Financial Management of Parliament and Provincial Legislatures Amendment Bill: briefing

Meeting report

Adv Charmaine van der Merwe, Senior Parliamentary Legal Adviser, noted the Act was assented to in 2009 and an Amendment Bill in 2014. This is the second review of the Act with the amendments recommended by the CFOs and legal advisers of the ten legislatures and the Speakers’ Forum.

There was proposal to repeal section 3 where the Act should rather directly be made applicable to provincial legislatures. Define “legislature” to include national and provincial legislatures. This will address interpretation concerns. The terminology will have to be replaced throughout the Act substituting “Parliament” to read “legislature”.

Substantive amendments dealt with the accounting officer; financial management; planning and monitoring; reporting; budget process; supply chain management (SCM); auditing and addressing audit queries where the accounting officer is required to develop an action plan and ensure it is implemented. There were also numerous technical amendments and terminology corrections.

A proposal by Parliament’s Finance Division was to include a section similar to the PFMA to provide for actions necessary in an emergency such as Covid-19 or Parliament fire:        
“Exemptions.—The Minister, by notice in the national Government Gazette, may exempt any institution to which this Act applies, or any category of those institutions, from any specific provisions of this Act for a period determined in the notice.”

On the budget process, Sections 23(2) and (3) were deleted in the previous amendment and it was proposed to bring these back so that legislatures may retain appropriated unspent funds at financial year end. They would have to consult the Minister of Finance in accordance with S13(3) of the PFMA.

Discussion
Mr W Wessels (FF+) made reference to the proposal to repeal Section 3 of the Act. He said Section 3(2)(c) provides for an exception when, for certain sections of the Act, it is made applicable to provincial legislatures; for instance, the regulations of Section 65. Also, it is read with a number of sections such as section 34. The drafting team would have to provide for that exception if that entire section 3 is repealed.

Mr Wessels said the exemptions proposal in line with the PFMA has been in question since the Act was originally drafted. There is a dilemma about the separation of powers. He asked if it would not be problematic where the executive authority tells the legislative authority what it can or cannot do.

With the budget process, that dilemma is there already. He asked if the approval of the Minister of Finance as required by the PFMA for departments and other organs of state can be replaced by the Parliamentary Management or Finance Management Committee or in the case of a Provincial Legislature, by the Budgetary and Oversight Committee.

Ms M Mabiletsa (ANC) raised concern about the proposed reporting period being changed from monthly to quarterly. While she understood quarterly reporting would be more thorough with many items included. However, this would mean a delay in what needed to be implemented timeously. In contrast, she understood that monthly reporting would mean some items are omitted. She suggested monthly reporting would be best, so concerns are responded to quickly.

She referenced Sections 2(c)(i), 17(1) and 29 where it was proposed to delete the requirement for consultation with Treasury and/or the Minister of Finance. Treasury comments to ensure that resources are available for the budget requested and to ensure the requirements are followed. She asked how the legislatures will know if there are resources and who will ensure that requirements are followed if Treasury is excluded from commenting on the budget process.

Ms P Abraham (ANC) commented that the draft amendments were quite extensive and Members need to make time to go through them with Parliament's Finance Directorate.

She noted a proposal by Parliament's CFO for the establishment of audit committees and that the accounting officer should not be the one establishing those committees. She asked who would ensure those committees are established and who would account for the work of those committees in the legislature.

She raised concern that sections such as Section 3 are removed without a replacement as mentioned by Mr Wessels. Slide 13 refers to the removal of the “state” in 28(2) but no mention of what will replace that. Section 32 proposes that charging interest should be made discretionary. It is unclear whose discretion this would be.

She was part of the legislative team that interviewed the Eastern Cape CFO. One of the requirements was that the CFO is familiar with GRAP, but she does not recall such a requirement being necessary for an Accounting Officer. She asked why the Accounting and Information System Officers needed to be familiar with GRAP.

Slide 15 notes the proposal to clarify for Sections 14 and 53 that the strategic plan is for a legislature, not the administration of that legislature. A legislature is made up of two divisions – the political and the administrative divisions. It needs to be clear if the strategic plan is for the Speaker and not the Accounting Officer.

The Section 62 proposal to delete the requirement that the Auditor-+General (AG) submit a report on a delay by the Accounting Officer to submit annual financial statements. This is a critical matter for the Committee because before this Bill, Parliament's finance section came to the Committee about this section stating that it should be allowed to delay, and the AG must not comment without the Accounting Officer reporting on the delay. This was contradictory because the precedent will be set that the Accounting Officer will be the one at fault for the delay. However, the AG must wait until this Accounting Officer reports on the delay within a reasonable time. She asked for clarity.

Mr G Skosana (ANC) referred to Section 50 on the Audit Committee. The current Act states that the Accounting Officer must establish the audit committee and the proposed amendment is that the Accounting Officer must ensure that the audit committee is established. This sounded like the same thing as the Accounting Officer will still be held liable if no Audit Committee is established. This clause should not be amended as it appreciates that there will be people who will be assisting the Accounting Officer in reporting.

Reference is made that the Accounting Officer “must” do certain things. The word “must” should be replaced with other terminology as right now it seems more load is being placed on the shoulders of the Accounting Officer. He did not discount that the Accounting Officer is the person who must account and be held liable and/or responsible for certain functions. In the Municipal Finance Management Act, there is also extensive use of “must” in reference to the Accounting Officer. This is despite working with a team of people who must deliver on their respective job requirements to enable the Accounting Officer to deliver on the reporting mandate. He requested that another word replace “must” when referencing the accounting officer as “must” is burdensome.

There is a proposal that the legislatures be allowed to make their own determination on preferential procurement principles appropriate to the environment in a legislature as the PPPFA does not provide for the unique operations of legislatures. Mr Skosana did not agree with this and said South Africa is not a federal state – it should have one law. Provincial legislatures should be consulted on what to include in the preferential procurement process and an agreement should be reached on what should be included or excluded.

Ms Mmatshepo Rasebopye, Gauteng Legislature Director: Supply Chain Management, welcomed the changes especially those about SCM. It had felt as though the legislature was paralysed and prevented from being efficient in its operations.

Ms Rasebopye referred to Slide 7 and asked if the principles issued by the Auditor-General could be adopted in the treatment of unauthorised, irregular, fruitless and wasteful expenditure (UIFW). The principles would allow the Accounting Officer to remove the UIFW from the financial statements should an adequate reason be provided. She also asked to consider the treatment of the accounting officer and the executive authority based on where the transgression came.

On the amendments to Chapter 5 on SCM, she commented that if legislation is not uniform on the preferential procurement principles, then it opens up the legislature to different challenges that they are currently facing. She agreed with Mr Skosana on the uniformity approach for these requirements

In Section 39, she asked if it was possible to add the responsibility of the accounting officer in establishing processes. This would be adopted from the PFMA where the accounting officer develops and implements an effective supply chain management system. She asked where system, regulation or policy is used, and would it mostly align with the SCM system in the institution.

She asked if Section 44(a) and (c) can be combined as they address the same issue.

In section 46, she asked the legal team to look into the phrase "tax clearance” because it's no longer applicable. It is now called Tax Compliance Status.

The Chairperson asked if a Socio Economic Impact Assessment System (SEIAS) needed to be conducted as part of the legislative process or if it was not necessary because this was only an Amendment Bill.

The Chairperson asked the legal team for clarity on the Section 2 proposal that Treasury no longer comments on the proposed budget of the legislature. There is one Treasury in South Africa and this proposed amendment is implying that the legislative sector will have its own treasury. Section 216 of the Constitution states that Parliament should pass legislation to establish a national treasury. The Treasury has clear responsibilities. If the Minister of Finance is informed and does not agree, the legislature can just go ahead and do what it thinks is right. This concerned him legally and politically, as there is only one Minister of Finance in the Republic and one Treasury. Treasury was specifically established by the Constitution and designed to deal with the fiscal framework and the division of revenue act (DORA). He is not sure how it will work that a legislature will be able to move on without the Minister's agreement. This may cause governance problems.

Procurement is regulated by Section 217 of the Constitution, which provides for national legislation that prescribes the framework within which SCM must be applied. Was the legal team proposing that the legislative sector should have its own legislation and its own framework? The legislative sector is not a government but an arm of government or organ of state. The judiciary is independent; however, the governance of administering the finances of the judiciary must be done in compliance with the PFMA. The legislative sector is not completely independent from National Treasury in that sense.

Lastly, he asked if this process was to rewrite the legislation or to amend it as so many changes were proposed. He asked why so many changes needed to be made at the same time.

Senior Parliamentary Legal Adviser response
Adv van der Merwe replied that it was correct that if Section 3 was repealed, the wording would need to be replaced throughout the Act. For example, where the word “house” or “parliament” is seen, it must read "legislature". And then subsection 2(c) refers to section 65 about the regulations, must that not be read as "provincial legislature? "Executive authority" needs to be defined to include “provincial legislature” which also depends on the context. When reading Section 65, sections 16, 22, and 24, the executive authority would mean only the executive authority of Parliament that may make regulations.

When it comes to regulations, standardization is necessary. It could be argued that the legislature may have different requirements from a department. Some of the ways the legislature budget operates and how its reports are done are very different from the departments. But with legislatures, even if one is quite big and the others are quite small, there should be flexibility. The Committee needs to make a call on the level and extent of authority – either it is the executive authority of a legislature or a committee within the legislature or it is the Minister of Finance.

Monthly or quarterly reporting was a conundrum as explained by the Member. Quarterly allows more room for more information to be included. On the other hand, speed and some transparency at an intermediate level is lost. A concern was raised by the Speakers’ Forum and their proposal was for quarterly rather than retaining monthly reporting.

"Treasury not commenting on the budget" had quite an interesting history to it. The big concern about budget is that legislatures and the judiciary are at the back of the queue. Adv van der Merwe asked the Committee to picture a big cake sitting in front of Cabinet and all the departments are present. They are eating from this cake, and when they are done and get up from the table, only then the legislatures and the judiciary can step in because they do not have representatives that can sit around that Cabinet table. The idea is to give legislation a bit more of a say in who gets what cake and how often. The implementation of this she suggested is what needs to be discussed. The legislature has some independence as one of the arms of government but there is this cooperation that they need to do with each other. The legislature cannot separate itself and say that it is on its own. The money still comes from the same source. There needs to be a balance between getting the legislatures to have more input on their budget while keeping in mind that the legislature is still part of the whole. The legislatures and judiciary cannot eat the cake first and leave the rest of the cake for the departments. However, the concern was that there needs to be a stronger role for the legislatures in the determination of the budget.

She agreed that Treasury must be able to comment on the proposed budget of a legislature. The argument for not having Treasury comment is that the budget should be determined at a level above Treasury - directly with the Minister and therefore lower levels do not get involved. She added that the practicality of that is questionable and a number of considerations need to be looked at for practical application.

The Bill proposes that the audit committee is appointed by the executive authority and the audit unit, in case a legislature is too small to have a whole unit dealing with audit. The accounting officer according to the PFMA must establish it. The concerns expressed about the relationship between the accounting officer and the audit unit are valid and as such these roles must be made very clear. The proposed amendment is not clear on what it means by “ensure” when referring to the accounting officer and this could also mean establishing it.

She suggested that it would be better to make it easier for the accounting officer by following best practice. But she asked what the rationale would be for lightening the load of the accounting authority.

On removing "state” in Section 28, she explained this Act does not apply to the state it applies to legislatures - hence the removal of “state”. The state not being bound is provided for in the PFMA. The removal does not create a gap because there is something in the Act that is broader than application.

Making interest discretionary required a lot more attention. The proposal for discretionary interest is where debt is incurred not by the institution, and the institution itself becomes the creditor, then it does make sense to provide for interest. However, legislatures are not in the business of selling or hiring their services. Services are delivered are for free. Where interest would accrue to the legislature is in the administration. An example is loans offered to employees that attract no interest. Despite knowing the circumstances of the employee, the accounting officer would have to charge interest. Therefore, the Bill is proposing that there be no interest in such circumstances; hence the proposal for discretionary interest.

Adv van der Merwe explained that GRAP covers a wide spectrum of best practice guidelines some of which are brought into the financial management operations of the accounting officer within a legislature. The accounting officer, being responsible for the financial management operations, then automatically complies with best practice and in essence GRAP.

Part of the legislature’s strategic plan is to ensure the reduction of poverty. The administration supports the legislature. The legislature's strategic plan is the bigger picture – it looks at what the legislature wants to achieve. The strategic plan addresses the legislature and not the administration. The administration comes in at an operational level where performance indicators are looked at. The strategic plan addresses the legislature's vision, where the legislature is going and what it wants to achieve for the five-year period.

On the delay in submission of the annual financial statements, she suggested that the Committee have multiple consultations and one of the stakeholders must be with the Auditor General on clauses that affect that institution. However, the argument simply is that the amendment of the Public Auditing Act now provides for much broader functions and powers of the Auditor General. Section 5 of that Act indicates that there may be a referral of irregularities by the Auditor General who has the power to take appropriate remedial action and even issue a certificate of debt where there was a failure to comply with that remedial action and report a matter to the relevant legislature.

The proposal from the CFOs is that there be regulations issued by the executive authority of the legislature on preferential procurement. Those regulations will have to be linked to the national legislation on preferential procurement because of the Constitution. She agreed that this is not something that can be left to each legislature. It is something that will have to be done as a standardisation for all ten legislatures.

On removing the load from the accounting officer, there needs to be something which is worth considering that will align with best practice. Lightening the load needs to be considered with the practical implications.

She was not sure why there was a proposal to delete section 39. However, she welcomed the proposal in this meeting to add it to the responsibilities of the accounting officer.

Before a Bill is approved by Cabinet for admission to Parliament, it has to undergo a socioeconomic impact assessment as required by Cabinet. If a Committee amends an Act on its own, this will be a Committee Bill, where Cabinet is not involved. There is no legislative requirement for a Committee Bill to undergo a socio-economic impact assessment. However, that does not mean that this committee cannot do an impact assessment of whatever draft bill is developed. The Committee can procure a person to do the type of impact assessment it requires.

She clarified that when the Parliament legal drafting team was instructed, it focused on items that could cause interpretation concerns. These issues may not yet have caused an interpretation concern. However, from a lawyer's point of view, they will always look at what could become a concern at a later stage. She requested that she be given an opportunity to include the comments from today in the document and then perhaps that document can also be circulated to the Committee.

Closing remarks
The Chairperson said when the Committee starts the process of written submissions, it needs to get the comments of the Speaker, NCOP Chairperson and the Speakers of the Provincial Legislatures. National Treasury should also be part of the engagement process and should make a submission to the Committee.

Ms Abraham appreciated the presentation by Adv van der Merwe which really helped the Committee with this Bill. She agreed with the Chairperson on engaging stakeholders and having caucuses so Members bring mandates from their parties into the discussion.

The Chairperson agreed on the way forward and said the Secretariat would advise the Committee on the right time for submitting the Bill for public comment. He thanked Members for their engagement.

The meeting was adjourned.