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FINANCE PORTFOLIO COMMITTEE Dr R Davies (ANC)
18 May 2005
FINANCIAL MANAGEMENT OF PARLIAMENT BILL: BRIEFING
Documents handed out:
FINANCE PORTFOLIO COMMITTEE
Dr R Davies (ANC)
Draft Financial Management of Parliament Bill – as of 18 May 2005
Presentation on Financial Management of Parliament Bill
Dr Davies (ANC) detailed the history of the Financial Management of Parliament Bill, 2005. The drafting team consisted of Professor Cristina Murray (UCT), Mr Paul Benjamin (attorney) and Mr Conrad Barberton (UCT). Dr Davies felt the Bill should be released for public comment as soon as possible. Professor Murray then presented the draft bill. She focussed mainly on the main changes from the previous draft and the requirements that the Bill posed for the executive authority and the Accounting Officer of Parliament. The discussion followed with Members queries concentrated mostly on maintaining the independence of Parliament as an institution. A major part of the discussion was also devoted to the division of responsibilities between the executive authority and Accounting Officer of Parliament regarding the financial management of the institution.
It was decided that the reporting timeframe for Parliament’s financial statements would follow the Budget cycle already followed by government departments, and the role and participation of Parliament’s executive authority in the Parliamentary Budget process was discussed. The current version of the Bill contained no details on the composition, status or powers of the consultative body, but the Committee felt that it could not consist of office-bearers of Parliament. The relationship between Parliament’s Standing Committee on Public Accounts and the oversight Committee established by the Bill was considered, and the Committee proposed that SCOPA act as the oversight Committee. The Committee decided against the inclusion of a specific definition of the term ‘executive authority’ in the Bill, as it would create uncertainty. The removal of Clause 37 was proposed to avoid conflicts of interest with Members of Parliament sitting on tender boards.
Financial Management of Parliament Bill
Professor Murray said that the basic principles underlying the draft bill were similar to those contained in the Constitution, particularly as they appeared in the chapter on finance (Chapter 13). Accordingly, the drafting team drew on the processes and budgetary practises of the National Treasury, mindful of the fact that Parliament wanted to assert its independence by withdrawing from the Public Finance Management Act (PFMA) and resorting under this Bill.
Professor Murray outlined four major changes from the previous draft. Firstly, the provincial legislatures were removed from the Bill and will now, instead, be served by an attached schedule of norms and standards. Secondly, the role of the executive authority of Parliament was developed in accordance with the governance plan. Thirdly, the chief financial officer was removed and the Accounting Officer (the Secretary) was given full power to appoint. Finally, the chapters were rearranged for easier reading.
Professor Murray emphasised that while it was understood that the executive authority would be accountable to some sort of Committee, the nature and composition of the latter was still uncertain. As such, reference was made in the draft only to a ‘consultative body’. Furthermore, the draft bill purposely stated that the Accounting Officer needed to submit the strategic plan and budget, either six months before the beginning of the next financial year "or at another prescribed time". This was done should the former requirement have proved too stringent. In general, the timeframe for the financial management of Parliament as it stood in the draft bill mirrored that outlined in the PFMA.
Dr Davies (ANC) stated that Parliament had indicated that a specific Bill dealing with the financial management of Parliament was desirable. Meetings had been held with the drafting team during the recess, and had outlined the general direction of the new draft. An earlier draft was also discussed. The drafting team consisted of Professor Cristina Murray (UCT), Mr Paul Benjamin (lawyer) and Mr Conrad Barberton (UCT). The Secretary to Parliament was present at least at one of these meetings, while Dr Davies and the Deputy Secretary to Parliament were present at both. Dr Davies expressed the desire to get the Bill out for public comment, but indicated that leave would have to be obtained to introduce the Bill as it originated from a Committee.
Ms B Hogan (ANC) asked what implications the Bill would hold for the judiciary and the way it managed its budget. Secondly, she noted the inclusion of norms and standards for the financial management of provincial legislatures. She enquired about the constitutional precedent that entitled Parliament to do this as opposed to the Treasury or the provincial legislatures.
Thirdly, Ms Hogan enquired about the constitutional and practical implications of constituting a joint executive authority (the Speaker and the Chairperson of the NCOP) for budgetary purposes. In this regard, she expressed particular concern over the preservation of the different identities of the two houses. By way of example, she anticipated the need for the creation of sufficient space for differentiation in the budgeting process to meet the differing requirements of the two houses. Fourthly, she expressed the desirability of a clear definition of who, between the executive authority and the Accounting Officer, took final responsibility for the financial management of Parliament in the face of external scrutiny. She also asked which of the executive and the Accounting Officer would appear before the Parliamentary Committee tasked with overseeing the financial management of Parliament.
Fifthly, she asked whether there was any requirement that the Accounting Officer be present at discussions between the executive authority of Parliament and the Minister of Finance. In addition, Ms Hogan enquired whether it was included in the Bill that risk management was a specific responsibility of the Accounting Officer.
Professor Murray replied that the role of Accounting Officer or Secretary to Parliament would be limited to when the executive authority, for example, requested expenditure that appeared unreasonable. Clause 21 of the Bill basically followed the PFMA’s provisions that the Accounting Officer must report to the Office of the Auditor-General. Furthermore, risk management was covered in a number of provisions in the Bill, and the most important would probably be Clause 5(c), which was an over-arching statement on the Accounting Officer’s functions including risk management.
Ms Hogan noted the provision that the Accounting Officer had to submit the strategic plan and budget to the executive authority six months prior to the end of the financial year. She expressed concern over the perceived extreme leniency of this provision, given the current budgeting time frames of government.
Professor Murray responded that she would consult Mr Barberton, one of the drafters of the Bill, on a more realistic timeframe.
Her seventh point of inquiry centred on the status, powers and the nature of the output of the ‘consultative body’ referred to in the Bill. She also asked what its composition would be in terms of elected representatives versus the senior management of Parliament.
Professor Murray replied that these were dealt with in Clause 43 onwards and would be submitted to the executive authority.
Ms Joemat asked whether the monthly reports would be forwarded to the Joint Budget Committee as well.
Professor Murray replied that they would also be submitted to National Treasury for the purposes of consolidated reporting.
Ms Hogan stated that Parliament must not be exempted from the same type of oversight and reporting functions as government departments, and must therefore be able to confer with SCOPA and the Joint Budget Committee.
Professor Murray responded that this could be included in the Bill.
Furthermore, Ms Hogan noted the provisions under unauthorised expenditure. In response to her question on the topic, Professor Murray confirmed that Parliament’s Accounting Officer would have recourse to the Auditor-General in the same manner as the Accounting Officers of other public institutions. This was so particularly in the event that Parliament’s Accounting Officer might feel pressured to execute certain accounting policies that might not be in the best interests of the institution.
Ms Hogan sought clarity as to whom the quarterly and monthly reports of Parliament would be tabled.
Professor Murray stated that much of this issue had already been covered by the discussions. The current version of the Bill contained no details on the composition, status or powers of the consultative body. It was modeled on the governance plan of Parliament which included a Parliamentary Committee composed of whips particularly, the Speaker and Chairperson of the NCOP, and that body would form the advisory body for the executive authority.
Mr Kabela proposed that this matter be considered in detail at a later stage.
Ms Hogan sought clarity on the differentiation between the functions and powers of the ‘consultative body’ and the Committee tasked with overseeing the financial management of Parliament. She stated that she was aware that in other Parliaments, such as the French Parliament, a Parliamentary Committee exercised oversight over the financial affairs of Parliament. It must be made clear in the Bill that the composition of such a Committee for this Parliament cannot consist of office-bearers of Parliament.
Professor Murray responded that there were at least two broad roles for committees: the first was to provide advice and support, and perhaps this kind of Committee must consist of the senior leadership within Parliament such as the whips etc. The other function envisaged in the Bill was the oversight function, in which the Committee would be akin to Parliament’s Standing Committee on Public Accounts (SCOPA). The precise nature of the Committee has not been decided in the Bill, but can be decided on by this Committee.
Mr van Wyk (NP) asked whether Parliament would have to follow the budget manual prescribed by the Treasury in the compilation of its annual budget. He also asked if the Standing Committee on Public Accounts would oversee Parliament’s financial management, or whether a new standing Committee would be created.
Ms Hogan questioned the necessity in prescribing a Committee that would exercise oversight over the regulations because Parliament could, in terms of its oversight over regulations, report on them in any event. The Bill should instead state that Parliament should "improve the schedules" or must at least consider those regulations. The Committee would have to approve the budget and exercise oversight over Parliament’s Annual Report and these should ideally be the same Committee. They were not identical to SCOPA because SCOPA only considered financial statements, and she therefore suggested that one Committee be established to perform these two tasks.
Mr Van Wyk sought clarity on the reference to a Joint Committee in the Bill.
Secondly, Mr Van Wyk disagreed with Ms Hogan and stated that SCOPA did in fact consider Annual Reports as well.
The Chairperson replied to these two questions by stating that the decision was taken to establish a joint Committee because SCOPA was a Committee of the National Assembly alone. There was the possibility that the Budget of Parliament could go to an appropriate consultative body, as stipulated in the Bill. He questioned whether this matter should be resolved in the Bill or in the Rules of Parliament.
Mr Asiya sought clarity on the role of the Rules Committee in relation to Parliament, and cautioned against the creation of multiple entities that might overlap in the end.
Ms Hogan agreed with Mr Asiya. She stated that this brought her back to her earlier question regarding the status of the Bill, and whether it had been formally approved in Parliament.
The Chairperson stated that this Bill emanated from the leadership of Parliament and, until the contrary was proven, he believed that it was agreed to.
Ms Joemat proposed that the status of the legislation be verified.
Ms Hogan stated that the accountability of Parliament was critical to the Bill, and this power cannot be relegated to a Committee that could be "chopped and changed".
Ms Fubbs proposed that the Bill expressly stipulate those officials who would not be included in the Committee, so as to avoid a conflict of interests. Furthermore the term of office of a member of the oversight Committee should be stipulated in the Bill.
Ms Hogan stated that SCOPA ensured good financial management across government, and questioned the wisdom in deciding to reserve for Parliament a special Committee that consisted of its own Members to examine the financial statements. Surely SCOPA should be the body that dealt with Parliament’s financial statements, as it did an excellent job. Perhaps Parliament should be willing to submit itself to the same process as every government department.
The Chairperson summarised the Committee’s position as follows: the Committee that dealt with Parliament’s strategic plan and consulted on the Budget and Annual Report would be termed "an appropriate joint Committee but did not include the executive authority, because the executive authority reported to that Committee".
Professor Murray asked whether that Committee must exclude the executive authority at all times, even when it considered the strategic plan.
The Chairperson noted that the Committee answered in the affirmative. He stated that the argument from the Secretary to Parliament regarding SCOPA’s role was that it was only a National Assembly Committee, and it was for that reason that a joint Committee was proposed.
Mr Kabela stated that the NCOP had a particular mandate with regard to the input of provinces in the national process. It was however not necessary to have Members of the NCOP in a Committee which considered the financial statements of Parliament. He thus agreed with Ms Hogan that SCOPA be the appropriate Committee as it was the sole responsibility of the National Assembly to do SCOPA work, and thus did not include the NCOP.
Mr Van Wyk stated that Clause 51 supported Ms Hogan that SCOPA be the preferred Committee, with the only difference that the report would be subject to the Bill and not the PFMA.
Mr Kabela proposed that this issue be flagged for later discussion.
Ms Hogan disagreed with Mr Kabela regarding the role of the NCOP. In this case scrutiny of both Houses was being dealt with as well, and thus NCOP Members should sit on the Committee as well because it would affect that House as well.
The Chairperson noted that the Committee agreed, and that the Committee referred to would be along the lines of a SCOPA Committee with Members of the NCOP, sitting in a special session.
Ms Hogan sought clarity on the powers of the Committee, in terms of the Joint Rules.
Professor Murray responded that she would get back to the Committee on this matter. She asked whether all presiding officers would be excluded from the Committee.
The Chairperson stated that careful wording was needed. He proposed that the executive authority be excluded.
Ms Fubbs proposed the specific definition of the term ‘executive authority’ in Clause 1 for the purposes of the Bill.
The Chairperson noted that the matter would be considered further by the drafters.
Professor Murray cautioned against the inclusion of the term in the definition section as it would redefine the executive authority and create an inconsistency. A provision could simply be included to stipulate the office-bearers that cannot sit on the Committee.
The Chairperson noted the Committee’s insistence that the House Chairpersons be included as well.
Ms Hogan asked whether it was normal to refer to the Audit Committee as an Advisory Committee as was done in the draft bill.
Professor Murray replied that the framework for the Audit Committee was drawn from the National Treasury regulations, where the Audit Committee reported and made recommendations to the Accounting Officer. Perhaps the relationship of the Audit Committee and the executive authority must be tightened, and this could be done. It also did oversight of risk management.
Mr Asiya put forward that wasteful and fruitless expenditure should also be seen as financial misconduct in addition to merely referring to unauthorised expenditure.
Mr I Davidson (DA) questioned the extent to which the requirement that Parliament submit its strategic plan and its budget to the Treasury implied the subordination of the legislature to the executive.
Professor Murray responded that this had been dealt with in the discussions, but stated that a few principles could perhaps be stipulated which outlined the relationship between Parliament and National Treasury.
Professor Murray explained that regardless of the fact that Parliament had to submit its budget and strategic plan to the Treasury, it still maintained significant financial independence as it was responsible for finally approving its budget allocation from the executive.
Mr Paul Benjamin explained that the principles contained in the public administration section of the Constitution justified the inclusion of norms and standards for provincial legislatures in the Bill, but not detailed prescriptions. On the question of the joint executive of Parliament, he conceded that differential budgeting may be theoretically possible but practically inoperable due to the structure of the legislature’s administration.
Professor Murray added that the Constitution neither required a single administration for Parliament, nor a joint executive. Rather these were the outcomes of legitimate policy decisions. She acknowledged that it did bring with it a variety of complications as alluded to by Ms Hogan.
Dr Davies mentioned that these complications were also evident in the Public Finance Management Act.
Ms Hogan acknowledged the difficulty of separating the administration of the two houses of Parliament, but again emphasised the need for built-in flexibility in the Bill to accommodate their differing approaches to issues such as the resourcing of their Committees.
Mr Benjamin reaffirmed that there would be no conceptual problem with the inclusion of such flexibility for the provision for the "own affairs" of the different houses. Professor Murray agreed that such flexibility could be built in by way of a statement that the executive of Parliament needed to show due regard for the different needs of the two houses in compiling the strategic plan and the budget for the legislature.
Mr Benjamin explained that the Accounting Officer’s responsibilities constituted original administrative functions and not mere delegated ones. However, he emphasised that it was the duty of the executive to control the exercise of this function via a performance management agreement.
Ms Hogan sought further clarification on the roll and responsibilities of the Accounting Officer in accounting for the financial management of Parliament.
Professor Murray referred Ms Hogan to Clauses three and four of the draft bill, where it stated that the Accounting Officer administered the act under the control of the executive authority. She conceded that it would not be as clear-cut in practice, as the Accounting Officer would probably be better able to answer questions on the audited statements of Parliament because of his or her operational involvement in the management of the legislature. She ventured that, in practise, the executive authority may be called to book by an oversight Committee once the Accounting Officer was unable to satisfy any particular queries.
Ms Joemat (ANC) expressed her concern over the discipline of spending by the executive authority, as it was outside of the control of the Accounting Officer. She asked what the powers of an oversight Committee would be in such an instance and whether it was written into the Bill.
Professor Murray replied that the oversight committee was almost absent from the draft bill because of uncertainty over its composition and nature. The draft team foresaw two functions for any such Committee, which may be fulfilled by the same Committee or which may be taken care of by two separate Committees. Firstly, there was the advisory function, which required that a Committee of parliamentarians advise the executive authority in accordance with the government’s model, but not take binding decisions. Secondly, there was the oversight function, which required scrutiny of the audited statements of Parliament, and report-back to the houses of Parliament. As such, the draft team felt it wise to allow for some flexibility and to omit the Committee(s) from the draft bill, in favour of having them dealt with by the rules of Parliament. She emphasised that it was primarily the Accounting Officer that was responsible for the authorisation of expenditure.
Ms Hogan emphasised her concern over the perpetuation of the perennial confusion that surrounded the division of responsibilities between executive and Accounting Officers of government institutions by the draft bill. She referred in particular to subsection (2)(b) of Clause 3 of the draft bill which held the executive authority accountable for the sound financial management of Parliament, and Clause five which held the Accounting Officer responsible for the financial management of Parliament.
Mr Davidson agreed with Ms Hogan and expressed his dissatisfaction with the perceived parallel responsibility of the executive authority and the Accounting Officer as it was implied in the draft bill. He requested that the drafting team isolate the issue and revise the wording, or supply definitions for the wording of the sections of the Bill.
Mr L Gabela (ANC) questioned the motivation for the removal of references to a Chief Financial Officer in the draft bill. He also called for a formal proposal from the drafting team that would address the confusion between the division of responsibilities for the financial management of Parliament between the executive authority and the Accounting Officer.
Professor Murray replied that it appeared that its inclusion was not needed in a relatively small organisation such as Parliament, and the Accounting Officer could manage his staff without needing an extra set of prescriptions. Its removal also avoided the complication of deciding on the powers of the CFO. It was however a drafting matter and reinserting the term CFO was not problematic, should the Committee so decide.
Dr Davies and Mr van Wyk pointed to the difference in the executive authority being accountable overall, and the Accounting Officer bearing the day-to-day responsibility for the financial management of Parliament. They both likened it to other government departments where the Director-General (D-G) was responsible for the day-to-day management of the department, but where it was the responsibility of the Minister to account for the performance of the department.
Ms Hogan asserted that it was normally the D-G that appeared before the Standing Committee on Public Accounts. Ms Fubbs and Mr van Wyk agreed, but emphasised that in Parliament itself it was the Minister that appeared, not the D-G.
Ms Fubbs (ANC) enquired whether the executive authority, in the person of the Speaker, would be held accountable in Parliament.
Dr Davies recommended that the issue be highlighted for further investigation. He especially emphasised the necessity for scrutinising the nature of the principle that underlay holding the executive authority of the legislature accountable in Parliament itself. He wanted to know how this process differed from how it was done with every other government department.
Ms Hogan ventured that the Accounting Officer should be accountable to Parliament for the financial management of the legislature and not the executive authority. Should Parliament then have concerns over the financial management of the legislature, it should make recommendations to the executive authority, which would then have the power to sanction the Accounting Officer in whatever way necessary.
Professor Murray replied that in a case where the Accounting Officer had exhibited gross and/or prolonged misconduct, and the executive authority had not acted; it would be the latter that would have to be held accountable by Parliament. Ms Hogan replied that in such a case, the executive authority would be guilty of failing to oversee the actions of the Accounting Officer, not for the financial management of Parliament per se.
Professor Murray asserted that the confusion seemed to be a matter of language and not principle.
On the recommendation of Mr Asiya, Dr Davies agreed that the issue of the division of responsibilities between the executive authority and the Accounting Officer should be flagged.
Professor Murray stated that according to the draft bill, while regulations and policy may originate or be composed by parliamentarians, it was the duty of the executive authority to issue them. The idea was also for these policies and regulations to be published upon being issued.
Ms Hogan replied that in such instances, regulations and policies should be up for review by Parliament before they were issued.
Professor Murray concurred that Parliament should approve them for the sake of good practise.
Professor Murray then explained that the inclusion in the Bill of the matter of whether the Accounting Officer should be present in meetings between the Parliament and the Treasury or the Minister of Finance all depended on the amount of detail the Committee wanted included. She concurred that, for the sake of good practice, the executive authority should preferably include the Accounting Officer in such meetings. The inclusion of such a provision would not be complicated.
Ms Hogan sought further clarification on the information loop that would service the budgeting process.
Professor Murray referred Ms Hogan to Clause fourteen of the draft bill. The process was that the executive authority submitted the strategic plan and budget to an appropriate internal consultative body. Before it was submitted to the Treasury it would have to be discussed with the Minister of Finance. These discussions would be spearheaded by the executive authority. The draft bill did not cover any discussions prior to Parliament drafting a budget. Again this depended on the desired extent of the inclusiveness of the Bill.
Ms Hogan replied that it would not be necessary as the provisions under Clause 14 did not limit contact between Parliament and the Treasury to their respective executive authorities.
Mr Asiya asked about the possibility that Parliament could receive priority in its allocation from the Treasury to ensure its continued functioning through the mechanism known as "top-slicing".
Professor Murray expressed doubt over the ability of the law to regulate the priority that Parliament received from the Treasury.
Ms Fubbs asked whether there were checks in place to ensure that Parliament would receive the necessary allocation in the event that the relationship between the executive and the legislature soured. She also expressed the desirability for a provision that would ensure that Parliament would not be subordinated to the executive in the manner of other government departments.
Ms Hogan concurred with Ms Fubbs. She expressed the need for dialogue between the Committee, the executive authority of Parliament and the Treasury to ensure that the different approaches from all sides were known before the Bill was tabled.
Dr Davies questioned the wisdom of including so much detail in the Bill. The Committee, however, felt that it related to important principles.
Ms Hogan further aired a two-pronged concern. On the one hand, Parliament was at the mercy of the Treasury and its officials for its annual budget allocation, and any reductions that might be made to it. On the other hand, Parliament did underspend enormously. She felt that Parliament was probably ‘one of the worst-run institutions in the country’ in terms of its financial management.
The Chairperson stated that the Committee aimed to have a version of the Bill that could be made available for public comment, possibly after the next meeting.
Mr L Gabela (ANC) asked whether the cycle that was already followed by government departments should not be followed.
The Chairperson proposed that a definite timeframe not be expressly stipulated, but that instead the timeframe "should be informed by the overall budgetary process of government".
Ms Hogan reminded Members that the budget cycle included critical moments when the draft budgets of various government departments had to come before the executive’s expenditure committees and similar structures. It has yet to be decided whether Parliament’s budget would have to go through that same process.
Mr Kabela stated that this would include other issues, at the level of principles, such as the participation of Parliament at institutions such as the Mincom Budget Committee.
Ms Hogan stated that Ministers discussed the Budget, but Parliament had to take into account government’s fiscal and budgeting policy as well.
Ms Joemat asked whether the Office of the Accounting Officer would also form part of the budget commission.
Mr B Mnguni (ANC) suggested that if the executive authority participated in the Ministerial Committee discussions on Parliament’s budget, it would contradict the passage of Parliament’s budget as outlined in the presentation and Parliament would then have to wait in the queue like all other government departments.
The Chairperson questioned whether the Bill not should state generally that "the Minister and the executive authority of Parliament must agree on an appropriate way in which Parliament would participate in the overall determination of the parameters of the Budget".
Mr Davidson proposed that that relationship be spelt out in the regulations, as placing it outside the body of the Bill would preserve the independence of Parliament.
Ms Hogan stated that the independence of Parliament in the budgeting process was critical, and agreed that general principles be included in the Bill. She proposed that it stipulate that Parliament must not jeopardise the budgeting processes of the executive, and must respect the fiscal policy of government because it approved that policy. Parliament must at least keep National Treasury informed of its budget plans during the budget process. National Treasury must also have an opportunity to formally comment. Parliament’s budget plans should be tabled at senior executive level within Treasury.
Ms Fubbs asked whether Members of the various legislatures would also be Members of the Audit Committee.
Secondly, Ms Fubbs asked whether, with regard to supply chain management, Members of the Committee would be able to indicate a more cost effective avenue or by providing preferred parameters of the costs.
Professor Murray replied that she was not familiar with the tendering process and was thus unable to answer the question, but would get back to the Committee.
Ms Hogan stated that she was "dead opposed" to Clause 37 as a long and hard battle was fought in the Municipal Finance Management Act (MFMA) that elected representatives could not sit on tender boards because of the inherent conflict of interests. It would be a slap in the face for municipal structures if Members of Parliament were allowed this via Clause 37 of the Bill.
The Chairperson disagreed and stated that Clause 37 was carefully worded to state that Members could not involve themselves with the actual costs of the tenders, but rather merely evaluating the content of tenders. He stated if it still did not avoid the conflict, the provision must be changed.
Ms Hogan cautioned against the inclusion of Clause 37.
The Chairperson noted that the Committee agreed to its removal.
The Chairperson stated that the consolidated Bill with the changes proposed today would be available by the next Committee meeting.
The meeting was adjourned.