Overlapping Rating Periods – Right or Wrong – EconoBEE Newsletter – 1 October 2015
Overlapping Rating Periods – Right or Wrong
BBBEE Compliance is a complex set of rules and regulations. Coupled with differing interpretations and confusion from DTI, Verification agencies, Consultants and companies themselves, it is sometimes quite daunting.
Unfortunately we once again have a rather important issue to debate because of interpretations relating to the date of a certificate and the rating period used.
The rating period used by the verification agency to base their decision when issuing a certificate is typically the financial year. However, under certain circumstances companies will use a different rating period because they have implemented additional activities which earns them additional points. SANAS and IRBA have mechanisms in place to ensure the new rating period (which includes financial information) is consistent with recent audited data and can therefore be relied upon.
The majority of good companies who prepared themselves well for the transition of the Amended Codes managed to get a certificate immediately prior to the planned implementation date of May 2015. This meant that every agency was extremely busy between January 2015 and April 2015 issuing certificates (but not very busy between May and current because all their good clients already had a new certificate issued).
Why did companies do this? In July 2014 the DTI published a notice stating;
The effective date of the amended Codes of Good Practice will be the 1 st May 2015. A B-BBEE Certificate issued prior to the 1 May 2015, will be valid for a period of 12 months from date of issue.
Measured entities whose measurement is post 30 April 2015 the amended Codes of Good Practice will be applicable, and all certificate issued post this date onwards must be based on theamended Codes. The implication of the above statement is that if your certificate was issued after May 2015 than it would be measured on the Amended Codes. All good companies who were well prepared and aware of the amended codes requirements appointed, went through an audit and had a certificate issued before May 2015. Companies who were not prepared, or not aware of the implications of the DTI’s announcement in July 2014 decided not to appoint an agency and did not have a new certificate issued.
Good companies had a certificate issued – they should have had an advantage over their competitors. However on the 5th of May 2015 – nearly a year after the first notice and days after the initial deadline of 1st May 2015 – and days after companies certificates were already issued, the DTI published a new notice which stated;
Confirm that the Amended Codes of Good Practice, gazette No 36928 will come into effect on the 1st May 2015.
Clarify that all B-BBEE verifications conducted using the financial year ending before 30 April 2015 can be verified using the old Codes of Good Practice, gazette No 29617 and all B-BBEE verifications conducted using the financial year ending after the 1st May 2015 must be verified using the Amended Codes of Good Practice, with the exception of the Sector Codes.
As another example of an unintended consequence, the good companies who were aware of and planned for the amended codes were suddenly trailing their competitors. In the most simplistic terms, when companies made a decision to get verified in April 2015 they were also making a decision to potentially cut short their previous rating validity by a number of months. They were aware that the amended codes needed more time to be implemented and wanted to get the maximum amount of time availableto implement them. However, in one notification, all that had happened is that companies had a new certificate issued months earlier than necessary. Their certificate could have still been valid if it was issued when the previous one would normally have expired. The only way to have anticipated this change would have been to not plan or not be prepared because the announcement came after the effective deadline of 1 May 2015.
The Rating Period is now causing companies to ask some rather difficult questions of their verification agency. The core of the question “If I were rated on March 2014 to Feb 2015 financials and that certificate was issued in April 2015 can I get rated again on May 2014 to April 2015 financials and have the certificate issued and valid for another year (thus recovering my initial plan to be prepared for the amended codes ahead of my competitors)“
Agencies say no – it is not logical nor inline with the spirit of the legislation to allow a double verification on substantially the same data. One agency has even gone as far as to say that if you get verified on an overlapping period then they will exclude previously verified data. Although EconoBEE agrees that it is potentially a fronting indicator to be re–verified over substantially the same rating period,we also need to acknowledge the circumstances which led to this question being asked.
Many companies who for example would normally be verified in October based on a February year end were now verified in April – just 2 months after their year end. They planned months in advance to make sure they would be able to get verified quickly – without issues and still have a successful score. Their planning also extended to the amended codes.
However a competitor who didn’t plan is still going to get a verification in October. Fast forward to April 2016. The good company who had planned for the amended codes now needs to go through another verification. Their score will drop because the amended codes are much harder. Their competitor who didn’t plan will still have a valid potentially higher score for another 6 months.
It is patently unfair to the companies who were better prepared. The future unintended consequence is that they may/will become dejected and frustrated at having their hard work and preparation wiped away by a notice issued retrospectively for the benefit of the companies that hadn’t prepared themselves very well.
The substance of BBBEE is not to punish those who want to implement BEE well. However, it certainly feels like the companies who did it right early are now being punished by retrospective legislation.
In conclusion, we need to find a solution – if one even exists – that fairly allocates points to good businesses without breaching fronting guidelines. Perhaps a re-verification is a viable solution, or that the agencies re-issue the existing certificate to extend the validity date to be in-line with their previous expiry period. Maybe this option should only be available for companies that shortened their verification certificate period because of the DTI’s July 2014 notice.
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