Financial Paper 1/2014 – Statement of Excess – and the Minister’s response

Accountability WatchLast week, we began a discussion of Financial Paper 1/2014 that the Minister of Finance presented to the National Assembly three Thursdays ago. The paper deals with a request for a supplementary estimate to cover excess expenditure totalling $4.554 billion incurred during the period 1 January to 16 June 2014.

Recapitulation of last week’s article

We identified the constitution and legal provisions relating to withdrawals from the Consolidated Fund pending the passing of the Appropriation Act. Article 219 (1) permits the Minister to authorise withdrawals for up to four months to meet the cost of essential services. As required by Section 36 of the FMA Act, such withdrawals are limited to one-twelfth of the approved budget for the previous year for a budget agency, except to meet financial obligations under multi-year contracts. No withdrawals can be made for new capital expenditure works, and the Minister is precluded from authorizing withdrawals for a purpose for which there was no appropriation in the previous year. If these requirements are strictly observed, it is unlikely that there would be excess expenditure since when the budget is passed there will be provision to cover expenditure in the first four months of the year. This is precisely the reasoning behind Article 219 (1) and Section 36 of the FMA Act.

Article 218 (3) of the Constitution envisages two situations where excess expenditure can be incurred. The first is where moneys were expended for any purpose in excess of what was approved for that purpose by the Appropriation Act. By way of illustration, I had given an example of the purchase motor car for $4.025 million where excess expenditure of $25,000 was incurred. However, a scrutiny of the financial paper does not suggest that any portion of the excess expenditure falls within this category.

The second situation in more complicated in that it relates to moneys expended for a purpose for which no amount was approved. However, I had stated that in my years of experience as Auditor General, I could not recall any instance of moneys being withdrawn from the Consolidated Fund in relation to this situation for the following reasons:

The Minister has recourse to the use of the Contingencies Fund, assuming all the criteria have been met regarding the urgency of the expenditure; and

There is provision for a supplementary estimate to be tabled in the Assembly seeking prior authorization of the expenditure.

Besides, there was deep respect for the general principle that it is Parliament that controls the public purse and that no expenditure should be incurred without Parliamentary approval. The supremacy of Parliament in this regard was unquestioned.

The second part of Article 218 (3) might have been inserted to cater for some extreme circumstance, for example, a national disaster of great magnitude where it is not possible to secure the prior approval of the Assembly, or recourse to the Contingencies Fund is not possible because it may have been exhausted.

What has really happened?

The Minister has authorized withdrawals from the Consolidated Fund to meet expenditure and in doing so, excess expenditure totalling $4.554 billion has been incurred. Further scrutiny of the expenditure indicates that: (a) the period involved was the first five and one-half months and not the first four months; (b) the one-twelfth principle was not applied; (c) new capital expenditure works were financed; and (d) withdrawals were made to meet expenditure where there was no provision in the previous year. The excess expenditure for which the Minister is seeking covering approval from the Assembly is therefore not in accordance with Article 219 (1) of the Constitution and Section 36 of the FMA Act.

The Minister has now confirmed that he has relied on the second part of Article 218 (3) to authorize withdrawals from the Consolidated Fund although there was no extreme circumstance to justify such withdrawals without Parliamentary approval. In doing so, he is oblivious of the fact that the Assembly had declined to approve of the expenditure in the first place. The Minister’s action is rather unfortunate since he has used this provision to reinstate the budget for the six programmes that the Assembly had specifically disapproved. In so doing, he has disregarded the Assembly’s wishes as well as its long-standing role of monitoring and controlling public expenditure. The combined Opposition had pleaded with the Minister to separate the contentious items so that the Assembly could approve of the essential services within the six programmes. Regrettably, that plea went unheeded.

Should the Assembly reject Financial Paper 1/2014 partially or in its entirety, will the Minister not be held liable for causing unauthorised expenditure to take place? As of now, some $700 million that the Minister had authorized to be withdrawn from the Contingencies Fund remained unreimbursed. It therefore represents unauthorized expenditure. In addition, the Minister had presented Financial Paper 1/2012 relating to excess expenditure totalling $1.572 billion of which the Assembly approved of $1 billion, leaving a further unauthorized expenditure of $572 million. Again, via Financial Paper 1/2013, the Minister sought covering approval for excess expenditure totalling $3.385 billion for the period ending 31 December 2013 of which the Assembly rejected a significant amount. I do not have the figures for 2013 but will endeavour to obtain them for the purpose of a follow-up article. I am sure readers will be interested in the total amount of unauthorized expenditure since 2012.

The Minister’s response

The Minister has sought to justify his decision to authorize withdrawals from the Consolidated Fund without prior Parliamentary approval on the grounds that the second part of Article 218 (3) permits him to do so. However, the framers of the Constitution might have intended this provision to be applicable in an extreme or extraordinary circumstance, and not in a routine manner, as has happened. The fact that there was no evidence that this constitutional provision was ever used prior to 2012 is a clear demonstration of this intention. The Minister has also not explained why he did not take the logical course of action by seeking either recourse to the Contingencies Fund or prior approval of the Assembly by way of supplementary estimates.

The Minister contended that he had adopted a similar approach in 2012 and 2013 and that he could not understand the fuss that was being made. However, the circumstances in these two years were different in that the Assembly had reduced the budgets for certain agencies whereas in 2014, it was constrained in 2014 by the Chief Justice’s ruling when it declined to approve of six programmes in their entirety. Regardless of how the Minister feels about the Assembly’s action, the recourse is not to use what appears to be a constitutional loophole to undo what the Assembly has done. In so doing, the Minister has elevated himself above the Assembly of which he is an elected member, and has set the stage for a confrontation as to who is in charge in terms of approving public expenditure. Any student of public management knows who is in charge.

In addition, in those two years, the Minister had provided a mere schedule to support his request for supplementary estimates, and detailed explanations were not provided as to the reasons for the request and the impact the variations had on the financial plan outlined in the annual budget. This is a requirement of Section 24(4) of the FMA Act. The Assembly was therefore constrained in terms of its understanding of the various financial papers that the Minister had presented. This was especially so since many of its members were relatively new and did not possess the requisite knowledge of public financial management to enable them to ascertain whether the financial papers were in conformity with the constitutional and legal provisions. One also suspects that out of consideration of the national interest, the Assembly chose not raise any serious objections about the way the Minister withdrew moneys from the Consolidated Fund in the past. Instead, the focus was on whether to approve of the various items of expenditure or not. However, it has become increasingly evident that the Minister is deliberately sidelining the Assembly, and the situation has become intolerable.

While Financial Paper 1/2014 attempted to provide an explanation of the impact, it was of little help. Each of the 50 supporting attachments had the identical words that the expenditure “is not expected to adversely affect the delivery of the Government’s programmes and policies for the fiscal year 2014 as envisaged in the 2014 financial plan”. Clearly, the absence of expenditure of the magnitude of $4.554 billion would have had some adverse impact on the financial plan for 2014.

The Minister has reportedly stated that he had not done anything illegal and that if the opportunity presents itself, he would do so again. This statement is a regrettable one, having regard to the fact that since 2012 the Assembly rejected large amounts of expenditure that the Minister had authorized. This is a significant blemish in the history of public accountability in Guyana, perhaps second to the absence of financial stewardship at the national level during the period 1982 to 1991. As has happened in 1992, in the final analysis, the mess that would have been left behind will have to be cleaned up. This time, it will be someone else’s turn to do so! Meanwhile, who is going to bell the cat?