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A second wave of reforms occurred in 1967 under military rule (1964-1985). While the TCU was not dismantled, the military revoked its independence and undercut its authority, including in the registration of public contracts (‘registro prévio’).26 Simultaneously, the TCU’s authority was expanded to include all three branches of government and sub-national governments, as a means of extending the military government’s control over the bureaucracy and the states. The 1967 reforms also strengthened internal controls under what later became the Secretariat of Internal Control (SFC) in the Ministry of Finance, which reports to the President. 27

Most importantly, the 1967 reforms abandoned ex-ante control, in place since 1891, in favor of ex-post auditing. The abandonment of ex-ante control followed the logic of separation of powers but significantly diminished constraints on the executive. As a result, the TCU’s ‘veto powers’ in public budgeting and financial administration were greatly reduced (Tsebelis 2002, 2000).28 Ex- ante control was gradually transferred to the internal control system and tightly attached to executive power. Nevertheless, the culture of ex-ante compliance control still pervades the organization (Speck 2000). The abandonment of ex-ante control nevertheless paved the way to modern approaches to external control. In that period, the government became convinced of the need to evaluate the public sector performance more rigorously (Braga de Figueiredo 1991). The TCU started to pilot performance audits in the early 1980s under criteria of efficiency and effectiveness without the explicit authorization by the 1967 Constitution.

The return of democracy in 1985 marked another important stepping stone in the development of the TCU. The Constitution of 1988 substantially strengthened the budgetary powers of the legislature, restored the authority of the TCU and strengthened the links between the two. The strengthening of the legislature’s budgetary powers was considered as an integral part of the restoration of democracy and of dismantling the authoritarian heritage (OECD 2003). The new Constitution reorganized and modernized the budgetary system, giving the legislature greater oversight powers, although the executive remains the dominant actor in the budget process. These reforms were part of a broader re-equilibration of executive-legislative relations in favor of the latter. As mentioned previously, the mode of designation of auditors-general was radically modified to strengthen the role of the legislature. The logic of external auditing gradually shifted from being an instrument of executive control of the bureaucracy to becoming an instrument of legislature restrain of the executive. The organic law of the TCU was adopted in 1992 and its competence was expanded beyond compliance auditing (legal and financial) to include performance auditing (economic efficiency and legitimacy), endorsing past practice.

Despite recurrent turbulence in financial markets and the incidence of corruption, Brazil has nevertheless been able to strengthen the institutional framework governing the budget process and

26 The military introduce procedural rules that undermined the authority of the TCU and undercut the powers of the legislature. In the area of public procurement in particular, if the TCU detected irregularities it had to transmit the case to the legislature that had 30 days to rule on the matter, after which the contract was deemed approved. According to the principle of ‘decisão por decurso de prazo’ or ‘positive administrative silence,’ decisions were considered adopted once a period of time had lapsed without the legislature or the TCU emitting an adverse opinion. This rule introduced by the military regime was designed to neutralize the possible obstruction or veto in policy-making and budget execution, while keeping the façade of democratic procedures.

27 The Secretariat for Internal Control grew from the Office of the Inspector General of Finance, which was in operation from 1975 to 1986.

28 In Brazil, the institution of ex-ante control caused conflicts as soon as 1893, when the TCU refused to authorize pension payments to a civil servant contracted irregularly (Cotias e Silva 1999). The incident became famous because this civil servant in question was the brother of a former President, Deodora da Fonseca, who had been appointed by the then-president Floriano Peixoto. The case soon degenerated into an open conflict between the President and the TCU, with the then-minister of finance Serzedello Corrêa taking the side of the TCU. Corrêa refused to countersign executive decrees designed to undermine the TCU’s independence or suppressing ex-ante control. This conflict is considered as a defining moment in the history of the TCU, reflecting its struggle for genuine independence in the architecture of the state.

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