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Preparing for your next BEE Verification – EconoBEE Newsletter – 07 June 2012

EconoBEE - BEE Points = Business
Preparing 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 it’s 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.

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Price:R3500 excl VAT (R3990 incl VAT)
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Email info@econobee.co.za
Contact 011 483 1190
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New targets implemented again

The last newsletter we put out contained an email from the dti informing all concerned that the old targets would apply. 
The email was sent by Mannde Mashadu and said:

the dti is in the process of refining the Codes of Good Practice on B-BBEE and therefore the 0-5 year targets will be applied until the process of refining the code is finalised and gazetted.
In the light of the aforementioned, the dti will withdraw the notice to eliminate the confusion in the market regarding the implementation of the 6-10 targets and provide further guidance on the measurement date.

At the time we pointed out that the dti does not have the authority to issue an email to override the B-BBEE codes.

Probably, as a result, the dti has now put out another email stating that the previous email needs to be ignored and the new targets will indeed apply. This email, issued by Ms Makhosazana Seate of the dti states:

With regards to the clarification on the subject matter, kindly note that the dti is in the process of issuing an official announcement in due course. It is therefore requested that any communiqué issued after the gazetted notice should be ignored until an official announcement is issued by the dti.

This means that the original gazette confirming that the new targets will apply remains in force. This means that if your financial year-end is after 9th February 2012, you will be assessed on the new, higher targets for employment equity and procurement.

Summary of the new targets:
1)    This applies to the Codes of Good Practice only, not the sector codes and applies only to Employment Equity and Preferential Procurement

Employment equity – QSEs

Points Available Years 0 – 5
Years 6 – 10
Black employees of the Measured Entity who are Management as a percentage of all Management adjusted using the Adjusted Recognition for Gender1540%60%
Black employees of the Measured as a percentage of all employees adjusted using the Adjusted Recognition for Gender1060%70%
Bonus Points for meeting or exceeding the EAP targets22n/a
Total Employment Equity27n/an/a

Employment Equity – Generic

Points Available Years 0 – 5
Years 6 – 10
Black Disabled Employees as a percentage of all employees22%3%
Black employees in Senior Management as a percentage of all such employees using the adjusted recognition for gender543%60%
Black employees in Middle Management as a percentage of all such employees using the adjusted recognition for gender463%75%
Black employees in Junior Management as a percentage of all such employees using the adjusted recognition for gender468%80%
Bonus Points for meeting or exceeding the EAP targets3n/an/a
Total Employment Equity18n/an/a

Preferential Procurement – QSEs

Points Available Years 0 – 5Years 6 – 10
BEE Procurement Spend from all Suppliers based on the BEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend2540%50%
Total – Preferential Procurement25

Preferential Procurement – Generic

Points Available Years 0 – 5Years 6 – 10
BEE Procurement Spend from all Suppliers based on the BEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend1250%70%
BEE Procurement Spend from Qualifying Small Enterprises or Exempted Micro-Enterprises based on the applicable BEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend310%15%
BEE Procurement Spend from the following Suppliers (regardless of their BEE Procurement Recognition Level) as a percentage of Total Measured Procurement Spend:
– Suppliers that are more than 50% black owned
BEE Procurement Spend from the following Suppliers (regardless of their BEE Procurement Recognition Level) as a percentage of Total Measured Procurement Spend:
– Suppliers that are more than 30% black women owned.
Total – Preferential Procurement20n/an/a

Interesting information for SMMEs
UNISA is now offering a short course in SMME Management.

“Registration is now open for our second intake in the second semester. All prospective students with a passion to further their studies are invited to start applying for these courses.

Unisa is an Open Distance Learning (ODL) institution. Studying through an ODL institution is the most convenient way as you study from anywhere in the world, from the comfort of your home and your own time.” Download the advert.

The Measurement Period Problem

The measurement dates are becoming a problem again. I have a situation where a company was verified in December 2011, using March 2009 to February 2010 financials. The audited financials showed the company to be a QSE and they stated that more recent audited financials were not available. The verification agency did not ask for management accounts, or if they had now become a generic.

However the company’s revenue for the year March 2010 to February 2011 was more than R35 million making them a generic entity. The verification was carried out in December 2011 but by using older data the company was measured as a QSE. Surely this is wrong in terms of B-BBEE?

The Verification Manual states:

“10.1.3 In order to determine if the measured entity is classified correctly the Verification Agency shall obtain the audited financial statements and agree the amount recognised as revenue to the thresholds set by the Codes. When the measured entity is not audited the Verification Agency shall perform some or all of the following procedures as a minimum to verify the accuracy, completeness, occurrence and cut-off of revenue as shown in the financial statements:”

I know that it does not state which audited accounts must be used. However the codes define Total revenue as being determined under generally accepted accounting practice (GAAP). This surely also implies that an entity should be in compliance with the laws, ie be audited where required and financials submitted to SARS, CIPC, JSE etc within the allotted time period (e.g. 6 months after year-end). Therefore, if audited statements are not available, as in this case, the accreditation bodies, SANAS and IRBA should ask agencies to perform the procedures as outlined in 10.1.3. This would have shown that the entity is no longer a QSE, and must follow the generic scorecard. Moving from a generic to QSE and vice versa is a material change that verification should pick up.

We also note the key principles:

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 Act and the B-BBEE Strategy must take precedence.
2.3 The basis for measuring B-BBEE initiatives under the Codes is the B-BBEE compliance of the measured entities at the time of measurement.
2.4 Any misrepresentation or attempt to misrepresent any enterprise’s true B-BBEE Status may lead to the disqualification of the entire scorecard of that enterprise.
2.5 Initiatives which split separate or divide enterprises as a means of ensuring eligibility as an Exempted Micro-Enterprise, a Qualifying Small Enterprises or a Start-Up Enterprise are a circumvention of the Act and may lead to the disqualification of the entire scorecard of those enterprises concerned
2.6 Any representation made by an Entity about its B-BBEE compliance must be supported by suitable evidence or documentation. An Entity that does not provide evidence or documentation supporting any initiative, must not receive any recognition for that initiative.
2.7 Wherever a Standard Valuation Method applies to measuring an indicator, the same standard should apply, as far as reasonably possible, consistently in all other applicable calculations in this statement.

What is even more concerning is that most agencies measure ownership, management and employment equity as at the date of verification, but revenue, profits, skills, procurement, ED and SED as at the last audited financials, even if three years older. Surely this is in conflict with 2.7 above?

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Black Businesses Needs a Scorecard Just as much as White businesses

A major misconception about BEE is Ownership. Many businesses believe, wrongly, that to do well on a BEE scorecard they need black ownership. The reverse can also be said that many black owned business believe that they are already compliant because they are black owned.

Transformation is about so much more than just Ownership. Ownership is an important element and is the ultimate measure of the success of BEE in that if more black people are participating in the economy we should expect to see more black owned businesses. However as important as Ownership may be we must first start at the bottom levels to get the greatest impact of BEE. Those aspects are the “grass root levels” where major development is absolutely essential. In-order to create more black owned businesses we must first train for skills and then support enterprises that have been created. In so doing the newly developed skills will create employment through successful businesses.

If we focus solely on Ownership then we get a top heavy structure, where we create no additional skills, no additional businesses and worse, no employment. We must also bear in mind the number of people who require assistance. South Africa has millions of unemployed and un/semi skilled people. By comparison only a few thousand (or a few hundred thousand) black shareholders. If business as a whole focused on solving the skills problem, the employment problem and supported small business we would have a significantly greater effect on transformation.

If we focus on the points on the scorecard we will notice that if a company does well on Ownership and Ownership alone they will be non-compliant. Black businesses who are non-compliant are not adding value to skills development or employment. They are also taking themselves out of the running for new business because they are awarded to the most compliant business. Finally they are not likely to receive any enterprise support.

In conclusion: BEE is not about Ownership, it is about transformation. Black Ownership or White Ownership either way have an equally important task to develop future South Africa.

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Want us to manage your BEE Process – Managed Service.

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Need a scorecard – produce one yourself – EconoBEE V3.

EconoBEE Newsletter
7 June 2012

In this issue

  • Prepare for your next BEE Verification
  • New targets implemented again
  • The Measurement Period Problem
  • Black Businesses needs a scorecard just as much as white businesses

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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Gavin and the EconoBEE Team

Executive summary of B-BBEE

Turnover below R5 million per annum – automatic BEE status

Turnover above R5 million per annum – you need a BEE Scorecard. Our workshops, scorecard tools, procurement manager or a complete managed services will be best for you.

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