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Prepare for Verification vs a BEE Certificate – EconoBEE Newsletter – 31 Julty 2012

EconoBEE - BEE Points = Business
Prepare for Verification vs a BEE Certificate

“Why prepare for verification if the B-BBEE scorecard/certificate must be done by an accredited agency?”

The whole reason for getting a certificate is to achieve a high score or level, and the whole reason for getting a high score is because that high score is good for business.

Preparation to get a high score becomes absolutely critical because your agency cannot “give” you a high score. You earn it, by implementing activities that makes both business sense and BEE sense to make certain you are able to get that high score. The points are not automatically earned. The elements: Ownership, Management Control, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development and Socio-economic Development can all contribute towards points on the scorecard. Ultimately the simple point is you have to take the correct actions in order to achieve the points on the elements.

The purpose of verification is to audit and not help you earn the points you require on your scorecard. A certificate is not “done” by an accredited agency. It is verified by an accredited agency. There is a big difference. The agency verifies (checks) that the scorecard is calculated correctly and issues a formal certificate based on accurate data.

A sporting analogy is referees do not award points until the team has scored the points or runs or goals. The team itself has to score the points. The coach helps and advises the team on how to score the points or runs or goals. The team itself has to do the work, both off and on field before it can earn its points. In the same way B-BBEE consultants act as the coach to the company (team), and the referee is the verification agency and he confirms that the team has earned the points.

Our up-coming seminar on “How to Prepare for Verification” is a one day event training our clients on how best to “play the game” to earn the maximum points before the verification agency can be called in to adjudicate the points earned. We will help you identify the points you have earned and also prepare your files properly. This will ensure that the verification agency will be able to easily and quickly verify the points and issue the certificate. Remember our Early bird special – EconoBEE V3 worth R3500 if booked and paid for two weeks prior to the event you are attending.





Clarification on Effective Dates

The dti has issued a document clarifying the effective dates of government notices.

This is a very welcome move. The purpose of the document is to confirm (again) which sector code a company must follow and from which date if the sector code is released. The signatory is Nomonde Mesatywa, the chief director in the BEE Unit.

Recently two new sector codes have been gazetted – the Property Charter and the ICT Charter. Both state that the sector code is effective as from the date of the gazette.

The clarification statement explains that if a company falls within the sector code it must apply that code as from the date of publishing of the sector code. The date of publishing refers not to the date that the minister signed the notice (which is generally some weeks prior to publishing), but the date of publishing of the gazette. In the case of the ICT Sector code, this is 6th June 2012. A problem that cropped up is a company may have been half-way through its verification using the Codes of Good Practice when the ICT sector code was gazetted. The question we asked was must the verification agency redo the verification because the date of issue on the certificate would be after the date of gazetting of the sector code. The dti’s statement also clarifies this. It says that any verification that  was begun, i.e applied for verification, prior to the gazetting of the sector code would use the Codes of Good Practice, whereas a verification applied for after the sector codes were gazetted would need to follow the sector code.

Our comments:
We are very happy that the dti issued a statement so soon after the issue was raised. It completely explains to everyone if a sector code or the Codes of Good Practice should be followed and there is no room for misinterpretation. We applaud the chief director for clarifying an issue that does affect a fair number of companies. We recognise that the chief director has no discretion over the actual sector codes and is unable to vary it by for example adding in a transitional period as some are requesting. We sincerely request the BEE Unit to issue more clarification statements of this nature. It will instantly solve most of the problems that we have seen with interpretations.

We would recommend that all verification agencies or approved auditors that are affected, i.e who were busy with the verification of a property company or ICT company prior to the gazette include a statement on the certificate as follows:

Please note that (insert company name) falls within the (ICT Sector/Property sector). The verification agreement was signed prior to the gazetting of the (ICT/Property sector code) and the company was verified in terms of the Codes of Good Practice. This makes their certificate valid”.

This will ensure there is no confusion in for example 6 months time when the company’s B-BBEE certificate is scrutinized and a query raised that the certificate was only issued on say 1st July 2012, but not following the relevant sector code. If the disclaimer as suggested is not on the certificate, the company runs the risk that someone will see that the wrong sector code was used and disqualify the certificate. This is especially important if the company is tendering for business, and they do not have the opportunity of explaining why their certificate appears to be incorrect when it is actually entirely valid.

Manage your BEE process better
EconoBEE’s complete managed service is designed to help you earn more BEE points, be less admin intensive and ultimately less costly. Contact 011 483 1190 or visit www.econobee.co.za for more info.

B-BBEE Fraud and fronting

Fraud and fronting is quite prevalent in the B-BBEE sphere. The expectation initially was that it would be self-regulating. The B-BBEE act and codes do not make sufficient allowance for legal regulation. Anyone who issues an invalid B-BBEE certificate or misrepresents their B-BEE position would be guilty of fronting. The dti and National Treasury have threatened to create a black list of such companies, but this has not worked to any great extent. There is no doubt that B-BBEE fronting is fraud – a company that deliberately issues an incorrect BEE status. Companies can be charged with fraud, or even corruption in terms of the corruption act, if they intended to use their BEE certificate in an illegal manner to make profits.

The hope was that companies, competitors, verification agencies would identify fronting activities and stamp it out. This has not happened. If a BEE certificate is presented to a company, it is usually accepted without question. In isolated cases companies are checking and may reject the certificate. Consultants and verification agencies often reject certificates that they deem invalid. Few however bother to investigate and report this to the dti. We are one of the few that do report any infringement as per dti guidelines.
The proposed B-BBEE Amendment Bill, expected to be passed in parliament shortly does indeed criminalise fronting. The bill establishes the office of a B-BBEE Commissioner who is empowered to investigate and prosecute offenders. This however may only happen in one or two years time – after the bill is passed and the BEE Commissioner appointed, budgeted for and the office staffed properly.

Types of fronting
Companies are guilty of many types of fronting:

  • Ownership: Shares are sold/given to a black partner who is unaware of his duties/rights or even that he is a shareholder. In some cases the black partner has been forced to sign his sell agreement so the company can “take back” the shares when they wish
  • General misrepresentation: Companies give incorrect information to the verification agency about turnover, management, employees and other elements.
  • Exempt Micro Enterprise (EME) fraud: An EME is one that has a turnover of less than R5 million (depending on industry) and is automatically allocated level 4. Many companies deliberately understate their turnover in order to qualify as an EME. An extreme case was a JSE listed company that said its turnover was less than R5 million – and won business as a result of its BEE status
  • Qualifying small enterprise fraud (QSE): A QSE is one that has a turnover of between R5million and R35 million (depending on industry). Companies us the same fraudulent mechanism as for EMEs above.
  • Unaccredited verification agencies: A certificate is only valid if produced by an accredited verification agency. Agencies are accredited by SANAS or approved by IRBA. Many unscrupulous unaccredited agencies offer to produce genuine looking certificates without following any verification procedures. We have seen unaccredited agencies illegally using the SANAS logo. One non-accredited agency created a standard certificate showing 77 points and used mail-merge to put the names of his clients onto it. Companies may say they were scammed by these con artists, but when it is pointed out to them that their certificate remains invalid, they continue to issue it, effectively participating in the fraud and fronting process. Often companies will call in these con artists because they know they will not perform any verification checks, or even give them the level they need. Many of these agencies are incompetent. An extreme example was an unaccredited agency whose one page certificate had 17 mistakes.

Responsibility to report Fronting
The dti codes obligate companies and verification agencies to report fronting. Reporting is towards SANAS (who do try to take action where the offense related to SANAS), IRBA (who are new in the arena and tend to take less action), the sector councils (who seem to feel they have little power to investigate or take action), and the dti (who also feels that they have too little power). The reality is the current B-BBEE act requires that government take into account and where possible apply a BEE certificate when awarding tenders, concessions, licenses or similar activities.

Ready for BEE Verification?
Prepare for your next BEE Verification

A successful BEE verification is the key to business success. With the emphasis that is now placed on having a good BEE status the question has changed from do I need a BEE status” to what level is required or will my clients accept this”. This fundamental mindset shift from do I” to how good” has now virtually guaranteed that a good level of compliance directly impacts on the amount of business a company is awarded.

On the other hand ensuring that your company is successful during its BEE verification can be stressful and time consuming. Dedicated staff members should be involved heavily in this process. They need a good understanding of B-BBEE and of the verification process. In-particular considering how often interpretations within the legislation change, how different agencies have vastly differing interpretations and that when errors are made, ensuring that the correct procedures are followed.

EconoBEE is proud to announce the fourth annual EconoBEE Conference – How to prepare for a B-BBEE Verification. EconoBEE is an expert BEE consultancy who assists companies work through and implement BEE properly while earning maximum points and spending minimum amounts of time. Make your booking early and qualify for our early bird special.

Date:30 August 2012 – JHB – Gallagher Estate
14 August 2012 – CPT – Belmont Conference Centre
21 August 2012 – DBN – Makaranga Garden Lodge
Time:8:30 for 9:00 – 17:00
Price:R3500 excl VAT (R3990 incl VAT)
Booking Details:Download our brochure and fax to 011 483 1195 or fill in our online form
Email info@econobee.co.za
Contact 011 483 1190
Early bird special – EconoBEE V3 worth R3500 if booked and paid for two weeks prior to the event you are attending.

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EconoBEE Newsletter
31 July 2012

In this issue

  • Prepare for Verification vs a BEE Certificate
  • Clarification on Effective Dates
  • B-BBEE Fraud and fronting
  • Ready for BEE Verification?

In other news

About EconoBEE

EconoBEE is an expert BEE consultancy. EconoBEE helps businesses Become BEE Compliant, prepare for verification, earn maximum BEE Points and ensure that they achieve the BEE Level they need to get more business.

Our services include BEE Management Systems, Training, EME Pack, Complete Managed Services; consulting and advisory and Procurement Solutions.

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