FRUITLESS AND WASTEFUL EXPENDITURE: TREASURY REPORTING MEASURES RAISE EYEBROWS

FRUITLESS AND WASTEFUL EXPENDITURE: TREASURY REPORTING MEASURES RAISE EYEBROWS

• 10 August 2023
• State Owned Enterprises
• SA Legal Academy

An article in today’s Financial Mail has drawn attention to a National Treasury instruction note to public sector accountants and auditors. Apparently, the note could have far-reaching, unintended consequences.

Issued on 23 December 2022 but not widely reported in the media at the time (if at all), Instruction Note 4 2022/23 came into effect on 3 January 2023. It sets out ‘principles and compliance reporting requirements for departments, trading entities, constitutional institutions and public entities listed in Schedules 2 and 3 to the Public Finance Management Act, 1999’ and has implications for:

• the ‘application, implementation and reporting of unauthorised expenditure, irregular expenditure, and fruitless and wasteful expenditure, and
• ‘reporting on supply chain management information related to … procurement by other means and … contract variations and expansions’.

Summarising the note, slide 18 of a National Treasury presentation in Parliament on 5 April 2023 refers to requirements in terms of which:

• unauthorised, irregular and fruitless and wasteful expenditure ‘that occurred in the financial year’ should be disclosed in an entity’s financial statements, ‘with comparative amounts’, while
• information disclosed in its annual report should be confined to:
  • ‘unauthorised, irregular and fruitless and wasteful expenditure under assessment, determination and investigation’
  • information on irregular expenditure condoned, not condoned and removed
  • losses recovered, and
  • losses written off.

The meeting was held to discuss Eskom’s controversial partial exemption from what may well have been related requirements, although this is not clear from available records. Gazetted on 31 March 2023, the partial exemption was eventually withdrawn in June.

To some extent, today’s Financial Times article explains the rationale for Instruction Note 4 2022/23 and Eskom’s short-lived partial exemption. It refers to a ‘litany’ of new regulations issued during the past decade that have apparently made the Act ‘unwieldy’ from an accounting perspective. Often issued as instructions intended to curtail irregular financial transactions, these measures have elicited a ‘far more technical’ interpretation and response from auditors than anticipated. This is according to National Treasury acting Director-General Ismael Momoniat, whom the article quotes extensively.

Instruction Note 4 2022/23 sought to address this, it seems. A formal media statement explaining its contents in the context of the withdrawn Eskom exemption would nevertheless be helpful.

• Instruction Note 4 of 2022/23
• National Treasury media statement on Eskom's partial exempiton (since withdrawn)   
• Financial Times article
• National Treasury 5 April 2023 presentation  

Published by SA Legal Academy Policy Watch

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