Solomon Islands’ new public finance legislation, the Public Financial Management Act 2013 (New Act), commences on 1 January 2014.  The New Act (which has been eagerly anticipated by international donor bodies) espouses transparency, accountability and greater review and feedback in the finance and budgeting process, with the aim of promoting sound financial management, and ensuring Government accountability to Parliament.  The New Act repeals certain parts of the Public Finance and Audit Act 1978(Old Act), in operation since independence. 

Here’s an outline of the key reforms.

  1. Targeted balance system

The Old Act contained no rules as to how funds from international donor organisations or countries should be recognised or managed.  The New Act introduces a ‘targeted balance’ system for use of the Consolidated Fund, defined in section 27 of the New Act as:

"budget support financing allocated from the Consolidated Fund to a Government agency, intended to finance targeted services, programs and projects or pre-conditioned on certain policies and actions of Government, where the recipient accountable officer does not have discretionary power to spend those funds."

The Minister may by order establish a targeted balance for targeted budgetary allocation as part of the Consolidated Fund.  The Minister is to determine the operation of each targeted balance, including procedures, guidelines and criteria to be applied in allocating money to the targeted program or program beneficiaries, to specify:

  • the predetermined total amount of the targeted balance that shall be appropriated annually;
  • the method to be applied in determining the targeted balance;
  • the amount of donor or other external funding expected to also fund any targeted balance;  and
  • the purposes for which amounts may be withdrawn from the ‘targeted balances account’ (a designated account established by the Minister).

The Minister must approve any spending of money in accordance with the provisions of the New Act.  Any unexpended amounts at the end of the financial year lapse, with the exception of those used to fund contractual obligations for prescribed multiyear development projects.

  1. New rules for Government on-lending

Government on-lending is covered by Part 8 of the New Act.  A new Debt Management Advisory Committee must be consulted regarding any on-lending, along with the relevant accountable officer making the application, and the Minister (section 67 of the New Act).  On-lending must be included in the Minister’s budget statement to Parliament (section 67(3) of the New Act).  This is likely to have an impact on any politically-sensitive loans being granted by Government.  The recipient of any Government on-lending must have audited financial statements, and demonstrate that all National Provident Fund contributions are up-to-date and tax laws have been complied with (section 70(a) of the New Act).

  1. New Budgeting Process

The Old Act did not expressly provide for a budgeting process and consequently, Government has frequently required supplementary appropriation acts. The New Act seeks to rectify ineffectual budgeting processes, and encourage forward planning, by clearly setting out responsible resources and deadlines.

  1. New and Adapted Roles

The New Act creates the following new roles and bodies:

  • Accountant General – an oversight role to create systems and consistency throughout the budgeting processes and to work to prevent opportunities for corrupt practices (rather than simply responding to corruption after it has occurred);
  • Financial Controllers – individuals specifically responsible for implementing the policy changes introduced by the Accountant General, and for overseeing the use of public funds within each agency;
  • Budget Division of the Ministry of Finance;
  • Internal Audit Office; and
  • Debt Management Supervisory Committee.

The following roles are adapted under the New Act:

  • Accountable and Accounting Officers – a clear standard of care is now defined for use of public resources, which is expansively defined, potentially to make enforcement or subsequent administrative action against corruption or embezzlement easier; and
  • Minister of Finance – now has more defined responsibilities.

Whilst the New Act may appear to add layers of bureaucracy to the Finance Ministry, it also creates clear checks and balances for the use of public funds and necessitates some forward financial planning and ongoing budget review and assessment, and if implemented successfully should lead to a more productive use of government resources.

  1. New Penalty Provisions

The new penalties for misconduct in office and surcharges are outlined in sections 84-88 of the New Act, and include:

  • penalties;
  • disciplinary sanctions;
  • surcharges (to recover amounts lost by virtue of an act or omission).

The aim is clearly to give the new mechanisms and positions “teeth” and clear enforcement opportunities to encourage employees to abide by the new rules.