The BEE compliance process

The BEE compliance process
By Cornilius Parwaringira

Published by BBQ Scorecard issue 7 (first quarter 2009)

 

Many companies still harbour the perception that becoming B-BBEE compliant is something that they can achieve in a day or hours. The present definition of compliance has also been negatively affected by the misdirected overemphasis placed on Ownership as the soul of B-BBEE. This despite B-BBEE having been transformed into broad based (including five more elements on top of the traditional ownership and management elements). A lot of misconceptions have arisen from the belief that for a company to be labeled B-BBEE compliant it has to be Black owned. The dti codes of good practice talk of B-BBEE controlled and owned companies but this does not mean such a company is automatically B-BBEE compliant. Compliance, not control or ownership is the most important thing for any company to be thinking about. This article seeks to clarify the compliance phenomenon through looking at it as a multi-staged process

The first recommendable step towards working on a scorecard that will lead to a company being labeled compliant is knowledge acquisition. There is great need to get education on B-BBEE in general, that is, its origin; the status quo; challenges in the implementation process; the way the scorecard works; goals, among other issues. Working on the scorecard without such knowledge can be a waste of time and resources. This is because of the obvious reason that not every company needs a scorecard. Another reason is that the resultant certificate may not be a product that answers the real needs of the company

Without proper knowledge of B-BBEE, achieving the best score normally takes longer. A company should send the person or employees in charge of B-BBEE issues for training. Training will provide insight that will make working through the compliance journey easier and more meaningful. A B-BBEE workshop is an example of training that a company can opt for. They may even choose not to go with the process and save a lot of company funds if they realize that after all they do not need to work on the scorecard, which is seldom the case however

After attending a training course on B-BBEE one should read through the DTI codes of good practice published on 9 February 2007. The advantage of reading through the codes is that they offer more detail on the information gathered from the training course. Training offers clarity on legal terms used in the codes. The workshops are more pragmatic in that one gets to apply situations in their own organization to the discussions. Reading through the codes after attending a training course makes one understand them better

With the necessary knowledge on B-BBEE at hand it is worthwhile making an analysis. This involves looking at where BEE is likely to affect the company. As previously mentioned, not all companies may have the necessity to become compliant. For example, companies with an annual turnover of below R5million are exempted from B-BBEE. What they need is a statement or letter signed by the owner and their accountant to the effect that they are exempt and are allocated a free score of 65 to 75 points, being level 4 B-BBEE contributor

Some companies need the scorecard more than others. If the company’s customers have been requesting a score then they definitely need to work on the scorecard before losing business to competitors. The type of service/product the company produces also dictates to some degree how much they need a scorecard. For example, a product or service demanded by a wide range of business customers might mean a high degree of necessity for a scorecard. This is because the probability of one of the customers demanding the company’s B-BBEE score is high. Smaller retailers have limited, if any, need for a scorecard because of the nature of their market. They sell to individuals who do not need their B-BBEE score. Some companies will have a scorecard in place for future purposes or because their competitors have them, even though they have never been asked for one by their own customers. Still others will have a scorecard based on moral grounds. Nevertheless, if the company will be dealing with any organ of the state then the scorecard is a necessity. Arranging for consultation sessions with B-BBEE experts to analyze areas where B-BBEE affects the company can be the best solution

Once the necessity for a scorecard has been established, it is essential for the company to take a close look at the elements with the aim of determining where high points can be scored. This is especially vital for QSEs (Qualifying Small Enterprises), which should select only four out of a total of seven elements. There is always a possibility that a company, because of the nature of its business, may have difficulty in scoring points on certain elements. The company should aim towards maximizing on those elements that it can score high points before working to improve on the more difficult ones, once the score is within the compliant ranges. By analyzing each of the elements one will be able to assess the approximate number of points they can achieve

Once all the areas where points can be scored are established, the next task is the collection of documentation around those areas. For example, under Employment Equity, one can collect identity documents and proof of employees’ positions in the organization. It is important to capture such documentation in a good system that is secure and easy to locate when proof is required. Other documents that may be collected include receipts and letters that confirm B-BBEE initiatives. Comments can be written around the documents thus collected. Without the relevant documentation, all points will be lost

When all the documentation is in place one can consider making a rough calculation of the points achieved so far. Based upon the gathered documents, a draft scorecard can be produced. A good piece of software can allow one to come up with the first draft of the scorecard easily and faster as long as all the documents are in place. A good example is the EconoBEE scorecard software. With this software all the details from the documents can be captured. The captured information can always be changed at any time if there is a new initiative relating to any indicator. The draft should be based on all the seven elements even if the company is a QSE. The QSE scorecard report from the draft will ultimately choose the best four elements. The captured documents serve as the proof of the company’s BEE status

After compilation of the first scorecard draft a report should be written on the scorecard. The report will be describing the company’s BEE status. The company’s BEE policies should be written based on the outcome of the draft scorecard. Such policies guide the company’s approach towards future BEE initiatives. Mapping out strategies helps the company to manage the progress on the scorecard points better. It also allows for faster improvement on the scorecard points because budgets for BEE initiatives will be in place in the right amounts. Help on drafting BEE policies and strategies can be sourced through consultation sessions with experts

Producing a good scorecard is not a one-day process. It is neither something that you work on in a week and forget about. Effort should always be made towards getting a scorecard with good points. The company needs to observe their score on a more frequent basis so that there is a good improvement at each rating stage. New initiatives should be undertaken to improve on the scorecard points. The aim should be getting to the highest BEE contribution level or to have a score that is higher than any of the competitors. Without effort the score will drop or stay the same. An efficient system of tracking records of BEE initiatives and updating the scorecard will make the task of observing the score much easier and economical. EconoBEE have such a system in place

When effort has been placed on maximizing the points on the scorecard a self-assessment can be undertaken. The outcome will be a self-assessed scorecard. The auditor of the company, confirming that all the initiatives making up the total score are based upon acceptable proof, should sign this initial scorecard. It can then be put on a company letterhead together with company details

It is normally the case at this stage that there will not be satisfactory points on the scorecard. Elements with low points should be revisited with the aim of improving on them. More focus should be directed on these elements. The cheapest ways of scoring points should always be exploited first so that working on the scorecard does not end up becoming a burden to the company

The last step, although it is not mandatory, is to look for an independent verification agency to produce a rating certificate. They will audit the scorecard based on the evidence a company gives to them. It should be noted that verification agencies are not supposed to carry out the consultation process just as consultancies are not supposed to produce a rating certificate

=========

Cornilius Parwaringira is an expert BEE consultant at EconoBEE. EconoBEE assists organisations understand the impact of BEE compliance on their business and implement BEE in the most effective manner. Contact them on 0861 11 3094 or visit their website www.econobee.co.za to get more information.

 

You may also like...