was a Section 76 Bill.  It was not considered necessary to refer the Bill to the National House of Traditional Leaders (NHTL).

Adv Jenkins said that Parliament should consider having public hearings.  If there were no comments, or the Committee felt that there was no need for public hearings, then they could decide not to hold such hearings.

Ms Z Dlamini-Dubazana (ANC) asked about accounting standards.  The accounting board would apply the standards rather than the Minister.  This was an operational activity.  She asked how the provinces could solve a dispute if the same procedure applied there.  There could be more legal action against the government.  After the Auditor-General (AG) had completed the audit report, it was handed back to the Accounting Officer.  There must be no ambiguity.  The Executive Authority would have to assume that the AG had returned the report.  She asked how the Executive Authority would know that the audit report had been submitted.  She proposed that public hearings could be held, but the Bill could not be published in its current form.  There were still issues to be clarified with National Treasury. 

Adv Jenkins said that the PFMA had not changed when the principal Act had been enacted.  The Minister was tasked to establish a board to determine accounting standards.  This had not been changed.  This was one matter that might have been omitted.  The proposed amendment could be taken out, but the Minister of Finance could be asked to comment on this issue.  Separation of powers was applied differently from other countries, such as the United States.  The ConCourt had said that, in the Limpopo case, the country was not a federation but Parliament did still not have the power to dictate to provinces.  Parliament was therefore still liable to stick to the standards but provinces could set their own standards.  Time was running out as the ConCourt had set a deadline for the introduction of the amendment.

Ms Dlamini-Dubazana supported this proposal.

Adv Jenkins said that Section 56 of the PFMA dealt with the preparation of annual financial statements according to generally accepted accounting standards.  If there were no set standards, then the board appointed by the Minister would set the standards.

Mr N Koornhof (COPE) asked if the Speakers' forum had been unanimous in its recommendations.

Adv Jenkins said that the consensus was that it was Parliament's function to provide financial management.  These functions could be assigned to a province, but the Constitution entrusted Parliament with financial control.

The Chairperson asked if the outcome of the Speakers' forum was binding, or if submissions from the provinces could be expected.

Adv Jenkins said that this might happen.  As a Section 76 Bill, the provinces would mandate their delegates to vote at the NCOP.  Some smaller legislatures might say they did not have the capacity to handle these functions.

Mr D Ross (DA) asked if the provisions of the Bill were indeed consistent with the PFMA.  It sounded correct that the Accounting Officer should submit reports, but a corrupt official might not submit reports.  Perhaps all the responsibility should lie with the Executive Officer.

Adv Jenkins felt that the Bill would improve accountability.  The PFMA did not apply to the financial management of the provinces as a whole.  Making up a proper report was a challenge, which is why the ConCourt had set the deadline of 9 September 2013.  Provinces acted within the spirit of the PFMA, and returned unspent funds to Treasury although this was not mandated by law.  The Bill would make these responsibilities clear.  The Houses would then exercise control.  The audit report should go to the Executive Authority rather than the Accounting Officer.  This was how the PFMA worked.  At present the AG gave the reports to the Accounting Officer.  He had looked at the parliaments of other countries.  As things stood, the Executive Authority received the audit report but there was no clear duty to provide a copy of this to the Accounting Officer for inclusion in the Annual Report.  The Executive Authority should rather have oversight of the process, but the workflow would be improved by the audit report going to the Accounting Officer.  The Accounting Officer could not make any changes to the report.  The audit report was considered when assessing the performance of the Accounting Officer.  He could foresee cases where there was friction between the two authorities and it would be better to fill the gaps.

Adv Jenkins said that there should be a separation between executive and administrative powers.  If one assumed that the POA would provide many of the oversight functions, the Accounting Officer would be an ex officio member.  The Accounting Officer should be called to account to the POA rather than serve as a political officer on the POA.

Mr B Mashile (ANC, Mpumalanga) asked if there had been any difficulty in renaming the Bill to refer to both national and provincial legislatures.  On page 5 of the Bill, the provincial legislatures were included in the provisions of the Bill.  He asked if the list in Clause 3 was exhaustive.  Perhaps a single sentence could be used to capture all of the structures listed, as there might have been one or two omitted.  This would also cover new structures.  He had a problem with the separation of responsibility between Accounting Officers and Executive Authority.  The Executive Authority did not necessarily have authority over Parliament.  He asked how this could be compared to a company with a board of directors and a chief executive officer.  The Executive Authority should be totally in control of Parliament, but seemed to have no authority to cause financial statements to be submitted for audit.  If the Accounting Officer failed in his or her duties, nothing could be done to remedy the situation.  There might be a good reason for this, but he felt the powers of the Executive Authority were being undermined.

Mr Mashile said that as a Section 76 Bill, it should be introduced in the NCOP as well.  In the Memorandum there was an indication that the Bill did not talk to customary law, but it did talk to legislatures.  He asked if the NHTL was not included, as it also spent public funds.

Adv Jenkins said that the wording followed the Constitution.  Some legislatures termed themselves as provincial parliaments.  He took note of the comment on the list.  Provinces might not have the capacity to deliver on all the functions, while some provinces might have distinct structures that fell outside the list in the Bill.  He thought that the list was complete, but would discuss it with the drafters.

Mr E Mthethwa (ANC) asked if it should be the Executive Authority or the Accounting Officer submitting the reports.

Dr Z Luyenge (ANC) said that there was a need for a mutual interface between the two authorities.  The Executive Authority made the political decisions in line with the PFMA.  There were clear and distinct functions between the two.  There was clarity, and the gap was being closed by the Bill.  The officials needed a mutual understanding.  The Accounting Officer had the authority to implement decisions taken by the Minister.

Adv Jenkins said that the Constitution allowed some legislation to be introduced in the NA.  The NA had asked for this Bill, and the work was therefore being done for it.  The Bill did not have to go to the NCOP, but they could request to process it.

Mr Mashile said that the September deadline was getting closer.  The NCOP had a six-week cycle of deliberations of legislation.  He suggested that the cycle should start in the NCOP and go from there to the NA. 

Mr C de Beer (ANC, Northern Cape) said that Parliament would resume on 22 July 2013.  There was already legislation due for consideration by the NCOP being held back in the NA for some reason.  It was crucial that the legislation be expedited and be presented to the NCOP by 22 July.  If not, it would not be processed within the given time frame.

Adv Jenkins said that the Committee could report that the draft Bill should first go to the NCOP rather than start with introduction to the NA.  This was a political decision.  The NA had resolved that this Committee needed to report back.  The Secretaries of the two Houses should discuss the matter and determine which route was the more prudent.  The time issue was important in terms of cooperative government working together.  If the Bill were not ready, there would have to be a report to the ConCourt.

The Chairperson asked if the ConCourt wanted a progress report, or finalisation.

Mr Koornhof felt that the Court wanted a progress report.  There was progress, and he felt that a good report could be presented by 9 September.

Adv Jenkins agreed.  The ConCourt order was for a report to be filed by all parties by 9 September on all steps taken to address the matter.  After eighteen months the regulatory frameworks in the provinces would fall away.  Once the order had expired, the provinces would have nothing to fall back on.  He felt that the ConCourt could consider an extension, but might not take kindly to such a request, as there had been eighteen months.  The first prize would be having the Act signed off by the President by the due date.

The Chairperson said that the proposal of sending the Bill first to the NCOP was probably the best way to proceed.

Adv Jenkins undertook to liase with the Secretaries of the two Houses.  Time frames were critical.  Regarding the NHTL, there was a provision that any proposal should be referred to the NHTL on any matter affecting it.  There was a thirty-day period to make such a request.  This Bill did not affect traditional law or customs, and did not impact on the NHTL.  This did not imply that the NHTL should not be subject to oversight regarding its finances.  The NHTL was welcome to comment, but there was no legal obligation in this case.  The NHTL would remain financially accountable.

Mr Mashile noted the comments, but the legislation would talk to management of finances by legislatures.  The provinces would now be incorporated.  The same principle would not apply to the NHTL.  He did not think this was correct as the NHTL also spent public funds in the course of its business.

Ms Dlamini-Dubazana felt that the amendment did not affect the NHTL.

Mr Mashile said that there was legislation governing the financial controls over Parliament.  This was now being extended to cover provincial legislatures.  He saw no reason why this should not also cover the NHTL.

Adv Jenkins said that it was a policy issue.  The question would be whether there should be separate legislation.  It would be strange if the enabling legislation did not contain some financial oversight mechanism.  Parliament could include the NHTL.

The Chairperson said that the possibility of linking with the NHTL should be investigated.  That House was also allocated funds.  He requested that the legal team look at the relevant legislation.

Ms Dlamini-Dubazana reminded Members that the ConCourt ruling had arisen from a challenge from the province of Limpopo.  The legislation should not be made too broad, and the ConCourt had pronounced on a dispute between a provincial legislature and national government.

The Chairperson said that all submissions would be taken into account.

Adv Jenkins said that the PFMA made provision for delays in the auditing process.  This was why the submission deadlines were based on the receipt of reports.  If everything went according to plan, the process should be complete within five months.  If this could not be met, then there must be an explanation to the Houses.  The Executive Authority could not be held responsible if there was some dispute between the AG and the Accounting Officer.

The Chairperson felt that all the questions of clarity had been addressed.  It was now a matter of how the process would unfold.  The first scenario would be the advice of the Secretariat on where the Bill should be submitted.  The first point for agreement was public hearings.  The proposed date was 22 July 2013.  It had been proposed that the reference to accounting standards be deleted.

Mr Mthethwa was of the view that the study group should go through the Bill.

Mr de Beer asked why this exercise could not be undertaken jointly.  While the Advocate consulted on the tagging issue, joint public hearings could also be considered.  Adv Jenkins would have to clear up this issue.

Mr Koornhof asked if it was really necessary for public hearings.  This was simply a matter of rectifying an oversight procedure.  Public hearings would be a waste of money.

The Chairperson said that a determination could be made if there were sufficient parties wishing to make oral submissions.

Mr Mashile said that the challenge was that there was very little that could be done until the Bill was referred to the NCOP.  Provincial legislatures would have to take a standpoint to give their representatives a mandate.  The procedure in the NCOP could not be compressed.  Public hearings would be needed.  Referring the Bill directly to the NCOP would save some time.  He felt that the ConCourt was expecting to see completed legislation on the table.

The Chairperson noted the agreement, and the question now was on how the two Houses could be brought together.  There was always the chance to hold a study group to interrogate the Bill.

The meeting was adjourned.


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