Financial Management of Parliament Bill [B74-2008]: briefing

Meeting report

Financial Management of Parliament Bill
The Chairperson noted that the Bill was last considered in 2006. At the time the Committee had suggested that the Bill be considered together with the NCOP, and that responses from party caucuses should be obtained. There were no responses from party caucuses at that stage, and the Bill was shelved for a while. It was now back for consideration, and it was hoped that on the return from recess the NCOP would be present so that the relevant Committees from the NA and NCOP could look at the Bill together. This would be a preliminary briefing to update members. There was some urgency to the Bill, as the absence of the legislation was leaving an unnecessary vacuum.

Adv Frank Jenkins, Parliamentary Legal Advisor, had been asked to take the Committee through the legislation. He noted that there were two versions of the Bill: one from 2005 and one, containing amendments and changes suggested by the Portfolio Committee, in 2006.

The Public Finance Management Act (PFMA) had been passed to give effect to the constitutional requirements to have a set of public norms and standards for accounting. However, Parliament was still operating under parts of the old legislation prior to the PFMA. Work started on drafting a Bill for Parliament, but it was not concluded. The Municipal Finance Management Bill was passed in 2003. In 2004 there were again instructions given to this Committee to meet with the Select Committee and come up with a drat Bill, which was published in 2005. It was under consideration until 2 August 2006, when certain political input was needed to finalise the Bill. Most of the provisions had been considered by the Committee, with some outstanding issues. Political instructions had been given now for the process to be expedited.

Adv Jenkins pointed out that currently there amendments being considered to the PFMA, and it might be necessary for this Committee to have input from National Treasury to see what issues may need to be looked at.

Adv Jenkins noted that his presentation set out the differences between the original draft and the 2006 draft as approved by the Portfolio Committee at that time. The 2006 draft had made some changes to the long title, and inserted a separate clause for provincial legislatures. The issue of expenditure before the budget was passed had been given more detail. The original draft did not provide for parliament's own revenue, although it did provide for donor funds, but the amendments made by the Portfolio Committee did address own revenue. The issues around procurement had been changed, to exclude certain people from contracting with parliament, and the definitions had been considerably broadened. The Committee would need to consider how workable those options were.  The composition of the audit committee had been changed from 6 to 3 members. More detail had been provided on the preparation of financial statements. A schedule for transitional arrangements had been inserted to deal with the phase-in.

More substantive issues changed by the Committee included the oversight of the budget, the Annual Budget, support for members and norms and standards for provincial legislatures.

Adv Jenkins noted that according to the 2006 version, the oversight of annual budget was to be done through the Joint Committees and Committee on Public Accounts. Some of the functions of the Joint Committee had been changed by the Portfolio Committee, and the oversight mechanisms were changed in a structural way; to consolidate all the functions together instead of them being scattered throughout the Bill. The Committee had discussed the principle that as few as possible committees should be created. It was not unusual to have a committee created in legislation, but there must be good reason for it. This Bill was creating two Committees – the first being a joint Committee that Parliament must establish, and the second was the Committee on Public Accounts that was now being written in to this Bill. At the moment the Committee on Public Accounts, commonly known as SCOPA, was established in terms of the NA rules, but once it was established in terms of legislation it would truly have a Standing Committee status. After every election it would have to be established by operation of law. Therefore the NA would no be entirely free to control its own internal arrangements and procedures. This too was not unheard of: the Public Audit Act had established the Standing Committee on the Auditor General to have oversight status over that office.

Another issue was whether to keep the Committee on Public Accounts as the committee tasked with looking at the audited financial statements of parliament. If so, this raised the question of what the NCOP thought about the issue. If the NCOP passed the Bill as it was, then it would have ceded away part of its authority. Another option was to create a joint mechanism to consider all Parliament’s financial statements. Alternatively, NCOP participation could be brought into the Committee on Public Accounts.  The Constitution had said that parliament must provide "a mechanism" but the Committees also had certain rights in terms of the Constitution, and there were certain principles, such as parliamentary privilege, that also applied to committees. Adv Jenkins believed that a solid oversight mechanism would be preferable. He recommended that it would be better to establish a joint committee or joint mechanism, rather than simply adding NCOP participation to the Committee on Public Accounts.

Adv Jenkins noted that clause 14 in the original version had become clause 16 in the Committee's version. The adjustments budget had been added. The words "approved budget" were used instead of "vote". The central issue was that of separation of powers, that had recently been considered by the Constitutional Court, which had ruled that the issue of the budget was central to separation of powers. Legislation applicable to parliament would always be the reference point to see whether parliament was doing a proper job. For practical purposes it was desirable to put everything in one piece of legislation, rather than referring back to other legislation such as the PFMA. References in legislation were slightly problematic, because if the legislation being referred to was subsequently amended, the interpretation rules deemed that the references were, notwithstanding that amendment, still to the unamended version. Adv Jenkins reminded the Committee that the PFMA was currently being amended.

Most of the references to the PFMA related to the way the budget was drafted and drawn up. There was a requirement that Parliament consult with he Minister of Finance. The budget should be drawn up in accordance with the provisions of the PFMA, but this clause could be expressed in a more generic way. Some clauses referred to format of the budget being determined by the Executive Authority. This was a possible wording. However, it would leave room to have political processes, bearing in mind that there must be a uniform format for financial statements.

Adv Jenkins noted that clause 71(b) of the original version had removed the reference to Parliament from the PFMA. However, the Committee had altered this, saying instead that PFMA would generally apply, unless specifically excluded. This created a rather uncertain situation. The PFMA fell under the Minister of Finance, and to create a proper separation of powers, there should not be the blurring of boundaries. He had been advised that the amendment to the PFMA would not refer to Parliament, but noted that he had not himself had a chance to study the amendments.

The issue of support for political parties in general was another issue. The original version distinguished between support for political parties and constituency funds. The Committee’s version of 2006 had consolidated this in one clause. The Committee then set out the regulation making powers for political parties. It also referred to the Constitutional requirement that parties represented in the NA, and the leader of the party, should receive financial assistance to perform their functions. That concept should not be lost. The amendments further had provided that the Auditor General was required to audit political party funding. The Public Audit Act allowed for outsourcing of these functions. This should be compared to the present situation where political parties must be audited, but could decide who was to perform the funding, and would pay for it from the funds received from Parliament. This was an issue that he suggested the political parties would have to comment on.

The fact that Parliament was providing for its own financial management provided a gateway for provincial legislatures to do the same. It was considered desirable to create a central point. A legal advisors forum had discussed the matter and had agreed that this was a Section 76 classification, because it affected financial interest at provincial level. Adv Jenkins pointed out that this was substantially similar to the situation with the PFMA. The PFMA was generally considered as a Section 75 Bill, but the Chapter on provincial legislatures was introduced as a Section 76 amendment. He said that the Committee would have to hold consultations on whether to take everything referring to provincial legislatures out of this Bill, and introduce an amendment later; or whether to put in a memorandum to explain that provinces must come up with a draft to amend the bill so they were included. There had been suggestions around a draft to amend the Bill to include provinces.

For practical considerations, because of the work already done, Adv Jenkins suggested that the starting point for discussion should be the Committee’s 2006 version. He summarised again the main issues. The PFMA was still referred to in this version, and he recommended that the cross-referencing be removed and everything put in one piece of legislation. Oversight was another issue and the Committee must look at whether SCOPA was the appropriate mechanism. The forthcoming amendments to the PFMA must be examined to see how these would affect the financial management issues. In relation to supply chain management and procurement, Adv Jenkins noted that there was a broad prohibition against certain people contracting with Parliament in Clause 46 of the Committee's version. This included any person who had a controlling or "substantial" interest or a person in the employ of the State. He wondered if these exclusions were not too broad. The other point to be considered was how to monitor and implement the provision properly. 

Discussion
Mr S Marais (DA) noted that there was always the idea that SCOPA acted retroactively, whereas in this case he felt it was essential to have immediate oversight. He asked for further clarity on a Joint Committee - whether this should be various committees sitting together, or joint in the sense of multi-party, and where it would be situated, whether at Whip or Committee level. He felt that wherever the oversight lay, and whatever checks and balances were established should be close enough to the Executive to be able to interact.

The Chairperson noted that some of these answers might be in the Bill itself.

Adv Jenkins responded that there were two committees being established in the Bill. One was a generic joint committee - and the other was specific, being the Standing Committee. The members of the joint committee would not be participating in expenditure investigations.  The Executive Authority (EA) might decide to give instructions for expenditure. However, the EA should not chair the joint committee. This committee would consider the budget and strategic plan. It could be a combination of the three finance committees in parliament - Joint Budget, Portfolio and Select Committees on Finance. It would be removed from the decision-making. At the moment there was a parliament oversight authority, a multi-party structure of Chief Whips, EA and Secretary to Parliament. This authority, which was part of the new governance adopted in 2005 (although it only went through the Houses in 2007) was currently in charge of implementing the policy adopted by the houses. It gave policy directives. He suggested that something similar was perhaps needed. There should be something closer to the decision-making, but again he said it should not be chaired by the EA. Perhaps the EA could be members, or could be present but with no voting rights. The main issue was to have a committee to make a recommendation to the Houses around the budget. The “backward looking” part was the Standing Committee, which would be considering the Auditor General’s report. There was a need to consider whether this was appropriate for Parliament. Parliament was not a Department, but an arm of government. It was a multi-party political body. The definition in the bill did not refer to a multi-party structure, and perhaps wording such as “The Committee must consist of multiple political parties" could be included in the Bill.

The Chairperson said that the joint rules of parliament would stipulate this. He also queried the concept of "Senior Members of Parliament" that had been mentioned. He thought that this was rather a vague term.

Mr N Singh (IFP) noted that this legislation would be applicable to the NCOP and NA, and the provinces must adopt their own legislation as set out in Schedule 1. However, that Schedule stated that provinces should identify an individual or body as the authority. He asked if it was contemplated that they could set up some other kind of body.

Adv Jenkins note that the Schedule was a product of the drafters having tried to stay within the ambit of Section 75, so that the Bill had not contained any wording having an effect on the financial interest of provinces. Section 76 of the Constitution set out what legislation must be voted on by provinces. It included "any provision affecting the financial interest" of provinces. Adv Jenkins was not sure that this Schedule had achieved its objective. If the norms and standards were not in accordance with the national norms, he wondered what would happen. He thought that the provinces should be included in the legislation. The issue of finances and National Treasury was a national interest. It was not a Schedule 4 matter. Providing for uniform norms and standards was in order, but any legislation affecting a province should be passed in terms of Section 76. Perhaps it would be useful to remove the Schedule altogether, and indicate in the legislation that there would be an amendment to deal with the provinces at a later stage. However, this would have to be included quickly as the provinces needed the legislation.

Mr Singh thought that the clause on procurement should be more explicit. He agreed in principle that certain people should be excluded from contracting in Parliament. For provinces and municipalities this would be set out in the broad norms and standards.

Adv Jenkins said that he could not comment further. A staff member of Parliament, contracted for a period or permanently employed, should not be able to contract. The decisions on the contracts were made at an administrative level. Having a staff member contracting would create the impression of bias. However, he said that the provision was quite wide. He gave the example of a teacher who was in the employ of the State. She might have a catering service on the side and she would be excluded, although there was very little chance of any bias. 

Mr Singh wondered if the Bill did not give rise to a  "player and referee” situation. Members were themselves parliament, and were monitoring what was happening to their own funds.

Adv Jenkins noted that this was in fact so. However, because Parliament was made up of multiple parties, there were internal checks and balances. This was an issue in every parliament worldwide. The audit committee included three outside members with expertise, and this was a further check. Perhaps the joint committee to make recommendations should also have some external members. However, the political interplay should balance out.

Mr K Moloto (ANC) commented that there had originally been the view that SCOPA should be responsible, but he was now inclined more in favour of the joint committee.

Mr Moloto noted, in relation to procurement, that when the four categories were excluded, this had been a provision borrowed from the Municipal Finance Management Act (MFMA). He still believed that this should be retained. He did however think that sub-clause (d) "a person in the employ of the State" should be clarified. The focus had been to exclude members of staff of parliament, and that point should not be lost.

Mr Moloto then raised the issue of support for members of political parties. He thought it must be revisited. The party that could easily meet the requirements of this section was the ANC, but smaller parties would no doubt struggle. He did not think they had been consulted thoroughly enough and it was important not to impose the ANC views on the smaller parties. He thought that the Chief Whips’ Forum should discuss the point. The proposal could be brought back if necessary.

Mr Moloto had problems with the PFMA issue. He agreed that the separation of powers should be reflected in the Bill. However, he would be reluctant to say that parliament should be excluded from all sections of the PFMA. He gave a hypothetical example – saying that if Parliament were to have borrowing powers, who would bail it out, and what would happen, if the borrowing went sour.

Adv Jenkins noted that the separation of powers should be aligned. The public wanted to see what was happening to their taxpayers’ money. Financial statements should be presented in a standardised way. The Minister of Finance must also be able to have a consolidated financial report. While he suggested that there should be a factual separation of the PFMA and Parliament's financial management, there should still be compliance with certain formats. Perhaps the decision should come from the Speaker and Chairperson, who were accountable to the Houses.

The Chairperson noted that the other answers to these questions would lie with the Committee.

The Chairperson said that there were two points relating to the NCOP. One related to the issue of SCOPA, and whether NCOP should abdicate its authority to the NA only. The other matter related to whether provinces would have to come up with their own legislation, or whether the NCOP would vote as provinces. The Committee could draw some lessons from how the PFMA was handled.

The Chairperson noted that he would like to find political consensus, so he suggested that Members go back to their political parties and discuss those issues. The NCOP should be included in the next session, and thus he would like to bring in the Select Committee on Finance.

The Chairperson noted the points around the exclusion of the references to the PFMA from this legislation.  He took the point that there should be alignment, but noted the problem around amendments to the PFMA. That would have to be dealt with, and the cross-references to the PFMA would have to be considered. He noted also that amendments to the PFMA required permission from the Minister of Finance.

The Chairperson referred to Mr Moloto’s suggestions that support for Members under Section 34 be referred to the Chief Whip's Forum. However, since Members here were representing their political parties he asked them to get consensus from their parties on this issue and bring it back for discussion at this meeting later.

The meeting was adjourned.