Financial Management of Parliament Amendment Bill [B1-2014]: Negotiating mandates

NCOP Finance

19 March 2014
Chairperson: Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

The negotiating mandates from the provincial legislatures, on the Financial Management of Parliament Amendment Bill, were presented. The first mandate read out, from the Eastern Cape, noted concerns that clause 6 of the Bill was changing the current position where the executive authority should not be permitted to serve as member of the oversight mechanism, by making provision that this could happen, which the Eastern Cape believed could blur the lines of accountability and result in no effective oversight. The Western Cape representative noted that his province had a similar concern. The Parliamentary Legal Adviser clarified the current and proposed positions. It was explained that the accounting authority generally accounted for the management of parliament. However, there were cases when the executive authority may be called upon to take decisions that carried financial implications, and these matters would need to be referred to the oversight body. It was felt that where there was likely to be any conflict of interest, and where the executive authority might be required to sit as “judge and jury” a conflict should be declared and the executive authority should not sit. However, it was equally accepted that there were in fact other circumstances that did not involve any conflict where it would make sense for the executive authority to participate in that oversight authority, and that was the reason for making the change. There was no guarantee that the executive authority would be called upon to sit, but the possibility to do so was being created by the deletion from the Act of the absolute prohibition.

Members generally supported this explanation, but with concerns still expressed by the Western and KwaZulu Natal representatives. They questioned the practicality of how the conflict would be declared and what would happen if no conflict was disclosed, and believed that the matter was adequately covered by the rider in the Bill that specified that no member may sit in the case where this would create a conflict, and that legislatures would have to amplify the point in their Rules. Furthermore, it was noted that although there was no exactly similar wording in other jurisdictions, the principle was accepted in several, and that the possibility of conflict would be able to be raised by any Member. Furthermore the proceedings were held in open forum.

The mandates of the Free State, Gauteng, Limpopo, Mpumalanga and Northern Cape all mandated their representatives to vote in favour of the Bill. No mandate was submitted by North West.

KwaZulu Natal had indicated that it would only support the Bill if the amendments that it was proposing to section 34 were incorporated into the Bill. Essentially, these changed the wording of the Bill from “qualified audit report” to “modified audit opinion” and a full motivation from the Auditor-General in that province was given. The amendments would bring the Bill in line with International Accounting Standards terminology, and a new clause 34 (4A) would clarify that a modified audit opinion would include a qualified audit opinion, an adverse pinion and a disclaimer of opinion.  Essentially, a modified opinion was wider than a qualified one, and this seemed to be in line with the intention to allow the accounting officer to withhold funding until matters were corrected. Members agreed that there was still time, and that it would be correct, to effect the changes as requested and refer the amendments back to the NA, when it was recalled in April, and took a decision to agree to the changes, which meant that the KwaZulu Natal mandate was that its representative may vote in favour of the Bill.

The Western Cape reiterated that one of its concerns was similar to that of the Eastern Cape, around the potential for conflict of interest. However, it also raised two other concerns; firstly that the Bill should allow, as the Act currently did, for the option of a body comprising representatives of political parties who held seats in Parliament, and secondly that the fact that the Speaker of the NA and Chairperson of the NCOP were mandated to issue regulations affecting the provincial legislatures may be seen as infringing on the provincial authority. Countering this, another Member pointed to the decision of the Constitutional Court involving the Limpopo provincial legislature, which had suggested that the provincial legislatures derived their powers from national level. However, this may be further addressed in the final mandates. 

Meeting report

Financial Management of Parliament Amendment Bill: Negotiating mandates presented
The Chairperson noted that the provincial legislatures had been asked to send through their negotiating mandates for the Financial Management of Parliament Amendment Bill (the Bill) and asked the provincial representatives to present them.

Mr T Chaane (ANC, North West) read out the mandate for the Eastern Cape, whose representative was not present. He said that the mandate authorised the provincial representative to negotiate in favour of the Bill “within the following parameters” and it then set out concerns on clause 6 of the Bill. It was proposed that the presiding officers should not be members of the oversight mechanism, because this would blur the lines of accountability, and this would result in no oversight in fact occurring, except over the accounting officer. It was suggested that the position had worked well in the Eastern Cape legislature and should not be changed.

Adv Frank Jenkins, Senior Parliamentary Legal Adviser, assisted the Committee by setting out the current and proposed positions under, respectively the Financial Management of Parliament Act and the changes proposed in the Bill. The Act was similar to the Public Finance Management Act, in that the accounting officer (the manager) had to account for management of Parliament. The executive authority was required to oversee that and hold the accounting officer to account. In practice, this was working quite well. However, it was accepted that in certain instances, the executive officer may be called upon to take decisions with financial implications, and the accounting officer might advice that a certain payment would fall outside the budget parameters, and written confirmation would be required. Such matters would need to be referred then to the oversight body. In those instances, it was accepted as a good principle that the executive authority should not sit on the oversight mechanism that was discussing the issue, because there was an obvious conflict of interest. This was now stated in the Bill, although the details would need to be reflected in the rules of the provincial legislatures.

Adv Jenkins pointed out that the functions of the executive mechanism went beyond oversight, and into planning and budgeting. The executive authority must, for instance, oversee the drafting of the strategic plan, the performance plan and the budgets, which would eventually be approved by the oversight mechanism. In those instances, where there was no conflict, it was important to allow the executive authority to sit on the oversight mechanism.

Adv Jenkins said that the concerns expressed by the Eastern Cape were essentially shared also by the Western Cape However, he wanted to emphasise that the accountability for the management functions lay with the accounting officer. In the Bill, the oversight mechanism could ask that an official to appear but not the executive authority. There were different relationships.

Mr S Montsitsi (ANC Gauteng) referred to page 4, clause 6, and said that this clause set out the process for participation of the executive authority, and noted that the executive authority may recuse itself. However, he asked why the words in bold had been omitted. The Committee had been of the view that it was useful for the executive authority to be able to sit. He asked what words were included.

Adv Jenkins noted that the square bracket started at the very end of line 51, and from that point, up to the end of line 2 on page 5 of the Bill, the wording was deleted from the principal Act. The reason for these words being removed was that currently, section 4 of the Act said that the executive authority (and others) may not be members of the oversight mechanism, but may only participate in it, at the request of that oversight committee. However, it was now suggested that the executive authority did have a role to play in planning and should be able to sit. There was no guarantee that the executive authority would be a member of the Committee, but this amendment created the possibility for this to happen so that there could be oversight over planning, and to ensure that documents coming before the committee were correct and contained what was required before being referred on.

Adv Jenkins noted that the Parliamentary Research Unit had looked into whether this was broadly speaking in line with other legislatures. Although none was exactly the same, it was generally found to be in line with international practice in other jurisdictions. At the moment there was a budget council in Parliament, and the Parliamentary oversight authority would take policy decisions and give directions, but advised the executive authority how to deal with issues. These functions were now subsumed in the oversight committee, through rationalisation of governance structures. He repeated that at the moment, in terms of the current Act, the executive authority was not allowed to sit on the oversight committee, but the amendment proposed in the Bill would allow it to do so where appropriate.

He added that the concerns of the Eastern Cape were addressed by the underlined words – that no member may attend if there was a conflict of interest, and that each legislature must amplify this point in its rules.

Mr B Mashile (ANC, Mpumalanga) asked whether the Eastern Cape concern was not a genuine concern, and whether a layman reading the Bill would not share the worry that there was a genuine conflict should the executive authority be permitted to sit, and believe that there was not a proper delineation of functions. He suggested that it would always be open to the Committee, if it wished, to pass the legislation now and seek to amend it later, in the interests of time. He asked whether the public perception would not be that an official was “constantly switching hats”.

Mr D Joseph (DA, Western Cape) asked to speak to this point now, from his own province’s viewpoint since the Western Cape shared the Eastern Cape’s concern about the possible conflict of interest. He noted Adv Jenkins’ assertion that the executive authority would be excluded, in terms of the Bill, if there was a conflict of interest but wanted to know how this would be established, from a practical point of view. For instance, would the chairperson ask if anyone had a conflict of interest, and what would happen if nobody declared it? The Western Cape’s was slightly different from that of the Eastern Cape, being more concerned about the practice than merely the principle.

Mr Chaane said that he believed that Eastern Cape had made a valid point, but this must be seen in context. The presiding officers were not forming a committee on their own. Other members of Parliament would also be involved, and he believed that any of them would be able to raise concerns about the possibility of conflict. He did not see a problem with the provisions and thought that if any difficulties became apparent in practice, they could be reviewed at that stage.

Mr Montsitsi agreed. The legislation already envisaged that the Rules Committees would have the power to come up with guidelines on the position of any person, including the presiding officers.

Adv Jenkins thought that Mr Chaane had answered Mr Joseph’s question. The oversight committee was indeed an open committee that the media and public could attend. The presiding officer of the committee, or any member of the committee, would be able to raise any concerns about possible conflict. If the person who was facing a conflict did not raise this, then the legitimacy of the meeting could be called into question, if it was not properly constituted in accordance with section 4 of the Act.

Answering Mr Mashile, Adv Jenkins noted that there were time constraints with the passing of this legislation, and Mr Mashile’s point was taken on that. However, he had experience of the accountability mechanisms in practice, and he did not share concerns about the perceptions or the possible interpretations. It was correct that the accounting officer must account for daily financial decisions taken in the institution, as it was not the work of the executive authority to do so. The executive authority must deal with outcomes and the final product. That would be covered in the performance contract between executive authority and accounting authority. He did not believe that there were real concerns, and he believed that the best place to deal with these matters was in a multi-party forum, and in public.

Mr R Lees (DA, KwaZulu Natal) disagreed with Mr Jenkins and, notwithstanding what he had said about planning and budgeting, he believed that it was correct to have a complete separation.

The Chairperson asked if that issue should not be addressed in the mandate.

Mr Lees disagreed and thought that the purpose of this meeting was for Members to air their views and give input.

The Chairperson asked for the comment to be put in writing.

Mr B Mnguni (ANC, Free State) read out the mandate of the Free State, to vote in favour of the Bill..

Mr S Montsitsi, for the Gauteng Provincial Legislature, noted that the Gauteng Legislature supported the principle and mandated its representative to vote in favour of the Bill.

Mr Lees noted that the KwaZulu Natal Provincial Legislature’s negotiating mandate had said that it would mandate its representative to support the Bill, but provided that its comments and amendments were considered and consolidated into the Bill.

He noted that the comments and suggested amendments related to clause 13, which was amending section 34 of the Act. The points arose as a result of input made by the office of the Auditor-General in KwaZulu Natal. The Act, as presently worded, referred to a “qualified audit report”. However, the KwaZulu Natal legislature wanted this to be changed, to “modified audit opinion”. It then also wanted a new subsection (4A) to be inserted into section 34, stating that for the purposes of this section; “modified opinion” would include a qualified audit opinion, an adverse pinion and a disclaimer of opinion.

The Auditor-General had suggested these changes because of the definitions contained in the International Standards on Auditing (ISA 705), which defined a qualified audit opinion as an opinion that stated that the financial statement did fairly present the financial affairs of the organisation, except for particular line items that were not pervasive across the financial statements as a whole. However, a “modified” opinion was wider, and included any opinion other than an unqualified audit opinion, which covered both adverse and disclaimer opinions.

The spirit behind the amendments proposed to section 34 seemed to be that that an accounting officer should be able to withhold funds, even in the case of a qualified opinion where the financial statements were in general fairly presented, except for certain line items, until the matter was corrected. It was pointed out that even one line item could carry serious implications, and the use of “modified” would cater for this.

Mr Lees noted that although this was not the final mandate he had been asked to give an indication that should the Committee not agree to these changes, he was unlikely to be able to vote in favour of the Bill.

The Chairperson said that in all his years serving on the Standing Committee on Public Accounts (SCOPA) he had not heard of a “modified” audit.

Adv Jenkins said that he had had some correspondence with the Auditor-General on these points and he distributed a copy of an e-mail. There had been some discussion on the procedural aspects of the change, and the Auditor-General had come up with some further suggestions that it might be possible, should there not be time to take this back to the National Assembly (NA), to make an administrative change. In short, it was up to the Committee what it wished to do. The Auditor-General said that the wording could be left as it was in the Bill and an administrative correction being made. However, to be on the safe side, this Committee could decide to change the wording to ensure that it was fully in line with the international standards, in which case the Bill must be referred back again to the NA.

Mr Mashile said that if Members agreed that in principle, the proposals made by the KwaZulu Natal legislature were correct, then he believed that the Committee should make that amendment. The NA would still be able to deal with the revision when it was recalled in April.

The Chairperson tended to agree that this was the correct route to take.

Mr Chaane also agreed, and reiterated that the NA was returning in April.

The Chairperson noted that all Members had now concurred that the amendment raised by KwaZulu Natal should be added into the Bill. That appeared to deal with that provincial legislature’s concern so that its representative would be allowed to negotiate to accept the Bill.

Mr Montsitsi asked whether the correct word for the revised section 34(4)(b) (in line 15 of the Bill) was “finding” or “funding”.

Mr Chaane initially asked that Adv Jenkins check this point, but shortly after that he announced that he had his copy of the Financial Management of Parliament Act with him and could confirm that the word was “funding”, as reflected in the Bill.

Mr M Makhubele (COPE Limpopo) read out the mandate of Limpopo, to vote in favour of the Bill.

Mr Mashile (ANC, Mpumalanga) quipped that he had a little difficulty with the mandate conferred on him by this province as it had mandated him the power to vote in favour of the Bill, with no exceptions, yet he had found himself agreeing to the KwaZulu Natal proposals for change.

Mr Lees asked him, tongue in cheek, when Mpumalanga had held its public hearings on the Bill.

The Chairperson, speaking to the mandate of the Northern Cape, noted that public hearings had been held on the previous Monday, and that he was mandated by his provincial legislature to vote in favour of the Bill.

Mr Joseph addressed the mandate from the Western Cape. As indicated earlier, his province shared the Eastern Cape concern that the executive authority should not form part of the committee of Members that was tasked with oversight, because there were concerns that this would essentially mean oversight over itself.

He would convey the views expressed by Adv Jenkins, and the discussions at this meeting around the point as it was raised by the Eastern Cape, and hoped that further information would be available when the final mandates were presented.

However, he also noted that two other objections were raised by the Western Cape to the Bill. Firstly, it believed that the executive authority, as defined in the Act, should include an option of having a representative body comprising representatives of political parties that were represented in Parliament, as had been the case under the Act, but which was not currently included in the Bill as an option. Secondly, it was concerned that the fact that the Speaker of the National Assembly and Chairperson of the NCOP may issue regulations affecting the provincial legislatures could infringe on their autonomy and their constitutional right to determine their own internal arrangements.

For these reasons, his province had conferred on him the authority to not support the Bill

Mr Chaane commented, to Mr Joseph, that he believed that the Western Cape’s first concern had been dealt with, by the answer that Adv Jenkins had given in response to the Eastern Cape concerns. He believed that the concern about the issuing of regulations had been covered by the decision of the Constitutional Court in the matter involving the Limpopo Provincial Government, where the Constitutional Court had confirmed that the provincial legislatures did not have original powers, but derived their powers from the national Parliament. He suggested that it was therefore competent for the Speaker of the NA and the Chairperson of the NCOP to issue regulations.

The Chairperson noted that a document setting out the Constitutional Court’s findings had been circulated.

The Chairperson noted that North West had not submitted a negotiating mandate. He therefore held eight mandates, of which seven had mandated their representatives to vote in favour of the Bill.

Members questioned this, and he clarified that KwaZulu Natal had indicated that it would support the Bill if its suggestions on the wording of section 34 were included. Because Members here had agreed to do so, its mandate was thus to support the Bill. Only Western Cape was not in favour of the Bill.

The meeting was adjourned. 


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