Archive for category Accreditation
Call for changes to BEE certificates
Posted by Keith in Accreditation, BBBEE Knowledge, True Empowerment, Verification on January 6th, 2011
Currently all BEE certificates contain an item called “Date of issue”. This represents the data on which the verification agency issued the certificate. All certificates are valid for a period of one year from date of issue.
The codes talk of a “Measurement period”. This represents the period under measurement. This would be the financial year on which the verification is based. Typically this is used to provide turnover figures. It is also used for procurement, skills development spend, ED and SED spend and net profit after tax.
Verification can take place many months, or even years after the end of the financial year. Most verifications make use of audited financial statements, and producing audited financials can take anywhere between 3 month and more than a year.
Verification can take many months from the initial appointment of the agency, to gathering the information, verification, queries and appeals until the final certificate is issued.
It sounds wrong that a certificate that is based on financials for the year ended 2009 can be issued today (6th January 2011), and it remains valid for the rest of 2011.
On the other hand a certificate issued in March 2010 based on the same financial period is valid from March 2010 until 2010.
Some verification agencies, wrongly, use current information for some of the other indicators including ownership, management and employment equity. One of the key principles of the codes (2.2) is “The basis for measuring B-BBEE initiatives under the codes is the B-BBEE compliance of the measured entity at the time of measurement”. In the case of financials it is the period used for the financial statements. It would not make sense to use disparate measurement periods, like 2009 for financials, but 2010 for ownership.
We would propose that the measurement period and validity date of the certificate be aligned. A new certificate based on two year old data is not an accurate representation of the BEE status of the measured entity, certainly not as it stands today, yet that certificate is regarded as valid because it was issued today and is valid for another year.
One option we have considered is that the certificate validity period be one year after the end of the measurement period: If your year-end is December 2010, then your certificate issued based on that period is valid for a year until 31st December 2011, no matter when the certificate was actually issued. If a measured entity delays getting its financial statements until October 2011, then its certificate will only be valid for 2 months.
This sounds a bit harsh, and it is impossible to obtain audited financial statements on the last day of the financial year. The JSE and SARS gives deadlines as to when financial statements should be issued, and we suggest this be incorporated into certificate validity dates, for example give a leeway of six months. so, if the financial year end is December 2010, then the measured entity would have a gap until June 2011 to get its financial statements and obtan a verified certificate. That certificate would be valid until June 2012. If the entity was only verified in December 2011, then its certificate is also only valid until Jun 2012, and not December 2012.
This will encourage entities to be verified as soon as possible after year-end, and to use current information. It will also ensure that the certificate is a more accurate representation of its BEE status.
It should be noted that audited financial statements are not a pre-requisite for verification. Signed management accounts are also acceptable – though the verification agency will have to perform extra checks to confirm some data. Therefore undue delays in preparing financial statements is not a good excuse for not obtaining an accurate and up to date verification certificate.
Consistency in Verification
Posted by Keith in Accreditation, BBBEE Knowledge, Interpretations on November 22nd, 2010
I think that consistency is one of the most important aspects of verification. The whole aim of verification is to give confidence to any company that their supplier’s scorecard is accurate.
One of the key paragraphs of the Verification Manual is the Purpose of Verification which states:
The overall aim of verifying is to give confidence to all parties that rely on upon the score set out in the verification certificate that the information on which the certificate is based has been tested for validity and accuracy
Verification is intended to reduce the risk of misstatement of individual scorecard elements to an acceptably low level, and to provide an assurance of the integrity of the information on which the Verification is based. An acceptably low level of risk is achieved if a reasonable person with sufficient knowledge of the Codes will be able to arrive at a similar conclusion based on the same set of information.
Unfortunately this is often not the case. Different verification agencies continue to differ by up to 20 points on the companies they verify. Each agency has a different interpretation of the codes – moreover they change their minds each year, and each verification analyst has his/her own interpretation. It is becoming a lottery as to what score any measured entity is going to achieve. The agencies unilaterally ignore directives from the dti, from SANAS, and even their own policies. The peole toblam must be SANAS and the dti. It is SANAS’ job to accredit agencies, and this has to entail giving direction as to how to go about the actual verification. In practice SANAS is more worried about issuing a non-conformance due to a mis-hanging certificate, or unlocked filing cabinet than in assuring consistency in the industry. Even when they are made aware of specific issues and queries, different SANAS analysts have different rules they want verification agencies to follow.
The dti hardly fares better: They do sometimes give interpretations, but don’t care to follow up on queries, probably because they are far too busy.
The third organisation, ABVA does no better. ABVA says they represent most verification agencies and even have a disciplinary process – in theory.
In the past weeks the minister has been complaining about fronting taking place in the industry. He is right to complain, but his own department is slow to react. One of the key fronting indicators occurs when different agencies award vastly different points. In the past weeks we have come across agencies that use the wrong scorecard or charter to verify. Not only is this inconsistent but is contributing to fronting. We have seen verification agencies award EME certificates to companies that have turnovers far exceeding R5 million.
In all cases, it guarantees that other agencies will NOT come to the same conclusion based on the same data. It guarantees that no one can have confidence in any certificate.
The whole aim of verification was to achieve consistency. It has not worked out this way.
Suspect scorecards
Posted by Keith in Accreditation, BBBEE Knowledge, True Empowerment on October 20th, 2010
We are seeing more and more queries of scorecards. Not because there is necessarily fronting but because more people are checking the scorecards.
We have been at the forefront of checking scorecards: we have discovered fronting and reported it. We have discovered mistakes, and asked the agency to correct it. We have raised queries that we satisfactorily resolved. We continue to try to check every scorecard received: We look at the entity – it is an EME, QSE or generic. Does it belong to a sector code and is it done correctly.
In the news lately has been the Kelly Group (www.kelly.co.za). Reports were that they changed/manipulated their employment equity credentials. Latest reports (http://www.fin24.com/Companies/Kelly-denies-fudging-BEE-status-20101019) are that they deny the charges.
This is the Kelly Certificate Expiry 19 May 2011-1 that was produced for them. On face value there is nothing wrong, other than it is surprising to see each element with a completely round number. We usually see ownership, employment equity and skills development calculated to two decimal places and in this case they earned 18, 10 and 12 points respectively for those elements. (They earned full points for procurement, otherwise we would have expected to see decimals as well).
We have asked them for their full report.
On a personal level, we sincerely hope that there is nothing to back up the allegations and we currently have no reason to believe that Kelly’s certificate is invalid. What we are pleased about is that people are checking certificates. This self-monitoring mechanism is what we always had in mind when we stated that the dti does not absolutely need another law to criminalise fronting. We stated that fronting IS fraud, and that it is not the customer or verification agency that will always catch fronting, but the opposition, or other involved people. Obviously the BEE consultant and then the verification agency is the first step to stopping fronting, or misrepresentation or even mistakes. Thereafter the media and other people will question the company’s credentials.
When someone talks of B-BEE, there is a distinct trend to looking at the scorecard or certificate. This is good news.
Make sure your prospective BEE Ownership Partner has a BEE certificate.
Posted by Keith in Accreditation, Fronting, Ownership, Scorecard points, True Empowerment on October 6th, 2010
We come across hundreds of black owned companies, all hoping to invest in your business. They tout themselves as being the ideal BEE partner. We have seen hundreds of deals, and companies advertising their new BEE partner. Our usual approach is to calculate the points they will earn as a result of the deal.
In addition we also look to see if this ideal BEE partner themselves have a BEE certificate, and invariable they do not. As far as I am concerned a company that sets itself out to be a BEE Partner, should also make the effort to obtain their own BEE certificate. Unfortunately this seldom happens. We could name hundreds of companies that think they are an ideal BEE partner, because they are majority black owned, but if they don’t bother to get their own BEE certificate, I have to suspect that they are not genuine about transformation and B-BBEE. If they were genuine surely they would want the whole world to know what their own BEE credentials are. In many cases they have not even bothered to do a self-assessment.
Often the company web site talks about empowerment, but seldom do they put their own BEE Certificate on the site, yet they use their “empowerment” credentials to get business, and to make deals.
If you do not have a BEE certificate showing at least level 4, you do NOT have good empowerment credentials.
Try the following exercise: Google “Black owned investment company”, and then look at each of their web sites, and see how many businesses are hoping to be BEE partners, but have no BEE certificate on their site.
List of verification agencies with pre-assessment letters
Posted by Keith in Accreditation on September 1st, 2010
The dti has released its latest schedule of verification agencies with Pre-assessment letters. Only Sanas accredited agencies or those with valid pre-assessment letters are allowed to issue valid B-BBEE certificates for QSEs and generic entities.
Please do not use any other organization for verification. We, of course, only do consulting, and are not a verification agency. If you need help in preparing for verification, call EconoBEE.
It is interesting to note how many agencies did not receive their accreditation in time.
27th January 2010 and Fronting
Posted by Keith in Accreditation, BBBEE Knowledge, Fronting, Verification on August 16th, 2010
1st February was a landmark day in the history of B-BBEE in South Africa. It was from that date onwards that only certificates issued by accredited verification agencies, or those in possession of a valid pre-assessment letter, would be valid.
Prior to that date other certificates, even if issued by a non-accredited agency or self ratings or BEE consultant swould be acceptable.
It is therefore quite interesting to see how many certificates were produced by consultants in the final three days before the deadline. We have seen more certificates dated 27th,28th,29th January than any other date! (30th January was a Saturday explaining why the 27th and 28th January were such popular dates). When I see a certificate dated 27th or 28th January, I examine it in a little more detail. This is not to say it should be rejected, but I am sceptical over the volume of certificates produced over that time. I look especially for certificates that do not use decimals in their calculations, or those where all the points have been earned for any one element. The mix of how points were earned is another indicator of fronting. For example if a company has earned all 23 points on ownership, but gets less than 2 points for management control, there is sufficient reason to want to double check the data. The codes do say that the measured entity must hold suitable evidence or documentation to prove their score. If they do not have the proof, then the entire scorecard must be rejected.
We do have a letter from the dti confirming that certificates produced prior to 1st February 2010 remain valid. If your verification agency does not accept certificates produced by non-accredited agencies prior to 1st February 2010, email us and request a copy of that letter.
Fronting is misrepresentation of one’s BEE position and is considered fraud. We have come across an interesting situation recently. In this case, they did not choose the 27th January date for their BEE Certificate, but used 30th November 2010 as the date on their certificate! Back-dating a scorecard is one thing, but forward-dating it is a recipe for getting caught out! A bit more research showed that they used the identical certificate last year with a date of 30th November 2009l. The certificate purported to be from EMEX (a very reputable verification agency), and was obviously forged. Investigations are continuing, and it is currently impossible to state who is at fault here, but there is no doubt that this certificate is not valid, and does not give the true BEE situation of the company.
Valid certificates – 2
Posted by Keith in Accreditation, Interpretations, Verification on August 13th, 2010
The scenario: An agency has applied to SANAS but not yet received it pre-assessment letter. The agency produced a certificate for their client on 1st June 2010.
Is it valid?
Points to consider:
1) The minister’s notices states that a valid certificate is one that is produced by an accredited agency or one that has a valid pre-assessment letter. The term “valid pre-assessment letter” is crucial. SANAS performs a pre-assessment visit to the agency and if it achieves minimum standards with its management system, SANAS will issue a pre-assessment letter. A pre-assessment letter is not the same letter that SANAS may send as an acknowledgment or acceptance that the agency has applied to be a verification agency.
2) The agency began its work with its client before its pre-asessment letter was issued, and to date, August has still not received its pre-assessment letter. It may have had reason to believe that it would receive its pre-assessment letter during the verification process.
Is the certificate they issued valid? Following the strict guidelines of the minister’s notice the answer is NO. At the exact date if issue of the certificate, it had no valid pre-assessment letter.
If the agency obtains its pre-assessment letter later this year, the inclination is to accept the certificate because the agency has subsequently received its pre-assessment letter. However all pre-assessment letters carry an inception or start date as well as an expiry date. Had there been a gap of a couple of days before receiving its pre-assessment letter, we could have believed in the interests of substance of form that the certificate is valid.
Conclusion: In our opinion the certificate is not valid.
Valid certificates – 1
Posted by Keith in Accreditation, Interpretations, Verification on August 13th, 2010
The scenario: An agency has applied to SANAS and received its pre-assessment letter. The letter expired in June 2010. The agency produced a certificate for their client in July 2010, after the certificate has expired.
Is it valid?
Points to consider:
1) The minister’s notices states that a valid certificate is one that is produced by an accredited agency or one that has a valid pre-assessment letter. The term “valid pre-assessment letter” is crucial. SANAS issues pre-assessment letters that all carry an expiry date. In the case of the above scenario the agency’s pre-assessment letter had expired.
2) The agency began its work with its client while its pre-assessment letter was valid. The work took longer than expected and they could only sign the certificate after their letter expired.
3) The agency had good reason to believe that it would receive full accreditation around about the same time that its pre-assessment letter expired.
Is the certificate they issued valid? Following the strict guidelines of the minister’s notice the answer is NO. At the exact date if issue of the certificate, it was not accredited and had no valid pre-assessment letter. If the agency obtains its accredited later this year, the inclination is to accept the certificate because the agency has subsequently become accredited. This would be similar to a person who decides to operate on a patient, and later on become a surgeon. It did not give him the right to operate at the time. Similarly driving a vehicle without a license because in the future you will get the license will still earn a fine.
Even if the final accreditation is a formality, as the agency believes, that fact is as at today the agency has not been accredited – 3 months after signing the certificate.
SANAS has a rule that they do not reissue pre-assessment certificates, unlike licensing authorities that allow one to take a learners license multiple times. If this is blatantly unfair, then it is a matter for the agency and SANAS, and still does not give anyone the right to issue valid certificates.
Conclusion: In our opinion the certificate is not valid.
Scorecard vs Verified certificate
Posted by Keith in Accreditation, BBBEE Knowledge, Verification on July 9th, 2010
This is one of the most confusing aspects of BEE.
What is the difference between a scorecard and a BEE certificate”? A BEE scorecard is a calculation of how many points you have earned. A verified certificate is confirmation that the points you have earned have been verified.
Your customer wants a verified BEE s certificate from you.
How does one go about getting the verified certificate?
In summary
1) Obtain a BEE scorecard reflecting points earned
2) Call in a verification agency to verify that the points you have earned are correctly stated and accurately calculated.
In detail:
1) Obtain a BEE scorecard reflecting points earned.
This is where we come in as a BEE consultant. We help you to build up that scorecard – we don’t “give” you points. We know what is able to earn points, and based no the data we are able to collect from you, we will assist you in calculating your scorecard. We also will assist in desiging strategies to be able to earn more points in the future. The process of building up your scorecard is not an instant fix. It can take months, or even years to be able to build up a really good scorecard
2) Call in a verification agency to verify that the points you have earned are correctly stated and accurately calculated.
Once you have a scorecard, and are satisfied with the estimate of points earned, you can call in a verification agency to verify the accuracy of the data. If you have used our services we can be 100% certain that the points we have calculated will be accurate and will be verified by the agency. The process of verification involved collection and supply to the verification agency all the data that will be used as evidence to substantiate the scorecard obtained. This can take as little as a week – if you have the documentation available. The actual verification takes about a day – depending on the size of your company and the volume of data to be verified. Thereafter the verification agency will issue a certificate showing the score and level achieved. This certificate is valid for a year from date of issue.
Next year the process should be repeated, but as with everything new it will be easier the second time around.
B-BBEE Verification Capacity is still lacking
Posted by Keith in Accreditation, Verification on July 7th, 2010
A client has asked for verification. The earliest their appointed SANAS accredited verification agency can perform the verification is 18th August – 6 weeks from now. Let it be said that the chosen verification agency is a well known and very competent agency, but there is obviously a lack of capacity in the industry.
So far, SANAS has accredited 40 agencies. We believe that for BEE to succeed there should be as many agencies as there are accountants or auditors – running into the thousands.
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