Irregular Expenditure: What It Is and How to Avoid It — PFMA

Irregular expenditure is one of the most frequently cited findings in the Auditor-General of South Africa’s annual reports. For the 2022/23 financial year, the AGSA reported irregular expenditure of R173.8 billion across national and provincial departments and entities. Understanding what it is — and how to avoid being caught up in it as a supplier — is critical.

The Legal Definition

Section 1 of the PFMA defines irregular expenditure as:

“expenditure, other than unauthorised expenditure, incurred in contravention of or that is not in accordance with a requirement of any applicable legislation, including— (a) this Act; or (b) the State Tender Board Act, 1968 (Act No. 86 of 1968), or any regulations made in terms of that Act; or (c) any provincial legislation providing for procurement procedures in that provincial government.”

The definition has been expanded through practice to include contraventions of Treasury Regulations and the PPPFA.

What Makes Expenditure “Irregular”?

The critical distinction is that irregular expenditure relates to process non-compliance — not necessarily value loss. A department can incur irregular expenditure even when it bought goods at a fair price, from a legitimate supplier, for genuine operational needs — if the procurement process was not followed correctly.

Common Causes of Irregular Expenditure in Procurement

1. Failure to follow competitive bidding requirements Using a quotation process for a contract above the R500,000 formal tender threshold. Or issuing quotations to fewer than the required three suppliers for contracts between R30,000 and R500,000.

2. Contract extensions and modifications without authority Extending a contract beyond its term without a proper competitive process, or modifying contract value beyond the permitted 15% threshold without re-tendering.

3. Improper sole source or limited bidding Awarding a contract without competition where the conditions for single-source procurement (urgency, proprietary technology, or national security) have not been properly documented and approved.

4. Non-compliance with PPPFA requirements Failing to apply the correct preference point system (80/20 vs 90/10) for the contract value, or failing to properly verify B-BBEE status through CSD or valid certificates.

5. Supplier not registered on CSD Contracting with a supplier who is not registered on the Central Supplier Database, or whose CSD registration was inactive or expired at the time of award.

6. Improper deviation from SCM processes Any deviation from normal SCM processes requires approval from the accounting officer (and sometimes the relevant Treasury) before it is implemented. Unapproved deviations constitute irregular expenditure.

7. Conflict of interest not disclosed or managed An official involved in a procurement decision who has a financial or personal interest in the outcome — and fails to declare and recuse themselves — creates the basis for irregular expenditure.

8. Awards to restricted or blacklisted entities Contracting with entities or individuals listed on the National Treasury’s database of restricted suppliers (previously called the “blacklist”). Suppliers are restricted for previous contract defaults, fraud, or financial misconduct.

The Irregular Expenditure Audit Trail

The Auditor-General South Africa (AGSA) audits all national and provincial departments and entities annually. Irregular expenditure is identified through:

Review of bid documentation against SCM policy and Treasury Regulations
Verification of CSD registration status at time of award
Comparison of awarded prices to market benchmarks
Review of deviation and exemption registers
Verification of B-BBEE certificate validity
Inspection of conflict of interest declarations
Comparison of approved contract values against actual expenditure

When irregular expenditure is identified by the AGSA, it is disclosed in the audit report and in the entity’s annual financial statements. The entity’s accounting officer is required to investigate and report on the outcome.

Consequences for Government Officials

Where irregular expenditure arises from deliberate acts or gross negligence by officials:

Disciplinary proceedings: Officials may face departmental disciplinary proceedings, potentially resulting in dismissal.

Financial recovery: Under Section 38(1)(h)(ii) of the PFMA, accounting officers must take effective steps to recover irregular expenditure from responsible officials where appropriate.

Criminal prosecution: Under Section 86 of the PFMA, deliberate or negligent financial misconduct is a criminal offence punishable by imprisonment of up to 5 years or a fine.

Personal surcharge: Treasury Regulations allow the relevant Treasury to surcharge officials held personally responsible for financial losses resulting from financial misconduct.

PFMA Section 34 obligation: Any official who becomes aware of corrupt activity must report it to SAPS. Failure to do so is itself a criminal offence under the Prevention and Combating of Corrupt Activities Act, 2004 (PRECCA).

How Irregular Expenditure Affects Suppliers

While suppliers cannot be held liable for government’s internal procurement failures, there are several ways irregular expenditure can affect your business:

Contract cancellation: If an audit finding reveals that a contract was improperly awarded, the department may seek to cancel the contract. This can be devastating for a supplier who has committed resources.

Payment delays: Accounting officers sometimes freeze payments while irregular expenditure is being investigated, even where the supplier is an innocent party.

Reputational damage: Public audit reports are publicly available. Being named in connection with irregular expenditure — even as an innocent party — can harm your business.

Civil recovery claims: Where a supplier knowingly benefited from a corrupt process, or where they colluded with officials, Treasury may pursue civil recovery of contract amounts already paid.

Restricted supplier database: Suppliers found to have engaged in fraudulent conduct in government procurement can be placed on the National Treasury restricted supplier database, effectively barring them from all government work.

How to Protect Yourself as a Supplier

1. Know the Rules Better Than the Officials You Deal With

Understanding what a compliant procurement process looks like — correct threshold application, proper advertising, proper evaluation — allows you to identify when something seems wrong. If an official approaches you with an unsolicited offer to award a contract without competition, that is a red flag.

2. Insist on Written Documentation

Never begin work without a signed contract or official purchase order. Never accept verbal instructions to perform work outside the contract scope. Every variation should be in writing, signed by an authorised official.

3. Verify Your CSD Status Before Every Bid

Your CSD registration must be Active at the time of bid submission and at the time of contract award. An expired CSD status doesn’t just disqualify your bid — a contract awarded to a supplier with an inactive CSD status is irregular expenditure.

4. Declare Relationships with Officials

If you or any director has a personal, family, or business relationship with any official involved in evaluating or awarding a tender you are bidding for, you must disclose this proactively. Non-disclosure by the supplier, even where the official fails to disclose, can taint the procurement.

5. Review Contracts Before Signing

Ensure that the contract you receive after award matches what was in the bid documents. Any material changes between the advertised scope and the contract terms may indicate a process that could be challenged.

Condonation of Irregular Expenditure

Not all irregular expenditure results in consequences. The relevant Treasury (National Treasury or provincial treasury) may condone (retrospectively approve) irregular expenditure where:

The expenditure was necessary and in the public interest
There was no element of fraud, corruption, or gross negligence
The goods or services were actually delivered at a fair price
Systems have been put in place to prevent recurrence

Condonation is not automatic. The accounting officer must apply for condonation with full details of the circumstances.

For specific questions about procurement compliance, use the PFMA Assistant for instant answers with legislative citations.