Original publish date – Thu, 06 Jan 2011 11:32:00 +0000, Keith

Currently all BEE certificates contain an item called “Date of issue”. This represents the data on which the verification agency issued the certificate. All certificates are valid for a period of one year from date of issue.

The codes talk of a “Measurement period”.  This represents the period under measurement. This would be the financial year on which the verification is based. Typically this is used to provide turnover figures. It is also used for procurement, skills development spend, ED and SED spend and net profit after tax.

Verification can take place many months, or even years after the end of the financial year.  Most verifications make use of audited financial statements, and producing audited financials can take anywhere between 3 month and more than a year.

Verification can take many months from the initial appointment of the agency, to gathering the information, verification, queries and appeals until the final certificate is issued.

It sounds wrong that a certificate that is based on financials for the year ended 2009 can be issued today (6th January 2011), and it remains valid for the rest of 2011.

On the other hand a certificate issued in March 2010 based on the same financial period is valid from March 2010 until 2010.

Some verification agencies, wrongly, use current information for some of the other indicators including ownership, management and employment equity.  One of the key principles of the codes (2.2) is “The basis for measuring B-BBEE initiatives under the codes is the B-BBEE compliance of the measured entity at the time of measurement”. In the case of financials it is the period used for the financial statements. It would not make sense to use disparate measurement periods, like 2009 for financials, but 2010 for ownership.

We would propose that the measurement period and validity date of the certificate be aligned. A new certificate based on two year old data is not an accurate representation of the BEE status of the measured entity, certainly not as it stands today, yet that certificate is regarded as valid because it was issued today and is valid for another year.

One option we have considered is that the certificate validity period be one year after the end of the measurement period: If your year-end is December 2010, then your certificate issued based on that period is valid for a year until 31st December 2011, no matter when the certificate was actually issued. If a measured entity delays getting its financial statements until October 2011, then its certificate will only be valid for 2 months.

This sounds a bit harsh, and it is impossible to obtain audited financial statements on the last day of the financial year. The JSE and SARS gives deadlines as to when financial statements should be issued, and we suggest this be incorporated into certificate validity dates, for example give a leeway of six months. so, if the financial year end is December 2010, then the measured entity would have a gap until June 2011 to get its financial statements and obtan a verified certificate. That certificate would be valid until June 2012. If the entity was only verified in December 2011, then its certificate is also only valid until Jun 2012, and not December 2012.

This will encourage entities to be verified as soon as possible after year-end, and to use current information. It will also ensure that the certificate is a more accurate representation of its BEE status.

It should be noted that audited financial statements are not a pre-requisite for verification. Signed management accounts are also acceptable – though the verification agency will have to perform extra checks to confirm some data. Therefore undue delays in preparing financial statements is not a good excuse for not obtaining an accurate and up to date verification certificate.