Financial Fiscal Commission

AD HOC COMMITTEE ON REVIEW OF CHAPTER 9 STATE AND ASSOCIATED INSTITUTIONS
02 February 2007
FINANCIAL FISCAL COMMISSION

Chairperson: Prof Kader Asmal (ANC)

Documents handed out:
Financial Fiscal Commission (FFC) Responses to the questionnaire
Financial Fiscal Commission Annual Report (available on the FFC website)
Financial and Fiscal Commission Act 1997
Financial and Fiscal Commission Amendment Act, 2003

Financial Fiscal Commission website

Audio Recording of the meeting: Part1, Part2 and Part3

SUMMARY

The Financial Fiscal Commission met to discuss its responses to the questionnaire devised by this Committee. The FFC was asked why there was confusion in determining the roles of the chairperson and the deputy chairperson and why the position of deputy chairperson was to be abolished.

The Committee said that it understood there had been tension between the Minister of Finance and the commissioners, and asked the Commission if they thought that tension was necessary for the growth of an organisation. Discussion looked at the importance for such an organisation's independence in having its funding unlinked to a line minister. Members also asked for comment on the relations between the FFC and other bodies such as the Public Service Commission and the Human Sciences Research council.


MINUTES
Chairperson’s opening remarks
The Chair welcomed members of the FFC and explained that only two committee members, Ms M Smuts (DA) & Prof K Asmal, of the ten-member committee would lead the proceedings, as the documentation was complex. There would be nothing personal intended in the questions asked, and they should be answered without prejudice. He pointed out that there was public interest in the deliberations. Some media organisations were sympathetic to the FFC, whereas some wanted to see the Committee take a tough stance and hold the FFC to account for any irregularities. He described the FFC’s role as promoting intergovernmental financial and fiscal relations in South Africa and Africa by advising and assisting central and provincial government and local authorities.

Discussion

The Chair began the deliberations by asking the FFC to provide an explanation into where they derived the mandate of expanding their role as an advisory body.

Dr Bethuel Setai (FFC Chairperson and Chief Executive Officer) argued that he had been at the Commission for only a little over a year, and during this time he had learnt that the Commission effectively follows its mandate as stipulated by the Constitution. He planned on moving the FFC forward in a way that did not undermine the Constitution, and also provide an expanded interpretation into what the FFC actually does. In terms of providing assistance to African countries, many countries came to the FFC for assistance, however the FFC was aware that by assisting them, they would be going against the their mandate. The FFC however believed that through the process of assisting African countries, it would develop a body of knowledge, which would be useful to both itself and the countries needing assistance.

The Chair questioned whether or not there was an authorisation needed or some kind of reference from a Parliamentary portfolio committee, particularly when the FFC asked for more money from the National Treasury.

Dr Setai explained that the FFC had only responded to the Review Committee's Questionnaire shortly before Christmas and the opinions expressed in the FFC's response document were that of the management, and not of the commissioners.

The Chair stated that if it was a management response, then management should be called in to give an account not the commissioners. He noted that the FFC’s response did not provide a clear explanation of who was a part time commissioner and who was a full time commissioner.

Dr Setai explained that the FFC had gone through several meetings and had faced several deadlines in order to provide the necessary responses to the Questionnaire. However the commissioners [mostly part-time] had been unable find time to reflect on the response document. He added that the FFC Chairperson and Deputy Chairperson were the only two permanent commissioners.

The Chair then recommended that in future the FFC should ensure that it is made clear in their annual report who was a part-time and who was a full-time commissioner.

Ms Smuts said that she appreciated the self-confidence of the proposed expansion of the FFC’s role, and asked the FFC Chair whether the Committee should agree that the expansion is a legitimate approach to take.

The Chair warned that the Committee would not agree to anything just yet. He said that all the Committee was trying to do was to get clarification, and an agreement would be made only once the matter has been fully discussed. However the only thing that had been determined was the fact that there had been a response from management, and not the commissioners.

Ms Smuts asked the FFC to provide a brief statement on their constitutional role, as the Commission was not a very well known body. She also asked the FFC to comment on the role of the provinces, and how the FFC interacts with the various provinces.

Dr Setai replied the FFC plays an important role in promoting intergovernmental relations. He said that the Commission regularly interacted with members of the community, where the community members shared their views and opinions, which in turn help the FFC provide a balanced solution. In terms of interaction with the provinces, the Commission is part of a forum known as the Budget Council. At the forum all the necessary issues from the provinces are picked up, which are then followed up by the FFC. The provinces also consult with the FFC on matters such as the fuel levy and cross border services. Finally the FFC also makes annual trips to all the provinces in order to answer questions, and provide recommendations.

The Chair then raised the issue of the FFC’s independence. He asked the Commission to provide reasons why membership had been reduced from 22 members to 9 members, and what role the finance minister had in the selection of the commissioners. He also asked the FFC to elaborate on the funding arrangement the Commission had with Treasury.

Dr Setai argued that with 22 members the original commission had been too big, and was unable to function properly, in that people were unable to evenly attend meetings. The FFC was an independent body that did not feel obliged or beholden to the National Treasury. He said that in terms of the funding arrangements, the FFC submits its budget to Treasury, after which the Commission engages in a series of bilateral discussions Treasury.

The Chair asked the FFC if there was anything that prevented the FFC, in terms of the Constitution, from providing reasons why there was confusion in determining the roles of the chairperson and the deputy chairperson. He also asked the FFC to provide reasons why the position of the deputy chairperson was to be abolished.

Dr Setai said that the issue of the roles played by the chairperson and deputy chairperson, was an internal matter and it was one that would be addressed "pretty soon". In terms of the abolition of the vice president's post, the Commission was still discussing the matter, and would like to request the withdrawal of this recommendation from the response document.

Ms Smuts said that nothing was more important to an organisation's independence than its funding. The FFC had proposed the creation of an oversight mechanism and a budget that would be worked out between the Commission and a parliamentary committee. She asked the FFC to elaborate on how they felt about having the Minister of Finance as their line minister, as it is not guaranteed that a future minister would be like the current minister.

Mr Jaya Josie (Deputy Chairperson) replied that the relationship with the Minister of Finance has always been an "attentional" one. This is due to the fact that within the budget defined, the Commission is one of the few bodies that does not have its own budget vote allocation. In the past the Commission was required to bid for a budget for commission work, as it was the only way of securing a budget.

Ms Smuts said that she understood that there had been tension between the Minister and the commissioners, and asked the Commission if they thought that tension was necessary for the growth of an organisation.

Mr Josie replied that tension was not a bad thing, and that it was necessary for tension to exist in order for the organisation to grow. He said that tension enhanced the role of the Commission in terms of it providing balanced and objective recommendations.

Ms Smuts then asked the Commission if they thought there was a danger of intruding into policy terrain with regards to providing assistance to provinces.

Dr Setai replied that the Commission usually went to the provinces to consult, however the provinces would accuse the Commission of not following up on their recommendations. However the Commission would argue that it was not in the Commission's mandate to provide oversight over recommendations, and that it was up to Parliament to provide the oversight. He stated that "the policy issue" was a big problem at the Commission, and usually caused tension.

The Chair then raised the issue of formal mechanisms. He said that the Commission had been in existence for twelve years, and should be able to provide clarity on the general view that the Chapter 9 to 12 institutions were not accountable because there was no system of accountability with Parliament. He asked the Commission to explain to whom they were accountable and why there has not been a system of formal mechanisms and protocols.

Mr Josie said that the Commission's relationship with Parliament had been a very difficult one. This relationship had resulted in the creation of a Cape Town office for the Commission.  He said that Parliament had also requested that one of the permanent commissioners be based in Cape Town. However problems still persisted that the only institution that was able to facilitate and promote "regulations" was the National Treasury.

The Chair then said that according to a report by the Institute for Democracy in South Africa (IDASA) a few years before, it had stated that commissioners regularly failed to attend meetings. He then asked the Commission to elaborate if that was still the case.

Mr Josie replied that one of the roles of the Deputy Commissioner was to ensure that everyone attended the meetings. The Commission had also implemented training programmes for the commissioners in terms of the intergovernmental fiscal review.

The Chair then asked the Commission to elaborate on their relationship with other parliamentary committees other than the Select Committee of Finance. He also asked about the Commission's relations with other bodies such as the Human Sciences Research Council (HSRC).

Mr Josie stated that the relationship with all the parliamentary committees had been really positive, especially those in which the Commission's recommendations were pertinent. The Commission was in discussion with the HSRC about forming closer relations and finding a way for the two organisations to work closer together. The FFC however has no formal links with any bodies; the basis for the link with the HSRC would be one that is set in the Constitution.
 
The Chair asked the FFC to state whether having the CEO as chairperson is compatible with governance.

Dr Setai replied that he did not know how the founding fathers of the Commission came up with that concept.  He stated that the success of the Commission depends on the incumbent, in that the incumbent usually brings a successful formula towards achieving success.

The Chair asked for Dr Setai’s personal view on the merging of the posts.

Dr Setai replied that he thought the idea was perfect, in that one could get answers to solutions without necessarily having to run around trying to find the chairperson.

Ms Smuts then asked the Commission to address the issue of the Commission’s oversight mechanism.

Dr Setai replied that the Commission was trying to find a working relationship with Parliament, and the mechanisms that were usually suggested might not usually be correct, however they are mechanisms that will in future improve working relations.

Ms Smuts stated that it was important for all the organs of state to assist the Commission in order to ensure the Commission's independence. She asked if they have the same benefits that other commissions have. She also asked the Commission if they would like to see a more formalised "responding mechanism" for provinces and municipalities.

Dr Setai said that when the FFC went to the provinces, they stated that they were there to recommend and not to provide oversight. The recommendations were usually accepted and acted upon.

Ms Smuts raised the issue of the proposal of the FFC working on a cost recovery basis, and asked why it was that the FFC wanted to start charging for advisory services to government departments and municipalities.

Dr Setai argued that the reason behind the proposal was not to necessarily charge for services, but rather to cover the Commission in the event of members of the public or other organisations seeking advice from the Commission. Since the Commission would spend time working on the requested recommendations, it proposed a cost recovery mechanism.

The Chair then stated that it was not in the Committee’s interest to micromanage the FFC; however the FFC had a big enough budget to meet community needs.

Ms Smuts however argued that it was within the parameters for the FFC to make such a proposal in order for the legislature to recognise it is a subject that requires further discussion.

She then asked the Commission to give clarity on its continental role, and why they wanted to work abroad. She also raised the issue of appointing advisory bodies from outside the administration for specialised services, and asked if the Commission was not already covered with regards to advisory bodies.

The Chair stated that the points raised by Ms Smuts were merely aspirations. However the Committee would like to know what was being done about institutional governance at the Commission in terms of addressing matters such as the powers of the deputy chief executive.

Dr Setai stated that the Commission may have included things that they should not have when compiling the response document, and asked the Committee to bear with them. However the role of the deputy chair was part of the Commission’s strategy review, and the Commission was still thinking about the matter, and was unable to comment at this time.

The Chair argued that in the Commission's thirteen-year existence, surely there was a document or a minute, which outlined the powers of the deputy chief executive

Mr Josie replied that in 1996 the Commission had met to address the issue and it was decided that the chairperson was to take responsibility of cooperative governance, and the deputy chair would be tasked with managing the recommendations research programme, in addition to being responsible for maintaining relations with the parliamentary office and the legislature.

The Chair again raised the issue of the executive managers, and asked the Commission to provide a recollection of how many executive managers and commissioners had been around since the inception of the Commission. He also asked the Commission to elaborate on how much they had to rely on consultants.

Mr Josie stated that currently the commissioners that had been around for about two to three years. In terms of consultants, the Act made provision for commissioning research in any given context. There was a core of programme managers with various specifications, and they have the power to commission research on specific areas at any given time. However since South Africa is new to intergovernmental fiscal relations, the Commission has had to rely on international expertise, specifically those from academic institutions.

The Chair argued that some departments spent 10 to 15% of their budgets on external consultants, and asked if the Commission could quantify how much they rely on consultants.

Mr Mavuso Vokwana (Chief Financial Officer) said that page 34 of the Annual Report, Research Costs listed the total costs for the Commission's use of external consultants.

The Chair asked the Commission to elaborate on the vacancy rate

Mr Josie stated that there was currently a vacancy for the position of senior researcher in the intergovernmental fiscal research programme,
 
Mr M Mzaiduma (Executive Director: FFC) said that information on the Human Resources could be found on page 45 of the response document.  It clearly set out the positions and vacancies that exist within the organisation.

The Chair asked the Commission whether or not they had problems retaining staff.

Mr Josie, in his response, stated that since the FFC is a specialised body, they unfortunately were plagued with high staff turnover. Employees usually headed for the National Treasury, or to other governmental institutions.  Over the past few years the Commission had tried to stem the flow of professionals, however it had been unable to do this because the Commission was unable to establish the mechanism for whether the remuneration structure should be set within the public or private sector.

The Chair stated that certainly there should be clarity with regards to personnel on where their salaries should be pegged.

Mr Mzaiduma replied that the FFC employee salaries were currently being handled by the public sector.

Ms Smuts brought up the issue of information and data. Each year the FFC should request all the relevant organs of state to provide it with information and data on matters pertaining to the equitable division of revenue. She asked the FFC if they wanted the national minister to provide information on national interests and needs.

Mr Josie responded that the Commission had taken into account Section 214(2)(a) to (j) of the Constitution when it came to making recommendations. It was hard to make recommendations without the necessary information. Data and information were very important in that it helped the Commission develop an equitable share formula and provide recommendations.

The Chair asked the Commission to provide clarity into the mechanisms for conflict resolution within the institution
 
Dr Setai stated that the issue of creating a conflict resolution strategy was still work in progress and the information was unavailable at that stage.

The Chair argued that for a commission that had existed for fourteen years there had to have been tension amongst staff somewhere along the line, and that tensions existed in all institutions.

Professor A Melck (FFC Part-time Commissioner) said that there had been relatively little tension within the organisation over the past couple of years. There were no interpersonal conflicts that existed in the institution.

The Chair commented that it is possible for the staff of any commission to believe that the commissioners are interfering with the work of the staff. Since the commissioners are merely the executives, it is the staff members who essentially end up running the organisation.

Dr Setai responded that the Commission usually handles matters on an ad hoc basis.

Ms Smuts referred to the Commission’s response document and noted that sections of it that appear "over-legislated". She asked if the over-legislation of the response document came about as a result of the over-zealousness of its author.

Dr Setai replied that the over-legislative nature of the report was a matter which the Commission would have to investigate.

Ms C Johnson (ANC) stated that a daily newspaper recently assessed the role of the FFC, and questioned whether the Commission was still needed.

Professor Melck replied that the Commission was an arbitrary body that made recommendations that took into account the different interests of the various levels of government. The Commission also played an important role in putting the constitutional structures in place.

Ms M Matsomela (ANC) questioned the role of the Commission in providing assistance to municipalities that are unable to sustain themselves financially.

Mr Josie stated that when the Commission makes recommendations, the recommendations were forwarded to the South African Local Government Association (SALGA) as it was the main body that was able to "breach" the municipal and local government structure.

The Chair then question the importance of Project Consolidate, and asked if municipalities were able to turn to the Commission for assistance when it came to specific problems.

Mr Josie replied that municipalities do not come to the Commission with a specific request, especially when it comes to the re-demarcation of boundaries. Project Consolidate was not asked to make recommendations, but was invited to participate in discussions surrounding various issues.

Mr Khumalo (FFC Project Manager: Fiscal Policy Analysis) stated that Project Consolidate was a project that the Department of Provincial and Local Government (DPLG) was co-ordinating, and it was aimed at uplifting municipalities that were weak in resources.

Mr Dithebe said that page 5 of the Commission response document stated that the FFC tracked expenditure leakages which might result in service delivery failures. Since the Public Service Commission was mandated to ensuring efficient service delivery across the board, then surely the Public Service Commission should try and formalise relations with the FFC?

Dr Setai replied that there was work in progress that aimed to consolidate the stakeholders.

Ms Rajbally (MF) raised the issue of conflict resolution, and asked the Commission if each commission worked in isolation, and when did they plan on closer cooperation with the various commissions.

The Chair asked the Commission to provide clarity on its general disclosures policy on business interests, and if there were policies in place that address this matter.

Mr Josie replied that there was a comprehensive human resource policy that addressed the matter, and this would soon be made available to the Committee.

The Chair stated that if the Commission has a register of declarations then it should be made freely available to the chief executive officer, as well as the staff. The Chair asked if the Commission believes in interaction with the public.

Dr Setai stated that the Commission tried not be an advocacy body, and was still trying to work out a way of addressing the matter.

The Chair raised the issue of salaries, and said he had not yet received information regarding to the salaries of the part time and full time staff.  He then asked the Commission's on how the Commission is being suborned if they claim that they are being paid too little

Mr Mzaiduma responded by stating that discussions underway with national Treasury with regards to salaries, and also at this stage  there are matters which still needed to be resolved with national Treasury in terms of executive remuneration.

The Chairs said that the Commission still had not provided clarity with regards to salaries.

Mr  Mzaiduma said that according to current arrangement, the chairperson was given the salary equivalent to that of a  deputy director general, whereas the deputy chairperson was given a salary equivalent to that of a chief director. The exact figures with regards to commissioner remuneration were currently unavailable. He also pointed out the fact that current chairperson had been brought in from another institution therefore was paid at a Director General level. There is a remuneration scale that is used and revised on annual basis for the part time commissioners. The scale information would be available shortly.

Dr Setai added that the commissioner salaries and salary increases were determined by the President.

Professor Melck then said that the issue in which the salaries are determined by the Office of the President created confusion amongst the commissioners.

Ms Matsemolla referred to the graph on page 44 that outlined the key responsibilities of the Commission in relation to the total expenditure. She asked the FFC if it was possible to provide a breakdown of what their key responsibilities are.

Mr  Khumalo stated that one of the key responsibilities of the Commission is research. Since the Commission was a human resource based institution, most of the FFC’s core business function went to salaries.

Ms Johnson asked the FFC to comment on why there is a loss reflected in 2004's income statement

Mr Mavuso Vokwana (Chief Financial Officer) stated that there was a trend in the Commission’s budget from 2001 to 2005 where there was some level of surplus. However the loss is due to the fact that it had to incur some costs, and the Commission is currently negotiating with Treasury in order to find a way in which it can receive an adjustment, in order to cover the costs.

The Chair said that he noticed that there had been a R9 million increase when it came to policy implementation. He asked for clarity on how the funds had been utilised.

Mr Vokwana replied that funds were spent on the core business functions of the FFC, particularly the human resource aspect, in order to capacitate the Commission. The correct procedures were followed, and that a submission of motivation was made to Treasury

Mr Dithebe shifted the Committee’s focus to the Commission’s submission on the division of revenue. He pointed out that on pages 30 and 31, the Commission contends that the R130 figure used to measure basic services is low. The Commission had engaged with the DPLG on the matter. He asked the Commission if it was their view that their recommendations on basic services were being taken seriously.

Mr Josie replied that the Commission was still waiting for a response from government and National Treasury, and at this stage the Commission was unable to say how the figure would be responded to.

Ms Smuts commended the Commission on the very good work, and asked them to comment on their role with regards to the country's infrastructure development.

Mr Josie replied that infrastructure financing is a key aspect of the Commission’s involvement, and that there has been an implementation of an infrastructure expenditure model which enables the Commission to allocate infrastructure development. One of the recommendations made in 2001 by the Commission was for an infrastructure development grant. The recommendation had been accepted and the grant was issued.

Advocate Masutha (ANC) stated that there is a general view that the notion of equitable share, that entitles provinces to a percentage of the nationally collected revenue, has the effect of provinces enjoying leverage over how the funds are actually spent.  He asked the Commission to elaborate on what their role was on the issue.

Mr Josie replied that this was a big issue at the Commission, and that it had published a series of research studies outlining the various problems with conditional grants. He stated that if the provinces are allowed discretion, then conditional grants should not be allowed.

The Chair thanked the commissioners for their co-operation.

Meeting Adjourned.

Appendix:
Extract from FFC website:
Recent Constitutional Amendments Relating to the Size and Composition of the FFC
Constitutional amendments pertaining to the FFC were enacted by the Constitution of the Republic of South Africa Second Amendment Act, No 34, 2001. The Act provides for the reduction of the composition of the Commission from 22 members to nine. In terms of the Second Amendment Act, the new composition profile of the Commission will be as follows:
A Chairperson and Deputy Chairperson;
Three persons selected, after consulting the Premiers, from a list compiled in accordance with a process prescribed by national legislation;
Two persons selected after consulting organized local government, from a list compiled in accordance with a process prescribed by national legislation; and
Two other persons.

Current terms of existing commissioners