Parliamentary Oversight of the Budget:

Evolving Good Practice for PACs

Mitchell O’BrienTeam Lead – Parliamentary Strengthening

ProgramWorld Bank

Outline

1. Development Challenge2. The budget cycle and

accountability3. The Old Story4. The New Story5. Evolving Trends6. Observations

Development Challenge: Translating Improved PFM into enhanced Service

Delivery

• Governance is the manner in which state power is exercised—as distinct from how state power is acquired or the purposes for which it is exercised.

• Public Financial Management (PFM) refers to the set of rules, systems and practices by which the government manages its financial resources. Evidence suggests that better PFM leads to stronger economic

outcomes Better PFM does not automatically result in good service delivery

WHAT CAN PARLIAMENT DO?

What is the Budget? “…budgeting is concerned with the translation

of financial resources into human purposes.” (Aaron Wildavsky)

The most powerful tool at parliament’s disposal

Definition - An itemized summary of estimated or intended expenditures for a given period along with proposals for financing them.

Budget Equation = Revenue + Expenditure Output versus Outcome Budgeting

Principles of Good Budgetingo Comprehensiveness: The budget must cover all the

fiscal operations of government.o Predictability: Spending agencies should have

certainty about their allocations in the medium term to enable them to plan ahead.

o Contestability: No item in the budget should have an automatic claim to funding.

o Transparency: Accurate, timely, reliable and comprehensive information.

o Periodicity: The budget should cover a fixed period of time, and follow a clear schedule. However, should seek to achieve medium term objectives

Objectives of Budgeting Fiscal discipline: Budget totals should be the result of explicit, enforced decisions; they should not merely accommodate spending demands (MTEF).Allocative efficiency: Expenditures should be based on government priorities and on effectiveness of public programs (need to listen to the recommendations of the PAC).Operational efficiency: Agencies should produce goods and services at a cost that achieves ongoing efficiency gains.

These objectives are interrelated!

Key actors in the Budget Process The Finance Ministry or treasury is to coordinate and

drive the budget process in accordance with schedule. Spending departments are ultimately responsible for

expenditures within their jurisdiction. President/Prime Minister and Cabinet make

fundamentally political decisions about tradeoffs. The role of the Legislature (ex post and ex ante) is to

scrutinize and authorize revenues and expenditures. Independent Supreme Audit Institutions audit

government accounts for compliance and performance. Other actors may include the Media, Civil Society

Organizations, donors and international financial institutions.

Budget tabled in thelegislature

Consideration byparliamentarycommittee(s)

Parliament accepts,amends or rejects thebudget

Finance ministry ortreasury issuesguidelines to spendingdepartments or agencies

Spending departmentssubmit draft budgets

Negotiation and finaldecisions by executive

Drafting Legislative Implementation Audit

Funds apportioned tospending departments toimplement activities

Finance ministrymonitors spending

Request for legislativeapproval of adjustmentbudget if necessary

Supreme audit institutionassesses departmentalaccounts andperformance

Audit reports publishedand reviewed byparliament

Before beginning of relevant fiscal year Fiscal year starts and ends Following end of fiscal year

Stages of the annual budget process

The Budget Cycle

The Budget Cycle and Accountability

How does Parliament hold the executive to account through the budget process:

Answerability Enforceability

Which institution is primarily responsible for this PAC

What do we know about PACs: Evolving Good Practice for PACs

CPA-WBI Study Group (Toronto, 1999)

McGee “The Overseers” (2002)

Various additional studies (2002-2011)

WBI survey 2008-13 & research

Kerry-Pelizzo-Stapenhurst revision of “The Overseers” (to be published this month)

The Old story – What did the Overseers say?

o State of the arto Ecology of the PACo Committee’s purpose, scope and functionso Structure of PACo Relationship between PAC and Auditor Generalo Special problems of PACs in small parliamentso Methods of PAC operationso Position of PAC in overall committee structureo The future of the PAC

“The Overseers” – Conclusions (1)

o First PAC: UK House of Commons, 1862

o Copied by most countries with a “Westminster” tradition

o Considerable variation in modus operandi across the Commonwealth

“The Overseers” – Conclusions (2)

o Most effective when bipartisan

o Chaired by the senior Opposition (67%)

o Copied by most countries with a “Westminster” tradition

o Considerable variation in modus operandi across the Commonwealth

“The Overseers” – Conclusions (3)

o Need to build capacity of Parliaments, PACs and AGs

o Critical: independence of AG from political, and legal constraints

o PACs need to develop the means to exchange information on developments, standards and best practice

More Specifically: Auditor-Generalo Professional relationship with governmento Working relationship with all

parliamentary committeeso Historically, focus on probityo Increasing emphasis on VFM,

performance auditso Choose any item w/in mandate, but open

to suggestions from PACo Adequate funding & resourcing

More Specifically: PACs (1) o Bipartisan o Terms of reference (wide vs. narrow)o Work based on AG report, but free to undertake

own inquirieso McGee: sole focus on ex-post budget cycleo Focus on policy implementation, not policyo Some members reluctant to serve on committeeo Average size: 11 members; “adequate”

representation of opposition (av: 30%)o Need for training & adequate staff

More Specifically: PACs (2) o Historically, PACs have not sought publicity

– more recently, public hearings (55%)o Use of sub-committeeso Do not examine individual complaints

(refer to Minister or Ombuds)o Divergence of reporting practiceso Deal with individual public servants?o Problems with government

implementation/PAC follow-up

The New Story• Size: 2 (Anguilla) to 25 (Ghana); av: 11.6• Opposition: 0 (Singapore) to 12

(Ghana); av: 42%• Staff: 0 (Fiji, Maldives) to 20 (India); av:

3.45• Opposition Chair: 70%• Emerging problem: political

fragmentation

Impact of Political Fragmentation

Ratio: Number of Staff to Size of Committee

Measuring PAC EffectivenessMcGee: Number of meetings and reportsAdd: Number of inquiries, hearings

Key findings: PACs make a positive contribution to reducing corruption & hence, developmentWhat works in some settings does not work on others -> one size does not fit allOpposition chair, # of staff are important variables

Emerging Factors for Success

1. PAC right of access

2. PAC Powers

Changing World of PACs Yesterday’s PAC Model

Associated with Westminster/Commonwealth

Reactive/Ex-post institutions

Many PACs have retained these features, but ….

Today’s PAC Model (1)New and Non-Commonwealth PACs

AfghanistanBhutan

DenmarkEthiopia

Federated States of MicronesiaFinlandIsrael

IndonesiaKosovoLiberiaNepal

RwandaSouthern Sudan

ThailandTurkey

Vietnam

Today’s PAC Model (2) Powers of New PACs

Country Power to Refer Matters to the A-G

Power to Self-Initiate an Inquiry

Power to Consider Budget Estimates

Bhutan Yes No No

Indonesia Yes Yes No

Kosovo Yes Yes No

Nepal Yes Yes Yes

Thailand Yes Yes No

Today’s PAC Model (3)

Ad Hoc PACs:

Bangladesh

Pakistan

Fiji

Nigeria

Trends in Good Practice (1) The Committee is small (Committees seem to work well with 5-11 members - none of whom should be government Ministers) Senior opposition figures are associated with the PAC’s work (and probably, but not exclusively, Chair of the Committee) The Chair is a senior parliamentarian, fair minded and respected by parliament The Committee is appointed for the full term of the parliament The Committee is adequately resourced, with an experienced Clerk and a competent researcher(s) There is clarity on the Committee’s role and responsibilities

Trends in Good Practice (2) The Committee meets frequently and regularly Hearings are open to the public (A full verbatim transcript and/or summary minutes are quickly available for public distribution) A steering committee plans the PAC’s work in advance and prepares and circulates an agenda for each meeting to the full Committee The typical witness is a senior public servant (the “accounting officer”) accompanied by the officials that have detailed understanding of the issues under examination The A-G’s Report is automatically referred to the PAC and the Auditor meets with the Committee to go over the highlights of the report

Trends in Good Practice (3)In addition to issues raised by the Auditor, the Committee occasionally decides to investigate other matters: In addition to issues raised by the Auditor, the PAC has the power to investigate other matters The PAC strives for some consensus in their reports The PAC issues formal substantive reports to parliament at least annually The PAC has established a procedure with the government for following up its recommendations and is informed about what, if any, action has been taken In all its deliberations, the PAC uses the Auditor as an expert advisor Parliaments hold an annual debate on the work of the PAC

Observations (1) A. A Committee should asses its performance

annuallyB. Committees should be involved in

determining their own budgets. Such budgets should provide financial resources for Member allowances, site visits and costs related to public hearings

C. Specialized training (including orientation and mentoring) should be provided to new PAC members

Observations (2) D. The PAC should have unconditional access to

all government agencies and have the power to “follow” government money provided to non-government service providers

E. In smaller jurisdictions, there may be benefit in combining ex-post and ex-ante budget review within the remit of the PAC or like committee

F. Committee membership should provide for adequate participation by opposition MPs; their proportion of PAC membership should at least represent their proportion of seats in Parliament

Don’t Forget Zambia Joint Accountability Conference (May 2014) is just around the corner!

Each EAAPAC & SADCOPAC Member should be: Taking stock of how they’re progressing in

implementing the JAC Resolutions & JAC Action Plans

What accountability outcomes has your PACs achieved (what you did and what impact has it had)?