Black owned QSEs could drop a level

The Amended Codes have made BEE more complex.

One aspect of the codes intending to make BEE easier for small black owned businesses (QSEs) could hurt those businesses. The codes state that if a business has an annual turnover of between R10million and R50million (excluding those with sector codes), then they are a QSE.

 

A QSE is “automatically” level 1 if it is 100% black owned, and level 2 if more than 51% black owned. However the codes have also defined priority elements for QSEs: If a QSE does not achieve minimum targets on ownership, and one of skills development or enterprise and supplier development, it will drop a level. Therefore a level 1, 100% black owned QSE can become a level 2, and a level 2, 51% owned QSE could become a level 3.

This could have serious repercussions: The drop of a level could hurt a business’s chance of winning more business. More importantly, if an affidavit/certificate is issued to a business without taking into account the priority elements, that certificate/affidavit will be invalid and the business owner may be guilty of fronting.

Code 000 (paragraph 5.3.3) states that a black owned QSE is entitled to obtain a sworn affidavit confirming annual revenue and level of black ownership to obtain its base level. According to paragraph 3.3 of Code 000 this level MUST be discounted by one unless the QSE can provide evidence that it meets the minimum targets on either skills development or enterprise and supplier development. Key principle 2.6 applies in this case “…A measured entity that does not provide evidence or documentation supporting any initiative must not receive any recognition for that initiative”.

In our opinion the only suitable method for proving the priority element was achieved is by utilising a verification agency or approved auditor. Both skills and enterprise and supplier development are complex elements. An untrained person is likely to get it wrong! Both the auditors and verification agencies have regulators that can (in theory) take action where mistakes are made.

Even the issue of 51% black ownership is a complex calculation. The definition of 51% black ownership includes both voting rights and economic interest as well as full net value. A company with 51% black ownership where the black owner still has debts on the purchase of the shares might not be 51% black owned as per the codes.

 

A sworn affidavit implies that anyone making that declaration knows what he is saying and understands the relevant aspects of the codes. Otherwise he could be accused of fronting as per the B-BBEE Act as Amended.

Summary:

  • A 51% or more black owned QSE can issue an affidavit stating its annual revenue and level of black ownership.
  • Black ownership includes voting rights, economic interest and full net value. The person making this
  • If the entity does not indicate its compliance to either skills development or enterprise and supplier development, its level must be discounted by one level.
  • Suitable evidence of that compliance should be as rigid as that performed by an IRBA approved auditor or SANAS agency. Anyone else who issues any document without applying their mind as diligently as an approved auditor or verification agency could be guilty of fronting.
  • Auditors/agencies and government must not use the affidavit for any procurement issue unless they have applied their mind to the correctness of the affidavit and evidence supplied.

 

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