Lack of consistency and monitoring will destroy B-BBEE

By EconoBEE

We have consistently spoken out against lack of consistency in the B-BBEE industry. The newly gazetted Revised Codes need consistency more than anything else.

A B-BBEE certificate is an important document, and in many cases, large tenders, orders, business will flow depending on the BEE level achieved. The scorecard, and measurement of BEE compliance, is the indicator of BEE level achieved.

When the codes were first published in 2007, the dti stated that verification was encouraged, but not mandatory. The concept of self-rating became popular, but it turned out that many businesses simply inflated their scorecard to meet whatever level they chose. Initially we were in favour of self-rating, or unregulated assessment because it at least encouraged businesses to become compliant and embrace the initial stages of transformation.

It did become obvious that a standard was needed – to ensure that when a company was rated it followed standard methods, procedures, interpretations and calculations. We always found the codes easy to understand. They were not unclear and were fairly easy to interpret by following the key principles of “substance over form” and “any reasonable interpretation consistent with the act and the B-BBEE strategy must take precedence”.

Nevertheless, SANAS was appointed to accredit agencies, and the dti published the “Verification Manual” – a guideline of procedures for verification. In 2010 it became mandatory to use a SANAS accredited agency to produce a valid certificate. Subsequently IRBA has been appointed as a second regulator to approve auditors to perform B-BBEE verification.

Early in the process, it became obvious that each agency, SANAS, ABVA (an organisation representing the interests of verification agencies), the dti, or BEE consultants, each had their own differing interpretations. Initially it was quite easy to discuss specific issues with agencies, and reach a compromise. The dti were under certain circumstances prepared to give a bit of feedback on how they saw the issue.

However, over the past two years, it has become nearly impossible to get feedback from the dti or SANAS. SANAS tends to be a procedure driven organisation and requires verification agencies not to perform accurate verifications, but verifications in-line with their procedures. Quite simply they are more concerned with the placement of the filing cabinet or fire extinguisher or accreditation certificate than the incorrect interpretation or calculation of a scorecard. We once discovered a BEE certificate showing level 5, but when added the points come to a level 4. We asked SANAS to request that the agency re-issue a correct certificate. The agency’s response was their procedures (as approved by SANAS) did not allow them to re-issue a correct certificate because the expiry date on the certificate had passed. SANAS was quite happy with the agency because they had followed procedure. How it affected the company that had been issued with an incorrect certificate, or their clients who had been using a lower recognition level was of no concern to the agency or SANAS.

Our concern is that there are differing interpretations of the codes, and how to earn points. In some cases, the codes are slightly unclear, but in others they are clear – but the agency, or approved auditor simply chooses, via a procedural policy to follow a different interpretation. Two years ago we wrote an article suggesting that a BEE Ombudsman be appointed to decide on interpretations or obtain one from the BEE Council or a court of law, and ensure consistency. The dti did listen and included the concept of a BEE Commissioner in their proposed Bill. However it has not yet been enacted.

The status quo is that verification and resultant BEE certificates are inconsistent. Not by a fraction of a point, but by 20 or more points. Shopping around for a verification agency is a current reality. While inconsistency still exists we will still see companies change agencies to earn more points. This half tongue-in-cheek approach makes us very unhappy. We hope that the BEE Council, the dti minister, the BEE Unit of the dti, SANAS and IRBA take it to heart and react by getting involved in issuing guidelines, interpretations and practice notes.

Our concern is if agencies can issue such diverse scores, the whole purpose of verification is defeated, and since BEE certificates need to be verified, the whole B-BBEE concept will be destroyed.

SANAS agencies jumping ship

Many SANAS accredited agencies are moving to becoming IRBA approved agencies. In the past months agencies such as AQrate, BEE Matrix, BEE Rating Solutions have moved across to IRBA, and can now issue BEE certificates under the IRBA Approved Auditor banner. We wish them well.

A not-so unique way of fronting

Many companies are hooking into what they consider a unique way to front and misrepresent their BEE status.

The BEE codes define an EME (exempt micro enterprise) as one that has an annual turnover of less than R5 million. The codes also state that a start-up must be measured as an EME in the first year following their formation or incorporation.

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