Accounting officers must exercise control over all government expenditure, whether it is incurred directly by a department or takes the form of a transfer payment (see Chapter 9) to another sphere of government or other entity. Expenditure must only be incurred in accordance with the purpose approved by the legislature in a vote, unless it is a direct charge or a transfer specified in the DoRA.

Payments to suppliers within 30 days

Procurement practices must be competitive, fair and equitable, and payments to suppliers are to be made within 30 days of receiving an invoice, unless otherwise specified in a contract. Accounting officers delaying payment for whatever reason (deliberate or cash management) may not only open themselves to financial misconduct charges, but also may undermine government objectives such as promoting small, medium and microenterprises.

Personnel costs

In relation to personnel costs, the Act requires each accounting officer to ensure that the personnel cost of all appointees, as well as promotion and salary increases, can be met within the budgetary allocation of the department. Managers must also authorise their monthly payrolls before processing and ensure that all such payments are made in good time. Any deductions must be in accordance with the Payroll Deduction Regulation, 2000. The Department of Public Service and Administration is considering proposals on remuneration which, if implemented, will require additional capacity within departments to manage personnel costs.

UNAUTHORISED, IRREGULAR, FRUITLESS AND WASTEFUL EXPENDITURE

The Act specifically requires accounting officers to exercise all reasonable care to prevent and detect unauthorised, irregular, fruitless and wasteful expenditure. They must implement effective, efficient and transparent processes of financial and risk management, and track expenditure and expenditure commitments against the vote. In addition, monthly and annual reporting requirements are stipulated, and disciplinary sanctions prescribed should these provisions not be satisfied.

Unauthorised expenditure

The PFMA defines unauthorised expenditure as either overspending of a vote or a main division within a vote, or expenditure that is not in accordance with the purpose of a vote or a main division. Accounting officers must implement appropriate mechanisms to prevent such spending. Expenditure for a public purpose that is not government policy is also unauthorised, as is any transfer not made in terms of a DoRA or appropriation Act.

Approval of unauthorised expenditure

If the unauthorised expenditure is to be authorised, this will be dealt with in a Finance Act. In instances of overexpenditure, the amount by which the total of a vote was exceeded in a specific financial year must form a charge against the amount appropriated in the next financial year. The legislature may, however, recommend that an additional amount be appropriated by means of a Finance Act; this will be deemed a direct charge against the relevant revenue fund.

Regardless of whether the unauthorised expenditure is recovered in terms of the prescribed procedures, disciplinary action can still be taken against the accounting officer or any other official in terms of the Act or the Public Service Act, 1994.

Irregular expenditure

Irregular expenditure refers to expenditure, other than unauthorised expenditure, incurred in contravention of or not in accordance with a legislative requirement, including the PFMA, the State Tender Board Act or provincial legislation providing for procurement procedures.

Fruitless and wasteful expenditure

Fruitless and wasteful expenditure is expenditure made in vain, which could have been avoided had reasonable care been exercised. This, for example, may relate to the printing of excessive numbers of annual reports.

Requirement to report

Should unauthorised, irregular or fruitless and wasteful expenditure be discovered, it must immediately be reported to the accounting officer, who must disclose it in the monthly report. Where appropriate, the accounting officer must instigate disciplinary steps and attempt to recover resulting losses or damages in accordance with the Regulations. The amount of such expenditure must be disclosed as a note to the annual financial statements.

FINANCIAL MISCONDUCT

The PFMA introduces the offence of financial misconduct, and defines specific sanctions. However, in the first year, the focus will be on empowering accounting officers rather than on the sanctions that are available. Financial misconduct must be seen in the context of other disciplinary measures, such as misconduct or incompetence, which are intended to assist accounting officers in improving departmental efficiency.

Disciplinary processes

Should the accounting officer (or if necessary, the relevant treasury) believe that a matter merits investigation, the Regulations require the standard disciplinary procedures be followed, as outlined in Table 5.

Table 5: Disciplinary arrangements

An accounting officer commits an act of financial misconduct by wilfully or negligently failing to comply with his or her general responsibilities, as well as specific responsibilities related to:

An official commits financial misconduct by wilfully or negligently failing to exercise a power or perform duties assigned to him or her by the accounting officer. The accounting officer must take effective and appropriate disciplinary steps against any official who makes or permits unauthorised, irregular or fruitless and wasteful expenditure.

Investigation of alleged financial misconduct

If an official is alleged to have committed financial misconduct, the accounting officer must investigate and ensure that any disciplinary proceedings are carried out in accordance with the relevant prescripts.

If an accounting officer is alleged to have committed financial misconduct, the executive authority must initiate appropriate disciplinary procedures. Should the executive authority fail to take action, the relevant treasury must initiate appropriate disciplinary proceedings. The treasury may issue any reasonable requirement regarding the way in which the investigation should be performed. It may also direct that an official from outside the department should investigate – an accounting officer of higher rank will normally preside – and the Department of Public Service and Administration will usually be involved.

Reporting

The department must inform the executive authority, the relevant treasury, the Department of Public Service and Administration and the Public Service Commission of the outcome of any criminal proceedings for financial misconduct.

The accounting officer must, each year, submit to the relevant treasury and Auditor-General a schedule of:

The report must note any changes to the department’s systems of financial and risk management or any other matter dealt with in the Act, as a result of the investigation.

Offences and penalties

Where an accounting officer wilfully or negligently fails to comply with his or her general, budgetary control or reporting responsibilities, the Act specifies a fine or imprisonment for up to five years. A person who unlawfully borrows money or issues a guarantee is liable to the same penalties.

IN-YEAR PROCESSES

Virement

Unless the relevant treasury directs otherwise, an accounting officer may utilise a saving of up to 8 per cent of the amount appropriated under a main division for defraying excess expenditure under another main division within the same vote. This must be reported to the executive authority and the relevant treasury within seven days.

The Regulations specify that the relevant treasury must give prior approval before any personnel expenditure or transfers are increased, or before any earmarked allocations are used for other purposes.

Case study: Virement

The department of ABC has two main divisions within its vote – Programmes A and B. The budget, actual expenditure and variations for each programme are set out in the table below.

Table 6: Virement case study: Department of ABC

Unless the adjustments budget increased the total allocation by R200 million, increased the allocation for Programme A, and decreased the original allocation to Programme B, the Auditor- General’s audit opinion will note that the total budget was overspent by R200 million, and that this is unauthorised expenditure. It will highlight that the budget for Programme A was overspent by R400 million, compared to the original allocation.

The PFMA does allow the accounting officer to shift R80 million (8 per cent of R1 000 million) from Programme B to A. Had this been done, only R320 million of the additional R400 million spent on Programme A would have been unauthorised. Further, Programme B is underspent by R200 million (or R120 million had the virement been exercised).

Rollovers

A particular problem in recent years has been the amount of money rolled over from one financial year to the next. This is generally the result of poor planning, and Government intends to reduce the size of rollovers in future. Accounting officers must recognise that, in most cases, the failure to utilise funds allocated by a legislature represents underperformance.

The Regulations allow for unspent appropriated funds to be rolled over to a subsequent year in certain circumstances, subject to approval by the relevant treasury. Capital funds may be rolled over to finalise projects still in progress or for other capital purposes. Transfer payments may not be rolled over for purposes other than originally voted. A maximum of 5 per cent of a department’s current expenditure may be carried into the next financial year.

Transfer of functions

Before seeking formal approval from the Minister of Public Service and Administration or the Premier of a province for a transfer of functions to another sphere of government, the transferring accounting officer must first obtain the approval of the relevant treasury for any funding arrangements.

Additional funds through an adjustments budget

Departments can no longer assume that additional funds will necessarily be made available through an adjustments budget. The Act defines the conditions under which unavoidable or unforeseeable matters may be included in an adjustments budget – departments must submit a memorandum to the relevant treasury, the Cabinet/Exco Secretariat and any treasury subcommittee of the Cabinet/Exco.

PUBLIC-PRIVATE PARTNERSHIP AGREEMENTS

Only an accounting officer may enter into a public -private partnership (PPP) agreement on behalf of the department, and only with the prior written approval of the national Treasury.

To determine whether a proposed PPP agreement is in the best interests of a department, the accounting officer must prepare a feasibility analysis. It should, among other things, explain the strategic and operational benefits of the PPP agreement and assess how the agreement will assist in meeting the department’s strategic objectives.

The details of the processes to be followed are specified in the Framework in Chapter 16 of the Regulations and in the national Treasury Guide.