Submission to the dti regarding the Measurement Period and Shorter Payment

I refer to the minister’s notice, 922 of 7th November.
This email only refers to the measurement period and measurement date. We will supply comments on shorter payment periods at a later date.

“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 measurement 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 an entity’s financial year end was 29th February 2012, and it appointed a verification agency on 12th August 2012, then the gazette states that the measurement period is 13th August 2011 to 12th August 2012.

We need to ask the question: Is this measurement period 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 their 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 verification actually starts. The agency may not even be in existence 12 months hence. The date of the verification appointment serves little purpose, other than to guide the agency as to the volume work they may need to do, and the sector code on which verification will be based.

Measurement date should simply refer to the last day of 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.

We also suggest that verification itself should not take place more than a year after the entity’s financial year end. We have seen situations where the entity was verified in June 2012 based on financials issued for January to December 2010. A year is more than sufficient time to produce management accounts, or audited financials.

If you need any more information or assistance, please call me.


Regards
Keith Levenstein

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