EconoBEE Leads BEE Interpretations – EconoBEE Newsletter – 24 March 2015

Advice for Businesses, IRBA Approved B-BBEE Auditors and SANAS accredited verification agencies

The Amended codes come into effect on 1st May 2015. We are inundated with enquiries as to what is going to happen post 1st May 2015.

The dti doesn’t like anyone talking on their behalf, but they also refuse to issue any notices or explanations to guide you through this important process.

Unless the minister issues another notice again delaying the Amended codes the following shall apply:
1) Final Amended Codes have only been issued for generic companies, EMEs, and certain black owned QSEs.

2) Sector codes have not been issued and still apply until repealed or amended. The minister is obliged to publish a sector code as a draft, give at least 60 days commentary period, consult widely and then issue it as a final code. Until that happens the sector codes remains in issue. It cannot happen before 30th April.

3) Companies in sectors which have their own codes will continue to be rated on the existing sector codes, even after 30th April. Auditors and SANAS agencies (with the right sector code extension of scope) are fully entitled to issue certificates indefinitely – until they are repealed or amended.

4) If you do not fall into a sector code and are generic (ie turnover more than R50m) you must use the Amended Codes for any certificate issued after 30th April 2015. You cannot use the old codes even if your verification was performed in early April, but the actual the certificate issued after 1st May. We fully expect to see the odd “rotten egg” amongst auditors and agencies being prepared to bend the rules and pre-date certificates to April even if their verification is performed in June, July, August. This will be illegal. The B-BBEE Act states that fronting will put the CEO or MD of the measured entity in jail for up to 10 years.

5) QSE Codes have not been fully finalised. If the business has a turnover of less than R35m and is not 51% black owned or more, the current QSE codes apply until 30th April. Thereafter they apply until the Amended QSE codes are issued. The dti has issued no comment and this can happen at any time.

We often get asked who can issue a valid Amended Codes certificate after 1st May 2015?
1) The minister’s notice of 23 September 2011 states that only IRBA appoved or SANAS accredited agencies may issue certificates. It also states that the Verification Manual shall be applied when issuing certificates. Unfortunately the Verification Manual is one of the documents that has still not been issued by the dti. If it were issued then IRBA Auditors would legally be allowed to issue Amended codes certificates.

By implication since it has not been issued no one can issue valid Amended codes certificates after 30th April 2015. As far as we are concerned the Verification Manual was a useless document – a re-hash of the codes without adding valuable interpretations. In terms of key principle 2.1 of the codes “Substance takes precedence over legal form”, we suggest that auditors are entitled to ignore this oversight and can therefore start issuing Amended Codes certificates. We, of course, do not talk on behalf of IRBA, but they also are not keen to issue notices or directives.

2) SANAS has to issue all agencies an extension of scope before they can issue certificates based on the Amended codes. Unfortunately we cannot tell SANAS to issue the extension of scope to all agencies, even though an extension of scope is also a pretty useless document to agencies. SANAS was established by the Accreditation Act so they have to take their own decisions. Unless SANAS issues the extension of scope, or allows agencies to dispense with it, no SANAS accredited agency may issue Amended Codes certificates.

Interpretations:
One of the reasons IRBA is reluctant to allow verification using the Amended Codes is the codes still contain many errors and ambiguity. We are therefore going to issue our own interpretation, and suggest that unless the appropriate authority issues a notice to the contrary, we suggest this may be used as your guide:

1) Empowering supplier: This is a crucial definition to the codes, but contains too many errors of logic, finance, even grammatical errors to be applied. Rumours were that the minister would issue a notice clarifying this, but to date it has not happened. From now on ignore any issues relating to Empowering Supplier.

2) Demographics: The employment equity aspect of management control requires senior, middle and junior management to be measured via national demographics, as does skills development, ie using percentages of African, Coloured and Indian people in various job or training categories. The calculation supplied by the codes is seriously flawed – whoever wrote the codes did not understand algebra! Until the dti issues a logical calculation ignore national demographics as per the CEE Report and use the definition of “Black” as per the B-BBEE Act as Amended.

Our rationale for our interpretations:
The key principles of the codes state:
2.1 The fundamental principle for measuring B-BBEE compliance is that substance takes precedence over legal form.  
2.2 In interpreting the provisions of the Codes any reasonable interpretation consistent with the objectives of the B-BBEE Act as amended and the B-BBEE Strategy must take precedence.

As one of the longest standing and one of the largest specialist B-BBEE consultancies we sincerely believe we have the experience and expertise to apply the key principles above. We see our newsletters as being consistent with the Act and the strategy. We are doing a job that no one else seems to want to do. In the interests of true empowerment, somebody had to say something – so we have!

In subsequent newsletters we will issue our additional interpretations.