B-BBEE Fronting Indicators: Are you committing fraud?
Fronting is a form of fraudulent misrepresentation in an attempt to circumvent the BEE codes. There are various forms of fronting indicators listed in legislation. In consulting, we have come across some glaring examples which we would like to point out:
- The black people identified by an enterprise as its shareholders, executives or management are unaware or uncertain of their role within the enterprise.
One such example is the reported case where the BEE commission issued a final finding of fronting after it received a grievance from the companies’ former employee. It transpired that she was formerly employed as a receptionist but that she left the company after discovering that she had been listed as a 33% shareholder, without her approval or knowledge, and without receiving any dividend in respect of her shareholding.
Such fronting is usually uncovered during verification of the measured entity when verification agencies interview the identified “owners” in the business. However, in instances where the measured entity is an EME or QSE and such entities are usually not audited, this becomes problematic.
- The black people identified by an enterprise as its shareholders, executives or management have roles of responsibility that differ significantly from those of their non-black peers.
One such example is a QSE company creating another company which will solely be owned by employees. This company then “buys a stake” in the QSE company to the value of 51% making it an automatic level 2 without an audit.
- The black people who serve in executive or management positions in an enterprise are paid significantly lower than the market norm, unless all executives or management of this enterprise are paid at a similar level.
One such example was where a white director was earning more than the black director with a ratio of 1:20. This was genuinely concerning to the verification analyst as the black director had been in the same position for over two years, with the same salary, and was also a shareholder. The analyst concluded that this disparity in salary did not make the black shareholder a director, as it went against the principle of equal pay for work of equal value.
Let EconoBEE assist you in ensuring that you are not fronting in your pursuit to be BEE compliant.
Employment Equity Submissions
The year is fast coming to an end and the Employment Equity deadline is looming! Have you completed your Employment Equity submission? Now is the time to do it! Why don’t you call EconoBEE on 011 483 1190 and let us help you with all your Employment Equity, as well as your Skills Development and B-BBEE needs!
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