Jan 072014
 
Your taxes, your enterprises and the politician

By Eran Wickramaratne


Universally, parliaments are tasked with the role of making laws, approving taxation, and holding the executive arm of government accountable. That accountability extends to the performance of Public Enterprises that are often funded by or enjoy the patronage of,   the government. Article 148 of the Constitution specifies that Parliament has complete control on finances.

The Committee on Public Enterprises (COPE) is one of two Parliamentary Committees tasked with the monitoring of public expenditure.

The Public Accounts Committees (PAC) is responsible for monitoring the performance of government ministries and departments. COPE monitors the performance of public enterprises. The Public Enterprises may be constituted by Parliamentary Act, the Companies Act or any other law.

COPE consists of 31 members reflecting the composition of all parties represented in Parliament. Even though the best practice is for the Chairman of COPE to be a member of an opposition party, the current UPFA administration has installed its own member as Chairman. In 52  of the 54 Commonwealth countries, the Chairman of a PAC is from the opposition party. It would be normal for a PAC to be constituted by backbenchers from Parliament but in Sri Lanka  cabinet members are also members of COPE and PAC.

When cabinet members are members of COPE and their subject or institutions are under review it makes it difficult for officials to voice their opinions without fear of reprisal. The present COPE Chairman to his credit has made it known to cabinet ministers that they should refrain from attending COPE sessions when institutions under their purview are being scrutinized by COPE to avoid any conflicts of interest that could arise.

Farce of a debate on COPE Report
The present parliament which commenced its term in April 2010 has produced its second COPE report for the period January 2012 to March 2013. The report consisted of 356 pages and included the review of 244 institutions. It was amongst the most important reports produced by a Parliamentary Committee, only to be surpassed by the report on the impeachment of the Chief Justice which was written in a haste to justify a conclusion that had already been reached.
Even though the COPE Report was the most important financial report completed by a bi-partisan Parliamentary Committee, it did not receive the recognition of a parliamentary debate with the participation of a full parliament, but was debated for two days as an ‘adjournment motion’. There were periods during the debate that the parliament of 225 members had less than six members in attendance. These facts are stated to illustrate the poor attention and focus that is given to public finance – its use and misuse affecting the lives of ordinary citizens.

Auditor General – the guardian of the public interest
The Auditor General is the key state official involved in monitoring public expenditure. The Auditor General, like the Judiciary is a constitutional appointment.
The Auditor General must be the check and balance on the expenditure of the Executive arm of government. Article 153 (2) of the constitution requires parliament to determine the remuneration of the Auditor General. The constitutional duty has been cast on parliament so that the independence of the Auditor General from the government could be safeguarded. Unfortunately this principle is not upheld as the remuneration has been determined and approved by the Government rather than by Parliament.

The remuneration of constitutional positions such as Judges and the Auditor General must not be linked to that of other public servants. They must be remunerated exceptionally by parliament so that they are financially   independent of the executive arm of the government. Those occupying constitutional positions should not be beneficiaries of Presidential largesse, whether be it scholarships for their children, financial awards from the President’s Fund or promise of employment or overseas diplomatic posting after retirement. It is only then that the separation of powers can be maintained.

Separation of powers between President and Parliament
The appointment of ministers from amongst parliamentarians compromises the independence of the legislature. In the U.S  system of government and where there are Executive Presidential Systems, the cabinet is drawn from members outside the legislature. Sri Lanka may be the only directly elected Executive Presidential system where the entire cabinet of ministers is drawn from the legislature. The Westminster parliamentary system of government provides for the cabinet to be drawn from the legislature.

The cabinets are typically 20-30 members. Even in India which has a population of over 1.2 billion citizens the cabinet of ministers does not exceed 40. Typically the cabinet of ministers is 5-8 percent of the MP’s in parliament. By limiting the cabinet the dilution of the independence of the legislature is being protected. In Sri Lanka there are 59 cabinet ministers and a total of 106 ministers. According to media reports more ministers and deputy ministers are to be appointed. The President has captured the legislature and   destroyed the independence of Parliament, violating the fundamental principle of the separation of powers.  The separation of powers is a fundamental principle of good governance.

‘Fit and proper’ appointees for Boards
It is widely acknowledged that state enterprises comprise those who provide goods, services, regulation and oversight. There are commercial and non-commercial ventures. Objectives and plans have to be well defined and measurable, whether they are quantitative or qualitative. While policy is necessary, the success of enterprises depends on the quality of people employed. A general finding of COPE was that there was a lack of qualified and professional people in the relevant institutions. Unless the issue of better remuneration  is addressed the slide will continue.

The Commercial enterprises do not have the required skills. There are no set criteria for employing fit and proper persons. Relatives and friends of politicians have been appointed to key institutions with scant regard for   their qualification for the job. Sri Lankan Airlines has a CEO who is also CEO of two other state institutions. The loss incurred by Sri Lankan Airlines is about half the allocation to the Ministry of Education in the budget. The airline certainly requires the attention of a competent and fulltime CEO. Neither the Chairman nor the CEO however, has management experiences at a senior level with an international airline. The need for competence in managing state enterprises is self evident.

The Central Bank has approved the appointment of individuals as Chairman and Directors of banks who are unsuitable for such employment. Some of the appointees in the past have defaulted banks and even been convicted of violating the law. On further inquiry it was revealed in one instance that the violator had been pardoned by a President. Even though there may be reasons for a presidential pardon, it still does not suffice to appoint such persons as fit and proper persons. To illustrate the point – if a lawyer is convicted of a murder charge, and is subsequently pardoned by the President, then theoretically it is still possible to appoint the person to become Chief Justice. Even though a legal hurdle may be overcome by the pardon – does it make the person fit and proper to qualify to be Chief Justice? The answer to the question is crystal clear to the fair minded. The COPE report recommends minimum criteria for both Board members and senior management of government enterprises. Even though their recommendation does not limit the emergence of conflicts of interest- for example the appointment of relatives of a minister to a subject under the supervision of the Minister-the recommendations will encourage more knowledgeable and qualified persons being appointed to the Boards of government enterprises.

COPE sittings must be open to public, media
Sri Lanka has a representative parliamentary system. Unfortunately the citizen ceases to exercise his rights to hold MP’s accountable in between periodic elections. The functions of parliament must become more accessible to the public.

COPE sessions are not open to public. There are arguments that are proffered as to why the session cannot be opened to the public- that critical   competitive information may not be disclosed. However it would be   reasonable to conclude that public scrutiny is desirable, while only critical information can be withheld for non-public sessions. The present COPE report recommends that the public be given advance notice of enterprises that are being scrutinized by COPE.

This can be done by publishing notices on traditional and social media. This enables the public to send in their questions and petitions to the COPE office in Parliament or direct them to an MP who could raise them at the relevant COPE sitting. The point to be understood here is that unless the public have direct access or access through the media, Sri Lanka’s state enterprises will continue to operate in secrecy and will not always be operating in the public interest. Billions are being lost due to poor management, waste and corruption. That trend will continue unchecked unless the public have access to available information.

More reforms
Legislation must be introduced to include criminal sanctions on recklessly mismanaged state enterprises or state intuitions. The lack of sanctions and a culture of impunity is worsening an already bad situation.

The Auditor General’s powers to review all state enterprises and institutions, irrespective of the legal formation of entity must be made explicit. There have been government entities formed under the Companies Act which have refused to subject themselves to COPE in breach of Parliament’s supremacy on public finances. The scope of the Auditor General’s reviews must be expanded from financial audits to performance-related audits. The Secretaries of Ministries should be held accountable for the financial performance of institutions as they are deemed to be Chief Financial Officers. Secretaries should be prohibited by law from having other financial interests or other employment while being responsible for state enterprises and Institutions.

A parliamentary budget office needs to be set up as a monitoring mechanism on all finances approved by parliament. No such mechanism presently exists. Budgets are presented by the executive arm of the government; reports and performance reports are also presented by the same source – clear evidence that there is a lack of an independent check on the financial performance of the Government.

The COPE report has called for the setting up of a data bank on government institutions. This will permit the monitoring of institutions over a period of time. There will be continuity in the process extending beyond the term of Parliament. The implementation of the proposal will be contingent on the Speaker providing a budgetary allocation for its implementation.

From the inception of parliamentary systems of government the raising of taxation, and the expenditure of, the Executive was Parliament’s responsibility. The Sri Lanka Parliament is falling short in the discharging of this responsibility. There is now a need for civil society to exert pressure both on the Government and Parliament to provide more information on public finance in the public interest.

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