Draft Financial Management of Parliament Bill [B74-2008]: approval

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Finance Standing Committee

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

The legal drafter from Parliament’s Legal Office went through changes to the draft Bill as a result of points discussed the previous day. It was agreed that the Auditor General should not be responsible for auditing political parties’ accounts and so Clause 34 had been amended. In respect of the call for unified norms and standards, the drafter noted National Treasury’s request that its gains in aligning all State accounts should not be compromised, so certain clauses had been amended to specify that there should be considerations of generally recognised accounting practices. The Standing Committee on Public Accounts should not deal with matters of Parliament, and instead a Joint Committee had been established under clause 4. In respect of clauses 44 and 46, and the prohibition on acceptance of parliamentary contracts, certain suggestions were made, which were fully debated by Members later in the meeting. He touched briefly on the reporting mechanism. Members discussed the issues raised and commented upon whether they agreed with the suggestions. They were concerned that there had still not been discussions held between the Parliamentary Legal Adviser and National Treasury to clear up some of the uncertainties. They also raised the issue that clause 72 sought to amend the Public Finance Management Act and noted that this draft Bill would therefore have to be referred to the Minister of Finance before its tabling. Members noted that the Bill had not been formally tabled, as it had emanated as an instruction from Parliament to this Committee to consider the draft legislation, but that the Committee had been through the Bill in detail. It still needed to be tagged.

The Committee then proceeded to a clause by clause deliberation. A definition of “person in the employ of the State” must be included and it  must be consistent with other legislation, primarily the Municipal Finance Management Act. Under Clause 16, Members felt that the current wording was too round-about, and agreed that a direct reference to the Public Finance Management Act should again be inserted. The norms and standards were prescribed in that Act, although they were not being prescribed directly to or specifically for Parliament, and therefore this did not offend against the separation of powers. Having inserted the reference here, Members then agreed that similar insertions should be put back into clauses 18, 47, 50, and 56(1), instead of the words “national legislation”. Similar alterations were then also required to item (h) of Schedule 1, Under Clause 17 the Committee agreed that it did not want to go into the issues of “in consultation” or “after consultation” again, as this had been considered and explained at length. The implications of clause 19(2), which had been amended, were explained, and it was noted that this was similar to section 28 of the PFMA. It was noted that the wording of clause 72 required this draft Bill to be forwarded to the Minister of Finance and the response of the Minister should be attached to the Committee report. Clause 74 would be correctly numbered as clause 73. It was clarified that Schedule 2’s Code of Ethics would apply to the Executive Authority of Parliament.

The Committee agreed to adopt the draft Bill and to adopt also the Committee Report, which detailed the history and reasons for the Bill.

Meeting report

Draft Financial Management of Parliament Bill (the Bill): Further deliberations
Adv Jenkins noted that there had been some further changes to the draft Bill, pursuant to the points discussed the previous day.

Clause 34
Adv Frank Jenkins noted that  the Auditor General (AG) had, in 2006, raised some doubts as to whether this Office would have the capacity to deal with the auditing of political parties’ funds. In addition, he said that the Standing Committee on Public Accounts (SCOPA) was striving to be a non-political committee focusing on non-political issues, and that if it were to require the CEO of political parties to answer questions that would frustrate its own aims. In any event SCOPA functioned vis-a-vis the Executive, not parties. The present policy, where political party funding was dependent on independently audited statements should, in his view,  be maintained. Therefore he had removed the references to the AG in clause 34(3)(g). Consequential amendments were also made to 34(4)(b) and (5)

Unified norms and standards for Parliament's accounts
Adv Jenkins noted that National Treasury had said that it did not wish to revert to the 1994 position, where there had been difficulty in aligning accounts. The issue of separation of powers was paramount, and the Committee had previously indicated that it wanted to locate the internal authority over Parliament in the correct place. It did not wish to revert to the situation where there were no unified norms and standards.

Adv Jenkins indicated that Clause 2(b)(iii) listed the objects of the Act, including the need for consultative process aimed at maintaining uniformity.

The standards of generally recognised accounting practice were contained in the definitions, and contained a reference to the Accounting Standards Board. This was directly referred to in Clause 30(2)(b). He noted that although the Minister of Finance prescribed the standards, he did not do so specifically for Parliament. The same was found in Clause 56(1), which stated that the accounting officer had to prepared statements "in accordance with generally recognised accounting practice", which would relate to use of a modified accrual system. Wherever reference was made in the Bill to the Executive Authority being required to prescribe the format or standards for the auditing, Adv Jenkins would suggest that the words "taking into account the standards prescribed for departments and constitutional institutions in terms of national legislation" be added. This would perhaps make it clearer that there should be attempts to align all norms and standards. He believed that although the objects clause would cover all the discretionary powers of the Executive Authority, this might a useful addition.

Role of the Standing Committee on Public Accounts (SCOPA)
Adv Jenkins said that the role of this Committee needed to be considered in relation to the Annual Report and Strategic Plan of Parliament. The draft Bill had originally reflected that SCOPA was to deal with these issues. The draft currently before the Committee had removed that reference, and replaced it with a reference to the Joint Committee established in terms of Clause 4. SCOPA was a Committee only of the National Assembly, and the financial statements of Parliament were of course those of both the National Assembly and the National Council of Provinces. 

Prohibition on contracts and prohibition of members sitting on tender panels or committees
National Treasury had suggested, and Adv Jenkins agreed, that the restrictions in relation to the contracts of parliament might be too harsh. Adv Jenkins was not sure whether clause 44 should be changed. Lines of accountability applied to parliamentary officials. He was not sure whether Members should be allowed to sit on the committees to evaluate tenders, simply because of the perceptions of conflict of interest. Whilst he did not wish to be too restrictive, he pointed out that at present Members were not on these committees and he suggested the position be left as it was.

Clauses 46(a)(b) and (c) referred to prohibitions on political office bearers bidding for contracts. He thought that although there might not be an actual conflict of interest, this Bill sought to address perceptions. Insofar as "anybody in the employee of the State" was concerned, he did not agree that every employee should automatically be excluded, and therefore he suggested that perhaps the words "whose participation in the bidding may result in a conflict of interest" should be added. This would cover the concerns raised about state employees such as teachers, nurses or the like.

There was a question also raised yesterday around subclause(e) which excluded any entity in which a person mentioned was a director or had a controlling or other substantial interest. He felt that the answer lay in the word "other". Controlling would give meaning to substantial. The rule of parity would seem to mean that although two issues were mentioned, a substantial interest would imply that some sort of control could be exercised. He would not think that a 2% interest would apply However, it would depend on circumstances. He noted that a 5% interest in a major bank might allow a swaying of the vote, and that would be an "other substantial interest", whereas a 5% interest in another different type of company may not have the same effect.

Reporting and National Treasury’s consolidated statements
Adv Jenkins noted that Clause 51 said that Parliament must report monthly. That remained in this draft. However, the Public Finance Management Act (PFMA) Section 8 required that National Treasury must prepare consolidated financial statements, in accordance with generally recognised accounting practice, including in respect of Parliament. He said that the fact of the statements in fact had nothing to do with control; it was purely an administrative function relating to the publication of accounts Clause 57(b) also said something similar but the emphasis here was on the accounting officer, who was required to submit accounts to National Treasury for inclusion in the financial statements. This was not a direct repetition; the PFMA dealt with the obligations to Treasury and clause 57 would then deal with the obligations of the accounting officer.

Adv Jenkins suggested that clause 72(iii) be removed (which had dealt with an deletion of a clause of the PFMA).

Discussion
Mr K Moloto (ANC) agreed with what Adv Jenkins mentioned on a number of issues. However, he felt that there was a need to discuss the issue around accounts of political parties. He recalled that the argument related not so much to the capacity of the AG, nor to whether SCOPA should become engaged in the issue, but that it had been a financial consideration as it was considered that the smaller parties, who may not have the support structures of the bigger parties, were unlikely to be able to afford a CFO and audit committees in order to comply with the AG’s requirements. This should be noted. At a later stage the requirements for audit might well need to be reconsidered..

Mr Moloto noted that the main principle was the separation of powers, which was incontestable. Parliament was not a line department. However, he recognised the view of National Treasury that it was desirable to have uniform norms and standards prevailing across all organs of State. The Committee must bear this in mind during the clause by clause deliberations.

Mr S Marais (DA) asked whether Adv Jenkins had yet liaised with National Treasury.

Adv Jenkins said that he had not yet done so. He did believe that the relationship should remain professional and courteous, but he had simply not had time to discuss this with them.

The Chairperson thought that this was problematic. National Treasury had made a submission, but Adv Jenkins had stated that he had not quite understood some issues. Although this Committee would at the end of the day not be influenced either by National Treasury or the legal advisers, as it would make its own decisions, it should nonetheless have been able to proceed on the basis that the legal adviser and Treasury had agreed on all issues and had understood each other. He said that Adv Jenkins should have clarified the issues with Ms Ferreira, either yesterday after the meeting or over the phone. He found it unacceptable that this had not been done.

Mr S Asiya (ANC) agreed. National Treasury did play a pivotal role in these type of matters, and he would not like there to be any conflict with the PFMA.

Mr Marais noted that there had been an argument around "in consultation" or "after consultation" and he noted that section 17 now dealt with the matter. He also felt that the changes did address the concerns and he thanked Adv Jenkins for his proactive involvement.

Mr M Johnson (ANC) referred to the prohibition on contracts, and asked for clarity on clause 46(e). He thought that the interpretation of "substantial interest" was still uncertain. He noted that there was a qualification insofar as the interest must be “controlling or substantial” rather than merely being “any interest”. He queried what would happen if a close family member did business with parliament, thereby indirectly enabling a Member to get a benefit.

Mr Moloto believed that the prohibition on anyone "in the employ of the State" was far too broad and could, for instance, exclude a teacher who had a part-time catering company that may wish to cater when the People’s Parliament visited an area. He felt the prohibition should only apply to employees of Parliament, as parliamentarians sat on tender boards. In relation to (e) he suggested that perhaps disclosure might provide some answers, and that any tenders granted by Parliament should be specified in the annual statements, for the sake of transparency. He noted that it would be unfair to exclude a company in which he, as MP, was only a shareholder, from doing any work for parliament.

The Chairperson noted that this was in fact covered in the Municipal Finance Management Act, where Regulation 44 gave a definition of "persons in the employ of the state". This was a very broad definition. The issue of disclosure was also covered. Whilst he would not necessarily like to have such a broad definition applying to this Bill, he said that to create something else might raise problems of inconsistency across different pieces of legislation. He suggested that the matter be flagged for further discussion.

Adv Jenkins agreed that the clause needed further work. He agreed that it would be useful to define "in the employ of the State". He said that disclosure might help, but it was often of limited effect, because by the time such a matter was disclosed the money could have disappeared. This would also have a bearing on the issue of auditing. He said that perhaps some options could be worked upon. "Controlling or other substantial interest" might cover the issue of relatives.

Mr Moloto agreed with the suggestion to follow the wording of the MFMA and the need for consistency.

The Chairperson then queried Clause 72. He asked whether "repeal" did not amount to "amend", and noted that if so, the matter would have to go to the Minister of Finance.

Adv Jenkins said that repealing the clause would amount to an amendment of the PFMA. Once the draft Bill was finalised, then it would have to be submitted to the Minister of Finance. He was not sure whether the consultations with National Treasury would amount to the necessary consultation with the Minister. However, addressing the issue directly to the Minister would achieve compliance.

The Chairperson said that if there had been engagement earlier with National Treasury, the formal engagements could have been dealt with earlier.

The Chairperson summarised the procedure in relation to this draft Bill. The Committee had previously been through the Bill clause by clause. He noted that this Bill had not been formally tabled, and it had not been tagged. He asked when it would be formally tabled.

Adv Jenkins said that the Rules of the NA said that when a Committee wanted to initiate a Bill it should seek permission from the NA to proceed. With this matter, this Committee (following on from the ad hoc committee) had been requested by the House to make a report on the draft Bill. It was currently dealing with this draft. Rule 239 said that once the Committee had finalised its deliberations, the draft Bill should be submitted with a memorandum to the Speaker. There must be consultation with the Joint Tagging Mechanism, which would involve a legal opinion from the Legal Services Office on the provisional classification. The Committee would then report to the NA. The Bill would then be referred back to the Committee. The process would be similar to that followed for the Powers, Privileges and Immunities Bill, where the ad hoc committee had proceeded to a second reading and then referred the Bill to the NCOP. He thought that this Bill, since it was also dealing with financial interests in the provincial sphere, was most likely to be a Section 76 Bill.

Clause by clause deliberation
Preamble
No comments were made

Clause 1
The Chairperson said that the "persons in the employ of the State” must be defined. This definition must be consistent with other legislation currently in operation, primarily the MFMA

Clauses 2 to 15
No comments were made by the Committee.

Clause 16
Mr Moloto noted that clause 16(2)(h) said that the budget must be prepared in accordance with the format prescribed by the Executive Authority. He thought that the reference to the PFMA should be put back in.

Mr Marais asked Adv Jenkins to clarify again what he had said earlier on the references to the PFMA having been removed.

Adv Jenkins was not sure how to bring in a reference to the PFMA. When he was asked previously by the Committee to deal with the separation of powers, he had taken out every reference to the PFMA. He suggested that perhaps the reference to the norms and standards contained in certain sections of the PFMA could be brought in, but he would be loathe to re-insert the sections themselves, as they essentially contained prescriptions of the Minister of Finance, and it might raise the issues of separation of powers once again.

Mr B Mnguni (ANC) stressed that the continuity of accounting throughout all State organs should be maintained. He asked for wording that would address those concerns.

The Chairperson said that this was going round in circles. He thought it was not necessary to artificially exclude any mention of the PFMA. He suggested that the words "in terms of the PFMA" should be put in. It was the legislation that was being complied with, not the actual prescription by the Minister.

Mr Moloto thought that it was not necessary to refer to the sections - he would suggest simply putting in wording along the lines of "in a format prescribed by the PFMA" - and leave it as generally as that.

The Committee agreed.

Clauses 17
Mr Moloto asked for clarity on 17(2)(b), noting that the phrase "by the date agreed to with the Minister of Finance" had been removed. He asked what the implications of this were, as he would not like to affect the general work of National Treasury.

The Chairperson agreed that perhaps the reference to the Minister was not appropriate, but he did not see that there would be a problem with mentioning the date, if there was a set date for adjustments.

Adv Jenkins said that he thought that 17(2)(a) would capture the concerns. It would create some problems if Parliament were to frustrate government processes by not submitting the budget in time. However, the Minister would still be able to submit a money Bill.

Mr S Dithebe (ANC) asked for the rationale for substituting "in consultation" with "after consultation".

The Chairperson said that this could be explained later, but that this substitution had resulted from a lengthy discussion, which he would be unwilling to engage in again.

Mr Dithebe said that it was unfortunate that he had been unable to attend those meetings, and he would not pursue the issue.
 
The Committee agreed that the process of dates would be covered in 17(2)(a) and that there was not then a need to amend sub-clause (b)

Clause 18
Mr Mnguni said that the reference to 18(2)(a) should clarify that the adjustment process was carried out in terms of the PFMA.

Adv Jenkins said that there was no problem with doing so. He suggested that, for consistency, the reference to the budgets should then also contain a reference to the PFMA.

This was agreed to.

Clause 19
Adv Jenkins drew the attention of the Committee to 19(2), which had been amended following the criticism of National Treasury to the limitations on the use of the Funds. Adv Jenkins had agreed that the restrictions might be too limiting, and had therefore inserted a new sub clause (2), setting out the circumstances in which funds could be used.

Mr Johnson asked for clarity on 19(1)(a).

The Chairperson said that this was clarified by 19(2).

Mr Moloto clarified that if Parliament did not reach agreement on the main budget, NT was empowered to deal with a certain amount.

Ms N Mkoto (ANC) said that clause 19(1)(a) referred to funds drawn from the National Revenue Fund until the budget was passed. She was worried that this might create the impression that Parliament would have direct access to this Fund.

The Chairperson said that section 29 of the PFMA used the same wording.

The Committee agreed that there was no need to amend this clause any further.

Clauses 20 to 22
There were no comments on these clauses.

Clause 23
Mr Dithebe said that Parliament would have almost an exclusive jurisdiction, and that the exemptions would allow Parliament simply to roll over funds, subject to clause 18(1). He believed that this was not sufficient disincentive. There had been a history of roll overs. However, he thought that perhaps a better concept of accountability, efficiency and effectiveness could be inserted.

The Chairperson said that parliament could not do as it pleased with the money, as it was still subject to certain restrictions. Whilst he understood the point, he appealed that many of these issues had been discussed in detail already, and he would prefer that this ground not be gone over again.

Clauses 24 to 26
No comments were made on these clauses.

Clause 27
Mr Johnson noted than the normal method of verification would be to have two signatories. He asked how this was dealt with in the electronic banking scenario.

Mr Marais noted that in practice no authorisation would be given before a second password was entered.

Mr Johnson wondered if those details should be included in the Bill.

Mr Moloto said that internal controls would be designed outside of the Bill, and it was not necessary to include them. The Committee agreed.

Clauses 28 to 39
The Committee did not raise any points under these clauses.

Clause 40
Mr Moloto asked the Committee to consider whether the clause should be left as it was, or whether there should be a reference to consistency with the PFMA.

Mr Mnguni suggested that the clause be left as it was. Schedule 3 set out the details, and this was referred to already.

Clauses 41 to 43
There were no comments by the Committee.

Clause 44 and 46
The Chairperson noted that clauses 44 and 46 had been discussed and it was agreed that a definition would be inserted to clarify “persons in the employ of the State”.

Clause 47 (5)
Mr Mnguni asked if Parliament would have the same standards of accounting, and he suggested that perhaps those standards should be referred to.

Mr Moloto asked if the direct references to the PFMA, as made in similar earlier clauses, should not again be inserted here.

Adv Jenkins said that the executive authority must determine the standards, and these must be consistent with the requirements of the PFMA. He would insert the necessary wording that referred to the PFMA, rather than "national legislation"..

Clauses 48 to 49
Members raised no concerns on these clauses.

Clause 50
It was proposed and accepted that, for consistency, the reference in 50(1) be to "the PFMA" and not "national legislation".

Clauses 51 to 55
No comments were raised on these clauses

Clause 56(1)
Consistent with earlier amendments, Members agreed that the references to the “the PFMA” would be substituted for the references to “national legislation”

Clauses 57 to 63
Members did not raise any concerns on these clauses.

Clause 64
Mr Moloto noted that the accounting officer must comply with certain requests. He noted that the reference to the National Treasury had been deleted and wanted to check that there were no adverse effects. If NT asked for information, and Parliament did not comply, he wondered what would bet the result.

Mr S Marais (DA) noted that an obligation was placed on the accounting officer, but for practical purposes if National Treasury needed information they would liaise through the Executive. There would not be direct discussion but the result would be the same. 

Adv Jenkins agreed. The Auditor General had certain constitutional functions, but the NT did not have those. Any negotiations between NT and Parliament should really be sanctioned by the Minister of Finance.

Clauses 65 to 71
No comments were raised by Members.

Clause 72
The Chairperson noted that the changes effected by this clause would amount to an amendment to the PFMA. Consultation would need to take place, in terms of Clause 4, with the Minister of Finance, before tabling.

Adv Jenkins said that there was a similar requirement in section 13(3) of the PFMA, noting that draft legislation relating to certain matters could be introduced into Parliament only after the Minister had been consulted. He would think that the response of the Minister must be attached to the Committee report.

The Chairperson noted that a number of Members had been issued with incorrectly printed and bound copies of the PFMA, which were missing some pages. He asked National Treasury to look into the matter.

Clause 74
The Chairperson pointed out that this was wrongly numbered: it should be clause 73. This would be changed.

Schedule 1
Mr Moloto noted that item (h) should perhaps also refer to norms and standards in the PFMA, rather than the current wording. Members agreed that it should be changed.

Mr Moloto asked about item (k). This had removed the issue of the Accounting Standards Board. Section 89 of the PFMA said that the Accounting Standards Board would have to set the accounting standards.

The Chairperson asked if there should not rather be reference to Generally Recognised Accounting Practice (GRAP), which was set by the Accounting Standards Board.

Mr Moloto asked if the practices should be clarified as those "determined by the Accounting Standards Board."

Adv Jenkins agreed that the reference to the GRAP Standards could be inserted, but he noted that the generally recognised accounting practices were defined already, so he did not think it would be necessary to qualify this also with a reference to the Accounting Standards Board. 

Schedule 2
Mr Johnson asked if this Schedule would be read in conjunction with the other Code of Ethics governing the Executive, or whether it was intended to repeal that.

Adv Jenkins understood that the Executive Authority of Parliament was not covered by those Codes.  There was a scope of benefits for presiding officers, similar to that of Ministers and Deputy Ministers. However, the Code of Ethics that would apply to them would be Parliament’s joint code. The jurisdiction of the Parliamentary committee was set in item (5)

Schedule 3,
Mr Mnguni suggested that there might be a need to amend item (m)

The Chairperson said that he thought not, since “persons in the employ of the State” was to be retained in the Bill, but defined.

Mr Johnson asked if there was any reference to unsolicited bids.

Mr Dithebe noted that this was included in clause 42.

Schedule 4
There was no comment.

Members adopted the draft Bill

Committee Report: Adoption
The Chairperson read out the report. This set out that a resolution of the House of 23 September 2003 had instructed this Committee to consider the financial administration of Parliament, with a view to introducing a Bill In the third Parliament a resolution was passed that the ad hoc committee consider this matter. .On 24 June 2006 the ad hoc committee was given a mandate, which was transferred later to the Portfolio Committee on Finance.

The Portfolio Committee on Finance had completed its task and wished to submit the draft Bill in accordance with rule 243. This draft Bill had been gazetted on 28 October 2005. There had been a call for written submissions on the draft. Public hearings were held to consider the submissions.

The Committee approved and adopted the Report.

The Chairperson noted that the Report and the Bill would be forwarded to the Speaker, together with the Memorandum. He thanked Members for spending so much time on this matter.

The meeting was adjourned.

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