The Public Finance Management Act of 1999, is one of the crucial pieces of legislation that governs the public sector, if not the most important. There are also views that it’s the most complex and at times, some argue, a stifling legislation. I argue upfront that it’s one of the simplest written pieces of legislation. However, some areas need attention as it’s not practical to have a perfect legislation.
There are provisions of the act that are largely misinterpreted at best and misunderstood at worst. This is not confusion that only engulfs ordinary users of the act but some legal practitioners also fall foul of some of the clauses in terms of how they are interpreted and their applicability. Case in point is the use of the title, accounting officer. It has generally been interpreted to mean anyone who is the head of administration or the CEO is an accounting officer. This, of course, is not correct. The act is clear that the accounting officer is a person referred to in section 36 of the act. In that section it is clear that the accounting officer refers only to the heads of departments (nationally and provincially) and CEOs of constitutional entities like the Public Protector, Independent Electoral Commission, Human Rights Commission and others.
CEOs of other public entities that are listed in both Schedule 2 and 3 are not accounting officers because there are accounting authorities in terms of section 49 of the act. The duties and responsibilities of accounting officers and accounting authorities are reflections of each other. Therefore, it is logical that you cannot have the accounting authority coexist with the accounting officer with the same responsibilities. The duties and responsibility of accounting officer are outlined from sections 38 to 44, while duties and responsibilities of accounting authorities are outlined from sections 50 to 56. There are striking similarities between these sets of sections between the AOs and AAs and for a reason. Government departments and constitutional entities generally do not have boards (AAs) and the public entities have boards. The importance of this distinction is going to be obvious in the next paragraph.
After the failure to appoint boards (AAs) of the Sector Education and Training Authorities (Seta) in terms of section 49 of the PFMA and section 11 of the Skills Development Act (SDA), 79 of 1998 read with the regulations on appointment of the boards. It must be noted that there is a separate regulation for the appointment of chairpersons of the boards of Setas, but it is not the subject of this piece. The governance vacuum that was created by the failure to appoint the boards created a corporate governance conundrum at best and corporate governance crisis at worst for the Setas. Unfortunately, in this contribution I argue that the crisis persists and deepens.
Some time during or towards end of May 2025 CEOs were en masse appointed as AAs with explicit unfettered powers. This meant the CEOs would submit the unaudited AFS, further they could take any decision that would otherwise have been taken by AAs if they were in place. This meant the CEOs could pass resolutions and rescind resolutions as they pleased. The CEOs are now a player and referee.
In May it was apparent that there would be a problem with the submission of unaudited Annual Financial Statements (AFS) to the auditor-general of South Africa (AGSA) by the May 31 at the latest in terms of the PFMA and Treasury Instruction Notes. In terms of the PFMA and the Treasury Instruction Notes the submission of the unaudited AFS to AGSA by public entities is the responsibility of the AAs. With no boards (AAs) in place this was going to be an immediate failure of governance and therefore a finding that could have resulted in a disclaimer for all the Setas. That problem still persists as far as I am concerned.
I say this noting there was an attempt to circumvent this disaster, which could have been prevented. Some time during or towards end of May 2025 CEOs were en masse appointed as AAs with explicit unfettered powers. This meant the CEOs would submit the unaudited AFS, further they could take any decision that would otherwise have been taken by AAs if they were in place. This meant the CEOs could pass resolutions and rescind resolutions as they pleased. The CEOs are now a player and referee. There could be no better example of collapse of corporate governance. CEOs have performance reviews that are due and that is a responsibility of the AA through the chairperson of the board; as things stand the CEO may assess themselves and award bonuses to themselves as they have the powers to do so as granted by their appointment.
When CEOs were appointed the appointments were based on S 49(2)(b), which says: “If a public entity does not have a controlling body, the CEO or the other person in charge of the public entity is the accounting authority for that public entity unless specific legislation applicable to that entity designates another person as an Accounting Authority.” There are two issues that arise from this section as it affects the Setas. The first is whether this is reasonable and conforming to the principles of corporate governance. The second is whether the interpretation of this section is correct and complete.
I then turn my attention to the two issues.
This is a classic case of legislation that has good intentions but has unintended consequences for the ethos of good corporate governance. This has resulted in the CEOs accounting to themselves and exercising oversight over themselves. This is definitely an untenable and irrepressible situation and compromises accountability, one of the key tenets of good corporate governance. This appointment of the CEOs also brings to a sharp focus conflicts of interest as CEOs have to take decisions with no sounding board and oversight. This decision to appoint CEOs fails all tests of good corporate governance. It would have been expected that the CEOs would have raised the matter with the appointing authorities as this is exposing them in the medium to long term, but they did not.
The second issue is the interpretation of the section whether it is correct and complete. In particular, I refer to the last part of the section that reads: “Unless specific legislation applicable to that entity designates another person as an Accounting Authority. The boards are appointed in terms of the SDA and PFMA. Section 49(2)(b) makes provision for specific legislation applicable. In the case of the Setas, I argue, there is a specific applicable legislation that would ensure corporate governance even if it is for temporary measures.
There are two options that could have been considered. The first is to put interim boards for the period in which there were no permanent boards. Such interim boards would be replaced once the process of appointment is completed. The second option was to invoke the provisions of the SDA in line with the latter part of the section 49(2)(b) of the PFMA. Section 15(1)(c) of the SDA calls for an administrator when the board is no longer properly constituted. In the case of the absence of properly appointed boards the oversight structure was no longer properly constituted. Therefore the PFMA and the SDA would have been aligned to provide an oversight for the entities instead of overburdening the CEOs and breaching all available corporate governance protocols and practices.
Simphiwe Thobela has served as a board chairperson for the Media, Information, and Communication Technology Sector, Education and Training Authority, Magwa Tea Corporation, Air Traffic and Navigations Services . He has served as a non-executive director at the Eastern Cape Development Corporation . He is now serving at the Universal Access Agency of South Africa where he also chaired the Audit and Risk Committee and now chairs the Social and Ethics Committee.
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