Stamp out Corruption – EconoBEE Newsletter – 05 November 2010

EconoBEE - BEE Points = Business

BEE Fronting is fast becoming the most talked about BEE topic and because it is a hot topic companies are beginning to get caught out. In today’s information packed EconoBEE newsletter we expose common fronting activities, offer advice on how to stop fronting and help companies become BEE compliant.

Contact us and we will help you expose fronting and help you become BEE compliant by earning the points you deserve.

Fronting is a Scourge of Society

Most people would agree that corruption harms the country, the economy, the fabric of our society.
Not everyone realises that government and public service is not the only place where corruption takes place. In the B-BBEE space we also hear of corruption and in many cases this is from so-called respectable companies.

In B-BBEE terms, fronting is a scourge and must be stamped out.
Fronting causes companies to gain business based on false B-BEE credentials. This is not only unfair, but criminal. Practically this can be compared to a company stealing business from another.

Guidelines issued by the dti defines fronting as a “deliberate circumvention or attempted circumvention of the B-BBEE Act and the Codes. Fronting commonly involves reliance on data or claims of compliance based on misrepresentations of facts, whether made by the party claiming compliance or by any other person.”

Commonly a company would front in order to get business, or save themselves the effort and spend in earning BEE points properly.

Examples of Fronting:

  • A company may falsify its scorecard
    • In one recent case a company forged their certificate by using the logo and details of an accredited verification agency.
  • Use a certificate for one company and pretend it refers to another company whose certificate is being requested. This form of fronting is very difficult to catch out because the scorecard issued is often correct but when compared to the actual supplier the certificate details do not match.
    • This form of fronting often manifests with large companies who have a holding company of a similar name. The company applies for two scorecards, one for the holding company (a small company) and an operating company (a large company). The holding company receives an Exempt Micro Enterprise score of level 4 and the main operating company reaches a non-compliant scorecard. When asked for a scorecard, the score of the holding company is sent, deliberately creating confusion and misrepresenting the operating company’s BEE status which is often non-compliant.
      • Tip – compare your spend with the company to determine if they really can be exempt and ensure that the registration number on the certificate is the same as the one on your invoice.
The EME approach to fronting has been used by many companies and many verification agencies have accepted the task of producing these certificates even though the B-BBEE Codes, specifically Guidelines on Complex Structures & Transactions and Fronting, formerly code 002, recognise that this type of fronting occurs and they state that a consolidated scorecard must be produced for related enterprises if the consolidated turnover is more than R5 million, which it is.

  • The wrong charter fronting. Various BEE Charters have been gazetted. Companies who fall within these charters are required to use the scorecard based on the applicable charter and must not use the B-BBEE Codes of Good Practice. This form of fronting is jointly caused by companies wanting to use the easier but incorrect scorecard and by verification agencies who are not yet accredited to issue charter scorecards.
    • In a recent case a verification agency issued a travel company a scorecard based on the Codes of Good Practice.
      • The Tourism Charter has been gazetted and applies to all companies in that industry. It gives no transition period and also states that the charter applies as of date of gazetting, which was May 2009. The scorecard that had been produced was based on the Codes of Good Practice, not the Tourism Charter. This verification agency does not have an extension of scope to issue such scorecards. Our estimates are that the company in question would have earned 5 more points had their score been based on the Tourism Charter, than they earned using the Generic codes.
Why would a company willingly choose to misrepresent its score downwards – especially seeing that they launched a big campaign to advertise their new good score? Why would they continue to use a verification agency that does not have accreditation to perform tourism verifications? Why are they so keen on this verification agency? Perhaps a new era of verifications agencies is required!

Corruption needs to be stopped wherever it occurs. Businesses should take the lead to root out fronting and corruption and help us help them to achieve much needed and sort after transformation.

If you notice any suspicious activity with your suppliers, customers or business associates, please tell them we are watching and they will get caught out.

The Solution to Fronting

Often it is too easy to get away with fronting, especially when there is no way to monitor those very companies who should do the job properly. The BEE Expert Group in association with the B-BBEE knowledgebase will;

  • Provide guidance to companies to help them identify common forms of fronting
  • Provide a database of companies caught fronting
  • Research companies suspected of fronting

In addition the B-BBEE Knowledge base will contain;

  • The B-BBEE Act
  • Definitions
  • The Codes of Good Practice together with the Charters
  • Interpretations
  • Precedents and Appeals
  • Explanations
  • Government Notices
  • The dti BEE Units communications
  • SANAS communications
  • Technical Discussions

All this knowledge helps in interpreting and understanding the drafters of the codes and how the dti as the “owners” of B-BBEE would have us implement B-BBEE via best practice.

The knowledgebase contains a wealth of information – it will become your own personal consultant. There will be a monthly subscription of R500 per person to access the knowledgebase, for non-resale use – site licenses will be available for larger companies.

All delegates of our upcoming BEE Procurement and Enterprise Development Conference will receive a complementary 12 months subscription when it is launched.

If you want to gain access to a one month preview when it is launched or to collaborate with us please contact us.


How to be “verification Ready” and earn more points?
Not sure how to get a BEE Scorecard, click here to see a demonstration of how best to produce your own BEE scorecard.

While there is demand for a BBBEE Scorecard someone will be taking advantage, shouldn’t that someone be you…

Want us to manage your BEE Process – simple 10 steps to BEE Compliance.

Use our pre-prepared “Verification Ready” documents and templates in your business – contact us for more.

Turnover below R5 million – find out how to get your BEE Exemption.

Is BEE procurement a pain? Sort it out quick and easy – click here.

EconoBEE Newsletter
04 November 2010

In this issue

  • Fronting is a Scourge of Society
  • The Solution to Fronting

In other news

About EconoBEE

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That’s it for the time being.
Gavin and the EconoBEE Team

Executive summary of B-BBEE

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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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