Codes of good practice Interpretations

Original publish date – Wed, 17 Feb 2010 07:41:05 +0000, Keith

To earn points on enterprise development (and socio economic development) you would need to spend a percentage of your net profit after tax on those activities. The codes describe it as follows:
“Average annual value of all enterprise development contributions and sector specific programmes made by the measured entity as a percentage of the target”
Average implies averaging the annual spend. so if you spent R300 in 2007, R500 in 2008 and R250 this year, your total spend is R1050, and average annual spend is R350.

A key principle (para 3.1.2) is that “qualifying enterprise development contributions of any measured entity are recognisable cumulatively:
– from the commencement date of this statement, or an earlier date chosen by the measured entity (the inception date), until the date of measurement.

Our interpretation is that the “commencement date of this statement” is 9th February 2007 – i.e. the date that the codes were released.
We also see the generic target of 3% of net profit after tax as being the average net profit after tax from that date.

So if your net profit after tax from
9th Feb 2007 to 8th Feb 2008 was R10000
and from
9th Feb 2008 to 8th Feb 2009 was R12000
and from
9th Feb 2009 to 8th Feb 2010 was R15000
then your total or cumulative NPAT over the three years is R37000, and the average NPAT is R12333.33
Note: The codes do discuss issues where you do not make a profit (indicative profit), but this is not discussed here as it is not relevant to the specific point being made in this article.

What does seem clear is that your spend needs to be looked at from 2007 (9th February) onwards.
There are issues around this:
What is a company did not start its ED activities in 2007, or did not even get a scorecard for 2007?
What about a QSE that did not choose ED as an element in 2007 or 2008 or 2009. Must it go back 4 years to start earning points?

However, the dti, and some verification agencies do not look at it this way. The dti, according to some verification agencies has told them that a measured entity can choose the starting date for ED contributions, even if they are after the inception date of the codes, e.g 2009. This is a huge benefit to an company just starting our on their BEE journey. They do not need to “make up” the shortfall of having to spend money in 2007,2008,2009. At the same time it sounds quite unfair to companies that did spend the money in the earlier years, in that with hindsight it was not necessary to have spent that money (unless of course they did get a valid scorecard during those years).

Is this right?

No, not according to the codes! The codes are clear that the inception date is the commencement date of the statement or before, but not after, ie. 9th February 2007, and the dti does not have the discretion to arbitrarily change the codes. The minister certainly does have the right to make decisions, by gazetting changes to the codes, which has has not done in this instance. Reports are that the dti will be issuing yet another interpretative guide in January 2010. (This article is written on 17th February) and nothing has been issued so far.

Commentary

What we find very disturbing is that the dti makes decisions, and in some cases clarifications, but does not publicize them or issue them as an official statement. We have noticed for a while now that some verification agencies were using the current year for calculating ED points. Yet, nowhere does the dti document their decision, neither does SANAS issue any updates as to how to do the calculations. We also find it very disturbing that the dti seems to be circumventing the codes in this instance.

Strategy

If a company that did not ED until now is lucky enough to choose a verification agency that “knows” the dti’s new ruling, then they will benefit, otherwise they may lose up to a 75% of their ED points – 11.25 points! This is two levels.

 

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