How SA law deals with ‘wasteful expenditure’

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Dear Corruption Watch,

I see that Corruption Watch has written a letter to Public Works’ Minister Thulas Nxesi asking for a response to questions about the Nkandla homestead upgrade.  It is great to see that public spending is being monitored.  If it does indeed turn out to be wasteful expenditure – what would the consequences be under South African law? – Follower of the Nkandla saga

Dear Follower,

There are many potential problems with the Nkandla homestead and we will likely feel the repercussions for many years to come.  There will be political consequences that are independent of the legality of the expenditure.  Many people may turn away from President Zuma or the ANC because of what they perceive to be an abuse of power.  There are also potential allegations of corruption in how and to whom the tenders were awarded.  Your question focuses on a particular issue: what are the legal consequences if the expenditure is “wasteful”?

The first issue is to figure out what “wasteful expenditure” means, legally speaking. The Public Finance Management Act (PFMA) defines the phrase “fruitless and wasteful expenditure” as “expenditure which was made in vain and would have been avoided had reasonable care been exercised.”  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. 

The PFMA refers to two other related types of what I will call “improper expenditure”.  In addition to “fruitless and wasteful expenditure” the PFMA prohibits “irregular expenditure” which is simply any expenditure that was made in contravention of any law.  In addition to the PFMA itself, there are a range of laws that regulate how public money can be spent.  If the Nkandla expenditure was contrary to any of those laws, it is “irregular”.

The third type of improper expenditure referred to in the PFMA is “unauthorised expenditure”.  When the government budgets, it does so for specific items, or “votes”.  If money is spent for a purpose other than what was authorised by the budget, the expenditure is “unauthorised”.

Section 38 of the PFMA imposes a range of obligations on the heads of organs of states regarding the three types of improper expenditure.  The “accounting officer” of an organ of state – in the case of a national department, that is the Director General – must take “effective and appropriate steps” to prevent improper expenditure.  Furthermore, if the DG discovers any improper expenditure, she must immediately refer it to Treasury and take disciplinary steps against the official suspected of making or permitting improper expenditure.  Finally, all improper expenditure must be reported in the Annual Report.  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.

What are the consequences if the DG fails to meet her obligations?  First, 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. 

In addition, improper expenditure will often be linked to more nefarious ends, and may also constitute corruption, theft or fraud.  Those offences carry even more severe punishments.  Second, any improper expenditure will be open to being reviewed and set aside by a court. Third, there may be disciplinary consequences for those involved.

Although a number of legal penalties are available for wasteful expenditure, they depend on institutions and citizens to implement.  We must place pressure on those institutions to enforce the law.

Take a stand and report an incident of corruption. This article originally appeared in the Sunday Times Business Times on 28 October 2012.