Milestone in accountability

Milestone in accountability

The government and the House of Representatives should be
highly commended for their achievement in completing the law on
state finances, which forms the foundation for the building of a
legal and institutional framework for the public financial
management system.

It is amazing, though, to note how the mass media, which have
been so highly critical of the utterly poor accountability of the
government regarding public finances, played down the passage of
a law that is crucial to the process of increasing accountability
in treasury management, and in increasing transparency in all
government transactions.

The law is truly a milestone in the national drive for good
governance, greater democracy and transparency, as it is the
first legislation on the management of public finance ever
enacted since the nation's independence 58 years ago.

It will replace three Dutch laws on treasury management, which
were made almost 80 years ago to serve the needs of a colonial
regime that did not require democratic legitimacy nor
accountability for its budget.

Many may overlook the true meaning and weight of the new law,
as it only lays down the basic principles of public financial
management. Moreover, the enforcement of the law still depends
largely on two other pieces of legislation -- on state treasury
and on the auditing of state financial accountability -- that
have yet to be approved by the House. The three draft laws were
actually proposed in a package to the House in September 2000,
but only the one on state finances has been enacted.

However, the high quality of accountability and transparency
in public financial management can already be discerned from the
law's provisions on the budget process and the compulsory
independent oversight of public expenditures by the Supreme Audit
Agency (BPK).

The law stipulates that the financial accountabilities of both
the central government and local administrations shall be audited
by the BPK, and the accountability reports shall contain not only
revenues and expenditures as they do now, but shall also cover
budget realization, a cash-flow report, notes to financial
reports and the financial statements of state companies and other
state institutions.

The law also clearly governs the distribution of power on
state finances between the executive and legislative branches and
among the different levels of government: the financial relations
between the government and the central bank; and between the
government and state companies, the planning and budgeting
process, the role of the finance minister and line ministers in
public expenditure management.

Many of the principles have yet to be elaborated in the other
two draft laws on state treasury and audit on state financial
accountability, but it is already clear from the principles that
fiscal policy will no longer be just a question of raising
revenues and minimizing wasteful spending -- it also requires
fundamental changes in the way public finances are managed.

Most important is that the law stipulates the principle of a
single consolidated fund, thereby eliminating extra-budgetary
funds, and clearly lays down the division of authority between
the finance minister as the chief financial officer and line
(spending) ministers as chief operating officers.

The law allows the central government to give loans or grants
to local administrations and vice versa, and to procure loans or
grants from foreign governments or institutions with prior
approval from the House.

The central government is also allowed to lend to state
companies and to local administrations credits or grants it gets
from foreign governments and institutions. Local administrations
are allowed to lend or borrow from other local administrations
with prior approval from regional legislative councils. But the
legislation does not stipulate anything on foreign borrowings by
local administrations.

In provisions specially designed to deter officials from
embezzling public funds, the law stipulates that every official
who is charged with receiving, keeping, paying and/or
transferring money, securities papers, or state properties, is a
treasurer who is obliged to submit accountability reports to the
BPK. The "treasurer", as meant in this provision, shall be held
personally responsible for any loss of state money in his/her
management.

This stipulation will go a long way toward maintaining high
discipline in the accountability of public finance, as treasurers
would certainly dare to ignore orders from their superiors or
senior officials that are against budgetary or treasury rules,
knowing that they could no longer escape responsibility or seek
protection behind the authority of their bosses, as many
officials now do.

Since the law on state finances will serve the public demand
for good governance, greater democracy and transparency through a
better management of public finances, it is most urgent that the
House speed up deliberations of the two other bills on state
treasury and auditing of state finance accountability.