Eastern Africa Association of Public Accounts Committees (EAAPAC)

Eastern Africa Association of Public Accounts Committees (EAAPAC) 2nd AGM and Conference on the Role of PAC in Enhancing Accountability in the use of Public Resources Windsor Hotel and Golf, Resort - 28th June to 2nd July 2007 Beyond Effective Chronicling of Graft: The Challenges facing PACs Presented by Njeru Kirira Global Economic Investment and Financial Consultancy (GEIFIC) Ltd. P.O Box 74471, Tel/Fax: (254-020) 251167, 343250, Nairobi, 00200, Kenya Email: geific@todaysonline.com, tattuah@wananchi.com Protection House, 1st Floor, Haile Selassie Avenue, Parliament Road 09/12/2007 1

Introduction Traditionally, PACs are perceived as, mainly engaged, in detailing historical irregularities and omissions in public expenditure management. Normally operating like pathologists who, establish what went wrong; but little or no attempt to assess what good was done or what improvements are needed, give no attention to expenditure or systems, do not examine the policy basis or the overall system of public sector management, to identify system failures, or capacities to perform, do not follow up on correction of past omissions, do not assess value for money, but focus mainly on compliance. However, current reforms in Public Sector require shifting focus s and oversight from input and process audits and accountability to performance, effectiveness and impacts, and emphasize on value for f money in use of public resources. 09/12/2007 2

In modern public administration, it is not enough for the government to prove it has spent the funds allocated to ministries, in compliance with Parliamentary approval i.e. votes and amounts, and in accordance to law, regulations, and procedures. Public sector needs to facilitate faster economic growth, raise incomes and reduce inequalities. It is Parliaments responsibility, to ensure that, besides compliance with approval authority and legality, public money is spent well to generate value, improve citizens lives, therefore, legislatures, through such committees such as PAC need to change the focus, needs urgent change of mindset, despite many challenges changing well established traditions, the public sector needs to facilitate local enterprises to reduce e the cost of doing business, become more cost effective and hence more efficient to better compete in the market place. 09/12/2007 3

Role of PACs In practice, it is not possible for whole Parliament to scrutinize all public sector operations, PACs need to expand approach to accountability, build capacity, technical and institutional to perform a more dynamic and inclusive function, be empowered, legally, by standing orders etc, to adjust to these new challenges, which include; 09/12/2007 4

1. Fast changing global environment Unlike before, parliaments now operate in fast changing global economic and social environment in which; private enterprises compete against external businesses, both in local and external markets, countries compete for foreign direct investments (FDIs), raw materials and increased market share, Innovations are necessary to remain competitive and relevant to social and market dynamics, e.g. environmental protection, corporate social responsibility, in business. 09/12/2007 5

In global economy, there are many things and factors that nation states, their parliaments, and private businesses do not and will not control. Therefore, success will; not depend on how well a country complies with its laws, traditions and systems, it will depend on how well such systems and institutions adjust to a fast changing operating environments. depend on enhanced capacity to change on a continuous basis, improved efficiency and competiveness. 09/12/2007 6

Unfortunately, traditionally, legislatures other powerful institutions are usually slow to reform; they pride themselves of long established traditions of doing business in certain ways, which may no longer be relevant to current environment, but today, Parliaments and their Committees, especially PAC, need to adapt businesslike ways of carrying out their functions, PAC, being among the oldest, most powerful and important Committee, has to take the lead and improve management of public finance, the whole of public sector and the economy. 09/12/2007 7

(i) Regional Economic Unions Regional Economic Markets, Co-operations operations / unions which have become part of new world reality. Once formed, they affect all aspects of public administration, economy, including Parliaments. They also come with their demands, ds, e.g. fiscal policy and regulatory obligations, such as, financial contributions which involve use of public funds outside e parliamentary jurisdiction; this requires Parliaments to adapt new mechanism to ensure funds contributed are properly used, just like all other public money, other fiscal commitments, of common markets, include, including expenditure commitments in form of fiscal harmonization, public borrowing, say, s to COMESA, EAC, EU etc, harmonization of commitments to align fiscal and monetary policies, which impose restrictions on national legislatures, on government borrowing, inflation limits, subsidies, etc, imposition of common external tariffs, thus, restricts member states, stipulate what they can or can not do, e.g. giving tax/duty exemptions, use of common n tariff tax rates, restricts authority of member states, on changes to tariff rates, this role is usually delegated to regional Parliaments and Finance Ministers, 09/12/2007 8

necessitates emphasizes on need for fair trade and equal fiscal treatment of economic players, (within the common market); thus parliaments need to worry about what is happening in the whole region, i.e. their country and also other member states, otherwise local enterprises can be placed at competitive a disadvantage e.g. if one country opens its market but partners do not open theirs, if a member state gives subsidies, this can attract inward mobility ity of investments at expense of its partners, possible conflicts on policy oversights, e.g. recent controversy on Kenyan members of EALA highlights potential risks, Kenya has questioned authority of regional court to disqualify her nominees, which highlighted need, for greater Parliamentary involvement in regional policy policies s in a proactive, systemic manner, update national regulations and laws to common market, for harmonization of roles and functions of Parliaments, especially procedures, to minimize potential risks of conflict between legislatures. 09/12/2007 9

Of special interest, to Parliament, is the need to ensure, equal fiscal treatment of commercial enterprises, operating in the t region, avoid undue influence or interference with investments decisions, within the common market, ensure the common market remains a single investment area. These concerns take parliament beyond resource allocation and accounting, to policy issues. Notwithstanding the challenges, Africa needs Economic unions to; among other things; increase market size for economies of scale to be more competitive either in, attracting foreign direct investments, which need larger markets,, or building strong domestic economy from which to launch exports, 09/12/2007 10

improve bargaining power, when negotiating with other economic blocks and WTO. These developments are forcing Parliaments and their committees like PAC, to look beyond issues of expenditure, to, include union-wide fiscal administration, push for accountability to whole region, include expenditure implications and benefits, role and impacts of Economic Unions. Therefore, legislatures need to be assured that governance applies, not just in one country but in whole region, to minimize contagion effects, cross border effects. 09/12/2007 11

2. Political Challenges In multi-party democracies, the work of Parliament and, in particular the PAC, has become more complicated, necessitating need to appreciate that Budget preparation and approval is basically a political process which, can and has been misused in past; but ruling party today is likely to be opposition tomorrow, therefore it is essential that the Budget Process goes beyond party politics, needs to ensure short-term term political interests do not encourage design of public expenditure to attract votes, and distort long-term resource allocation policies, and undermine long-term national interests, lead to unproductive investments leading to increased poverty, 09/12/2007 12

requires to instill proper management of the interface between politics, p long-term national interests, budget allocations and implementation, noting g that resources are scarce necessitating prioritization and focus on efficiency e and effectiveness, and not to stop at balancing political interests, there is need for looking at allocation policies, and their soundness, there is need to overcome political divide and go for rational resource r allocation and management, appreciate failure to enforce accountability, efficiency and effectiveness, ectiveness, leads to abuse of public resources, e.g. tragedy of Commons, where public goods are misused or diverted to personal use, and the risk of resources being used to subvert democracy, PACs need to remain issues focused, and not partisan politics or vested interests, A key factor to note, with regard to political challenges, is that the more fragmented the Parliamentary Parties, the less effective the PAC, indeed whole Parliament will be to enforce national-wide accountability. When Parliament is weak, it concentrates on itemizing irregularities not the whole range of public sector management, because this is more secure. 09/12/2007 13

3. Challenge of structure of PAC membership PAC members are selected to represent political parties, a system m which encourages, partisanism particularly in countries characterized by sectional politics, frequent membership changes, as political alignments shift, that, undermines PAC roles / functions, the critical which cultivates public trust and confidence, and, promote unnecessary conflicts of interest. makes it difficult for PAC to lead by example. Members of Parliament need to appreciate that an effective PAC should s be knowledge and skills led, and that experience and continuity are critical factors for success of this important Committee. 09/12/2007 14

4. Economic Challenges Efficiency of public sector is essential to ensuring economic operators improve competitiveness, create jobs and generate incomes to reduce poverty. PAC has responsibility, on behalf of Parliament, to ensure public sector promotes efficiency and is adaptive to economic needs, (a) shift oversight from input and processes to; outputs and outcomes, thus focus on benefits and impacts of the expenditures, examine relevance of organizations created, in public sector, what they do, how and whether necessary, maximize returns on use of public resources, e.g. achievement of MDGs, employment creation, income generation, environmental protection, whether being achieved or not, etc, examine public expenditure management systems for effectiveness, 09/12/2007 15

(b) (c) (d) given resource constraints, Parliamentary committees should help focus on key areas, priorities that are critical to overall economic welfare of the people, move oversight from routine to major issues of financial management, for example, (prompt National Audit Office (NAO) to group reports on major issues instead of itemizing details in every ministry which add little value but take a lot of PAC work), include issues of operations, consider whether, PACs can be facilitated to focus on overall stewardship of use of public resources, assets and impacts, on citizens based on policy objectives, PACs to relate expenditure managements to policy intentions, (e.g. 1993-4 4 the Indian PAC identified EPZ failure to meet original expectations.) 09/12/2007 16

(e) PACs findings should be used to promote continuous improvements, not one off, avoid repeat of past omissions / mistakes, by linking future allocations to corrective action, promote learning from best practices by information exchange between PACs, PACs to ensure consistency between, plans & strategies and Budgets, ensure approved plans and policies are funded. 09/12/2007 17

5. Structural challenges PACs are used to dealing with single Ministries not the whole Government. They focus on trees not forests and often miss the relationship, i.e. the whole is greater than the sum of the parts, therefore, PACs to pay greater attention to overall management systems, and focus on system-wide improvements, emphasize on improving system integrity, more than individual institutions, develop accountability mechanisms with coordinated approach and links to other committees. 09/12/2007 18

Budget Execution One of the key challenges for Parliaments is the need to ensure accuracy of budgets; consistency between policy pronouncements and resource allocations, and, approved and executed budgets, so that, a) the Budget allocations reflect agreed policies and programs, helps private sector to plan, b) approved Budget remains the guide to execution, and, ensure limited deviation between the two, and that Budget implementation focuses on achievement of agreed policies and objectives and results. 09/12/2007 19

If approved budget is changed midstream, even with parliamentary approval, it means economic actors can not rely on it to; -plan their operations with certainty, -undermines overall economic performance and slows growth, -fails to link budget to agreed policies/strategies, and execute the budget as approved, -undermines integrity of Budget Process and legislative authority; -runs the risks of making the budget a tool for political manipulation not a financial plan. For these reasons that PACs need to take a more managerial approach and not confine to expenditure management and activities. 09/12/2007 20

Benchmarking PAC performance To be instruments of change and continuous improvements, PACs should develop points of reference for their performance, particularly, when supervising performance based public sector management. Needs to emphasize on effectiveness, impacts and results. This, Parliaments and their committees need to operate on similar basis, therefore it is necessary to develop instruments to, assess their own effectiveness and efficiency, ensure there are no delays in finalizing reports so that Parliaments can debate, decide early, recommend and follow-up with actions, build past findings and recommendations into future budgetary requests, and approvals, to stir improvements, Where there is irregularity, the PACs need to work with other accountability agencies to ensure the law takes its course so that can spend time more productively. 09/12/2007 21

Making the paradigm shift To change from the current postmortem approach, on basis of input and process scrutiny, to a more dynamic system of accountability, requires PACs to, build Committee capacity through training of members, retain members for the full Parliament period so that they can accumulate adequate skills, knowledge, and experience on functions and operations of Committee, and government, develop skills to enable them do better and more effective analysis, encourage political parties to select PAC members best suited to handle both public finance and management, 09/12/2007 22

have freedom to chose areas to scrutinize, not influenced by any other body or authority, (including Audit Office), apply best practices, learning from best practices thus, should encourage exchange of information, be conversant with formulation of public policies and strategies, and establishment of public bodies and structures, and how such all these affect the public sector, and expenditure, ensure Parliament is fully briefed on policy changes, the reasons why, and consequences, be guided by principles of fair play, honesty and respect for other stakeholders i.e. rules based, to promote public interest and confidence not partisanism. 09/12/2007 23

In addition, PACs need to use financial accountability as a tool l to improve public management and; make public sector deliver on its commitments, achieve desired results and leverage change to modernize public sector and overall economic management, facilitate change of attitude by public sector workers to see themselves as facilitators and partners in national development, encourage government to perform only those functions it can best perform and outsource what other providers can do better, emphasize on risk mitigation to reduce revenue leakages and wastes, encourage availability of more accurate and timely, financial and management data, greater stakeholder participation, and more ethical management practices, emphasize the fact that accountability cannot be complete until it incorporates reporting on results. 09/12/2007 24

Conclusion For PACs to cultivate and sustain public and stakeholder trust, it is important to operate on clear rules, systems, practices and procedures. They need to protect public interests, those of, the Committees, the members and Parliament. It is critical to protect such interests when in power, in Parliament, in Committees etc and when outside both Government and Parliament. Note that any time Parliaments and their Committees are accused of partisanism and public believes such accusations; both the integrity and effectiveness of these critical institutions are undermined. Members owe it to themselves and the people who serve in such committees, the people they serve, and public at large, that PACs s are seen to be fair but firm. In a democracy, we can t t afford to be seen to cut corners. If we do, others will cut them against us when they have the opportunity. Thank you 09/12/2007 25