I am constantly reading about ‘irregular expenditure’ and ‘fruitless and wasteful expenditure’. What does this all mean? The Financial and Fiscal Commission said recently a whopping R4.7-billion was wasted in public healthcare spending. While few public servants with their hands in the cookie jar are prosecuted, fewer still seem to be held accountable for what also seems to be a form of theft from the public. Are there consequences for public servants wasting public money in this way?
The Public Finance Management Act (PFMA) refers to several types of what can broadly be called ‘improper expenditure’. First, it defines ‘fruitless and wasteful expenditure’ as ‘expenditure which was made in vain and would have been avoided had reasonable care been exercised’. So fruitless and wasteful expenditure does not necessarily imply that the expenditure was corrupt – it could simply be the result of negligence or poor financial planning.
In addition to fruitless and wasteful expenditure the PFMA prohibits ‘irregular expenditure’, which is any expenditure made in contravention of any law. Besides the PFMA, there are various laws that regulate how public money can be spent.
The third type of improper expenditure referred to in the PFMA is ‘unauthorised expenditure’. When the government budgets, it does so for specific items. If money is spent for a purpose other than what was authorised by the budget, the expenditure is ‘unauthorised’.
So much for what improper expenditure means – what can be done about it? Section 38 of the PFMA imposes a range of obligations on organs of state in relation to any improper expenditure. Generally, the accounting officer of an organ of state – such as the director-general (DG) in a national department – is obliged to take effective and appropriate steps to prevent improper expenditure. Furthermore, if the DG discovers any improper expenditure, he or she must immediately refer it to Treasury and take disciplinary steps against the official suspected of making or permitting improper expenditure. All improper expenditure must also be reported in the annual report of the organ of state.
The PFMA makes it a criminal offence for an accounting officer to make or permit improper expenditure, or to fail in her obligations to prevent and report improper expenditure. The offence is punishable by up to five years’ imprisonment.
Of course, it is not only the DG that has obligations under the PFMA; all officials are required to take steps to prevent the three forms of improper expenditure.
Improper expenditure will often be linked to more nefarious ends; it may also constitute corruption, theft or fraud. Those offences carry more severe punishments. Also, any improper expenditure could be reviewed and set aside by a court. Finally, there may be disciplinary consequences for those involved.
Although a number of legal penalties are available for wasteful expenditure, their effectiveness is dependent on institutions implementing them. Thankfully, there are signs that government is taking the issue seriously.
For example, new municipal regulations on financial misconduct procedures and criminal proceedings were gazetted into law on 30 May 2014. The regulations deal comprehensively with how allegations of financial misconduct in municipalities should be reported and how disciplinary proceedings against those responsible should be conducted.
Financial misconduct includes making or permitting, or instructing an official of a municipality to make unauthorised, irregular or fruitless and wasteful expenditure. The reporting system for such cases has been formalised to avoid investigations falling through the cracks, as was the case in the past. And by establishing disciplinary boards that will investigate cases, municipalities can centralise the task of probing officials who are reported.