Electoral Commission (IEC) feedback on Political Party Funding Bill

Ad Hoc Committee on the Funding of Political Parties

10 November 2017
Chairperson: Mr V Smith (ANC)
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Meeting Summary

The Committee had determined that the IEC was best placed to administer both the public political party funding and the newly established Multi-Party Democracy Fund. The IEC was invited to make a presentation on its views on the Bill and what it would cost to administer the funds.

The IEC reviewed the Bill on Represented Political Party Funding. Dual disclosure by both the political party and the donor would greatly enhance disclosure enforcement as that would provide corroboration for the IEC. The sanctions in the Bill were weak, especially on disclosure. The IEC proposed criminal sanctions. Offences should be included in the Act. There was a lack of incentives for donation to the Multi-Party Democracy Fund and a lack of compelling incentives to promote the fund. The auditing industry would have an important role to play and the Auditor General might call for books to be audited, which would have to be paid for. It might be a problem for smaller parties as the cost of audits could be significant. A prohibition on foreign funds was unnecessary as the MPDF would be transparently and independently managed by the IEC. The production of a quarterly report was too burdensome so the IEC proposal was six-monthly reporting during election years and annually in other years.

The Electoral Commission said it could not accept the additional mandate without funding as IEC finances were precariously stretched. It was necessary to separate the electoral process from the business unit that would deal with party funding, and to have a separate accounting officer. The Head of the Business Unit would be the responsible officer and would report to the IEC. The Unit would also have to undertake fundraising, internal audits and even the commissioning of forensic audits would be necessary. It would require research, policy and investigation competencies. The proposed organogram could be implemented in a phased-in approach, with a skeleton staff in the first year, including the Accounting Head plus three senior managers and support staff. Staffing could be increased once the IEC had a better idea of what the work entailed. In the first year, personnel costs would be R11 million; the operating budget would be R33 million, including R10 million for auditing fees and R10 million for professional services, making the total first-year costs R45 million.

The Committee was shocked at the cost of the unit to administer the fund. Administration costs equalled 32% of the total amount of public funding given to political parties. It was a terrible thought that R45 million would be paid out with no guarantee of any funds coming in. There was a disjuncture between the fund of R140 million and R45 million to administer it. The Committee asked how the IEC had arrived at the figures for auditing and professional fees. One member asked whether a R11 million budget for a staff of nine persons was not creating an incredibly top-heavy structure.

The ability of the IEC to deal with criminal sanctions was queried and there was some concern about it being too onerous to expect individuals to disclose their donations to the IEC. The Committee agreed to look at the suggestion about two separate formulas for the Represented Political Party Fund and the Multi-Party Democracy Fund.
 

Meeting report

Opening remarks
The Chairperson welcomed the IEC. He noted that public comments had not indicated any animosity towards the IEC managing the fund, although there were concerns about the capacity of the IEC. The Committee had to meet its deadline set by Parliament for submitting the Bill before the end of the year. The IEC needed to say whether it could manage the funds. Some members of the public had asked why a second fund was being created. The Committee was adamant that they wanted two separate funds as one would be for private donors and one was for public funds. That issue was not necessarily a showstopper but he was putting it on the table. The IEC would deal with the two matters in its presentation.

Electoral Commission (IEC) feedback on Political Party Funding Bill
The IEC Chairperson, Glen Mashinini, indicated that the Commission had had discussions about the role of the IEC in party funding and had applied their minds and considered various scenarios that might have an impact on the Bill. The IEC had a certain level of expertise and would be able to assist the Committee to make decisions. In principle, the IEC would abide by what Parliament decided and was not advocating any particular position. The basic principle, however, was that the Commission could not take on an additional mandate without commensurate funding. The Commission had therefore looked at the additional funding requirements and would present those to the Committee so that Members could be better informed before they made the final decisions on the Bill.

The IEC CEO, Mr Sy Mamabolo, presented the feedback which included high level comment, strategy, structure and budget. The IEC had submitted a clause-by-clause analysis of the Bill in writing.

The IEC said it was necessary to separate the electoral process from the business unit to deal with party funding, including a separate accounting officer. It noted that local government and independent candidates would not be included. It also noted that the Multi-Party Democracy Fund (MPDF) was not prescribed by Section 236 of the Constitution. Therefore, local government and independent candidates could be included. Currently the Bill proposed the same formula for both funds but the IEC suggested that there should be scope in the Bill for applying different formulas. On private donations, the IEC needed to understand the application and scope of accepting donations. It was critical that the legislation and regulations very clearly identified which entities and individuals were able to make donations.

There was a lack of criminal sanctions for those who transgressed, especially the disclosure aspect. It made it a weak sanction. The IEC proposed criminal sanctions, especially for individuals, organisations and entities which were not represented in the legislatures. Offences should be included in the Act.


There was a lack of incentives for donation to the MPDF and a lack of compelling incentives to promote the Fund. Dual disclosure would greatly enhance disclosure enforcement, and would provide corroboration. The auditing industry would have a role and the Auditor General might call for books to be audited. That might be a problem for smaller parties as the cost of audit services would be significant for a smaller party.

The IEC disagreed with the prohibition on foreign donations. The MPDF was transparent and independent and so foreign funds should be allowed. A prohibition was unnecessary. There was an exception clause for foreign funding for skills development and the IEC believed that that might be a loophole for parties to get funds from foreign sources.

The Bill proposed that political parties report to the Commission but then there was no clarity as to what would happen next. The IEC proposed that the information be included in the IEC Annual Report as producing a quarterly report was too burdensome.

IEC Funding Unit budget
The Commission could not accept the additional mandate without funding as finances were precariously stretched. The new mandate had to be insulated and that entailed the creation of a business entity. Electoral operations would then continue to receive undivided attention. The new mandate required new skills such as investigations into non-disclosure or non-adherence to requirements.

The Head of the Business Unit would be the responsible officer and would report to the Commission. There might be a need to amend the Electoral Act to allow for the creation of the new unit. The Commission submitted a list of required personnel and skills. The unit would also have to undertake fundraising, internal audits, and even the commissioning of forensic audits would be necessary. It would require research, policy and investigation competencies. There would have to be interaction with the NPA where there were criminal matters to be addressed.

The proposed organogram could be implemented in a phased-in approach, with a skeleton staff in the first year, including the Accounting Head plus three senior managers and support staff. Staffing could be increased once the IEC had a better idea of what the work entailed. In the first year, the Cost of Personnel would be R11 million; the operating budget would be R33 million, making the first-year costs, R45 million.

Discussion
The Chairperson asked about the need for additional audits, as he was looking at three political party treasurers amongst the Committee Members. He had assumed that the parties would be responsible for the audit. The Committee had agreed about big business not coming to the party until the presentation by Business Leadership South Africa (BLSA). BLSA had stated that since the developments around state capture arose, big business had determined that business had a role to play in promoting democracy. Sustainable politics was good for the economy, which was good for business. It seemed that business was coming to the party and extensive fundraising might not be necessary, but of course, the proof of the pudding would be in the eating.

Mr J Selfe (DA) started with a complaint. Mr Mamabolo had spoken about political parties finding creative ways of escaping the provisions of the Act. Everyone seemed to suggest that political parties were scumbags who needed to be regulated as they would find any opportunity to break the law in every imaginable way. It was unfortunate. Political parties, like any other institution in South Africa, were, by and large, law-abiding. There would be no abuse of foreign funds. Funds received from international foundations were highly circumscribed and could not be used for party activities or anything other than skills development and policy development.

On criminal offences, Mr Selfe noted that there was an electoral code of conduct in the Electoral Act which provided for all sorts of criminal activity. How many criminal convictions under the electoral code of conduct had there been since the enactment of the Electoral Act? In his view, the problem did not lie in the lack of criminal sanctions, it lay in the ability of the IEC to interdict prohibited behaviour. He had been vocal on the matter and did not think that the IEC dealt with criminal or prohibited behaviour in an acceptable way.

Dual disclosure was a hassle factor in Mr Selfe’s opinion. It was alright for a company, but was it fair to saddle a person with the administrative burden of informing the IEC? Had he correctly understood that the start-up costs in the initial year, plus skeleton staff, would cost R45 million, including R11 million for 9 staff members? Professional services were set at R10 million; auditing costs were R10 million, and advertising R5 million. R25 million was tied up in audit and professional services. That was an incredibly top-heavy structure. He had envisaged a lean, mean and business-like structure.

Mr N Singh (IFP) asked about the administration costs. He liked the phased-in approach. He understood that the IEC was putting forward a best-case scenario. He knew money had not flowed into the private fund for 10 to 15 years so he was not sure how much was going to flow in; but if it did flow in, the IEC would need the capacity and would not want to be caught off guard. But there was a need to sharpen the pencil. The IEC had mentioned workshops and advertising. Was the IEC going to market the fund? Was that part of the cost? He understood that there would be once-off costs of desks, etc. He agreed that funds needed to follow function but he wanted to know the existing capacity and whether the people indicated in the R11 million included those currently managing the public fund? The basic framework was already there, so asking for so many additional positions was a little top-heavy.

Mr Singh agreed with the sanctions. The IEC had made a suggestion that there be different formulas for the two funds. What was the motivation? He had thought that there would be a single formula decided upon by the Committee and included in the Regulations. He agreed that the primary responsibility of the IEC was to manage elections and the Committee did not want to increase the burden unnecessarily.

Ms L Mathys (EFF) thanked the IEC. Most of her issues had been covered. How was the IEC enforcing criminal offences? There was a history of non-enforcement of offences during elections. She only knew of one case where an election official had been charged. The Committee did not want another law that was not enforced. On infrastructure costs, her concern was that all the funds were being put into establishing a unit when they did not even know if there would be any money going into it. Although no donations had ever been made, she acknowledged that it had not been well marketed and that people had not known about it. It was a terrible thought that R45 million would be paid out with nothing coming in. She believed that the start-up cost was too high, especially if they did not know that people would be coming on board. What other phasing in was possible until they knew how much was coming in? The Committee did, however, want the IEC to be capacitated as the Committee did not want reports that certain things could not be done because the IEC had not had the capacity.

Mr A Lees (DA) believed that there was merit in the separation of functions but that was outweighed by the costs of the separation. If it was going to cost so much, should the Committee rather establish a separate entity dealing with the MPDF? The IEC had once suggested a separate entity should be established. Would the IEC prefer that a separate entity be established? Only R1 million of the R45 million was for assets. The rest was operational expenses that would be repeated year after year. If one compared the R44 million with the R140 million to political parties, there was a huge disjuncture. He was not suggesting that the R140 million be increased to make it look better in terms of cost benefits, but there was a disjuncture.

Mr Lees suggested that if there were going to be options for variations in the formulas, who would be responsible for the formulas? Or should the Committee set up the two formulas? Books would be audited by political parties but there would be additional audit costs. It was a statutory requirement so audits would cost more, but the extent of increase might be relatively small. He referred to the allegations about legislature funding. To get to the big picture of party funding, local government should also be included as the metros and municipalities saw it as a source of funding for political parties. Local government ought to be part of the process at some point. The onerous chore of a donor informing the IEC would require an audit. Certain businesses require statutory audits but small companies did not require an audit and so would it be possible that donors should be required to be audited? There were some considerations about donor disclosure that would have to be considered very carefully.

Mr D Gumede (ANC) thanked the IEC for the comprehensive input. He referred to the participation of local government. No one was against it but it was not within the Committee’s mandate. The comment on incentives sounded good. Given the track record of the private fund, it made sense, but it could not be included in the current legislation as it was a financial matter that would have to be addressed by National Treasury. Non-monetary incentives should be considered. Dual disclosure was no problem in his view but he proposed that dual disclosure should be required only for amounts above a threshold. He thought that it made sense for the fund to be run via a separate entity so that the integrity of the IEC was not compromised. The ANC would listen but he would consult his principals for finality.

Mr Mamabalo, IEC CEO, noted Mr Gumede’s points. He appreciated the questions as the IEC was flagging issues for the Committee to address. The IEC was not advocating any view. He noted the concern about the costing. It was the best estimate but Members could ask for an independent authority to give a cost analyst as the IEC did not have business processes. They were aware that they could not create structures that would further burden the taxpayers of the country. The other issue was about value for money. There might be a windfall, but there might not be. One should not forget that the requirement came from a ruling by Parliament that there had to be a regulatory framework for political party funding. It was not to say that there was a guarantee that money would be donated but there was a need to comply to the requirement by Parliament that political party funding had to be addressed. The Commission was prepared to look at the costs but it needed to know exactly what was involved.

On the burdensome chore of disclosing a donation, possibly the Committee could do as Mr Gumede had suggested in that disclosure would only be above a certain threshold, but the Bill had to ensure that there were no loopholes. They were not saying, nor did they mean to suggest, that political parties would intentionally transgress. The IEC was simply envisaging possible loopholes.

The IEC Deputy Chairperson, Terry Tselane, noted that the Commission had developed its approach from the perspective of the IEC working closely and responsibly with political parties. The IEC trusted political parties and did not intend to sound negative but had understood that the framework had to be firm and had to cover even those who were outside of the political party framework.

The IEC comments were not premised on a return on investment through fundraising. The budget was informed by the compliance mechanism that had been put in place and required a lot of responsibility. The proposed unit was developed according what the Commission saw as necessary. The IEC had tried to separate two issues: the political parties as registered with the Commission, and political entities. The Bill covered a number of elements which had led to the presented budget. When Members looked at the cost of conferencing, they had to understand that advocacy was necessary to inform the public about responsibilities. The IEC would be accused of not informing entities about the Act. It was easy to deal with represented parties, but what about all of those that were outside of Parliament. To come up with a budget, the IEC had had to come up with a strategic plan and that had led to the costing of the unit.

The IEC thought that the decision to give the work to the IEC was a good one but resources were needed and Parliament had to know what the resources would cost. He was worried because he could see the IEC cannibalising the funds given to the IEC for elections. The Commission had an anxiety about cannibalising the election funds. He understood that Members were saying that the IEC had capacity, but that capacity was for managing elections.

The Auditor General would also have to audit the books and that might have implications. Parties would have to pay when the Auditor General came to audit books. It was important to raise this because of the possible financial implications for smaller parties. It would not be a free service. It was wonderful that big business had said that they would come to the party, but the Commission still wanted to give them an incentive to contribute even more.

Mr Tselane said that criminal offences were frequently raised by political parties. In 2016, a new investigative unit had been set up to deal with non-compliance. There had been success from that unit. They did not want to face the same criticism again and had to deal with the matter. In the current scenario they wanted the framework to manage offences from the beginning. A sanction could not be in the legislation unless the IEC had the capacity to deal with it. The IEC had made a commitment that, from the beginning, it wanted to deal firmly with misconduct. Dual disclosure was intended to make it easier for monitoring. Business would indicate in one line in their annual financial statements, in any case. He understood that Mr Selfe was referring to an individual but the IEC had not applied its mind to that situation, and individuals were not audited.

Mr Mamabalo, IEC CEO, explained that the idea was to be ready to deal with potential donors. Currently 25% of the time of IEC official, Ms Esther de Wet, was spent on the public political party funding functions. She was actually employed in another function. In addition, there was another staff member. The motivation for the formula was in the light of the fact that the Represented Political Parties' Fund (RPPF) was defined in Section 236 of the Constitution, whereas the MPDF could also fund parties that had registered but did not have representation. The possibility for variations in the formulas would be opened up if the Bill created the statutory possibility. The National Assembly had to make the determination about the ratio as the decision could not lie with a technical organisation such as the IEC.

Mr Mamabolo stated that criminal cases were a difficult area. There had been a case in KwaZulu-Natal where there had been interference with a ballot box. The person had been prosecuted and sentenced. There had been another case as well of a presiding officer allowing people to vote when they were not on the voters' roll. The difficulty was that the IEC received complaints but it was unable to get sworn statements and the IEC was then unable to prosecute for want of evidential material. Before 2016 there had been no appropriate internal capacity to deal with electoral offences. The third issue was that there was insufficient understanding of electoral offences and the police and prosecutors did not understand the gravity of the offence. The question was whether one created a weak legislative framework that was easy to manage, or a strong framework for which the enforcement agencies had to be developed in order to implement it. The Commission had to be able to review legislative amendments as the process evolved. The IEC accepted that, at some point, local government might be included. The Commission had not thought about individual disclosures and it might be an onerous requirement but they would have to look at the quantum. The audit costs would increase as auditors charged per hour and would charge for additional hours. In terms of the present Bill, the Auditor General might audit a party’s books and the party would bear the costs.

Ms Esther de Wet, Acting IEC CFO, stated that she had been largely covered. The current set-up was that she spent 20% of her time doing the RPPF, which was done after hours. The Compliance Officer spent 40% of her time on RPPF. They used administration support from IEC support staff as there was no additional staff. There was no fully-fledged unit to deal with the RPPF. It was done over and above other functions. The IEC would have to set up a different accounting system for the MPDF. They would have to develop different types of reports. SAP Software Company charged exorbitant costs to set up reports. If she asked the IT specialists for a report, she asked how many millions, so R10 million for professional services might be an understatement. The IEC had not a cent to spend on MPDF as the IEC would be cash-strapped for the next two years, owing to the Mhlophe decision in the Constitutional Court.

Mr Tselane pointed out that the IEC was becoming an aging organisation as people were going on retirement and taking skills with them. When Esther de Wet went on retirement, the next person might not be able to do both jobs as that person would not necessarily have the same skills and experience. When a person left, the IEC sometimes found that it had to employ two people to cover the work. What if the Committee took the MPDF function away from the IEC, as the IEC had originally proposed? The Commission was happy to take it on but was not opposed to seeing it outside of the IEC. However, the IEC believed that the goodwill towards the IEC would rub off on the Fund. The IEC also had the integrity and the knowledge required to do the work. There were many advantages to placing the MPDF within the IEC.

The Chairperson stated that the general consensus was that IEC was the best place for the fund. Section 13(1)(d) said that the political party had to appoint an auditor, not the IEC. Auditing accounted for R10 million, a third of the costs. The Auditor General’s Office already audited the books of the IEC. There might be an extra cost if the IEC requested it to audit a political party, but the cost would not be R10 million. He wished to clarify that the Auditor General would never audit the political party books at party level. The dual disclosure might be a problem, but all JSE-listed companies had to disclose. It was a category that should not be eliminated but categorised. It was no problem for companies to disclose and report but perhaps the Committee could think about that threshold that Mr Gumede had mentioned for disclosure by individuals. The Committee had to find a way of reducing the R45 million which was almost a third of what political parties received. National Treasury might not approve the spending of R45 million to manage a fund of R140 million. But the function had to be funded.

Ms Mathys stated that there was a huge budget for statutory obligations but it included a huge budget for advertising. She understood the need for awareness of the new legislation and she understood that audit costs would increase. Was there no office space at the IEC office? She was asking if the IEC was saying that it was not capacitated to manage the elections? Had the IEC spoken about the formula split for the MPDF?

Mr Selfe understood that the IEC recommended an annual report and twice a year reporting during an election year. Was that correct? The IEC responded that that was contained in the Bill.

Mr Selfe pointed out that civil society had argued for more regular reporting and disclosure and he requested the view of the IEC on more regular reporting. The compliance unit had only prosecuted a handful of people for various reasons, but the IEC wanted a criminal sanction. The stuff in the Bill was highly complex – like tax evasion - and would require very highly skilled people to prepare for a criminal case. The NPA would simply sit on the files for 14 years as it had in an egregious case involving the Head of State. It was necessary to see if the IEC could walk before it ran. Administrative sanctions should be tried before resorting to criminal sanctions. The IEC argued that there could be different formulas and that non-represented parties could be included. The difficulty was that some unrepresented parties consisted of two persons and a fax machine in search of money. How did one avoid fly-by-nighters? How did one strengthen multi-party democracy by encouraging entrants to the market without encouraging a whole lot of people who just wanted to appear on the ballot paper? The new entrants on the political market after each election had been parties that had simply come out of the blue, or the red in one case. He still did not know how computer consultancy etc. could cost R10 million. It was a lot of money so he asked for more specifics about what the IEC was making provision for.

The Chairperson asked about the barrier to entry which had come up again in the second round of public hearings. It was a problem for new entrants to pay a huge election deposit to stand for election. Could that be substituted by gathering signatures? What would the loss of those funds mean to the IEC?

Mr Mamabolo said that election deposits were to ensure that they avoided frivolity in the process of elections. Perhaps the quantum was the issue. The 50 000 signatures would have to be verified so that it could be sure that genuine voters had signed. However, the IEC had only 10 days to print ballot papers but it would have to verify signatures before it could print. The election period would have to be significantly expanded to deal with the verification. In local elections there were 5 000 permutations of the ballot paper. The challenges relating to signatures were many and difficult. The IEC needed to go away and consider the matter. The IEC felt that the verification of signatures would cause an intractable problem. The DRC used an open list party system and each person was on the ballot. The voter received a book of candidates. South Africa had a closed party system. In the Western Cape, 32 parties had contested and the format of the ballot sheet had had to change to accommodate all the parties. An unintended consequence of using signatures to register was the printing of the ballot, but Section 19 took precedence. The Constitution was paramount and the IEC would look at the situation. How to distinguish the fly-by-nighters was a vexed question.

Mr Mamabolo replied that the IEC did not want to introduce different formulas but it wanted the law to create the possibility of separating the two formulas, should it be required in the future. Mr Selfe was correct that the IEC would need to procure specialists such as accountants and forensic scientists, and the R10 million was for such professional services. The quantum of work was unknown so the IEC had made assumptions. A small structure for the initial period meant that it would have to buy professional services. IEC believed that it would be onerous and expensive to disclose quarterly and the country could probably not afford it. In particular, professional services would need to be procured more regularly and thus increase the costs, especially as they would need experienced professionals.

On office accommodation, Mr Mamabolo replied that only a few people could be accommodated as the IEC increased in number during election periods and required the office accommodation. Going forward, the unit would need accommodation. Advertisement costs were high but it would be necessary to raise awareness.

Ms De Wet explained that she had used the IT costs as an example of the professional costs. She admitted that the cost of writing manuals would not be an ongoing cost. As far as IT was concerned, there would only be only administration costs. The problem was the unknown quantum. She warned the Committee against eroding the IEC electoral budget.

The Chairperson thanked the IEC.

Mr Mashinini, IEC Chairperson, suggested that the Committee get an independent party or National Treasury to look at the proposed funding. The IEC did not want to be seen to be hustling. The most important thing was not to accept a mandate without adequate funding, but, at the same time, they were aware of the constraints on taxpayers' money. He hoped that the IEC had addressed the issues in the Bill as it wished to support the Committee in ensuring good legislation. He assured the Committee that the IEC would serve the country.

The Chairperson indicated to Members that the Committee would have to arrange for meetings in the following week to address all the inputs.

Meeting adjourned.
 

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