Original publish date – Tue, 04 Dec 2012 09:36:47 +0000, Keith
It sounds so simple. The measurement period is the period of your financial year under review, on which your verification will be based, and the measurement date is the last date of that financial year.
In practice it has become a minefield. Verification agencies do use financials, or in some cases management accounts for the preceding 12 months.
The difficulty comes in that they only use the financials for 4 of the elements:
1) Skills development: the actual spend during the financial period
3) Enterprise Development
4) Socio-Economic Development
For other three elements are verified, not at the end of the financial year, or any other time, but on the date of the site visit during verification. It can happen therefore that the financial period under review is 1st March 2011 to 28th February 2012, but the verification and site visit is only October or November of the same year. We have even seen verifications taking place up to 18 months AFTER the financial year end. So while procurement and enterprise development is based on data that is maybe a year old, ownership, management control and employment equity is verified on the date of the visit – a year later than the financials.
Key principle 2.3 of the BEE codes states:
2.3 The basis for measuring B-BBEE initiatives under the Codes is the B-BBEE compliance of the measured entities at the time of measurement.
Key principle 2.7 of the BEE codes states:
2.7 Wherever a Standard Valuation Method applies to measuring an indicator, the same standard should apply, as far as reasonably possible, consistently in all other applicable calculations in this statement.
Principle 2.3 talks of “time of measurement” whereas 2.7 says you should be consistent.
We have been calling on the dti to give a better explanation on the measurement date for many years – see http://blog.econobee.co.za/2011/01/06/call-for-changes-to-bee-certificates/
In July 2012, the dti published a gazette 548 which stated:
“Furthermore. the dti seeks to advise that the measurement period means the immediate twelve (12) months preceding the measurement date.”
It did not clarify the measurement date, though it did imply that measurement activities should take place for exactly 12 months prior to the measurement date. Therefore if an agency believed that the measurement date was the date of verification, then it should based the measurement period on the 12 months preceding this date. This is obviously not what should occur and in practice nothing changed. Most agencies continue to base verification on whatever financials are available, but only award ownership, management control and employment equity points on the situation on the date of the site visit.
On 7th November 2012, the minister issued another gazette explaining what “measurement date” is. This notice states:
In terms of the Codes of Good Practice unless the context otherwise requires:
a) Measurement period is the period of 12 (twelve) consecutive months prior to the measurement date, for measurement and verification of B-BBEE Compliance.
This period may coincide with the measured entity’s financial period.
b) Measurement date refers to the date when the application/agreement to be verified was signed by the measured entity and the verification agency.
This does not make sense: Paragraph (a) says the period is the immediate 12 months preceding the measurement date. Paragraph (b) says the measurement date is the date on which the verification agreement was signed. If your financial year end is 29th February 2012, and you appoint a verification agency on 12th August 2012, then the measurement period is 13th August 2011 to 12th August 2012.
A bigger question now is what is the purpose of knowing the measurement date? Is this going to refer to the measurement period which is the period on which verification is to be based? Paragraph (a) seems to suggest so. If this is the case, then an entity will have to produce their audited financials based on the random date chosen by the transformation manager to appoint a verification agency, or else a company is going to have to appoint and sign the verification agreement on the exact same day that its financial year ends, e.g. end February. This is a ridiculous situation. Few companies will be happy to appoint an agency and pay a deposit up to a year prior to when the work actually starts. The agency may not even be in existence 12 months hence.
Measurement date should simply refer to the last date fo the financial period under review.
What the gazette has still not covered is that all elements should be verified based on a measurement on the same day, ie the measurement date. It should clearly state that all elements must be verified based on the same measurement period, a standard valuation method as per key principle 2.7. At the moment most verification agencies follow the rule that they use financials for verifying skills, procurement, enterprise development and socio-economic development, but use the date of the site visit to verify ownership, management control and employment equity.