Designing a Legal and Regulatory Framework for Better Public Financial Management: Some Issues for Consideration from Trinidad and Tobago

Abstract

Ill fitting legal shoes pinch citizen’s foot.   Chinese Proverb Never ask of money spent where the spender thinks it went. Nobody was ever meant to remember or invent what he did with every cent.   Robert Frost There is a sense in which discussions of public law and debates about budgeting have a good deal in common. Both budgets and law are essential to the task of public administration. Without legal authority and budgetary resources, agencies cannot function. Indeed, without legal authority they do not even exist, and without financial resources they exist in name only.   Cooper, Phillip J (1999) ‘Courts and Fiscal Decision Making’, in: Handbook of Government Budgeting (San Francisco: Jossey‐Bass) p 502. In a global environment of emerging trading blocs, it is imperative for small island states to pay attention to the adequacy of a major plank of a country’s financial infrastructure viz, the public financial management system. For the purposes of this paper, the components of this system are considered to be primarily the accounting, budgeting and monitoring of public expenditure. The public financial management system is pivotal to the quality of governance as well as the public economy, which, in a small island state, drives the private economy. Many complaints about the prevailing quality of the governance of a state can be directly attributable to poor public financial management systems, thus the demand for systemic re‐engineering of such systems.1 1 See Commonwealth Principles on the Accountability of , and the Relationship between, the Three Branches of Government (Latimer House Principles) CHOGM, Abuja, Nigeria 2003. The link between good governance and accountable public account systems is a feature of the Aso Rock Commonwealth Declaration on Development and Democracy :Partnership for Peace and Prosperity as endorsed by CHOGM. See Commonwealth Law Bulletin, 2003, 29(2). This paper canvasses, albeit briefly, some issues particularly pertinent to a small island state that arise in the design of a legal and regulatory framework for a re‐engineered public financial management system that is centred around qualitative public budgeting, through which the principles of good governance – namely accountability, transparency and value for money – permeate. A budget so designed enables taxpayers to know how their money is spent. Where the public financial management system operates accordingly, there is inevitably an increased openness of responsibility in the conduct of all public affairs, public sector transformation and the promotion of good governance.2 2 Langseth, P., Stapenhurst, R. and Pope, J. (1997) The Role of a National Integrity System in Fighting Corruption, Commonwealth Law Bulletin, 23(1 and 2). See also Pope, J. (2002) Confronting Corruption:The Elements of a National Integrity System, Transparency International. A thesis emerging from this article is that a law for effective public financial management when setting the parameters for the control and management of public money actually defines the accountability between Parliament and the Executive. In addition, where the principles of fiscal responsibility with the emphasis on prudent management and reporting are prescribed, there is an inbuilt buffer in the financial management system against adverse events. Parliament by so prescribing has effectively put in place a means by which sustainable prosperity is ensured. Where a country effects a public expenditure management system based on a budget that directly links policy implementation to expenditure, it puts in place a vehicle for effecting service delivery. The public is able to assess the performance of a government and the delivery of services through financial information that is publicly available and presented in a consumer‐friendly format, the hallmark of output‐based budgeting.3 Such a system promotes performance appraisal at personal and organisational levels, thereby operating as a driver for public sector transformation. It is through the prescription of the design of the public financial management system that the operation of the principles of value for money, accountability and transparency readily permeate the management of the public sector. 3 Public Expenditure Management Handbook (1998) WorldBank, Washington DC. See also Outcomes‐Focused Budgeting_Case Studies (2001) OECD,PUMA?SBO922001)5/ANN. See also Report of the Office of the Auditor General of Canada Towards a Better Governance‐Public Service Reform in New Zealand (1984–90) and its relevance to Canada; Kibria, Reza The Political Economy of Reform: Designing,Initiating and Sustaining Public Sector Reform in Developing Countries (2001). Paper presented at a Commonwealth Advanced Seminar, New Zealand In designing the appropriate legal and regulatory framework to support a revised system, there is a need to analyse the assumptions underwriting the existing system being challenged, together with the procedural weaknesses and strengths. This analysis needs to be done in the context of the operation of the principles of public law. This article does not address economic or accounting issues, except in the barest of terms. It confines itself to legal issues, even though it is recognised that the control and management of a legal and regulatory framework requires the multi‐skilled involvement of economists and accountants, as well as lawyers. For the purpose of this article, the clear identification of aggregate spending, aggregate revenue, expenditure ceilings on ministries and departments, fiscal strategy and intergenerational issues are presumed to be in place.4 This involves resolution of tax, debt management and inflation management policy, amongst other things – in other words the role of the government in the conduct of the macro‐economy of the state. 4 The macro‐economics and the underlying assumptions are not the prime objective of this paper. Nevertheless it is critical operationally that the aggregates are in place to drive the Budget. To this end a Policy on Fiscal Responsibility and principles of fiscal responsibility ideally are in the public domain and are very clear. For a brief synopsis of the philosophical evolution of issues see Musgrave, R.A. (1985) A Brief History of Fiscal Doctrine, Chapter 1, in: J. Auerbach and M. Feldstein (Eds) Handbook of Public Economics, Volume 1. London: Elsevier Science. This article will not therefore address macro‐economic issues and the merits of related assumptions. Rather it focuses on the system of public financial management, briefly alluding to the following components: accounting, budgeting, procurement, monitoring and auditing, using Trinidad and Tobago as a case study. However, given the commonality of the legal framework underlying the governmental framework of small island states in the Commonwealth, the description of current practices and proposed reforms in this article should resonate with those countries whose operating financial systems are rooted in the Exchequer and Audit Departments Act 1866 UK (the traditional model law). By contrasting current practice with current best practice, the article will illustrate the connection between a well‐designed legal and regulatory framework reflecting the rule of law, and the constitutional principles of good governance, accountability and transparency driving current best practice in accounting, budgeting, procurement and auditing to greater public confidence in government. A feature of governments operating according to the Westminster parliamentary democratic model is compliance with the rule of law. In public financial management this translates to there being a legal authority as the basis of every governmental decision. While this may be apparent, it is acknowledged that a feature of public administration – particularly in small island states – is a perception that cabinet decisions have the imprimatur or effect of a law. This results, occasionally, in the translation of the decision of cabinet to a lawful authority being overlooked in the haste to do cabinet’s bidding. This article is based on the proposition that the prime governmental activity is raising and spending public money. It follows, therefore, that there ought to be a clear and unambiguous supporting legal framework governing that activity. The values or priorities of the government of the day are reflected in the priorities of public expenditure. Issues pertinent to an appropriate legal and regulatory framework for a public financial management system should therefore reflect an awareness of the link between the strategic policy objectives of the government, and the systems and processes relating to public financial management, particularly expenditure, so as to conform to the constitutional principles of parliamentary responsibility and good governance. As the principles of good governance – namely accountability, transparency and value for money – are already reflected in the Constitution of Trinidad and Tobago and the Exchequer and Audit Act 1959 (an analogue of the traditional model law), the issue is not so much their existence in law, but whether or not the legal design could more effectively entrench these principles in the public interest. As any debate on the reform of the legal and regulatory framework presumes the furtherance of the principles of good governance thus good government, it follows that any legal instruments, such as a law‐reforming the system, should have bi‐partisan political support.