Who stands to score?

Published by Mail and Guardian

Written by Barrie Terblanche

BEE verification agencies seem to be gaining the upper hand in the long-raging and confusing debate over whether to allow self-assessment by businesses of their own BEE scores. According to a trade and industry department guideline, issued in October, self-assessed scorecards will not be recognised. “A self-assessed scoring system does not represent sufficient proof of a supplier’s [broad-based] BEE status,” it reads, stating clearly that any money spent on a self-assessed supplier will not be regarded as BEE procurement spend. However, department BEE official Takalani Tambane told the Mail & Guardian that a self-assessed score will be recognised if it is supported by evidence. 

A verification agency studying the supply chain of a company will have to find supporting evidence to back up the self-assessed scorecards of the company’s suppliers. Asked if this means a verification agency will have to audit the entire supply chain of a company, Tambane said the guideline makes provision for sampling a company’s suppliers. If this is indeed the final position of the department on self­assessment, the verification agencies seem to have won. Having to audit supply chains, even if by sampling, will push up the cost of verification. It will be cheaper for companies to insist their suppliers get official BEE verification — at the suppliers’ cost — rather than carrying the cost of an extra audit of their supply chain because of the presence of self-assessed scorecards. In another recent development, the Competition Commission dismissed a complaint that the Association of BEE Verification Agencies (Abva) is creating a lucrative closed shop for its members by not recognising self-assessed BEE scores. In its dismissal of BEE consultant Keith Levenstein’s complaint the Competition Commission seemed to buy a long-standing argument of the verification agencies, which opponents describe as disingenuous. Of course anyone can do self-­assessment — it just won’t count. In a letter to Levenstein commission officer Mluleki Matomane says “the decision whether to accept or reject [self-assessed] scorecards …rests with the procurer of the goods/services”. But, if the current department guideline holds sway, it will be meaningless for a “procurer of goods” to accept self-assessed scorecards. In the past leading department officials, most notably former deputy director general Lionel October, repeatedly stated that self-­assessment would be recognised so as to keep the cost of BEE compliance for businesses to a minimum. But pitted against October were officials arguing that self-assessment would lead to massive fronting, threatening the success of South Africa’s BEE experiment. October has since moved from his post as deputy director general in charge of BEE to an overseas trade mission. The latest guideline does, however, seem to incorporate at least some concession to the self-assessment camp. Businesses that do less than R5-million a year — and as such are exempt from BEE scoring — can simply confirm their turnover with a letter from their accounting officer. The business does not have to be checked out by a verification agency. Verification agencies were strongly opposed to setting the BEE exemption bar as high as R5-million turnover a year. When they lost that battle, they argued that a business must at least get a verification agency to confirm that its turnover is below R5-million — at R1 500 a shot. According to the latest department guidelines, they seem to have lost that battle as well, but won perhaps the most lucrative one — no self-assessment for businesses doing more than R5-million a year. Although the debate is conducted in terms of moral positions — minimising red tape for businesses on the one hand and curbing fronting on the other — what is really at stake is an extremely lucrative new BEE verification and consulting industry. The codes say a BEE scorecard must be drawn up annually to be valid. Verification costs depend on the size of a business, but start from at least R4 500 a year. If there are about 100 000 businesses in South Africa that do more than R5-million a year, verification agencies stand to gain from a potential pie of at least R450-million a year. If self-assessment were allowed, the pie would shrink considerably. Some in the self-assessment camp also seem to have more than just a moral argument. For example, Levenstein, who made the complaint against Abva at the Competition Commission, sells a computer programme that helps businesses to draw up their own BEE score. He argues that obligatory verification will increase the cost of doing business and inculcate an attitude of box-ticking by bean counters rather than a true understanding of BEE. But he admits sales of his software are likely to dip if self-assessment is no longer allowed, even though businesses can use it to prepare for verification.

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