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

Meeting report

FINANCE PORTFOLIO COMMITTEE
11 May 2006
FINANCIAL MANAGEMENT OF PARLIAMENT BILL: DELIBERATIONS

Chairperson: Mr N Nene (ANC)

Documents handed out
Draft Financial Management of Parliament Bill – 10 May 2006

SUMMARY
The legal drafting team led the Committee through the amendments effected to the following main issues that arose from the previous meeting. Clause 2B was a new insertion and now located all issues relating to the Joint Committee in a single provision. Clauses 18 and 18A dealt with unauthorised expenditure, and were amended by altering the definition of ‘vote’ in the Bill to now refer to appropriated funds and funds approved by Parliament from Parliament’s own funds. The proposed Clause 18A contained two options for the approval of unauthorised expenditure of donor funds.

Funding of political parties in Clause 32 would be governed by regulation which would be devised after consultation with political parties in the National Assembly and the NCOP, and it empowered the Auditor-General to audit the party’s financial statements to ensure proper use of those funds.

Executive instructions with financial implications were contained in Clause 36 and put in place a set of rigid checks and balances for Parliament’s executive authority and accounting officer, to guard against unauthorised expenditure and to ensure accountability and recovery of misspent funds. The clause did however allow expenditure in defined exceptional circumstances.

Clause 20 dealt with the treatment of unspent funds and formalised the current informal arrangement between Parliament and National Treasury, according to which Parliament’s funds were not returned to National Treasury and there was thus no necessity for roll overs. The Committee’s fear was that the clause would result in a cessation of funds during the financial year, and proposed the inclusion of a provision akin to Section 29 of the Public Finance Management Act to guard against that.

MINUTES
Introduction by Chairperson
The Chair stated that Mr Conrad Barberton, legal drafter from Cornerstone Economic Research, would present the draft with the comments the Committee made during the previous meeting. He welcomed Adv G Hoon, Principal State Law Advisor, and Ms C Booysen, State Law Advisor, to the meeting.

Draft Financial Management of Parliament Bill
Mr Barberton stated that there were issues that were central themes in the Bill that needed to be dealt with on a consistent basis throughout the Bill. The first was the establishment of the Joint Committee, and the second was the issue of unauthorised expenditure. The drafting team an alternative to the option on unauthorised expenditure currently contained in the Bill, because the concern was raised that the option in the Bill might cause some confusion. Other than that there were many technical changes that were effected, and have been included in the draft presented. The Schedule to the Bill incorporated a draft Code of Conduct.

Establishment of the Joint Committee
Mr Y Bhamjee (ANC) asked whether the Bill was in fact a money Bill, but did not expect an answer immediately.

Mr Barberton replied that the drafting team did apply its mind to the matter. A money Bill specifically appropriated money or provided for the alteration of taxation measures. However because the Bill dealt with neither, it was therefore not a money bill.

Mr Barberton turned Members’ attention to Part 1 of “Chapter 2: Executive authority and administration of Act”, and noted that Clause 2B was a new insertion. The drafting team had introduced a new provision called “Joint Committee” and extracted the various provisions relating to the Joint Committee that were previously in Clauses 15 and 69 and consolidated them into a single provision. This would enable an overarching picture of the Joint Committee’s responsibilities, its composition and powers. It was only the proposed 2b(1)(a) - (c) that were new insertions, and set out the purpose of the Joint Committee.

The Chair noted that the Committee raised no objections to the new insertion.

Unauthorised expenditure
Mr Barberton stated that this issue presented quite a significant challenge to the drafting team, and was dealt with in Clause 18. The matter was debated by the Committee during the previous meeting, and it was made clear that unauthorised expenditure only related to appropriated funds in terms of the Appropriation Act. The question to be decided was how the term ‘unauthorised expenditure’ could be redefined to maintain its definitional focus, but to also retain the intention of the Committee which was to categorise as unauthorised all expenditure that was not approved by Parliament or that violated a donor funding agreement.

The drafting team sought to address this not changing the definition of the term, as currently reflected in the Bill’s definition section, but instead by changing the definition of a ‘vote’. The proposed alteration does not only refer to appropriation but now also referred to funds approved by Parliament from Parliament’s own funds. The definition of a ‘vote’ now covered the two sets of funding.

He stated that the drafting team had second thoughts on the matter because the terms ‘unauthorised expenditure’ and ‘vote’ had very specific meaning in the public finance legislation. A dual definition of appropriated funds and approved funds was now being proposed, and would be shifted to its new location in the definition of an ‘approved budget’. This term was now included in the definitions clause. The proposed definition of an ‘approved budget’ would now include any approved funds. This was necessary because the Bill needed to define something against which the spending of funding was unauthorised, which would be the approved budget. This reworking tied in nicely with Clauses 14 to16, which described the budget of Parliament as relating to four things: appropriated funds, direct charges against the National Revenue Fund (NRF), Parliament’s own funds and donor funding.

Dr S Van Dyk (DA) asked whether the proposed alterations of the definitions were in line with the definitions of the terms as contained in the Municipal Finance Management Act (MFMA) and the Public Finance Management Act (PFMA). There must be correlation between the legislation or it would lead to confusion within Parliament’s Standing Committee on Public Accounts and for the operations of the Office of the Auditor-General as well.

Mr Barberton responded that parts (a) and (b) of the definition of unauthorised expenditure as currently reflected in the Bill was exactly the same as in the PFMA, except that the Bill referred to ‘approved budget’ whereas the PFMA referred to a ‘vote’ The other difference was part (c) of the definition. It included “for purposes other than section 18”, which dealt with the authorisation of unauthorised expenditure. The current formulation was proposed to avoid the situation in which Parliament was able to authorise the unauthorised expenditure of donor funds, because it cannot do that. Donor funds were thus being excluded from the definition.

There were two additions to Clause 18. Clause 18(3) now stipulated that unauthorised expenditure would become a charge against Parliament’s own funds, which was the normal accounting practice. Clause 18(4) was a standard provision aimed at covering a possible lacuna should Parliament not approve the unauthorised expenditure, as it was not certain were those funds would then be recovered from. The Bill must make it clear that those funds must be recovered from the person who allowed the unauthorised expenditure to take place.

He stated that the proposed Clause 18A contained two options for the approval of unauthorised expenditure of donor funds. Firstly, it could approve the unauthorised expenditure and it would then become a charge against Parliament’s own funds, and not the donor funds.

Ms N Mokoto (ANC) proposed that Clause 18(4) refer to “persons” as well, because there might be cases in which more than one official is involved.
 
Mr Barberton replied that the SLA informed him that it was standard legal drafting practice for the singular to also include the plural. Her proposal would however be considered.
 
Mr Barberton continued and stated that the second option in Clause 18A was that Parliament could also agree with the donor that the contract be revised to allow the unauthorised expenditure, but that could not be included in legislation.
 
Mr K Moloto (ANC) stated that the principle as explained by the drafting team was clear and, as long as the provisions were legally sound, he proposed that the Committee approve the reworking.
 
Mr Bhamjee requested the drafting team to consult with the provincial Treasuries on their definition and handling of donor funding, to ensure the Bill did not create any confusion.
 
Mr Moloto disagreed with Mr Bhamjee’s proposal. Parliament was unique in the way that it would be regulated and donor funding is regulated in terms of a separate Act which, he assumed, would apply to the provincial Treasuries. He reiterated his support for Mr Barberton’s proposal.

The Chair noted that the SLA and the Parliamentary Law Advisor expressed no concerns with Mr Barberton’s proposal. He agreed with the proposal as well.

Dr Van Dyk referred to the proposed definition of the term ‘vote’ in the definitions clause, and asked whether the portion of the vote for Parliament as reflected in the Appropriate Bill included donor funds, or whether that portion constituted a separate budget. If It was in fact part of Parliament’s budget vote, then the explanation of parts (a) and (b) of the definition of ‘vote’ must include donor funds as well. Furthermore, he stated that that Clauses 14 and 16 did not refer to donor funds at all.

Mr B Mnguni (ANC) disagreed with Dr Van Dyk, and stated that Clause 14(2)(f) referred specifically to donor funding.

Dr Van Dyk clarified his concern by explaining that part (a) of the definition of ‘vote’ referred to Clause 16(1)(b), which in turn referred to Clause 14(2)(b)(iii). Clause 14(2)(b)(iii) made no reference to donor funding at all. He reiterated that a reference to donor funds must be included in the definition of ‘vote’ as well.

Mr Barberton replied that it was a complicated issue. Clause 14 stipulated that Parliament’s revenues consisted of three items: appropriated funds, direct charges and its own revenues. Donor funding was deliberately not incorporated in Clause 14 because it was contractual money. Clause 16 dealt with the appropriation and approval of funds and did not include donor funds either because donor funds were secured between the Speaker, as the contracting party of Parliament, and the funder. Donor funding was also not provided within Parliament’s own revenue, because those funds were its own revenue and were treated separately. Thus when Parliament considered its approved budget it would cover both appropriated funds and approved funds, and donor funding would remain subject to a contract. Thus the unauthorised expenditure would be defined in terms of the approved budget, and the unauthorised expenditure of donor funding would be defined in terms of the donor contract.

Mr Mnguni sought clarity as to how exactly Clause 14(2)(f) would be incorporated into the annual budget of Parliament.

Mr Barberton responded that donor funding was included in Section 14(2)(f) to house it in one provision so as to provide a complete picture of Parliament’s resources, to make things easier for anyone exercising oversight over Parliament’s budget. Clauses 14(2)(b)(i) and (ii) were included to provide a complete picture.

Mr Bhamjee proposed that the wording of Clause 18(1) be brought in line with the wording of the Public Auditing Act.

Mr Barberton replied that the drafting team would consider the proposal.
 
Mr Moloto agreed with the explanation of the handling of donor funds provided by Mr Barberton, but asked if the proposed formulation ensured legal certainty.

Prof Murray responded that the drafting team had worked till late to ensure that the terminology was consistent, and that the changes effected by Mr Barberton would ensure consistency and ensure proper coverage of all concerns.

The Chair noted that the Committee agreed with Mr Barberton’s proposed formulation.

Funding of political parties
Mr Barberton stated that the next significant issue was Clause 32, on party funding. In the previous draft of the Bill, which was the published version, Clause 32 was approached differently because it distinguished between funding for Parliament and even considered the funding for the party leader. The drafting team had received a policy document and revised its approach, as it meant that the Bill did not need to deal with the matters in that much detail within the Bill itself.

The Bill ensured that all funding given by Parliament to a political party or to a Member of Parliament needed to be covered by regulation, which was provided for in Clause 32(1). Clause 32(2) specified principles that the regulations needed to cover in order to ensure good governance of party political funding. All those principles were captured within the current policy, with the possible exception of Clause 32(4), which required explanation.

He stated that Clause 32(4) was a new item, and empowered the Office of the Auditor-General to audit the party’s financial statements to ascertain whether they were in fact a true reflection of its use of those funds. If the Auditor-General so wished he could recover those audit costs from Parliament. Clause 32(6) repeated the Constitutional obligation in Section 57(2)(c), which required Parliament to provide for parties represented in the National Assembly.

Mr Moloto agreed with the proposed formulation of Clause 32, save that he proposed that Clause 32(2)(1) read “the executive authority must make regulations in consultation with political parties”.

Prof Murray agreed to the inclusion of the proposal.

Dr Van Dyk requested an example of the kinds of funds referred to in Clause 32(3)(a).

Prof Murray explained that at the moment Members did not get allocations of funds from Parliament. Thus the provision was hypothetical and provided for coverage of future eventualities. The words “adequate information” meant that the Member would have to have a bank account at least, and the Member would have to agree that the funds would be accounted for.

Mr Barberton added that the current regulations stated that the political party must have proper bookkeeping or record-keeping systems. The Bill now went a step further by allowing the Auditor-General to ensure that those systems were indeed in place. A simple example of the financial statements required would be the provision of receipts.

The Chair noted that the Committee agreed to the provision.

Adv F Jenkins, Parliamentary Law Advisor, stated that it was unusual for Parliament to veto regulations, as was currently provided for in the provision.

Mr Barberton responded that the provision had a constitutive decision in mind and, as proposed by Mr Mnguni, it would stipulate “after consultation with political parties”.
 
Mr Moloto expressed his concern at the open-ended nature of the provision, which he found problematic.
 
Dr Van Dyk asked whether Members of the NCOP were included as well.
 
Prof Murray replied that if the Committee wanted to make the provision all covering and also take into account Adv Jenkins’ concern, the answer would perhaps be to state simply “after consultation with political parties represented in the National Assembly and delegates from the NCOP”.

The Chair agreed.

Mr Bhamjee asked who would have the final say in determining the regulations.

Mr Barberton replied that all regulations have to be submitted to Parliament, and these were no different. After consulting with the NCOP, the executive authority would submit the regulations to Parliament for approval.

Prof Murray added that the Constitution did not use the phrase “in consultation” because it was so ambiguous and instead used “after consultation” and “with the concurrence of”. She proposed the use of either “after consultation” or “with the concurrence of”.

Dr Van Dyk proposed that “after consultation” be used..

The Chair noted that the Committee agreed to the proposal, and to Clause 32 as reflected in the Bill.

Executive instructions with financial implications
Mr Barberton stated that this was dealt with in Clause 36. The drafting team revised the provision and, in light of the comments made by National Treasury that the current provision in the PFMA on executive authority instructions with financial implications were not working properly, they drafted a proposed set of provisions that sought to build a very high wall around the budgets and the appropriations.

The point of departure was that Parliament appropriated funds or approved the use of funds and the intention was that nobody must spend outside those parameters. The question then was what was done when a person in a position of authority instructed a junior official to commit funds which violated those parameters. Such instructions could be banned outright, but that would not work very well. The drafting team opted for a set of checks and balances that were a lot more rigid than those currently featuring in the PFMA, but that still allowed for expenditure in exceptional circumstances that where in the institution’s best interests or that were approved by Parliament in some way or another.

The first departure from the PFMA was that the Bill now stipulated that any directive must be in writing, which the PFMA currently did not require to be in writing. This new provision effectively turned the table on accounting authority, and the Bill thus now required the executive authority of Parliament to do so in writing, and the accounting officer could then indicate whether the instruction could be executed or not. This was contained in Clause 36(2). That provision thus removed discretion from the hands of accounting officer and made it a legislative imperative that he must inform the executive authority that he cannot proceed with the instruction as it would lead to unauthorised expenditure.

Clause 36(3) stipulated that if accounting officer nonetheless executed the instruction and it results in unauthorised expenditure, the accounting officer would be held responsible for the unauthorised expenditure. This was the current situation in the PFMA. The only difference was that the Bill now required the executive authority, if he really wanted the accounting officer to proceed with the directive, to give an additional instruction for the accounting officer to proceed. This was provided for in Clause 36(4), and prescribed two conditions under which that could take place.

The first was in the case of unforeseen or unusual circumstances that required emergency expenditure, such as a fire in Parliament which required the provision of an emergency facility for Members to meet for meetings. The second condition was the approval could be done via a resolution, such as the request for ad hoc training for Members.

He stated that Clause 36(5) stipulated that the executive authority must give reasons in writing for requiring the accounting officer to nonetheless proceed with the expenditure. A copy must be give to the accounting officer, and a copy must also be tabled in Parliament in terms of Clause 36(5)(b) within 14 days. This was the very time limit contained in Section 16 of the PFMA.

Clause 36(6) required the accounting officer to file a copy with the Auditor-General within 14 days, to guard against accusations of unauthorised expenditure. Clause 36(7) stipulated that the executive authority would then be responsible for unauthorised expenditure, and the funds must be recovered from him in his personal capacity.

Dr Van Dyk sought clarity on Clause 36(2). He was of the view that should the accounting officer decide to proceed on the executive authority’s instruction then Clause 36(3) could be scrapped, because he would not have to wait for the executive authority to decide he could not proceed.
 
Mr Barberton explained that the first thing to bear in mind was that a directive could be issued in terms of Clause 36(1) that was perfectly legitimate and which did not result in unauthorised expenditure. In that case the accounting officer would simply proceed. If however there was a risk of unauthorised expenditure, the accounting officer was faced with two options. The first was that if he proceeded with the instruction and it in fact resulted in unauthorised expenditure according to the Auditor-General, the accounting officer himself would be responsible for the full amount in terms of Clause 36(3). The alternative was that he could inform the executive authority that it would result in a risk of unauthorised expenditure and would like to rely on Clause 36(2) and that he would not proceed unless he received specific instruction from the executive authority to nevertheless proceed in terms of Clause 36(4), then the consequences of the decision shifts from the accounting officer to executive authority.

Prof Murray added that the truth of the matter was that the provision’s history based on the British National Treasury practice. It experienced problems with Ministers ‘sitting on’ officials and forcing them to do carry out certain instruction which were off budget. It resulted in the executive authorities passing the back to the accounting officers, and the system had difficulty in attributing accountability and recovering the unauthorised expenditure. It was not a secret that recovering unauthorised expenditure in South Africa was difficult.

The problem with the provision in the PFMA was that the political heads took it as license to override the authorisations in terms of the appropriate legislation. There was thus a need to tighten it up further, which was done in Clause 36. It allowed the overriding to take place in certain circumstances only, contained in Clause 36(4).

She agreed with Dr Van Dyk that it was Clause 36(3) was illogical and that the accounting officer could identify it to begin with. However the aim of the clause was to put stringent hoops in place and to make it crystal clear that if the executive authority overrides the accounting officer’s objection, the executive authority would bear the responsibility for the unauthorised expenditure.
 
Mr Mnguni stated that Clause 36(4) was necessary, because the accounting officer had received a specific instruction from the executive authority.

The Chair noted that the Committee agreed to retain the provisions as proposed by Mr Barberton.

Dr Van Dyk requested that the next draft of the Bill in fact incorporate all the technical amendments proposed by the submissions.

The Chair agreed and informed the Committee that the following Tuesday would not have any Committee meetings due to the State funeral of the former Minister of Public Works.

Treatment of unspent funds
Mr Barberton stated that this was contained in Clause 20 and was the subject of much discussion during the Committee’s previous meeting. The clause replaced all the clauses in the Gazetted version that dealt with roll overs. The reason for that was that, as explained at the previous meeting, there was currently an informal arrangement in which Parliament’s funds were not returned to National Treasury, and there was thus no necessity for roll overs. Thus to formalise the situation Clause 20 was drafted and Clause 20(1) made it clear that Parliament could still retain those funds. Clause 20(2) explained the nature of those funds, which were to be regarded as funds derived from Parliament’s own revenue sources. The clause merely changed the nature of those funds from appropriated funds to Parliament’s own funds. Clause 20(3) stipulated that the approval cannot carry over into the next financial year, and must instead be re-approved by Parliament itself.

The Chair stated that this was one area in which the Committee wanted to confirm and formalise the current practice with National Treasury, The draft fully reflected the Committee’s discussion with National Treasury that took place at the previous meeting. He thanked the drafting team for including all the concerns raised.

Mr Bhamjee asked whether the clause would make nonsense of Parliament’s strategic plan. He asked how the provision would ensure that the accounting officer accounted for the expenditure.

Mr Barberton explained that in Parliament’s Annual Report the accounting officer and the executive authority accounted for what the institution had achieved in terms of its annual performance plan. If there were unspent funds due to under-performance on the strategic plan, those funds would be reported. The consequences were two folds: the first was that the accounting officer had not performed in terms of the performance agreement concluded with the executive authority, and would have to account to executive authority for that. The second was that Parliament itself would hold the exe authority accountable for non-compliance with the institution’s performance plan, which the executive authority tabled. It thus moved into the area of political sanctions. The savings made could be used for virements, or it could be returned to Parliament’s own bank account and then allocated for another purpose.

Mr Bhamjee asked whether the clause made a distinction between donor funding and Parliament’s own revenue.

Mr Barberton explained to Mr Bhamjee that Clause 20 only dealt with two out of the four categories of Parliamentary funds. It was not possible to have roll-overs of direct charges. The timing of the expenditure of donor funding was very specific and was stipulated in the donor contract, and donor funds were thus not covered in Clause 20. It did however cover the remaining two categories, which were the unspent appropriated funds and funds unspent from Parliament’s own revenues.

Clause 20(1) and (2) dealt with unspent appropriated funds and Clause 20(3) dealt with unspent own revenues. Both Clause 20(2) and (3) required that the funds to be appropriated “must be in accordance with Section 16(1)(b)” which meant that Parliament’s approval must be secured before those funds could be used in the next financial year.

She stated that it did however place pressure on the budget process because, if the approval was not secured by June, the administration of Parliament would not be able to spend any of its own revenue. This might be something that the drafting team needed to consider further. On the other hand the Committee could decide that in 1 April it could approve the spending of Parliament’s funds forthwith.

Mr Bhamjee stated that his very fear was that Parliament would grind to a halt.

Mr Barberton responded that it depended on the proportion of Parliament’s budget that constituted its own revenue, and the size of the portion that constituted appropriated funds. If the portion of its own revenue was substantial, then the failure of Parliament to approve those funds timeously would be noticed.

Dr Van Wyk was of the view that Parliament must be allowed to make that decision in advance.

Mr Barberton replied that the United States model essentially caused the administration of its Parliament to grind to a halt if the country’s budget was not approved by the middle of the financial year. In South Africa we were aware of Parliament’s inability to pass the budget in the beginning of the financial year, and the PFMA contained provisions that allowed government to continue functioning. It was thus really completely within Parliament’s hands as to whether it provided timeous approval or not. A provision could however be included to cover the case in which Parliament does not in fact provide approval at the beginning of the financial year.

Dr Van Wyk proposed that the provision be included to ensure the administration did not grind to a halt.
 
Mr Barberton responded that Parliament would be able to spend again in terms of Section 29 of the PFMA, which dealt with funds that were appropriated from the previous budget. It would however not be able to spend its own revenue unless it give approval by 1 April. That was how the Bill currently read.

Dr Van Wyk recommended that a provision mirroring Section 29 of PFMA be included in the Bill, to ensure that Parliament’s administration did not grind to a complete halt.

Mr Bhamjee agreed.

Mr Mnguni did not expect Parliament’s own revenue to ever exceed 50% of its total appropriated funds, so even if the funds were not approved Parliament would not be prohibited from expending. Even if the Bill did not contain a safety valve akin to Section 29 of the PFMA, Parliament would be fine. He approved the retention of the current formulation in the Bill.

Mr Moloto stated that a thorough discussion needed on what precisely constituted Parliament’s own revenue. If Parliament did not spend its full budget, the remainder of that under-expenditure would constitute its own revenue. The problem was that Parliament would have to approve the remaining amount. The question was at what stage must that under-expenditure amount come to the awareness of Parliament. He agreed with Mr Mnguni that it would not be a large amount.

Mr Barberton replied that Parliament would know the full extent of the under-expenditure once the Auditor-General audited Parliament’s financial statements. Parliament would have a reasonable indication of that under-expenditure usually around January, when National Treasury gathered information on the revised estimates. The issue that arose was that the Committee anticipated the situation that the only time they would approve the  spending of Parliament’s own revenue would be at the same time when they appropriated the funds from the NRF. This was a sound approach, because it required Parliament to consider the two budgets in their totality, as a round figure. Maybe the complete deletion of Clause 17 was inappropriate, and perhaps it needed to be retained with slight adjustments.

The Chair proposed that Clause 17 be retained but slightly adjusted.

Mr Barberton stated that the argument in favour of using Section 29 of PFMA  was because it applied to the entire budget. In that regard the argument was that Parliament was covered by exactly the same rules as all other entities that were governed by that provision. That was the only argument to continue relying on Section 29 of the PFMA. He had no objection to repeating Section 29 in the Bill, with specific reference to the vote of Parliament and with a reference to its own revenue.

The Chair agreed with the proposal, and noted that that solved the Committee’s concerns.

Concluding remarks
The Chair requested Members to share the latest developments on the Bill with their caucuses, so that they were up to date by the time of the next meeting on Wednesday 17 May.

He informed Members that an additional submission had been received from the Auditor-General, which the Committee invited him to provide at any time.

Mr Bhamjee thanked the drafting team for the good draft as it included all the views expressed by the Committee.

The meeting was adjourned.