New Targets, New Codes – EconoBEE Newsletter 14 February 2012

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New Targets – Clarity?

The minister has gazetted an explanation regarding the new targets conundrum, notice 102 of 2012 issued 7th February 2012.

The key paragraph states:

“With effect from the 9 February 2012, the 0-6 year targets will come into operation. However for measured entities whose Measurement Date is prior to 9 February 2012, the 0-5 year targets will still be applicable. But for measured entities whose Measurement Date is post 9 February 2012 the new targets will be applicable.”

The notice of course should have stated “With effect from the 9 February 2012, the 6-10 year targets will come into operation.”, instead of saying 0-6 year targets. We have notified the dti of this typo.

Rules
If your year end is before 9th February 2012 use old targets
If your year end is after 9th February 2012 use new targets
All data measured as at year end

That notwithstanding the dti has clarified the issue to some extent, but it still is going to cause some serious problems.

The intention of this notice is that a company that is using its financial period of say 1st January 2011 to 31st December 2011 will use the “old targets”, whereas a company whose financial year ends on 29th February 2012 will use the new, higher targets for its next verification. We can therefore expect to see new targets being implemented as from about March or April of this year.

The codes, and this notice uses the term “Measurement Date”.

One of the key principles of the codes (statement 000, code 000) 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.

This, presumably is what the minister had in mind when he stated “However for measured entities whose Measurement Date is prior to 9 February 2012, the 0-5 year targets will still be applicable.”

There has been some discussion about the concept of “measurement date”. We have always seen the measurement date as the end of the financial period under review. However many verification agencies do not see it that way. They correctly use the financial period for financial information like turnover, net profit after tax, skills spend, ED spend, payroll, SED spend and procurement. However those agencies tend to use ownership data and EE data as it appears on the date of the verification. We have argued that this is not a consistent approach. The purpose of verification is to verify the data as it was on the measurement date. This is consistent with for example an audit where the audit is performed many months after the year-end.

The reason that verification agencies give is that SANAS requires them to interview a selection of employees, and if an employee has left they cannot interview the employee.

In our discussions with the dti, they see measurement date in the same way as we do.

To their credit the dti has promised us that they will fix the “0-6 year” error, and give a more detailed explanation of the measurement date.

It does mean that verification agencies that have incorrectly used the verification date as the measurement date will have to change their policies. They will also need to satisfy SANAS that they have sufficient information about an employee who has subsequently left the company to justify having awarded them the points.

We have one more suggestion and that is that the measurement date be included on the verification certificate, clearly showing which target is being used. This information is usually included on the verification report that agencies submit to their clients, and should be included on the final B-BBEE Certificate.

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Proposed Changes to the Codes

The proposed new BEE Codes of Good Practice is getting all of us in this industry very excited. The implications can be vast for companies and BEE implementers alike. A change in the codes can mean new strategies need to be derived, new targets met and most importantly agencies will now need to prove they are competent on a new set of BEE codes. At least for a short while we are going to have to start new discussions with agencies and The DTI to ensure our interpretations are correct and the implementation of those interpretations are properly done.

We hope that the DTI takes this opportunity to improve the key components of the scorecard and take a far greater leadership role to ensure 100% consistency through clear legislation.

We may have a hint of what is to come because a presentation of the new codes has been leaked – however the DTI is quite adamant that that presentation was not the new codes but rather was used for discussion purposes only. They did suggest that the new codes would be published this Friday (17 February 2012). We shall wait and see.

Is there a need for new codes?

No! The single biggest problem has been implementation which has been hampered with differing interpretations and large quantities of unnecessary admin and document gathering. The concept of a substance over form to create a pragmatic verification process has been replaced by agencies terrified of being suspended which is simply passed onto the companies needing a BEE status. Furthermore if documentation is available then it is possible to get a verification completed for any period (right or wrong).

Fronting no doubt was a big driver with the Amendment Act and now the BEE Codes. Fronting though can and should have been stopped sooner by firstly clarifying those areas of misinterpretation and then when it is discovered invalidate the certificate and have a new one issued correctly.

New concepts and ideas. The commentary from the DTI seems to be fairly positive with regards to implementation changes. The core changes being a more equitable breakdown for Management, EE and Skills. Enterprise Development will become more “hands on” requiring greater participation with the ED beneficiary. Although it will be more work to earn ED points the practical repercussions could be quite positive resulting in a long term partnership with all involved becoming  more profitable.

Although some changes might be needed we certainly did not need to wait 5 years for an update, nor did we need a complete re-write. All of the changes could have been phased in slowly, discussed in detail and then published expanding the existing codes a few clauses at a time.

Where to after the codes are published?

Once the codes are gazetted they will be gazetted for a 60 day comment period. Thereafter they will be redrafted and more than likely issued again for comment before finally replacing the existing codes. In the past this process has taken over a year to complete although it is quite possible that the politicians behind the new codes will want it pushed through much faster.

The change to the Codes shows that the DTI and government are still pushing transformation. The B-BBEE scorecard remains the best mechanism so far to achieve those goals. The alternative would be nationalisation.

Once the legislation is gazetted the process of verification will be much the same as it is currently. You will most likely have a year transitional period to use the old codes after the new codes have been gazetted.

EconoBEE remains committed to helping our clients work through Broad-Based Black Economic Empowerment one small step at a time. Once the codes are gazetted we will help you with strategies and then of course implement those strategies. Contact us to help you calculate a preliminary BEE scorecard and assist you with strategies to improve your BEE scorecard – 011 483 1190 or info@econobee.co.za.

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EconoBEE Newsletter
14 February 2012

In this issue

  • New Targets – Clarity?
  • Proposed Changes to the Codes

In other news

About EconoBEE

EconoBEE is an expert BEE consultancy. EconoBEE helps businesses Become BEE Compliant, prepare for verification, earn maximum BEE Points and ensure that they achieve the BEE Level they need to get more business.

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