Draft Financial Management of Parliament Bill [B74-2008]: Responses of Parliamentary Legal Advisers

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Finance Standing Committee

23 June 2008
Chairperson: Mr N Nene (ANC)
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Meeting Summary

The Parliamentary Legal Advisor detailed his responses to the concerns raised by National Treasury on the latest amendments to the Draft Financial Management of Parliament Bill. A draft Bill was debated in 2006 in committees but was then withdrawn, and when it was again put on the Committee programme the legal advisors had been asked to remove all references to the Public Finance Management Act, in order to be consistent with the principles of separation of powers.

The comments by National Treasury related to the necessity to have a separate Bill, and the difficulties of ensuring that this Bill was kept consistent whenever amendments were effected to the Public Finance Management Act (PFMA). This was not seen as an insurmountable problem and the decisions of the Constitutional Court had reaffirmed the issues around separation of powers. National Treasury was concerned that there was no provision for agreement with the Minister of Finance on the appropriated budget of parliament. Whilst the difficulties were recognised, there were sufficient checks and balances, and Parliament should not, in the view of the legal advisers, be obliged to decide “in consultation”, and a recent Bill containing similar words had not been approved by the President. National Treasury and the legal advisers differed in their views whether there should be distinction between “own” and “other” funds, and the reasons for requiring this were explained. National Treasury noted that certain of the less satisfactory sections from the PFMA were in this Bill, and the legal advisers suggested that perhaps the new draft wording of the forthcoming legislation could be used instead. National Treasury felt that perhaps Parliament should not have restrictions on borrowing, but the legal advisers felt that there could be problems around justification and authorisations if this were to be allowed. Comments by National Treasury on clause 35 would need to be amplified on. Its concerns around clause 43 also seemed already to be covered by the requirement for written reasons for administrative decisions. The legal adviser agreed with concerns around clauses 44 and 46 and the restrictions on government employees being permitted to tender for parliament’s work, noting that the wording should be reconsidered for some classes of employees. There was considerable debate about whether Parliament should be bound by national accounting formats. Other comments around alignment of remuneration, financial management for other organs of State and financial implications of international agreements must still be discussed with National Treasury. 

Members expressed varying views as to whether Parliament should be accepting that National Tresaury should run the finances of the country, should be conforming to prescribed formats or whether there should be a complete separation of powers, which had some inherent risks of disagreement between the Minister of Finance and Parliament on the budgets. National Treasury pleaded that the gains made in establishing an integrated and comprehensive financial management system across every organ of state should not be lost, and called for compliance with norms and standards. The legal adviser was asked specifically to remove references to the Auditor General auditing political parties’ funds. Members urged that the legislation must be clear in its intent and wording. Questions were raised around whether the Accounting Standards Board should be involved, the position of the provinces, the possibility of inserting wording to ensure that the executive authority would not have an unfettered discretion but must take what was done elsewhere into consideration, the possibility of identifying the types of transfers allowable, the interpretation to be attached to “substantial interest” in clause 46, and the apparent mismatch between sections 57 and 216 of the PFMA.
National Treasury gave an indication of the current position.

The Chairperson raised the issue of a letter dated 13 June addressed to, but not received by this Committee complaining that the Committee had not complied with the constitutional requirements for consultation around the Insurance Laws Amendment Bill. The company concerned had not sent even a written submission to the Committee. No other submission had raised the inadequacy of the consultation process or the time allowed. The debate would proceed.

Meeting report

Draft Financial Management of Parliament Bill (the Bill)
The Chairperson noted that this session would deal with the responses of the Parliamentary Legal Advisor to the comments raised by National Treasury (NT). He noted that a legal opinion had been received from Adv Unterhalter, from the Johannesburg Bar, and made available to the Committee. A memorandum on the objects of the Bill had also been given to Members.

Adv Frank Jenkins, Parliamentary Legal Advisor, gave his responses to National Treasury.

National Treasury had suggested that it was not necessary to have a separate Financial Management of Parliament Bill (FMPB), as this could be dealt with in a separate chapter of the Public Finance Management Act (PFMA). It had also suggested that it was undesirable to have norms and standards scattered across different pieces of legislation, and there could be different interpretations in separate pieces of legislation. He responded that the issue of separation of powers was paramount to this exercise. He noted that the Constitutional Court judgment of SA Association of Personal Injury Lawyers v Heath, which stated that infringement to the separation of powers principle would be unconstitutional. It was for this reason that Parliament had decided to have control of its own finances under a separate Bill. Adv Jenkins said that the practical issue of bringing the FMPB in line every time the PFMA was amended was simply a fact that would have to be dealt with and he did not see this as an insurmountable problem.

National Treasury had noted a concern that there was no provision for agreement with the Minister of Finance on the appropriated budget of parliament. The provision in the Bill now read "after consultation with the Minister of Finance". The Committee had instructed Adv Jenkins to redraft the former Bill in order to remove issues that could militate against the separation of powers. He explained the difference between "in" and "after " consultation, and said that Parliament should retain control. There was in reality no such thing as total control over the budget. The Minister of Finance would still have to introduce a Money Bill. The worst case scenario would be that Parliament would consult with the Minister, who could say that a certain amount of money was available. Parliament might ask for more, and the Minister reject this. The Minister of Finance could still introduce the Bill, and all that parliament could do would be to accept or reject it. Therefore there was already a type of dispute resolution procedure. In between these issues of consultation, there should be sufficient political room to resolve any dispute between the Minister and Parliament. He thought that it was impossible to write in legislation that Parliament must decide matters "in consultation with" anyone else.

Adv Jenkins noted that the Human Sciences Research Council Amendment Bill had recently been sent back by the President, who believed that the requirement in that Bill that the Executive must act “in consultation” with Parliament for the appointment of the Board was unconstitutional. He pointed out that in other legislation dealing with appointments followed the principle that Parliament would make recommendations and the Minister would make the final decision, such as appointments to the Independent Communications Authority of South Africa Board.  The practice may be that a decision would be taken at a certain level, and then that Parliament would discuss its budget, but this could not be legislated for.

Adv Jenkins then moved to the comment from National Treasury that the attempt to distinguish between "own" and “other” funds was not correct. He did not agree. It was true that once received, money became intermingled. However, in terms of the books it made sense to keep funds separate. The published Bill did not have such a distinction, and this had been added during deliberations in 2006. It made sense, in view of the unauthorised expenditure clauses, to separate the funds. Unauthorised expenditure could be authorised after the fact, and the expense defrayed by using own funds only, not appropriated funds. By definition, unauthorised funding was a problem. He did not see that concern of NT as insurmountable.

National Treasury said that unsatisfactory PFMA clauses on expenditure prior to the Appropriation Bill being passed were reproduced in this Bill. Adv Jenkins agreed that indeed there were concerns around Clause 19(2)(a), which said that Parliament could not use money received from the National Revenue Bill before appropriation for purposes other than those arising in the previous year. The new draft of the Public Finance Management (PFM) Bill did not reproduce that wording. In terms of that draft Bill, 40% of the National Revenue Funds could be used for new purposes and new priorities. He suggested that it might be possible to remove clause 19(2)(a) and rather to look at the wording contained in the new PFM Bill as guidance.

In regard to restrictions on borrowing, NT commented that Parliament was limiting itself with this Bill because it could not issue guarantees or take out loans. The new draft PFM Bill allowed the Minister of Finance to borrow money and authorise other state entities to do so. There were also detailed provisions on the Public / Private Partnerships. Adv Jenkins commented that it might be useful to allow Parliament to borrow money, but the question arose as to who would authorise it. He was also not convinced of the necessity; if Parliament had come this far with the present provisions, he was not sure whether the freedom to borrow was really needed. It would not be possible simply to reproduce what the draft PFM Bill said.

National Treasury had further commented on Clause 35, considering that it was incomplete. This clause referred to transfers from Parliament to other entities, requiring a written assurance that the transfers would result in an effective and transparent financial management system. He understood that that related for transfers in relation for goods and services, or membership of the International Parliamentary Union (IPU). It remained taxpayers' money and the aim was that it should not be transferred to incorrect accounts. He was not sure why NT had an objection, and was not sure whether there needed to be more elaboration. This was a policy issue. He asked National treasury to highlight what their specific concerns were.

National Treasury had expressed concerns around Clause 43, which said that if the accounting officer concluded a contract in respect of a tender or quotation, other than the one recommended, then the Executive Authority of Parliament and the Auditor General must be informed in writing. Adv Jenkins pointed out that these were administrative decisions, and reasons would in any event have to be given. The Preferential Procurement Policy Framework Act would cover them. He said that there could be unforeseen issues; such as three quotations being obtained, the cheapest of those recommended, but Parliament having previously experienced problems with that service provider, or simply wanting to rotate service providers. Those issues must be contained in a policy. The Secretary to Parliament had previously said that if the Accounting Officer decided to accept a bid "outside the policy" then there should be written information. The Committee had drawn a “half-way” clause with clause 43. National Treasury suggested adding the wording  "as best value for money". He thought this did not take the matter much further, but the Committee must debate this issue. He added that the proposals in clause 218 of the draft PFM Bill also did not take it much further, as the Constitution already set out those standards.

National Treasury also had concerns with clauses 44 and 46, and he agreed that these were well founded. They were dealing with participation in tender committees and incorporated lessons learned from the MFMA. However, the restrictions on bidding for work for parliament seemed to be too wide and too restrictive. The new PFM Bill used the wording that a person may not bid “If it may result in a conflict of interest". He noted that no Member of Parliament should be allowed to tender for work for parliament as there would al\ways be the perception and risk of conflict of interest. Equally, no Member should sit on a tender committee to decide on contracts for Parliament. However, it would not seem to be fair from prohibiting every person “in the employ of the State” – such as a part time teacher – from being permitted to bid. He therefore recommended insertion of a proviso "if it may result in a conflict of interest", particularly in clause 46.

National Treasury said that it would be inappropriate for the national Executive Authority to prescribe national formats. Adv Jenkins however pointed out that the PFMA already said that the Executive Authority must perform supervisory and controlling functions. Similar principles could apply to the Executive Authority of Parliament. In the spirit of cooperation, and in the interests of having uniform norms and standards, there would be wholesale borrowing from whatever norms and formats NT applied. However, Parliament's Executive Authority would have to decide what would finally be adopted. This Parliamentary Treasury was accountable directly to the houses as it was elected by them, and it was therefore in a different position from National Treasury. He believed that the accountability mechanisms were strong enough.

Adv Jenkins said that National Treasury had raised another point, which he confessed he did not fully understand, that no provision was made for alignment of remuneration and other benefits. The Bill did not in any event intend to deal with these issues. There was no provision regulating conditions of service for parliamentary staff as it operated in the spirit of the Public Service.

National Treasury had also commented that there was no provision for financial management relating to other organs of State. The Space Utilisation Project was an example of a capital investment, where the money should come from Public Works and there was coordination to ensure those contracts ran smoothly. Support for the Office of the Presidency and Leader of Government Business also required coordination.  Adv Jenkins was not sure exactly how to deal with this aspect. He was not aware of any problems that had arisen. It was possible to look at rule-making by Parliament’s Treasury to solve those issue but he was not sure how to do so.

National Treasury  had also commented on the financial implications of international agreements, but he was not sure whether this was meant to refer to conventions and protocols, or friendship agreements such as those with the Chinese Parliament, or international agreements such as the membership of the IPU and Commonwealth Parliamentary Association, and whether the uniform standards for financial control would apply. In all fairness, he said that there was not enough for him to comment further.

Adv Jenkins pointed out that Cabinet was dealing with the draft PFM Bill, which would bring in a lot of changes. The question was whether the Committee wished to wait for this Bill to be passed, or perhaps to work with the wording of some of the draft provisions, or simply to follow its own line for the moment.

Discussion
The Chairperson said that whilst he noted the references to the draft PFM Bill, he did not think the Committee should rely overmuch on what was contained in the draft, as this might alter, and he believed that the Committee should rather work on this Bill as a stand-alone for the moment. He asked if there had been attempts by Adv Jenkins to clarify the points with NT, and if not, why.

Adv Jenkins said that he had not had time to discuss this with NT, as the last time he had seen them was at a Committee meeting. He was under enormous pressure at the Parliamentary Legal Services office. He agreed that it was necessary to speak with NT. 

The Chairperson commented that there had been a long lapse of time between last discussing the Bill and the present, and he was not sure whether anything would be gained by re-raising matters that had already been discussed at length before, and it would be preferable to concentrate on the issues around the separation of powers.

Mr B Johnson (ANC) said that he did not necessarily agree as wise men always should be able to change their minds. Although he did not have specific issues in mind, he did not think that Members should be precluded from raising matters again. He asked what time frame was applicable, as there were a number of issues still to be resolved, including the debate on the provincial legislatures and their role.

The Chairperson noted that Members should finalise the Bill on the following day.

Mr K Moloto (ANC) commented that in the last interaction the Committee had requested Adv Jenkins to remove the references to the auditing of funds of political parties by the Auditor General (AG), but this still appeared.

Adv Jenkins said that he did not recall getting specific instructions on this, but he agreed that political parties should have their own recognised auditors. Any account audited by the AG was referred to the Standing Committee on Public Accounts (SCOPA) and it should not really be trying to audit political parties as it tried to maintain a “non-political” approach. Quite apart from this principle, he had been in contact with the legal adviser at the Office of the AG, but had not received a response to this issue. In 2006 the AG had said that he did not have the capacity to audit political parties. He personally believed it would be inappropriate.

Mr Moloto indicated that he agreed with the principles around the separation of powers, and believed that this legislation should proceed. However, he felt also that Parliament must acknowledge the need for consistency. There was a need to clarify what the norms and standards were; and when provinces came with their own approaches the same must apply. He would not like to see fragmentation of financial systems. Therefore the Committee must consider carefully to what extent this Bill must be referenced to the PFMA. If Parliament were to approach this to suit its own ends only then it could create problems.

Mr B Mnguni (ANC) indicated that Section 216 of the PFMA gave a mandate to National Treasury and he thought that it was entirely proper that National Treasury should be running the finances of the country, even if Parliament had the power to legislate for itself. He would not like to see Parliament flexing its muscle just for the sake of it.

Mr Moloto added that people may be sensitive about the principles, but he would not like to create future problems. He noted that Section 216(2) of the PFMA empowered the National Treasury to stop transfer of funds if there was a breach. He queried who would be stopping the transfer of funds to Parliament if Parliament was in breach of anything. He urged that the legislation must be clear.

Adv Jenkins commented that Parliament was deciding to make its own Bill because it could. The addendum to the legal opinion of Adv Unterhalter said that Parliament could prescribe financial management, whereas the provinces had no such authority to make a law for their financial management. Within the legislative norms, provinces could make their own rules and regulations. He agreed that any provision around norms and standards should be quite tight. If it included provinces then the Bill must be tagged as a section 76 Bill. He noted that Members had made reference to what might happen if the judiciary should decide to make its own laws, but indicated that the judiciary and the provinces could not make their own laws. There was nothing to stop Parliament from simply using a separate Chapter of the PFMA, provided there was no cross over in respect of control. However, Parliament had taken the political decision to make its own separate legislation.

Mr Moloto also raised matters around the Accounting Standards Board, as set out in section 216(1) of the PFMA. This was not completely independent. The Committee must be clear as to what it wanted to apply.

Adv Jenkins responded that the Constitution required Parliament to be autonomous. Parliament must bear this in mind also when it legislated for provinces. He stressed that provinces were in charge of their internal arrangements. The opinion of Adv Unterhalter said that although section 216 did grant oversight over finances, this must be read in conjunction with the relevant legislation of the National Assembly (NA) and National Council of Provinces (NCOP) as they retained control over their internal arrangements, including financial arrangements. The Constitutional Court had said that any legislation inconsistent with that principle would be unconstitutional.

Mr Moloto replied that the point he raised here was not around internal arrangements. He was urging that the issue of the norms and standards must be clarified.

Mr Jenkins said that he agreed that norms and standards of Parliament must be enforced by Parliament’s Treasury (the Speaker of the NA and Chairperson of the NCOP). The Bill was not clear, as it referred to the “executive authority”, as to who must prescribe the standards. It would be possible to be more specific. Possibly, wherever the “executive authority” was mentioned, there should be addition of the words “with due regard to the recognised norms and standards”. He agreed that the Accounting Standards Board would not be appropriate. It was not independent, but established by the Minister of Finance. He agreed that it would be useful to insert wording to ensure that the executive authority would not have an unfettered discretion but must take what was done elsewhere into consideration.

Mr S Marais (DA) said that he was still a little concerned about the separation of powers. The Minister of Finance had to introduce a money Bill, but he might not agree to introduce one, which would give rise to huge conflicts of interest. He asked who, in those circumstances, would be accountable for transactions. 

Mr M Johnson (ANC) pointed out that of course the Bill was not legislating for the present, and should be concerned with principles and set sustainable and clear parameters. He noted that the borrowing powers might still have to be debated in future.

Adv Jenkins replied that there was indeed potential for conflict. He noted that in America during the Clinton era there had been disagreement on budgets, leading to the budget not being passed and no money being available, which had created a crisis. Should this type of situation and conflict arise, Parliament would have to make a decision. There were provisions to draw money from the National Revenue fund if the budget was not passed in time, and there were other provisions for municipalities. Any disputes would simply have to be resolved politically. He agreed that all principles should be covered, as this Bill was not only catering for the current situation.

Mr Marais said, in relation to Clause 35, that he agreed that some transfers might be required for various associations. He asked whether the type of transfers allowable should not be identified.

Adv Jenkins said that there would not be a problem with doing so. Parliament did not make transfers to Chapter 9 institutions, and at the moment the only transfers were for services, goods, contracts and memberships..

Mr Marais said that clause 46(e) referred to substantial interest. He asked what this meant, or whether it was open for interpretation.

Adv Jenkins said that he did not know what this was. A “substantial interest” could not really be fixed in terms of amounts or percentages. There might be accounting standards that could shed some light on this. The clause did need to be tightened. He would do some research and come back to the Committee.

Mr Johnson also referred to the provisions of clause 46, and asked whether officials of Parliament were aware that they could not be involved in the tenders. He said that there was a need to be more specific.

Adv Jenkins confirmed that officials were aware of this. The prohibition should probably apply only if there “may” be a conflict of interest. However, as he had mentioned, there would in his view always be conflicts if a Parliamentarian was bidding on anything to do with Parliament, and certainly this would raise poor public perceptions. If the words “if there may be a conflict” were to be used then this would cover the issue of Parliamentary staff bidding for Parliament’s contracts, because to have a parliamentarian deciding whether parliamentary staff should be contracts would be perceived as a conflict. He reiterated that allowances were necessary for those in the employ of the State. There might be many people who could benefit substantially from having a contract to do something for parliament – such as part time teachers, nurses, doctors, or those working for a municipality, where clearly there was no possibility or perception of conflict and he did believe that this should be allowed.

Dr D George (DA)  disagreed with the concerns of National Treasury around Clause 56. National Treasury's concern was around standards, and he shared that concern, although he understood the difficulty of referring to the PFMA. He pointed out that there would be an audit committee, and perhaps this Committee should be deciding upon the formats of the financial statements.

Adv Jenkins responded that audit committees were usually tasked with ensuring that there was an Audit Charter. He did not have enough experience to guide the Committee on who should set the formats for the financial statement. The PFMA said this was the task of the Minister of Finance. Parliament gave authority in other matters to its executive authority. The Audit Committee met only four times a year and he was not sure whether they could play this important role of setting or reviewing standards. He suggested that the function be assigned rather to Parliament’s own Treasury, who should take into account the general standards applicable to government departments. 

Mr B Mnguni (ANC) noted that National Treasury had a mandate in regard to expenditure. He believed that for that reason, Parliament should be accountable to National Treasury in relation to standards. All other departments and organs of State, no matter what they were doing, would have to conform to certain standards of accounting, and he believed it would be incorrect for Parliament to have its own different accounting standards. There should be uniformity in this at least. Clearly NT could not prescribe what Parliament should do. He urged that Parliament should fall in line in so far as accounting was concerned, even under a separate Bill.

Mr Marais said that section 57 of the PFMA referred to the National Assembly, which "may" determine its internal proceedings. However, section 216 said that national legislation "must" establish a National Treasury and provide control. He asked whether Parliament was a sphere of government. Section 213, dealing with the National Revenue Fund, stated that all money must be paid to the Fund except money excluded by an Act of Parliament. He asked if there was motivation for a separate Act of Parliament. The sections of the PFMA dealing with the National Assembly did not refer to budget, but to internal arrangements. He queried where the determination of funds was dealt with.

Adv Jenkins said that money excluded by an Act of Parliament could be excluded under any piece of legislation, not necessarily this one. At this point Parliament did not receive money from donors into the National Revenue Fund. The issue of roll over funds was more complex.

The Chairperson said that some of these questions were dealt with in the legal opinion of Adv Unterhalter, which in itself required considerable interpretation.

Adv Jenkins agreed that this was dealt with in the opinion, but said that it was necessary also to look to the Constitution. Every provision must be read in context. He quipped that for instance section 16, guaranteeing freedom of speech, did not mean that anyone had the freedom to interrupt speeches of others in the House. 

Mr Moloto asked for clarity from National Treasury, as implementers of the PFMA, on their own experiences, and what the norms and standards were. He was not convinced that Parliament should have its own procurement policies, for instance, separate and different from the rest of government. The Bill should conform to certain general principles.

Ms Jo Ann Ferreira, Chief Director: Legal Services, National Treasury, responded that said that it was difficult to try to resolve policy questions with legal opinions. There were a number of difficult issues. There was some contradiction between sections 44 and 216 of the PFMA. However, the political arms of local government were consistent with the legislature and executive functions. Parliament was clearly the legislative branch for the national sphere. How that related to provincial and local was still being debated.

Ms Ferreira said that norms and standards were the consistent application of financial management practices. Prior to 1994, the previous government were not able to identify what the liabilities of government were. That was symptomatic of a problem. National Treasury had, since 1994, sought to set up a coherent financial management system that was applied consistently across procurement, supply, and budgeting, using the same line items. This enabled accounts from any department to be aligned properly with others and to be put together into a financial statement for the country as a whole. National Treasury did not want to lose the gains it had made towards a comprehensive financial management system. It did not want to lose the gains in agreeing budgets. This was a policy and practical issue. There must be a situation where the liabilities of the country could be determined. Auditing standards should be the same and there should be compliance with international financial reporting standards. There was a tension in that the Legislature had oversight over the Executive, but the Executive would also have to give direction to the Legislature. She urged that practical coherence and the approach to financial management should be protected.

The Chairperson said that this point was also raised in the legal opinion. National Treasury was ultimately responsible, but Parliament also exercised oversight over National Treasury.

Adv Jenkins said that clause 51 of this Bill went to norms and standards, and he agreed that the gains made since 1994 must be protected. There was a reporting obligation and National Treasury would get the information.

Ms J Fubbs (ANC) noted that the concepts of "sphere " and "organ " were used, rather than arms of government. While there was mention about the national sphere, she wanted clarification on the fact that only Parliament could divide the budget and that it was not divided at lower levels, which related back to transfer and accountability.

Adv Jenkins said that the Constitution did not say that every arm was autonomous. There was a principle of the separation of powers, which meant that there was control over functions. Parliament had the function of oversight over the Executive and ensuring compliance with legislation, but if there was not control over budget this would be paying lip service only to the Constitution. The Minister and Parliament should be allowed to agree. If there was no agreement, then there was a problem. He felt that the current situation was ending up in “no man’s land” He said that the worst case would be if Parliament was given a budget clearly insufficient to achieve its functions. He said again that sections 57 and 216 must be read in context.

Ms Ferreira clarified that Departments would make budget bids, and officials would interrogate how the budget would meet the obligations, but the final decision was taken at Cabinet level.

The Chairperson noted that the Bill would be finalised on the following day.

Other business
The Chairperson noted that attorneys representing a health insurance company had sent a letter to the Speaker, at 12:15 on 13 June, complaining that the Committee, in dealing with the Insurance Laws Amendment Bill, had not complied with the constitutional requirements for consultation. Although this letter also named him, as Chairperson of the NA, he had not received it, and neither had Mr Hermans, to whom it was also allegedly sent. The Chairperson of the NCOP was also named as a recipient. The letter called upon the Speaker to furnish a reply before 1:00 pm on 13 June. He pointed out that this health insurance company had not even made a written submission. None of the other public submissions had raised the inadequacy of the time or of the consultation. Public hearings were advertised and held. He noted that the debate would proceed in the House on this Bill.

The meeting was adjourned.

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