PFMA Act 1 of 1999 Explained — PFMA

The Public Finance Management Act, Act 1 of 1999 (PFMA), is the foundational legislation governing public financial management in South Africa at national and provincial level. For anyone participating in or seeking to understand South African government procurement, the PFMA is the starting point.

What the PFMA Does

The PFMA establishes a framework for managing all aspects of public finances across national and provincial spheres of government. Its objectives, as set out in the Preamble, are to:

Regulate financial management in national and provincial government
Ensure accountability for management of public funds
Regulate the responsibilities of persons entrusted with financial management
Provide for matters connected therewith

Before the PFMA, South Africa’s public financial management was governed by the Exchequer Act of 1975 — a product of the apartheid era that did not align with the accountability principles of the new constitutional order. The PFMA represented a fundamental restructuring of how the democratic government would manage public resources.

Structure of the PFMA

The Act comprises 12 chapters and multiple schedules:

Chapter 1: Definitions and Objects

Establishes key definitions including “accounting authority,” “accounting officer,” “department,” “financial misconduct,” “fruitless and wasteful expenditure,” “irregular expenditure,” and “public entity.”

Chapter 2: National Revenue Fund

Governs the control and management of the National Revenue Fund into which all government revenue is deposited.

Chapter 3: Parliamentary and Provincial Budget Processes

Regulates how departments prepare and submit budget proposals, including the requirements for medium-term expenditure frameworks (MTEFs).

Chapter 4: National Treasury

Establishes the powers and responsibilities of the National Treasury, including the authority to issue Treasury Regulations.

Chapter 5: Provincial Treasuries

Mirrors Chapter 4 but for provincial treasuries.

Chapter 6: Accounting Officers

This is the chapter most relevant to procurement. Section 38 — the cornerstone of public sector accountability — sets out the responsibilities of accounting officers (Heads of Department / Directors-General / CEOs of public entities):

“(1) The accounting officer for a department, trading entity or constitutional institution— (a) must ensure that the department, trading entity or constitutional institution has and maintains— (i) effective, efficient and transparent systems of financial and risk management and internal control; (ii) a system of internal audit under the control and direction of an audit committee complying with and operating in terms of any prescribed norms and standards; (iii) an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective.”

These five principles — fair, equitable, transparent, competitive, cost-effective — form the constitutional mandate for all government procurement (derived from Section 217 of the Constitution).

Chapter 7: Accounting Authorities

Covers public entities and their boards/accounting authorities. Section 50 places general responsibilities on accounting authorities analogous to those of accounting officers.

Chapter 8: Financial Misconduct

Defines and provides for consequences of financial misconduct, including irregular expenditure, fruitless and wasteful expenditure, and unauthorised expenditure.

Chapter 9: Auditing of Departments and Public Entities

Establishes audit requirements and the role of the Auditor-General.

Chapter 10: General Treasury Matters

Includes Section 76 empowering National Treasury to make Treasury Regulations.

Chapters 11 and 12: Miscellaneous and Repeals

The PFMA Schedules: Who Is Covered?

Understanding which Schedule your contracting entity falls under is important for understanding the procurement rules that apply:

Schedule 1: Constitutional Institutions Includes the Public Protector, SAHRC, Auditor-General, Electoral Commission, and others. High autonomy, but still subject to PFMA.

Schedule 2: Major Public Entities ESKOM, Transnet, PRASA, South African Airways, SA Forestry Company, etc. These are State-Owned Enterprises (SOEs) with separate accounting authorities (boards).

Schedule 3A: National Government Business Enterprises Smaller national SOEs and trading entities.

Schedule 3B: Provincial Government Business Enterprises Smaller provincial SOEs.

Schedule 3C: National Government Entities Large regulatory and service delivery entities at national level — SASSA, NHI, UIF, NHBRC, etc.

Schedule 3D: Provincial Government Entities Provincial service delivery entities.

National and provincial departments (as opposed to entities) are governed by the Act directly, not via schedules.

Key distinction: Municipalities fall under the Municipal Finance Management Act (MFMA), Act 56 of 2003 — not the PFMA. If you are supplying to a municipality, you need to understand the MFMA procurement rules.

Section 217 of the Constitution: The Foundation

The PFMA cannot be understood in isolation from Section 217 of the Constitution of the Republic of South Africa, 1996:

“(1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective. (2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providing for— (a) categories of preference in the allocation of contracts; and (b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination. (3) National legislation must prescribe a framework in terms of which the policy referred to in subsection (2) may be implemented.”

The PFMA and the Preferential Procurement Policy Framework Act (PPPFA) together give effect to this constitutional mandate.

Treasury Regulations Under the PFMA

The National Treasury has issued Treasury Regulations under Section 76 of the PFMA. Chapter 16A of these regulations — titled “Supply Chain Management” — is the most practically important section for government suppliers.

Chapter 16A covers:

Demand management
Acquisition management
Logistics management
Disposal management
Risk management
Performance management of the supply chain
Supplier database management (CSD requirements)
Vendor rating

Treasury Regulation 16A.3.2 establishes the threshold values for different procurement methods:

Petty cash: Up to R2,000
Three written quotations: R2,000 to R500,000
Formal competitive bidding (tender): Above R500,000

These thresholds can be adjusted by the relevant Treasury. The current thresholds are set out in the Preferential Procurement Regulations, 2022.

Financial Misconduct Under the PFMA

Understanding PFMA financial misconduct is important for suppliers because:

Accounting officers found guilty of financial misconduct can face dismissal, criminal prosecution, or civil recovery orders
Pressure to avoid financial misconduct findings can influence how strictly evaluators apply procurement rules — creating both fairness and rigidity
Suppliers found to have colluded with officials in financial misconduct can face criminal charges under the Prevention and Combating of Corrupt Activities Act, 2004

Three Categories of Problematic Expenditure

Unauthorised Expenditure (Section 1): Expenditure incurred in a manner or for a purpose not authorised by the relevant budget or appropriation. Example: spending infrastructure budget on operational costs.

Irregular Expenditure (Section 1): Expenditure incurred in contravention of procurement legislation or financial management requirements — even if the goods or services were genuinely needed and fairly priced. This is where most supplier-related issues arise.

Fruitless and Wasteful Expenditure (Section 1): Expenditure made in vain and would have been avoided had reasonable care been exercised. Example: cancellation penalties on a contract that was poorly planned.

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