Financial Management of Parliament Bill [B74-2008]: public hearings

Meeting report

The Deputy Chairperson of the FFC Khumalo presented the views of the FFC on the Bill. Broadly, the FFC was not convinced that a separate bill was justified outside of the PFMA. They recognised the separation of powers but felt that there were many other complicating matters that arose which the Bill did not take into consideration, pertaining to institutions not mentioned in the Bill. There was the executive and in the state there were chapter 9 and Chapter 13 institutions. Using the FFC as an example, he explained that the FFC had a complicated situation where they must report to Parliament and their finances rested with the National Treasury. They were expected to be an independent institution with its own powers.

He felt that they would have to deal with the issues of the other arms of state as the same issues applied to them. This was their principle observation.

The current review of the PFMA should have been used to address the key issues related to the Bill. If the process goes ahead, there are certain things that need to be addressed.

The specific recommendations on clause 5 - apportion of financial management responsibilities were that the clause was silent on the relationship between executive authority and the joint committee of Parliament.  In clause 23 consistency was the key as the same principles that Parliament demanded other entities to adhere to should apply equally to Parliament. There was an opportunity cost to the resources of the National Treasury as money going to Parliament came from the same pool used to appropriate funds to the rest of government. Asset management and procurement policies needed to be developed in clause 30. The provisions on transfers were vague in the Bill and the FFC requested that the Bill clarify what was meant by a payment and how this differed from a transfer. The latter would not necessarily be categorised as expenditure. Dealing with transfers - clause 35 -  the Commission submitted that this clause was vague. Under definitions and interpretations, there was a need to clarify what is payment and a transfer, noting that a transfer is not expenditure. Clause 36 concerned the monitoring and reporting. They felt that there should be quarterly reporting to the Joint Committee by the Executive Authority and the Accounting Officer.

He concluded that he did not know if councils in provincial and local government were of the same view. If so, they might also need to enact separate legislation.

Discussion
The Chairperson recapped that the FFC was of the opinion that separation of powers rationale was weak, as others could claim the same separation sought by Parliament, by virtue of their independence under separation of powers.

Mr Khumalo raised the issue of unspent funds. There was an agreement between National Treasury and Parliament to keep unspent money. The Chairperson did not understand the rationale for this agreement. Unspent funds was equal to underspending. He queried the moral grounds for Parliament to legislate underspending and what that would do to their credibility when conducting oversight of others spending. He pointed out that there would be budget gains.

He asked why they could not create a section in the PFMA which spoke to issues of accountability of Parliament, as to avoid 20 pieces of legislation. He felt it came back to the earlier discussion on federalism, where every province would have the independence to enact its own legislation.

Ms Mchunu pointed out that a federal state in the American model had finances raised by the state and therefore had the right to decide what to do with the revenue.

Mr Windvoël referred to the Constitutional Framework and the three organs of state. He said that the separation of powers can equate Chapter 9 and Chapter 13 organs like the FFC with Parliament. There was one National Treasury and they should not stifle the organs of state by saying that they cannot have what they deserve in financial legislation. If oversight was well capacitated, the judiciary taking the same route should not deter them. This could be a blueprint for future strengthening of Constitutional rights.

The possibility of unspent funds in the legislature must be motivated for the return of the funds as it meant non-service delivery. He reiterated that they should not be deterred by a worst case scenario.

Mr Sogoni suggested that the resistance was caused by fear of the unknown. There was the possibility in our Constitution.

Mr Botha responded that spending should be according to the core business. If an entity was unable to do that, there was a provision for roll-overs under the PFMA. He pointed to the instances of municipalities pleading while there were millions in their bank accounts. It was important to understand the reasons behind underspending. He felt that the clause on unspent funds was too vague.

Mr Dingani responded that the FFC was making a serious mistake in wanting to view Parliament as the same as the sub-structures of government. This was unthinkable as they were questioning the overall state arrangement.

Mr Khumalo responded that the comparison was not between Parliament and sub-structure of government. They were looking at the institutions that were subservient to Parliament, yet are supposed to be independent. He clarified that these institutions should be treated as a whole.

Mr Dingani reiterated that the FFC could only compare Parliament to other organs of state. He suggested that the Powers and Privileges Act of 1963 looked at those issues better and that the Committee look at all the issues before a decision is taken.

He suggested that the FFC and the Committee did research on other Parliament abroad treated the matter of unspent funds in these jurisdictions.

The Chairperson felt that the Secretary was not responding to the matter that they needed resolved. He did not want to set a precedent for the judiciary or others to follow.

Mr Dingani responded that if the independence of the judiciary warranted the treatment, it must be done so.

Mr Khumalo stated that he was not sure this was more a management problem. The legislation was meant to provide for the management of the appropriation. The treatment of the judiciary was not an issue for the FFC to take a decision on. They were merely raising the realities, should the process go ahead.

The reading of Chapter 1three of the Constitution motivated this part of the submission that referred to the three spheres of government.

Mr Windvoël indicated that the Secretary's point was that Parliament appeared to be treated just like any other government department as concerned the spending directives from the National Treasury. He agreed that they needed to do research on what happens in other Parliament. They also needed more clarity on how this could affect provincial treasuries and their respective legislature. They must not disempower the legislatures in their job of oversight.

Mr G T Snell, Member of Provincial Legislature: Eastern Cape, stated that he felt that it was Parliament's responsibility to resource participative democracy and if Parliament did not find way to do that, how could it support those that were marginalised due to their financial positions to compete on an equal footing. No one was saying that the role of Treasury should be excluded, but, mechanisms should be found for the executive authority to negotiate what Parliament's budget should be. The Constitution also provided for Parliament and provincial legislature to pass legislation to amend a money bill, giving them total control of the budget and National Treasury.  If they evolved to that stage in the democracy, Parliament and legislatures will dictate to the National Treasury on how the budgets are to be spent. In light of that, he thought that the concerns raised were irrelevant.

The Chairperson responded that the Committee would deal with that comment at the meeting on the Money Bills Amendment Procedure and Related Matters Bill. He referred to the current global economic crisis as horrible and pointed out that they must not speak as if cuts will never be necessary.

National Treasury
Mr Freeman Nomvalo, Accountant-General: National Treasury, presented the National Treasury submission. He referred to the statements made earlier by the Secretary and responded that it could not be correct for legislation governed by an executive authority to direct how Parliament should be run. He agreed with the Secretary in the sense that the legislatures had to comply with the same of rules as applied to the national legislature.

The PFMA did not attempt to do that. It seemed that they were trying to achieve the same objectives that were there in the PFMA, except to the extent that they wanted to ensure that the status of Parliament was properly recognised.

The main concerns of the National Treasury as well as the practical difficulties were discussed (see document)

It was not the National Treasury's position that Parliament should be seen as a government department or that they ought to answer the questions of the Treasury. He added that the PFMA did not attempt to set out the running of Parliament. They wanted to ensure that the status of Parliament was recognised.

The PFMA values were sound enough that every recipient entity of public money should follow them.

He stated that resources were limited and every institution who needed access were therefore competing for public money. The issue was how to arrive at that allocation to Parliament. That seemed to be the core issue and this did not seem to him to be the right process.

The question was whether this should be expressed through legislation.

There was additionally, the problem of striking the balance between allocating resources to Parliament and the rest of government. They wanted to inculcate a culture of democracy, accountability and transparency. It should therefore be possible for the legislature to ask itself the same questions it would ask of those coming to account to them. A mechanism should be created to those ends so that they could stand on a moral high ground when they called entities to account. The issues of distribution according to the equitable share and resource limits had not been addressed. The Bill did not make reference to the provincial distribution, rather it referred to Parliament only. They then had a schedule with norms and standards that were applicable to the provinces. This implied that provincial legislatures had to come up with their own legislation. Flowing from that, there was a definition of unauthorised expenditure, there was a clause that dealt with virements. To some degree these definitions did not quite match the corresponding terms in the PFMA. The problem with the treatment of virement in clause 22 was that it allows for the movement of funds that are specifically and exclusively appropriated. The problem was allowing the executive authority to change the decision of an exclusive appropriation in the Appropriations Act. This may be an oversight and was certainly an issue to be sorted out.

The prohibition on borrowing in clause 28. The Bill did not allow Parliament to use the Public Private Partnership (PPP) mechanism to execute some of its functions. That then means that, should Parliament enter into such a contract, they would automatically incur an audit qualification - this was legislating for a qualification.

Practical difficulties were mainly matters of consistency, for example, the Secretary had the responsibility to finalise the financial statements and give those statements to the executive authority within 5 months. The executive authority then has 5 days to table them. The provision that dealt with tabling did not take into account those 5 days. There were a few other such technical corrections.

He noted that the different drafting styles of the Bill and the PFMA could result in substantive differences in the legislation.

In the executive branch of government, there were public entities that reported directly to specific departments. The PFMA included these entities (Section 3). He asked if there was no need for them to think about Constitutional institutions as to whether they apply the PFMA or a separate piece of legislation as suggested by the Financial Management of Parliament Bill.

He concluded that National Treasury’s constitutional role and Parliamentary constitutional independence should not be compromised and they ought to find a vehicle to deal with that. If separate legislation was the chosen vehicle, the Treasury could live with that decision. The issues of alignment were critical as was the prevention of fragmentation of the regulation. The determination of the budget amount to be appropriated remained the main issue while also taking into account that the separate legislation would effectively exclude Parliament from the wider provisions of the PFMA.

Discussion
Mr Sogoni pointed out that the crux of the presentation seemed to be to question the separate legislation for Parliament. He summarised that the National Treasury was asking if it was really necessary and also pointed out the issues of accountability and provincial impact of this. He asked if they had looked at the international experiences of this kind of legislation.

Mr Nomvalo responded that they had made comparisons elsewhere on the review of the PFMA. He could not comment on the research they had done specific to Parliament.

Mr Sogoni noted that the review of the PFMA had been ongoing for five years. He had, however, not seen it happening practically and queried the reason for the delay.

Mr Nomvalo responded that the review of the PFMA had been on the cusp of completion for some time. The resolution of the issues around public entities did cause some delay. The review went through the Cabinet process in 2008. They had missed that Parliamentary deadline for submission by a day or two. This was the reason it was not yet approved, but this process would continue after the elections.

Mr Sogoni asked that the last line of the conclusion of the presentation - "Separate legislation will effectively exclude Parliament from wider provisions of PFMA, such as borrowing, PPPs, guarantees, public entity oversight" - be clarified.

Mr Nomvalo responded that the Bill attempted to deal with clause 28. There was an issue of alignment here and there were also potential difficulties in the form of unnecessary qualification from the Auditor-General's office.

Mr J Naude, Free State Legislature, referred to the second last line of the presentation and asked if this referred to the top slice approach to appropriation.

Mr Nomvalo responded that they did not question the top slice approach, but the amount from which the top slice would be taken would first have to be determined. That amount became the matter in question as there were limited resources.

Mr Dingani responded that this issue was raised in the 14 page policy document and it states that the allocation to Parliament must be considered before all other allocations.

The Chairperson requested copies of the policy document quoted by the Secretary as this must be part of the briefing notes to the provinces.

Mr Sogoni asked the Secretary to comment on the issue of similar separate legislation for the provinces.

Mr Dingani responded that the Bill had been discussed at length at the Speakers Forum. He was of the opinion that provinces should use this Bill as a framework for similar legislation.

The Chairperson stated that the discussion needed to be much broader.

Ms Robinson noted that there was still much uncertainty. She asked how they could proceed with briefing the provinces when more research was needed.

The Chairperson responded that they would use the information they had to brief the provinces. Provinces may also have input that could be helpful.

Mr Botha stated that it was a pity that the Office of the Auditor-General was not there to present their views on the Bill. He asked if there was not time for a two-hour briefing with the A-G. He added that he did not how they could proceed with the negotiating mandates when there was so much that was unclear, especially due to the research they wanted to conduct.

The Chairperson responded that they have a mandate to finally resolve the issue. They could not just pass it as it was. They needed to get clarity on all the matters and the provincial details would surely come out of the provinces. The provinces issues could then be brought into the negotiating mandates.

Mr Windvoël responded that the delay was unfortunate, but they could not pretend that there was now something of a stand off between Parliament and the National Treasury. There should be an engagement of the provincial treasuries on the Bill. There was a time constraint on this legislation as they could not shift this to the next Parliament.

Mr Robertson thought that the A-G memorandum needed particular attention.

The meeting was adjourned.